<PAGE>
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, DC 20549
FORM 10-K
Annual Report Pursuant to Section 13 or 15(d)
of the Securities Exchange Act of 1934
For the Fiscal Year Ended January 30, 1999
Commission File Number 333-26999
ANVIL HOLDINGS, INC.
(Exact name of registrant as specified in its charter)
DELAWARE 13-3801705
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
228 EAST 45TH STREET
NEW YORK, NEW YORK 10017
(address of principal (Zip Code)
executive office)
Registrant's telephone number (212) 476-0300
(including area code)
SECURITIES REGISTERED PURSUANT TO SECTION 12(B) OR 12(G) OF THE ACT:
None
Indicate by check mark whether the registrant:(1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months (or for such shorter period that the registrant was
required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days. [X]
Indicate by check mark if disclosure of delinquent filers pursuant to Item 405
of Regulation S-K is not contained herein, and will not be contained, to the
best of the registrant's knowledge, in definitive proxy or information
statements incorporated by reference in Part III of this Form 10-K or any
amendment to this Form 10-K [X]
The Company is not required to make filings under Section 16 of the Exchange Act
because it has no registered securities under Section 12 of the Securities
Exchange Act of 1934.
At April 15, 1999 there were 390,000 shares of the registrant's Class B Common
Stock, $0.01 per share par value (the "Class B Common") held by non-affiliates.
At such date, there was no established trading market for these shares. At April
16, 1999, there were 290,000 shares of the registrant's Class A Common Stock,
$0.01 per share par value (the "Class A Common") and 3,590,000 shares of Class B
Common outstanding.
DOCUMENTS INCORPORATED BY REFERENCE:
Those portions of the Information Statement for the Company's 1999 Annual
Meeting of Stockholders (the "Information Statement") are incorporated
herein by reference in Part III, Items 10, 11, 12 and 13.
<PAGE>
PART I
ITEM 1. BUSINESS
CORPORATE STRUCTURE AND RECENT ACQUISITIONS
On January 28, 1995, Anvil Holdings, Inc., a Delaware corporation ("Holdings"),
and its wholly-owned subsidiary, Anvil Knitwear, Inc., a Delaware corporation
("Anvil"), acquired the assets and assumed certain liabilities of the Anvil
Knitwear division (the "Predecessor") from McGregor Corporation ("McGregor")
(the "Acquisition").
On January 31, 1997, Anvil completed the acquisition of the assets of a marketer
and distributor of activewear products which, prior to the acquisition, supplied
finished activewear products to Anvil for redistribution by Anvil as well as
supplying directly into the retail market. This business operates through a
newly-formed Delaware corporation, Cottontops, Inc. ("Cottontops").
As used herein, the "Company" refers to Holdings, including, in some instances,
its subsidiaries, as appropriate to the context.
On March 14, 1997, the Company, Anvil VT, Inc., Vestar Equity Partners, L.P.,
399 Venture Partners, Inc. and certain of its employees and affiliates
(collectively, "399 Venture"), certain management investors (the "Management
Investors") and other existing shareholders of the Company (collectively, the
"Existing Shareholders") and Bruckmann, Rosser, Sherrill & Co., L.P. and certain
of its employees and affiliates (collectively, "BRS") completed a reorganization
(the "Recapitalization") pursuant to which: (i) the Company redeemed or
repurchased a substantial portion of its outstanding shares of capital stock
("Old Common Stock" and "Old Preferred Stock"); (ii) BRS contributed $13,063,000
for the purchase of new common stock; (iii) 399 Venture and the Management
Investors reinvested a portion of their shares of Old Common Stock of the
Company, which were converted into shares of newly issued common stock, and (iv)
399 Venture exchanged a portion of its Old Preferred Stock for 3,333 shares of
Senior Exchangeable Preferred Stock and new common stock.
Concurrently with the Recapitalization, the Company sold 30,000 Units consisting
of (i) $30,000,000, 13% Senior Exchangeable Preferred Stock due 2009 and (ii)
390,000 shares of Class B common stock (the "Units Offering"). Additionally, on
March 14, 1997, Anvil sold $130,000,000 of 10-7/8% Senior Notes due 2007
("Senior Notes") in connection with the Recapitalization and repaid its
borrowings under an existing credit agreement (the "Old Credit Agreement") and
entered into an Amended and Restated Credit Agreement (the "Credit Agreement")
The Credit Agreement was replaced in March 1999 (See Note 8 to Financial
Statements).
The Company's fiscal year ends on the Saturday closest to January 31.
Accordingly, when referring to the Company's fiscal years in this report,
"fiscal 1998" refers to the year ended January 30, 1999, "fiscal 1997" refers to
the year ended January 31, 1998, etc.
GENERAL
The Company is a leading designer, manufacturer and marketer of high quality
activewear for sale principally into the "imprinted" or "decorated" segment of
the U.S. apparel industry. The Company offers an extensive line of activewear
products designed for men, women and
1
<PAGE>
children, including short and long sleeve T-shirts, classic button and collar
knit sport shirts (known as "plackets"), collarless short and long sleeve knit
shirts (known as "henleys"), fleeced sweatshirts, athletic shorts and caps. The
Company reports its operations in one segment, as defined in Statement of
Accounting Standards No. 131, "Disclosures About Segments of an Enterprise and
Related Information. The Company markets and sells its products primarily to
distributors and screen printers under the ANVIL, COTTON DELUXE and COTTON
DELUXE CASUALS brand names as well as under private labels. Prior to their
ultimate resale to the consumer, the Company's products typically are printed or
embroidered with logos, designs or characters. The Company believes that its
operating performance is favorably affected by: (i) its broad range of high
quality products; (ii) its strong relationships with customers and suppliers;
(iii) its flexible, vertically integrated manufacturing operations; (iv) its
commitment to controlling costs and improving manufacturing processes; and (v)
the continuing growth of the activewear market."
The Company offers high quality activewear in a variety of styles, colors,
fabric weights and blends, enabling it to serve a number of market niches
effectively as well as to serve the traditional T-shirt market segment. The
Company works closely with its distributor and screen printer customers to meet
their needs for style and color innovation. The Company continues to compete
successfully by: (i) targeting niche products on which larger competitors have
not traditionally focused; (ii) responding quickly to market developments; and
(iii) regularly introducing new products. In addition, the Company continues to
make significant investments to modernize and expand its manufacturing and
distribution facilities in order to improve quality, reduce costs, manage
inventories and shorten textile production cycles. To further reduce costs, the
Company has been moving a substantial portion of its sewing operations offshore.
BUSINESS STRATEGY
The Company's objective is to continue to increase net sales and improve results
of operations by implementing the following key elements of its business
strategy:
OFFER A BROAD RANGE OF HIGH QUALITY PRODUCTS. The Company offers high quality
activewear in a wide variety of styles, colors, fabric weights and blends,
enabling it to serve a number of market niches effectively. The Company
continues to strengthen its position in the activewear market by successfully
introducing higher priced products to supplement its traditional T-shirt
business. In addition, the Company expects to continue to expand its product
offerings under its ANVIL, COTTON DELUXE and COTTON DELUXE CASUALS brands,
capitalizing on the growth in the higher priced branded products segment of the
activewear market.
ENHANCE AND EXPAND CUSTOMER RELATIONSHIPS. The Company continually seeks to
strengthen and expand its customer relationships by promoting the Company's: (i)
broad product offerings; (ii) ability to design customized products; (iii)
quick, reliable delivery; and (iv) ability to accommodate modifications to
customer orders. The Company's direct salesforce focuses on developing strong
relationships with distributors, who have accounted for an increasing percentage
of the Company's activewear sales in recent years. In fiscal 1998, sales to
distributors accounted for approximately 78% of the Company's net sales. In the
Company's experience, distributors typically place larger purchase orders,
purchase a broader product mix, maintain higher inventory levels and develop
more predictable order and re-
2
<PAGE>
order patterns than certain of its other customers. The Company estimates that
distributors resell products to more than 20,000 smaller screen printers,
embroiderers and other customers. The Company's expanded product offerings have
enabled it to more effectively service distributors and satisfy the disparate
preferences of consumers.
MAINTAIN FLEXIBLE, VERTICALLY INTEGRATED MANUFACTURING OPERATIONS. The Company
is a vertically integrated manufacturer (i.e., performing substantially all of
the manufacturing processes required to produce its products) which knits
(exclusively from purchased yarn), bleaches, dyes, finishes, cuts and sews its
activewear products at its manufacturing facilities. The Company believes that
being vertically integrated allows it to maintain a competitive cost structure,
minimize delivery time and provide consistent, high quality products. The
Company's manufacturing flexibility enables it to efficiently complete smaller
volume production runs, respond quickly to customer needs and accommodate last
minute modifications to customer orders. Management of the Company believes that
the foregoing factors have enabled it to turn its finished goods inventory more
frequently than is typical for its industry segment.
CONTINUE TO CONTROL COSTS AND IMPROVE MANUFACTURING. From fiscal 1994 through
fiscal 1998, the Company invested approximately $32 million to modernize and
expand its manufacturing and distribution facilities in order to improve
quality, reduce costs, manage inventories and shorten textile production cycles.
The Company believes it can continue to improve its operating results by: (i)
increasing the use of offshore sewing operations; (ii) utilizing its centralized
distribution facility to deliver its products in a more cost efficient manner;
and (iii) opportunistically redesigning textile manufacturing processes to
shorten production cycles and improve inventory management.
CAPITALIZE ON THE GROWTH OF THE ACTIVEWEAR MARKET. The Company believes that
sales of activewear products have been driven primarily by: (i) the increased
consumer preference for comfortable apparel selections; (ii) more flexible dress
codes, including the greater acceptance of casual wear in the workplace; and
(iii) the heightened emphasis on physical fitness.
In addition, the Company continues to actively seek, identify and develop growth
opportunities in several international markets.
PRODUCTS
The Company's activewear products, which are designed for men, women and
children, include short and long sleeve T-shirts, tank tops, classic button and
collar knit sport shirts (known as "plackets") and collarless short and long
sleeve knit shirts (known as "henleys") as well as a variety of other niche
activewear products, such as fleeced sweatshirts, athletic shorts and caps. This
broad array of casual knitwear and athletic wear is marketed and sold by the
Company under its ANVIL, COTTON DELUXE and COTTON DELUXE CASUALS brand names as
well as under private labels. The Company manufactures its products in a variety
of fabrics and fabric blends. Prior to their ultimate resale to the consumer,
the Company's products typically are imprinted or embroidered with logos,
designs or characters.
BASIC AND SPECIALTY T-SHIRTS. Basic and specialty T-shirts are the Company's
principal products. The basic T-shirt was the first product introduced by the
Company in the early
3
<PAGE>
1970s. In addition to basic T-shirts, the Company also manufactures a variety of
specialty T-shirts. This category accounted for approximately 52% of the
Company's sales in fiscal 1998.
PLACKETS AND HENLEYS. The Company introduced its first line of plackets in the
early 1980s and its first line of henleys in the early 1990s. Plackets include
classic button and collar knit sport shirts which are produced in both short and
long sleeve versions. The Company's newest item in its placket line is its pique
knit golf shirt, which it introduced in the first quarter of fiscal 1996.
Henleys are collarless knit shirts, which are produced in both short and long
sleeve versions. This category accounted for approximately 40% of the Company's
sales in fiscal 1998.
OTHER PRODUCTS. The Company's other products include fleeced sweatshirts, knit
shorts and caps, most of which are produced in a variety of colors and designs.
In addition to products which it manufactures in-house, this category includes
those products which the Company sources as a finished product. This category
accounted for approximately 8% of the Company's sales in fiscal 1998.
SALES AND MARKETING
The Company markets its activewear products primarily to a wide range of
distributors, screen printers and private label customers through a direct
salesforce comprised of twelve salespersons, two sales managers and a director
of sales. Each member of the salesforce receives a base salary and is eligible
to receive an incentive bonus payment.
The Company seeks to differentiate itself from other larger activewear
manufacturers by marketing niche products to its customers and encouraging its
customers to purchase a broader product mix. The Company believes that by
encouraging its customers to expand their product mix towards higher priced
products with more style elements, it has been able to compete effectively
against other companies that concentrate primarily on basic, lower priced,
T-shirts. The Company believes that this strategy has enabled it to penetrate
the large and middle-tier wholesale T-shirt distributor market.
CUSTOMERS
The Company sells its products primarily to distributors and screen printers.
The Company also sells a small percentage of its products directly to retailers.
The Company currently services over 250 customers, of which twenty account for
approximately 73% of the Company's net sales. One such customer (Alpha Shirt
Company) accounted for 15% of the Company's net sales in fiscal 1998. No other
individual customer accounts for more than 10% of the Company's net sales.
RAW MATERIALS
The Company's primary raw material is cotton yarn. Unlike certain of its
competitors, the Company does not spin its own yarn. Instead, the Company
purchases substantially all of its yarn pursuant to purchase orders from five
domestic spinners. One individual spinner accounted for approximately 46% of the
Company's purchased yarn in fiscal 1998. The vast majority of the yarn used by
the Company is readily available and could be and is purchased
4
<PAGE>
from a number of sources. Accordingly, the Company does not have to rely on its
orders with or deliveries from any single supplier. With the ability to
substitute its supply of yarn, the Company believes that the inability to obtain
yarn from any one supplier would not have a long term material adverse effect on
the Company's ability to manufacture. Other raw materials purchased by the
Company include dyes and other chemicals used in the dyeing and bleaching of
fabrics.
The Company believes that it is one of the larger purchasers of yarn in its
industry segment and has a sound relationship with each of its suppliers. The
Company believes these relationships allow the Company to order precise
quantities of yarn at highly competitive prices. The Company's relationships
with its suppliers help the Company's continued access to supplies of raw
materials during periods when yarn is in peak demand. As a result, the Company
has not experienced any significant shortages of raw materials.
The Company determines the size of its purchase orders for yarn based on its
estimate of future yarn prices and levels of supply and periodically places
large purchase orders as a means of fixing its raw materials costs. The
Company's purchase orders typically are for quantities of yarn ranging from 30
days' to a year's supply.
Certain of the Company's primary competitors spin their own yarn. The Company
estimates that in-house yarn production could reduce overall yarn costs. The
Company has concluded, however, that the benefits achieved by acquiring in-house
spinning capacity would not justify the investment required to achieve that
capacity. In addition, the Company believes that the quality of its purchased
yarn is at least equal to the quality of yarn produced by fully integrated
manufacturers in its industry market segment.
COMPETITION
The imprinted activewear segment of the apparel market includes a number of
significant competitors and the activewear segment of the industry overall is
extremely competitive. Competition in this activewear segment of the apparel
industry is generally based upon price, quality, service and breadth of product
offerings. In response to market conditions and industry-wide adjustments in
price, the Company reviews and adjusts its product offerings and pricing
structure from time to time. The Company believes that its overall turnaround
time provides a competitive advantage and enables it to continue to capitalize
on its timely responsiveness to its customers' requests. In addition, the
Company focuses on providing its customers with a broad array of branded and
private label niche products at competitive prices on a timely basis.
The Company's principal competitors include several manufacturers of activewear,
most of which are larger and have greater financial and other resources than the
Company. The Company also faces competition from foreign manufacturers of
activewear who generally have substantially lower costs than domestic
manufacturers.
Historically, the Company has benefited from quotas and tariffs imposed by the
United States on the importation of apparel. The Uruguay Round of GATT, which
became effective on January 1, 1995, requires a complete phase-out of all
existing quotas over a ten-year period. To date, no products manufactured by the
Company have been subject to quota reductions under GATT. In addition to the
phasing-out of the use of quotas, GATT also requires that
5
<PAGE>
the United States reduce tariffs on textile/apparel imports over the same
ten-year period. To date, there have been only relatively small reductions in
such tariffs.
Increased competition has caused many domestic apparel manufacturers to move a
portion of their sewing operations offshore to lower costs. The Company
currently performs the greater portion of its sewing activities offshore to take
advantage of these lower offshore wage rates, and the Company intends to
increase its offshore sewing operations to the extent necessary to meet
competition.
The Company believes that its current strategy of emphasizing higher quality,
niche products, promoting a broader product mix, and increased use of lower-cost
offshore sewing operations, should enable it to continue to compete effectively
in its industry market segment.
EMPLOYEES
At January 30, 1999, the Company, including its offshore subsidiaries, employed
a total of 199 full-time salaried employees and 2,260 full-time and part-time
hourly employees. Of the Company's employees, 2,321 are involved in
manufacturing, 79 in finance, administration and distribution and 59 in
marketing and sales. Of the Company's 2,321 employees involved in manufacturing,
611 are employed at the Company's textile facilities and 1,710 are employed at
the Company's sewing facilities.
None of the Company's employees is covered by a collective bargaining agreement.
The Company has not experienced any work stoppages and considers its relations
with its employees to be good.
INTELLECTUAL PROPERTY
The Company attempts to register its material trademarks and trade names. The
Company believes that it has developed strong brand awareness among its targeted
customer base and as a result regards its brand names as valuable assets. The
Company has registered or applied for trademark registrations for ANVIL and
COTTON DELUXE (and the COTTON DELUXE and COTTON DELUXE CASUALS designs) and
other labels in the United States and certain foreign countries.
ENVIRONMENTAL MATTERS
The Company, like other apparel manufacturers, is subject to federal, state and
local environmental and occupational health and safety laws and regulations.
While there can be no assurance that the Company is at all times in complete
compliance with all such requirements, the Company believes that any
noncompliance is unlikely to have a material adverse effect on the financial
condition or results of operations of the Company. The Company has made, and
will continue to make, expenditures to comply with environmental and
occupational health and safety requirements. The Company currently does not
anticipate material capital expenditures for environmental control equipment in
fiscal 1998 or beyond. As is the case with manufacturers in general, if a
release of hazardous substances occurs on or from the Company's properties or
any associated offsite disposal location, or if contamination from prior
activities is discovered at any of the Company's properties, the Company may be
held liable. While the amount of such liability could be material, the Company
endeavors to conduct its operations in a manner that reduces such risks.
6
<PAGE>
Prior to the Acquisition, groundwater contamination was discovered at the
Asheville, North Carolina facility. In 1990, Winston Mills, Inc., a subsidiary
of McGregor, entered into an Administrative Order on Consent ("AOC") with the
North Carolina Department of Environment, Health and Natural Resources ("DEHNR")
concerning such contamination. Since that time, McGregor, through Culligan
International Company ("Culligan"), a former affiliate, has been conducting
investigative and corrective action under DEHNR oversight and has remained
responsible to DEHNR with respect to contamination that is subject to the AOC.
While the total cost of the cleanup at the facility will depend upon the extent
of contamination and the corrective action approved by the DEHNR, preliminary
cleanup cost estimates ranged from $1.0 to $4.0 million. McGregor continues to
be a party to the Asheville, North Carolina facility's hazardous waste permit
and Culligan has guaranteed McGregor's obligations under the AOC. McGregor also
contractually agreed to fully indemnify the Company with respect to the
contamination as part of the terms of the Acquisition. This indemnity is
guaranteed by Culligan and by Astrum International Corp. ("Astrum"), an
affiliate of McGregor (now known as Samsonite Corporation) in the event Culligan
is unable to perform its guarantor obligations. The Company could be held
responsible for the cleanup of this contamination if McGregor, Culligan and
Samsonite were all to become unable to fulfill their obligations to DEHNR.
McGregor agreed to fully indemnify the Company for any costs associated with
certain other environmental matters identified at the time of the Acquisition.
The Company believes that, even if McGregor were unable to fulfill its
indemnification obligations, these other matters would not have a material
adverse effect on the financial condition or results of operations of the
Company. McGregor also agreed to indemnify the Company, subject to certain
limitations, with respect to environmental liabilities that arise from events
that occurred or conditions in existence prior to the Acquisition. Culligan and
Samsonite have also guaranteed McGregor's obligations under these indemnities.
ITEM 2. PROPERTIES
The Company conducts its operations principally through seven manufacturing
facilities and a centralized distribution center. The Company utilizes a
vertically integrated manufacturing process (i.e., performing substantially all
of the manufacturing processes required to produce its products) with fabric
being knit, bleached and dyed from purchased yarn at its two textile facilities
and with the cutting and sewing of such fabric occurring at its three sewing
facilities. The Company utilizes offshore and domestic contractors as it deems
necessary.
TEXTILE FACILITY OPERATIONS. The Company conducts textile operations at two
facilities owned by the Company located in Kings Mountain and Asheville, North
Carolina. The Company operates over 150 knitting machines at its textile
facilities where circular knit machines knit yarn into tubes of basic fabric
constructions such as jersey, rib and fleece and flat knit machines knit
collars. The tubes of fabric correspond in weight and diameter to the various
styles and sizes required to make the Company's activewear products. The knitted
fabric is then batched for bleaching and dyeing. Substantially all of the
Company's products are either bleached to remove the color of natural cotton or
dyed for colored products. The Company's textile facilities contain computerized
controls, dye simulators and spectrometers and modern jet vessels to assist the
Company in maintaining an efficient and quality controlled environment for the
dyeing and bleaching process. The Company's textile facilities each operated
within a range of approximately 70%-100% of capacity during fiscal
7
<PAGE>
1998. The Company believes it has the capability to increase the operating
capacity of its textile facilities with only relatively modest capital
expenditures. Cottontops operates a dyehouse and a screen printing facility,
both in Farmville, North Carolina.
SEWING FACILITY OPERATIONS. The Company conducts its cutting and sewing
operations at a leased facility located in Mullins, South Carolina, and sewing
at two leased facilities located in Honduras and El Salvador. Fabric produced at
the Company's textile operations is shipped to the Company's cutting facility
where it is marked by hand from design patterns, cut and then sewn.
During fiscal 1998, the Company's sewing facilities operated generally at
capacity. The Company began its offshore sewing operations in January 1996,
through a wholly-owned subsidiary of Anvil, at a leased facility in Honduras. In
October 1997, the Company opened a sewing facility in El Salvador through Livna,
Limitada, a wholly-owned subsidiary of Anvil. This facility was expanded during
fiscal 1998. For fiscal 1998, approximately 56% of the Company's production
(sewing hours) was sewn offshore (including in-house production and outside
sources), and the Company expects its percentage of offshore sewing labor hours
to continue to increase. Because of this increasing shift to offshore
production, the Company closed and sold one of its smaller domestic sewing
facilities during fiscal 1997, and has ceased operations at two other domestic
facilities in 1998.
DISTRIBUTION OPERATIONS. The Company performs all of its distribution functions
at its centralized distribution facility located in Dillon, South Carolina. In
the first quarter of fiscal 1996, the Company's centralized distribution
facility became fully operational, enabling the Company to consolidate its
formerly fragmented distribution operations and improve distribution
efficiencies. The Company's centralized distribution system also has enhanced
the Company's ability to provide efficient and responsive customer service and
to more efficiently manage inventory.
8
<PAGE>
The following table sets forth certain information regarding the Company's
facilities:
<TABLE>
<CAPTION>
APPROX. SQ.
LOCATION PRINCIPAL USE FT. OWNED/LEASED
- -------- ------------- --- ------------
<S> <C> <C> <C>
New York, NY Executive Offices 22,100 Leased(1)
Kings Mountain, NC Textile Facility 225,000 Owned
Asheville, NC Textile Facility 175,000 Owned
Mullins, SC Cut and Sew 149,000 Leased(2)
Farmville, NC Office, Warehouse
& Screen Printing 80,000 Leased(3)
Farmville, NC Dye House 30,000 Leased(4)
Dillon, SC Distribution 660,000 Owned
Honduras Sew 48,000 Leased(5)
El Salvador Sew 54,000 Leased(6)
</TABLE>
- ----------
(1) The lease for the Company's executive office space expires in 2002. (2)
The lease for this facility can be extended to 2012.
(3) The lease for this facility expires in 2001.
(4) The lease for this facility expires in 2001.
(5) The lease for this facility can be extended to 2004.
(6) This facility is in two buildings with leases expiring in 2002 and 2003.
The Company also owns approximately 300,000 square feet of warehouse and
manufacturing facilities in three locations in North and South Carolina, that
are currently being held for sale. These facilities became excess space after
the consolidation of certain operations into the centralized distribution center
and the move of a substantial portion of sewing operations to offshore
locations.
The Company anticipates the level of capital expenditures for the next few years
to be at an annual rate of approximately $3.0 to $4.0 million. The Company has
no material capital commitments for the next twelve months outside of the
ordinary course of business.
The Company considers its owned and leased facilities and equipment to be in
good condition and suitable and adequate for the Company's current operations.
The Company's ongoing maintenance and improvement of its manufacturing
facilities enable it to accommodate anticipated sales growth. Periodically, as
necessary, the Company contracts certain manufacturing operations to outsiders.
Management considers this ordinary industry practice and foresees no material
risks in continuing this policy as necessary.
MANAGEMENT INFORMATION SYSTEMS. The Company has upgraded many of its older
legacy systems to sophisticated online real time information processing systems.
These include both in house and purchased systems. The Company has installed an
advanced order entry, allocation and customer service system along with a
complete in house radio frequency system in its centralized warehouse. These
systems tie into the Company's salespersons' laptop computers and its customers'
Automatic Replenishment Systems. The Company is currently implementing a
sophisticated planning and scheduling system which is driven by sales forecasts
and customer orders and will enable it to optimize available manufacturing
resources (textile and garment) to help reduce inventories, compress order lead
time and improve on time deliveries. This, along with the implementation of its
new offshore reporting system, allows Anvil to continue to meet future
information demands.
9
<PAGE>
ITEM 3. LEGAL PROCEEDINGS
The Company is a party to various litigation matters incidental to the conduct
of its business. The Company does not believe that the outcome of any of the
matters in which it is currently involved will have a material adverse effect on
the financial condition or results of operations of the Company. See ITEM 1.
"BUSINESS--ENVIRONMENTAL MATTERS," above.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
None.
PART II
ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER MATTERS
There is no established public trading market for any of the Company's common
equity securities. At April 16, 1999 there were 25 record holders of the Class A
Common and 26 record holders of the Class B Common. All of Anvil's issued and
outstanding capital stock is owned by Holdings.
RECENT SALES OF UNREGISTERED SECURITIES
Holdings has recently issued the following securities without registration under
the Securities Act:
On March 14, 1997, the Company completed the Recapitalization. Pursuant to which
(i) 399 Venture reinvested 1,294,685 shares of Old Common Stock in exchange for
122,484 shares of Class A Common and 1,351,552 shares of Class B Common; (ii)
the Management Investors exercised options granted pursuant to the Acquisition
and were issued 525,000 shares of Old Common Stock for an aggregate of $336,000;
(iii) the Management Investors reinvested 475,987 shares of Old Common Stock in
exchange for 45,032 shares of Class A Common and 496,894 shares of Class B
Common; (iv) 399 Venture exchanged 33,300 shares of Old Preferred Stock for
3,333 Units which consisted of, in the aggregate, 133,320 shares of Senior
Exchangeable Preferred Stock and 43,329 shares of Class B Common; and (v) BRS
purchased from Holdings 105,643 shares of Class A Common and 1,165,719 shares
Class B Common for an aggregate purchase price of $11,730,049.03. The
reinvestment and exchange in paragraphs (i), (iii) and (iv) were made in
reliance on the exemption contained in Section 3(a)(9) of the Securities Act.
The sale described in paragraph (v) was made in reliance on the exemption
contained in Section 4(2) of the Securities Act. The transactions described in
paragraph (ii) were made in reliance on the exemption contained in Rule 701 of
the Securities Act.
On March 14, 1997, Anvil sold $130,000,000 aggregate principal amount of 10-7/8%
Series A Senior Notes due 2007 to Donaldson, Lufkin & Jenrette Securities
Corporation ("DLJ"), Wasserstein Perella Securities, Inc. and NationsBanc
Capital Markets, Inc. pursuant to a Purchase Agreement, dated March 11, 1997, in
a transaction not registered under the
10
<PAGE>
Securities Act in a private placement pursuant to the exemption contained in
Section 4(2) of the Securities Act.
Anvil completed an exchange offer which expired August 22, 1997, pursuant to
which its 10-7/8% Series A Senior Notes were exchanged on a dollar-for-dollar
basis for its 10-7/8% Series B Senior Notes, due 2007. Pursuant to the exchange
offer, $129,000 principal amount were validly tendered and exchanged. The terms
and conditions of the aforementioned Series B securities are substantially
identical to the Series A securities for which they were exchanged, except that
the Series B securities have been registered under the Securities Act of 1933,
as amended.
On March 14, 1997, Holdings sold 26,667 Units to DLJ and 3,333 Units, for which
DLJ acted as agent in connection with the sale by Holdings, pursuant to a
Purchase Agreement, dated March 11, 1997. The Units consisted of an aggregate of
(i) 390,000 shares of Class B Common and (ii) 1.2 million shares of Senior
Exchangeable Preferred Stock with an aggregate liquidation preference of
$30,000,000. These sales were made in transaction not registered under the
Securities Act in a private placement pursuant to the exemption contained in
Section 4(2) of the Securities Act.
Holdings completed an exchange offer which expired August 26, 1997 (as
extended), pursuant to which its 13% Series A Senior Exchangeable Preferred
Stock was exchanged on a share-for-share basis for its 13% Series B Senior
Exchangeable Preferred Stock, due 2009. Pursuant to the exchange offer,
1,198,566 shares ($29,964 liquidation value) were validly tendered and
exchanged. The terms and conditions of the aforementioned Series B securities
are substantially identical to the Series A securities for which they were
exchanged, except that the Series B securities have been registered under the
Securities Act of 1933, as amended.
11
<PAGE>
ITEM 6. SELECTED FINANCIAL DATA
SELECTED HISTORICAL FINANCIAL DATA
(IN THOUSANDS, EXCEPT PER SHARE DATA)
Set forth below are the selected historical financial data of the Predecessor
and the Company as of the dates and for the periods shown. The selected
historical financial balance sheet data of the Company for fiscal years 1997 and
1998 and the statement of operations data for the three years in the period
ended fiscal 1998 have been derived from the consolidated financial statements
of the Company which have been audited by Deloitte & Touche LLP, whose report
thereon appears under "Item 8. Financial Statements and Supplementary Data." The
selected consolidated financial data for fiscal years 1994 and 1995 and the
balance sheet data for fiscal 1996 have been derived from audited consolidated
financial statements which are not included herein. Holdings has no independent
operations apart from its wholly owned subsidiary, Anvil, and its sole asset is
the capital stock of Anvil. The selected consolidated financial data should be
read in conjunction with "Management's Discussion and Analysis of Financial
Condition and Results of Operations" and with the consolidated financial
statements and related notes thereto included elsewhere herein.
<TABLE>
<CAPTION>
PREDECESSOR(1) COMPANY(1)
-------------- ------------------------------------------------
FISCAL YEAR ENDED
------------------------------------------------------------------
JANUARY 28, JANUARY 27, FEBRUARY 1, JANUARY 31, JANUARY 30,
1995 (1) 1996 1997 1998 1999
--------- --------- --------- --------- ---------
[Fiscal 1994] [Fiscal 1995] [Fiscal 1996] [Fiscal 1997] [Fiscal 1998]
<S> <C> <C> <C> <C> <C>
STATEMENT OF OPERATIONS DATA:
Net sales ........................ $ 169,923 $ 193,389 $ 204,154 $ 214,867 $ 217,302
Cost of goods sold ............... 131,906 149,723 156,813 167,491 179,092
--------- --------- --------- --------- ---------
Gross profit ..................... 38,017 43,666 47,341 47,376 38,210
Selling, general and
administrative expenses ...... 14,704 17,778 21,678 22,771 24,626
Special compensation (2) ......... -- -- -- 10,915 --
Amortization of intangible assets 13,435 736 958 958 958
--------- --------- --------- --------- ---------
Operating income (loss) .......... 9,878 25,152 24,705 12,732 12,626
Other income (expense):
Interest income and other--net 2,451 616 415 247 59
Interest expense ............. (227) (8,844) (7,912) (16,536) (18,344)
--------- --------- --------- --------- ---------
Income (loss) before
provision for income
taxes and extraordinary item . 12,102 16,924 17,208 (3,557) (5,659)
Provision (benefit) for
income taxes ............... 11,045 6,770 6,883 (1,423) (2,264)
--------- --------- --------- --------- ---------
Income (loss) before
extraordinary item ........... 1,057 10,154 10,325 (2,134) (3,395)
Extraordinary item--loss on
extinguishment of debt, net
of $1,838 tax benefit(3) ..... -- -- -- (2,757) --
--------- --------- --------- --------- ---------
Net income (loss) ................ $ 1,057 $ 10,154 $ 10,325 $ (4,891) $ (3,395)
========= ========= ========= ========= =========
EBITDA(4) ........................ $ 28,639 $ 31,615 $ 32,592 $ 30,864 $ 19,847
========= ========= ========= ========= =========
</TABLE>
12
<PAGE>
<TABLE>
<CAPTION>
FISCAL YEAR ENDED
--------------------------
JANUARY 31, JANUARY 30,
1998 1999
--------- ---------
<S> <C> <C>
Basic Income (Loss) Per Common Share: (6)
Class A Common Stock:
Income before extraordinary item ........ $ 10.51 $ 11.46
Extraordinary item ...................... (0.71) --
--------- ---------
Net income .............................. $ 9.80 $ 11.46
========= =========
Class B Common Stock:
(Loss) before extraordinary item ........ $ (2.58) $ (3.15)
Extraordinary item ...................... (0.71) --
--------- ---------
Net income .............................. $ (3.29) $ (3.15)
========= =========
Weighted average shares used in computation
of basic income (loss) per share:
Class A Common ........................... 290 290
========= =========
Class B Common ........................... 3,590 3,590
========= =========
</TABLE>
<TABLE>
<CAPTION>
PREDECESSOR (1) THE COMPANY (1)
----------------- -----------------------------------------------
JAN 28, JAN 27, FEB 1, JAN 31, JAN 30,
BALANCE SHEET DATA (AT END OF PERIOD): 1995 1996 1997 1998 1999
--------- --------- --------- --------- ---------
<S> <C> <C> <C> <C> <C>
Cash and cash equivalents ............. $ 999 $ 1,568 $ 1,863 $ 959 $ 3,397
Total assets .......................... 109,941 136,527 136,832 147,113 150,267
Total debt ............................ -- 84,457 68,594 148,145 158,335
Preferred stock (liquidation value) .. -- 22,620 25,582 33,033 37,541
Total stockholders' equity (deficit)(5) 87,503 33,008 43,386 (66,255) (74,397)
</TABLE>
- ----------
(1) The period prior to and including January 28, 1995 reflects the combined
financial data of the Predecessor, which was acquired by the Company as of
January 28, 1995 from McGregor. The periods beginning January 29, 1995
reflect the consolidated financial data of the Company after the
Acquisition. Because of the revaluation of the assets and liabilities
acquired and the related impact to the consolidated statements of
operations, the financial statements of the Predecessor (other than net
sales) for the period prior to January 29, 1995 is not comparable to those
of the Company subsequent to that date.
(2) In connection with the Recapitalization, the Company recorded a special
charge in the three months ended May 3, 1997 for compensation related to
the exercise of options by members of management, payment of a special
transaction bonus to members of management and payments under a then
existing equity buy-out plan to members of management. These charges
aggregated $10,915, and are considered by management to be nonrecurring in
nature.
(3) In connection with the Recapitalization, the Company recorded an
extraordinary charge of $2,757, net of an income tax benefit, in the year
ended January 31, 1998, as a result of losses incurred in connection with
the early extinguishment of debt.
(4) EBITDA is defined as operating income plus depreciation and amortization.
Fiscal 1995 includes a non-cash charge of $1.7 million resulting from the
increase in cost of goods sold due to the inventory revaluation in
connection with the Acquisition. Fiscal 1996 EBITDA excludes a non-cash
charge of $0.6 million for the estimated loss on disposal of certain fixed
assets and fiscal 1997 excludes non-recurring items of $10.9 million for
charges to special compensation. EBITDA is not a measure of performance
under Generally Accepted Accounting Principles ("GAAP"). EBITDA should not
be considered in isolation or as a substitute for net income, cash flows
from operating activities and other income or cash
13
<PAGE>
flow statement data prepared in accordance with GAAP, or as a measure of
profitability or liquidity. Management believes, however, that EBITDA
represents a useful measure of assessing the performance of the Company's
ongoing operating activities as it reflects earnings trends of the Company
without the impact of purchase accounting applied in connection with the
Acquisition. In addition, management believes EBITDA is a widely accepted
financial indicator of a company's ability to service and/or incur
indebtedness and is used by the Company's creditors in assessing debt
covenant compliance. EBITDA should not be construed as an indication of
the Company's operating performance or as a measure of liquidity. EBITDA
does not take into account the Company's debt service requirements and
other commitments and, accordingly, is not necessarily indicative of
amounts that may be available for discretionary uses. The EBITDA measure
presented herein may not be comparable to other similarly titled measures
of other companies.
(5) Stockholder's equity for the Predecessor represents McGregor's investment
in the Predecessor.
(6) See Note 13 to Financial Statements, included elsewhere herein.
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
GENERAL
The following discussion provides information with respect to the results of
operations of the Company for each of the three fiscal years in the period ended
January 30, 1999. The following information should be read in conjunction with
ITEM 6. "SELECTED FINANCIAL DATA" and the consolidated financial statements and
the notes thereto included elsewhere herein.
RESULTS OF OPERATIONS
The Company's results of operations are affected by numerous factors, including
competition, general economic conditions, raw material costs, mix of products
sold and plant utilization. Certain activewear products of the type manufactured
by the Company are generally available from multiple sources and the Company's
customers often purchase products from more than one source. To remain
competitive, the Company reviews and adjusts its pricing structure from time to
time in response to industry-wide price changes. In the basic T-shirt market,
for example, the Company generally does not lead its competitors in setting the
current pricing structure and modifies its prices to the extent necessary to
remain competitive with prices set by its larger competitors in this market.
The gross profit margins of the Company's products vary significantly.
Accordingly, the Company's overall gross profit margin is affected by its
product mix. In addition, plant utilization levels are important to
profitability due to the substantial fixed costs of the Company's textile
operations.
The largest component of the Company's cost of goods sold is the cost of yarn.
Unlike certain of its competitors, the Company does not spin its own yarn.
Instead, the Company obtains substantially all of its yarn from five yarn
suppliers, generally placing orders for quantities ranging from 30 days' to a
one year's supply, and occasionally even longer periods, depending upon
management's expectations regarding future yarn prices and levels of supply.
Yarn prices fluctuate from time to time principally as a result of competitive
conditions in the yarn market and supply and demand for raw cotton.
Historically, the
14
<PAGE>
Company has been successful in mitigating the impact of fluctuating yarn prices.
In recent months, yarn prices have exhibited a significant downward trend and
management has taken steps to adjust the Company's purchase commitments to take
advantage of the declining prices.
The following table sets forth, for each of the periods indicated, certain
statement of operations data, expressed as a percentage of net sales, for the
Company for each of the three years in the period ended January 30, 1999:
<TABLE>
<CAPTION>
YEAR ENDED
FEBRUARY 1, JANUARY 31, JANUARY 30,
1997 1998 1999
---- ---- ----
[Fiscal 1996] [Fiscal 1997] [Fiscal 1998]
<S> <C> <C> <C>
STATEMENT OF OPERATIONS DATA:
Net sales ........................................... 100.0% 100.0% 100.0%
Cost of goods sold .................................. 76.8 78.0 82.4
Gross profit ........................................ 23.2 22.0 17.6
Selling, general and administrative expenses ........ 10.6 10.6 11.3
Interest expense .................................... 3.9 7.7 8.4
OTHER DATA:
EBITDA (1)........................................... $32.6 million $30.9 million $19.8 million
Percentage of net sales ......................... 16.0% 14.4% 9.1%
</TABLE>
(1) EBITDA is defined as operating income plus depreciation and amortization.
Fiscal 1996 EBITDA excludes a non-cash charge of $0.6 million for the
disposal of certain fixed assets and fiscal 1997 excludes non-recurring
charges of $10.9 million for special compensation. EBITDA is not a measure
of performance under GAAP. EBITDA should not be considered in isolation or
as a substitute for net income, cash flows from operating activities and
other income or cash flow statement data prepared in accordance with GAAP,
or as a measure of profitability or liquidity. Management believes,
however, that EBITDA represents a useful measure of assessing the
performance of the Company's ongoing operating activities as it reflects
earnings trends of the Company without the impact of purchase accounting
applied in connection with the Acquisition. In addition, management
believes EBITDA is a widely accepted financial indicator of a company's
ability to service and/or incur indebtedness and is used by the Company's
creditors in assessing debt covenant compliance. EBITDA should not be
construed as an indication of the Company's operating performance or as a
measure of liquidity. EBITDA does not take into account the Company's debt
service requirements and other commitments and, accordingly, is not
necessarily indicative of amounts that may be available for discretionary
uses. The EBITDA measure presented herein may not be comparable to other
similarly titled measures of other companies.
YEAR ENDED JANUARY 30, 1999 COMPARED TO YEAR ENDED JANUARY 31, 1998
NET SALES for the year ended January 30, 1999 increased $2.4 million, or 1.1%,
to $217.3 million from $214.9 million for the year ended January 31, 1998. The
overall increase in net sales is comprised of an increase in units sold of
approximately 2%, partially offset by a small decrease in the average selling
price of all goods sold for the year. The Company's revenues and gross margins
have been unfavorably impacted by ongoing lower prices for basic T-shirts. While
the average selling price for all goods sold declined only slightly, the price
has been maintained by increasing the percentage of higher priced products, such
as henleys and plackets, in the Company's product mix. See "Forward Looking
Information," below.
15
<PAGE>
GROSS PROFIT for the year ended January 30, 1999 declined by $9.2 million
(19.4%) from the prior year despite the $2.4 million increase in sales, as gross
profit margin on sales declined to 17.6% from 22.0% in the prior year. Any
favorable impact achieved by emphasizing the sale of products with traditionally
higher profit margins, has been offset by industry-wide pricing pressures
affecting the Company's basic T-shirt business. In addition, production costs
per unit for all products increased due to lower utilization of textile
capacity, wage increases and the inefficiencies created by the transition of a
substantial majority of sewing operations to offshore locations. A significant
increase in the Company's contribution for employee medical benefits also
unfavorably impacted the Company's results of operations. Management is
addressing these areas of increasing costs. See "Forward Looking Information,"
below.
SELLING, GENERAL AND ADMINISTRATIVE EXPENSES (including distribution expense)
for the year ended January 30, 1999 increased by $1.9 million, or 8.2%, to $24.6
million from $22.7 million for the prior year. Expenditures for advertising,
travel and entertainment, and other selling expenses increased $1.1 million and
administrative expenses (primarily data processing and related costs) increased
approximately $0.5 million. The remaining increase is primarily composed of
increased distribution expense due to greater volume, and unusually high first
quarter expenditures for freight to meet delivery commitments.
INTEREST EXPENSE for the year ended January 31, 1999 increased by $1.8 million,
or 10.9%, to $18.3 million from $16.5 million for the prior year. This increase
in interest expense was the result of higher borrowings in connection with the
Recapitalization and to fund additional working capital requirements. Interest
rates were also slightly higher during the current year compared to the prior
year.
NET LOSS for the year ended January 31, 1999 was $3.4 million compared to a net
loss of $4.9 million for the prior year. A decrease in gross profit of $9.2
million was further impacted by higher selling, general and administrative
expenses ($1.9 million) and higher interest expense ($1.8 million). In the prior
year there was a charge of $10.9 million for "special compensation" and an
extraordinary charge of $2.8 million (after applicable income tax benefit) on
extinguishment of debt. A tax benefit of $2.3 million was recognized in the
current year compared to $1.4 million in the prior year.
YEAR ENDED JANUARY 31, 1998 COMPARED TO YEAR ENDED FEBRUARY 1, 1997
NET SALES for the year ended January 31, 1998 increased $10.7 million, or 5.2%,
to $214.9 million from $204.2 million for the year ended February 1, 1997. The
overall increase in net sales is comprised of a small increase in units sold as
well as a small increase in average selling price, and is also due to the
inclusion of Cottontops' sales of approximately $3.7 million.
GROSS PROFIT for the year ended January 31, 1998 remained approximately the same
as the prior year despite the $10.7 million increase in sales, as gross profit
margin on sales declined to 22.0% from 23.2% in the prior year. This decline was
primarily the result of lower prices for basic T-shirts.
16
<PAGE>
SELLING, GENERAL AND ADMINISTRATIVE EXPENSES (including distribution expense)
for the year ended January 31, 1998 increased by $1.1 million, or 5.1%, to $22.8
million from $21.7 million for the prior year. As a percentage of net sales,
selling, general and administrative expenses were approximately 10.6% for both
fiscal years. The year ended January 31, 1998 includes $1.6 million of operating
expenses of Cottontops. In addition, sales department salaries and expenditures
for advertising, travel and entertainment, and other selling expenses increased
$0.8 million and administrative expenses (primarily legal and professional)
expenses increased $0.5 million. The aforementioned increases were partially
offset by a decline of approximately $1.2 million in distribution expense due to
more efficient warehouse operations. Also, fiscal 1996 includes charges of
approximately $0.6 million for certain start-up costs and losses on disposal of
fixed assets.
INTEREST EXPENSE for the year ended January 31, 1998 increased by $8.6 million,
or 109.0%, to $16.5 million from $7.9 million for the prior year. This increase
in interest expense was the result of higher borrowings in connection with the
Recapitalization. Interest rates were also slightly higher during the year ended
January 31, 1998 compared to the prior year.
NET LOSS for year ended January 31, 1998 was $4.9 million compared to net income
of $10.3 million for the year ended February 1, 1997. While the amount of gross
profit was nearly equal in both years, the year ended January 31, 1998 results
were reduced by higher selling, general and administrative expenses ($1.1
million), higher interest expense ($8.6 million), and, in the year ended January
31, 1998, there was a charge of $10.9 million for "special compensation" (See
Note 4 to the consolidated financial statements) and an extraordinary charge of
$2.8 million (net of taxes) on extinguishment of debt (See Note 2 to the
consolidated financial statements).
LIQUIDITY AND CAPITAL RESOURCES
The Company has historically utilized funds generated from operations and
borrowings under its credit agreements to meet working capital and capital
expenditure requirements. The Company made capital expenditures of approximately
$6.1 million in year ended January 31, 1998 and $5.6 million in the year ended
January 30, 1999. The Company's major capital expenditures related to: (i)
improvements to the 660,000 square foot distribution center in Dillon, South
Carolina; (ii) the acquisition of machinery and equipment; and (iii) the
acquisition of management information systems hardware and software. The Company
anticipates the level of capital expenditures to decline to an annual rate of
approximately $3.0 to $4.0 million for the next few years, and has no material
capital commitments for the next twelve months outside of the ordinary course of
business.
The Company's principal working capital requirements are financing accounts
receivable and inventories. At January 30, 1999, the Company had net working
capital of approximately $50.4 million, including approximately $31.2 million of
accounts receivable, $41.4 million of inventories, $8.1 million of other current
assets; and $30.3 million in accounts payable and other current liabilities.
In connection with the Recapitalization, the Company entered into a credit
agreement (the "Credit Agreement") which refinanced its existing indebtedness
under the Old Credit Agreement. The Credit Agreement provided for borrowings of
up to $55.0 million for working capital and other general corporate purposes,
and bore interest, at the Company's
17
<PAGE>
option, at LIBOR or prime rate plus a margin. The indebtedness under the Credit
Agreement was guaranteed by Holdings and Cottontops and secured by substantially
all of Anvil's assets and a pledge by Holdings of all of the capital stock of
Anvil. At January 30, 1999, the Company had $31.5 million outstanding borrowings
under the Credit Agreement at an interest rate of approximately 7.94%. In March
1999, this amount was repaid with the proceeds of the New Loan Agreement
described below. The Company has classified $21,700 and $25,000 as a long-term
liability at January 31, 1998 and January 30, 1999, respectively which
represents amounts the Company anticipates continually refinancing. See "New
Loan Agreement," below
NEW LOAN AGREEMENT
On March 11, 1999,Anvil entered into a Loan and Security Agreement (the "Loan
Agreement") providing for a maximum credit facility of $60.0 million consisting
of a term loan (the "Term Loan") and a revolving credit facility (the "Revolving
Credit Facility"). The Loan Agreement eliminated the covenant ratio issues under
the Credit Agreement.
The Term Loan is in the principal amount of $11.7 million payable in 20 equal
quarterly principal installments of approximately $0.6 million commencing July
1, 1999.
Anvil borrowed $19.6 million under the Revolving Credit Facility provided by the
same lender. The net proceeds of the Loan Agreement were used to repay all
amounts due under the Credit Agreement. The Revolving Credit Facility expires
March 11, 2002, and amounts due under it and the Term Loan are secured by
substantially all the inventory, receivables and property, plant and equipment
of Anvil. Holdings and Cottontops guaranty amounts due under the Loan Agreement.
Interest on the Term Loan and the Revolving Credit Facility are at prime plus
one-half percent or LIBOR plus 2-1/2%, at the Company's option.
The Company's ability to satisfy its debt obligations, including, in the case of
Anvil, to pay principal and interest on the Senior Notes and, in the case of
Holdings, to pay principal and interest on the Exchange Debentures, if issued,
to perform its obligations under its guarantees and to pay cash dividends on the
Senior Preferred Stock, will depend upon the Company's future operating
performance, which will be affected by prevailing economic conditions and
financial, business and other factors, certain of which are beyond its control,
as well as the availability of revolving credit borrowings under the Loan
Agreement. However, the Company may be required to refinance a portion of the
principal of the Senior Notes and, if issued, the Exchange Debentures prior to
their maturity and, if the Company is unable to service its indebtedness, it
will be forced to take actions such as reducing or delaying capital
expenditures, selling assets, restructuring or refinancing its indebtedness, or
seeking additional equity capital. There can be no assurance that if any of
these remedies are necessary, they could be effected on satisfactory terms, if
at all.
Holdings has no independent operations with its sole asset being the capital
stock of Anvil, which stock is pledged to secure the obligations under the New
Loan Agreement. As a holding company, Holdings' ability to pay cash dividends on
the Senior Preferred Stock or, if issued, principal and interest on the
debentures into which the Senior Preferred Stock is convertible (the "Exchange
Debentures") is dependent upon the earnings of Anvil and its subsidiaries and
their ability to declare dividends or make other intercompany transfers to
Holdings. Under the terms of the Senior Indenture, Anvil may incur certain
indebtedness
18
<PAGE>
pursuant to agreements that may restrict its ability to pay such dividends or
other intercompany transfers necessary to service Holdings' obligations,
including its obligations under the terms of the Senior Preferred Stock and, if
issued, the Exchange Debentures. The Senior Note Indenture restricts, among
other things, Anvil's and certain of its subsidiaries' ability to pay dividends
or make certain other "restricted" payments (except to the extent, among other
things, the restricted payments are less than 50% of the Consolidated Net Income
of Anvil [as defined therein]), to incur additional indebtedness, to encumber or
sell assets, to enter into transactions with affiliates, to enter into certain
guarantees of indebtedness, to make certain investments, to merge or consolidate
with any other entity and to transfer or lease all or substantially all of their
assets. Neither the Senior Note Indenture nor the Loan Agreement restricts
Anvil's subsidiaries from declaring dividends or making other intercompany
transfers to Anvil.
The Company believes that based upon current levels of operations and
anticipated growth, funds generated from operations, together with other
available sources of liquidity, including borrowings under the Loan Agreement,
will be sufficient over the next twelve months for the Company to make
anticipated capital expenditures, fund working capital requirements and satisfy
its debt service requirements.
SEASONALITY
The Company's business is not significantly seasonal as it manufactures and
sells a wide variety of activewear products that may be worn throughout the
year.
EFFECT OF INFLATION
Inflation generally affects the Company by increasing the interest expense of
floating rate indebtedness and by increasing the cost of labor, equipment and
raw materials. The Company does not believe that inflation has had any material
effect on the Company's business during the periods discussed herein.
NEW ACCOUNTING STANDARDS
In June 1998, the Financial Accounting Standards Board issued Statement of
Financial Accounting Standard ("SFAS" ) No. 133, "Accounting for Derivative
Instruments and Hedging Activities." The statement establishes accounting and
reporting standards requiring that derivative instruments be recorded in the
balance sheet as either an asset or liability measured at fair value. The
statement requires that changes in a derivative's fair value be recognized
currently in earnings unless specific hedge accounting criteria are met. SFAS
No. 133 is effective for fiscal years beginning after June 15, 1999; however, it
may be adopted earlier. It cannot be applied retroactively to financial
statements of prior periods. The Company has not yet quantified the impact on
its financial statements nor determined the timing or method of adopting SFAS
No. 133.
YEAR 2000 ISSUES
The Company's comprehensive Year 2000 Plan has been implemented and is nearing
completion. The Company has a senior Information Technology staff member
assigned to lead its Year 2000 project. The Company has upgraded the majority of
its major software
19
<PAGE>
systems over the past few years and they are all Year 2000 compliant.
Confirmation has been received from its software vendors and testing is in
progress. All legacy software has also been upgraded, other than the accounts
payable and general ledger systems. The Company is in the process of installing
new accounts payable and general ledger systems which are Year 2000 compliant.
The target completion date for the installation is August 1, 1999. If the
installation of the new systems is delayed, the legacy systems can be made Year
2000 compliant with minimal programming work. The Company has already upgraded
and made Year 2000 compliant its systems that interface with its sales force and
significant customers.
The Company has also upgraded its major computer hardware which are all Year
2000 compliant. As projected, there have been no material hardware or software
costs associated with this project beyond the budgeted costs needed for normal
business requirements, and the Company does not anticipate any material future
costs beyond normal business requirements.
Year 2000 compliance requires that the Company not only insure internal
compliance (hardware, software, operational devices) but external compliance
(suppliers, contractors, customers) as well.
The Company has sent questionnaires to critical vendors, service providers, and
select customers to verify their Year 2000 readiness. A substantial number of
responses have been received and they do not indicate any material compliance
concerns. However, the Company has no means of ensuring that external agents
will be Year 2000 compliant.
The Company has and will continue to test all internal and external systems to
insure Year 2000 readiness. The Company believes its ongoing efforts to address
the Year 2000 issue have been thorough and there should be minimal, if any,
interruption to the Company's operation. However, the Company is in the process
of developing contingency plans, which will be reviewed by senior management, to
help insure a smooth transition into the 21st Century. These plans will address
critical areas of the business which would enable the Company to operate
independent of certain external partners. Some areas being reviewed are
maintaining increased inventory in key products, identifying alternate sources
for critical services, materials, and utilities, and instituting a 24-hour
hotline with key personnel on call.
FORWARD-LOOKING INFORMATION
For the past fiscal year, the Company has been experiencing the adverse effects
of an industry-wide decline in selling prices of basic T-shirts, the Company's
primary product. This trend of relatively low average selling prices for basic
T-shirts is beyond the Company's control and has continued into fiscal 1999. The
Company has been able to slightly lessen the effect of these pricing pressures
by: (i) continuing to emphasize new higher priced products and de-emphasize
certain basic T-shirt sales; (ii) continuing to improve and modernize its
manufacturing processes in order to reduce production costs; and (iii) moving a
substantial majority of its sewing operations offshore to take advantage of
lower wage rates. Following are some of the Company's specific actions and plans
to effect favorable changes in these three areas.
1. The Company has been able to increase the percentage of sales of what it
considers its "higher priced" products. More favorable gross margins on
these products have partially
20
<PAGE>
offset the decline in gross margins on basic T-shirts. The Company plans
to continue this strategy.
2. During the last five fiscal years, the Company has invested in excess of
$32 million to modernize and expand its manufacturing and distribution
facilities to improve quality, reduce costs, manage inventories and
shorten textile production cycles. In fiscal 1997, the Company began full
utilization of its centralized distribution facility and is continuing to
refine its textile manufacturing processes to shorten production cycles.
In addition, the Company has negotiated what it considers advantageous
yarn purchase commitments to take advantage of a recent downward trend in
the price of yarn, and has restructured its employee medical plan for
fiscal 1999. While no assurances can be given, Management believes that
the aforementioned changes will significantly contribute to lower unit
costs in the future.
3. Increased competition has caused many domestic apparel manufacturers to
move a portion of their sewing operations offshore to lower costs. The
Company has moved a substantial majority of its sewing activities offshore
to take advantage of these lower offshore wage rates and may further
increase its offshore sewing operations to the extent necessary to reduce
costs. The initial impact of moving offshore resulted in an increase in
unit costs due to inefficiencies in production, more irregulars, etc.
Management believes these inefficiencies have abated in recent months.
Because of this increasing shift to offshore production, the Company
closed and sold one of its smaller domestic sewing facilities during
fiscal 1997, and has ceased operations at two other domestic facilities in
1998.
The Company is including the following cautionary statement in this Form 10-K to
make applicable and take advantage of the safe harbor provisions of the Private
Securities Litigation Reform Act of 1995 for any forward-looking statements made
by, or on behalf of, the Company. Forward-looking statements include statements
concerning plans, objectives, goals, strategies, future events or performance,
and underlying assumptions and other statements which are other than statements
of historical facts. From time to time, the Company may publish or otherwise
make available forward-looking statements of this nature. All such subsequent
forward-looking statements, whether written or oral and whether made by or on
behalf of the Company, are also expressly qualified by these cautionary
statements. Certain statements contained herein are forward-looking statements
and accordingly involve risks and uncertainties which could cause actual results
or outcomes to differ materially from those expressed in the forward-looking
statements. The forward-looking statements contained herein are based on various
assumptions, many of which are based, in turn, upon further assumptions. The
Company's expectations, beliefs and projections are expressed in good faith and
are believed by the Company to have a reasonable basis, including without
limitation, management's examination of historical operating trends, data
contained in the Company's records and other data available from third parties,
but there can be no assurance that management's expectation, beliefs or
projections will result or be achieved or accomplished. In addition to the other
factors and matters discussed elsewhere herein, the following factors are
important factors that, in the view of the Company, could cause actual results
to differ materially from those discussed in the forward-looking statements:
21
<PAGE>
1. Changes in economic conditions, in particular those which affect the
activewear market.
2. Changes in the availability and/or price of yarn, in particular, if
increases in the price of yarn are not passed along to the Company's
customers.
3. Changes in senior management or control of the Company.
4. Inability to obtain new customers or retain existing ones.
5. Significant changes in competitive factors, including product pricing
conditions, affecting the Company.
6. Governmental/regulatory actions and initiatives, including, those
affecting financings.
7. Significant changes from expectations in actual capital expenditures and
operating expenses.
8. Occurrences affecting the Company's ability to obtain funds from
operations, debt or equity to finance needed capital expenditures and
other investments.
9. Significant changes in rates of interest, inflation or taxes.
10. Significant changes in the Company's relationship with its employees and
the potential adverse effects if labor disputes or grievances were to
occur.
11. Changes in accounting principles and/or the application of such principles
to the Company.
The foregoing factors could affect the Company's actual results and could cause
the Company's actual results during fiscal 1998 and beyond to be materially
different from any anticipated results expressed in any forward-looking
statement made by or on behalf of the Company.
The Company disclaims any obligation to update any forward-looking statements to
reflect events or other circumstances after the date hereof.
ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
The Company believes that its potential exposure to market risk at January 30,
1999 is not material. The Company has an interest rate swap agreement in place
to hedge its exposure to interest rate risk. See Note 3- "Summary of Significant
Account Policies" and Note 14-"Fair Value of Financial Instruments" in Notes to
the Consolidated Financial Statements.
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
See page F-1, Index to Financial Statements, included elsewhere herein.
ITEM 9. CHANGES IN AND DISAGREEMENT WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL
DISCLOSURE
None.
22
<PAGE>
PART III
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT
With respect to the directors of the Company, the information required by Item
10 of Form 10-K appears on pages 1 through 3 of the Information Statement, and
is incorporated herein by reference.
Pursuant to General Instruction G to Form 10-K, the following information is
furnished concerning the executive officers and key employees of the Company.
EXECUTIVE OFFICERS AND
CERTAIN KEY EMPLOYEES OF ANVIL
The following sets forth certain information with respect to the executive
officers and certain key employees of Anvil.
<TABLE>
<CAPTION>
NAME AGE(1) POSITION
- ---- ------ --------
<S> <C> <C>
Bernard Geller.................65 President, Chief Executive Officer,
Chairman of the Board
Jacob Hollander................57 Executive Vice President, Chief Administrative Officer,
Secretary, General Counsel and Director
Anthony Corsano................39 Executive Vice President of Sales and Marketing
William H. Turner..............51 Executive Vice President of Manufacturing
Pasquale Branchizio............60 Vice President of Finance
</TABLE>
- ----------
(1) All ages are as of December 31, 1998.
BERNARD GELLER has served as the Chief Executive Officer of Anvil, President of
Holdings and has been a Director of Anvil and Holdings since the Acquisition.
Since the Recapitalization, Mr. Geller has served as Chairman of the Board of
Anvil and Holdings and since July 1997 as President of Anvil. From 1989 to 1995,
Mr. Geller served as Chairman of the Predecessor. From 1986 to 1989, Mr. Geller
served as President of the Predecessor and from 1975 to 1986, as Controller and
then President of the Predecessor. Before joining the Predecessor, Mr. Geller
was with Union Underwear Co., Inc., a subsidiary of Fruit of the Loom, Inc.,
where he worked for 14 years, principally as that company's controller.
JACOB HOLLANDER has served as Executive Vice President, Chief Administrative
Officer, Secretary and General Counsel of Anvil and Vice President, Secretary
and General Counsel of Holdings since the Acquisition. Since the
Recapitalization, Mr. Hollander has served as a Director of Anvil and Holdings.
From 1991 to 1995, Mr. Hollander served as Vice President and General Counsel of
Astrum. From 1985 to 1990, Mr. Hollander served as Vice President and General
Counsel of McGregor and Faberge, Incorporated, and from 1987 to 1989, Mr.
23
<PAGE>
Hollander also served as Vice President and General Counsel of Elizabeth Arden,
Inc. During 1990, Mr. Hollander provided legal consulting services to the
Unilever group of companies and to McGregor. Prior to its acquisition by
McGregor, Mr. Hollander was Vice President of Faberge, Incorporated.
ANTHONY CORSANO has served as Executive Vice President of Sales and Marketing of
Anvil since the Acquisition. From 1993 to 1995, Mr. Corsano served as Vice
President of Sales and Marketing of the Predecessor. From 1988 to 1993, Mr.
Corsano served as Vice President--Sales of the Predecessor and from 1985 to 1988
Mr. Corsano served as National Sales Manager of the Predecessor.
WILLIAM H. TURNER has served as Executive Vice President of Manufacturing of
Anvil since the Acquisition. From 1992 to 1995, Mr. Turner served as Executive
Vice President of Manufacturing of the Predecessor. From 1985 to 1992, Mr.
Turner held the position of Vice President of Manufacturing (Cut and Sew) of the
Predecessor and from 1982 to 1985 he was the Predecessor's Plant Manager.
PASQUALE BRANCHIZIO has served as Vice President of Finance of Anvil and
Holdings since the Acquisition. From 1986 until 1995, Mr. Branchizio served as
Vice President of Finance of the Predecessor. From 1981 to 1986, Mr. Branchizio
served as the Controller of the Predecessor. Prior thereto, Mr. Branchizio
served as the Predecessor's Senior Accountant.
ITEM 11. EXECUTIVE COMPENSATION
The information required by Item 11 of Form 10-K appears on pages 4 through 8 of
the Information Statement, and is incorporated herein by reference.
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
The information required by Item 12 of Form 10-K appears on pages 8 through 10
of the Information Statement, and is incorporated herein by reference.
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
The information required by Item 13 of Form 10-K appears on pages 11 through 12
of the Information Statement and is incorporated herein by reference.
24
<PAGE>
PART IV
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES, AND REPORTS ON FORM 8-K
(a) 1. Financial Statements - See Page F-1 for index to Financial
Statements
2. Financial Statement Schedules - Schedule II--Valuation and
Qualifying Accounts
All other schedules for which provision is made in the applicable accounting
regulations of the Securities and Exchange Commission are not required under the
related instructions, are inapplicable or not material, or the information
called for thereby is otherwise included in the financial statements and
therefore has been omitted.
(b) Reports on Form 8-K
None.
(c) Exhibits
NO. DESCRIPTION
- --- -----------
2.1 Recapitalization Agreement, dated as of February 12, 1997, by and among
Citicorp Venture Capital, Ltd., BRS,, Holdings, Anvil VT, Inc. and the
stockholders and voting trust certificate holders named on the signature
pages thereto, as amended by the certain Amendment and Consent to
Assignment dated as of February 21, 1997 and that Waiver and Second
Amendment to the Recapitalization Agreement dated as of March 13, 1997.(1)
3.1 Certificate of Incorporation of Anvil.(1)
3.2 Restated Certificate of Incorporation of Holdings.(4)
3.3 Certificate of Incorporation of Cottontops.(1)
3.4 By-Laws of Anvil.(1)
3.5 By-Laws of Holdings.(1)
3.6 By-Laws of Cottontops.(1)
3.7 Certificate of Designation of Holdings.(1)
3.8 Certificate of Designation of Holdings relating to Series B 13% Senior
Exchangeable Preferred Stock due 2009.(2)
4.1 Purchase Agreement, dated as of March 14, 1997, by and among Donaldson,
Lufkin & Jenrette Securities Corporation ("DLJ"), Wasserstein Perella
Securities, Inc. ("Wasserstein"), NationsBanc Capital Markets, Inc.
("NationsBanc"), Anvil and Holdings.(1)
25
<PAGE>
4.2 Senior Indenture, dated as of March 14, 1997, by and among the Anvil,
Holdings, Cottontops and the other Subsidiary Guarantors and United States
Trust Company of New York, as trustee.(1)
4.3 10-7/8% Senior Notes and Guarantees.(1)
4.4 Series B 10-7/8% Senior Notes and Guarantees.(2)
4.5 Registration Rights Agreement, dated as of March 14, 1997, by and among
Anvil, Holdings, Cottontops and DLJ, Wasserstein and NationsBanc, as
Initial Purchasers.(1)
4.6 Amended and Restated Credit Agreement, dated as of March 14, 1997, among
Anvil, as Borrower, Holdings, Cottontops and certain subsidiaries, as
Guarantors, the Banks Identified therein as lending institutions,
NationsBank, N.A. ("NationsBank"), as Agent, and Bank of America Illinois,
Banque Nationale de Paris and Heller Financial Inc., as co- agents.(1)
4.7 Amended and Restated Pledge and Security Agreement, dated as of March 14,
1997, by and among Anvil, Holdings and NationsBank.(1)
4.8 Loan and Security Agreement dated March 11, 1999 by and among Congress
Financial Corporation, Anvil , Holdings and Cottontops.
4.9 Term Promissory Note of Anvil dated March 11, 1999 payable to Congress
Financial Corporation.
4.10 Pledge and Security Agreement dated March 11, 199 between Congress
Financial Corporation and Holdings.
4.11 Pledge and Security Agreement dated March 11, 199 between Congress
Financial Corporation and Anvil.
10.1 Employment Agreement, dated as of January 31, 1995, by and between Anvil
and Bernard Geller.(1)
10.2 Employment Agreement, dated as of January 31, 1995, by and between Anvil
and Jacob Hollander.(1)
10.3 Employment Agreement, dated as of January 31, 1995, by and between Anvil
and William H. Turner.(1)
10.4 Employment Agreement, dated as of January 31, 1995, by and between Anvil
and Anthony Corsano.(1)
10.5 Exchange Debenture Indenture, dated as of March 14, 1997, by and between
Holdings and United States Trust Company of New York, as trustee.(1)
26
<PAGE>
10.6 Guaranty Agreement, dated as of January 28, 1995, by and among Culligan,
Astrum and Anvil.
10.7 Registration Rights Agreement, dated as of March 14, 1997, by and between
Holdings and DLJ, as the Initial Purchaser.(1)
10.8 Registration Rights and Securityholders Agreement, dated as of March 14,
1997, by and among Holdings, BRS, 399 Venture CCT II Partners, L.P.
("CCT") and DLJ.(1)
10.9 Registration Rights Agreement, dated as of March 14, 1997, by and among
Holdings, BRS, 399 Venture, CCT, Bernard Geller, Anthony Corsano, William
Turner, Jacob Hollander and each other executive of Holdings or its
subsidiaries who acquires common stock from Holdings after the date
thereof and executes a joinder thereto, the persons set forth on the
signature pages thereto and DLJ.(1)
10.10 Stockholders Agreement, dated as of March 14, 1997, by and among Holdings,
BRS, 399 Venture, CCT, Bernard Geller, Anthony Corsano, William Turner,
Jacob Hollander and each other person who acquires common stock of
Holdings after the date thereof and executes a joinder thereto.(1)
10.11 Stock Option Plan.(1)
10.12 Employment Agreement, dated as of January 31, 1997, by and between
Cottontops and Tom Glennon.(1)
10.13 Amendment No. 1 dated as of December 27, 1997 to Stockholders Agreement by
and among Holdings, BRS, 399 Venture, CCT, Bernard Geller, Anthony
Corsano, William Turner, Jacob Hollander and each other person who
acquires common stock of Holdings after the date thereof and executes a
joinder thereto(3)
10.14 Management Agreement dated November 3, 1998 among Anvil, Holdings, and
BRS.
21 Subsidiaries of Anvil, Holdings and Cottontops.
27.1 Financial Data Schedule.
(1) Previously filed with the Company's Registration Statement and Amendments
thereto on Form S-4 (SEC file No. 333-26999) and is incorporated herein by
reference.
(2) Previously filed with the Company's Form 10-Q for the Quarter ended August
2, 1997, and is incorporated herein by reference.
(3) Previously filed with the Company's Form 10-K for the Year ended January
31, 1998, and is incorporated herein by reference.
(4) Previously filed with the Company's Form 10-Q for the Quarter ended
October 31, 1998 , and is incorporated herein by reference.
27
<PAGE>
SIGNATURES
Pursuant to the requirements of section 13 or 15(d) of the Securities Exchange
Act of 1934, Anvil Holdings, Inc. has duly caused this report to be signed on
its behalf by the undersigned, thereunto duly authorized.
ANVIL HOLDINGS, INC.
By: /s/ JACOB HOLLANDER
----------------------------
Jacob Hollander
Vice President and Secretary
Pursuant to the requirements of the Securities Act of 1934, this report has been
signed by the following persons in the capacities and on the dates indicated:
SIGNATURE CAPACITY DATE
--------- -------- ----
/s/ BERNARD GELLER Chairman of the Board, APRIL 29, 1999
- ---------------------------- President and Director
Bernard Geller (Principal Executive
And Financial Officer)
/s/ JACOB HOLLANDER Vice President, Secretary APRIL 29, 1999
- ---------------------------- and Director
Jacob Hollander
/s/ PASQUALE BRANCHIZIO Vice President of Finance APRIL 29, 1999
- ---------------------------- (Principal Accounting Officer)
Pasquale Branchizio
/s/ BRUCE C. BRUCKMANN Director APRIL 29, 1999
- ----------------------------
Bruce C. Bruckmann
/s/ STEPHEN F. EDWARDS Director APRIL 29, 1999
- ----------------------------
Stephen F. Edwards
/s/ DAVID F. THOMAS Director APRIL 29, 1999
- ----------------------------
David F. Thomas
/s/ JOHN D. WEBER Director APRIL 29, 1999
- ----------------------------
John D. Weber
SUPPLEMENTAL INFORMATION TO BE FURNISHED WITH REPORTS FILED
PURSUANT TO SECTION 15(D) OF THE ACT BY REGISTRANTS
WHICH HAVE NOT REGISTERED SECURITIES PURSUANT TO
SECTION 12 OF THE ACT:
The Registrant has not sent an annual report or proxy material to its security
holders during the period covered by this report.
28
<PAGE>
ANVIL HOLDINGS, INC. AND SUBSIDIARIES
INDEX TO FINANCIAL STATEMENTS AND
FINANCIAL STATEMENT SCHEDULE
<TABLE>
<CAPTION>
PAGE
<S> <C>
Independent Auditors' Report.........................................................F-2
Consolidated Balance Sheets at January 31, 1998 and January 30, 1999.................F-3
Consolidated Statements of Operations for the years ended February 1, 1997,
January 31, 1998 and January 30, 1999...........................................F-4
Consolidated Statements of Cash Flows for the years ended February 1, 1997,
January 31, 1998 and January 30, 1999...........................................F-7
Consolidated Statements of Changes in Stockholders' Equity for the years ended
February 1, 1997, January 31, 1998 and January 30, 1999.........................F-6
Notes to Consolidated Financial Statements...........................................F-8
Schedule II --Valuation and Qualifying Accounts......................................S-1
</TABLE>
F-1
<PAGE>
INDEPENDENT AUDITORS' REPORT
To the Board of Directors and Stockholders of
Anvil Holdings, Inc.
We have audited the accompanying consolidated balance sheets of Anvil Holdings,
Inc. and subsidiaries as of January 31, 1998 and January 30, 1999, and the
related consolidated statements of operations, stockholders' deficiency, and
cash flows for the years ended February 1, 1997, January 31, 1998 and January
30, 1999. Our audits also included the financial statement schedule listed in
the index at Item 14(a)(2). These financial statements and financial statement
schedule are the responsibility of the Company's management. Our responsibility
is to express an opinion on these financial statements and financial statement
schedule based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, such consolidated financial statements present fairly, in all
material respects, the consolidated financial position of Anvil Holdings, Inc.
and subsidiaries as of January 31, 1998 and January 30, 1999 and the results of
their operations and their cash flows for the years ended February 1, 1997,
January 31, 1998 and January 30, 1999 in conformity with generally accepted
accounting principles. Also, in our opinion, the financial statement schedule,
when considered in relation to the basic consolidated financial statements taken
as a whole, presents fairly in all material respects the information set forth
therein.
/s/ Deloitte & Touche LLP
April 5, 1999
New York, New York
F-2
<PAGE>
ANVIL HOLDINGS, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(In Thousands, Except Share Data)
<TABLE>
<CAPTION>
JANUARY 31, JANUARY 30,
1998 1999
--------- ---------
ASSETS
<S> <C> <C>
CURRENT ASSETS:
Cash and cash equivalents ............................................ $ 959 3,397
Accounts receivable, less allowances for doubtful accounts of
$822 and $635 ...................................................... 27,271 31,232
Inventories .......................................................... 42,089 41,356
Prepaid and refundable income taxes .................................. 4,640 1,704
Deferred income taxes ................................................ 2,510 2,353
Prepaid expenses and other current assets ............................ 1,004 706
--------- ---------
Total current assets ..................................... 78,473 80,748
PROPERTY, PLANT AND EQUIPMENT--Net ..................................... 38,189 37,536
DEFERRED INCOME TAXES .................................................. -- 3,823
INTANGIBLE ASSETS--Net ................................................. 25,487 24,529
OTHER ASSETS ........................................................... 4,964 4,294
--------- ---------
$ 147,113 $ 150,930
========= =========
LIABILITIES AND STOCKHOLDERS' DEFICIENCY
CURRENT LIABILITIES:
Accounts payable ..................................................... $ 11,986 $ 7,181
Accrued expenses and other current liabilities ....................... 15,349 16,652
Current portion of long-term bank borrowings ......................... -- 6,500
--------- ---------
Total current liabilities ............................ 27,335 30,333
--------- ---------
LONG-TERM BANK BORROWINGS .............................................. 21,700 25,000
--------- ---------
10-7/8% SENIOR NOTES ................................................... 126,445 126,835
--------- ---------
DEFERRED INCOME TAXES .................................................. 4,613 5,276
--------- ---------
OTHER LONG-TERM OBLIGATIONS ............................................ 1,883 1,744
--------- ---------
REDEEMABLE PREFERRED STOCK
(Liquidation value $33,033 and $37,541) ........................... 31,392 36,139
--------- ---------
STOCKHOLDERS' DEFICIENCY:
Common stock
Class A, $.01 par value, 12.5% cumulative; authorized 500,000
shares, issued and outstanding: 290,000 (aggregate liquidation
value, $32,333 and $36,568) .................................... 3 3
Class B, $.01 par value, authorized 7,500,000 shares; issued and
outstanding: 3,590,000 shares .................................. 36 36
Class C, $.01 par value; authorized 1,400,000 shares; none issued
Additional paid-in capital ......................................... 12,803 12,803
Deficit ............................................................... (79,097) (87,239)
--------- ---------
Total stockholders' deficiency .............................. (66,255) (74,397)
--------- ---------
$ 147,113 $ 150,930
========= =========
</TABLE>
See notes to consolidated financial statements.
F-3
<PAGE>
ANVIL HOLDINGS, INC. AND SUBSIDIARIES
STATEMENTS OF OPERATIONS
(In Thousands, Except Share Data)
<TABLE>
<CAPTION>
FISCAL YEAR ENDED
-------------------------------------
FEBRUARY 1, JANUARY 31, JANUARY 30,
1997 1998 1999
--------- --------- ---------
<S> <C> <C> <C>
NET SALES ........................................... $ 204,154 $ 214,867 $ 217,302
COST OF GOODS SOLD .................................. 156,813 167,491 179,092
--------- --------- ---------
Gross profit ................................. 47,341 47,376 38,210
SELLING, GENERAL AND ADMINISTRATIVE
EXPENSES ......................................... 21,678 22,771 24,626
SPECIAL COMPENSATION ................................ -- 10,915 --
AMORTIZATION OF INTANGIBLE ASSETS ................... 958 958 958
--------- --------- ---------
Operating income ............................ 24,705 12,732 12,626
OTHER INCOME (EXPENSE):
Interest expense ................................ (7,912) (16,536) (18,344)
Interest income and other expense--net .......... 415 247 59
--------- --------- ---------
Income (loss) before provision (benefit)
for income taxes and extraordinary item .. 17,208 (3,557) (5,659)
PROVISION (BENEFIT) FOR INCOME TAXES ................ 6,883 (1,423) (2,264)
--------- --------- ---------
INCOME (LOSS) BEFORE
EXTRAORDINARY ITEM .............................. 10,325 (2,134) (3,395)
EXTRAORDINARY ITEM - Loss on extinguishment
of debt (net of tax benefit of $1,838) ........ -- (2,757) --
--------- --------- ---------
NET INCOME (LOSS) ................................... $ 10,325 (4,891) (3,395)
=========
Less Preferred Stock dividends (pro forma in 1998) (4,094) (4,585)
Less Common A preference (pro forma in 1998) ...... (3,798) (4,235)
--------- ---------
Net (loss) attributable to common stockholders .... $ (12,784) $ (12,215)
========= =========
BASIC INCOME (LOSS) PER COMMON SHARE:
Class A Common Stock:
Income before extraordinary item ................. $ 10.51 $ 11.46
Extraordinary item ............................... (.71) --
--------- ---------
Net income ....................................... $ 9.80 $ 11.46
========= =========
Class B Common Stock:
(Loss) before extraordinary item ................. $ (2.58) $ (3.15)
Extraordinary item ............................... (.71) --
--------- ---------
Net (loss) ....................................... $ (3.29) $ (3.15)
========= =========
Weighted average shares used in computation of
pro forma basic income (loss) per share:
Class A Common .................................... 290 290
========= =========
Class B Common .................................... 3,590 3,590
========= =========
</TABLE>
See notes to consolidated financial statements.
F-4
<PAGE>
ANVIL HOLDINGS, INC. AND SUBSIDIARIES
STATEMENTS OF CONSOLIDATED CASH FLOWS
(In Thousands, Except Share Data)
<TABLE>
<CAPTION>
FISCAL YEAR ENDED
-------------------------------------
FEBRUARY 1, JANUARY 31, JANUARY 30,
1997 1998 1999
-------- -------- --------
<S> <C> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income (loss) ........................................... $ 10,325 $ (4,891) $ (3,395)
Adjustments to reconcile net income (loss) to net
cash provided by operating activities:
Depreciation and amortization of fixed assets ............... 6,329 6,259 6,263
Amortization of intangible and other assets ................. 1,686 1,981 2,023
Write down of property and equipment ............................ 600 -- --
Provision (recovery) of bad debts-net ....................... 440 (52) (187)
Noncash interest expense .................................... 1,187 1,706 --
Write-off of deferred financing fees ........................ -- 3,010 --
Noncash compensation ........................................ -- 5,177 --
Deferred income taxes ....................................... 1,922 551 (1,584)
Changes in operating assets and liabilities, net of acquisition:
Accounts receivable ......................................... (5,878) 1,194 (3,899)
Inventories ................................................. 2,917 (9,618) 733
Prepaid, and refundable income taxes ........................ 1,477 700 2,936
Accounts payable ............................................ 707 2,626 (4,805)
Accrued expenses & other liabilities ........................ 1,169 3,437 1,303
Other--net .................................................. 930 (1,711) (1,121)
-------- -------- --------
Net cash provided (used) by operating activities ..... 23,811 10,369 (1,733)
-------- -------- --------
CASH FLOWS FROM INVESTING ACTIVITIES:
Acquisition, net of cash acquired ............................. (1,728) -- --
Purchases of property and equipment--net ...................... (4,791) (6,102) (5,629)
-------- -------- --------
Net cash used in investing activities ................ (6,519) (6,102) (5,629)
-------- -------- --------
</TABLE>
See notes to consolidated financial statements.
F-5
<PAGE>
ANVIL HOLDINGS, INC. AND SUBSIDIARIES
STATEMENTS OF CONSOLIDATED CASH FLOWS-CONTINUED
(In Thousands, Except Share Data)
<TABLE>
<CAPTION>
FISCAL YEAR ENDED
-------------------------------------
FEBRUARY 1, JANUARY 31, JANUARY 30,
1997 1998 1999
--------- --------- ---------
<S> <C> <C> <C>
CASH FLOWS FROM FINANCING ACTIVITIES:
Borrowings under new credit agreement-net ............ -- 26,500 9,800
Borrowings under old revolving credit facility ....... 15,100 -- --
Repayment of old revolving credit facility ........... (28,300) (19,200) --
Repayments of long-term debt ......................... (3,850) (46,325) --
Proceeds from exercise of stock options .............. 53 336 --
Repayment of Subordinated Promissory Note ............ -- (9,575) --
Proceeds of Senior Notes ............................. -- 130,000 --
Redemption of Old Preferred Stock .................... -- (22,736) --
Repurchase of Old Common Stock ....................... -- (92,262) --
Proceeds from sale of Units .......................... -- 26,667 --
Issuance of New Common Stock ......................... -- 13,063 --
Repayment of stockholder loans ....................... -- 250 --
Expenses related to the Recapitalization ............. -- (11,889) --
--------- --------- ---------
Net cash (used in) provided by
financing activities ....................... (16,997) (5,171) 9,800
--------- --------- ---------
INCREASE (DECREASE) IN CASH
AND CASH EQUIVALENTS ................................ 295 (904) 2,438
CASH AND CASH EQUIVALENTS,
BEGINNING OF YEAR ................................... 1,568 1,863 959
--------- --------- ---------
CASH AND CASH EQUIVALENTS,
END OF YEAR ......................................... $ 1,863 $ 959 $ 3,397
========= ========= =========
SUPPLEMENTAL CASH FLOW INFORMATION:
Cash paid for interest ............................... $ 6,036 $ 10,533 $ 17,206
========= ========= =========
Cash paid (received) for income taxes ................ $ 3,484 $ (2,123) $ (2,198)
========= ========= =========
SUPPLEMENTAL SCHEDULE OF NONCASH
INVESTING AND FINANCING ACTIVITIES:
Fair value of assets acquired, excluding cash ........ $ 3,049
Liabilities assumed .................................. (1,194)
Expenses incurred .................................... (127)
---------
Cash paid ............................................ $ 1,728
=========
Promissory note issued ............................... $ 250
=========
Exchange of Old Preferred Stock into Units ........... $ 3,333
=========
Redeemable Preferred Stock Issued in Lieu of Dividends $ 3,033 $ 4,585
========= =========
</TABLE>
See notes to consolidated financial statements.
F-6
<PAGE>
ANVIL HOLDINGS, INC. AND SUBSIDIARIES
STATEMENTS OF CHANGES IN CONSOLIDATED STOCKHOLDERS' EQUITY
(IN THOUSANDS)
<TABLE>
<CAPTION>
Common Stock
------------------------------------
Preferred Stock (Old) (New)
----------------- ----------------- ----------------- Additional Retained Loans
Class Class Class Class Class Class Class Class Class Paid-in Earnings Receivable-
A B C A B C A B C Capital (Deficit) Stockholders Total
--------------------------------------------------- ------- --------- ------------ -----
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Balance at January 27, 1996...... $1 $1 - $58 $26 $17 - - - $23,001 $ 10,154 $(250) $ 33,008
Exercise of stock options........ - 53 53
Net income....................... 10,325 10,325
-----------------------------------------------------------------------------------------------
Balance at February 1, 1997...... 1 1 - 58 26 17 - - - 23,054 20,479 (250) 43,386
Exercise of stock options........ 5 5,507 5,512
Repurchase and exchange of Old
Common Stock................... (58) (31) (17) 2 19 (8,563) (85,440) (94,088)
Redemption and exchange of Old
Preferred Stock................ (1) (1) (19,998) (6,025)
(26,025)
Common shares issued in
Units Offering................. 4 386 390
Repayment of stockholder loans... 250 250
Issuance of new common stock..... 1 13 13,049 13,063
Offering expenses attributable to
the sale of common stock ...... (632) (632)
Preferred stock dividends........ (3,033) (3,033)
Accretion of preferred stock..... (187) (187)
Net loss......................... (4,891) (4,891)
------------------------------------------------------------------------------------------------
Balance at January 31, 1998...... - - - - - 3 36 - 12,803 (79,097) - (66,255)
Preferred stock dividends........ (4,585) (4,585)
Accretion of preferred stock..... (162) (162)
Net loss......................... (3,395) (3,395)
------------------------------------------------------------------------------------------------
Balance at January 30,1999....... - - - - - $3 $36 - $12,803 $(87,239) - $(74,397)
================================================================================================
</TABLE>
See notes to consolidated financial statements.
F-7
<PAGE>
ANVIL HOLDINGS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED AND COMBINED FINANCIAL STATEMENTS
(IN THOUSANDS, EXCEPT SHARE DATA)
1. THE COMPANY
On January 28, 1995, Anvil Holdings, Inc., a Delaware corporation ("Holdings"),
and its wholly-owned subsidiary, Anvil Knitwear, Inc., a Delaware corporation
("Anvil"), acquired the assets and assumed certain liabilities of the Anvil
Knitwear division (the "Predecessor") from McGregor Corporation ("McGregor")
(the "Acquisition").
The Company is engaged in the business of designing, manufacturing and marketing
high quality activewear for men, women and children. The Company markets and
distributes its products, under private label and brand names, primarily to
wholesalers and screen printers, principally in the United States. The Company
reports its operations in one segment in accordance with Statement of Financial
Accounting Standards No. 131, DISCLOSURES ABOUT SEGMENTS OF AN ENTERPRISE AND
RELATED INFORMATION.
On January 31, 1997, Anvil, through its subsidiary, Cottontops, Inc.
("Cottontops") completed the acquisition of certain assets and assumption of
certain liabilities of a marketer and distributor of activewear products which,
prior to the acquisition, sold finished activewear products to the Company as
well as directly into the retail market. The acquisition has been accounted for
using the purchase method of accounting. The Company began consolidating the
results of operations of Cottontops effective February 2, 1997.
2. RECAPITALIZATION AND REFINANCING
Effective March 14, 1997, the Company completed a significant recapitalization
and refinancing plan, the major components of which are as follows:
On March 14, 1997, the Company, Anvil VT, Inc., Vestar Equity Partners, L.P.,
399 Venture Partners, Inc. and certain of its employees and affiliates
(collectively, "399 Venture"), certain management investors (the "Management
Investors") and other existing shareholders of the Company (collectively, the
"Existing Shareholders") and Bruckmann, Rosser, Sherrill & Co., L.P. and certain
of its employees and affiliates (collectively, "BRS") completed a reorganization
(the "Recapitalization") pursuant to which: (i) the Company redeemed or
repurchased a substantial portion of its outstanding shares of capital stock;
(ii) BRS contributed $13,063 for the purchase of new common stock; (iii) 399
Venture and the Management Investors reinvested a portion of their existing
shares of common stock of the Company, which were converted into shares of newly
issued common stock, and (iv) 399 Venture exchanged a portion of its existing
preferred stock for 3,333 shares of Senior Exchangeable Preferred Stock and new
common stock.
Concurrently with the Recapitalization, the Company sold 30,000 Units consisting
of (i) $30,000, 13% Senior Exchangeable Preferred Stock due 2009 and (ii)
390,000 shares of Class B common stock (the "Units Offering"). The Senior
Exchangeable Preferred Stock was recorded at $27,656
F-8
<PAGE>
representing the proceeds of $30,000, less $390 allocated to the Class B common
stock and $1,954 of expenses attributable to the Units offering. Additionally,
on March 14, 1997, Anvil sold $130,000 of 10-7/8% Senior Notes due 2007 ("Senior
Notes") in connection with the Recapitalization, repaid its borrowings under an
existing credit agreement (the "Old Credit Agreement") and entered into an
Amended and Restated Credit Agreement ("the "Credit Agreement"- See Note 8).
The net proceeds from the Units and Notes offerings and borrowings under the
Credit Agreement were used by the Company to: (i) redeem the outstanding common
stock and preferred stock; (ii) repay the balance outstanding under the Old
Credit Agreement; (iii) repay the subordinated debt; (iv) pay fees and expenses;
(v) pay a management bonus; and (vi) pay amounts due in accordance with the
Phantom Equity Plan (see Note 18).
During the year ended January 31, 1998, the Company recorded a special
compensation charge of $10,915, which consists of the compensation recorded upon
exercise of options by members of management, payment of a special transaction
bonus to management and payments under a then existing equity buy-out plan to
members of management.
The following summarizes the sources and uses of funds relating to the
Recapitalization
<TABLE>
<CAPTION>
SOURCES: (in millions)
<S> <C>
Borrowings under the Credit Agreement .......................... $ 33.3
Senior Notes due 2007 .......................................... 130.0
Units .......................................................... 26.7
Equity Contribution ............................................ 13.1
Other .......................................................... .6
------
Total sources ...................................... $203.7
======
USES:
Repay borrowings under the existing credit agreement ........... $ 61.1
Repay the Subordinated Note .................................... 9.5
Redeem or exchange the Old Preferred Stock ..................... 22.7
Repurchase shares of Old Common Stock .......................... 92.3
Payment under the Phantom Equity Plan .......................... 5.3
Payment of Management Bonus .................................... 0.5
Fees and expenses .............................................. 12.3
------
Total uses ......................................... $203.7
======
</TABLE>
3. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
FISCAL YEAR--The Company's operations are on a "52/53-week" fiscal year ending
on the Saturday closest to January 31. The year ended February 1, 1997 includes
53 weeks.
BASIS OF PRESENTATION--The accompanying consolidated financial statements
include the accounts of the Company and its wholly-owned subsidiaries, after
elimination of significant intercompany accounts and transactions.
USE OF ESTIMATES--The preparation of financial statements in conformity with
generally accepted accounting principles requires management to make certain
estimates and assumptions that affect the reported amounts of assets and
liabilities and disclosure of contingent assets and liabilities at the
F-9
<PAGE>
date of the financial statements and the reported amounts of revenues and
expenses during the reporting period. Actual results could differ from those
estimates.
CASH AND CASH EQUIVALENTS--Cash and cash equivalents include all highly liquid
investments with an original maturity of 90 days or less.
PROPERTY, PLANT AND EQUIPMENT--Property, plant and equipment is being
depreciated for financial reporting purposes principally using the straight-line
method over the estimated useful lives of the assets, ranging from 4 to 25
years. Leasehold improvements are amortized over the lesser of the estimated
useful life or the term of the lease.
INVENTORIES--Inventories are stated at the lower of cost or market, with cost
being determined by the first-in, first-out (FIFO) method.
INTANGIBLE ASSETS--Intangible assets of the Company consist of trademarks and
goodwill. Trademarks are being amortized over their estimated useful life of 17
years. Goodwill is being amortized over the period of expected benefit of 35
years.
EVALUATION OF LONG-LIVED ASSETS--Long-lived assets are continually assessed for
recoverability and particularly whenever events or changes in circumstances
indicate that an asset may have been impaired. In evaluating an asset for
recoverability, the Company estimates the future cash flows expected to result
from the use of the asset and eventual disposition. If the sum of the expected
future cash flows (undiscounted and without interest charges) is less than the
carrying amount of the asset, an impairment loss, equal to the excess of the
carrying amount over the fair value of the asset, is recognized. There were no
adjustments to the carrying amount of long-lived assets resulting from the
Company's evaluation for any periods presented in the accompanying financial
statements, except as described in Note 5.
DEFERRED FINANCING FEES--Included in other assets are deferred financing fees
(approximately $4,800 and $4,100 at January 31, 1998 and January 30, 1999,
respectively), which were being amortized over approximately six years to
coincide with the term of the Credit Agreement. As discussed in Note 8, on March
11, 1999, the Company entered into a new credit facility, and accordingly, the
unamortized balance of deferred financing fees will be written off during the
first quarter of fiscal 1999.
INTEREST RATE SWAPS--Gains and losses related to interest rate swaps that
qualify as hedges of existing liabilities are included in the carrying amount of
those liabilities and are ultimately recognized in income as adjustments to the
recorded interest expense. The Company does not hold or issue financial
instruments for trading or speculative purposes.
REVENUE RECOGNITION--Revenue is recognized at the time merchandise is shipped.
Allowances for sales returns and discounts are provided when sales are recorded.
INCOME TAXES--Income taxes have been accounted for in accordance with Statement
of Financial Accounting Standards ("SFAS") No. 109, ACCOUNTING FOR INCOME TAXES,
which requires the use of an asset and liability approach for financial
accounting and reporting of income taxes.
EARNINGS PER SHARE--Basic income (loss) per share is computed based upon the
average
F-10
<PAGE>
outstanding shares attributable to the Class A and Class B Common shares after
the Recapitalization, and assuming the Recapitalization took place at the
beginning of the fiscal year ended January 31, 1998.
RECLASSIFICATIONS--To facilitate comparison with the current fiscal year,
certain reclassifications have been made to prior year's financial statements.
NEW ACCOUNTING STANDARDS--In June 1998, the Financial Accounting Standards Board
issued Statement of Financial Accounting Standard ("SFAS") No. 133, "Accounting
for Derivative Instruments and Hedging Activities." This Statement establishes
accounting and reporting standards requiring that derivative instruments be
recorded in the balance sheet as either an asset or liability measured at fair
value and requires that changes in a derivative's fair value be recognized
currently in earnings unless specific hedge accounting criteria are met. SFAS
No. 133 is effective for fiscal years beginning after June 15, 1999; however, it
may be adopted earlier. It cannot be applied retroactively to financial
statements of prior periods. The Company has not yet quantified the impact on
its financial statements nor determined the timing or method of adopting SFAS
No. 133.
4. INVENTORIES
Inventories, valued at lower of cost or market, consist of the following:
<TABLE>
<CAPTION>
JANUARY 31, JANUARY 30,
1998 1999
---- ----
<S> <C> <C>
Finished goods.................... $ 22,505 $ 26,313
Work-in-process................... 9,830 9,441
Raw materials and supplies........ 9,754 5,602
--------- ---------
$ 42,089 $ 41,356
========= =========
</TABLE>
5. PROPERTY, PLANT AND EQUIPMENT
During the year ended February 1, 1997 the Company recorded a charge of $600
(equal to the amount by which the carrying value exceeded the estimated
realizable value) for the disposal of certain fixed assets. Property plant and
equipment consists of the following:
<TABLE>
<CAPTION>
JANUARY 31, JANUARY 30,
1998 1999
---- ----
<S> <C> <C>
Land........................................... $ 849 $ 849
Buildings and improvements..................... 14,763 15,271
Machinery, equipment, furniture and fixtures... 40,567 45,391
--------- --------
56,179 61,511
Less accumulated depreciation and amortization. (17,990) (23,975)
--------- --------
$ 38,189 $ 37,536
========= ========
</TABLE>
F-11
<PAGE>
6. INTANGIBLE ASSETS
Intangible assets consist of the following:
<TABLE>
<CAPTION>
JANUARY 31, JANUARY 30,
1998 1999
---- ----
<S> <C> <C>
Trademarks--net of accumulated
amortization of $858 and $1,144...... $ 4,000 $ 3,714
Goodwill--net of accumulated
amortization of $1,794 and $2,466.... 21,487 20,815
--------- --------
$ 25,487 $ 24,529
========= ========
</TABLE>
7. ACCRUED EXPENSES
<TABLE>
<CAPTION>
JANUARY 31, JANUARY 30,
1998 1999
---- ----
<S> <C> <C>
Accrued expenses consist of the following:
Accrued wages and bonuses........ $ 3,273 $ 2,906
Accrued interest payable......... 5,715 5,788
Other............................ 6,361 7,958
-------- -------
$ 15,349 $16,652
======== =======
</TABLE>
8. CREDIT AGREEMENTS
THE CREDIT AGREEMENT
In March 1997, Anvil entered into the Credit Agreement providing a $55,000
revolving credit facility, with a sublimit of $5,000 for letters of credit
expiring March 14, 2002, subject to certain maximum levels of borrowings based
upon asset levels. Anvil used $33,250 of the borrowings under the Credit
Agreement to finance a portion of the Recapitalization. Effective March 11,
1999, all amounts due under the Credit Agreement were repaid from the proceeds
of a new loan agreement (the "Loan Agreement") more fully described below.
Interest on borrowings under the Credit Agreement was payable at a rate equal
to LIBOR or the Alternate Base Rate (defined as the higher of (i) the lender's
prime rate and (ii) the Federal Funds rate plus 0.5%), each plus an applicable
margin ranging from 1.25% to 2.50% for LIBOR loans and 0.25% to 1.50% for
Alternate Base Rate loans, determined based upon attainment of certain financial
ratios.
At January 31, 1998 and January 30, 1999, the amounts outstanding under the
Credit Agreement were $21,700 and $31,500, bearing interest at 7.97% and 7.94%,
respectively. The weighted average interest rate on such debt during each of the
years ended January 31, 1998 and January 30, 1999 was approximately 7.88%. The
Company has classified $21,700 and $25,000 as a long-term liability at January
31, 1998 and January 30, 1999, respectively which represents amounts the Company
anticipates to continually refinance.
F-12
<PAGE>
NEW LOAN AGREEMENT
On March 11, 1999, Anvil entered into a Loan and Security Agreement (the "Loan
Agreement") providing for a maximum credit facility of $60,000 consisting of a
term loan (the "Term Loan") and a revolving credit facility (the "Revolving
Credit Facility"). The Term Loan is in the principal amount of $11,725, payable
in 20 equal quarterly principal installments of $586, commencing July 1, 1999.
The Loan Agreement eliminated the covenant ratio issues under the Credit
Agreement.
Anvil also borrowed $19,566 under the Revolving Credit Facility provided by the
same lender. The net proceeds of the Loan Agreement were used to repay all
amounts due under the Credit Agreement. The Revolving Credit Facility expires
March 11, 2002, and amounts due under it and the Term Loan are secured by
substantially all the inventory, receivables and property, plant and equipment
of Anvil. Holdings and Cottontops guaranty amounts due under the Loan Agreement.
Interest on the Term Loan and the Revolving Credit Facility are at prime plus
one-half percent or LIBOR plus 2-1/2%, at the Company's option.
Holdings and Cottontops guaranty amounts due under the Loan Agreement.
9. SENIOR NOTES
On March 14, 1997, Anvil issued $130,000 of 10-7/8% Senior Notes (the "Senior
Notes") due March 15, 2007 and received proceeds of $126,100 net of debt
discount of $3,900. Interest on the notes is payable semiannually on March 15
and September 15. Prior to March 15, 2000, the Company may redeem up to 40% of
the aggregate principal amount of the Senior Notes outstanding at a redemption
price of 110%. The Company may redeem the Senior Notes at a redemption price of
105.438%, 103.625%, and 101.813% at any time during the 12-month period
beginning on March 15, 2002, 2003 and 2004, respectively and at 100% thereafter.
The Senior Notes are guaranteed by the Company and Cottontops, are senior
unsecured obligations of the Company and rank senior in right of payment to all
subordinated indebtedness of the Company and PARI PASSU in right of payment with
all existing and future senior indebtedness, including borrowings under the Loan
Agreement. The indenture relating to the Senior Notes contains certain
covenants, including restrictions on additional indebtedness, certain asset
sales, and the payment of dividends.
Anvil completed an exchange offer which expired August 22, 1997, pursuant to
which its 10-7/8% Series A Senior Notes were exchanged on a dollar-for-dollar
basis for its 10-7/8% Series B Senior Notes, due 2007. Pursuant to the exchange
offer, $129,000 principal amount were validly tendered and exchanged. The terms
and conditions of the aforementioned Series B securities are substantially
identical to the Series A securities for which they were exchanged, except that
the Series B securities have been registered under the Securities Act of 1933,
as amended.
10. RELATED PARTY TRANSACTIONS
Concurrent with the Acquisition, the Company entered into a management agreement
with Vestar Equity Partners L.P. ("Vestar"), Citicorp Venture Capital, Ltd.
("CVC") and Culligan through January 2005, whereby Vestar provided advisory and
consulting services to the Company and its subsidiaries, and CVC and Culligan,
in turn, provided consulting services to Vestar, when requested
F-13
<PAGE>
in connection with the fulfillment by Vestar, of Vestar's obligation to the
Company. In exchange for these services, the Company paid management fees
aggregating $472 during the year ended February 1, 1997. Pursuant to the terms
and conditions of the Recapitalization and the Units and Notes Offerings, the
management agreement was terminated.
Anvil, Holdings and Cottontops have entered into a management agreement with BRS
(the "Management Agreement"), effective as of the Recapitalization, whereby BRS
is to provide certain advisory and consulting services in relation to the
affairs of Anvil, Holdings and Cottontops, including services in connection with
strategic financial planning, and the selection, retention and supervision of
investment bankers or other financial advisors or consultants. Annual fees under
the Management Agreement are $250.
Holdings' Articles of Incorporation now provide for an additional special
dividend on its Series 1-Class A Common Stock, all of which is held by 399
Venture and its affiliates. In lieu of such dividend, Holdings has agreed to pay
399 Venture financing fees in the aggregate annual amount of $250 from the date
of the Recapitalization.
11. EXTRAORDINARY ITEMS
In connection with the Acquisition (see Note 1), the Company issued a
subordinated promissory note (the "Note") to Culligan in the principal amount of
$7,500, due January 30, 2005, or earlier upon a change in ownership, as defined.
The Note was recorded at the fair value of the property received and the
discount ($1,600 at February 1, 1997) was being amortized on a straight-line
basis over the term of the Note. Principal and interest on the Note was prepaid
on March 14, 1997. In connection with such repayment, the Company recorded an
extraordinary loss of $1,585, before a tax benefit of $634 representing the
balance of the unamortized debt discount.
In connection with the repayment of the Old Credit Agreement (See Note 8), the
Company recorded an extraordinary charge of $3,010 before a tax benefit of
$1,204, to write off the balance of related deferred financing fees.
The Company will record an extraordinary charge of approximately $480 (net of
taxes) during the first quarter of fiscal 1999, in connection with the Loan
Agreement and concurrent repayment of repayment of the Credit Agreement (See
Note 8). Such amount represents the write off of deferred financing fees and
other costs related to that refinancing.
12. INCOME TAXES
The provision (benefit) for income taxes consists of the following:
<TABLE>
<CAPTION>
YEAR ENDED
FEBRUARY 1, JANUARY 31, JANUARY 30,
1997 1998 1999
---- ---- ----
<S> <C> <C> <C>
Current:
Federal.............. $ 4,337 $ (3,335) $ (680)
State and local...... 624 (477) --
Deferred............. 1,922 551 (1,584)
-------- -------- -------
$ 6,883 $ (3,261) $(2,264)
======== ======== =======
</TABLE>
F-14
<PAGE>
Deferred income taxes (benefit), resulting from differences between accounting
for financial statement purposes and accounting for tax purposes were as
follows:
<TABLE>
<CAPTION>
YEAR ENDED
-----------------------------------
FEBRUARY 1, JANUARY 31, JANUARY 30,
1997 1998 1999
------- ------- -------
<S> <C> <C> <C>
Depreciation ............................... $ 2,268 $ 1,215 $ 760
Expenses capitalized to inventory .......... 57 (397) 85
Amortization of goodwill ................... 300 303 144
Accretion of Subordinated Promissory Note .. (80) --
Insurance reserves ......................... (240) --
Accrued expenses not deductible until paid . (383) 70 (514)
Basis difference in Seller Note ............ -- (640) --
Net operating loss ......................... -- -- (2,059)
------- ------- -------
$ 1,922 $ 551 $(1,584)
======= ======= =======
</TABLE>
A reconciliation of the statutory Federal tax rate and the effective rate is as
follows:
<TABLE>
<CAPTION>
YEAR ENDED
-----------------------------------
FEBRUARY 1, JANUARY 31, JANUARY 30,
1997 1998 1999
------- ------- -------
<S> <C> <C> <C>
Federal statutory tax rate ................. 35% 35% 35%
State and local taxes --net of
Federal income tax benefit ............. 5 5 5
------- ------- -------
40% 40% 40%
======= ======= =======
</TABLE>
The tax effects of temporary differences that give rise to a significant portion
of the deferred tax assets and liabilities are presented below:
<TABLE>
<CAPTION>
JANUARY 31, JANUARY 30,
1998 1999
------- -------
<S> <C> <C>
Deferred tax assets:
Inventories ................................... $ 1,583 $ 662
Net operating loss carryforward ............... -- 3,824
Reserves not currently deductible ............. 687 1,450
Accounts receivable reserves and other ........ 240 240
------- -------
Total deferred tax assets ................ 2,510 6,176
------- -------
Deferred tax liabilities:
Property, plant and equipment ................. (2,683) (3,389)
Goodwill and trademarks ....................... (1,930) (1,887)
------- -------
Total deferred tax liabilities .......... (4,613) (5,276)
------- -------
Net deferred tax liability .................... $(2,103) $ (900)
======= =======
</TABLE>
At January 30, 1999, the Company had an aggregate net operating loss
carryforward of approximately $9,600, with expirations beginning in the year
2013
F-15
<PAGE>
13. INCOME (LOSS) PER SHARE
Net income (loss) per share as presented in the accompanying statements of
operations is computed by dividing net income (loss) applicable to each class of
Common Stock by the average number of shares of such stock outstanding. For the
year ended January 31, 1998 the computation assumes that the Recapitalization
had occurred at the beginning of that fiscal year. Following is the computation
of the per share amounts as presented in the Statement of Operations:
<TABLE>
<CAPTION>
YEAR ENDED
--------------------------
JANUARY 31, JANUARY 30,
1998 1999
---------- ----------
<S> <C> <C>
Net (loss) attributable to common stockholders .... $ (12,784) $ (12,215)
========== ==========
Preference per Class A common share ............... $ 13.10 $ 14.61
Net (loss) per common share ....................... (3.29) (3.15)
---------- ----------
Net income per Class A common share................ $ 9.80 $ 11.46
========== ==========
Net (loss) per Class B common share .............. $ (3.29) $ (3.15)
========== ==========
</TABLE>
The following table presents basic net income (loss) per share for the year
ended January 31, 1998 using the historical shares outstanding, and is computed
by dividing net income (loss) applicable to each class of Common Stock by the
actual average number of commons shares outstanding during that year. Such
computation does not give retroactive effect to the Recapitalization.
<TABLE>
<CAPTION>
FISCAL YEAR ENDED
JANUARY 31,
1998
<S> <C>
Net (loss) ............................................... $ (4,891)
Less: preferred dividends ................................ (2,805)
Class A common preference ....................... (3,021)
--------
Net (loss) applicable to common stockholders ............. $(10,717)
========
Preference per Class A common share ...................... $ 9.67
Net income (loss) per common share (all classes) ......... (2.35)
--------
Net income per Class A common share ...................... $ 7.32
========
Net income (loss) per Class B common share .............. $ (2.35)
========
Weighted average shares used in computation
of basic income (loss) per share:
Class A Common ..................................... 928
Class B Common ..................................... 3,633
</TABLE>
14. FAIR VALUE OF FINANCIAL INSTRUMENTS
In March 1995, Anvil entered into interest rate swap agreements for an aggregate
notional amount of $25,000 to manage its interest rate risk. At January 30, 1999
the amount was reduced to $10,000 as the result of the maturities and
non-renewals. Under these interest rate swaps, Anvil receives interest at LIBOR,
reset quarterly, and pays interest at the weighted average fixed rate of 7.3%.
Interest payments and receipts commenced September 1995 and occur quarterly. The
swap
F-16
<PAGE>
agreements have terms of three and five years. The Company does not hold or
issue financial instruments for trading purposes.
The Company is exposed to credit-related losses in the event of nonperformance
by counterparties to swap agreements, but it does not expect any counterparties
to fail to meet their obligations given their high credit ratings. The fair
value of interest rate swaps at January 31, 1998 and January 30, 1999 is
approximately $534 and $345, respectively and reflects the estimated amount that
the Company would pay to terminate the contracts at such dates. The fair value
information has been obtained from dealer quotations.
The carrying amounts of all other financial instruments reported in the
accompanying consolidated balance sheets approximate their fair value.
Considerable judgment is required in interpreting certain market data to develop
estimated fair values for certain financial instruments. Accordingly, the
estimates presented herein are not necessarily indicative of the amounts that
the Company could realize in a current market exchange.
15. EMPLOYEE SAVINGS PLAN
The Company has a savings plan (the "Plan") under which eligible employees may
contribute up to 16%, subject to certain limitations, of their compensation. The
Company matches 100% of the contributions up to the first 3% and 50% of the next
3%. During the years ended February 1, 1997, January 31, 1998 and January 30,
1999, the Company made contributions to the Plan aggregating $1,059, $1,011 and
$1,022, respectively.
16. CAPITAL STRUCTURE
All shares of preferred and common stocks under the Company's old capital
structure were redeemed or exchanged in connection with the Recapitalization.
The capital structure at January 31, 1998 and January 30, 1999 was as follows:
REDEEMABLE PREFERRED STOCK--In connection with the Units Offering, in March
1997, the Company issued 1,200,000 shares of 13% Senior Exchangeable Preferred
Stock ("Redeemable Preferred Stock") due 2009. Total shares authorized are
2,300,000. Dividends accrue quarterly at 13% on the sum of the liquidation value
($25 per share) plus accumulated and unpaid dividends thereon. Through March 15,
2002 the Company may, at its option, pay dividends in cash or in additional
fully paid and non-assessable shares of Redeemable Preferred Stock having an
aggregate liquidation preference equal to the amount of such dividends. On any
scheduled dividend payment date, the Company may, at its option, but subject to
certain conditions, exchange all but not less than all of the shares of
Redeemable Preferred Stock then outstanding for the Company's 13% Subordinated
Exchange Debentures due 2009 ("Exchange Debentures"). The Redeemable Preferred
Stock or the Exchange Debentures, if issued, will be redeemable at the option of
the Company, in whole or in part, at any time on or after March 15, 2002, at the
redemption price of 101% of the liquidation preference or aggregate principal
amount thereof (as the case may be), plus, in the case of the Redeemable
Preferred Stock, an amount equal to all accumulated and unpaid dividends per
share to the date of purchase, or in the case of the Exchange Debentures, an
amount equal to all accumulated and unpaid interest thereon to the date of
purchase. On March 15, 2009, the Company is required to redeem all outstanding
shares of the Redeemable Preferred Stock at an amount equal to the liquidation
preference and all accumulated and unpaid dividends. The Redeemable Preferred
Stock
F-17
<PAGE>
was recorded at an amount equal to the proceeds (net of discounts) less an
amount attributable to the Class B Common Stock issued in Connection with the
Units Offering.
The Class A Common Stock accretes liquidation value at the rate of 12.5% per
annum, compounded quarterly, payable in shares of Class A Common Stock.
Holders of Class B Common Stock are entitled to one vote per share on all
matters to be voted on by stockholders, while holders of Class A Common Stock
and Class C Common Stock have no right to vote on any matters except in special
circumstances, such as a merger, consolidation, recapitalization or
reorganization of the Company.
As required by the Certificate of Designations relating to the 13% Senior
Exchangeable Preferred Stock, the Company has paid stock dividends aggregating
301,626 shares ($7,541 liquidation value) through the year ended January 30,
1999.
Holdings completed an exchange offer which expired August 26, 1997 (as
extended), pursuant to which its 13% Series A Senior Exchangeable Preferred
Stock was exchanged on a share-for-share basis for its 13% Series B Senior
Exchangeable Preferred Stock, due 2009. Pursuant to the exchange offer,
1,198,566 shares ($29,964 liquidation value) were validly tendered and
exchanged. The terms and conditions of the aforementioned Series B securities
are substantially identical to the Series A securities for which they were
exchanged, except that the Series B securities have been registered under the
Securities Act of 1933, as amended.
17. STOCK OPTION PLAN AND AGREEMENTS
STOCK OPTION PLAN--During fiscal 1997, the Company adopted a stock option plan
which authorizes the granting of options for approximately 5.0% of the
outstanding Class B Common Stock on a fully diluted basis (the " Stock Option
Plan"). The options under the Stock Option Plan may be granted to certain
members of management and key employees and are subject to time and performance
vesting provisions. The exercise price of such options is the fair market value
of the Common Stock as of the date of grant. Options to purchase 90,000 shares
were granted to certain officers and key employees on May 29, 1997 at an
exercise price of $1 per share, the fair value at date of grant. These options
(none of which are exercisable) are outstanding at January 30, 1999 and January
31, 1998. No options were granted, exercised, or canceled in fiscal 1998. The
weighted average fair value of options granted in fiscal 1997 was $1.00. The
fair value of each stock option grant is estimated on the date of grant using
the Black-Scholes option pricing model with the following weighted average
assumptions used for grants in fiscal 1997: risk-free interest rate of 5.75%;
expected dividend yield of 0%; expected life of 10 years; and expected
volatility of 0%.
The Company accounts for its stock option plans in accordance with Accounting
Principles Board Opinion No. 25, under which no compensation cost is recognized
for stock option awards. Had compensation cost been determined consistent with
Statement of Financial Accounting Standards No. 123, ACCOUNTING FOR STOCK-BASED
COMPENSATION ("SFAS 123"), the effect on the Company's results of operations
would have been less than $10 for fiscal 1997 and fiscal 1998, which is
immaterial to the financial statements. The SFAS 123 method of accounting has
not been applied to options granted under the prior stock option plan since all
options under that plan have been exercised in connection with the
Recapitalization.
F-18
<PAGE>
PHANTOM EQUITY PLAN--As provided for in the "Phantom Equity Plan" upon sale of
the Company or under certain other circumstances, certain Management Investors
were to be paid 5% of the excess of the aggregate sale price over $100,000. In
connection with the Recapitalization, the Management Investors were paid $5,300
in accordance with the Phantom Equity Plan at which time the Phantom Equity Plan
was terminated. The $5,300 was charged to expense as "special compensation" in
the year ended January 31, 1998. See Note 2.
18. COMMITMENTS AND CONTINGENCIES
LEASES--The Company is obligated under various leases for equipment, office
space and distribution facilities which expire at various dates through 2002.
Future minimum rental commitments under noncancelable operating leases, with
terms in excess of one year, are as follows:
<TABLE>
<CAPTION>
Fiscal Year Ending:
<S> <C>
2000............................................. $1,279
2001............................................. 1,062
2002............................................. 696
2003............................................. 396
2004............................................. 86
-------
Total....................................... $ 3,519
=======
</TABLE>
Rental expense for the years ended February 1, 1997 and January 31, 1998 and
January 30, 1999 was $620, 956 and $1,218, respectively.
LITIGATION--The Company is a party to various litigation matters incidental to
the conduct of its business. The Company does not believe that the outcome of
any of the matters in which it is currently involved will have a material
adverse effect on the financial condition or results of operations of the
Company.
Prior to the Acquisition, groundwater contamination was discovered at the
Asheville, North Carolina facility. In 1990, Winston Mills, Inc., a subsidiary
of McGregor, entered into an Administrative Order on Consent ("AOC") with the
North Carolina Department of Environment, Health and Natural Resources ("DEHNR")
concerning such contamination. Since that time, McGregor has been conducting
investigative and corrective action under DEHNR oversight and has remained
responsible to the DEHNR with respect to the contamination that is subject to
the AOC. While the total cost of the cleanup at the facility will depend upon
the extent of contamination and the corrective action approved by the DEHNR,
preliminary cleanup cost estimates range from $1.0 to $4.0 million. McGregor
continues to be a party to the Asheville, North Carolina facility's hazardous
waste permit and Culligan, an affiliate of McGregor, has guaranteed McGregor's
obligations under the AOC. McGregor also contractually agreed to fully indemnify
the Company with respect to the contamination as part of the terms of the
Acquisition. This indemnity is guaranteed by Culligan and by Astrum (now known
as Samsonite Corporation) in the event Culligan is unable to perform its
guarantor obligations. The Company could be held responsible for the cleanup of
this contamination if McGregor, Culligan and Samsonite were all to become unable
to fulfill their obligations to DEHNR and the Company was not successful in
obtaining indemnification for the clean-up from either McGregor, Culligan or
Astrum.
F-19
<PAGE>
McGregor also agreed to fully indemnify the Company for any costs associated
with certain other environmental matters identified at the time of the
Acquisition. The Company believes that, even if McGregor were unable to fulfill
its indemnification obligations, these other matters would not have a material
adverse effect on the Company. McGregor also agreed to indemnify the Company,
subject to certain limitations, with respect to environmental liabilities that
arise from events that occurred or conditions in existence prior to the
Acquisition. Culligan and Astrum have also guaranteed McGregor's obligations
under these indemnities.
EMPLOYMENT AGREEMENTS--The Company has entered into employment agreements which
currently expire January 31, 2000, with annual renewals thereafter, with certain
senior executives providing for minimal annual compensation, plus bonuses equal
to 4% of the Company's annual profits, as defined. At January 30, 1999, the
aggregate minimum obligation under the remaining terms of these employment
agreements is approximately $965. If an executive is terminated without cause,
or if the executive terminates his employment under certain circumstances, as
provided, the Company is liable for termination payments through the end of the
agreement. Additionally, under certain circumstances, the Company may be liable
for additional termination benefits up to a period not exceeding two years.
19. SUMMARIZED FINANCIAL DATA OF CERTAIN WHOLLY-OWNED SUBSIDIARIES
Following is the summarized balance sheet data of Anvil and Cottontops.
Cottontops is a wholly-owned subsidiary of Anvil, which is a wholly-owned
subsidiary of Holdings.
<TABLE>
<CAPTION>
ANVIL KNITWEAR, INC. COTTONTOPS, INC.
----------------------- -------------------------
JANUARY 31, JANUARY 30, JANUARY 31, JANUARY 30,
1998 1999 1998 1999
---- ---- ---- ----
<S> <C> <C> <C> <C>
Current assets .................. $ 78,473 $ 83,908 $3,825 $ 882
========= ========= ====== ======
Total assets .................... $ 147,113 $ 148,626 $4,166 $1,863
========= ========= ====== ======
Current liabilities ............. $ 27,335 $ 30,333 $ 550 $ 287
========= ========= ====== ======
Long-term liabilities ........... $ 154,641 $ 158,192 $1,854 --
========= ====== ======
Total liabilities ............... $ 181,976 $ 188,525 $2,404 $ 287
========= ========= ====== ======
Stockholder's equity (deficiency) $ (34,863) $ (38,258) $1,762 $1,576
========= ========= ====== ======
</TABLE>
Following is the summarized statement of operations data of Anvil and Cottontops
for the periods indicated:
<TABLE>
<CAPTION>
ANVIL KNITWEAR, INC. COTTONTOPS, INC.
YEAR ENDED YEAR ENDED
------------------------------------- -------------------------
JANUARY 27, JANUARY 31, JANUARY 30, JANUARY 31, JANUARY 30,
1997 1998 1999 1998 1999
<S> <C> <C> <C> <C> <C>
Net sales ............. $204,154 $ 214,867 $ 217,302 $ 3,731 $3,583
======== ========= ========= ======= ======
Operating income (loss) $ 24,705 $ 12,732 $ 12,626 $ (222) $ 85
======== ========= ========= ======= ======
Interest expense ...... $ 6,725 $ 16,415 $ 18,344 -- --
========= ======= ======
Net income (loss) ..... $ 11,037 $ (4,818) $ (3,395) $ (131) $ 62
======== ========= ========= ======= ======
</TABLE>
F-20
<PAGE>
Holdings and Cottontops have fully and unconditionally, jointly and severally
guaranteed the Series A Senior Notes and the Series B Senior Notes. Complete
financial statements and other disclosures concerning Anvil and Cottontops are
not presented because management has determined they are not material to
investors. Holdings has no independent operations apart from its wholly-owned
subsidiary, Anvil, and its sole asset is the capital stock of Anvil. Anvil is
Holding's only direct subsidiary. In addition to Cottontops, Anvil has three
other non-guarantor direct subsidiaries: Anvil (Czech), Inc., a Delaware
corporation, A.K.H., S.A., organized in Honduras and Livna, Limitada organized
in El Salvador, one non-guarantor indirect subsidiary, Anvil s.r.o., organized
in the Czech Republic (a direct subsidiary of Anvil (Czech), Inc.)
(collectively, the "Non-Guarantor Subsidiaries"). Other than as stated herein,
there are no other direct or indirect subsidiaries of the Company. Management
believes the Non-Guarantor Subsidiaries are inconsequential both individually
and in the aggregate.
20. QUARTERLY FINANCIAL INFORMATION (UNAUDITED)
<TABLE>
<CAPTION>
FISCAL 1997 FISCAL 1998
QUARTER QUARTER
-------------------------------------------- --------------------------------------------
FIRST SECOND THIRD FOURTH FIRST SECOND THIRD FOURTH
----- ------ ----- ------ ----- ------ ----- ------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Net sales ...................... $ 60,288 $ 51,745 $ 53,708 $ 49,126 $ 64,892 $ 62,183 $ 43,400 $ 46,827
Gross profit ................... 14,429 12,031 10,982 9,934 13,061 11,514 5,874 7,761
Operating profit (loss) ........ (2,864) 6,318 4,845 4,433 5,919 5,232 (564) 2,039
Income (loss) before extra-
ordinary item ................ (3,710) 1,222 341 13 822 454 (3,111) (1,560)
Net income (loss) .............. (6,467) 1,222 341 13 822 454 (3,111) (1,560)
Basic Income (loss) per share:
(Pro Forma in fiscal 1997)
Class A Common Stock:
Income (loss) before extra-
ordinary item ........... $ (0.82) $ 2.98 $ 2.87 $ 2.89 $ 3.15 $ 3.16 $ 2.34 $ 2.81
======== ======== ======== ======== ======== ======== ======== ========
Net income ............... $ (1.42) $ 2.98 $ 2.87 $ 2.89 $ 3.15 $ 3.16 $ 2.34 $ 2.81
======== ======== ======== ======== ======== ======== ======== ========
Class B Common Stock:
Income (loss) before extra-
ordinary item ........... $ (0.82) $ (0.14) $ (0.35) $ (0.44) $ (0.33) $ (0.44) $ (1.38) $ (1.01)
======== ======== ======== ======== ======== ======== ======== ========
Net Income ................ $ (1.42) $ (0.14) $ (0.35) $ (0.44) $ (0.33) $ (0.44) $ (1.38) $ (1.01)
======== ======== ======== ======== ======== ======== ======== ========
</TABLE>
F-21
<PAGE>
SCHEDULE II
ANVIL HOLDINGS, INC. AND SUSIDIARIES
VALUATION AND QUALIFYING ACCOUNTS
<TABLE>
<CAPTION>
Balance at Charged to Charged to Balance at
Beginning costs and other end of
Description of Year Expenses Accounts Deductions Year
----------- ------- -------- -------- ---------- ----
<S> <C> <C> <C> <C>
Year ended February 1, 1997
Allowance for doubtful accounts...... $ 451 $ 440 $ 17(a) $ 874
====== ====== ===== ======
Year ended January 31, 1998
Allowance for doubtful accounts...... $ 874 $ 400 $ 452(a) $ 822
====== ====== ===== ======
Year ended January 30, 1999
Allowance for doubtful accounts...... $ 822 $ 498 $ 685(a) $ 635
====== ====== ===== ======
</TABLE>
- ----------
(a) Accounts written off as uncollectible.
S-1
<PAGE>
EXHIBIT 4.8
LOAN AND SECURITY AGREEMENT
by and among
CONGRESS FINANCIAL CORPORATION
as Lender
and
ANVIL KNITWEAR, INC.
as Borrower
ANVIL HOLDINGS, INC.
and
COTTONTOPS, INC.
as Guarantors
Dated: March 11, 1999
<PAGE>
TABLE OF CONTENTS
<TABLE>
<CAPTION>
Page
----
<S> <C>
SECTION 1. DEFINITIONS......................................................................................... 1
SECTION 2. CREDIT FACILITIES................................................................................... 21
2.1 Revolving Loans............................................................................... 21
2.2 Letter of Credit Accommodations............................................................... 23
2.3 Availability Reserves......................................................................... 25
SECTION 3. INTEREST AND FEES................................................................................... 26
3.1 Interest...................................................................................... 26
3.2 Closing Fee................................................................................... 27
3.3 Servicing Fee................................................................................. 27
3.4 Unused Line Fee............................................................................... 27
3.5 Changes in Laws and Increased Costs of Loans.................................................. 28
SECTION 4. CONDITIONS PRECEDENT................................................................................ 28
4.1 Conditions Precedent to Initial Loans and Letter of Credit Accommodations..................... 28
4.2 Conditions Precedent to All Loans and Letter of Credit Accommodations......................... 30
SECTION 5. GRANT OF SECURITY INTEREST.......................................................................... 31
SECTION 6. COLLECTION AND ADMINISTRATION....................................................................... 33
6.1 Borrower's Loan Account....................................................................... 33
6.2 Statements.................................................................................... 33
6.3 Collection of Accounts........................................................................ 33
6.4 Payments...................................................................................... 34
6.5 Authorization to Make Loans................................................................... 35
6.6 Use of Proceeds............................................................................... 35
SECTION 7. COLLATERAL REPORTING AND COVENANTS.................................................................. 36
7.1 Collateral Reporting.......................................................................... 36
7.2 Accounts Covenants............................................................................ 36
7.3 Inventory Covenants........................................................................... 38
7.4 Equipment and Real Property Covenants......................................................... 39
7.5 Bills of Lading and Other Documents of Title.................................................. 39
7.6 Power of Attorney............................................................................. 40
7.7 Right to Cure................................................................................. 41
7.8 Access to Premises............................................................................ 41
</TABLE>
(1)
<PAGE>
<TABLE>
<CAPTION>
<S> <C>
SECTION 8. REPRESENTATIONS AND WARRANTIES...................................................................... 41
8.1 Corporate Existence, Power and Authority; Subsidiaries........................................ 41
8.2 Financial Statements; No Material Adverse Change.............................................. 42
8.3 Chief Executive Office; Collateral Locations.................................................. 42
8.4 Priority of Liens; Title to Properties........................................................ 42
8.5 Tax Returns................................................................................... 43
8.6 Litigation.................................................................................... 43
8.7 Compliance with Other Agreements and Applicable Laws.......................................... 43
8.8 Environmental Compliance...................................................................... 44
8.9 Employee Benefits............................................................................. 45
8.10 Bank Accounts................................................................................. 45
8.11 Accuracy and Completeness of Information...................................................... 45
8.12 Senior Note Indenture......................................................................... 46
8.13 Survival of Warranties; Cumulative............................................................ 46
SECTION 9. AFFIRMATIVE AND NEGATIVE COVENANTS.................................................................. 46
9.1 Maintenance of Existence...................................................................... 46
9.2 New Collateral Locations...................................................................... 46
9.3 Compliance with Laws, Regulations, Etc........................................................ 47
9.4 Payment of Taxes and Claims................................................................... 48
9.5 Insurance..................................................................................... 48
9.6 Financial Statements and Other Information.................................................... 50
9.7 Sale of Assets, Consolidation, Merger, Dissolution, Etc....................................... 51
9.8 Encumbrances.................................................................................. 54
9.9 Indebtedness.................................................................................. 56
9.10 Loans, Investments, Guarantees, Etc........................................................... 60
9.11 Dividends and Redemptions..................................................................... 61
9.12 Transactions with Affiliates.................................................................. 61
9.13 Additional Bank Accounts...................................................................... 62
9.14 Compliance with ERISA......................................................................... 62
9.15 Existing Real Property; After Acquired Real Property.......................................... 63
9.16 Costs and Expenses............................................................................ 64
9.17 Changes in Business........................................................................... 64
9.18 Exchange Debentures........................................................................... 65
9.19 Further Assurances............................................................................ 65
SECTION 10. EVENTS OF DEFAULT AND REMEDIES.................................................................... 65
10.1 Events of Default............................................................................. 65
10.2 Remedies...................................................................................... 67
</TABLE>
(2)
<PAGE>
<TABLE>
<CAPTION>
<S> <C>
SECTION 11. JURY TRIAL WAIVER; OTHER WAIVERS AND CONSENTS; GOVERNING LAW ...................................... 69
11.1 Governing Law; Choice of Forum; Service of Process; Jury Trial Waiver......................... 69
11.2 Waiver of Notices............................................................................. 70
11.3 Amendments and Waivers........................................................................ 71
11.4 Waiver of Counterclaims....................................................................... 71
11.5 Indemnification............................................................................... 71
SECTION 12. TERM OF AGREEMENT; MISCELLANEOUS................................................................... 71
12.1 Term.......................................................................................... 71
12.2 Notices....................................................................................... 73
12.3 Partial Invalidity............................................................................ 73
12.4 Successors.................................................................................... 74
12.5 Confidentiality............................................................................... 74
12.6 Entire Agreement.............................................................................. 75
</TABLE>
(3)
<PAGE>
INDEX TO
EXHIBITS AND SCHEDULES
Exhibit A Information Certificate
Schedule 1.38 Existing Lenders
Schedule 1.39 Existing Letters of Credit
Schedule 1.40 Existing Real Property
Schedule 8.1 Subsidiaries
Schedule 8.4 Existing Liens
Schedule 8.6 Litigation
Schedule 8.8 Environmental Compliance
Schedule 8.10 Bank Accounts
Schedule 9.7 Real Property
Schedule 9.9(h) Existing Indebtedness
Schedule 9.9(k) Parent Subordinated Debt
Schedule 9.10 Existing Loans, Advances and Guarantees
(1)
<PAGE>
LOAN AND SECURITY AGREEMENT
This Loan and Security Agreement dated March 11, 1999 is entered into
by and among Congress Financial Corporation, a Delaware corporation ("Lender"),
Anvil Knitwear, Inc., a Delaware corporation ("Borrower"), Anvil Holdings, Inc.,
a Delaware corporation ("Holdings") and Cottontops, Inc., a Delaware corporation
("Cottontops"; together with Holdings, each individually a "Guarantor" and
collectively "Guarantors").
W I T N E S S E T H:
WHEREAS, Borrower and Guarantors have requested that Lender enter into
certain financing arrangements with Borrower pursuant to which Lender may make
loans and provide other financial accommodations to Borrower; and
WHEREAS, Lender is willing to make such loans and provide such
financial accommodations on the terms and conditions set forth herein;
NOW, THEREFORE, in consideration of the mutual conditions and
agreements set forth herein, and for other good and valuable consideration, the
receipt and sufficiency of which is hereby acknowledged, the parties hereto
agree as follows:
SECTION 1. DEFINITIONS
All terms used herein which are defined in Article 1 or Article 9 of
the Uniform Commercial Code shall have the meanings given therein unless
otherwise defined in this Agreement. All references to the plural herein shall
also mean the singular and to the singular shall also mean the plural unless the
context otherwise requires. All references to Borrower and Lender pursuant to
the definitions set forth in the recitals hereto, or to any other person herein,
shall include their respective successors and assigns. The words "hereof",
"herein", "hereunder", "this Agreement" and words of similar import when used in
this Agreement shall refer to this Agreement as a whole and not any particular
provision of this Agreement and as this Agreement now exists or may hereafter be
amended, modified, supplemented, extended, renewed, restated or replaced. The
word "including" when used in this Agreement shall mean "including, without
limitation". An Event of Default shall exist or continue or be continuing until
such Event of Default is waived in accordance with Section 11.3 or is cured in a
manner satisfactory to Lender, if such Event of Default is capable of being
cured as determined by Lender. Any accounting term used herein unless otherwise
defined in this Agreement shall have the meanings customarily given to such term
in accordance with GAAP; PROVIDED, THAT, if Borrower notifies Lender that
Borrower wishes to amend any covenant contained in Section 9 or any related
definition to
<PAGE>
eliminate the effect of any change in GAAP occurring after the date of this
Agreement or to reflect the application of Accounting Principles Board Opinions
16 and 17 on the operation of such covenant (or if the Lender notifies Borrower
that Lender wishes to amend Section 9 or any related definition for each such
purpose), then Borrower's compliance with such covenant shall be determined on
the basis of GAAP in effect immediately before the relevant change in GAAP
became effective, or without the application of Accounting Principles Board
Opinions 16 and 17, as applicable, until either such notice is withdrawn or such
covenant is amended in a manner satisfactory to Borrower and Lender. For
purposes of this Agreement, the following terms shall have the respective
meanings given to them below:
1.1 "Accounts" shall mean all present and future rights of Borrower to
payment for goods sold or leased or for services rendered, which are not
evidenced by instruments or chattel paper, and whether or not earned by
performance and, including, without limitation, Credit Card Receivables.
1.2 "Adjusted Eurodollar Rate" shall mean, with respect to each
Interest Period for any Eurodollar Rate Loan, the rate per annum (rounded
upwards, if necessary, to the next one-sixteenth (1/16) of one (1%) percent)
determined by dividing (a) the Eurodollar Rate for such Interest Period by (b) a
percentage equal to: (i) one (1) minus (ii) the Reserve Percentage. For purposes
hereof, "Reserve Percentage" shall mean the reserve percentage, expressed as a
decimal, prescribed by any United States or foreign banking authority for
determining the reserve requirement which is or would be applicable to deposits
of United States dollars in a non-United States or an international banking
office of Reference Bank used to fund a Eurodollar Rate Loan or any Eurodollar
Rate Loan made with the proceeds of such deposit, whether or not the Reference
Bank actually holds or has made any such deposits or loans. The Adjusted
Eurodollar Rate shall be adjusted on and as of the effective day of any change
in the Reserve Percentage.
1.3 "Affiliate" shall mean, with respect to a specified Person, any
other Person (a) which directly or indirectly through one or more intermediaries
controls, or is controlled by, or is under common control with, such specified
person; (b) which beneficially owns or holds ten (10%) percent or more of any
class of the Voting Stock or other equity interest of such specified person; or
(c) of which ten (10%) percent or more of the Voting Stock or other equity
interest is beneficially owned or held by such specified person or a Subsidiary
of such specified person. For purposes of this definition, "control" (including,
with correlative meanings, the terms "controlling", "controlled by" and "under
common control with") when used with respect to any specified person shall mean
the possession, directly or indirectly, of the power to direct or cause the
direction of the management and policies of such person, whether through the
ownership of Voting Stock, by agreement or otherwise.
1.4 "Availability Reserves" shall mean, as of any date of
determination, such amounts as Lender may from time to time establish and revise
in good faith (without duplication) reducing the amount of Revolving Loans and
Letter of Credit Accommodations which would otherwise be
2
<PAGE>
available to Borrower under the lending formula(s) provided for herein: (a) to
reflect events, conditions, contingencies or risks which, as determined by
Lender in good faith, do or may adversely affect either (i) the Collateral or
any other property which is security for the Obligations or its value, (ii) the
assets, business or prospects of Borrower or any Obligor or (iii) the security
interests and other rights of Lender in the Collateral (including the
enforceability, perfection and priority thereof) or (b) to reflect Lender's good
faith belief that any collateral report or financial information furnished by or
on behalf of Borrower or any Obligor to Lender is or may have been incomplete,
inaccurate or misleading in any material respect or (c) to reflect outstanding
Letter of Credit Accommodations as provided in Section 2.2 hereof or (d) subject
to Section 2.4(b) to reflect the Term Loan Reduction Amount, if any, or (e)
$140,000, to reflect the fact that the Equipment described at Item No. 128 of
the Equipment Appraisal is subject to the lien of Thies Corporation ("Thies");
such reserve shall remain in effect until such time as Borrower provides Lender
with (i) evidence that Borrower has paid Thies in full with respect to such
Equipment and (ii) UCC-3 Termination Statements for all UCC financing statements
previously filed by Thies, as secured party and Borrower, as debtor, or (f) in
respect of any state of facts which Lender determines in good faith constitutes
an Event of Default or is, with notice or passage of time or both, reasonably
likely, in good faith determination of Lender, to constitute an Event of
Default. To the extent Lender may revise the lending formulas set forth in
Section 2 hereof, or establish new criteria or revise existing criteria for
Eligible Accounts, Eligible Equipment, or Eligible Inventory so as to address
any event, condition, contingency or risk in a manner satisfactory to Lender in
good faith, Lender shall not establish an Availability Reserve for the same
purpose.
1.5 "Bill and Hold Accounts" shall mean all Accounts arising pursuant
to purchase orders, confirmations received or invoices issued by Borrower which
identify the terms of the arrangements with the account debtor for such Account
as being on a bill and hold basis by being marked "hold stock" or for "storage"
or "bill and hold" or any words of similar import and which Accounts are
specifically identified in any report of Accounts provided by Borrower to Lender
in a format and with such detail as Lender may reasonably require.
1.6 "Blocked Accounts" shall have the meaning set forth in Section
6.3 hereof.
1.7 "BRS" shall mean Bruckman, Rosser & Sherill & Co., L.P., a Delaware
limited partnership and its Affiliates (including for this purpose, all of their
respective employees, partners, officers and directors and family members and
relatives of such Persons) and any trusts established for the benefit of the
foregoing persons, PROVIDED, THAT, such trusts are controlled by BRS or its
Affiliates.
1.8 "Business Day" shall mean any day other than a Saturday, Sunday, or
other day on which commercial banks are authorized or required to close under
the laws of the State of New York or the Commonwealth of Pennsylvania, and a day
on which the Reference Bank and Lender are open for the transaction of business,
except that if a determination of a Business Day shall relate to any Eurodollar
Rate Loans, the term Business Day shall also exclude any day on which
3
<PAGE>
banks are closed for dealings in dollar deposits in the London interbank market
or other applicable Eurodollar Rate market.
1.9 "Capital Leases" shall mean, as applied to any Person, any lease of
(or any agreement conveying the right to use) any property (whether real,
personal or mixed) by such Person as lessee which in accordance with GAAP, is
required to be capitalized as Indebtedness on the balance sheet of such Person.
1.10 "Capital Stock" shall mean, with respect to any Person, any and
all shares, interests, participations or other equivalents (however designated)
of such Person's capital stock, partnership interests or limited liability
company interests at any time outstanding, and any and all rights, warrants or
options exchangeable for or convertible into such capital stock or other
interests.
1.11 "Cash Equivalents" shall mean, at any time, (a) any evidence of
Indebtedness with a maturity date of one hundred eighty (180) days or less
issued or directly and fully guaranteed or insured by the United States of
America of any agency or instrumentality thereof; PROVIDED, THAT, the full faith
and credit of the United States of America is pledged in support thereof; (b)
certificates of deposit or bankers' acceptances with a maturity of three hundred
sixty (360) 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 $100,000,000; (c) commercial paper (including variable rate
demand notes) with a maturity of one hundred eighty (180) days or less issued by
a corporation (except an Affiliate of Borrower other than Citigroup, Inc.)
organized under the laws of any State of the United States of America or the
District of Columbia and rated at least A-1 by Standard & Poor's Ratings
Service, a division of The McGraw-Hill Companies, Inc. or at least P-1 by
Moody's Investors Service, Inc.; (d) repurchase obligations with a term of not
more than thirty (30) days for underlying securities of the types described in
clause (a) above entered into with any financial institution having combined
capital and surplus and undivided profits of not less than $100,000,000; (e)
repurchase agreements and reverse repurchase agreements relating to marketable
direct obligations issued or unconditionally guaranteed by the United States of
America or issued by any governmental agency thereof and backed by the full
faith and credit to the United States of America, in each case maturing within
one hundred eighty (180) days or less from the date of acquisition; PROVIDED,
THAT, the terms of such agreements comply with the guidelines set forth in the
Federal Financial Agreements of Depository Institutions with Securities Dealers
and Others, as adopted by the Comptroller of the Currency on October 31, 1985;
and (f) investments in money market funds and mutual funds which invest
substantially all of their assets in securities of the types described in
clauses (a) through (e) above.
1.12 "Casualty Event" shall mean with respect to any Equipment or
improvements located on the Real Property of Borrower, any Guarantor or any of
their respective Subsidiaries, any physical loss, damage or destruction to, or
any condemnation or other taking of such property, for which Borrower, any
Guarantor or any of their respective Subsidiaries receives
4
<PAGE>
insurance proceeds, proceeds of a condemnation award or other similar
compensation from a non-affiliated third party.
1.13 "Certificate of Designation" shall mean the Certificate of
Designation of the Powers, Preferences and Relative, Participating, Optional and
Other Special Rights of 13.00% Senior Exchangeable Preferred Stock and
Qualifications, Limitations and Restrictions thereof, dated as of March 14, 1997
and executed by Holdings, as the same now exists or may hereafter be amended,
modified, supplemented, extended, renewed, restated or replaced.
1.14 "Change of Control" means any of the following events:
(i) Holdings shall cease to own and control, beneficially and of
record, one hundred (100%) percent of the issued and outstanding shares
of Capital Stock of Borrower consisting of common stock;
(ii) Borrower shall cease to own and control, beneficially and of
record, one hundred (100%) percent of the issued and outstanding shares
of Capital Stock of Cottontops (except in each case, as the result of
the merger or consolidation of any such persons to the extent permitted
under Section 9.7 hereof);
(iii) prior to a Qualified Public Offering, (a) the failure of
the Investors to beneficially own, directly or indirectly, at least
51%, in the aggregate, of the Voting Stock of Holdings (or in the case
of a merger or consolidation between Holdings and Borrower, as
permitted herein, then of the survivor of such merger or consolidation)
or (b) the failure of the Investors, collectively, to retain and
exercise the unconditional right to elect a majority of the Board of
Directors of Holdings (or in the case of a merger or consolidation
between Holdings and Borrower, as permitted herein, then of the
survivor of such merger or consolidation); or
(iv) after a Qualified Public Offering, (a) the failure of the
Investors to beneficially own, directly or indirectly, at least
33 1/3%, in the aggregate, of the Voting Stock of Holdings (or in the
case of a merger or consolidation between Holdings and the Borrower,
then of the survivor of such merger or consolidation) or (b) a person
or group (as such term is defined in Section 13(d)(3) of the Securities
Exchange Act of 1934, as amended) other than the Investors shall
beneficially own, directly or indirectly, in the aggregate, a greater
percentage of the Voting Stock of Holdings (or in the case of a merger
or consolidation between Holdings and the Borrower, then of the
survivor of such merger or consolidation) than the percentage of such
Voting Stock owned by the Investors;
1.15 "Code" shall mean the Internal Revenue Code of 1986, as the same
now exists or may from time to time hereafter be amended, modified, recodified
or supplemented, together with all rules, regulations and interpretations
thereunder or related thereto.
5
<PAGE>
1.16 "Collateral" shall have the meaning set forth in Section 5 hereof.
1.17 "Collateral Access Agreement" shall mean an agreement in writing,
in form and substance reasonably satisfactory to Lender, from any lessor of
premises to Borrower, or any other person to whom any Collateral (including
Inventory, Equipment, bills of lading or other documents of title) is consigned
or who has custody, control or possession of any such Collateral or is otherwise
the owner or operator of any premises on which any of such Collateral is
located, pursuant to which such lessor, consignee or other person, INTER ALIA,
acknowledges the first priority security interest of Lender in such Collateral,
agrees to waive any and all claims such lessor, consignee or other person may,
at any time, have against such Collateral, whether for processing, storage or
otherwise, and agrees to permit Lender access to, and the right to remain on,
the premises of such lessor, consignee or other person so as to exercise
Lender's rights and remedies and otherwise deal with such Collateral and in the
case of any person who at any time has custody, control or possession of any
bills of lading or other documents of title, agrees to hold such bills of lading
or other documents as bailee for Lender and to follow all instructions of Lender
with respect thereto.
1.18 "Cost" shall mean, as to the Inventory as of any date, the cost of
such Inventory as of such date, determined using the first-in-first-out method
in accordance with GAAP.
1.19 "Cottontops" shall mean Cottontops, Inc., a Delaware corporation,
and its successors and assigns.
1.20 "Credit Card Receivables " shall mean all present and future
rights to payment of Borrower arising pursuant to the sale of Inventory to
customers who have purchased such goods using a credit card or debit card.
1.21 "Customs Broker" shall mean MSAS, Inc. or such other persons as
may be selected by Borrower after the date hereof and after written notice by
Borrower to Lender to perform port of entry services to process Inventory
imported by Borrower from outside the United States of America and to supply
facilities, labor and materials to Borrower in connection therewith, PROVIDED,
THAT, as to each such person as Lender may require (a) Lender shall have
received a Collateral Access Agreement duly authorized, executed and delivered
by such person and (b) such agreement is in full force and effect.
1.22 "Eligible Accounts" shall mean Accounts created by Borrower which
are and continue to be acceptable to Lender based on the criteria set forth
below. In general, Accounts shall be Eligible Accounts if:
(a) such Accounts arise from the actual and BONA FIDE sale and
shipment of goods by Borrower or rendition of services by Borrower in the
ordinary course of its business which
6
<PAGE>
transactions are completed in accordance with the terms and provisions contained
in any documents related thereto;
(b) such Accounts are not unpaid more than the earlier of: (i)
sixty (60) days after the original due date for them or (ii) one hundred fifty
(150) days after the date of the original invoice for them;
(c) such Accounts comply with the terms and conditions contained
in Section 7.2(c) of this Agreement;
(d) such Accounts do not arise from sales on consignment,
guaranteed sale, sale and return, sale on approval, or other terms under which
payment by the account debtor may be conditional or contingent;
(e) the chief executive office of the account debtor with respect
to such Accounts is located in the United States of America or Canada (PROVIDED,
THAT, at any time promptly upon Lender's request, Borrower shall execute and
deliver, or cause to be executed and delivered, such other agreements, documents
and instruments as may be required by Lender to perfect the security interests
of Lender in those Accounts of an account debtor with its chief executive office
or principal place of business in Canada in accordance with the applicable laws
of the Province of Canada in which such chief executive office or principal
place of business is located and take or cause to be taken such other and
further actions as Lender may request to enable Lender as secured party with
respect thereto to collect such Accounts under the applicable Federal or
Provincial laws of Canada) or, at Lender's option, if the chief executive office
and principal place of business of the account debtor with respect to such
Accounts is located other than in the United States of America or Canada, then
if either: (i) the account debtor has delivered to Borrower an irrevocable
letter of credit issued or confirmed by a bank satisfactory to Lender and
payable only in the United States of America and in U.S. dollars, sufficient to
cover such Account, in form and substance satisfactory to Lender and if required
by Lender, the original of such letter of credit has been delivered to Lender or
Lender's agent and the issuer thereof notified of the assignment of the proceeds
of such letter of credit to Lender, or (ii) such Account is subject to credit
insurance payable to Lender issued by an insurer and on terms and in an amount
acceptable to Lender, or (iii) such Account is otherwise acceptable in all
respects to Lender (subject to lending formula with respect thereto as Lender
may determine);
(f) such Accounts do not consist of progress billings or
retainage invoices;
(g) the account debtor with respect to such Accounts has not
asserted a counterclaim, defense or dispute and does not have, and does not
engage in transactions which may give rise to, any right of setoff against such
Accounts (but the portion of the Accounts of such account debtor in excess of
the amount at any time and from time to time owed by Borrower to such account
debtor or claimed owed by such account debtor may be deemed Eligible
7
<PAGE>
Accounts);
(h) there are no facts, events or occurrences which would impair
the validity, enforceability or collectability of such Accounts or materially
reduce the amount payable or delay payment thereunder;
(i) such Accounts are subject to the first priority, valid and
perfected security interest of Lender and any goods giving rise thereto are not,
and were not at the time of the sale thereof, subject to any liens except those
permitted in this Agreement;
(j) neither the account debtor nor any officer or employee of the
account debtor with respect to such Accounts is an officer, employee or agent of
or affiliated with Borrower directly or indirectly by virtue of family
membership, ownership, control, management or otherwise;
(k) the account debtors with respect to such Accounts are not any
foreign government, the United States of America, or any State, political
subdivision, department, agency or instrumentality thereof, unless, if the
account debtor is the United States of America, any State, political
subdivision, department, agency or instrumentality thereof, upon Lender's
request, the Federal Assignment of Claims Act of 1940, as amended or any similar
State or local law, if applicable, has been complied with in a manner
satisfactory to Lender;
(l) there are no proceedings or actions which are threatened or
pending against the account debtors with respect to such Accounts which might
result in any material adverse change in any such account debtor's financial
condition;
(m) such Accounts in respect of which any of San Mar Corporation,
Alpha Shirt Co., Inc. or Broder Bros. Co., Inc. or any of their respective
Affiliates are account debtors but which do not, in respect of each such account
debtor, constitute more than twenty (20%) percent of all otherwise Eligible
Accounts (but the portion of the Accounts not in excess of such percentage may
be deemed Eligible Accounts); and such other percentage limitation with respect
to any other account debtors of Borrower as Lender may determine from time to
time;
(n) such Accounts are not owed by an account debtor who has
Accounts unpaid more than the earlier of sixty (60) days after the original due
date for such Accounts or one hundred fifty (150) days after the original
invoice date for them which constitute more than fifty (50%) percent of the
total Accounts of such account debtor;
(o) such Accounts do not consist of Credit Card Receivables or
Bill and Hold Accounts; and
(p) such Accounts are owed by account debtors deemed creditworthy
at all times by
8
<PAGE>
Lender, as determined in good faith by Lender.
General criteria for Eligible Accounts may be established and revised from time
to time by Lender in good faith. Any Accounts which are not Eligible Accounts
shall nevertheless be part of the Collateral. In the event that Lender shall
establish new criteria or revise the existing criteria for Eligible Accounts in
any respect, Lender shall notify Borrower and upon Borrower's request, Lender
shall inform Borrower of the basis for the establishment of such new criteria or
such revision of the existing criteria, as the case may be.
1.23 "Eligible Bill and Hold Accounts" shall mean all Bill and Hold
Accounts (i) which meet the criteria for Eligible Accounts set forth in Section
1.21 hereof except for the criteria set forth at Section 1.22(o) hereof and (ii)
in respect of which the goods subject thereto have not been stored at the
premises of Borrower (whether leased or owned) more than sixty (60) days after
the invoice date thereof.
1.24 "Eligible Equipment" shall mean, manufacturing Equipment owned by
Borrower as of the date hereof and, included in the appraisal of Equipment by
Daley-Hodkin Corp. dated February, 1999 (the "Equipment Appraisal") and which is
addressed to Lender and upon which Lender is expressly permitted to rely, and
which is in good order, repair, running and marketable condition, located at
such Borrower's premises and acceptable to Lender in all respects. In general,
Eligible Equipment shall not include, unless otherwise approved by Lender: (a)
Equipment at premises other than those owned or leased and controlled by
Borrower, except as to premises that are leased by Borrower, only if Lender
shall have received a Collateral Access Agreement from the person in possession
of such Equipment and/or the owner or operator of such premises in form and
substance satisfactory to Lender; (b) Equipment subject to a security interest
or lien in favor of any person other than Lender except those permitted in this
Agreement; (c) Equipment which is not located in the continental United States
of America; (d) Equipment which is not subject to the first priority, valid and
perfected security interest of Lender; or (e) worn-out, obsolete, damaged or
defective Equipment or Equipment not used or usable in the ordinary course of
Borrower's business as presently conducted. Any Equipment which is not Eligible
Equipment shall nevertheless be part of the Collateral. In the event that Lender
shall establish new criteria or revise the existing criteria for Eligible
Accounts in any respect, Lender shall notify Borrower and upon Borrower's
request, Lender shall inform Borrower of the basis for the establishment of such
new criteria or such revision of the existing criteria, as the case may be.
1.25 "Eligible Inventory" shall mean Inventory consisting of finished
goods held for resale in the ordinary course of the business of Borrower and raw
materials (including, uncut dyed or greigh cloth) for such finished goods which
are acceptable to Lender based on the criteria set forth below. In general,
Eligible Inventory shall not include (a) work-in-process; (b) components which
are not part of finished goods; (c) spare parts for equipment; (d) packaging and
shipping materials; (e) supplies used or consumed in Borrower's business; (f)
Inventory at premises other
9
<PAGE>
than those owned and controlled by Borrower, EXCEPT Inventory at premises in the
United States of America leased by Borrower if Lender has received a Collateral
Access Agreement from the owner, lessor and operator of such premises duly
authorized, executed and delivered by such owner, lessor and operator; (g)
Inventory subject to a security interest or lien in favor of any person other
than Lender except those permitted in this Agreement; (h) bill and hold goods;
(i) unserviceable or obsolete Inventory; (j) Inventory which is not subject to
the first priority, valid and perfected security interest of Lender; (k)
returned (except to the extent such returned Inventory remains resalable),
damaged and/or defective Inventory; and (l) Inventory purchased or sold on
consignment. General criteria for Eligible Inventory may be established and
revised from time to time by Lender in good faith. Any Inventory which is not
Eligible Inventory shall nevertheless be part of the Collateral. In the event
that Lender shall establish new criteria or revise the existing criteria for
Eligible Accounts in any respect, Lender shall notify Borrower and upon
Borrower's request, Lender shall inform Borrower of the basis for the
establishment of such new criteria or such revision of the existing criteria, as
the case may be.
1.26 "Environmental Laws" shall mean all foreign, Federal, State and
local laws (including common law), legislation, rules, codes, licenses, permits
(including any conditions imposed therein), authorizations, judicial or
administrative decisions, injunctions or agreements between Borrower, any
Guarantor or any of their Subsidiaries and any Governmental Authority, relating
to pollution and the protection, preservation or restoration of the environment
(including air, water vapor, surface water, ground water, drinking water,
drinking water supply, surface land, subsurface land, plant and animal life or
any other natural resource), or to human health or safety. The term
"Environmental Laws" includes (i) the Federal Comprehensive Environmental
Response, Compensation and Liability Act of 1980, the Federal Superfund
Amendments and Reauthorization Act, the Federal Water Pollution Control Act of
1972, the Federal Clean Water Act, the Federal Clean Air Act, the Federal
Resource Conservation and Recovery Act of 1976 (including the Hazardous and
Solid Waste Amendments thereto), the Federal Solid Waste Disposal and the
Federal Toxic Substances Control Act, the Federal Insecticide, Fungicide and
Rodenticide Act, and the Federal Safe Drinking Water Act of 1974, (ii)
applicable state counterparts to such laws, and (iii) any common law or
equitable doctrine that may impose liability or obligations for injuries or
damages due to, or threatened as a result of, the presence of or exposure to any
Hazardous Materials, in each case, as the same may be amended, supplemented or
otherwise modified from time to time.
1.27 "Equipment" shall mean all of Borrower's now owned and hereafter
acquired equipment, machinery, computers and computer hardware and software
(whether owned or licensed), vehicles, tools, furniture, fixtures, all
attachments, accessions and property now or hereafter affixed thereto or used in
connection therewith, and substitutions and replacements thereof, wherever
located.
1.28 "ERISA" shall mean the United States Employee Retirement Income
Security Act of 1974, as the same now exists or may hereafter from time to time
be amended, modified, recodified
10
<PAGE>
or supplemented, together with all rules, regulations and interpretations
thereunder or related thereto.
1.29 "ERISA Affiliate" shall mean any person required to be aggregated
with Borrower or any of its Subsidiaries under Sections 414(b), 414(c), 414(m)
or 414(o) of the Code.
1.30 "Eurodollar Rate" shall mean with respect to the Interest Period
for a Eurodollar Rate Loan, the interest rate per annum equal to the arithmetic
average of the rates of interest per annum (rounded upwards, if necessary, to
the next one-sixteenth (1/16) of one (1%) percent) at which Reference Bank is
offered deposits of United States dollars in the London interbank market (or
other Eurodollar Rate market selected by Borrower and approved by Lender) on or
about 9:00 a.m. (New York time) two (2) Business Days prior to the commencement
of such Interest Period in amounts substantially equal to the principal amount
of the Eurodollar Rate Loans requested by and available to Borrower in
accordance with this Agreement, with a maturity of comparable duration to the
Interest Period selected by Borrower.
1.31 "Eurodollar Rate Loans" shall mean any Loans or portion thereof on
which interest is payable based on the Adjusted Eurodollar Rate in accordance
with the terms hereof.
1.32 "Event of Default" shall mean the occurrence or existence of any
event or condition described in Section 10.1 hereof.
1.33 "Excess Availability" shall mean the amount, as determined by
Lender in good faith, calculated at any time, equal to: (a) the lesser of: (i)
the amount of the Revolving Loans available to Borrower as of such time based on
the applicable lending formulas set forth in Section 2.1 hereof as determined by
Lender, and subject to the sublimits and Availability Reserves from time to time
established by Lender hereunder, and (ii) the Revolving Loan Sublimit, MINUS (b)
the sum of: (i) the amount of all then outstanding and unpaid Obligations (but
not including for this purpose the then outstanding principal amount of the Term
Loan), plus (ii) the aggregate amount of all then outstanding and unpaid trade
payables and other obligations of Borrower which are more than sixty (60) days
past due as of such time, plus (iii) the amount of checks issued by Borrower to
pay trade payables (which trade payables are more than sixty (60) days past due
as of such time), but not yet sent.
1.34 "Exchange Debentures" shall mean, collectively, the 13.00%
Subordinated Exchange Debentures due 2009, issued by Holdings at its option, if
ever, in exchange for Senior Preferred Stock as contemplated by, and to the
extent permitted by, Section "g" of the Certificate of Designation, in each case
as the same now exists or may hereafter be amended, modified, supplemented,
extended, renewed, restated or replaced.
1.35 "Exchange Debenture Indenture" shall mean the Indenture, dated as
of March 14, 1997, by and among Holdings and United States Trust Company of New
York, as trustee for the
11
<PAGE>
Exchange Debentureholders, as the same now exists or may hereafter be amended,
modified, supplemented, extended, renewed or replaced.
1.36 "Exchange Debentureholder" shall mean, in the event that the
Senior Preferred Stock is exchanges for the Exchange Debentures, any one of the
holders from time to time of the Exchange Debentures.
1.37 "Excluded Taxes" shall mean franchise taxes and taxes based on net
income imposed on Lender by the United States or the jurisdiction in which
Lender has its principal office and any interest, penalties and other additions
with respect thereto.
1.38 "Existing Lenders" shall mean the existing lenders to Borrower
listed on Schedule 1.38 hereto.
1.39 "Existing Letters of Credit" shall mean, collectively, the letters
of credit issued for the account of Borrower or for which Borrower is otherwise
liable listed on Schedule 1.39 hereto, as the same now exist or may hereafter be
amended, modified, supplemented, extended, renewed, restated or replaced.
1.40 "Existing Real Property" shall mean all now owned real property of
Borrower, including leasehold interests, together with the buildings, structures
and other improvements located thereon, and all licenses, easements and
appurtenances relating thereto, wherever located, as more particularly described
on Schedule 1.40 hereto but not including the Real Property subject to the
Mortgages.
1.41 "Financing Agreements" shall mean, collectively, this Agreement
and all notes, guarantees, security agreements and other agreements, documents
and instruments now or at any time hereafter executed and/or delivered by
Borrower or any Obligor in connection with this Agreement, as the same now exist
or may hereafter be amended, modified, supplemented, extended, renewed, restated
or replaced.
1.42 "GAAP" shall mean generally accepted accounting principles in the
United States of America as in effect from time to time as set forth in the
opinions and pronouncements of the Accounting Principles Board and the American
Institute of Certified Public Accountants and the statements and pronouncements
of the Financial Accounting Standards Board which are applicable to the
circumstances as of the date of determination consistently applied.
1.43 "Governmental Authority" shall mean any nation or government, any
state, province, or other political subdivision thereof, any central bank (or
similar monetary or regulatory authority) thereof, any entity exercising
executive, legislative, judicial, regulatory or administrative functions of or
pertaining to government, and any corporation or other entity owned or
controlled, through stock or capital ownership or otherwise, by any of the
foregoing.
12
<PAGE>
1.44 "Guarantors" shall mean Holdings and Cottontops.
1.45 "Hazardous Materials" shall mean any hazardous, toxic or dangerous
substances, materials and wastes, including hydrocarbons (including naturally
occurring or man-made petroleum and hydrocarbons), explosives, asbestos, urea
formaldehyde insulation, radioactive materials, biological substances,
polychlorinated biphenyls, pesticides, herbicides and any other kind and/or type
of pollutants or contaminants (including materials which include hazardous
constituents), sewage, sludge, industrial slag, solvents and/or any other
similar substances, materials, or wastes and including any other substances,
materials or wastes that are or become regulated under any Environmental Law
(including any that are or become classified as hazardous or toxic under any
Environmental Law).
1.46 "Holdings" shall mean Anvil Holdings, Inc., a Delaware
corporation, and its successors and assigns.
1.47 "Indebtedness" shall mean, with respect to any Person, any
liability, whether or not contingent, (a) in respect of borrowed money (whether
or not the recourse of the lender is to the whole of the assets of such Person
or only to a portion thereof) or evidenced by bonds, notes, debentures or
similar instruments; (b) representing the balance deferred and unpaid of the
purchase price of any property or services (except any such balance that
constitutes an account payable to a trade creditor (whether or not an Affiliate)
created, incurred, assumed or guaranteed by such Person in the ordinary course
of business of such Person in connection with obtaining goods, materials or
services that is not overdue by more than ninety (90) days, unless the trade
payable is being contested in good faith); (c) all obligations as lessee under
leases which have been, or should be, in accordance with GAAP recorded as
Capital Leases; (d) any contractual obligation, contingent or otherwise, of such
Person to pay or be liable for the payment of any indebtedness described in this
definition of another Person, including, without limitation, any such
indebtedness, directly or indirectly guaranteed, or any agreement to purchase,
repurchase, or otherwise acquire such indebtedness, obligation or liability or
any security therefor, or to provide funds for the payment or discharge thereof,
or to maintain solvency, assets, level of income, or other financial condition;
(e) all obligations with respect to redeemable stock and redemption or
repurchase obligations under any Capital Stock or other equity securities issued
by such Person; (f) all reimbursement obligations and other liabilities of such
Person with respect to surety bonds (whether bid, performance or otherwise),
letters of credit, banker's acceptances or similar documents or instruments
issued for such Person's account; (g) all indebtedness of such Person in respect
of indebtedness of another Person for borrowed money or indebtedness of another
Person otherwise described in this definition which is secured by any consensual
lien, security interest, collateral assignment, conditional sale, mortgage, deed
of trust, or other encumbrance on any asset of such Person, whether or not such
obligations, liabilities or indebtedness are assumed by or are a personal
liability of such Person, all as of such time; and (h) all obligations,
liabilities and indebtedness of such Person (marked to market) in respect of
interest rate exchange contracts and
13
<PAGE>
foreign currency exchange agreements..
1.48 "Information Certificate" shall mean the Information Certificate
of Borrower constituting Exhibit A hereto containing material information with
respect to Borrower, its business and assets provided by or on behalf of
Borrower to Lender in connection with the preparation of this Agreement and the
other Financing Agreements and the financing arrangements provided for herein.
1.49 "Interest Period" shall mean for any Eurodollar Rate Loan, a
period of approximately one (1), two (2), or three (3) months duration as
Borrower may elect, the exact duration to be determined in accordance with the
customary practice in the applicable Eurodollar Rate market; PROVIDED, THAT,
Borrower may not elect an Interest Period which will end after the last day of
the then-current term of this Agreement.
1.50 "Interest Rate" shall mean, as to Prime Rate Loans, a rate of
one-half (1/2%) percent per annum in excess of the Prime Rate and, as to
Eurodollar Rate Loans, a rate of two and one-half (2 1/2%) percent per annum in
excess of the Adjusted Eurodollar Rate (based on the Eurodollar Rate applicable
for the Interest Period selected by Borrower as in effect three (3) Business
Days after the date of receipt by Lender of the request of Borrower for such
Eurodollar Rate Loans in accordance with the terms hereof, whether such rate is
higher or lower than any Eurodollar Rate previously quoted to Borrower);
PROVIDED, THAT:
(a) the Interest Rate applicable to Eurodollar Rate Loans and
Prime Rate Loans shall be reduced, one time only, by one-quarter of one (1/4%)
percent, effective as of the first day of the month after each of the following
conditions is satisfied as determined by Lender in good faith: (i) the Pre-Tax
Net Income of Borrower for the immediately preceding fiscal year (commencing
with the fiscal year ending on January 29, 2000), as set forth in the audited
consolidated financial statements of Holdings and its Subsidiaries for such
fiscal year delivered to Lender, together with the unqualified opinion of the
independent certified accountants, in accordance with Section 9.6 hereof, shall
equal or exceed $2,000,000 and (ii) no Event of Default or act, condition or
event which with notice or passage of time would constitute an Event of Default
shall exist or have occurred and be continuing; and
(b) notwithstanding anything to the contrary contained herein,
the Interest Rate shall mean the rate of two and one-half (2 1/2%) percent per
annum in excess of the Prime Rate as to Prime Rate Loans and the rate of four
and one-half (4 1/2%) percent per annum in excess of the Adjusted Eurodollar
Rate as to Eurodollar Rate Loans, at Lender's option, upon written notice to
Borrower, (i) either (A) for the period on and after the date of termination or
non-renewal hereof until such time as all Obligations are indefeasibly paid in
full, or (B) for the period from and after the date of the occurrence of any
Event of Default, and for so long as such Event of Default is continuing as
determined by Lender and (ii) on the Loans at any time outstanding in excess of
the amounts available to Borrower under Section 2 (whether or not such
excess(es) arise or are made
14
<PAGE>
with or without Lender's knowledge or consent and whether made before or after
the occurrence and continuance of an Event of Default).
1.51 "Inventory" shall mean all of Borrower's now owned and hereafter
existing or acquired raw materials, work in process, finished goods and all
other inventory of whatsoever kind or nature, wherever located.
1.52 "Investors" shall mean, collectively, (i) BRS, (ii) Venture
Partners, (iii) all of the members of the Management Group and (iv) in the case
of any individual included in clauses (i)-(iii) above, any family member or
relative of such individual.
1.53 "Letter of Credit Accommodations" shall mean the letters of credit
(whether standby or documentary), merchandise purchase or other guaranties which
are from time to time either (a) issued or opened by Lender for the account of
Borrower or any Obligor or (b) with respect to which Lender has agreed to
indemnify the issuer or guaranteed to the issuer the performance by Borrower of
its obligations to such issuer (including, without limitation, the Existing
Letters of Credit).
1.54 "Loans" shall mean the Revolving Loans and the Term Loan.
1.55 "Management Group" shall mean any director, officer or employee of
any of Borrower, Holdings or Cottontops and any trusts established for the
benefit of the foregoing persons, PROVIDED, that, such trusts are controlled by
such director, officer or employee, or his or her heirs, executors or
administrators or any spouse, siblings and descendants (whether natural or
adopted) thereof, as the case may be.
1.56 "Material Adverse Effect" shall mean a material adverse effect on
(a) the condition (financial or otherwise), business, performance, operations or
properties of Borrower and Guarantors (taken as a whole); (b) the legality,
validity or enforceability of this Agreement or any of the other Financing
Agreements; (c) the legality, validity, enforceability, perfection or priority
of the security interests and liens of Lender upon the Collateral or any other
property which is security for the Obligations; (d) the Collateral or any other
property which is security for the Obligations, or the value of the Collateral
or such other property; (e) the ability of Borrower or any Guarantor to repay
the Obligations or of Borrower or any Guarantor to perform its Obligations under
this Agreement or any of the other Financing Agreements; or (f) the ability of
Lender to enforce the Obligations or realize upon the Collateral or otherwise
with respect to the rights and remedies of Lender under this Agreement or any of
the other Financing Agreements.
1.57 "Maximum Credit" shall mean the amount of $60,000,000.
1.58 "Mortgages" shall mean, collectively, the following (as the same
now exist or may hereafter be amended, modified, supplemented, extended,
renewed, restated or replaced): (a) the
15
<PAGE>
Mortgage and Security dated of even date herewith, by Borrower in favor of
Lender with respect to the Real Property and related assets of Borrower located
in Dillon, South Carolina and (b) the Deed of Trust and Security Agreement,
dated of even date herewith, by Borrower in favor of Lender with respect to the
Real Property and related assets of Borrower located in Kings Mountain, North
Carolina.
1.59 "Net Amount of Eligible Accounts" shall mean the gross amount of
Eligible Accounts less (a) sales, excise or similar taxes included in the amount
thereof and (b) returns, discounts, claims, credits and allowances of any nature
at any time issued, owing, granted, outstanding, available or claimed with
respect thereto (to the extent not already deducted for purposes of determining
whether such Account is an Eligible Account).
1.60 "Net Proceeds" shall mean the aggregate cash proceeds received by
any of Borrower, Guarantors or any of their Subsidiaries in respect of any asset
sale permitted under Section 9.7 hereof, net of the direct costs relating to
such asset sale (including, without limitation, legal, accounting and investment
banking fees, and sales commissions) and any relocation expenses incurred as a
result thereof, taxes paid or payable as a result thereof (after taking into
account any available tax credits or deductions and any tax sharing
arrangements), amounts applied to the repayment of indebtedness secured by a
lien on the asset or assets that are the subject of such asset sale and any
other indebtedness required to be repaid in connection with such transaction and
any reserve for adjustment in respect of the sale price of such asset or assets.
Net Proceeds shall exclude any non-cash proceeds received from any asset sale,
but shall include such proceeds when and as converted by the any Borrower,
Guarantor or any Subsidiary of Borrower or Guarantor to cash.
1.61 "Obligations" shall mean any and all Revolving Loans, Letter of
Credit Accommodations, the Term Loan and all other obligations, liabilities and
indebtedness of every kind, nature and description owing by Borrower to Lender
and/or its Affiliates, including principal, interest, charges, fees, costs and
expenses, however evidenced, whether as principal, surety, endorser, guarantor
or otherwise, whether arising under this Agreement or otherwise, whether now
existing or hereafter arising, whether arising before, during or after the
initial or any renewal term of this Agreement or after the commencement of any
case with respect to Borrower under the United States Bankruptcy Code or any
similar statute (including the payment of interest and other amounts which would
accrue and become due but for the commencement of such case, whether or not such
amounts are allowed or allowable in whole or in part in such case), whether
direct or indirect, absolute or contingent, joint or several, due or not due,
primary or secondary, liquidated or unliquidated, secured or unsecured, and
however acquired by Lender.
1.62 "Obligor" shall mean any guarantor, endorser, acceptor, surety or
other person liable on or with respect to the Obligations or who is the owner of
any property which is security for the Obligations (including, without
limitation, Guarantors), other than Borrower.
16
<PAGE>
1.63 "Parent Subordinated Debt" means (a) upon the issuance thereof in
accordance with Section 9.18, the Exchange Debentures and (b) other Indebtedness
of Holdings (1) incurred in connection with the repurchase by Holdings of its
capital stock from any member of the Management Group and (2) which by its terms
is subject to, and subordinate in right of payment to, the right of Lender to
receive the prior indefeasible payment and satisfaction in full of all of the
Obligations on terms and conditions reasonably acceptable to Lender.
1.64 "Payment Account" shall have the meaning set forth in Section 6.3
hereof.
1.65 "Person" or "person" shall mean any individual, sole
proprietorship, partnership, corporation (including any corporation which elects
subchapter S status under the Code), limited liability company, limited
liability partnership, business trust, unincorporated association, joint stock
corporation, trust, joint venture or other entity or any government or any
agency or instrumentality or political subdivision thereof.
1.66 "Pre-Tax Net Income" shall mean, with respect to any Person, for
any period, the aggregate of the net income (loss) of such Person and its
Subsidiaries, on a consolidated basis, for such period (excluding to the extent
included therein any extraordinary or one-time gains and non-cash losses) after
deducting all charges which should be deducted before arriving at the net income
(loss) for such period and before deducting the Provision for Taxes for such
period, all as determined in accordance with GAAP, PROVIDED, THAT, (a) the net
income of any Person that is not a wholly-owned Subsidiary or that is accounted
for by the equity method of accounting shall be included only to the extent of
the amount of dividends or distributions paid or payable to Borrower or a
wholly-owned Subsidiary of such person; (b) the effect of any change in
accounting principles adopted by such Person or its Subsidiaries after the date
hereof shall be excluded; and (c) the net income (if positive) of any
wholly-owned Subsidiary to the extent that the declaration or payment of
dividends or similar distributions by such wholly-owned Subsidiary to Borrower
or to any other wholly-owned Subsidiary of Borrower is not at the time permitted
by operation of the terms of its charter or any agreement, instrument, judgment,
decree, order, statute, rule of government regulation applicable to such
wholly-owned Subsidiary shall be excluded. For the purpose of this definition,
net income excludes any gains (but not losses, other than non-cash losses),
together with any related Provision of Taxes for such gains (but not losses,
other than non-cash losses) realized upon the sale or other disposition of any
assets that are not sold in the ordinary course of business (including, without
limitation, dispositions pursuant to sale and leaseback transactions), or of any
Capital Stock of such Person or a Subsidiary of such Person.
1.67 "Prime Rate" shall mean the rate from time to time publicly
announced by First Union National Bank, or its successors, as its prime rate,
whether or not such announced rate is the best rate available at such bank.
1.68 "Prime Rate Loans" shall mean any Loans or portion thereof on
which interest is
17
<PAGE>
payable based on the Prime Rate in accordance with the terms thereof.
1.69 "Provision for Taxes" shall mean an amount equal to all taxes
imposed on or measured by net income, whether Federal, State or local, and
whether foreign or domestic, that are paid or payable by any Person and its
Subsidiaries in respect of such fiscal year on a consolidated basis in
accordance with GAAP.
1.70 "Qualified Public Offering" shall mean any BONA FIDE, firm
commitment, underwritten offering to the public by Holdings of its Capital Stock
pursuant to an effective registration statement under the Securities Act of
1933, as then in effect, or any comparable statement under any similar federal
statute then in force.
1.71 "Real Property" shall mean all now owned and hereafter acquired
real property of Borrower, including leasehold interests, together with all
buildings, structures, and other improvements located thereon and all licenses,
easements and appurtenances relating thereto, wherever located, including the
real property and related assets more particularly described in the Mortgages.
1.72 "Recapitalization Agreement" shall mean the Recapitalization
Agreement, dated as of February 12, 1997, by and among Holdings, Anvil VT, Inc.,
Vestar Equity Partners, L.P., Venture Partners, certain members of the
Management Group party thereto, BRS and the other existing stockholders of
Holdings, as the same now exists or may hereafter be amended, modified,
supplemented, extended, renewed or replaced.
1.73 "Recapitalization Documents" shall mean the Recapitalization
Agreement, the Senior Note Purchase Agreement, the Senior Note Indenture, the
Units Purchase Agreement, the Certificate of Designation, the Units Registration
Rights Agreement, the Units Stockholders Agreement and, if the Exchange
Debentures are issued, the Exchange Debenture Indenture.
1.74 "Records" shall mean all of Borrower's present and future books of
account of every kind or nature, purchase and sale agreements, invoices, ledger
cards, bills of lading and other shipping evidence, statements, correspondence,
memoranda, credit files and other data relating to the Collateral or any account
debtor, together with the tapes, disks, diskettes and other data and software
storage media and devices, file cabinets or containers in or on which the
foregoing are stored (including any rights of Borrower with respect to the
foregoing maintained with or by any other person).
1.75 "Reference Bank" shall mean First Union National Bank, or such
other bank as Lender may from time to time designate.
1.76 "Registration Rights Agreement" shall mean the Registration Rights
Agreement, dated as of March 14, 1997, by and among Venture Partners, BRS,
Donaldson, Lufkin & Jenrette
18
<PAGE>
Securities Corporation and certain members of the Management Group party
thereto, as the same now exists or may hereafter be amended, modified,
supplemented, extended, renewed or replaced.
1.77 "Renewal Date" shall the meaning set forth in Section 12.1 hereof.
1.78 "Revolving Loan Limit" shall mean $48,275,000.
1.79 "Revolving Loans" shall mean the loans now or hereafter made by
Lender to or for the benefit of Borrower on a revolving basis (involving
advances, repayments and readvances) as set forth in Section 2.1 hereof.
1.80 "Senior Note Indebtedness" shall mean all Indebtedness of Borrower
arising under the Senior Note Indenture.
1.81 "Senior Note Indenture" shall mean the Indenture, dated as of
March 14, 1997, among Borrower, Holdings, Cottontops and United States Trust
Company of New York, as Trustee in respect of the holders of Borrower's 10 7/8%
Series A Senior Notes due 2007 and the 10 7/8% Series B Senior Notes due 2007,
as the same now exists or may hereafter be amended, modified, supplemented,
extended, renewed, restated or replaced.
1.82 "Senior Note Indenture Maximum Credit" shall mean the maximum
dollar amount of Indebtedness which Borrower may incur to Lender under this
Agreement and the other Financing Agreements under the terms of the Senior Note
Indenture such that the liens and security interests granted by Borrower and
Obligors in favor of the Lender on the Collateral are deemed Permitted Liens (as
such term is defined in the Senior Note Indenture) under the Senior Note
Indenture.
1.83 "Senior Note Purchase Agreement" shall mean the Purchase
Agreement, dated as of March 14, 1997, by and among the Borrower and each of the
initial purchasers of the Senior Notes, as the same now exists or may hereafter
be amended, modified, supplemented, extended, renewed, restated or replaced.
1.84 "Senior Preferred Stock" shall mean, collectively, (a) up to
1,400,000 shares of senior preferred capital stock of Holdings issued in
connection with Units Offering and the Recapitalization and (b) up to 500,000
additional shares of senior preferred capital stock of Holdings which are
authorized, but not issued, as of March 14, 1997.
1.85 "Stockholders Agreement" means that certain Stockholders
Agreement, dated as of March 14, 1997, by and among Holdings, Venture Partners,
BRS and certain members of the Management Group party thereto, as amended,
modified, extended or replaced from time to time.
1.86 "Subsidiary" or "subsidiary" shall mean, with respect to any
Person, any corporation, limited or general partnership, trust, association or
other business entity of which an aggregate of
19
<PAGE>
at least a majority of the outstanding Capital Stock or other interests entitled
to vote in the election of the board of directors of such corporation
(irrespective of whether, at the time, Capital Stock of any other class or
classes of such corporation shall have or might have voting power by reason of
the happening of any contingency), managers, trustees or other controlling
persons, or an equivalent controlling interest therein, of such Person is, at
the time, directly or indirectly, owned by such Person and/or one or more
subsidiaries of such Person.
1.87 "Term Loan" shall mean the term loan made by Lender to Borrower as
provided for in Section 2.4 hereof.
1.88 "Term Loan Limit" shall mean, on any date of determination by
Lender, the sum of (a) fifty (50%) percent of the fair market value of the Real
Property subject to the Mortgages, (b) eighty (80%) percent of the orderly
liquidation value of Eligible Equipment (excluding Eligible Equipment designated
as "surplus equipment" in the Equipment Appraisal) and (c) forty-three and two
tenths (43.2%) percent of the auction value of Eligible Equipment designated as
"surplus equipment" in the Equipment Appraisal; in each case, as set forth in
the most recent appraisals acceptable to Lender.
1.89 "Units Offering" shall mean the issuance and sale by Holdings on
March 14, 1997 of up to 1,400,000 shares of Senior Preferred Stock and up to
390,000 shares of Class B Common Stock pursuant to the Units Purchase Agreement.
1.90 "Units Purchase Agreement" shall mean the Purchase Agreement,
dated as of March 14, 1997, by and among Holdings and the initial purchasers
named therein, as the same now exists or may hereafter be amended, modified,
supplemented, extended, renewed, restated or replaced.
1.91 "Units Registration Rights Agreement" shall mean the Registration
Rights Agreement, dated as of March 14, 1997, by and among Holdings, Borrower
and Donaldson, Lufkin & Jenrette Securities Corporation, as the same now exists
or may hereafter be amended, modified, supplemented, extended, renewed, restated
or replaced.
1.92 "Units Stockholders Agreement" shall mean the Registration Rights
and Securityholders Agreement, dated as of March 14, 1997, by and among
Holdings, Venture Partners, BRS and the initial purchasers party to the Units
Purchase Agreement, as the same now exists or may hereafter be amended,
modified, supplemented, extended, renewed, restated or replaced.
1.93 "Value" shall mean, as determined by Lender in good faith, with
respect to Inventory, the lower of (a) Cost or (b) market value.
1.94 "Venture Partners" shall mean 399 Venture Partners, Inc., a
Delaware corporation, and its Affiliates (including for this purpose, all of
their respective employees, partners, officers
20
<PAGE>
and directors and family members and relatives of such Persons) and any trusts
established for the benefit of the foregoing persons, PROVIDED, THAT, such
trusts are controlled by 399 Venture Partners, Inc. or its Affiliates.
1.95 "Voting Stock" shall mean with respect to any Person, (a) one (1)
or more classes of Capital Stock of such Person having general voting powers to
elect at least a majority of the board of directors, managers or trustees of
such Person, irrespective of whether at the time Capital Stock of any other
class or classes have or might have voting power by reason of the happening of
any contingency, and (b) any Capital Stock of such Person convertible or
exchangeable without restriction at the option of the holder thereof into
Capital Stock of such Person as described in clause (a) of this definition.
1.96 "Weighted Average Life to Maturity" shall mean, when applied to
any Indebtedness at any date, the number of years obtained by dividing (a) the
then outstanding principal amount of such Indebtedness into (b) the total of the
product obtained by multiplying (i) the amount of each then remaining
installment, sinking fund, serial maturity or other required payments of
principal, including payment at final maturity, in respect thereof, by (ii) the
number of years (calculated to the nearest one-twelfth) that will elapse between
such date and the making of such payment.
SECTION 2. CREDIT FACILITIES
2.1 REVOLVING LOANS.
(a) Subject to and upon the terms and conditions contained
herein, Lender agrees to make Revolving Loans to Borrower from time to time in
amounts requested by Borrower up to the amount equal to the sum of:
(i) eighty-five (85%) percent of the Net Amount of Eligible
Accounts, PLUS
(ii) the lesser of: (A) the sum of (1) fifty (50%) percent
of the Value of Eligible Inventory consisting of finished goods and (2)
sixty (60%) percent of the Value of Eligible Inventory consisting of
raw materials for such finished goods or (B) $25,000,000, PLUS
(iii) the lesser of (A) forty (40%) percent of the gross
amount of Eligible Bill and Hold Accounts and (B) $1,000,000, LESS
(iv) any Availability Reserves.
(b) Lender may, in its discretion, from time to time, upon not
less than five (5) days
21
<PAGE>
prior notice to Borrower, (i) reduce the lending formula with respect to
Eligible Accounts to the extent that Lender determines in good faith that the
general creditworthiness of Borrower's account debtors as a whole has declined
or (ii) reduce the lending formula(s) with respect to Eligible Inventory to the
extent that Lender determines in good faith that: (A) the number of days of the
turnover of the Inventory for any period has negatively changed in any material
respect or (B) the liquidation value of the Eligible Inventory, or any category
thereof, has decreased, or (C) the nature, quality or mix of the Inventory has
deteriorated. In determining whether to reduce the lending formula(s), Lender
may consider, in good faith, events, conditions, contingencies or risks which
are also considered in determining Eligible Accounts, Eligible Inventory or in
establishing Availability Reserves.
(c) Except in Lender's discretion, (i) the aggregate amount of
the Loans and the Letter of Credit Accommodations outstanding at any time shall
not exceed the lesser of (A) the Maximum Credit or (B) the Senior Note Indenture
Maximum Credit and (ii) the aggregate amount of the Revolving Loans and the
Letter of Credit Accommodations outstanding at any time shall not exceed the
Revolving Loan Limit. In the event that the outstanding amount of any component
of the Loans, or the aggregate amount of the outstanding Loans and Letter of
Credit Accommodations, exceed the amounts available under the lending formulas
set forth in Section 2, the sublimits for Letter of Credit Accommodations set
forth in Sections 2.2(c) and 2.2(d), the Maximum Credit or the Senior Note
Indenture Maximum Credit, as applicable, such event shall not limit, waive or
otherwise affect any rights of Lender in that circumstance or on any future
occasions and Borrower shall, upon demand by Lender, which may be made at any
time or from time to time, immediately repay to Lender within five (5) Business
Days the entire amount of any such excess(es) for which payment is demanded.
(d) For purposes only of applying the sublimit on Revolving Loans
based on Eligible Inventory pursuant to Section 2.1(a)(ii)(B), Lender may treat
the then undrawn amounts of outstanding Letter of Credit Accommodations for the
purpose of purchasing Eligible Inventory as Revolving Loans to the extent Lender
is in effect basing the issuance of the Letter of Credit Accommodations on the
Value of the Eligible Inventory being purchased with such Letter of Credit
Accommodations. In determining the actual amounts of such Letter of Credit
Accommodations to be so treated for purposes of the sublimit, the outstanding
Revolving Loans and Availability Reserves shall be attributed first to any
components of the lending formulas in Section 2.1(a) that are not subject to
such sublimit, before being attributed to the components of the lending formulas
subject to such sublimit.
22
<PAGE>
2.2 LETTER OF CREDIT ACCOMMODATIONS.
(a) Subject to and upon the terms and conditions contained
herein, at the request of Borrower, Lender agrees to provide or arrange for
Letter of Credit Accommodations for the account of Borrower containing terms and
conditions acceptable to Lender and the issuer thereof. Any payments made by
Lender to any issuer thereof and/or related parties in connection with the
Letter of Credit Accommodations shall constitute additional Revolving Loans to
Borrower pursuant to this Section 2.
(b) In addition to any charges, fees or expenses charged by
any bank or issuer in connection with the Letter of Credit Accommodations,
Borrower shall pay to Lender a letter of credit fee at a rate equal to one and
one-half (1 1/2%) percent per annum on the daily outstanding balance of the
Letter of Credit Accommodations for the immediately preceding month (or part
thereof), payable in arrears as of the first day of each succeeding month,
except that Borrower shall pay to Lender such letter of credit fee, at Lender's
option, with notice, at a rate equal to three and one-half (3 1/2%) percent per
annum on such daily outstanding balance for: (i) the period from and after the
date of termination or non-renewal hereof until Lender has received full and
final payment of all Obligations (notwithstanding entry of a judgment against
Borrower) and (ii) the period from and after the date of the occurrence of an
Event of Default for so long as such Event of Default is continuing as
determined by Lender. Such letter of credit fee shall be calculated on the basis
of a three hundred sixty (360) day year and actual days elapsed and the
obligation of Borrower to pay such fee shall survive the termination or
non-renewal of this Agreement.
(c) No Letter of Credit Accommodations shall be available
unless on the date of the proposed issuance of any Letter of Credit
Accommodations, the Revolving Loans available to Borrower (subject to the
Maximum Credit, the Senior Note Indenture Maximum Credit and any Availability
Reserves) are equal to or greater than: (i) if the proposed Letter of Credit
Accommodation is for the purpose of purchasing Eligible Inventory multiplied by
the Value of such Eligible Inventory, the sum of (A) the percentage equal to one
hundred (100%) percent minus the then applicable percentage set forth in Section
2.1(a)(ii)(A) above of the Value of such Eligible Inventory, plus (B) freight,
taxes, duty and other amounts which Lender estimates must be paid in connection
with such Inventory upon arrival and for delivery to one of Borrower's locations
for Eligible Inventory within the United States of America and (ii) if the
proposed Letter of Credit Accommodation is for any other purpose, an amount
equal to one hundred (100%) percent of the face amount thereof and all other
commitments and obligations made or incurred by Lender with respect thereto.
Effective on the issuance of each Letter of Credit Accommodation, an
Availability Reserve shall be established by Lender in the applicable amount set
forth in Section 2.2(c)(i) or Section 2.2(c)(ii).
(d) Except in Lender's discretion, the amount of all
outstanding Letter of Credit Accommodations and all other commitments and
obligations made or incurred by Lender in
23
<PAGE>
connection therewith shall not at any time exceed $10,000,000 in the aggregate.
At any time an Event of Default exists or has occurred and is continuing, upon
Lender's request, Borrower will either furnish cash collateral to secure the
reimbursement obligations to the issuer in connection with any Letter of Credit
Accommodations or furnish cash collateral to Lender for the Letter of Credit
Accommodations, and in either case, the Revolving Loans otherwise available to
Borrower shall not be reduced as provided in Section 2.2(c) to the extent of
such cash collateral.
(e) Borrower shall indemnify and hold Lender harmless from
and against any and all losses, claims, damages, liabilities, costs and expenses
which Lender may suffer or incur in connection with any Letter of Credit
Accommodations and any documents, drafts or acceptances relating thereto,
including any losses, claims, damages, liabilities, costs and expenses due to
any action taken by any issuer or correspondent with respect to any Letter of
Credit Accommodation other than as a result of the gross negligence or willful
misconduct of Lender as determined by a final, non-appealable order of a court
of competent jurisdiction. Borrower assumes all risks with respect to the acts
or omissions of the drawer under or beneficiary of any Letter of Credit
Accommodation and for such purposes the drawer or beneficiary shall be deemed
Borrower's agent. Borrower assumes all risks for, and agrees to pay, all
foreign, Federal, State and local taxes, duties and levies relating to any goods
subject to any Letter of Credit Accommodations or any documents, drafts or
acceptances thereunder. Borrower hereby releases and holds Lender harmless from
and against any acts, waivers, errors, delays or omissions, whether caused by
Borrower, by any issuer or correspondent of a Letter of Credit Accommodation or
otherwise with respect to or relating to any Letter of Credit Accommodation. The
provisions of this Section 2.2(e) shall survive the payment of Obligations and
the termination or non-renewal of this Agreement.
(f) Nothing contained herein shall be deemed or construed to
grant Borrower any right or authority to pledge the credit of Lender in any
manner. Lender shall have no liability of any kind with respect to any Letter of
Credit Accommodation provided by an issuer other than Lender unless Lender has
duly executed and delivered to such issuer the application or a guarantee or
indemnification in writing with respect to such Letter of Credit Accommodation.
Borrower shall be bound by any interpretation made in good faith by Lender, or
any other issuer or correspondent under or in connection with any Letter of
Credit Accommodation or any documents, drafts or acceptances thereunder,
notwithstanding that such interpretation may be inconsistent with any
instructions of Borrower. Lender shall have the sole and exclusive right and
authority to, and Borrower shall not: (i) at any time an Event of Default exists
or has occurred and is continuing, (A) approve or resolve any questions of
non-compliance of documents, (B) give any instructions as to acceptance or
rejection of any documents or goods or (C) execute any and all applications for
steamship or airway guaranties, indemnities or delivery orders, and (ii) at all
times, (A) grant any extensions of the maturity of, time of payment for, or time
of presentation of, any drafts, acceptances, or documents, and (B) agree to any
amendments, renewals, extensions, modifications, changes or cancellations of any
of the terms or conditions of any of the applications, Letter of Credit
Accommodations, or documents, drafts or acceptances thereunder
24
<PAGE>
or any letters of credit included in the Collateral. Lender may take such
actions either in its own name or in Borrower's name.
(g) Any rights, remedies, duties or obligations granted or
undertaken by Borrower to any issuer or correspondent in any application for any
Letter of Credit Accommodation, or any other agreement in favor of any issuer or
correspondent relating to any Letter of Credit Accommodation, shall be deemed to
have been granted or undertaken by Borrower to Lender. Any duties or obligations
undertaken by Lender to any issuer or correspondent in any application for any
Letter of Credit Accommodation, or any other agreement by Lender in favor of any
issuer or correspondent relating to any Letter of Credit Accommodation, shall be
deemed to have been undertaken by Borrower to Lender and to apply in all
respects to Borrower.
2.3 AVAILABILITY RESERVES. All Revolving Loans otherwise
available to Borrower pursuant to the lending formulas and subject to the
Maximum Credit, the Senior Indenture Maximum Credit and other applicable limits
hereunder shall be subject to Lender's continuing right to establish and revise
in good faith Availability Reserves in a manner consistent with the terms set
forth in the definition of such term.
2.4 TERM LOAN. (a) Lender is making a Term Loan to Borrower in
the original principal amount of $11,725,000. The Term Loan is (i) evidenced by
a Term Promissory Note in such original principal amount duly executed and
delivered by Borrower to Lender concurrently herewith; (ii) to be repaid,
together with interest and other amounts, in accordance with this Agreement, the
Term Promissory Note, and the other Financing Agreements and (iii) secured by
all of the Collateral.
(b) Notwithstanding anything to the contrary set forth herein
or in any of the other Financing Agreements, in the event that the outstanding
principal amount of the Term Loan at any time exceeds the Term Loan Limit, as
determined by Lender from the most recent acceptable appraisals of the Eligible
Equipment and the Real Property subject to Mortgages delivered to Lender
pursuant to Section 7.4 hereof, at Lender's option, either (i) the entire amount
by which the then outstanding principal amount of the Term Loan exceeds the Term
Loan Limit (the amount of each such excess being referred to herein as the "Term
Loan Reduction Amount"), shall become immediately due and payable, at Lender's
demand or (ii) Lender shall establish or increase the Availability Reserves
hereunder in an amount equal to the Term Loan Reduction Amount then due or any
part thereof.
25
<PAGE>
SECTION 3. INTEREST AND FEES
3.1 INTEREST.
(a) Borrower shall pay to Lender interest on the outstanding
principal amount of the non-contingent Obligations at the Interest Rate. All
interest accruing hereunder on and after the date of the occurrence and
continuance of any Event of Default or termination or non-renewal hereof shall
be payable to Lender on demand.
(b) Borrower may from time to time request that Prime Rate
Loans be converted to Eurodollar Rate Loans or that any existing Eurodollar Rate
Loans continue for an additional Interest Period. Such request from Borrower
shall specify the amount of the Prime Rate Loans which will constitute
Eurodollar Rate Loans (subject to the limits set forth below) and the Interest
Period to be applicable to such Eurodollar Rate Loans. Subject to the terms and
conditions contained herein, three (3) Business Days after receipt by Lender of
such a request from Borrower, such Prime Rate Loans shall be converted to
Eurodollar Rate Loans or such Eurodollar Rate Loans shall continue, as the case
may be, PROVIDED, THAT, (i) no Event of Default, or acts, condition or event
which with notice or passage of time or both would constitute an Event of
Default exists or has occurred and is continuing, (ii) no party hereto shall
have sent any notice of termination or non-renewal of this Agreement, (iii)
Borrower shall have complied with such customary procedures as are established
by Lender and specified by Lender to Borrower from time to time for requests by
Borrower for Eurodollar Rate Loans, (iv) no more than six (6) Interest Periods
may be in effect at any one time, (v) the aggregate amount of the Eurodollar
Rate Loans must be in an amount not less than $1,000,000 or an integral multiple
of $500,000 in excess thereof, (vi) the maximum amount of the Eurodollar Rate
Loans at any time requested by Borrower shall not exceed the amount equal to
eighty-five (85%) percent of the principal amount of Revolving Loans then
available to Borrower under Section 2 hereof, as determined by Lender (but with
no obligation of Lender to make such Revolving Loans) and (vii) Lender shall
have determined that the Interest Period or Adjusted Eurodollar Rate is
available to Lender through the Reference Bank and can be readily determined as
of the date of the request for such Eurodollar Rate Loan by Borrower. Any
request by Borrower to convert Prime Rate Loans to Eurodollar Rate Loans or to
continue any existing Eurodollar Rate Loans shall be irrevocable.
Notwithstanding anything to the contrary contained herein, Lender and Reference
Bank shall not be required to purchase United States Dollar deposits in the
London interbank market or other applicable Eurodollar Rate market to fund any
Eurodollar Rate Loans, but the provisions hereof shall be deemed to apply as if
Lender and Reference Bank had purchased such deposits to fund the Eurodollar
Rate Loans.
(c) Any Eurodollar Rate Loans shall automatically convert to
Prime Rate Loans upon the last day of the applicable Interest Period, unless
Lender has received and approved a request to continue such Eurodollar Rate Loan
at least three (3) Business Days prior to such last day in accordance with the
terms hereof. Any Eurodollar Rate Loans shall, at Lender's option,
26
<PAGE>
upon notice by Lender to Borrower, convert to Prime Rate Loans in the event that
(i) an Event of Default shall exist or have occurred and be continuing, (ii)
this Agreement shall terminate or not be renewed, or (iii) the aggregate
principal amount of the Prime Rate Loans which have previously been converted to
Eurodollar Rate Loans or existing Eurodollar Rate Loans continued, as the case
may be, at the beginning of an Interest Period shall at any time during such
Interest Period exceed either (A) the aggregate principal amount of the Loans
then outstanding, or (B) the sum of the then outstanding principal amount of the
Term Loan plus the principal amount of Revolving Loans then available to
Borrower under Section 2 hereof. Borrower shall pay to Lender, upon demand by
Lender (or Lender may, at its option, charge any loan account of Borrower) any
amounts required to compensate Lender, the Reference Bank or any participant
with Lender in making the Loans hereunder for any loss (including loss of
anticipated profits), cost or expense incurred by such person, as a result of
the conversion of Eurodollar Rate Loans to Prime Rate Loans pursuant to any of
the foregoing.
(d) Interest shall be payable by Borrower to Lender monthly in
arrears not later than the first day of each calendar month and shall be
calculated on the basis of a three hundred sixty (360) day year and actual days
elapsed. The interest rate on non-contingent Obligations (other than Eurodollar
Rate Loans) shall increase or decrease by an amount equal to each increase or
decrease in the Prime Rate effective on the first day of the month after any
change in such Prime Rate is announced based on the Prime Rate in effect on the
last day of the month in which any such change occurs. In no event shall charges
constituting interest payable by Borrower to Lender exceed the maximum amount or
the rate permitted under any applicable law or regulation, and if any such part
or provision of this Agreement is in contravention of any such law or
regulation, such part or provision shall be deemed amended to conform thereto.
3.2 CLOSING FEE. Borrower shall pay to Lender as a closing fee
the amount of $450,000, which shall be fully earned as of the date hereof, and
which shall be payable on the date hereof.
3.3 SERVICING FEE. Borrower shall pay to Lender monthly a
servicing fee in an amount equal to $4,000 in respect of Lender's services for
each month (or part thereof) while this Agreement remains in effect and for so
long thereafter as any of the Obligations are outstanding, which fee shall be
fully earned as of and payable in advance on the date hereof and on the first
day of each month hereafter.
3.4 UNUSED LINE FEE. Borrower shall pay to Lender monthly an
unused line fee at a rate equal to three-eighths of one (3/8%) percent per annum
calculated upon the amount by which $34,000,000 exceeds the average daily
principal balance of the outstanding Loans and Letter of Credit Accommodations
during the immediately preceding month (or part thereof) while this Agreement is
in effect and for so long thereafter as any of the Obligations are outstanding,
which fee shall be payable on the first day of each month in arrears.
3.5 CHANGES IN LAWS AND INCREASED COSTS OF LOANS.
27
<PAGE>
(a) Notwithstanding anything to the contrary contained
herein, all Eurodollar Rate Loans shall, upon notice by Lender to Borrower,
convert to Prime Rate Loans in the event that (i) any change in applicable law
or regulation (or the interpretation or administration thereof) shall either (A)
make it unlawful for Lender, Reference Bank or any participant to make or
maintain Eurodollar Rate Loans or to comply with the terms hereof in connection
with the Eurodollar Rate Loans, or (B) shall result in the increase in the costs
to Lender, Reference Bank or any participant of making or maintaining any
Eurodollar Rate Loans by an amount deemed by Lender to be material, or (C)
reduce the amounts received or receivable by Lender in respect thereof, by an
amount deemed by Lender to be material or (ii) the cost to Lender, Reference
Bank or any participant of making or maintaining any Eurodollar Rate Loans shall
otherwise increase by an amount deemed by Lender to be material. Borrower shall
pay to Lender, upon demand by Lender (or Lender may, at its option, charge any
loan account of Borrower) any amounts required to compensate Lender, the
Reference Bank or any participant with Lender for any loss, cost or expense
incurred by such person as a result of the foregoing, including, without
limitation, any such loss, cost or expense incurred by reason of the liquidation
or reemployment of deposits or other funds acquired by such person to make or
maintain the Eurodollar Rate Loans or any portion thereof. A certificate of
Lender setting forth the basis for the determination of such amount necessary to
compensate Lender as aforesaid shall be delivered to Borrower and shall be
conclusive, absent manifest error.
(b) If any payments or prepayments in respect of the
Eurodollar Rate Loans are received by Lender other than on the last day of the
applicable Interest Period (whether pursuant to acceleration, upon maturity or
otherwise), including any payments pursuant to the application of collections
under Section 6.3 or any other payments made with the proceeds of Collateral,
Borrower shall pay to Lender upon demand by Lender (or Lender may, at its
option, charge any loan account of Borrower) any amounts required to compensate
Lender, the Reference Bank or any participant with Lender for any additional
loss (including loss of anticipated profits), cost or expense incurred by such
person as a result of such prepayment or payment, including, without limitation,
any loss, cost or expense incurred by reason of the liquidation or reemployment
of deposits or other funds acquired by such person to make or maintain such
Eurodollar Rate Loans or any portion thereof.
SECTION 4. CONDITIONS PRECEDENT
4.1 CONDITIONS PRECEDENT TO INITIAL LOANS AND LETTER OF CREDIT
ACCOMMODATIONS. Each of the following is a condition precedent to Lender making
the initial Loans and providing the initial Letter of Credit Accommodations
hereunder:
(a) Lender shall have received, in form and substance
satisfactory to Lender, all releases, terminations and such other documents as
Lender may request to evidence and effectuate
28
<PAGE>
the termination by the Existing Lenders to Borrower of their respective
financing arrangements with Borrower and the termination and release by it or
them, as the case may be, of any interest in and to any assets and properties of
Borrower and each Obligor, duly authorized, executed and delivered by it or each
of them, including, but not limited to, (i) UCC termination statements for all
UCC financing statements previously filed by it or any of them or their
predecessors, as secured party and Borrower or any Obligor, as debtor and (ii)
satisfactions and discharges of any mortgages, deeds of trust or deeds to secure
debt by Borrower or any Obligor in favor of such Existing Lender or Lenders, in
form acceptable for recording in the appropriate government office;
(b) all requisite corporate action and proceedings in
connection with this Agreement and the other Financing Agreements shall be in
form and substance reasonably satisfactory to Lender, and Lender shall have
received all information and copies of all documents, including records of
requisite corporate action and proceedings which Lender may have reasonably
requested in connection therewith, such documents where requested by Lender or
its counsel to be certified by appropriate corporate officers or governmental
authorities;
(c) no material adverse change shall have occurred in the
assets, business or prospects of Borrower since February 18, 1999, the date of
Lender's latest field examination and no change or event shall have occurred
which would impair the ability of Borrower or any Obligor to perform its
obligations hereunder or under any of the other Financing Agreements to which it
is a party or of Lender to enforce the Obligations or realize upon the
Collateral;
(d) Lender shall have completed a field review of the Records
and such other information with respect to the Collateral as Lender may require
to determine the amount of Revolving Loans available to Borrower (including,
without limitation, current perpetual inventory records and/or roll-forwards of
Accounts and Inventory through the date of closing and test counts of the
Inventory in a manner satisfactory to Lender, together with such supporting
documentation as may be necessary or appropriate, and other documents and
information that will enable Lender to accurately identify and verify the
Collateral), the results of which each case shall be satisfactory to Lender, not
more than three (3) Business Days prior to the date hereof;
(e) Lender shall have received, in form and substance
satisfactory to Lender, all consents, waivers, acknowledgments and other
agreements from third persons which Lender may deem necessary or desirable in
order to permit, protect and perfect its security interests in and liens upon
the Collateral or to effectuate the provisions or purposes of this Agreement and
the other Financing Agreements, including, without limitation, Collateral Access
Agreements by owners and lessors of leased premises of Borrower and by
warehouses at which Collateral is located;
(f) Lender shall have received, in form and substance
satisfactory to Lender, all necessary agreements with the depository banks and
Borrower with respect to the Blocked
29
<PAGE>
Accounts as Lender may require pursuant to Section 6.3 hereof, duly authorized,
executed and delivered by such depository banks and Borrower;
(g) the Excess Availability as determined by Lender in good
faith, as of the date hereof, shall be not less than $10,000,000 after giving
effect to the initial Loans made or to be made hereunder and Letter of Credit
Accommodations issued or to be issued in connection with the initial
transactions hereunder;
(h) Lender shall have received evidence of insurance and loss
payee endorsements required hereunder and under the other Financing Agreements,
in form and substance satisfactory to Lender, and certificates of insurance
policies and/or endorsements naming Lender as loss payee;
(i) Lender shall have received environmental audits of
Borrower's Real Property covered by the Mortgages conducted by an independent
environmental engineering firm acceptable to Lender, and in form, scope and
methodology satisfactory to Lender, confirming (i) Borrower is in compliance
with all material applicable Environmental Laws and (ii) the absence of any
material environmental problems;
(j) Lender shall have received, in form and substance
reasonably satisfactory to Lender, a valid and effective title insurance policy
issued by a company and agent acceptable to Lender (i) insuring the priority,
amount and sufficiency of the Mortgages, (ii) insuring against matters that
would be disclosed by surveys and (iii) containing any legally available
endorsements, assurances or affirmative coverage reasonably requested by Lender
for protection of its interests;
(k) Lender shall have received, in form and substance
satisfactory to Lender, such opinion letters of counsel to Borrower, Holdings
and Cottontops with respect to the Financing Agreements and such other matters
as Lender may request; and
(l) the other Financing Agreements and all instruments and
documents hereunder and thereunder shall have been duly executed and delivered
to Lender, in form and substance satisfactory to Lender.
4.2 CONDITIONS PRECEDENT TO ALL LOANS AND LETTER OF CREDIT
ACCOMMODATIONS. Each of the following is an additional condition precedent to
Lender making Loans and/or providing Letter of Credit Accommodations to
Borrower, including the initial Loans and Letter of Credit Accommodations and
any future Loans and Letter of Credit Accommodations:
(a) all representations and warranties contained herein and
in the other Financing Agreements shall be true and correct in all material
respects with the same effect as though such representations and warranties had
been made on and as of the date of the making of each such Loan or providing
each such Letter of Credit Accommodation and after giving effect thereto,
30
<PAGE>
except to the extent that such representations and warranties expressly relate
solely to an earlier date (in which case such representations and warranties
shall have been true and accurate in all material respects on and as of such
earlier date);
(b) no law, regulation, order, judgment or decree of any
Governmental Authority shall exist, and no action, suit, investigation,
litigation or proceeding shall be pending or threatened in any court or before
any arbitrator or Governmental Authority, which (i) has a reasonable likelihood
of enjoining, prohibiting, restraining or otherwise affecting (A) the making of
the Loans or providing the Letter of Credit Accommodations, or (B) the
consummation of the transactions contemplated pursuant to the terms hereof or
the other Financing Agreements or (ii) has or could reasonably be expected to
have a material adverse effect on the assets, business or prospects of Borrower
or would impair the ability of Borrower to perform its obligations hereunder or
under any of the other Financing Agreements or of Lender to enforce any
Obligations or realize upon any of the Collateral; and
(c) no Event of Default and no act, condition or event which,
with notice or passage of time or both, would constitute an Event of Default,
shall exist or have occurred and be continuing on and as of the date of the
making of such Loan or providing each such Letter of Credit Accommodation and
after giving effect thereto.
SECTION 5. GRANT OF SECURITY INTEREST
To secure payment and performance of all Obligations, Borrower hereby
grants to Lender a continuing security interest in, a lien upon, and a right of
set off against, and hereby assigns to Lender as security, the following
property and interests in property of Borrower, whether now owned or hereafter
acquired or existing, and wherever located (collectively, the "Collateral"):
5.1 Accounts;
5.2 all present and future contract rights, general intangibles
(including tax and duty refunds, registered and unregistered patents,
trademarks, service marks, copyrights, trade names, applications for the
foregoing, trade secrets, goodwill, processes, drawings, blueprints, customer
lists, licenses, whether as licensor or licensee, choses in action and other
claims and existing and future leasehold interests in equipment, real estate and
fixtures), chattel paper, documents, instruments, investment property, letters
of credit, bankers' acceptances and guaranties;
5.3 all present and future monies, securities and other
investment property, credit balances, deposits, deposit accounts and other
property of Borrower now or hereafter held or received by or in transit to
Lender or its Affiliates or at any other depository or other institution from or
for the account of Borrower, whether for safekeeping, pledge, custody,
transmission, collection or otherwise, and all present and future liens,
security interests, rights, remedies, title
31
<PAGE>
and interest in, to and in respect of Accounts and other Collateral, including
(a) rights and remedies under or relating to guaranties, contracts of
suretyship, letters of credit and credit and other insurance related to the
Collateral, (b) rights of stoppage in transit, replevin, repossession,
reclamation and other rights and remedies of an unpaid vendor, lienor or secured
party, (c) goods described in invoices, documents, contracts or instruments with
respect to, or otherwise representing or evidencing, Accounts or other
Collateral, including returned, repossessed and reclaimed goods, and (d)
deposits by and property of account debtors or other persons securing the
obligations of account debtors;
5.4 Inventory;
5.5 Equipment;
5.6 Real Property covered by the Mortgages;
5.7 Records; and
5.8 all products and proceeds of the foregoing, in any form,
including insurance proceeds and all claims against third parties for loss or
damage to or destruction of any or all of the foregoing.
5.9 Notwithstanding anything to the contrary provided herein,
(a) in no event shall any Subsidiary that is not incorporated or organized in
the United States, any State or territory thereof or the District of Columbia (a
"Foreign Subsidiary") of Holdings (and, in effect, Borrower) guarantee or act as
a guarantor for any Obligations, and (b) Borrower and Guarantors may pledge
their assets with respect to any Obligations, PROVIDED, THAT, they shall not
pledge more than 66% of their voting stock in any Foreign Subsidiary unless, and
until as a result of a change in law, Borrower and or Guarantors, as the case
may be, shall not have any additional tax liability pursuant to Section 956 or
any other applicable Section of the Code as a direct result of making such a
guarantee or pledging more than 66% of the voting stock in any Foreign
Subsidiary, as the case may be.
SECTION 6. COLLECTION AND ADMINISTRATION
6.1 BORROWER'S LOAN ACCOUNT. Lender shall maintain one or more
loan account(s) on its books in which shall be recorded (a) all Loans, Letter of
Credit Accommodations and other Obligations and the Collateral, (b) all payments
made by or on behalf of Borrower and (c) all other appropriate debits and
credits as provided in this Agreement, including fees, charges, costs, expenses
and interest. All entries in the loan account(s) shall be made in accordance
with Lender's customary practices as in effect from time to time.
32
<PAGE>
6.2 STATEMENTS. Lender shall render to Borrower each month a
statement setting forth the balance in the Borrower's loan account(s) maintained
by Lender for Borrower pursuant to the provisions of this Agreement, including
principal, interest, fees, costs and expenses. Each such statement shall be
subject to subsequent adjustment by Lender but shall, absent manifest errors or
omissions, be considered correct and deemed accepted by Borrower and
conclusively binding upon Borrower as an account stated except to the extent
that Lender receives a written notice from Borrower of any specific exceptions
of Borrower thereto within forty-five (45) days after the date such statement
has been mailed to Borrower by Lender. Until such time as Lender shall have
rendered to Borrower a written statement as provided above, the balance in
Borrower's loan account(s) shall be presumptive evidence of the amounts due and
owing to Lender by Borrower.
6.3 COLLECTION OF ACCOUNTS.
(a) Borrower shall establish and maintain, at its expense,
blocked accounts or lockboxes and related blocked accounts (in either case,
"Blocked Accounts"), as Lender may specify, with such banks as are reasonably
acceptable to Lender into which Borrower shall promptly deposit and direct its
account debtors to directly remit all payments on Accounts and all payments
constituting proceeds of Inventory or other Collateral in the identical form in
which such payments are made, whether by cash, check or other manner. The banks
at which the Blocked Accounts are established shall enter into an agreement, in
form and substance reasonably satisfactory to Lender, providing that all items
received or deposited in the Blocked Accounts are the property of Lender, that
the depository bank has no lien upon, or right to setoff against, the Blocked
Accounts, the items received for deposit therein, or the funds from time to time
on deposit therein and that the depository bank will wire, or otherwise
transfer, in immediately available funds, on a daily basis, all funds received
or deposited into the Blocked Accounts to such bank account of Lender as Lender
may from time to time designate for such purpose ("Payment Account"). Borrower
agrees that all payments made to such Blocked Accounts or other funds received
and collected by Lender, whether on the Accounts or as proceeds of Inventory or
other Collateral or otherwise shall be the property of Lender.
(b) For purposes of calculating the amount of the Loans
available to Borrower, such payments will be applied (conditional upon final
collection) to the Obligations on the Business Day of receipt by Lender of
immediately available funds in the Payment Account provided such payments and
notice thereof are received in accordance with Lender's usual and customary
practices as in effect from time to time and within sufficient time to credit
Borrower's loan account on such day, and if not, then on the next Business Day.
For the purposes of calculating interest on the Obligations, such payments or
other funds received will be applied (conditional upon final collection) to the
Obligations one (1) Business Day following the date of receipt of immediately
available funds by Lender in the Payment Account provided such payments or other
funds and notice thereof are received in accordance with Lender's usual and
customary practices as in effect from time to time and within sufficient time to
credit Borrower's loan account on such day, and if not, then on the next
Business Day.
33
<PAGE>
(c) Borrower and all of its shareholders, directors,
employees, agents, Subsidiaries or other Affiliates shall, acting as trustee for
Lender, receive, as the property of Lender, any monies, checks, notes, drafts or
any other payment relating to and/or proceeds of Accounts or other Collateral
which come into their possession or under their control and promptly upon
receipt thereof, shall deposit or cause the same to be deposited in the Blocked
Accounts, or remit the same or cause the same to be remitted, in kind, to
Lender. In no event shall the same be commingled with Borrower's own funds.
Borrower agrees to reimburse Lender on demand for any amounts owed or paid to
any bank at which a Blocked Account is established or any other bank or person
involved in the transfer of funds to or from the Blocked Accounts arising out of
Lender's payments to or indemnification of such bank or person. The obligation
of Borrower to reimburse Lender for such amounts pursuant to this Section 6.3
shall survive the termination or non-renewal of this Agreement.
6.4 PAYMENTS. All Obligations shall be payable to the Payment
Account as provided in Section 6.3 or such other place as Lender may designate
in writing from time to time. Lender may apply payments received or collected
from Borrower or for the account of Borrower (including the monetary proceeds of
collections or of realization upon any Collateral) to such of the Obligations,
whether or not then due, in such order and manner as Lender determines. At
Lender's option, all principal, interest, fees, costs, expenses and other
charges provided for in this Agreement or the other Financing Agreements may be
charged directly to the loan account(s) of Borrower. Borrower shall make all
payments to Lender on the Obligations free and clear of, and without deduction
or withholding for or on account of, any setoff, counterclaim, defense, duties,
taxes, levies, imposts, fees, deductions, withholding, restrictions or
conditions of any kind other than any Excluded Taxes that Borrower is required
to withhold under applicable law, PROVIDED, THAT, to the extent Borrower is
required by law to deduct such Excluded Taxes Borrower shall pay to Lender such
additional amounts as may be necessary in order that the net amount received by
Lender after such withholding or deduction shall equal the amount Lender would
have received had no deduction or withholding been made. If after receipt of any
payment of, or proceeds of Collateral applied to the payment of, any of the
Obligations, Lender is required to surrender or return such payment or proceeds
to any Person for any reason, then the Obligations intended to be satisfied by
such payment or proceeds shall be reinstated and continue and this Agreement
shall continue in full force and effect as if such payment or proceeds had not
been received by Lender. Borrower shall be liable to pay to Lender, and does
hereby indemnify and hold Lender harmless for the amount of any payments or
proceeds surrendered or returned. This Section 6.4 shall remain effective
notwithstanding any contrary action which may be taken by Lender in reliance
upon such payment or proceeds. This Section 6.4 shall survive the payment of the
Obligations and the termination or non-renewal of this Agreement.
6.5 AUTHORIZATION TO MAKE LOANS. Lender is authorized to make the
Loans and provide the Letter of Credit Accommodations based upon telephonic or
other instructions received from anyone purporting to be an officer of Borrower
or other authorized person or, at the discretion of
34
<PAGE>
Lender, if such Loans are necessary to satisfy any Obligations. All requests for
Loans or Letter of Credit Accommodations hereunder shall specify the date on
which the requested Loan is to be made or Letter of Credit Accommodations
established (which day shall be a Business Day) and the amount of the requested
Loan or Letter of Credit Accommodations. Requests received after 11:00 a.m. New
York City time on any day shall be deemed to have been made as of the opening of
business on the immediately following Business Day. All Loans and Letter of
Credit Accommodations under this Agreement shall be conclusively presumed to
have been made to, and at the request of and for the benefit of, Borrower when
deposited to the credit of Borrower or otherwise disbursed or established in
accordance with the instructions of Borrower or in accordance with the terms and
conditions of this Agreement.
6.6 USE OF PROCEEDS. Borrower shall use the initial proceeds of
the Loans provided by Lender to Borrower hereunder only for: (a) payments to
each of the persons listed in the disbursement direction letter furnished by
Borrower to Lender on or about the date hereof and (b) costs, expenses and fees
in connection with the preparation, negotiation, execution and delivery of this
Agreement and the other Financing Agreements. All other Loans made or Letter of
Credit Accommodations provided by Lender to Borrower pursuant to the provisions
hereof shall be used by Borrower only for general operating, working capital and
other proper corporate purposes of Borrower not otherwise prohibited by the
terms hereof. None of the proceeds will be used, directly or indirectly, for the
purpose of purchasing or carrying any margin security or for the purposes of
reducing or retiring any indebtedness which was originally incurred to purchase
or carry any margin security or for any other purpose which might cause any of
the Loans to be considered a "purpose credit" within the meaning of Regulation U
of the Board of Governors of the Federal Reserve System, as amended.
SECTION 7. COLLATERAL REPORTING AND COVENANTS
7.1 COLLATERAL REPORTING.
(a) Borrower shall provide Lender with the following
documents in a form satisfactory to Lender:
(i) on a weekly basis or more frequently as Lender may
request, a schedule of sales made (and indicating which are Bill and Hold
Accounts), credits issued and cash received;
(ii) on a weekly basis or more frequently as Lender may
request perpetual inventory reports, by category and location;
(iii) on a monthly basis or more frequently as Lender
may request (A) agings of accounts receivable, by account (including Bill and
Hold Accounts), (B) a schedule of accounts payable (and at the request of
Lender, an aging of accounts payable)
35
<PAGE>
and (C) a markdown of Inventory report;
(iv) on a monthly basis or more frequently as Lender may
request, a report detailing (A) sales of Equipment, if any, and (B) transfers of
Equipment out of the continental United States;
(v) upon Lender's request, (A) copies of customer
statements and credit memos, remittance advices and reports, and copies of
deposit slips and bank statements, (B) copies of shipping and delivery
documents, and (C) copies of purchase orders, invoices and delivery documents
for Inventory and Equipment acquired by Borrower;
(vi) such other reports as to the Collateral as Lender
shall request from time to time; and
(b) If any of Borrower's records or reports of the Collateral
are prepared or maintained by an accounting service, contractor, shipper or
other agent, Borrower hereby irrevocably authorizes such service, contractor,
shipper or agent to deliver such records, reports, and related documents to
Lender and to follow Lender's instructions with respect to further services at
any time that an Event of Default exists or has occurred and is continuing.
7.2 ACCOUNTS COVENANTS.
(a) Borrower shall notify Lender promptly of: (i) any
material delay in Borrower's performance of any of its material obligations to
any account debtor or the assertion of any material claims, offsets, defenses or
counterclaims by any account debtor known to Borrower, or any material disputes
with account debtors, or any settlement, adjustment or compromise thereof, (ii)
all material adverse information relating to the financial condition of any
account debtor and (iii) any event or circumstance which, to Borrower's
knowledge and good faith belief would cause Lender to consider any then existing
Accounts as no longer constituting Eligible Accounts. No credit, discount,
allowance or extension or agreement for any of the foregoing shall be granted to
any account debtor without Lender's consent, except in the ordinary course of
Borrower's business in accordance with current practices. So long as no Event of
Default exists or has occurred and is continuing, Borrower shall settle, adjust
or compromise any claim, offset, counterclaim or dispute with any account
debtor. At any time that an Event of Default exists or has occurred and is
continuing, Lender shall, at its option, have the exclusive right to settle,
adjust or compromise any claim, offset, counterclaim or dispute with account
debtors or grant any credits, discounts or allowances.
(b) Without limiting the obligation of Borrower to deliver
any other information to Lender, Borrower shall promptly report to Lender any
return of Inventory by any one account debtor if the Inventory so returned in
such case has a value in excess of $50,000. At any time that Inventory is
returned, reclaimed or repossessed, the Account (or portion thereof) which arose
36
<PAGE>
from the sale of such returned, reclaimed or repossessed Inventory shall not be
deemed an Eligible Account. In the event any account debtor returns Inventory
when an Event of Default exists or has occurred and is continuing, Borrower
shall, upon Lender's request, (i) hold the returned Inventory in trust for
Lender, (ii) segregate all returned Inventory from all of its other property,
(iii) dispose of the returned Inventory solely according to Lender's
instructions, and (iv) not issue any credits, discounts or allowances with
respect thereto without Lender's prior written consent.
(c) With respect to each Account: (i) the amounts shown on
any invoice delivered to Lender or schedule thereof delivered to Lender shall be
true and complete, (ii) no payments shall be made thereon except payments
immediately delivered to Lender pursuant to the terms of this Agreement, (iii)
no credit, discount, allowance or extension or agreement for any of the
foregoing shall be granted to any account debtor except as reported to Lender in
accordance with this Agreement and except for credits, discounts, allowances or
extensions made or given in the ordinary course of Borrower's business in
accordance with current practices, (iv) there shall be no setoffs, deductions,
contras, defenses, counterclaims or disputes existing or asserted with respect
thereto except as reported to Lender in accordance with the terms of this
Agreement, (v) none of the transactions giving rise thereto will violate any
applicable State or Federal laws or regulations, all documentation relating
thereto will be legally sufficient under such laws and regulations and all such
documentation will be legally enforceable in accordance with its terms.
(d) Lender shall have the right at any time or times, in
Lender's name or in the name of a nominee of Lender, to verify the validity,
amount or any other matter relating to any Account or other Collateral, by mail,
telephone, facsimile transmission or otherwise.
(e) Borrower shall deliver or cause to be delivered to
Lender, with appropriate endorsement and assignment, with full recourse to
Borrower, all chattel paper and instruments which Borrower now owns or may at
any time acquire immediately upon Borrower's receipt thereof, except as Lender
may otherwise agree.
(f) Lender may, at any time or times that an Event of Default
exists or has occurred and is continuing, (i) notify any or all account debtors
that the Accounts have been assigned to Lender and that Lender has a security
interest therein and Lender may direct any or all accounts debtors to make
payment of Accounts directly to Lender, (ii) extend the time of payment of,
compromise, settle or adjust for cash, credit, return of merchandise or
otherwise, and upon any terms or conditions, any and all Accounts or other
obligations included in the Collateral and thereby discharge or release the
account debtor or any other party or parties in any way liable for payment
thereof without affecting any of the Obligations, (iii) demand, collect or
enforce payment of any Accounts or such other obligations, but without any duty
to do so, and Lender shall not be liable for its failure to collect or enforce
the payment thereof nor for the negligence of its agents or attorneys with
respect thereto and (iv) take whatever other action Lender may deem necessary or
desirable for the protection of its interests and in accordance with applicable
law. At any time that an Event of Default exists or has occurred and is
continuing, at Lender's request, all invoices
37
<PAGE>
and statements sent to any account debtor shall state that the Accounts and such
other obligations have been assigned to Lender and are payable directly and only
to Lender and Borrower shall deliver to Lender such originals of documents
evidencing the sale and delivery of goods or the performance of services giving
rise to any Accounts as Lender may require.
7.3 INVENTORY COVENANTS. With respect to the Inventory:
(a) Borrower shall at all times maintain inventory records reasonably
satisfactory to Lender, keeping correct and accurate records itemizing and
describing the kind, type, quality and quantity of Inventory, Borrower's cost
therefor and daily withdrawals therefrom and additions thereto; (b) Borrower
shall conduct a physical count of the Inventory at least once each year, but at
any time or times as Lender may request on or after an Event of Default, and
promptly following such physical inventory shall supply Lender with a report in
the form and with such specificity as may be reasonably satisfactory to Lender
concerning such physical count; (c) Borrower shall not remove any Inventory from
the locations set forth or permitted herein, without the prior written consent
of Lender, except for sales of Inventory in the ordinary course of Borrower's
business and except to move Inventory directly from one location set forth or
permitted herein to another such location and except for Inventory shipped from
the manufacturer thereof to Borrower which is in transit to the locations set
forth or permitted herein; (d) upon Lender's request, Borrower shall, at its
expense, no more than once in any twelve (12) month period, but at any time or
times as Lender may request on or after and during the continuance of an Event
of Default, deliver or cause to be delivered to Lender written reports or
appraisals as to the Inventory in form, scope and methodology acceptable to
Lender and by an appraiser acceptable to Lender, addressed to Lender and upon
which Lender is expressly permitted to rely; (e) Borrower shall produce, use,
store and maintain the Inventory with all reasonable care and caution and in
accordance with applicable standards of any insurance and in conformity with
applicable laws (including the requirements of the Federal Fair Labor Standards
Act of 1938, as amended and all rules, regulations and orders related thereto);
(f) Borrower assumes all responsibility and liability arising from or relating
to the production, use, sale or other disposition of the Inventory; (g) Borrower
shall not sell Inventory to any customer on approval, or any other basis which
entitles the customer to return or may obligate Borrower to repurchase such
Inventory except for the rights of return given to customers of Borrower in
accordance with current practices as of the date hereof; (h) Borrower shall keep
the Inventory in good and marketable condition; and (i) Borrower shall not,
without prior written notice to Lender, acquire or accept any Inventory on
consignment or approval.
7.4 EQUIPMENT AND REAL PROPERTY COVENANTS. With respect to the
Equipment and Real Property: (a) upon Lender's request, Borrower shall, at its
expense, no more than once in any twelve (12) month period, but at any time or
times as Lender may request, at Lender's expense, or at Borrower's expense, on
or after an Event of Default, deliver or cause to be delivered to Lender written
reports or appraisals as to the Equipment and/or the Real Property in form,
scope and methodology acceptable to Lender and by an appraiser acceptable to
Lender, addressed to Lender and upon which Lender is expressly permitted to
rely; (b) Borrower shall keep the Equipment in good order, repair, running and
marketable condition (ordinary wear and tear excepted); (c)
38
<PAGE>
Borrower shall use the Equipment and Real Property with all reasonable care and
caution customary for corporations of established reputation engaged in similar
businesses of similarly situated and in accordance with applicable standards of
any insurance and in conformity with all applicable laws; (d) the Equipment is
and shall be used in Borrower's business and not for personal, family, household
or farming use; (e) Borrower shall not remove any Equipment from the locations
set forth or permitted herein, except to the extent necessary to have any
Equipment repaired or maintained in the ordinary course of the business of
Borrower or to move Equipment directly from one location set forth or permitted
herein to another such location and except for the movement of motor vehicles
used by or for the benefit of Borrower in the ordinary course of business; (f)
the Equipment is now and shall remain personal property and Borrower shall not
permit any of the Equipment to be or become a part of or affixed to real
property; and (g) Borrower assumes all responsibility and liability arising from
the use of the Equipment and Real Property.
7.5 BILLS OF LADING AND OTHER DOCUMENTS OF TITLE. Borrower shall
cause all bills of lading and other documents of title relating to goods being
purchased by Borrower which are outside the United States and in transit to the
premises of Borrower or the premises of a Customs Broker to name Borrower as
consignee, unless and until Lender may direct otherwise. At such time and from
time to time as Lender may direct, Borrower shall cause Lender or such other
financial institution or other person as Lender may specify to be named as
consignee. Without limiting any other rights of Lender hereunder, Lender shall
have the right to endorse and negotiate on behalf of, and as attorney-in-fact
for, Borrower any bill of lading or other document of title with respect to such
goods naming Borrower as consignee to Lender. There shall be three (3) originals
of each of such bill of lading or other document of title, which unless and
until Lender shall direct otherwise shall be delivered as follows: (a) one (1)
original to such Customs Broker as Borrower may specify (so long as Lender shall
have received a Collateral Access Agreement duly authorized, executed and
delivered by such Customs Broker) and (b) at Lender's request, two (2) originals
of which shall be delivered to Lender or to such other person as Lender may
designate for such purpose. At Lender's request, Borrower shall instruct all
suppliers, carriers, forwarders, warehouses or others receiving or holding
Inventory, documents, or instruments in which Lender holds a security interest
to deliver them to Lender and/or subject to Lender's request and if they shall
come into Borrower's possession, to deliver them, upon request, to Lender in
their original form. Borrower shall cause all bills of lading or other documents
of title relating to goods purchased by Borrower which are outside the United
States and in transit to the premises of Borrower to be issued in a form so as
to constitute negotiable documents as such term is defined in the Uniform
Commercial Code.
7.6 POWER OF ATTORNEY. Borrower hereby irrevocably designates and
appoints Lender (and all persons designated by Lender) as Borrower's true and
lawful attorney-in-fact, and authorizes Lender, in Borrower's or Lender's name,
to: (a) at any time an Event of Default or act, condition or event which with
notice or passage of time or both would constitute an Event of Default exists or
has occurred and is continuing (i) demand payment on Accounts or other
39
<PAGE>
proceeds of Inventory or other Collateral, (ii) enforce payment of Accounts by
legal proceedings or otherwise, (iii) exercise all of Borrower's rights and
remedies to collect any Account or other Collateral, (iv) sell or assign any
Account upon such terms, for such amount and at such time or times as the
Lender, in good faith, deems advisable, (v) settle, adjust, compromise, extend
or renew an Account, (vi) discharge and release any Account, (vii) prepare, file
and sign Borrower's name on any proof of claim in bankruptcy or other similar
document against an account debtor, (viii) notify the post office authorities to
change the address for delivery of Borrower's mail to an address designated by
Lender, and open and dispose of all mail addressed to Borrower, and (ix) do all
acts and things which are necessary, in Lender's determination, to fulfill
Borrower's obligations under this Agreement and the other Financing Agreements
and (b) at any time to (i) take control in any manner of any item of payment or
proceeds thereof received in or for deposit in the Blocked Accounts or otherwise
received by Lender, (ii) have access to any lockbox or postal box into which
Borrower's mail is deposited, (iii) endorse Borrower's name upon any items of
payment or proceeds thereof and deposit the same in the Lender's account for
application to the Obligations, (iv) endorse Borrower's name upon any chattel
paper, document, instrument, invoice, or similar document or agreement relating
to any Account or any goods pertaining thereto or any other Collateral, (v) sign
Borrower's name on any verification of Accounts and notices thereof to account
debtors and (vi) execute in Borrower's name and file any UCC financing
statements or amendments thereto. Borrower hereby releases Lender and its
officers, employees and designees from any liabilities arising from any act or
acts under this power of attorney and in furtherance thereof, whether of
omission or commission, except as a result of Lender's own gross negligence or
wilful misconduct as determined pursuant to a final non-appealable order of a
court of competent jurisdiction.
7.7 RIGHT TO CURE. Lender may, at its option, (a) upon notice to
Borrower, cure any default by Borrower under any material agreement with a third
party which affects the Collateral, its value or the ability of Lender to
collect, sell or otherwise dispose of the Collateral or the rights and remedies
of Lender therein or the ability of Borrower to perform its obligations under
the other Financing Agreements, (b) pay or bond on appeal any judgment entered
against Borrower, (c) discharge taxes, liens, security interests or other
encumbrances at any time levied on or existing with respect to the Collateral
and (d) pay any amount, incur any expense or perform any act which, in Lender's
good faith judgment, is necessary or appropriate to preserve, protect, insure or
maintain the Collateral and the rights of Lender with respect thereto. Lender
may add any amounts so expended to the Obligations and charge Borrower's account
therefor, such amounts to be repayable by Borrower on demand. Lender shall be
under no obligation to effect such cure, payment or bonding and shall not, by
doing so, be deemed to have assumed any obligation or liability of Borrower. Any
payment made or other action taken by Lender under this Section shall be without
prejudice to any right to assert an Event of Default hereunder and to proceed
accordingly.
7.8 ACCESS TO PREMISES. From time to time as requested in good
faith by Lender, at the cost and expense of Borrower, (a) Lender or its designee
shall have complete access to all of
40
<PAGE>
Borrower's premises during normal business hours and after notice to Borrower,
but in no event, more than once per calendar month so long as no Event of
Default has occurred and is continuing or at any time and as frequently as
Lender determines is necessary and without notice to Borrower if an Event of
Default exists or has occurred and is continuing, for the purposes of
inspecting, verifying and auditing the Collateral and all of Borrower's books
and records, including the Records, and (b) Borrower shall promptly furnish to
Lender such copies of such books and records or extracts therefrom as Lender may
request in good faith, and (c) Lender or its designee may use during normal
business hours such of Borrower's personnel, equipment, supplies and premises as
may be reasonably necessary for the foregoing and if an Event of Default exists
or has occurred and is continuing for the collection of Accounts and realization
of other Collateral; PROVIDED, THAT, Borrower shall make such personnel and
premises available to Lender in such manner so as to minimize any interference
with the operations of Borrower.
SECTION 8. REPRESENTATIONS AND WARRANTIES
Borrower and Guarantors hereby jointly and severally represent and
warrant to Lender the following (which shall survive the execution and delivery
of this Agreement), the truth and accuracy of which are a continuing condition
of the making of Loans and providing Letter of Credit Accommodations by Lender
to Borrower:
8.1 CORPORATE EXISTENCE, POWER AND AUTHORITY; SUBSIDIARIES. Each
of Borrower, Guarantors and their respective Subsidiaries is a corporation duly
organized and in good standing under the laws of its state of incorporation and
is duly qualified as a foreign corporation and in good standing in all states or
other jurisdictions (where such concept is recognized) where the nature and
extent of the business transacted by it or the ownership of assets makes such
qualification necessary, except for those jurisdictions in which the failure to
so qualify would not have a material adverse effect on Borrower's financial
condition, results of operation or business or the rights of Lender in or to any
of the Collateral. The execution, delivery and performance of this Agreement,
the other Financing Agreements and the transactions contemplated hereunder and
thereunder are all within the corporate powers of Borrower, each Guarantor and
their Subsidiaries, have been duly authorized and are not in contravention of
applicable law or the terms of Borrower's or any Guarantor's certificate of
incorporation, by-laws, or other organizational documentation, or any indenture,
agreement or undertaking to which Borrower, any Guarantor or any of their
respective Subsidiaries is a party or by which Borrower, Guarantors or any of
their respective Subsidiaries or their property are bound. This Agreement and
the other Financing Agreements constitute legal, valid and binding obligations
of Borrower and each Guarantor enforceable in accordance with their respective
terms. Borrower and Guarantors do not have any Subsidiaries except as set forth
on Schedule 8.1.
8.2 FINANCIAL STATEMENTS; NO MATERIAL ADVERSE CHANGE. All
financial statements relating to Borrower, Guarantors and their Subsidiaries
which have been or may hereafter be delivered by
41
<PAGE>
Borrower to Lender have been prepared in accordance with GAAP and fairly present
the financial condition and the results of operation of Borrower, Guarantors and
their respective Subsidiaries as at the dates and for the periods set forth
therein. Except as disclosed in any interim financial statements furnished by
Borrower to Lender prior to the date of this Agreement, there has been no
material adverse change in the assets, liabilities, properties and condition,
financial or otherwise, of Borrower, Guarantors and their Subsidiaries, since
the date of the most recent audited financial statements furnished by Borrower
to Lender prior to the date of this Agreement.
8.3 CHIEF EXECUTIVE OFFICE; COLLATERAL LOCATIONS. The chief
executive office of Borrower and Borrower's Records concerning Accounts are
located only at the address set forth below and its only other places of
business and the only other locations of Collateral, if any, are the addresses
set forth in the Information Certificate, subject to the right of Borrower to
establish new locations in accordance with Section 9.2 below. The Information
Certificate correctly identifies any of such locations which are not owned by
Borrower and sets forth the owners and/or operators thereof and to the best of
Borrower's knowledge, the holders of any mortgages on such locations.
8.4 PRIORITY OF LIENS; TITLE TO PROPERTIES. The security
interests and liens granted to Lender under this Agreement and the other
Financing Agreements constitute valid and perfected first priority liens and
security interests in and upon the Collateral subject only to the liens
indicated on Schedule 8.4 hereto and the other liens permitted under Section 9.8
hereof. Borrower has good and marketable title to all of its properties and
assets subject to no liens, mortgages, pledges, security interests, encumbrances
or charges of any kind, except those granted to Lender and such others as are
specifically listed on Schedule 8.4 hereto or permitted under Section 9.8
hereof.
8.5 TAX RETURNS. Borrower, each Guarantor and their Subsidiaries
has filed, or caused to be filed, in a timely manner all tax returns, reports
and declarations which are required to be filed by it (without requests for
extension except as previously disclosed in writing to Lender). All information
in such tax returns, reports and declarations is complete and accurate in all
material respects. Borrower, each Guarantor and their Subsidiaries, as the case
may be, has paid or caused to be paid all taxes due and payable or claimed due
and payable in any assessment received by it, except taxes the validity of which
are being contested in good faith by appropriate proceedings diligently pursued
and available to Borrower, each Guarantor and their Subsidiaries, as the case
may be, and with respect to which adequate reserves have been set aside on its
books. Adequate provision has been made for the payment of all accrued and
unpaid Federal, State, county, local, foreign and other taxes whether or not yet
due and payable and whether or not disputed.
8.6 LITIGATION. Except as set forth on Schedule 8.6, there is no
present investigation by any Governmental Authority pending, or to the best of
the knowledge of Borrower or Guarantors or any of their Subsidiaries threatened,
against or affecting Borrower or Guarantors or their assets or business and
there is no action, suit, proceeding or claim by any Person pending, or to the
best knowledge of Borrower, Guarantors or any of their Subsidiaries threatened,
against Borrower,
42
<PAGE>
any of Guarantors or any of their Subsidiaries or their assets or goodwill, or
against or affecting any transactions contemplated by this Agreement, which if
adversely determined against them would result in any material adverse change in
the assets, business or prospects of Borrower. Guarantor or any of their
Subsidiaries or would impair the ability of Borrower, any Guarantor or any of
their Subsidiaries to perform their obligations hereunder or under any of the
other Financing Agreements to which it is a party, as the case may be, or of
Lender to enforce any Obligations or realize upon any Collateral.
8.7 COMPLIANCE WITH OTHER AGREEMENTS AND APPLICABLE LAWS. None of
Borrower, Guarantors or any of their Subsidiaries is in default in any material
respect under, or in violation in any material respect of any of the terms of,
any agreement, contract, instrument, lease or other commitment to which it is a
party or by which it or any of its assets are bound and each of Borrower,
Guarantors and their Subsidiaries is in compliance in all material respects with
all applicable provisions of laws, rules, regulations, licenses, permits,
approvals and orders of any foreign, Federal, State or local Governmental
Authority.
8.8 ENVIRONMENTAL COMPLIANCE.
(a) Except as set forth on Schedule 8.8 hereto or as would
not have a Material Adverse Effect, none of Borrower, Guarantors or their
Subsidiaries have generated, used, stored, treated, transported, manufactured,
handled, produced or disposed of any Hazardous Materials, on or off its premises
(whether or not owned by it) in any manner which at any time violates any
applicable Environmental Law or any license, permit, certificate, approval or
similar authorization thereunder and the operations of each of Borrower,
Guarantors and their Subsidiaries complies in all material respects with all
Environmental Laws and all licenses, permits, certificates, approvals and
similar authorizations thereunder.
(b) Except as set forth on Schedule 8.8 hereto or as would
not have a Material Adverse Effect, there has been no investigation, proceeding,
complaint, order, directive, claim, citation or notice by any governmental
authority or any other person nor is any pending or to the best knowledge of
Borrower, each Guarantor and their Subsidiaries threatened, with respect to any
non-compliance with or violation of the requirements of any Environmental Law by
Borrower, Guarantors and their Subsidiaries or the release, spill or discharge,
threatened or actual, of any Hazardous Material or the generation, use, storage,
treatment, transportation, manufacture, handling, production or disposal of any
Hazardous Materials or any other environmental, health or safety matter, which
affects Borrower, Guarantors, their Subsidiaries or their respective businesses,
operations or assets or any properties at which Borrower, any Guarantor or any
of their Subsidiaries has transported, stored or disposed of any Hazardous
Materials.
(c) Except as set forth on Schedule 8.8 hereto or as would
not have a Material Adverse Effect, none of Borrower, Guarantors or any of their
Subsidiaries has any liability
43
<PAGE>
(contingent or otherwise) in connection with a release, spill or discharge,
threatened or actual, of any Hazardous Materials or the generation, use,
storage, treatment, transportation, manufacture, handling, production or
disposal of any Hazardous Materials.
(d) Except as set forth on Schedule 8.8 hereto or as would
not have a Material Adverse Effect, each of Borrower, Guarantors and their
Subsidiaries has all licenses, permits, certificates, approvals or similar
authorizations required to be obtained or filed in connection with the
operations of Borrower, Holdings and their Subsidiaries under any Environmental
Law and all of such licenses, permits, certificates, approvals or similar
authorizations are valid and in full force and effect.
8.9 EMPLOYEE BENEFITS.
(a) None of Borrower, Guarantors or any of their Subsidiaries
has engaged in any transaction in connection with which Borrower, Guarantors or
any of their ERISA Affiliates could be subject to either a civil penalty
assessed pursuant to Section 502(i) of ERISA or a tax imposed by Section 4975 of
the Code.
(b) No liability to the Pension Benefit Guaranty Corporation
(other than payments of premiums) has been or is expected by Borrower or any
Guarantor to be incurred with respect to any employee benefit plan of Borrower,
any Guarantor or any of their respective ERISA Affiliates. There has been no
reportable event (within the meaning of Section 4043 of ERISA) or any other
event or condition with respect to any employee pension benefit plan of
Borrower, any Guarantor or any of their respective ERISA Affiliates which
presents a risk of termination of any such plan by the Pension Benefit Guaranty
Corporation.
(c) Full payment has been made of all amounts which Borrower,
Guarantors or any of their ERISA Affiliates is required under Section 302 of
ERISA and Section 412 of the Code to have paid under the terms of each employee
benefit plan as contributions to such plan as of the last day of the most recent
fiscal year of such plan ended prior to the date hereof, and no accumulated
funding deficiency (as defined in Section 302 of ERISA and Section 412 of the
Code), whether or not waived, exists with respect to any employee benefit plan.
(d) The current value of all vested accrued benefits under
all employee benefit plans maintained by Borrower, Guarantors or any of their
Subsidiaries that are subject to Title IV of ERISA does not exceed the current
value of the assets of such plans allocable to such vested accrued benefits. The
terms "current value" and "accrued benefit" have the meanings specified in
ERISA.
(e) None of Borrower, Guarantors or any of their ERISA
Affiliates is or has ever been obligated to contribute to any "multiemployer
plan" (as such term is defined in Section 4001(a)(3) of ERISA) that is subject
to Title IV of ERISA.
44
<PAGE>
8.10 BANK ACCOUNTS. All of the deposit accounts, investment
accounts or other accounts in the name of or used by Borrower and Guarantors
maintained at any bank or other financial institution are set forth on Schedule
8.10 hereto, subject to the right of Borrower to establish new accounts in
accordance with Section 9.13 below.
8.11 ACCURACY AND COMPLETENESS OF INFORMATION. All information
furnished by or on behalf of Borrower, Guarantors and their Subsidiaries in
writing to Lender in connection with this Agreement or any of the other
Financing Agreements or any transaction contemplated hereby or thereby,
including all information on the Information Certificate is true and correct in
all material respects on the date as of which such information is dated or
certified and does not omit any material fact necessary in order to make such
information not misleading. No event or circumstance has occurred which has had
or could reasonably be expected to have a Material Adverse Effect which has not
been fully and accurately disclosed to Lender in writing.
8.12 SENIOR NOTE INDENTURE. Assuming that Borrower has obtained
Loans from Lender up to the Maximum Credit on the date hereof: (i) there will be
no "Default" or "Event of Default" under the Senior Note Indenture after giving
effect to such borrowings, and (ii) the amount of the Maximum Credit when taken
together with all other outstanding "Indebtedness" permitted under Section 4.10
of the Senior Note Indenture, would still permit Borrower to incur approximately
an additional $9,000,000 of "Indebtedness" under the second paragraph of Section
4.10 at clause (viii) of the Senior Note Indenture. All quoted terms used in
this Section shall have the meanings ascribed to such terms in the Senior Note
Indenture.
8.13 SURVIVAL OF WARRANTIES; CUMULATIVE. All representations and
warranties contained in this Agreement or any of the other Financing Agreements
shall survive the execution and delivery of this Agreement and shall be deemed
to have been made again to Lender on the date of each additional borrowing or
other credit accommodation hereunder and shall be conclusively presumed to have
been relied on by Lender regardless of any investigation made or information
possessed by Lender. The representations and warranties set forth herein shall
be cumulative and in addition to any other representations or warranties which
Borrower shall now or hereafter give, or cause to be given, to Lender.
45
<PAGE>
SECTION 9. AFFIRMATIVE AND NEGATIVE COVENANTS
9.1 MAINTENANCE OF EXISTENCE. Borrower and each Guarantor shall, and
shall cause its Subsidiaries to at all times preserve, renew and keep in full,
force and effect its corporate existence and material rights and franchises with
respect thereto and maintain in full force and effect all material permits,
licenses, trademarks, tradenames, approvals, authorizations, leases and
contracts necessary to carry on the business as presently or proposed to be
conducted. Borrower and each Guarantor shall, and shall cause its Subsidiaries
to give Lender twenty (20) days prior written notice of any proposed change in
its corporate name, which notice shall set forth the new name and Borrower shall
deliver to Lender a copy of the amendment to the Certificate of Incorporation of
Borrower, such Guarantor or such Subsidiary, as the case may be, providing for
the name change certified by the Secretary of State of the jurisdiction of
incorporation of Borrower, Guarantors or such Subsidiary as soon as it is
available.
9.2 NEW COLLATERAL LOCATIONS. Borrower and each Guarantor may open any
new location within the continental United States provided Borrower or such
Guarantor (a) gives Lender twenty (20) days prior written notice of the intended
opening of any such new location and (b) executes and delivers, or causes to be
executed and delivered, to Lender such agreements, documents, and instruments as
Lender may deem reasonably necessary or desirable to protect its interests in
the Collateral at such location, including UCC financing statements.
9.3 COMPLIANCE WITH LAWS, REGULATIONS, ETC.
(a) Borrower and each Guarantor shall, and shall cause its
Subsidiaries to, at all times, comply in all material respects with all laws,
rules, regulations, licenses, permits, approvals and orders applicable to it and
duly observe in all material respects all requirements of any Federal, State or
local Governmental Authority, including ERISA, the Code, the Occupational Safety
and Health Act of 1970, as amended, the Fair Labor Standards Act of 1938, as
amended, and all statutes, rules, regulations, orders, permits and stipulations
relating to environmental pollution and employee health and safety, including
all of the Environmental Laws.
(b) Borrower and each Guarantor shall establish and maintain, at
its expense, a system to assure and monitor its and its Subsidiaries continued
compliance with all Environmental Laws in all of its operations. At the request
of Lender, copies of all environmental surveys, audits, assessments, feasibility
studies and results of remedial investigations shall be promptly furnished, or
caused to be furnished, by Borrower to Lender. Borrower and Guarantors shall
take prompt and appropriate action to respond to any non-compliance with any of
the Environmental Laws which would have a reasonable likelihood of having a
Material Adverse Effect and shall regularly report to Lender on such response.
(c) Borrower and Guarantors shall give both oral and written
notice to Lender immediately upon receipt by Borrower or any Guarantor of any
notice of, or Borrower or any
46
<PAGE>
Guarantor otherwise obtaining knowledge of any of the following that could
reasonably be expected to have a Material Adverse Effect: (i) the occurrence of
any event involving the release, spill or discharge, threatened or actual, of
any Hazardous Material or (ii) any investigation, proceeding, complaint, order,
directive, claims, citation or notice with respect to: (A) any non-compliance
with or violation of any Environmental Law by Borrower, Guarantors or any of
their Subsidiaries or (B) the release, spill or discharge, threatened or actual,
of any Hazardous Material or (C) the generation, use, storage, treatment,
transportation, manufacture, handling, production or disposal of any Hazardous
Materials or (D) any other environmental, health or safety matter, which affects
Borrower, any Guarantor or any of their Subsidiaries or its business, operations
or assets or any properties at which Borrower, Guarantors or any of their
Subsidiaries if transported, stored or disposed of any Hazardous Materials.
(d) Without limiting the generality of the foregoing, whenever
Lender reasonably determines that there is non-compliance, or any condition
which requires any action by or on behalf of Borrower or any Guarantor in order
to avoid any material non-compliance, with any Environmental Law, Borrower and
Guarantors shall, at Lender's request and Borrower's expense: (i) cause an
independent environmental engineer reasonably acceptable to Lender to conduct
such examination of the site where Borrower's or any Guarantor's non-compliance
or alleged non-compliance with such Environmental Laws has occurred as to such
non-compliance and prepare and deliver to Lender a report as to such
non-compliance setting forth the results of such examination, a proposed plan
for responding to any environmental problems described therein, and an estimate
of the costs thereof and (ii) provide to Lender a supplemental report of such
engineer whenever the scope of such non-compliance, or Borrower's or any
Guarantor's, as the case may be, response thereto or the estimated costs
thereof, shall change in any material respect.
(e) Borrower and Guarantors shall, jointly and severally,
indemnify and hold harmless Lender, its directors, officers, employees, agents,
invitees, representatives, successors and assigns, from and against any and all
losses, claims, damages, liabilities, costs, and expenses (including attorneys'
fees and legal expenses) directly or indirectly arising out of or attributable
to the use, generation, manufacture, reproduction, storage, release, threatened
release, spill, discharge, disposal or presence of a Hazardous Material,
including the costs of any required or necessary repair, cleanup or other
remedial work with respect to any property of Borrower or of any Guarantor and
the preparation and implementation of any closure, remedial or other required
plans except to the extent that such losses, damages, liabilities and costs are
a result of the gross negligence or willful misconduct of Lender as determined
by a final, non-appealable order of a court of competent jurisdiction. All
representations, warranties, covenants and indemnifications in this Section 9.3
shall survive the payment of the Obligations and the termination or non-renewal
of this Agreement.
9.4 PAYMENT OF TAXES AND CLAIMS. Borrower and each Guarantor shall, and
shall cause their Subsidiaries to, duly pay and discharge all taxes,
assessments, contributions and governmental charges upon or against it or its
properties or assets, except for taxes the validity of
47
<PAGE>
which are being contested in good faith by appropriate proceedings diligently
pursued and available to Borrower, such Guarantor or such Subsidiary, as the
case may be, and with respect to which adequate reserves have been set aside
on its books. Borrower shall be liable for any material tax or penalties
imposed on Lender as a result of the financing arrangements provided for
herein and Borrower agrees to indemnify and hold Lender harmless with respect
to the foregoing, and to repay to Lender on demand the amount thereof, and
until paid by Borrower such amount shall be added and deemed part of the
Loans, PROVIDED, THAT, nothing contained herein shall be construed to require
Borrower to pay any income, franchise or similar taxes attributable to the
income of Lender from any amounts charged or paid hereunder to Lender. The
foregoing indemnity shall survive the payment of the Obligations and the
termination or non-renewal of this Agreement.
9.5 INSURANCE.
(a) Borrower and each Guarantor shall, and shall cause their
Subsidiaries to, at all times, maintain with financially sound and reputable
insurers insurance with respect to the Collateral against loss or damage and all
other insurance of the kinds and in the amounts customarily insured against or
carried by corporations of established reputation engaged in the same or similar
businesses and similarly situated. Said policies of insurance shall be
reasonably satisfactory to Lender as to form, amount and insurer. Borrower shall
furnish certificates, policies or endorsements to Lender as Lender shall require
as proof of such insurance, and, if Borrower or any Guarantor fails to do so
within fifteen (15) days of such request, Lender is authorized, but not
required, to obtain such insurance at the expense of Borrower. All policies
shall provide for at least thirty (30) days prior written notice to Lender of
any cancellation or reduction of coverage and that Lender may act as attorney
for Borrower or any Guarantor, as the case may be, in obtaining, and at any time
an Event of Default exists or has occurred and is continuing, adjusting,
settling, amending and canceling such insurance. Borrower shall cause Lender to
be named as a loss payee and an additional insured (but without any liability
for any premiums) under such insurance policies and Borrower shall obtain
non-contributory lender's loss payable endorsements to all insurance policies in
form and substance reasonably satisfactory to Lender. Such lender's loss payable
endorsements shall specify that the proceeds of such insurance shall be payable
to Lender as its interests may appear and further specify that Lender shall be
paid regardless of any act or omission by Borrower, Guarantors or their
Subsidiaries.
(b) At its option, Lender may apply any insurance proceeds
received by Lender at any time to the cost of repairs or replacement of
Collateral and/or to payment of the Obligations, whether or not then due, in any
order and in such manner as Lender may determine or hold such proceeds as cash
collateral for the Obligations on terms and conditions acceptable to Lender,
EXCEPT, THAT, notwithstanding anything to the contrary contained herein, upon
the occurrence of a Casualty Event, Lender shall release the Net Proceeds
received by Lender pursuant to this Section 9.5 as a result thereof to Borrower,
any Guarantor or Subsidiary which was the owner of the property subject to such
Casualty Event (which release shall not be deemed Loans hereunder) to
48
<PAGE>
the extent necessary to repair, refurbish or replace the property which was the
subject of such Casualty Event, PROVIDED, THAT, all of the following conditions
are satisfied: (i) no Event of Default or act, condition or event which with
notice or passage of time or both would constitute an Event of Default shall
exist or have occurred and be continuing, (ii) no Event of Default or act,
condition or event which with notice or passage of time or both would constitute
an Event of Default shall occur during the course of such repair, refurbishing
or replacement, (iii) the amount of the insurance proceeds are sufficient, in
Lender's good faith determination, to effect such repair, refurbishing or
replacement in a satisfactory manner, (iv) such proceeds shall be used solely to
repair, refurbish or replace the property subject to the Casualty Event (free
and clear of any liens), (v) the insurance carrier shall have waived any right
of subrogation against Borrower, Guarantors and their Subsidiaries under its
policy, (vi) the proceeds from insurance or otherwise payable in respect of such
Casualty Event shall not exceed $1,000,000, (vii) the repair, refurbishing or
replacement of the property subject to the Casualty Event shall be commenced as
soon as reasonably practicable and shall be diligently pursued to satisfactory
completion, (viii) the proceeds shall be released by Lender to Borrower, such
Guarantor or Subsidiary from time to time as needed and/or, at Lender's option,
released by Lender directly to the contractor, subcontractor, materialmen,
laborers, engineers, architects and other persons rendering services or
materials to repair, refurbish or replace the property subject to the Casualty
Event, (ix) the property subject to the Casualty Event shall be repaired,
refurbished or replaced so as to be of at least equal value and substantially
the same character as prior to such Casualty Event and (x) such repair,
refurbishing or replacement can, in the good faith estimate of Lender, be
completed prior to the end of the then current term of this Agreement. Upon
completion of the work and payment in full therefor, or upon the failure to
commence, or diligently to continue the work, Lender may, at Lender's option,
either apply the amount of any such proceeds then or thereafter in the
possession of Lender to the payment of the Obligations or hold such proceeds as
cash collateral for the Obligations on terms and conditions acceptable to
Lender. Nothing contained herein shall limit the right of Lender to apply any or
all of such proceeds to the Obligations at any time an Event of Default or act,
condition or event which with notice or passage of time or both would constitute
an Event of Default shall exist or have occurred and be continuing.
49
<PAGE>
9.6 FINANCIAL STATEMENTS AND OTHER INFORMATION.
(a) Borrower and each Guarantor shall, and shall cause their
Subsidiaries to, keep proper books and records in which true and complete
entries shall be made of all dealings or transactions of or in relation to the
Collateral and the businesses of Borrower, Guarantors and their Subsidiaries in
accordance with GAAP and Borrower shall furnish or cause to be furnished to
Lender: (i) within forty-five (45) days after the end of each fiscal month,
monthly unaudited consolidated financial statements, and unaudited consolidating
financial statements (including in each case balance sheets, statements of
income and loss, statements of cash flow, and statements of shareholders'
equity), all in reasonable detail, fairly presenting the financial position and
the results of the operations of Holdings and its Subsidiaries as of the end of
and through such fiscal month (except for the last month of each fiscal year)
and (ii) within ninety (90) days after the end of each fiscal year, audited
consolidated financial statements and audited consolidating financial statements
of Holdings and its Subsidiaries (including in each case balance sheets,
statements of income and loss, statements of cash flow and statements of
shareholders' equity), and the accompanying notes thereto, all in reasonable
detail, fairly presenting the financial position and the results of the
operations of Holdings and its Subsidiaries as of the end of and for such fiscal
year, together with the unqualified opinion of independent certified public
accountants, which accountants shall be an independent accounting firm selected
by Holdings and reasonably acceptable to Lender, that such financial statements
have been prepared in accordance with GAAP, and present fairly the results of
operations and financial condition of Holdings and its Subsidiaries as of the
end of and for the fiscal year then ended.
(b) Borrower and Guarantors shall promptly notify Lender in
writing of the details of (i) any loss, damage, investigation, action, suit,
proceeding or claim relating to the Collateral or any other property which is
security for the Obligations or which is reasonably likely to result in any
material adverse change in Borrower's or any Guarantor's business, properties,
assets, goodwill or condition, financial or otherwise and (ii) the occurrence of
any Event of Default or event which, with the passage of time or giving of
notice or both, would constitute an Event of Default.
(c) Borrower and Guarantors shall promptly after the sending or
filing thereof furnish or cause to be furnished to Lender copies of all reports
which Borrower or any Guarantor sends to its stockholders generally and copies
of all reports and registration statements which Borrower or any Guarantor files
with the Securities and Exchange Commission, any national securities exchange or
the National Association of Securities Dealers, Inc.
(d) Borrower shall furnish to Lender, as soon as available and in
any event no later than thirty (30) days after the end of each fiscal year, a
copy of a detailed annual budget or plan for the next fiscal year, in form and
detail reasonably acceptable to Lender, together with a summary of material
assumptions made in preparation of the budget or plan.
50
<PAGE>
(e) Borrower shall furnish or cause to be furnished to Lender
such budgets, forecasts, projections and other information respecting the
Collateral and the business of Borrower, Guarantors and their Subsidiaries, as
Lender may, from time to time, reasonably request. Lender is hereby authorized
to deliver a copy of any financial statement or any other information relating
to the business of Borrower, Guarantors or their Subsidiaries to any court or
other government agency or to any participant or assignee or prospective
participant or assignee. Borrower and Guarantors hereby irrevocably authorizes
and directs all accountants or auditors to deliver to Lender, at Borrower's
expense, copies of the financial statements of Holdings and its Subsidiaries and
any reports or management letters prepared by such accountants or auditors on
behalf of Borrower, any Guarantor or any of their Subsidiaries and to disclose
to Lender such information as they may have regarding the business of Borrower,
Guarantors and their Subsidiaries. Any documents, schedules, invoices or other
papers delivered to Lender may be destroyed or otherwise disposed of by Lender
one (1) year after the same are delivered to Lender, except as otherwise
designated by Borrower to Lender in writing.
9.7 SALE OF ASSETS, CONSOLIDATION, MERGER, DISSOLUTION, ETC. Borrower
and each Guarantor shall not, and shall not permit their Subsidiaries to,
directly or indirectly,
(a) merge into or with or consolidate with any other Person or
permit any other Person to merge into or with or consolidate with it EXCEPT,
THAT,
(i) any Subsidiary of Borrower or any Subsidiary of any
Guarantor may merge into or with or consolidate into Borrower, PROVIDED, THAT,
each of the following conditions is satisfied as determined by Lender: (A)
Lender shall have received not less than thirty (30) days prior written notice
of the intention of the parties, to so merge and such information with respect
thereto as Lender may reasonably request, (B) as of the effective date of the
merger and after giving effect thereto, no Event of Default or act, condition or
event which with notice of passage of time or both would constitute an Event of
Default, shall exist or have occurred and be continuing, (C) Lender shall have
received true, correct and complete copies of all agreements, documents and
instruments relating to such merger, including but not limited to, the
certificate or certificates of merger as filed with each appropriate Secretary
of State, (D) Borrower shall be the surviving entity of such consolidation or
merger; (E) Borrower shall, immediately before and immediately after giving
effect to such transaction or series of transactions have a net worth
(including, without limitation, any Indebtedness incurred or anticipated to be
incurred in connection with or in respect of such transaction or series of
transactions) equal to or greater than the net worth it had immediately prior to
such transaction or series of transactions, and (F) Borrower shall not become
obligated with respect to any Indebtedness, nor any of its property become
subject to any lien, pursuant to such merger or consolidation unless Borrower
could incur such Indebtedness or create such lien hereunder or under the other
Financing Agreements;
(ii) any Subsidiary of Cottontops or any Subsidiary of
Borrower may merge into
51
<PAGE>
or with or consolidate into Cottontops, PROVIDED, THAT, (A) Lender shall have
received not less than thirty (30) days prior written notice of the intention of
the parties, to so merge and such information with respect thereto as Lender may
reasonably request, (B) as of the effective date of the merger and after giving
effect thereto, no Event of Default or act, condition or event which with notice
of passage of time or both would constitute an Event of Default, shall exist or
have occurred and be continuing, (C) Lender shall have received true, correct
and complete copies of all agreements, documents and instruments relating to
such merger, including but not limited to, the certificate or certificates of
merger as filed with each appropriate Secretary of State, (D) Cottontops shall
be the surviving entity of such consolidation or merger; (E) Borrower shall,
immediately before and immediately after giving effect to such transaction or
series of transactions have a net worth (including, without limitation, any
Indebtedness incurred or anticipated to be incurred in connection with or in
respect of such transaction or series of transactions) equal to or greater than
the net worth it had immediately prior to such transaction or series of
transactions, and (F) Borrower shall not become obligated with respect to any
Indebtedness, nor any of its property become subject to any lien, pursuant to
such merger or consolidation unless Borrower could incur such Indebtedness or
create such lien hereunder or under the other Financing Agreements;
(iii) Borrower may merge with Holdings in connection with a
Qualified Public Offering PROVIDED, THAT, (A) Lender shall have received not
less than thirty (30) days prior written notice of the intention to so merge and
such information with respect thereto as Lender may reasonably request, (B) as
of the effective date of the merger and after giving effect thereto, no Event of
Default or act, condition or event which with notice of passage of time or both
would constitute an Event of Default, shall exist or have occurred and be
continuing, (C) Lender shall have received true, correct and complete copies of
all agreements, documents and instruments relating to such merger, including but
not limited to, the certificate or certificates of merger as filed with each
appropriate Secretary of State, (D) Borrower shall be the surviving entity of
such merger; (E) Borrower shall, immediately before and immediately after giving
effect to such transaction or series of transactions have a net worth
(including, without limitation, any Indebtedness incurred or anticipated to be
incurred in connection with or in respect of such transaction or series of
transactions) equal to or greater than the net worth it had immediately prior to
such transaction or series of transactions, and (F) Borrower shall not become
obligated with respect to any Indebtedness, nor any of its property become
subject to any Lien, pursuant to such merger unless Borrower could incur such
Indebtedness or create such Lien hereunder or under the other Financing
Agreements; and
(iv) any Subsidiary of Borrower or any Subsidiary of any
Guarantor (other than Borrower or Cottontops) may merge into or with or
consolidate into any other Subsidiary of Borrower or any Guarantor (other than
mergers or consolidations involving Borrower or Cottontops), PROVIDED, THAT,
each of the following conditions is satisfied as determined by Lender in good
faith: (A) Lender shall have received not less than thirty (30) days prior
written notice of the intention of the parties, to so merge and such information
with respect thereto as Lender may
52
<PAGE>
reasonably request, (B) as of the effective date of the merger and after giving
effect thereto, no Event of Default or act, condition or event which with notice
of passage of time or both is reasonably likely in the good faith judgment of
Lender to constitute an Event of Default, shall exist or have occurred and be
continuing, and (C) Lender shall have received true, correct and complete copies
of all agreements, documents and instruments relating to such merger, including
but not limited to, the certificate or certificates of merger as filed with each
appropriate Secretary of State;
(b) sell, assign, lease, transfer, abandon or otherwise dispose
of any Capital Stock or Indebtedness to any other Person or any of its assets
(including, without limitation, any Real Property) to any other Person, except
for:
(i) sales of Inventory in the ordinary course of business,
(ii) the disposition of worn-out or obsolete Equipment or
Equipment no longer used in the business so long as (A) any proceeds are paid to
Lender, and (B) no Event of Default or act or condition which with notice, lapse
of time or both is reasonably likely in the good faith judgment of Lender to
constitute an Event of Default shall exist or have occurred and be continuing
and (C) such sales, transfers or other dispositions do not involve Equipment
having an aggregate fair market value in excess of $100,000 for all such
Equipment disposed of in any fiscal year of Borrower, EXCEPT, THAT, Borrower
shall have the ability, upon two (2) days prior written notice to Lender, to
sell, transfer or otherwise dispose of the Equipment referred to in the
Equipment Appraisal as "surplus machinery and equipment" with an auction value
of $375,000, PROVIDED, THAT, immediately prior to such sale, transfer or other
disposition and after giving effect thereto, no Event of Default or act or
condition which with notice, lapse of time or both is reasonably likely in the
good faith judgment of Lender to constitute an Event of Default shall exist or
have occurred and be continuing;
(iii) investments referred to in Section 9.10(b) and (c)
hereof;
(iv) sales of the Real Property (other than Real Property
covered by the Mortgages) and related assets described on Schedule 9.7 hereto,
PROVIDED, THAT, as to each and all of such sales (1) Lender shall have received
not less than five (5) days prior written notice of such sale, which notice
shall set forth in reasonable detail satisfactory to Lender, the parties to such
sale, the Real Property and related assets to be sold, the purchase price and
the manner of payment thereof and such other information with respect thereto as
Lender may request, (2) such sale shall be on commercially reasonable terms in a
BONA FIDE arm's-length transaction with a non-affiliated person, (3) all of the
Net Proceeds of any such sale shall be paid either (A) directly to Lender or (B)
to Borrower, PROVIDED, THAT, the entire amount of the Net Proceeds are used to
repay the outstanding amount of Revolving Loans which amounts may be reborrowed,
(4) Borrower shall not incur any liabilities in connection with such sales
except as permitted herein, (5) as of the date of such sale and after giving
effect thereto, no Event of Default, or act,
53
<PAGE>
condition or event which with notice or passage of time or both would constitute
an Event of Default shall exist or have occurred and be continuing.
(c) wind up, liquidate or dissolve EXCEPT, THAT, Anvil
(Czech), Inc. may be dissolved at any time; or
(d) form or acquire any Subsidiaries other than those listed on
Schedule 8.1 hereof without the prior written consent of Lender; or
(e) agree to do any of the foregoing.
9.8 ENCUMBRANCES. Borrower and each Guarantor shall not, and shall not
permit their Subsidiaries to, create, incur, assume or suffer to exist any
security interest, mortgage, pledge, lien, charge or other encumbrance of any
nature whatsoever on any of its assets or properties, including the Collateral,
EXCEPT:
(a) liens and security interests of Lender;
(b) liens securing the payment of taxes, either not yet overdue
or the validity of which are being contested in good faith by appropriate
proceedings diligently pursued and available to Borrower or such Subsidiary, as
the case may be and with respect to which adequate reserves have been set aside
on its books;
(c) non-consensual statutory liens (other than liens securing the
payment of taxes) arising in the ordinary course of Borrower's, such Guarantor's
or such Subsidiary's business to the extent: (i) such liens secure Indebtedness
which is not overdue or (ii) such liens secure Indebtedness relating to claims
or liabilities which are fully insured and being defended at the sole cost and
expense and at the sole risk of the insurer or being contested in good faith by
appropriate proceedings diligently pursued and available to Borrower, such
Guarantor or such Subsidiary, in each case prior to the commencement of
foreclosure or other similar proceedings and with respect to which adequate
reserves have been set aside on its books;
(d) zoning restrictions, easements, licenses, covenants and other
restrictions affecting the use of real property which do not interfere in any
material respect with the use of such real property or ordinary conduct of the
business of Borrower, such Guarantor or such Subsidiary as presently conducted
thereon or materially impair the value of the real property which may be subject
thereto;
(e) purchase money security interests in Equipment (including
Capital Leases) and purchase money mortgages on real estate not to exceed
$1,000,000 in the aggregate at any time outstanding so long as such security
interests and mortgages do not apply to any property of Borrower other than the
Equipment or real estate so acquired, and the Indebtedness secured
54
<PAGE>
thereby does not exceed the cost of the Equipment or real estate so acquired, as
the case may be;
(f) the security interests and liens set forth on Schedule 8.4
hereto;
(g) pledges and deposits of cash by any Borrower or Guarantor
after the date hereof in the ordinary course of business in connection with
workers' compensation, unemployment insurance and other types of social security
benefits consistent with the current practices of Borrowers and Guarantors as of
the date hereof;
(h) pledges and deposits of cash by any Borrower or Guarantor
after the date hereof to secure the performance of tenders, bids, leases, trade
contracts (other than for the repayment of Indebtedness), statutory obligations
and other similar obligations in each case in the ordinary course of business
consistent with the current practices of Borrowers and Guarantors as of the date
hereof; PROVIDED, THAT, in connection with any performance bonds issued by a
surety or other person, the issuer of such bond shall have waived in writing any
rights in or to, or other interest in, any of the Collateral in an agreement, in
form and substance satisfactory to Lender;
(i) liens arising from leases permitted hereunder and the
precautionary Uniform Commercial Code financing statement filings in respect
thereof; and
(j) liens on assets of Borrower, Guarantors or their Subsidiaries
(other than Collateral) not otherwise permitted above, that secure obligations
otherwise permitted hereunder not in excess of $100,000 in the aggregate.
9.9 INDEBTEDNESS. Borrower and Guarantors shall not, and shall not
permit any Subsidiary to, incur, create, assume, become or be liable in any
manner with respect to, or permit to exist, any Indebtedness, EXCEPT:
(a) the Obligations;
(b) purchase money Indebtedness (including Capital Leases) to the
extent not incurred or secured by liens (including Capital Leases) in violation
of any other provision of this Agreement;
(c) Indebtedness of Borrower or any Subsidiary permitted under
Section 9.10 hereof;
(d) Indebtedness arising under the Senior Note Indenture,
PROVIDED, THAT:
(i) the principal amount of such Indebtedness shall not exceed
$130,000,000 less the aggregate amount of all repayments, repurchases or
redemptions, whether optional or mandatory in respect thereof, plus interest
thereon at the rate provided for in the Senior Note
55
<PAGE>
Indenture as in effect on the date hereof,
(ii) Borrower shall not, directly or indirectly make any
payments in respect of such indebtedness, EXCEPT, THAT, Borrower may make
regularly scheduled payments of interest in respect of the Senior Note
Indebtedness as provided for in the Senior Note Indenture, PROVIDED, THAT, on
the date of any such payment and after giving effect thereto, no Event of
Default, or act, condition or event which with notice or passage of time or both
would constitute an Event of Default, shall exist or have occurred and be
continuing,
(iii) such Indebtedness is and shall be unsecured,
(iv) Borrower shall not, directly or indirectly, (A) amend,
modify, alter or change the terms of such Indebtedness or any agreement,
document or instrument related thereto, EXCEPT, THAT, Borrower may, after prior
written notice to Lender, amend, modify, alter or change the terms thereof so as
to extend the maturity thereof, or defer the timing of any payments in respect
thereof, or to forgive or cancel any portion of such Indebtedness (other than
pursuant to payments thereof), or to reduce the interest rate or any fees in
connection therewith, or (B) make any principal payments in respect of, redeem,
retire, defease, purchase or otherwise acquire such Indebtedness (except
pursuant to regularly scheduled payments of interest permitted herein), or set
aside or otherwise deposit or invest any sums for such purpose (any such payment
of principal, purchase, redemption, defeasance or other acquisition of Senior
Indebtedness is referred to herein as a "Senior Note Payment") unless each of
the following conditions is satisfied: (1) Lender shall have received thirty
(30) days prior written notice of the intention of Borrower to make such Senior
Note Payment, (2) as of the date of any such Senior Note Payment and after
giving effect thereto, the daily average of the Excess Availability for the
immediately preceding thirty (30) consecutive day period shall be not less than
$10,000,000 and as of the date of any such payment and after giving effect
thereto, the Excess Availability shall be not less than $10,000,000, and (3) as
of the date of any such Senior Note Payment and after giving effect thereto, no
Event of Default, or act, condition or event which with notice or passage of
time or both would constitute an Event of Default, shall exist or have occurred,
and
(v) Borrower shall furnish to Lender all notices or demands
in connection with such Indebtedness either received by Borrower or on its
behalf promptly after the receipt thereof, or sent by Borrower or on its behalf
concurrently with the sending thereof, as the case may be;
(e) Indebtedness of Borrower existing as of the date hereof
consisting of contingent reimbursement obligations to the Existing Lenders in
the event of a draw on any of the Existing Letters of Credit;
(f) unsecured Indebtedness of Borrower to any of its Subsidiaries
after the date hereof pursuant to loans by such Subsidiaries to Borrower,
PROVIDED, THAT, (i) such Indebtedness is subject to, and subordinate in right of
payment to, the right of Lender to receive the prior
56
<PAGE>
indefeasible payment and satisfaction in full of all of the Obligations on terms
and conditions acceptable to Lender, (ii) Lender shall have received, in form
and substance satisfactory to Lender, a subordination agreement providing for
the terms of the subordination in right of payment of such Indebtedness of
Borrower to the prior indefeasible payment and satisfaction in full of all of
the Obligations, duly authorized, executed and delivered by such Subsidiaries
and Borrower, (iii) Borrower shall not, directly or indirectly make, or be
required to make, any payments in respect of such Indebtedness so long as any of
the Obligations are outstanding and unpaid, (iv) Borrower shall not, directly or
indirectly, (A) amend, modify, alter or change any terms of such Indebtedness or
any agreement, document or instrument related thereto, or (B) redeem, retire,
defease, purchase or otherwise acquire such Indebtedness, or set aside or
otherwise deposit or invest any sums for such purpose, and (v) Borrower shall
furnish to Lender all notices and demands in connection with such Indebtedness
either received by Borrower or on its behalf promptly after receipt thereof, or
sent by Borrower or on its behalf concurrently with the sending thereof, as the
case may be;
(g) Indebtedness of Borrower under (i) interest swap agreements,
interest rate cap agreements, interest rate collar agreements, interest rate
exchange agreements and similar contractual agreements entered into for the
purpose of protecting a Person against fluctuations in interest rates and (ii)
foreign currency exchange agreements; PROVIDED, THAT, such arrangements are with
banks or other financial institutions that have combined capital and surplus and
undivided profits of not less than $100,000,000 and are not for speculative
purposes and such Indebtedness shall be unsecured;
(h) the Indebtedness set forth on Schedule 9.9(h) hereto;
PROVIDED, THAT, (i) Borrower may only make regularly scheduled payments of
principal and interest in respect of such Indebtedness in accordance with the
terms of the agreement or instrument evidencing or giving rise to such
Indebtedness as in effect on the date hereof, (ii) Borrower shall not, directly
or indirectly, (A) amend, modify, alter or change the terms of such Indebtedness
or any agreement, document or instrument related thereto as in effect on the
date hereof, or (B) redeem, retire, defease, purchase or otherwise acquire such
Indebtedness, or set aside or otherwise deposit or invest any sums for such
purpose, and (iii) Borrower shall furnish to Lender all notices or demands in
connection with such Indebtedness either received by Borrower or on its behalf,
promptly after the receipt thereof, or sent by Borrower or on its behalf,
concurrently with the sending thereof, as the case may be;
(i) unsecured Indebtedness of Borrower, Guarantor or any of their
respective Subsidiaries arising after the date hereof owing to any Person (other
than any other Borrower, Guarantor, or any other Affiliate of any of them);
PROVIDED, THAT, as to any such Indebtedness, each of the following conditions is
satisfied as determined by Lender: (i) Lender shall have received not less than
ten (10) Business Days prior written notice of the intention to incur such
Indebtedness, which notice shall set forth in reasonable detail satisfactory to
Lender, the amount of such Indebtedness, the person to whom such Indebtedness
will be owed, the interest rate and
57
<PAGE>
fees, the schedule of repayments and maturity date with respect thereto and such
other information with respect thereto as Lender may request, (ii) Lender shall
have received true, correct and complete copies of all agreements, documents and
instruments evidencing or otherwise related to such Indebtedness, as duly
authorized, executed and delivered by the parties thereof, (iii) such
Indebtedness shall be incurred by Borrower, any Guarantor or any Subsidiary at
commercially reasonable rates and terms in a BONA FIDE arm's length transaction,
(iv) as of the date of incurring such Indebtedness, and after giving effect
thereto, no Event of Default or act, condition or event which with notice or
passage of time or both would constitute an Event of Default, shall exist or
have occurred and be continuing, (v) the aggregate principal amount of all such
Indebtedness outstanding at any time shall not exceed $1,000,000, (vi) such
Indebtedness shall not at any time include any terms that include any limitation
on the right of Borrower to request or receive Loans or Letter of Credit
Accommodations or the right of Borrower or Guarantors to amend, modify,
supplement, replace, renew or extend any of the terms or conditions of this
Agreement or any of the other Financing Agreements or otherwise in any way
relate to or adversely affect the arrangements of Borrower and Guarantors with
Lender, (vii) Borrower or such Guarantor may only make regularly scheduled
payments of principal and interest in respect of such Indebtedness, (viii)
Borrower or such Guarantor shall not, directly or indirectly, (A) amend, modify,
alter or change the terms of the agreements with respect to such Indebtedness,
or (B) redeem, retire, defease, purchase or otherwise acquire such Indebtedness,
or set aside or otherwise deposit or invest any sums for such purpose, and (ix)
Borrowers and Guarantors shall furnish to Lender all notices or demands in
connection with such Indebtedness received by Borrower or any Guarantor or on
its behalf promptly after the receipt thereof, or sent by Borrower and any
Guarantor or on its behalf concurrently with the sending thereof, as the case
may be;
(j) Indebtedness issued in exchange for, or the proceeds of which
are used to extend, refinance, replace, substitute or refund Indebtedness
referred to in Sections 9.9(f) and 9.9(h) hereof (the "Refinancing
Indebtedness"); PROVIDED, THAT, (i) the principal amount of such Refinancing
Indebtedness shall not exceed the principal amount of the Indebtedness so
extended, refinanced, replaced, substituted or refunded (plus the amount of
reasonable refinancing fees and expenses incurred in connection therewith), (ii)
the Refinancing Indebtedness shall have a Weighted Average Life to Maturity and
a final maturity equal to or greater than the Weighted Average Life to Maturity
and the final maturity, respectively, of the Indebtedness being extended,
refinanced, replaced, substituted or refunded, (iii) the Refinancing
Indebtedness shall rank in the right of payment no more senior than, and be at
least as subordinated (if subordinated) to, the Obligations as the Indebtedness
being extended, refinanced, replaced, substituted or refunded, (iv) the
Refinancing Indebtedness shall be secured by the same assets that secure the
Indebtedness so extended, refinanced, replaced, substituted or replaced,
PROVIDED, THAT, such security interest with respect to the Refinancing
Indebtedness shall have a priority no more senior than, and be at least as
subordinated (on terms and conditions acceptable to Lender) as the security
interest with respect to the Indebtedness so extended, refinanced, replaced,
substituted or refunded, (v) promptly upon Lender's request, Lender shall have
received true, correct and complete copies of
58
<PAGE>
all agreements, documents and instruments evidencing or otherwise related to
such Indebtedness, as duly authorized, executed and delivered by the parties
thereto, and (vi) as of the date of incurring such Indebtedness and after giving
effect thereto, no Event of Default, or act, condition or event which with
notice or passage of time or both would constitute an Event of Default, shall
exist or have occurred and be continuing; and
(k) Parent Subordinated Debt as set forth on Schedule 9.9(k)
hereto; PROVIDED, THAT, (i) such Indebtedness is subject to, and subordinate in
right of payment to, the right of Lender to receive the prior indefeasible
payment and satisfaction in full of all of the Obligations on terms and
conditions acceptable to Lender, (ii) Lender shall have received, in form and
substance satisfactory to Lender, a subordination agreement or other instrument
providing for the terms of the subordination in right of payment of such
Indebtedness of Borrower to the prior indefeasible payment and satisfaction in
full of all of the Obligations, duly executed and delivered by the holder of
such Indebtedness, (iii) Holdings shall not, directly or indirectly make, or be
required to make, any payments in cash in respect of such Indebtedness so long
as any of the Obligations are outstanding and unpaid, (iv) Holdings shall not,
directly or indirectly, (A) amend, modify, alter or change any terms of such
Indebtedness or any agreement, document or instrument related thereto, or (B)
redeem, retire, defease, purchase or otherwise acquire such Indebtedness, or set
aside or otherwise deposit or invest any sums for such purpose except as
permitted herein, (v) Holdings shall furnish to Lender all notices and demands
in connection with such Indebtedness either received by Holdings or on its
behalf promptly after receipt thereof, or sent by Holdings or on its behalf
concurrently with the sending thereof, as the case may be, and (vi) Borrower or
any other Subsidiary of Holdings does not or shall not have any liability,
contingent or otherwise, in respect of such Parent Subordinated Debt.
9.10 LOANS, INVESTMENTS, GUARANTEES, ETC. Borrower and Guarantors shall
not, and shall not permit any of their Subsidiaries to, directly or indirectly,
make any loans or advance money or property to any person, or invest in (by
capital contribution, dividend or otherwise) or purchase or repurchase the
Capital Stock or Indebtedness or all or a substantial part of the assets or
property of any person, or guarantee, assume, endorse, or otherwise become
responsible for (directly or indirectly) the Indebtedness, performance,
obligations or dividends of any Person or agree to do any of the foregoing,
EXCEPT:
(a) the endorsement of instruments for collection or deposit
in the ordinary course of business;
(b) investments in cash or Cash Equivalents, PROVIDED, THAT, no
Loans are outstanding and as to any of the foregoing, unless waived in writing
by Lender, Borrower shall take such actions as are deemed necessary by Lender to
perfect the security interest of Lender in such investments;
(c) guarantees by Holdings and Subsidiaries of Borrower of the
Obligations in favor
59
<PAGE>
of Lender;
(d) the existing equity investment of Borrower as of the date
hereof in its Subsidiaries as of the date hereof, PROVIDED, THAT, Borrower shall
have no obligation to make any other investment in, or loans to, or other
payments in respect of, any such Subsidiaries;
(e) loans by any Subsidiary of Borrower to Borrower to the extent
the Indebtedness arising from such loans is permitted under Section 9.9 above;
(f) stock or obligations issued to Borrower by any Person (or the
representative of such Person) in respect of Indebtedness of such Person owing
to Borrower in connection with the insolvency, bankruptcy, receivership or
reorganization of such Person or a composition or readjustment of the debts of
such Person; PROVIDED, THAT, the original of any such stock or instrument
evidencing such obligations shall be promptly delivered to Lender, upon Lender's
request, together with such stock power, assignment or endorsement by Borrower
as Lender may request; and
(g) the loans, advances and guarantees set forth on Schedule 9.10
hereto; PROVIDED, THAT, as to such loans, advances and guarantees, (i) Borrower
and Guarantors shall not, directly or indirectly, (A) amend, modify, alter or
change the terms of such loans, advances or guarantees or any agreement,
document or instrument related thereto, if such amendment, modification,
alteration, or change would cause the terms of such loans, advances, or
guarantees or of any agreement, document or instrument related thereto to be
more favorable to the counterparty of such loans, advances and guarantees, or
(B) as to such guarantees, redeem, retire, defease, purchase or otherwise
acquire the obligations arising pursuant to such guarantees, or set aside or
otherwise deposit or invest any sums for such purpose, and (ii) Borrower and
Guarantors shall furnish to Lender all notices or demands in connection with
such loans, advances or guarantees or other Indebtedness subject to such
guarantees either received by Borrower or on its behalf, promptly after the
receipt thereof, or sent by Borrower or on its behalf, concurrently with the
sending thereof, as the case may be;
9.11 DIVIDENDS AND REDEMPTIONS. Borrower, and Guarantors, shall not,
and shall not permit any of their Subsidiaries to, directly or indirectly,
declare or pay any dividends on account of any shares of class of capital stock
of Borrower, Guarantor or any of their Subsidiaries now or hereafter
outstanding, or set aside or otherwise deposit or invest any sums for such
purpose, or redeem, retire, defease, purchase or otherwise acquire any shares of
any class of capital stock (or set aside or otherwise deposit or invest any sums
for such purpose) for any consideration other than common stock or apply or set
apart any sum, or make any other distribution (by reduction of capital or
otherwise) in respect of any such shares or agree to do any of the foregoing
EXCEPT, THAT, (a) Subsidiaries of Borrower may make payments of cash dividends
or distributions from legally available funds therefor to Borrower and (b)
Borrower may pay cash dividends or distributions from legally available funds
therefor to Holdings to the extent permitted to make the
60
<PAGE>
payments described in Section 9.12(b) hereof, PROVIDED, THAT, on the date of the
payments of any such cash dividends or distributions and after giving effect
thereto, no Event of Default, or act, condition or event which with notice,
lapse of time or both is reasonably likely, in the good faith determination of
Lender, to constitute an Event of Default, shall exist or have occurred.
9.12 TRANSACTIONS WITH AFFILIATES. Borrower and each Guarantor shall
not and shall not permit its Subsidiaries to, directly or indirectly, (a)
purchase, acquire or lease any property from, or sell, transfer or lease any
property to, any officer, director, agent or other person affiliated with
Borrower, Guarantors or their Subsidiaries, except in the ordinary course of and
pursuant to the reasonable requirements of Borrower's and Guarantors' business
and upon fair and reasonable terms no less favorable to the Borrower than
Borrower would obtain in a comparable arm's length transaction with an
unaffiliated person or (b) make any payments of management, consulting or other
fees for management or similar services, or of any Indebtedness owing to any
officer, employee, shareholder, director or other Affiliate of Borrower EXCEPT,
THAT, Borrower may pay cash dividends or make payments or other distributions:
(i) to Holdings pursuant to an intercompany tax sharing
arrangement among Borrower, Guarantors and their Subsidiaries (as in effect on
the date hereof), PROVIDED, THAT, (A) Borrower, Guarantors and Subsidiaries are
included in the consolidated federal tax return filed by Holdings as to which
Borrower, Guarantor or such Subsidiary is making such payments, (B) the payments
in any year shall not exceed the federal income tax liability that Borrower,
such Guarantor or Subsidiary would have been liable for if such Person were not
part of such consolidated federal income tax return filed by Holdings, (C) such
payments shall be made by Borrower or any Subsidiary of Borrower no earlier than
ten (10) days prior to the date on which Holdings is required to make its
payments and (D) in the event Borrower or any Subsidiary of Borrower also joins
with Holdings in filing any combined or consolidated state or local income tax
returns, then payments to Holdings shall be allowed in a manner as similar as
possible to that provided herein with respect to federal income taxes,
(ii) to enable Holdings to pay ordinary and necessary expenses
associated with the activities of Holdings permitted in accordance with Section
9.17 hereof, including, without limitation, reasonable accounting and
professional expenses to third parties and director's fees and reasonable
expenses which director's fees (A) in the case of directors which are Investors
or officers, directors or employees of an Investor, director's fees shall not
exceed $50,000 in the aggregate in any single calendar year; and (B) in the case
of directors which are not Investors or officers, directors or employees of an
Investor, directors' fees shall not be in excess of amounts which would be
reasonable and customary for outside directors of similarly situated companies,
(iii) to Holdings to redeem or otherwise purchase Capital Stock
of Holdings held by members of the Management Group pursuant to the Stockholders
Agreement, the Registration Rights Agreement, the Units Registration Rights
Agreement or the Units Stockholders Agreement, in an amount not to exceed
$500,000 in the aggregate, during any fiscal year of
61
<PAGE>
Borrower but not to exceed $1,000,000 during the term of this Loan Agreement,
and
(iv) pay to BRS and Venture Partners a management fee in an
amount not to exceed $500,000 in the aggregate during any fiscal year;
the payments referred to in clauses (b)(i) through (iv) of this Section 9.12,
may be made, PROVIDED, THAT, on the date of any such payment, distribution, or
dividend, as the case may be, and after giving effect thereto, no Event of
Default, or act, condition or event which with notice or passage of time or both
is reasonably likely, in the good faith determination of Lender, to constitute
an Event of Default, shall exist or have occurred.
9.13 ADDITIONAL BANK ACCOUNTS. Borrower shall not, directly or
indirectly, open, establish or maintain any deposit account, investment account
or any other account with any bank or other financial institution, other than
the Blocked Accounts and the accounts set forth in Schedule 8.10 hereto, except:
(a) as to any new or additional Blocked Accounts and other such new or
additional accounts which contain any Collateral or proceeds thereof, with the
prior written consent of Lender and subject to such conditions thereto as Lender
may establish in good faith and (b) as to any accounts used by Borrower to make
payments of payroll, taxes or other obligations to third parties, after prior
written notice to Lender.
9.14 COMPLIANCE WITH ERISA.
(a) Borrower and each Guarantor shall not and shall not permit
their Subsidiaries to, with respect to any "employee benefit plans" maintained
by Borrower, any Guarantor or any of its ERISA Affiliates: (i) terminate any of
such employee benefit plans so as to incur any liability to the Pension Benefit
Guaranty Corporation established pursuant to ERISA, (ii) allow or suffer to
exist any prohibited transaction involving any of such employee benefit plans or
any trust created thereunder which would subject Borrower or such ERISA
Affiliate to a tax or penalty or other liability on prohibited transactions
imposed under Section 4975 of the Code or ERISA, (iii) fail to pay to any such
employee benefit plan any contribution which it is obligated to pay under
Section 302 of ERISA, Section 412 of the Code or the terms of such plan, (iv)
allow or suffer to exist any accumulated funding deficiency, whether or not
waived, with respect to any such employee benefit plan, (v) allow or suffer to
exist any occurrence of a reportable event or any other event or condition which
presents a material risk of termination by the Pension Benefit Guaranty
Corporation of any such employee benefit plan that is a single employer plan,
which termination could result in any liability to the Pension Benefit Guaranty
Corporation or (vi) incur any withdrawal liability with respect to any
multiemployer pension plan.
(b) As used in this Section 9.14, the terms "employee benefit
plans", "accumulated funding deficiency" and "reportable event" shall have the
respective meanings assigned to them in ERISA, and the term "prohibited
transaction" shall have the meaning assigned to it in Section 4975 of the Code
and ERISA.
62
<PAGE>
9.15 EXISTING REAL PROPERTY; AFTER ACQUIRED REAL PROPERTY.
(a) In the event that Lender determines that (i) Excess
Availability of the Borrower shall have been less than $5,000,000 for each day
during any five (5) consecutive day period or (ii) an Event of Default, or act,
condition or event which with notice or passage of time or both would constitute
an Event of Default exists, without limiting any other rights of Lender, or
duties or obligations of Borrower, upon Lender's request, Borrower shall
promptly, execute and deliver to Lender a mortgage, deed of trust or deed to
secure debt, as Lender may determine, in form and substance substantially
similar to the Mortgages in respect of any or all of the Existing Real Property
(as Lender shall determine in its sole discretion, exercised in good faith), and
as to any provisions relating to specific state laws satisfactory to Lender and
in form appropriate for recording in the real estate records of the jurisdiction
in which such Existing Real Property or other property is located granting to
Lender a first and only lien and mortgage on and security interest in such
Existing Real Property, fixtures or other property (except as Borrower would
otherwise be permitted to incur hereunder or under the Mortgages or as otherwise
consented to in writing by Lender) and such other agreements, surveys, title
insurance policies, documents and instruments as Lender may require in
connection therewith.
(b) If Borrower hereafter acquires any Real Property, fixtures or
any other property that is of the kind or nature described in the Mortgages and
such Real Property, fixtures or other property at any one location has a fair
market value in an amount equal to or greater than $1,000,000 (or if an Event of
Default, or act, condition or event which with notice or passage of time or both
would constitute an Event of Default exists and is continuing, then regardless
of the fair market value of such assets), without limiting any other rights of
Lender, or duties or obligations of Borrower, upon Lender's request, Borrower
shall execute and deliver to Lender a mortgage, deed of trust or deed to secure
debt, as Lender may determine, in form and substance substantially similar to
the Mortgage and as to any provisions relating to specific state laws
satisfactory to Lender and in form appropriate for recording in the real estate
records of the jurisdiction in which such Real Property or other property is
located granting to Lender a first and only lien and mortgage on and security
interest in such Real Property, fixtures or other property (except as Borrower
would otherwise be permitted to incur hereunder or under the Mortgages or as
otherwise consented to in writing by Lender) and such other agreements,
documents and instruments as Lender may require in connection therewith.
9.16 COSTS AND EXPENSES. Borrower shall pay to Lender on demand all
costs, expenses, filing fees and taxes paid or payable in connection with the
preparation, negotiation, execution, delivery, recording, administration,
collection, liquidation, enforcement and defense of the Obligations, Lender's
rights in the Collateral, this Agreement, the other Financing Agreements and all
other documents related hereto or thereto, including any amendments, supplements
or consents which may hereafter be contemplated (whether or not executed) or
entered into in respect hereof and thereof, including: (a) all costs and
expenses of filing or recording (including Uniform
63
<PAGE>
Commercial Code financing statement filing taxes and fees, documentary taxes,
intangibles taxes and mortgage recording taxes and fees, if applicable); (b)
costs and expenses and fees for insurance premiums, environmental audits,
surveys, assessments, engineering reports and inspections, appraisal fees and
search fees, costs and expenses of remitting loan proceeds, collecting checks
and other items of payment, and establishing and maintaining the Blocked
Accounts, together with Lender's customary charges and fees with respect
thereto; (c) charges, fees or expenses charged by any bank or issuer in
connection with the Letter of Credit Accommodations; (d) costs and expenses of
preserving and protecting the Collateral; (e) costs and expenses paid or
incurred in connection with obtaining payment of the Obligations, enforcing the
security interests and liens of Lender, selling or otherwise realizing upon the
Collateral, and otherwise enforcing the provisions of this Agreement and the
other Financing Agreements or defending any claims made or threatened against
Lender arising out of the transactions contemplated hereby and thereby
(including preparations for and consultations concerning any such matters); (f)
all out-of-pocket expenses and costs heretofore and from time to time hereafter
incurred by Lender during the course of periodic field examinations of the
Collateral and Borrower's operations, plus a per diem charge at the rate of $650
per person per day for Lender's examiners in the field and office; and (g) the
reasonable fees and disbursements of counsel (including legal assistants) to
Lender in connection with any of the foregoing.
9.17 CHANGES IN BUSINESS.
(a) Borrower and its Subsidiaries shall not engage in any
business other than the businesses of Borrower and its Subsidiaries on the date
hereof and any businesses reasonably related, ancillary or complimentary to the
businesses in which Borrower and its Subsidiaries are engaged on the date
hereof.
(b) Holdings shall not engage in any business other than its
ownership of the Capital Stock of Borrower and any Subsidiaries established or
acquired by it after the date hereof to the extent permitted hereunder,
PROVIDED, THAT, any Subsidiaries of Holdings shall be engaged solely in the
businesses of Borrower and its Subsidiaries on the date hereof and any
businesses reasonably related, ancillary or complimentary to the businesses in
which Borrower and its Subsidiaries are engaged on the date hereof. Holdings
shall have no significant assets other than its ownership interests as described
in the immediately preceding sentence and shall act as a holding company which
shall not directly engage in any business.
9.18 EXCHANGE DEBENTURES. So long as no Event of Default or act,
condition or event which with notice or passage of time or both would constitute
an Event of Default shall exist or
64
<PAGE>
have occurred and be continuing, Borrower or Guarantors may permit the Senior
Preferred Stock to be exchanged for Exchange Debentures.
9.19 FURTHER ASSURANCES. At the request of Lender at any time and from
time to time, Borrower and Guarantors shall, at its expense, duly execute and
deliver, or cause to be duly executed and delivered, such further agreements,
documents and instruments, and do or cause to be done such further acts as may
be reasonably necessary or proper to evidence, perfect, maintain and enforce the
security interests and the priority thereof in the Collateral and to otherwise
effectuate the provisions or purposes of this Agreement or any of the other
Financing Agreements. Lender may at any time and from time to time request a
certificate from an officer of Borrower representing that all conditions
precedent to the making of Loans and providing Letter of Credit Accommodations
contained herein are satisfied. In the event of such request by Lender, Lender
may, at its option, if Lender has not received such certificate within three (3)
Business Days of such request, cease to make any further Loans or provide any
further Letter of Credit Accommodations until Lender has received such
certificate and, in addition, Lender has determined that such conditions are
satisfied. Where permitted by law, Borrower hereby authorizes Lender to execute
and file one or more UCC financing statements signed only by Lender.
SECTION 10. EVENTS OF DEFAULT AND REMEDIES
10.1 EVENTS OF DEFAULT. The occurrence or existence of any one or more
of the following events are referred to herein individually as an "Event of
Default", and collectively as "Events of Default":
(a) (i) Borrower or any Guarantor fails to pay when due any of
the Obligations or (ii) Borrower or any Guarantor fails to perform any of the
covenants contained in Section 9.2, 9.3, 9.4, 9.13, 9.14, and 9.16 hereof, and
such failure shall continue for ten (10) days, PROVIDED, THAT, such ten (10) day
period shall not apply in the case of: (A) any failure to observe any such
covenant or agreement which is not capable of being cured at all or within such
ten (10) day period or which has been the subject of a prior failure within the
immediately preceding six (6) months or (B) an intentional breach by Borrower or
any Guarantor of any such covenant or agreement or (iii) Borrower or any
Guarantor fails to perform any of the terms, covenants, conditions or provisions
contained in this Agreement or any of the other Financing Agreements to which it
is a party other than those described in Sections 10.1(a)(i) or 10.1(a)(ii);
(b) any representation, warranty or statement of fact made by
Borrower to Lender in this Agreement, the other Financing Agreements or any
other agreement, schedule, confirmatory assignment or otherwise shall when made
or deemed made be false or misleading in any material respect;
65
<PAGE>
(c) any Obligor revokes, terminates or fails to perform any of
the terms, covenants, conditions or provisions of any guarantee, endorsement or
other agreement of such party in favor of Lender;
(d) (i) any judgment for the payment of money is rendered against
Borrower or any Obligor in excess of $500,000 in any one case or in excess of
$500,000 in the aggregate, in each case, to the extent not paid or covered by
insurance provided by a carrier who has not denied coverage, and shall remain
undischarged or unvacated for a period in excess of forty-five (45) days or
execution shall at any time not be effectively stayed, or (ii) any judgment
other than for the payment of money, or injunction, attachment, garnishment or
execution is rendered against Borrower or any Obligor or any of their assets has
a Material Adverse Effect;
(e) any Obligor (being a natural person or a general partner of
an Obligor which is a partnership) dies or Borrower or any Obligor, which is a
partnership, limited liability company, limited liability partnership or a
corporation, dissolves or suspends or discontinues doing business;
(f) Borrower or any Obligor becomes insolvent (however defined or
evidenced), makes an assignment for the benefit of creditors, makes or sends
notice of a bulk transfer or calls a meeting of its creditors or principal
creditors;
(g) a case or proceeding under the bankruptcy laws of the United
States of America now or hereafter in effect or under any insolvency,
reorganization, receivership, readjustment of debt, dissolution or liquidation
law or statute of any jurisdiction now or hereafter in effect (whether at law or
in equity) is filed against Borrower or any Obligor or all or any part of its
properties and such petition or application is not dismissed within forty-five
(45) days after the date of its filing or Borrower or any Obligor shall file any
answer admitting or not contesting such petition or application or indicates its
consent to, acquiescence in or approval of, any such action or proceeding or the
relief requested is granted sooner;
(h) a case or proceeding under the bankruptcy laws of the United
States of America now or hereafter in effect or under any insolvency,
reorganization, receivership, readjustment of debt, dissolution or liquidation
law or statute of any jurisdiction now or hereafter in effect (whether at a law
or equity) is filed by Borrower or any Obligor or for all or any part of its
property;
(i) any default by Borrower or any Obligor under any agreement,
document or instrument relating to any Indebtedness for borrowed money owing to
any person other than Lender, or any capitalized lease obligations, contingent
Indebtedness in connection with any guarantee, letter of credit, indemnity or
similar type of instrument in favor of any person other than Lender, in any case
in an amount in excess of $1,000,000, which default continues for more than the
applicable cure period, if any, with respect thereto, or any default by Borrower
or any Obligor under any material contract, lease, license or other obligation
to any person other than
66
<PAGE>
Lender, which default continues for more than the applicable cure period, if
any, with respect thereto;
(j) any Change of Control;
(k) the indictment or threatened indictment of Borrower or any
Obligor under any criminal statute, or commencement or threatened commencement
of criminal or civil proceedings against Borrower or any Obligor, pursuant to
which statute or proceedings the penalties or remedies sought or available
include forfeiture of any of the property of Borrower or such Obligor;
(l) there shall be an act, condition or event which has a
Material Adverse Effect;
(m) there shall be an Event of Default under any of the other
Financing Agreements; or
(n) there shall occur and be continuing any Event of Default
under and as defined in any Recapitalization Document.
10.2 REMEDIES.
(a) At any time an Event of Default exists or has occurred and is
continuing, Lender shall have all rights and remedies provided in this
Agreement, the other Financing Agreements, the Uniform Commercial Code and other
applicable law, all of which rights and remedies may be exercised without notice
to or consent by Borrower or any Obligor, except as such notice or consent is
expressly provided for hereunder or required by applicable law. All rights,
remedies and powers granted to Lender hereunder, under any of the other
Financing Agreements, the Uniform Commercial Code or other applicable law, are
cumulative, not exclusive and enforceable, in Lender's discretion,
alternatively, successively, or concurrently on any one or more occasions, and
shall include, without limitation, the right to apply to a court of equity for
an injunction to restrain a breach or threatened breach by Borrower of this
Agreement or any of the other Financing Agreements. Lender may, at any time or
times, proceed directly against Borrower or any Obligor to collect the
Obligations without prior recourse to the Collateral.
(b) Without limiting the foregoing, at any time an Event of
Default exists or has occurred and is continuing, Lender may, in its discretion
and without limitation, (i) accelerate the payment of all Obligations and demand
immediate payment thereof to Lender (PROVIDED, THAT, upon the occurrence of any
Event of Default described in Sections 10.1(g) and 10.1(h), all Obligations
shall automatically become immediately due and payable), (ii) with or without
judicial process or the aid or assistance of others, enter upon any premises on
or in which any of the Collateral may be located and take possession of the
Collateral or complete processing, manufacturing and repair of all or any
portion of the Collateral, (iii) require Borrower, at
67
<PAGE>
Borrower's expense, to assemble and make available to Lender any part or all of
the Collateral at any place and time designated by Lender, (iv) collect,
foreclose, receive, appropriate, setoff and realize upon any and all Collateral,
(v) remove any or all of the Collateral from any premises on or in which the
same may be located for the purpose of effecting the sale, foreclosure or other
disposition thereof or for any other purpose, (vi) sell, lease, transfer,
assign, deliver or otherwise dispose of any and all Collateral (including
entering into contracts with respect thereto, public or private sales at any
exchange, broker's board, at any office of Lender or elsewhere) at such prices
or terms as Lender may deem reasonable, for cash, upon credit or for future
delivery, with the Lender having the right to purchase the whole or any part of
the Collateral at any such public sale, all of the foregoing being free from any
right or equity of redemption of Borrower, which right or equity of redemption
is hereby expressly waived and released by Borrower and/or (vii) terminate this
Agreement. If any of the Collateral is sold or leased by Lender upon credit
terms or for future delivery, the Obligations shall not be reduced as a result
thereof until payment therefor is finally collected by Lender. If notice of
disposition of Collateral is required by law, five (5) days prior notice by
Lender to Borrower designating the time and place of any public sale or the time
after which any private sale or other intended disposition of Collateral is to
be made, shall be deemed to be reasonable notice thereof and Borrower waives any
other notice. In the event Lender institutes an action to recover any Collateral
or seeks recovery of any Collateral by way of prejudgment remedy, Borrower
waives the posting of any bond which might otherwise be required.
(c) Lender may apply the cash proceeds of Collateral actually
received by Lender from any sale, lease, foreclosure or other disposition of the
Collateral to payment of the Obligations, in whole or in part and in such order
as Lender may elect, whether or not then due. Borrower shall remain liable to
Lender for the payment of any deficiency with interest at the highest rate
provided for herein and all reasonable costs and expenses of collection or
enforcement, including reasonable attorneys' fees and legal expenses.
(d) Without limiting the foregoing, upon the occurrence and
continuance of an Event of Default or an event which with notice or passage of
time or both is reasonably likely in the good faith judgment of Lender to
constitute an Event of Default, Lender may, at its option, without notice, (i)
cease making Revolving Loans or arranging for Letter of Credit Accommodations or
reduce the lending formulas or amounts of Loans and Letter of Credit
Accommodations available to Borrower and/or (ii) terminate any provision of this
Agreement providing for any future Loans or Letter of Credit Accommodations to
be made by Lender to Borrower.
68
<PAGE>
SECTION 11. JURY TRIAL WAIVER; OTHER WAIVERS
AND CONSENTS; GOVERNING LAW
11.1 GOVERNING LAW; CHOICE OF FORUM; SERVICE OF PROCESS; JURY TRIAL
WAIVER.
(a) The validity, interpretation and enforcement of this
Agreement and the other Financing Agreements and any dispute arising out of the
relationship between the parties hereto, whether in contract, tort, equity or
otherwise, shall be governed by the internal laws of the State of New York
(without giving effect to principles of conflicts of law).
(b) Borrower, Guarantors and Lender irrevocably consent and
submit to the non-exclusive jurisdiction of the Supreme Court of the State of
New York in New York County and the United States District Court for the
Southern District of New York and waive any objection based on venue or FORUM
NON CONVENIENS with respect to any action instituted therein arising under this
Agreement or any of the other Financing Agreements or in any way connected with
or related or incidental to the dealings of the parties hereto in respect of
this Agreement or any of the other Financing Agreements or the transactions
related hereto or thereto, in each case whether now existing or hereafter
arising, and whether in contract, tort, equity or otherwise, and agree that any
dispute with respect to any such matters shall be heard only in the courts
described above (except that Lender shall have the right to bring any action or
proceeding against Borrower, Guarantors or their property in the courts of any
other jurisdiction which Lender deems necessary or appropriate in order to
realize on the Collateral or to otherwise enforce its rights against Borrower,
Guarantors or their property).
(c) Borrower and each Guarantor hereby waives personal service of
any and all process upon it and consents that all such service of process may be
made by certified mail (return receipt requested) directed to its address set
forth on the signature pages hereof and service so made shall be deemed to be
completed five (5) days after the same shall have been so deposited in the U.S.
mails, or, at Lender's option, by service upon Borrower or Guarantors, as the
case may be, in any other manner provided under the rules of any such courts.
Within thirty (30) days after such service, Borrower or Guarantors, as the case
may be, shall appear in answer to such process, failing which Borrower or any
Guarantor, as the case may be, shall be deemed in default and judgment may be
entered by Lender against Borrower for the amount of the claim and other relief
requested.
(d) BORROWER, EACH GUARANTOR AND LENDER EACH HEREBY WAIVES ANY
RIGHT TO TRIAL BY JURY OF ANY CLAIM, DEMAND, ACTION OR CAUSE OF ACTION (i)
ARISING UNDER THIS AGREEMENT OR ANY OF THE OTHER FINANCING AGREEMENTS OR (ii) IN
ANY WAY CONNECTED WITH OR RELATED OR INCIDENTAL TO THE DEALINGS OF THE PARTIES
HERETO IN RESPECT OF THIS AGREEMENT OR ANY OF THE OTHER FINANCING AGREEMENTS OR
THE TRANSACTIONS RELATED HERETO OR THERETO IN EACH CASE WHETHER NOW
69
<PAGE>
EXISTING OR HEREAFTER ARISING, AND WHETHER IN CONTRACT, TORT, EQUITY OR
OTHERWISE. BORROWER, EACH GUARANTOR AND LENDER EACH HEREBY AGREES AND CONSENTS
THAT ANY SUCH CLAIM, DEMAND, ACTION OR CAUSE OF ACTION SHALL BE DECIDED BY COURT
TRIAL WITHOUT A JURY AND THAT BORROWER, GUARANTORS OR LENDER MAY FILE AN
ORIGINAL COUNTERPART OF A COPY OF THIS AGREEMENT WITH ANY COURT AS WRITTEN
EVIDENCE OF THE CONSENT OF THE PARTIES HERETO TO THE WAIVER OF THEIR RIGHT TO
TRIAL BY JURY.
(e) Lender shall not have any liability to Borrower or any
Guarantor (whether in tort, contract, equity or otherwise) for losses suffered
by Borrower or any Guarantor, as the case may be, in connection with, arising
out of, or in any way related to the transactions or relationships contemplated
by this Agreement, or any act, omission or event occurring in connection
herewith, unless it is determined by a final and non-appealable judgment or
court order binding on Lender, that the losses were the result of acts or
omissions constituting gross negligence or willful misconduct. In any such
litigation, Lender shall be entitled to the benefit of the rebuttable
presumption that it acted in good faith and with the exercise of ordinary care
in the performance by it of the terms of this Agreement.
11.2 WAIVER OF NOTICES. Borrower hereby expressly waives demand,
presentment, protest and notice of protest and notice of dishonor with respect
to any and all instruments and commercial paper, included in or evidencing any
of the Obligations or the Collateral, and any and all other demands and notices
of any kind or nature whatsoever with respect to the Obligations, the Collateral
and this Agreement, except such as are expressly provided for herein. No notice
to or demand on Borrower which Lender may elect to give shall entitle Borrower
to any other or further notice or demand in the same, similar or other
circumstances.
11.3 AMENDMENTS AND WAIVERS. Neither this Agreement nor any provision
hereof shall be amended, modified, waived or discharged orally or by course of
conduct, but only by a written agreement signed by an authorized officer of
Lender, and as to amendments, as also signed by an authorized officer of
Borrower. Lender shall not, by any act, delay, omission or otherwise be deemed
to have expressly or impliedly waived any of its rights, powers and/or remedies
unless such waiver shall be in writing and signed by an authorized officer of
Lender. Any such waiver shall be enforceable only to the extent specifically set
forth therein. A waiver by Lender of any right, power and/or remedy on any one
occasion shall not be construed as a bar to or waiver of any such right, power
and/or remedy which Lender would otherwise have on any future occasion, whether
similar in kind or otherwise.
11.4 WAIVER OF COUNTERCLAIMS. Borrower and each Guarantor waives all
rights to interpose any claims, deductions, setoffs or counterclaims of any
nature (other then compulsory counterclaims) in any action or proceeding with
respect to this Agreement, the Obligations, the Collateral or any matter arising
therefrom or relating hereto or thereto.
70
<PAGE>
11.5 INDEMNIFICATION. Borrower shall indemnify and hold Lender, and its
directors, agents, employees and counsel, harmless from and against any and all
losses, claims, damages, liabilities, costs or expenses imposed on, incurred by
or asserted against any of them in connection with any litigation,
investigation, claim or proceeding commenced or threatened related to the
negotiation, preparation, execution, delivery, enforcement, performance or
administration of this Agreement, any other Financing Agreements, or any
undertaking or proceeding related to any of the transactions contemplated hereby
or any act, omission, event or transaction related or attendant thereto,
including, without limitation, any and all losses, claims, damages, liabilities,
costs or expenses caused by negligence (but not the gross negligence or willful
misconduct) of Lender and Lender's directors, agents, employees and counsel and
further including, without limitation, amounts paid in settlement, court costs,
and the fees and expenses of counsel. To the extent that the undertaking to
indemnify, pay and hold harmless set forth in this Section may be unenforceable
because it violates any law or public policy, Borrower shall pay the maximum
portion which it is permitted to pay under applicable law to Lender in
satisfaction of indemnified matters under this Section. The foregoing indemnity
shall survive the payment of the Obligations and the termination or non-renewal
of this Agreement.
SECTION 12. TERM OF AGREEMENT; MISCELLANEOUS
12.1 TERM.
(a) This Agreement and the other Financing Agreements shall
become effective as of the date set forth on the first page hereof and shall
continue in full force and effect for a term ending on the date three (3) years
from the date hereof (the "Renewal Date"), and from year to year thereafter,
unless sooner terminated pursuant to the terms hereof. Lender or Borrower may
terminate this Agreement and the other Financing Agreements effective on the
Renewal Date or on the anniversary of the Renewal Date in any year by giving to
the other party at least sixty (60) days prior written notice; PROVIDED, THAT,
this Agreement and all other Financing Agreements must be terminated
simultaneously. Upon the effective date of termination or non-renewal of the
Financing Agreements, Borrower shall pay to Lender, in full, all outstanding and
unpaid Obligations and shall furnish cash collateral to Lender in such amounts
as Lender determines are reasonably necessary to secure Lender from loss, cost,
damage or expense, including attorneys' fees and legal expenses, in connection
with any contingent Obligations, including issued and outstanding Letter of
Credit Accommodations and checks or other payments provisionally credited to the
Obligations and/or as to which Lender has not yet received final and
indefeasible payment. Such payments in respect of the Obligations and cash
collateral shall be remitted by wire transfer in Federal funds to such bank
account of Lender, as Lender may, in its discretion, designate in writing to
Borrower for such purpose. Interest shall be due until and including the next
business day, if the amounts so paid by Borrower to the bank account designated
by Lender are received in such bank account later than 12:00 noon, New York City
time.
71
<PAGE>
(b) No termination of this Agreement or the other Financing
Agreements shall relieve or discharge Borrower of its respective duties,
obligations and covenants under this Agreement or the other Financing Agreements
until all Obligations have been fully and finally discharged and paid, and
Lender's continuing security interest in the Collateral and the rights and
remedies of Lender hereunder, under the other Financing Agreements and
applicable law, shall remain in effect until all such Obligations have been
fully and finally discharged and paid.
(c) If for any reason this Agreement is terminated prior to the
end of the then current term or renewal term of this Agreement, in view of the
impracticality and extreme difficulty of ascertaining actual damages and by
mutual agreement of the parties as to a reasonable calculation of Lender's lost
profits as a result thereof, Borrower agrees to pay to Lender, upon the
effective date of such termination, an early termination fee in the amount set
forth below if such termination is effective in the period indicated:
<TABLE>
<CAPTION>
AMOUNT PERIOD
- --------------------------- ------------------------------------- --------------------------------------------------
<S> <C> <C>
(i) one (1%) percent of the Maximum From the date hereof to and including March 11,
Credit 2000
- --------------------------- ------------------------------------- --------------------------------------------------
(ii) One (1%) percent of the Maximum From March 12, 2000 to and including March 11,
Credit 2001
- --------------------------- ------------------------------------- --------------------------------------------------
(iii) One-half of one (1/2%) percent of From March 12, 2001 to and including September
the Maximum Credit 10, 2001
- --------------------------- ------------------------------------- --------------------------------------------------
- --------------------------- ------------------------------------- --------------------------------------------------
</TABLE>
Such early termination fee shall be presumed to be the amount of damages
sustained by Lender as a result of such early termination and Borrower agrees
that it is reasonable under the circumstances currently existing. In addition,
Lender shall be entitled to such early termination fee upon the occurrence of
any Event of Default described in Sections 10.1(g) and 10.1(h) hereof, even if
Lender does not exercise its right to terminate this Agreement, but elects, at
its option, to provide financing to Borrower or permit the use of cash
collateral under the United States Bankruptcy Code. The early termination fee
provided for in this Section 12.1 shall be deemed included in the Obligations.
(d) Notwithstanding anything to the contrary contained in Section
12.1(c) above, in the event of the termination of this Agreement at the request
of Borrower prior to the end of the term of this Agreement and the full and
final repayment of all Obligations and the receipt by Lender of cash collateral
all as provided in Section 12.1(a) above, Borrower shall (i) not be required to
pay to Lender an early termination fee if such payments are made to Lender with
the initial proceeds of a financing transaction provided or underwritten by
First Union National Bank and/or one of its Affiliates to Borrower, including,
without limitation, a replacement credit
72
<PAGE>
facility, a high-yield debt offering, an equity offering through Wheat First
Securities, a merger or acquisition transaction through Bowles Hollowell Conner,
or any combination thereof and (ii) only be required to pay fifty (50%) percent
of the early termination fee that would otherwise be payable in accordance with
Section 12.1(c) above if each of the following conditions is satisfied: (A) no
Event of Default (or act, condition or event which with notice, lapse of time or
both is reasonably likely, in the good faith determination of Lender, to
constitute an Event of Default) shall exist or have occurred and be continuing,
(B) Lender shall have received not less than sixty (60) days prior written
notice of the intention of Borrower to terminate this Agreement and the other
Financing Agreements, and (C) the full repayment of the Obligations and receipt
of cash collateral all as provided in Section 12.1(a) above is received upon the
consummation of the sale by Borrower of all of its assets or the sale by the
owners of Borrower of all of the Capital Stock of Borrower, in any case, in a
BONA FIDE arm's length transaction and on commercially reasonable prices and
terms with a person other than an Affiliate.
12.2 NOTICES. All notices, requests and demands hereunder shall be in
writing and (a) made to Lender at its address set forth below and to Borrower
and Guarantors at its chief executive office set forth below, or to such other
address as such party may designate by written notice to the other in accordance
with this provision, and (b) deemed to have been given or made: if delivered in
person, immediately upon delivery; if by telex, telegram or facsimile
transmission, immediately upon sending and upon confirmation of receipt; if by
nationally recognized overnight courier service with instructions to deliver the
next Business Day, one (1) Business Day after sending; and if by certified mail,
return receipt requested, five (5) days after mailing.
12.3 PARTIAL INVALIDITY. If any provision of this Agreement is held to
be invalid or unenforceable, such invalidity or unenforceability shall not
invalidate this Agreement as a whole, but this Agreement shall be construed as
though it did not contain the particular provision held to be invalid or
unenforceable and the rights and obligations of the parties shall be construed
and enforced only to such extent as shall be permitted by applicable law.
12.4 SUCCESSORS. This Agreement, the other Financing Agreements and any
other document referred to herein or therein shall be binding upon and inure to
the benefit of and be enforceable by Lender, Borrower, Guarantors and their
respective successors and assigns, except that neither Borrower nor any
Guarantor may assign its rights under this Agreement, the other Financing
Agreements and any other document referred to herein or therein without the
prior written consent of Lender. Lender may, after notice to Borrower, assign
its rights and delegate its obligations under this Agreement and the other
Financing Agreements and further may assign, or sell participations in, all or
any part of the Loans, the Letter of Credit Accommodations or any other interest
herein to another financial institution or other person, in which event, the
assignee or participant shall have, to the extent of such assignment or
participation, the same rights and benefits as it would have if it were the
Lender hereunder, except as otherwise provided by the terms of such assignment
or participation; PROVIDED, THAT, notwithstanding anything to the contrary
herein, Borrower and Guarantors shall not, at any time, be obligated to pay
under
73
<PAGE>
Sections 3.5 and 9.4 (regarding indemnity claims by Lender) to any lender that
obtains a participation from Lender (directly or through an intermediate lender)
any sum in excess of the sum which Borrower or Guarantors would have been
obligated to pay to Lender had such participation not been effected.
12.5 CONFIDENTIALITY.
(a) Lender shall use all reasonable efforts to keep confidential,
in accordance with its customary procedures for handling confidential
information and safe and sound lending practices, any non-public information
supplied to it by Borrower pursuant to this Agreement at the time such
information is furnished by Borrower to Lender, PROVIDED, THAT, nothing
contained herein shall limit the disclosure of any such information: (i) to the
extent required by statute, rule, regulation, subpoena or court order, (ii) to
bank examiners and other regulators, auditors and/or accountants, (iii) in
connection with any litigation to which Lender is a party, (iv) to any assignee
or participant (or prospective assignee or participant) so long as such assignee
or participant (or prospective assignee or participant) shall have first agreed
in writing to treat such information as confidential in accordance with this
Section 12.5, or (v) to counsel for Lender or any participant or assignee (or
prospective participant or assignee).
(b) In no event shall this Section 12.5 or any other provision of
this Agreement or applicable law be deemed: (i) to apply to or restrict
disclosure of information that has been or is made public by Borrower or any
third party without breach of this Section 12.5 or otherwise become generally
available to the public other than as a result of a disclosure in violation
hereof, (ii) to apply to or restrict disclosure of information that was or
becomes available to Lender on a non-confidential basis from a person other than
Borrower, (iii) require Lender to return any materials furnished by Borrower to
Lender or (iv) prevent Lender from responding to routine informational requests
in accordance with the CODE OF ETHICS FOR THE EXCHANGE OF CREDIT INFORMATION
promulgated by The Robert Morris Associates or other applicable industry
standards relating to the exchange of credit information. The obligations of
Lender under this Section 12.5 shall supersede and replace the obligations of
Lender under any confidentiality letter signed prior to the date hereof.
12.6 ENTIRE AGREEMENT. This Agreement, the other Financing Agreements,
any supplements hereto or thereto, and any instruments or documents delivered or
to be delivered in connection herewith or therewith represents the entire
agreement and understanding concerning the subject matter hereof and thereof
between the parties hereto, and supersede all other prior agreements,
understandings, negotiations and discussions, representations, warranties,
commitments, proposals, offers and contracts concerning the subject matter
hereof, whether oral or written. In the event of any inconsistency between the
terms of this Agreement and any schedule or exhibit hereto, the terms of this
Agreement shall govern.
74
<PAGE>
[REMAINDER OF PAGE LEFT INTENTIONALLY BLANK]
75
<PAGE>
IN WITNESS WHEREOF, Lender, Borrower and each Guarantor have caused
these presents to be duly executed as of the day and year first above written.
76
<PAGE>
- ---------------------------------------- -----------------------------------
- ---------------------------------------- -----------------------------------
LENDER BORROWER
CONGRESS FINANCIAL CORPORATION ANVIL KNITWEAR, INC.
By: By:
------------------------------------- --------------------------------
Title: Title:
---------------------------------- -----------------------------
ADDRESS: CHIEF EXECUTIVE OFFICE:
1133 Avenue of the Americas 228 East 45th Street
New York, New York 10036 New York, New York 10017
GUARANTORS
ANVIL HOLDINGS, INC.
By:
--------------------------------
Title:
-----------------------------
CHIEF EXECUTIVE OFFICE:
228 East 45th Street
New York, New York 10017
COTTONTOPS, INC.
By:
--------------------------------
Title:
-----------------------------
CHIEF EXECUTIVE OFFICE:
309 Anderson Avenue
Farmville, North Carolina 27828
- ---------------------------------------- -----------------------------------
- ---------------------------------------- -----------------------------------
77
<PAGE>
EXHIBIT 4.9
TERM PROMISSORY NOTE
$11,725,000 New York, New York
March 11, 1999
FOR VALUE RECEIVED, ANVIL KNITWEAR, INC., a Delaware corporation (the
"Debtor"), hereby unconditionally promises to pay to the order of CONGRESS
FINANCIAL CORPORATION, a Delaware corporation (the "Payee"), at the offices of
Payee at 1133 Avenue of the Americas, New York, New York 10036, or at such other
place as the Payee or any holder hereof may from time to time designate, the
principal sum of ELEVEN MILLION SEVEN HUNDRED TWENTY-FIVE THOUSAND DOLLARS
($11,725,000) in lawful money of the United States of America and in immediately
available funds, in twenty (20) consecutive quarterly installments (or earlier
as hereinafter provided) on the first day of each April, July, October and
January, commencing July 1, 1999, of which the first nineteen (19) installments
shall each be in the amount of FIVE HUNDRED EIGHTY-SIX THOUSAND TWO HUNDRED
FIFTY DOLLARS ($586,250), and the last installment shall be in the amount of the
entire unpaid balance of this Note.
Debtor hereby further promises to pay interest to the order of Payee on
the unpaid principal balance hereof at the Interest Rate. Such interest shall be
paid in like money at said office or place from the date hereof, commencing
April 1, 1999 and on the first day of each calendar month thereafter until the
indebtedness evidenced by this Note is paid in full. All interest accruing on
the unpaid principal balance hereof on and after the date of the occurrence and
continuance of any Event of Default or termination or non-renewal of the Loan
Agreement shall be payable to Payee upon demand.
For purposes hereof, (a) the term "Interest Rate" shall mean, as to
Prime Rate Loans, a rate of one-half (1/2%) percent per annum in excess of the
Prime Rate, and as to Eurodollar Rate Loans, a rate of two and one-half (2 1/2%)
percent per annum in excess of the Adjusted Eurodollar Rate (based on the
Eurodollar Rate applicable for the Interest Period selected by Debtor as in
effect three (3) Business Days after the date of receipt by Payee of the request
of Debtor for such Eurodollar Rate Loans in accordance with the terms of the
Loan Agreement, whether such rate is higher or lower than any Eurodollar Rate
previously quoted to Debtor; PROVIDED, THAT: (i) the Interest Rate applicable to
Eurodollar Rate Loans and Prime Rate Loans shall be reduced, one time only, by
one-quarter of one (1/4%) percent per annum, effective as of the first day of
the month after each of the following conditions is satisfied as determined by
Payee in good faith: (A) the Pre-Tax Net Income of Borrower for the immediately
preceding fiscal year (commencing with the fiscal year ending on January 29,
2000), as set forth in the audited consolidated financial statements of Anvil
Holdings, Inc. ("Holdings") and its Subsidiaries for such fiscal year delivered
to Payee, together with the unqualified opinion of the independent certified
public accountants, in accordance with Section 9.6 of the Loan Agreement (as
defined below), shall equal or exceed $2,000,000 and (B) no Event of Default (as
defined below) or act, condition or event which with notice or passage of time
would constitute an Event of Default
<PAGE>
shall exist or have occurred and be continuing; and (ii) notwithstanding
anything to the contrary contained herein, the Interest Rate shall mean a rate
of two and one-half (2 1/2%) percent per annum in excess of the Prime Rate as to
Prime Rate Loans and a rate of four and one-half (4 1/2%) percent per annum in
excess of the Adjusted Eurodollar Rate as to Eurodollar Rate Loans, at Payee's
option, upon written notice to Debtor, (A) either (1) for the period on and
after the date of termination or non-renewal of the Loan Agreement (as defined
below) until such time as all Obligations are indefeasibly paid in full, or (2)
for the period from and after the date of the occurrence of any Event of Default
(as defined below), and for so long as such Event of Default is continuing as
determined by Payee, and (B) on the Term Loans at any time outstanding in excess
of the amounts available to Debtor under Section 2 of the Loan Agreement
(whether or not such excess(es) arise or are made with or without Payee's
knowledge or consent and whether made before or after the occurrence and
continuance of an Event of Default); (b) the term "Prime Rate" shall mean the
rate from time to time publicly announced by First Union National Bank, or its
successors, as its prime rate, whether or not such announced rate is the best
rate available at such bank, (c) the term "Event of Default" shall mean an Event
of Default as such term is defined in the Loan Agreement, and (d) the term "Loan
Agreement" shall mean the Loan and Security Agreement, dated of even date
herewith, among Debtor, Holdings, Cottontops, Inc. and Payee, as the same now
exists or may hereafter be amended, modified, supplemented, extended, renewed,
restated or replaced. Unless otherwise defined herein, all capitalized terms
used herein shall have the meanings assigned thereto in the Loan Agreement.
The Interest Rate applicable to Loans (other than Eurodollar Rate
Loans) payable hereunder shall increase or decrease by an amount equal to each
increase or decrease in the Prime Rate, effective on the first day of the month
after any change in the Prime Rate is announced based on the Prime Rate in
effect on the last day of the month in which any such change occurs. Interest
shall be calculated on the basis of a three hundred sixty (360) day year and
actual days elapsed. In no event shall charges constituting interest payable by
Debtor to Payee hereunder exceed the maximum amount or rate permitted under any
applicable law or regulation.
This Note is issued pursuant to the terms and provisions of the Loan
Agreement to evidence the Term Loan by Payee to Debtor. This Note is secured by
the Collateral described in the Loan Agreement and all notes, guarantees,
security agreements and other agreements, documents and instruments now or at
any time hereafter executed and/or delivered by Debtor or any other party in
connection therewith (all of the foregoing, together with the Loan Agreement, as
the same now exist or may hereafter be amended, modified, supplemented, renewed,
extended, restated or replaced, being collectively referred to herein as the
"Financing Agreements"), and is entitled to all of the benefits and rights
thereof and of the other Financing Agreements. At Payee's option, all principal
and interest provided for in this Note may be charged directly to the loan
account(s) of Debtor.
If any payment of principal or interest is not made when due hereunder,
or if any other Event of Default exists or has occurred and is continuing, or if
the Loan Agreement shall be terminated or not renewed for any reason whatsoever,
then and in any such event, in addition to all rights and remedies of Payee
under the Financing Agreements, applicable law or otherwise, all
2
<PAGE>
such rights and remedies being cumulative, not exclusive and enforceable, in
Payee's discretion, alternatively, successively and concurrently on any one or
more occasions, Payee may, in its discretion and without limitation accelerate
the payment of all Obligations including, without limitation, all amounts owing
under this Note, and demand immediate payment thereof to Payee, whereupon the
then unpaid balance hereof, together with all interest accrued thereon, shall
forthwith become due and payable, together with interest accruing thereafter at
the then applicable Interest Rate stated above until the indebtedness evidenced
by this Note is paid in full, plus the costs and expenses of collection hereof,
including, but not limited to, attorneys' fees and legal expenses.
Debtor (I) waives diligence, demand, presentment, protest and notice of
any kind with respect to this Term Promissory Note, (ii) agrees that it will not
be necessary for Payee to first institute suit in order to enforce payment of
this Note and (iii) consents to any one or more extensions or postponements of
time of payment, release, surrender or substitution of collateral security, or
forbearance or other indulgence, without notice or consent. The pleading of any
statute of limitations as a defense to any demand against Debtor is expressly
hereby waived by Debtor. Upon any Event of Default or termination or non-renewal
of the Loan Agreement, Payee shall have the right, but not the obligation to
setoff against this Note all money owed by Payee to Debtor.
Payee shall not be required to resort to any Collateral for payment,
but may proceed against Debtor and any guarantors or endorsers hereof in such
order and manner as Payee may choose. None of the rights of Payee shall be
waived or diminished by any failure or delay in the exercise thereof.
The validity, interpretation and enforcement of this Note and the other
Financing Agreements and any dispute arising in connection herewith or therewith
shall be governed by the internal laws of the State of New York (without giving
effect to principles of conflicts of law).
Debtor irrevocably consents and submits to the non-exclusive
jurisdiction of the Supreme Court of the State of New York in New York County
and the United States District Court for the Southern District of New York and
waives any objection based on venue or FORUM NON CONVENIENS with respect to any
action instituted therein arising under this Note or any of the other Financing
Agreements or in any way connected with or related or incidental to the dealings
of Debtor and Payee in respect of this Note or any of the other Financing
Agreements or the transactions related hereto or thereto, in each case whether
now existing or hereafter arising, and whether in contract, tort, equity or
otherwise, and agrees that any dispute with respect to any such matters shall be
heard only in the courts described above (except that Payee shall have the right
to bring any action or proceeding against Debtor or its property in the courts
of any other jurisdiction which Payee deems necessary or appropriate in order to
realize on the Collateral or to otherwise enforce its rights against Debtor or
its property).
Debtor hereby waives personal service of any and all process upon it
and consents that all such service of process may be made by certified mail
(return receipt requested) directed to its
3
<PAGE>
address set forth below and service so made shall be deemed to be completed five
(5) days after the same shall have been so deposited in the U.S. mails, or, at
Payee's option, by service upon Debtor in any other manner provided under the
rules of any such courts. Within thirty (30) days after such service, Debtor
shall appear in answer to such process, failing which Debtor shall be deemed in
default and judgment may be entered by Payee against Debtor for the amount of
the claim and other relief requested.
DEBTOR HEREBY WAIVES ANY RIGHT TO TRIAL BY JURY OF ANY CLAIM, DEMAND,
ACTION OR CAUSE OF ACTION (i) ARISING UNDER THIS NOTE OR (ii) IN ANY WAY
CONNECTED WITH OR RELATED OR INCIDENTAL TO THE DEALINGS BETWEEN DEBTOR AND PAYEE
IN RESPECT OF THIS NOTE OR ANY OF THE OTHER FINANCING AGREEMENTS OR THE
TRANSACTIONS RELATED HERETO OR THERETO IN EACH CASE WHETHER NOW EXISTING OR
HEREAFTER ARISING, AND WHETHER IN CONTRACT, TORT, EQUITY OR OTHERWISE. DEBTOR
AGREES AND CONSENTS THAT ANY SUCH CLAIM, DEMAND, ACTION OR CAUSE OF ACTION SHALL
BE DECIDED BY COURT TRIAL WITHOUT A JURY.
The execution and delivery of this Note has been authorized by the
Board of Directors and by any necessary vote or consent of the stockholders of
Debtor. Debtor hereby authorizes Payee to complete this Note in any particulars
according to the terms of the loan evidenced hereby.
This Note shall be binding upon the successors and assigns of Debtor
and inure to the benefit of Payee and its successors, endorsees and assigns.
Whenever used herein, the term "Debtor" shall be deemed to include its
successors and assigns and the term "Payee" shall be deemed to include its
successors, endorsees and assigns. If any term or provision of this Note shall
be held invalid, illegal or unenforceable, the validity of all other terms and
provisions hereof shall in no way be affected thereby.
ATTEST: ANVIL KNITWEAR, INC.
- ----------------------------
Secretary By:
---------------------------------
[Corporate Seal] Title:
------------------------------
Address: 228 East 45th Street
New York, New York 10017
4
<PAGE>
EXHIBIT 4.10
PLEDGE AND SECURITY AGREEMENT
THIS PLEDGE AND SECURITY AGREEMENT ("Pledge Agreement"), dated March
11, 1999, is by ANVIL HOLDINGS, INC., a Delaware corporation ("Pledgor"), with
its chief executive office at 228 East 45th Street, New York, New York 10017, to
and in favor of CONGRESS FINANCIAL CORPORATION, a Delaware corporation
("Pledgee"), having an office at 1133 Avenue of the Americas, New York, New York
10036.
W I T N E S S E T H:
WHEREAS, Pledgor is now the direct and beneficial owner of all of the
issued and outstanding shares of capital stock of Anvil Knitwear, Inc., a
Delaware corporation ("Issuer") as described on Exhibit A hereto and made a part
hereof (the "Pledged Securities"); and
WHEREAS, Pledgee and Issuer have entered into or are about to enter
into financing arrangements pursuant to which Pledgee may make loans and
advances and provide other financial accommodations to Issuer as set forth in
the Loan and Security Agreement, dated of even date herewith, by and among
Issuer, Pledgor, Cottontops, Inc. and Pledgee (as the same now exists or may
hereafter be amended, modified, supplemented, extended, renewed, restated or
replaced, the "Loan Agreement"; terms used and not defined herein shall have the
meanings assigned to such terms in the Loan Agreement) and other agreements,
documents and instruments referred to therein or at any time executed and/or
delivered in connection therewith or related thereto, including, but not limited
to, the Guarantee (as defined below) and this Pledge Agreement (all of the
foregoing, together with the Loan Agreement, as the same now exist or may
hereafter be amended, modified, supplemented, extended, renewed, restated or
replaced, being collectively referred to herein as the "Financing Agreements");
and
WHEREAS, Pledgor has absolutely and unconditionally guaranteed the
payment and performance of all now existing and hereafter arising Obligations
(as defined below) of Issuer to Pledgee as set forth in the Guarantee, dated of
even date herewith, by Pledgor in favor of Pledgee (as the same now exists or
may hereafter be amended, modified, supplemented, extended, renewed, restated or
replaced, the "Guarantee");
WHEREAS, in order to induce Pledgee to enter into the Loan Agreement
and the other Financing Agreements and to make Loans and provide other financial
accommodations to Issuer pursuant thereto, Pledgor has agreed to secure the
payment and performance of the Obligations (as hereinafter defined) to Pledgee
and to accomplish same by (i) executing and delivering to Pledgee this Pledge
Agreement, (ii) delivering to Pledgee the Pledged Securities which are
registered in the name of Pledgor, together with appropriate powers duly
executed in blank by Pledgor, and (iii) delivering to Pledgee any and all other
documents which Pledgee deems necessary to protect Pledgee's interests
hereunder;
NOW, THEREFORE, in consideration of the premises and other good and
valuable
<PAGE>
consideration, the receipt and sufficiency of which are hereby acknowledged,
Pledgor hereby agrees as follows:
1. GRANT OF SECURITY INTEREST
As collateral security for the prompt performance, observance and
indefeasible payment in full of all of the Obligations (as hereinafter defined),
Pledgor hereby assigns, pledges, hypothecates, transfers and sets over to
Pledgee and grants to Pledgee a security interest in and lien upon (a) the
Pledged Securities, together with all cash dividends (subject to Section 3(h)
hereof), stock dividends, interests, profits, redemptions, warrants,
subscription rights, stock, securities options, substitutions, exchanges and
other distributions now or hereafter distributed by Issuer or which may
hereafter be delivered to the possession of Pledgor or Pledgee with respect
thereto, (b) Pledgor's records with respect to the foregoing, and (c) the
proceeds of all of the foregoing (all of the foregoing being collectively
referred to herein as the "Pledged Property").
2. OBLIGATIONS SECURED
The security interest, lien and other interests granted to Pledgee
pursuant to this Pledge Agreement shall secure the prompt performance and
payment in full of any and all obligations, liabilities and indebtedness of
every kind, nature and description owing by Pledgor to Pledgee and/or its
Affiliates, including principal, interest, charges, fees, costs and expenses,
however evidenced, whether as principal, surety, endorser, guarantor or
otherwise, whether arising under the Guarantee, this Pledge Agreement, the Loan
Agreement, the other Financing Agreements or otherwise, whether now existing or
hereafter arising, whether arising before, during or after the initial or any
renewal term of the Loan Agreement or after the commencement of any case with
respect to Pledgor under the United States Bankruptcy Code or any similar
statute (including, without limitation, the payment of interest and other
amounts which would accrue and become due but for the commencement of such
case), whether direct or indirect, absolute or contingent, joint or several, due
or not due, primary or secondary, liquidated or unliquidated, secured or
unsecured, and however acquired by Pledgee (all of the foregoing being
collectively referred to herein as the "Obligations").
3. REPRESENTATIONS, WARRANTIES AND COVENANTS
Pledgor hereby represents, warrants and covenants with and to Pledgee
the following (all of such representations, warranties and covenants being
continuing so long as any of the Obligations are outstanding):
(a) The Pledged Securities are duly authorized, validly issued, fully
paid and non-assessable capital stock of Issuer and constitute Pledgor's entire
interest in Issuer and are not registered, nor has Pledgor authorized the
registration thereof, in the name of any Person other than Pledgor or Pledgee.
(b) The Pledged Property is directly, legally and beneficially owned by
Pledgor, free and clear of all claims, liens, pledges and encumbrances of any
kind, nature or description, except for
-2-
<PAGE>
the pledge and security interest in favor of Pledgee and the pledges and
security interests permitted under the Loan Agreement.
(c) The Pledged Property is not subject to any restrictions relative to
the transfer thereof and Pledgor has the right, subject to applicable law, to
transfer and hypothecate the Pledged Property free and clear of any liens,
encumbrances or restrictions.
(d) The Pledged Property is duly and validly pledged to Pledgee and no
consent or approval of any governmental or regulatory authority or of any
securities exchange or the like, nor any consent or approval of any other third
party, was or is necessary to the validity and enforceability of this Pledge
Agreement.
(e) Pledgor authorizes Pledgee to: (i) store, deposit and safeguard the
Pledged Property, (ii) perform any and all other acts which Pledgee in good
faith deems reasonable and/or necessary for the protection and preservation of
the Pledged Property or its value or Pledgee's security interest therein,
including, without limitation, transferring, registering or arranging for the
transfer or registration of the Pledged Property to or in Pledgee's own name and
receiving the income therefrom as additional security for the Obligations and
(iii) pay any charges or expenses which Pledgee deems necessary for the
foregoing purpose, but without any obligation to do so. Any obligation of
Pledgee for reasonable care for the Pledged Property in Pledgee's possession
shall be limited to the same degree of care which Pledgee uses for similar
property pledged to Pledgee by other Persons.
(f) If Pledgor shall become entitled to receive or acquire, or shall
receive any stock certificate, or option or right with respect to the stock of
Issuer (including without limitation, any certificate representing a dividend or
a distribution or exchange of or in connection with reclassification of the
Pledged Securities) whether as an addition to, in substitution of, or in
exchange for any of the Pledged Property or otherwise, Pledgor agrees to accept
same as Pledgee's agent, to hold same in trust for Pledgee and to deliver same
forthwith to Pledgee or Pledgee's agent or bailee in the form received, with the
endorsement(s) of Pledgor where necessary and/or appropriate powers and/or
assignments duly executed to be held by Pledgee or Pledgee's agent or bailee
subject to the terms hereof, as further security for the Obligations.
(g) Pledgor shall not, without the prior consent of Pledgee, directly
or indirectly, sell, assign, transfer, or otherwise dispose of, or grant any
option with respect to the Pledged Property, nor shall Pledgor create, incur or
permit any further pledge, hypothecation, encumbrance, lien, mortgage or
security interest with respect to the Pledged Property.
(h) So long as no Event of Default (as hereinafter defined) has
occurred and is continuing, Pledgor shall have the right to vote and exercise
all corporate rights with respect to the Pledged Securities, except as expressly
prohibited herein, and to receive any cash dividends payable in respect of the
Pledged Securities.
(i) Pledgor shall not permit Issuer, directly or indirectly, to issue,
sell, grant, assign, transfer or otherwise dispose of, any additional shares of
capital stock of Issuer or any option or
-3-
<PAGE>
warrant with respect to, or other right or security convertible into, any
additional shares of capital stock of Issuer, now or hereafter authorized,
unless all such additional shares, options, warrants, rights or other such
securities are made and shall remain part of the Pledged Property subject to the
pledge and security interest granted herein.
(j) Pledgor shall pay all charges and assessments of any nature against
the Pledged Property or with respect thereto prior to said charges and/or
assessments being delinquent.
(k) Pledgor shall promptly reimburse Pledgee on demand, together with
interest at the rate then applicable to the Prime Rate Loans, for any charges,
assessments or expenses paid or incurred by Pledgee in its discretion for the
protection, preservation and maintenance of the Pledged Property and the
enforcement of Pledgee's rights hereunder, including, without limitation,
reasonable attorneys' fees and legal expenses incurred by Pledgee in seeking to
protect, collect or enforce its rights in the Pledged Property or otherwise
hereunder.
(l) Pledgee may notify Issuer or the appropriate transfer agent of the
Pledged Securities to register the security interest and pledge granted herein
and honor the rights of Pledgee with respect thereto.
(m) Pledgor waives: (i) all rights to require Pledgee to proceed
against any other person, entity or collateral or to exercise any remedy, (ii)
the defense of the statute of limitations in any action upon any of the
Obligations, (iii) any right of subrogation or interest in the Obligations or
Pledged Property until all Obligations have been paid in full, (iv) any rights
to notice of any kind or nature whatsoever, unless specifically required in this
Pledge Agreement or non-waivable under any applicable law, and (v) to the extent
permissible, its rights under Section 9-112 and 9-207 of the Uniform Commercial
Code. Pledgor agrees that the Pledged Property, other collateral, or any other
guarantor or endorser may be released, substituted or added with respect to the
Obligations, in whole or in part, without releasing or otherwise affecting the
liability of Pledgor, the pledge and security interests granted hereunder, or
this Pledge Agreement. Pledgee is entitled to all of the benefits of a secured
party set forth in Section 9-207 of the New York Uniform Commercial Code.
4. EVENTS OF DEFAULT
All Obligations shall become immediately due and payable, without
notice or demand, at the option of Pledgee, upon the occurrence and continuance
of any Event of Default, as such term is defined in the Loan Agreement (each an
"Event of Default" hereunder).
-4-
<PAGE>
5. RIGHTS AND REMEDIES
At any time an Event of Default exists or has occurred and is
continuing, in addition to all other rights and remedies of Pledgee, whether
provided under this Pledge Agreement, the Loan Agreement, the other Financing
Agreements, applicable law or otherwise, Pledgee shall have the following rights
and remedies which may be exercised without notice to, or consent by, Pledgor
except as such notice or consent is expressly provided for hereunder or required
by applicable law:
(a) Pledgee, at its option, shall be empowered to exercise its
continuing right to instruct the Issuer (or the appropriate transfer agent of
the Pledged Securities) to register any or all of the Pledged Securities in the
name of Pledgee or in the name of Pledgee's nominee and Pledgee may complete, in
any manner Pledgee may deem expedient, any and all stock powers, assignments or
other documents heretofore or hereafter executed in blank by Pledgor and
delivered to Pledgee. After said instruction, and without further notice,
Pledgee shall have the exclusive right to exercise all voting and corporate
rights with respect to the Pledged Securities and other Pledged Property, and
exercise any and all rights of conversion, redemption, exchange, subscription or
any other rights, privileges, or options pertaining to any shares of the Pledged
Securities or other Pledged Property as if Pledgee were the absolute owner
thereof, including, without limitation, the right to exchange, in its
discretion, any and all of the Pledged Securities and other Pledged Property
upon any merger, consolidation, reorganization, recapitalization or other
readjustment with respect thereto. Upon the exercise of any such rights,
privileges or options by Pledgee, Pledgee shall have the right to deposit and
deliver any and all of the Pledged Securities and other Pledged Property to any
committee, depository, transfer agent, registrar or other designated agency upon
such terms and conditions as Pledgee may determine, all without liability,
except to account for property actually received by Pledgee. However, subject to
applicable law, Pledgee shall have no duty to exercise any of the aforesaid
rights, privileges or options (all of which are exercisable in the sole
discretion of Pledgee) and shall not be responsible for any failure to do so or
delay in doing so.
(b) In addition to all the rights and remedies of a secured party under
the Uniform Commercial Code or other applicable law, Pledgee shall have the
right, at any time and without demand of performance or other demand,
advertisement or notice of any kind (except the notice specified below of time
and place of public or private sale) to or upon Pledgor or any other Person (all
and each of which demands, advertisements and/or notices are hereby expressly
waived to the extent permitted by applicable law), to proceed forthwith to
collect, redeem, recover, receive, appropriate, realize, sell, or otherwise
dispose of and deliver said Pledged Property or any part thereof in one or more
lots at public or private sale or sales at any exchange, broker's board or at
any of Pledgee's offices or elsewhere at such prices and on such terms as
Pledgee may in good faith deem best. The foregoing disposition(s) may be for
cash or on credit or for future delivery without assumption of any credit risk,
with Pledgee having the right to purchase all or any part of said Pledged
Property so sold at any such sale or sales, public or private, free of any right
or equity of redemption in Pledgor, which right or equity is hereby expressly
waived or released by Pledgor. The proceeds of any such collection, redemption,
recovery, receipt, appropriation, realization, sale or other disposition, after
deducting all costs and
-5-
<PAGE>
expenses of every kind incurred relative thereto or incidental to the care,
safekeeping or otherwise of any and all Pledged Property or in any way relating
to the rights of Pledgee hereunder, including attorneys' fees and legal
expenses, shall be applied first to the satisfaction of the Obligations (in such
order as Pledgee may elect and whether or not due) and then to the payment of
any other amounts required by applicable law, including Section 9-504(1)(c) of
the Uniform Commercial Code, with Pledgor to be and remain liable for any
deficiency. Pledgor shall be liable to Pledgee for the payment on demand of all
such costs and expenses, together with interest at the then applicable rate set
forth in the Loan Agreement, and any attorneys' fees and legal expenses. Pledgor
agrees that five (5) days prior written notice by Pledgee designating the place
and time of any public sale or of the time after which any private sale or other
intended disposition of any or all of the Pledged Property is to be made, is
reasonable notification of such matters.
(c) Pledgor recognizes that Pledgee may be unable to effect a public
sale of all or part of the Pledged Property by reason of certain prohibitions
contained in the Securities Act of 1933, as amended, as now or hereafter in
effect or in applicable Blue Sky or other state securities law, as now or
hereafter in effect, but may be compelled to resort to one or more private sales
to a restricted group of purchasers who will be obliged to agree, among other
things, to acquire such Pledged Property for their own account for investment
and not with a view to the distribution or resale thereof. If at the time of any
sale of the Pledged Property or any part thereof, the same shall not, for any
reason whatsoever, be effectively registered (if required) under the Securities
Act of 1933 (or other applicable Blue Sky or state securities laws), as then in
effect, Pledgee in its sole and absolute discretion is authorized to sell such
Pledged Property or such part thereof, in good faith, by private sale in such
manner and under such circumstances as Pledgee or its counsel may deem necessary
or advisable in order that such sale may legally be effected without
registration. Pledgor agrees that private sales so made may be at prices and
other terms less favorable to the seller than if such Pledged Property were sold
at public sale, and that Pledgee has no obligation to delay the sale of any such
Pledged Property for the period of time necessary to permit Issuer, even if
Issuer would agree, to register such Pledged Property for public sale under such
applicable securities laws. Pledgor agrees that any private sales made under the
foregoing circumstances shall be deemed to have been in a commercially
reasonable manner.
(d) All of the Pledgee's rights and remedies, including, but not
limited to, the foregoing and those otherwise arising under this Pledge
Agreement, the Loan Agreement and the other Financing Agreements, the
instruments comprising the Pledged Property, applicable law or otherwise, shall
be cumulative and not exclusive and shall be enforceable alternatively,
successively or concurrently as Pledgee may deem expedient. No failure or delay
on the part of Pledgee in exercising any of its options, powers or rights or
partial or single exercise thereof, shall constitute a waiver of such option,
power or right.
-6-
<PAGE>
6. JURY TRIAL WAIVER; OTHER WAIVERS
AND CONSENTS; GOVERNING LAW
(a) The validity, interpretation and enforcement of this Pledge
Agreement and the other Financing Agreements and any dispute arising out of the
relationship between the parties hereto, whether in contract, tort, equity or
otherwise, shall be governed by the internal laws of the State of New York
(without giving effect to principles of conflicts of law).
(b) Pledgor irrevocably consents and submits to the non-exclusive
jurisdiction of the Supreme Court of the State of New York in New York County
and the United States District Court for the Southern District of New York and
waives any objection based on venue or FORUM NON CONVENIENS with respect to any
action instituted therein arising under this Pledge Agreement or any of the
other Financing Agreements or in any way connected with or related or incidental
to the dealings of the parties hereto in respect of this Pledge Agreement or any
of the other Financing Agreements or the transactions related hereto or thereto,
in each case whether now existing or hereafter arising, and whether in contract,
tort, equity or otherwise, and agrees that any dispute with respect to any such
matters shall be heard only in the courts described above (except that Pledgee
shall have the right to bring any action or proceeding against Pledgor or its
property in the courts of any other jurisdiction which Pledgee deems necessary
or appropriate in order to realize on the Pledged Property or to otherwise
enforce its rights against Pledgor or its property).
(c) Pledgor hereby waives personal service of any and all process upon
it and consents that all such service of process may be made by certified mail
(return receipt requested) directed to its address set forth herein and service
so made shall be deemed to be completed five (5) days after the same shall have
been so deposited in the U.S. mails, or, at Pledgee's option, by service upon
Pledgor in any other manner provided under the rules of any such courts. Within
thirty (30) days after such service, Pledgor shall appear in answer to such
process, failing which Pledgor shall be deemed in default and judgment may be
entered by Pledgee against Pledgor for the amount of the claim and other relief
requested.
(d) PLEDGOR HEREBY WAIVES ANY RIGHT TO TRIAL BY JURY OF ANY CLAIM,
DEMAND, ACTION OR CAUSE OF ACTION (i) ARISING UNDER THIS PLEDGE AGREEMENT OR ANY
OF THE OTHER FINANCING AGREEMENTS OR (ii) IN ANY WAY CONNECTED WITH OR RELATED
OR INCIDENTAL TO THE DEALINGS OF PLEDGOR AND PLEDGEE IN RESPECT OF THIS PLEDGE
AGREEMENT OR ANY OF THE OTHER FINANCING AGREEMENTS OR THE TRANSACTIONS RELATED
HERETO OR THERETO IN EACH CASE WHETHER NOW EXISTING OR HEREAFTER ARISING, AND
WHETHER IN CONTRACT, TORT, EQUITY OR OTHERWISE. PLEDGOR HEREBY AGREES AND
CONSENTS THAT ANY SUCH CLAIM, DEMAND, ACTION OR CAUSE OF ACTION SHALL BE DECIDED
BY COURT TRIAL WITHOUT A JURY AND THAT PLEDGOR OR PLEDGEE MAY FILE AN ORIGINAL
COUNTERPART OF A COPY OF THIS PLEDGE AGREEMENT WITH ANY COURT AS WRITTEN
EVIDENCE OF THE CONSENT OF THE PARTIES HERETO TO THE WAIVER OF THEIR RIGHT TO
TRIAL BY JURY.
-7-
<PAGE>
(e) Pledgee shall not have any liability to Pledgor (whether in tort,
contract, equity or otherwise) for losses suffered by Pledgor in connection
with, arising out of, or in any way related to the transactions or relationships
contemplated by this Pledge Agreement, or any act, omission or event occurring
in connection herewith, unless it is determined by a final and non-appealable
judgment or court order binding on Pledgee, that the losses were the result of
acts or omissions constituting gross negligence or willful misconduct on the
part of, or on behalf of, Pledgee. In any such litigation, Pledgee shall be
entitled to the benefit of the rebuttable presumption that it acted in good
faith and with the exercise of ordinary care in the performance by it of the
terms of this Pledge Agreement.
7. MISCELLANEOUS
(a) Pledgor agrees that at any time and from time to time upon the
written request of Pledgee, Pledgor shall execute and deliver such further
documents, including, but not limited to, irrevocable proxies or stock powers,
in form reasonably satisfactory to counsel for Pledgee, and will take or cause
to be taken such further acts as Pledgee may request in order to effect the
purposes of this Pledge Agreement and perfect or continue the perfection of the
security interest in the Pledged Property granted to Pledgee hereunder.
(b) Beyond the exercise of reasonable care to assure the safe custody
of the Pledged Property (whether such custody is exercised by Pledgee, or
Pledgee's nominee, agent or bailee) Pledgee or Pledgee's nominee agent or bailee
shall have no duty or liability to protect or preserve any rights pertaining
thereto and, absent gross negligence or willful misconduct, shall be relieved of
all responsibility for the Pledged Property upon surrendering it to Pledgor or
foreclosure with respect thereto.
(c) All notices, requests and demands hereunder hereto shall be in
writing and (a) made to Pledgor at the address of its chief executive office set
forth below and to Pledgee at its address set forth below, or to such other
address as such party may designate by written notice to the other in accordance
with this provision, and (b) deemed to have been given or made: if delivered in
person, immediately upon delivery; if by telex, telegram or facsimile
transmission, immediately upon sending and upon confirmation of receipt; if by
nationally recognized overnight courier service with instructions to deliver the
next business day, one (1) Business Day after sending; and if by certified mail,
return receipt requested, five (5) days after mailing:
If to Pledgor: Anvil Holdings, Inc.
228 East 45th Street
New York, New York 10017
Attention: Jacob Hollander, Esq.
-8-
<PAGE>
If to Pledgee: Congress Financial Corporation
1133 Avenue of the Americas
New York, New York 10036
Attention: Mr. Andrew W. Robin
(d) All references to the plural herein shall also mean the singular
and to the singular shall also mean the plural. All references to Pledgor,
Pledgee and Issuer pursuant to the definitions set forth in the recitals hereto,
or to any other person herein, shall include their respective successors and
assigns. The words "hereof," "herein," "hereunder," "this Pledge Agreement" and
words of similar import when used in this Pledge Agreement shall refer to this
Pledge Agreement as a whole and not any particular provision of this Pledge
Agreement and as this Pledge Agreement now exists or may hereafter be amended,
modified, supplemented, extended, renewed, restated or replaced. An Event of
Default shall exist or continue or be continuing until such Event of Default is
waived in accordance with Section 7(g) hereof.
(e) This Pledge Agreement, the other Financing Agreements and any other
document referred to herein or therein shall be binding upon Pledgor and its
successors and assigns and inure to the benefit of and be enforceable by Pledgee
and its successors and assigns.
(f) If any provision of this Pledge Agreement is held to be invalid or
unenforceable, such invalidity or unenforceability shall not invalidate this
Pledge Agreement as a whole, but this Pledge Agreement shall be construed as
though it did not contain the particular provision held to be invalid or
unenforceable and the rights and obligations of the parties shall be construed
and enforced only to such extent as shall be permitted by applicable law.
(g) Neither this Pledge Agreement nor any provision hereof shall be
amended, modified, waived or discharged orally or by course of conduct, but only
by a written agreement signed by an authorized officer of Pledgee. Pledgee shall
not, by any act, delay, omission or otherwise be deemed to have expressly or
impliedly waived any of its rights, powers and/or remedies unless such waiver
shall be in writing and signed by an authorized officer of Pledgee. Any such
waiver shall be enforceable only to the extent specifically set forth therein. A
waiver by Pledgee of any right, power and/or remedy on any one occasion shall
not be construed as a bar to or waiver of any such right, power and/or remedy
which Pledgee would otherwise have on any future occasion, whether similar in
kind or otherwise.
[REMAINDER OF PAGE INTENTIONALLY LEFT BLANK]
-9-
<PAGE>
IN WITNESS WHEREOF, Pledgor has executed this Pledge and Security
Agreement as of the day and year first above written.
ANVIL HOLDINGS, INC.
By:
---------------------
Title:
------------------
-10-
<PAGE>
EXHIBIT A
TO
PLEDGE AND SECURITY AGREEMENT
<TABLE>
<CAPTION>
Issuer Certificate No. Shares
------ --------------- ------
<S> <C> <C>
Anvil Knitwear, Inc. 1 1,000
</TABLE>
A-1
<PAGE>
EXHIBIT 4.11
PLEDGE AND SECURITY AGREEMENT
THIS PLEDGE AND SECURITY AGREEMENT ("Pledge Agreement"), dated March
11, 1999, is by ANVIL KNITWEAR, INC., a Delaware corporation ("Pledgor"), with
its chief executive office at 228 East 45th Street, New York, New York 10017, to
and in favor of CONGRESS FINANCIAL CORPORATION, a Delaware corporation
("Pledgee"), having an office at 1133 Avenue of the Americas, New York, New York
10036.
W I T N E S S E T H:
WHEREAS, Pledgor is now the direct and beneficial owner of all of the
issued and outstanding shares of capital stock of Cottontops, Inc., a Delaware
corporation ("Issuer") as described on Exhibit A annexed hereto and made a part
hereof (the "Pledged Securities"); and
WHEREAS, Pledgee and Pledgor have entered into or are about to enter
into financing arrangements pursuant to which Pledgee may make loans and
advances and provide other financial accommodations to Pledgor as set forth in
the Loan and Security Agreement, dated of even date herewith, by and among
Pledgor, Anvil Holdings, Inc., Cottontops, Inc. and Pledgee (as the same now
exists or may hereafter be amended, modified, supplemented, extended, renewed,
restated or replaced, the "Loan Agreement"; terms used and not defined herein
shall have the meanings assigned to such terms in the Loan Agreement) and other
agreements, documents and instruments referred to therein or at any time
executed and/or delivered in connection therewith or related thereto, including,
but not limited to, this Pledge Agreement (all of the foregoing, together with
the Loan Agreement, as the same now exist or may hereafter be amended, modified,
supplemented, extended, renewed, restated or replaced, being collectively
referred to herein as the "Financing Agreements"); and
WHEREAS, in order to induce Pledgee to enter into the Loan Agreement
and the other Financing Agreements and to make Loans and provide other financial
accommodations to Pledgor pursuant thereto, Pledgor has agreed to secure the
payment and performance of the Obligations (as hereinafter defined) to Pledgee
and to accomplish same by (i) executing and delivering to Pledgee this Pledge
Agreement, (ii) delivering to Pledgee the Pledged Securities which are
registered in the name of Pledgor, together with appropriate powers duly
executed in blank by Pledgor, and (iii) delivering to Pledgee any and all other
documents which Pledgee deems necessary to protect Pledgee's interests
hereunder;
NOW, THEREFORE, in consideration of the premises and other good and
valuable consideration, the receipt and sufficiency of which are hereby
acknowledged, Pledgor hereby agrees as follows:
<PAGE>
1. GRANT OF SECURITY INTEREST
As collateral security for the prompt performance, observance and
indefeasible payment in full of all of the Obligations (as hereinafter defined),
Pledgor hereby assigns, pledges, hypothecates, transfers and sets over to
Pledgee and grants to Pledgee a security interest in and lien upon (a) the
Pledged Securities, together with all cash dividends (subject to Section 3(h)
hereof), stock dividends, interests, profits, redemptions, warrants,
subscription rights, stock, securities options, substitutions, exchanges and
other distributions now or hereafter distributed by Issuer or which may
hereafter be delivered to the possession of Pledgor or Pledgee with respect
thereto, (b) Pledgor's records with respect to the foregoing, and (c) the
proceeds of all of the foregoing (all of the foregoing being collectively
referred to herein as the "Pledged Property").
2. OBLIGATIONS SECURED
The security interest, lien and other interests granted to Pledgee
pursuant to this Pledge Agreement shall secure the prompt performance and
payment in full of any and all obligations, liabilities and indebtedness of
every kind, nature and description owing by Pledgor to Pledgee and/or its
Affiliates, including principal, interest, charges, fees, costs and expenses,
however evidenced, whether as principal, surety, endorser, guarantor or
otherwise, whether arising under this Pledge Agreement, the Loan Agreement, the
other Financing Agreements or otherwise, whether now existing or hereafter
arising, whether arising before, during or after the initial or any renewal term
of the Loan Agreement or after the commencement of any case with respect to
Pledgor under the United States Bankruptcy Code or any similar statute
(including, without limitation, the payment of interest and other amounts which
would accrue and become due but for the commencement of such case), whether
direct or indirect, absolute or contingent, joint or several, due or not due,
primary or secondary, liquidated or unliquidated, secured or unsecured, and
however acquired by Pledgee (all of the foregoing being collectively referred to
herein as the "Obligations").
3. REPRESENTATIONS, WARRANTIES AND COVENANTS
Pledgor hereby represents, warrants and covenants with and to Pledgee
the following (all of such representations, warranties and covenants being
continuing so long as any of the Obligations are outstanding):
(a) The Pledged Securities are duly authorized, validly issued, fully
paid and non-assessable capital stock of Issuer and constitute Pledgor's entire
interest in Issuer and are not registered, nor has Pledgor authorized the
registration thereof, in the name of any Person or entity other than Pledgor or
Pledgee.
(b) The Pledged Property is directly, legally and beneficially owned by
Pledgor, free and clear of all claims, liens, pledges and encumbrances of any
kind, nature or description, except for the pledge and security interest in
favor of Pledgee and the pledges and security interests permitted under the Loan
Agreement.
-2-
<PAGE>
(c) The Pledged Property is not subject to any restrictions relative to
the transfer thereof and Pledgor has the right, subject to applicable law, to
transfer and hypothecate the Pledged Property free and clear of any liens,
encumbrances or restrictions.
(d) The Pledged Property is duly and validly pledged to Pledgee and no
consent or approval of any governmental or regulatory authority or of any
securities exchange or the like, nor any consent or approval of any other third
party, was or is necessary to the validity and enforceability of this Pledge
Agreement.
(e) Pledgor authorizes Pledgee to: (i) store, deposit and safeguard the
Pledged Property, (ii) perform any and all other acts which Pledgee in good
faith deems reasonable and/or necessary for the protection and preservation of
the Pledged Property or its value or Pledgee's security interest therein,
including, without limitation, transferring, registering or arranging for the
transfer or registration of the Pledged Property to or in Pledgee's own name and
receiving the income therefrom as additional security for the Obligations and
(iii) pay any charges or expenses which Pledgee deems necessary for the
foregoing purpose, but without any obligation to do so. Any obligation of
Pledgee for reasonable care for the Pledged Property in Pledgee's possession
shall be limited to the same degree of care which Pledgee uses for similar
property pledged to Pledgee by other Persons.
(f) If Pledgor shall become entitled to receive or acquire, or shall
receive any stock certificate, or option or right with respect to the stock of
Issuer (including without limitation, any certificate representing a dividend or
a distribution or exchange of or in connection with reclassification of the
Pledged Securities) whether as an addition to, in substitution of, or in
exchange for any of the Pledged Property or otherwise, Pledgor agrees to accept
same as Pledgee's agent, to hold same in trust for Pledgee and to deliver same
forthwith to Pledgee or Pledgee's agent or bailee in the form received, with the
endorsement(s) of Pledgor where necessary and/or appropriate powers and/or
assignments duly executed to be held by Pledgee or Pledgee's agent or bailee
subject to the terms hereof, as further security for the Obligations.
(g) Pledgor shall not, without the prior consent of Pledgee, directly
or indirectly, sell, assign, transfer, or otherwise dispose of, or grant any
option with respect to the Pledged Property, nor shall Pledgor create, incur or
permit any further pledge, hypothecation, encumbrance, lien, mortgage or
security interest with respect to the Pledged Property.
(h) So long as no Event of Default (as hereinafter defined) has
occurred and is continuing, Pledgor shall have the right to vote and exercise
all corporate rights with respect to the Pledged Securities, except as expressly
prohibited herein, and to receive any cash dividends payable in respect of the
Pledged Securities.
(i) Pledgor shall not permit Issuer, directly or indirectly, to issue,
sell, grant, assign, transfer or otherwise dispose of, any additional shares of
capital stock of Issuer or any option or warrant with respect to, or other right
or security convertible into, any additional shares of capital stock of Issuer,
now or hereafter authorized, unless all such additional shares, options,
warrants, rights or other such securities are made and shall remain part of the
Pledged Property subject to
-3-
<PAGE>
the pledge and security interest granted herein.
(j) Pledgor shall pay all charges and assessments of any nature against
the Pledged Property or with respect thereto prior to said charges and/or
assessments being delinquent.
(k) Pledgor shall promptly reimburse Pledgee on demand, together with
interest at the rate then applicable to the Prime Rate Loans for any charges,
assessments or expenses paid or incurred by Pledgee in its discretion for the
protection, preservation and maintenance of the Pledged Property and the
enforcement of Pledgee's rights hereunder, including, without limitation,
reasonable attorneys' fees and legal expenses incurred by Pledgee in seeking to
protect, collect or enforce its rights in the Pledged Property or otherwise
hereunder.
(l) Pledgee may notify Issuer or the appropriate transfer agent of the
Pledged Securities to register the security interest and pledge granted herein
and honor the rights of Pledgee with respect thereto.
(m) Pledgor waives: (i) all rights to require Pledgee to proceed
against any other person, entity or collateral or to exercise any remedy, (ii)
the defense of the statute of limitations in any action upon any of the
Obligations, (iii) any right of subrogation or interest in the Obligations or
Pledged Property until all Obligations have been paid in full, (iv) any rights
to notice of any kind or nature whatsoever, unless specifically required in this
Pledge Agreement or non-waivable under any applicable law, and (v) to the extent
permissible, its rights under Section 9-112 and 9-207 of the Uniform Commercial
Code. Pledgor agrees that the Pledged Property, other collateral, or any other
guarantor or endorser may be released, substituted or added with respect to the
Obligations, in whole or in part, without releasing or otherwise affecting the
liability of Pledgor, the pledge and security interests granted hereunder, or
this Pledge Agreement. Pledgee is entitled to all of the benefits of a secured
party set forth in Section 9-207 of the New York Uniform Commercial Code.
4. EVENTS OF DEFAULT
All Obligations shall become immediately due and payable, without
notice or demand, at the option of Pledgee, upon the occurrence and continuance
of any Event of Default, as such term is defined in the Loan Agreement (each an
"Event of Default" hereunder).
5. RIGHTS AND REMEDIES
At any time an Event of Default exists or has occurred and is
continuing, in addition to all other rights and remedies of Pledgee, whether
provided under this Pledge Agreement, the Loan Agreement, the other Financing
Agreements, applicable law or otherwise, Pledgee shall have the following rights
and remedies which may be exercised without notice to, or consent by, Pledgor
except as such notice or consent is expressly provided for hereunder or required
by applicable law:
-4-
<PAGE>
(a) Pledgee, at its option, shall be empowered to exercise its
continuing right to instruct the Issuer (or the appropriate transfer agent of
the Pledged Securities) to register any or all of the Pledged Securities in the
name of Pledgee or in the name of Pledgee's nominee and Pledgee may complete, in
any manner Pledgee may deem expedient, any and all stock powers, assignments or
other documents heretofore or hereafter executed in blank by Pledgor and
delivered to Pledgee. After said instruction, and without further notice,
Pledgee shall have the exclusive right to exercise all voting and corporate
rights with respect to the Pledged Securities and other Pledged Property, and
exercise any and all rights of conversion, redemption, exchange, subscription or
any other rights, privileges, or options pertaining to any shares of the Pledged
Securities or other Pledged Property as if Pledgee were the absolute owner
thereof, including, without limitation, the right to exchange, in its
discretion, any and all of the Pledged Securities and other Pledged Property
upon any merger, consolidation, reorganization, recapitalization or other
readjustment with respect thereto. Upon the exercise of any such rights,
privileges or options by Pledgee, Pledgee shall have the right to deposit and
deliver any and all of the Pledged Securities and other Pledged Property to any
committee, depository, transfer agent, registrar or other designated agency upon
such terms and conditions as Pledgee may determine, all without liability,
except to account for property actually received by Pledgee. However, subject to
applicable law, Pledgee shall have no duty to exercise any of the aforesaid
rights, privileges or options (all of which are exercisable in the sole
discretion of Pledgee) and shall not be responsible for any failure to do so or
delay in doing so.
(b) In addition to all the rights and remedies of a secured party under
the Uniform Commercial Code or other applicable law, Pledgee shall have the
right, at any time and without demand of performance or other demand,
advertisement or notice of any kind (except the notice specified below of time
and place of public or private sale) to or upon Pledgor or any other Person (all
and each of which demands, advertisements and/or notices are hereby expressly
waived to the extent permitted by applicable law), to proceed forthwith to
collect, redeem, recover, receive, appropriate, realize, sell, or otherwise
dispose of and deliver said Pledged Property or any part thereof in one or more
lots at public or private sale or sales at any exchange, broker's board or at
any of Pledgee's offices or elsewhere at such prices and on such terms as
Pledgee may in good faith deem best. The foregoing disposition(s) may be for
cash or on credit or for future delivery without assumption of any credit risk,
with Pledgee having the right to purchase all or any part of said Pledged
Property so sold at any such sale or sales, public or private, free of any right
or equity of redemption in Pledgor, which right or equity is hereby expressly
waived or released by Pledgor. The proceeds of any such collection, redemption,
recovery, receipt, appropriation, realization, sale or other disposition, after
deducting all costs and expenses of every kind incurred relative thereto or
incidental to the care, safekeeping or otherwise of any and all Pledged Property
or in any way relating to the rights of Pledgee hereunder, including attorneys'
fees and legal expenses, shall be applied first to the satisfaction of the
Obligations (in such order as Pledgee may elect and whether or not due) and then
to the payment of any other amounts required by applicable law, including
Section 9-504(1)(c) of the Uniform Commercial Code, with Pledgor to be and
remain liable for any deficiency. Pledgor shall be liable to Pledgee for the
payment on demand of all such costs and expenses, together with interest at the
then applicable rate set forth in the Loan Agreement, and any attorneys' fees
and legal expenses. Pledgor agrees that five (5) days prior written notice by
Pledgee designating the place and time of
-5-
<PAGE>
any public sale or of the time after which any private sale or other intended
disposition of any or all of the Pledged Property is to be made, is reasonable
notification of such matters.
(c) Pledgor recognizes that Pledgee may be unable to effect a public
sale of all or part of the Pledged Property by reason of certain prohibitions
contained in the Securities Act of 1933, as amended, as now or hereafter in
effect or in applicable Blue Sky or other state securities law, as now or
hereafter in effect, but may be compelled to resort to one or more private sales
to a restricted group of purchasers who will be obliged to agree, among other
things, to acquire such Pledged Property for their own account for investment
and not with a view to the distribution or resale thereof. If at the time of any
sale of the Pledged Property or any part thereof, the same shall not, for any
reason whatsoever, be effectively registered (if required) under the Securities
Act of 1933 (or other applicable Blue Sky or state securities laws), as then in
effect, Pledgee in its sole and absolute discretion is authorized to sell such
Pledged Property or such part thereof, in good faith, by private sale in such
manner and under such circumstances as Pledgee or its counsel may deem necessary
or advisable in order that such sale may legally be effected without
registration. Pledgor agrees that private sales so made may be at prices and
other terms less favorable to the seller than if such Pledged Property were sold
at public sale, and that Pledgee has no obligation to delay the sale of any such
Pledged Property for the period of time necessary to permit Issuer, even if
Issuer would agree, to register such Pledged Property for public sale under such
applicable securities laws. Pledgor agrees that any private sales made under the
foregoing circumstances shall be deemed to have been in a commercially
reasonable manner.
(d) All of the Pledgee's rights and remedies, including, but not
limited to, the foregoing and those otherwise arising under this Pledge
Agreement, the Loan Agreement and the other Financing Agreements, the
instruments comprising the Pledged Property, applicable law or otherwise, shall
be cumulative and not exclusive and shall be enforceable alternatively,
successively or concurrently as Pledgee may deem expedient. No failure or delay
on the part of Pledgee in exercising any of its options, powers or rights or
partial or single exercise thereof, shall constitute a waiver of such option,
power or right.
6. JURY TRIAL WAIVER; OTHER WAIVERS
AND CONSENTS; GOVERNING LAW
(a) The validity, interpretation and enforcement of this Pledge
Agreement and the other Financing Agreements and any dispute arising out of the
relationship between the parties hereto, whether in contract, tort, equity or
otherwise, shall be governed by the internal laws of the State of New York
(without giving effect to principles of conflicts of law).
(b) Pledgor irrevocably consents and submits to the non-exclusive
jurisdiction of the Supreme Court of the State of New York in New York County
and the United States District Court for the Southern District of New York and
waives any objection based on venue or FORUM NON CONVENIENS with respect to any
action instituted therein arising under this Pledge Agreement or any of the
other Financing Agreements or in any way connected with or related or incidental
to the dealings of the parties hereto in respect of this Pledge Agreement or any
of the other Financing Agreements or the transactions related hereto or thereto,
in each case whether now
-6-
<PAGE>
existing or hereafter arising, and whether in contract, tort, equity or
otherwise, and agrees that any dispute with respect to any such matters shall be
heard only in the courts described above (except that Pledgee shall have the
right to bring any action or proceeding against Pledgor or its property in the
courts of any other jurisdiction which Pledgee deems necessary or appropriate in
order to realize on the Pledged Property or to otherwise enforce its rights
against Pledgor or its property).
(c) Pledgor hereby waives personal service of any and all process upon
it and consents that all such service of process may be made by certified mail
(return receipt requested) directed to its address set forth herein and service
so made shall be deemed to be completed five (5) days after the same shall have
been so deposited in the U.S. mails, or, at Pledgee's option, by service upon
Pledgor in any other manner provided under the rules of any such courts. Within
thirty (30) days after such service, Pledgor shall appear in answer to such
process, failing which Pledgor shall be deemed in default and judgment may be
entered by Pledgee against Pledgor for the amount of the claim and other relief
requested.
(d) PLEDGOR HEREBY WAIVES ANY RIGHT TO TRIAL BY JURY OF ANY CLAIM,
DEMAND, ACTION OR CAUSE OF ACTION (i) ARISING UNDER THIS PLEDGE AGREEMENT OR ANY
OF THE OTHER FINANCING AGREEMENTS OR (ii) IN ANY WAY CONNECTED WITH OR RELATED
OR INCIDENTAL TO THE DEALINGS OF PLEDGOR AND PLEDGEE IN RESPECT OF THIS PLEDGE
AGREEMENT OR ANY OF THE OTHER FINANCING AGREEMENTS OR THE TRANSACTIONS RELATED
HERETO OR THERETO IN EACH CASE WHETHER NOW EXISTING OR HEREAFTER ARISING, AND
WHETHER IN CONTRACT, TORT, EQUITY OR OTHERWISE. PLEDGOR HEREBY AGREES AND
CONSENTS THAT ANY SUCH CLAIM, DEMAND, ACTION OR CAUSE OF ACTION SHALL BE DECIDED
BY COURT TRIAL WITHOUT A JURY AND THAT PLEDGOR OR PLEDGEE MAY FILE AN ORIGINAL
COUNTERPART OF A COPY OF THIS PLEDGE AGREEMENT WITH ANY COURT AS WRITTEN
EVIDENCE OF THE CONSENT OF THE PARTIES HERETO TO THE WAIVER OF THEIR RIGHT TO
TRIAL BY JURY.
(e) Pledgee shall not have any liability to Pledgor (whether in tort,
contract, equity or otherwise) for losses suffered by Pledgor in connection
with, arising out of, or in any way related to the transactions or relationships
contemplated by this Pledge Agreement, or any act, omission or event occurring
in connection herewith, unless it is determined by a final and non-appealable
judgment or court order binding on Pledgee, that the losses were the result of
acts or omissions constituting gross negligence or willful misconduct on the
part of, or on behalf of, Pledgee. In any such litigation, Pledgee shall be
entitled to the benefit of the rebuttable presumption that it acted in good
faith and with the exercise of ordinary care in the performance by it of the
terms of this Pledge Agreement.
7. MISCELLANEOUS
(a) Pledgor agrees that at any time and from time to time upon the
written request of Pledgee, Pledgor shall execute and deliver such further
documents, including, but not limited to,
-7-
<PAGE>
irrevocable proxies or stock powers, in form reasonably satisfactory to counsel
for Pledgee, and will take or cause to be taken such further acts as Pledgee may
request in order to effect the purposes of this Pledge Agreement and perfect or
continue the perfection of the security interest in the Pledged Property granted
to Pledgee hereunder.
(b) Beyond the exercise of reasonable care to assure the safe custody
of the Pledged Property (whether such custody is exercised by Pledgee, or
Pledgee's nominee, agent or bailee) Pledgee or Pledgee's nominee agent or bailee
shall have no duty or liability to protect or preserve any rights pertaining
thereto and, absent gross negligence or willful misconduct, shall be relieved of
all responsibility for the Pledged Property upon surrendering it to Pledgor or
foreclosure with respect thereto.
(c) All notices, requests and demands hereunder shall be in writing and
(a) made to Pledgor at the address of its chief executive office set forth below
and to Pledgee at its address set forth below, or to such other address as such
party may designate by written notice to the other in accordance with this
provision, and (b) deemed to have been given or made: if delivered in person,
immediately upon delivery; if by telex, telegram or facsimile transmission,
immediately upon sending and upon confirmation of receipt; if by nationally
recognized overnight courier service with instructions to deliver the next
business day, one (1) Business Day after sending; and if by certified mail,
return receipt requested, five (5) days after mailing:
If to Pledgor: Anvil Knitwear, Inc.
228 East 45th Street
New York, New York 10017
Attention: Jacob Hollander, Esq.
If to Pledgee: Congress Financial Corporation
1133 Avenue of the Americas
New York, New York 10036
Attention: Mr. Andrew W. Robin
(d) All references to the plural herein shall also mean the singular
and to the singular shall also mean the plural. All references to Pledgor,
Pledgee and Issuer pursuant to the definitions set forth in the recitals hereto,
or to any other person herein, shall include their respective successors and
assigns. The words "hereof," "herein," "hereunder," "this Pledge Agreement" and
words of similar import when used in this Pledge Agreement shall refer to this
Pledge Agreement as a whole and not any particular provision of this Pledge
Agreement and as this Pledge Agreement now exists or may hereafter be amended,
modified, supplemented, extended, renewed, restated or replaced. An Event of
Default shall exist or continue or be continuing until such Event of Default is
waived in accordance with Section 7(g) hereof.
(e) This Pledge Agreement, the other Financing Agreements and any other
document referred to herein or therein shall be binding upon Pledgor and its
successors and assigns and inure to the benefit of and be enforceable by Pledgee
and its successors and assigns.
-8-
<PAGE>
(f) If any provision of this Pledge Agreement is held to be invalid or
unenforceable, such invalidity or unenforceability shall not invalidate this
Pledge Agreement as a whole, but this Pledge Agreement shall be construed as
though it did not contain the particular provision held to be invalid or
unenforceable and the rights and obligations of the parties shall be construed
and enforced only to such extent as shall be permitted by applicable law.
(g) Neither this Pledge Agreement nor any provision hereof shall be
amended, modified, waived or discharged orally or by course of conduct, but only
by a written agreement signed by an authorized officer of Pledgee. Pledgee shall
not, by any act, delay, omission or otherwise be deemed to have expressly or
impliedly waived any of its rights, powers and/or remedies unless such waiver
shall be in writing and signed by an authorized officer of Pledgee. Any such
waiver shall be enforceable only to the extent specifically set forth therein. A
waiver by Pledgee of any right, power and/or remedy on any one occasion shall
not be construed as a bar to or waiver of any such right, power and/or remedy
which Pledgee would otherwise have on any future occasion, whether similar in
kind or otherwise.
[REMAINDER OF PAGE INTENTIONALLY LEFT BLANK]
IN WITNESS WHEREOF, Pledgor has executed this Pledge and Security
Agreement as of the day and year first above written.
ANVIL KNITWEAR, INC.
By:
---------------------
Title:
------------------
-9-
<PAGE>
EXHIBIT A
TO
PLEDGE AND SECURITY AGREEMENT
<TABLE>
<CAPTION>
Issuer Certificate No. Shares
------ --------------- ------
<S> <C> <C>
Cottontops, Inc. 1 100
</TABLE>
A-1
<PAGE>
EXHIBIT 10.14
MANAGEMENT AGREEMENT
This Management Agreement (this "AGREEMENT") is made as of
November 3, 1998 among Anvil Knitwear, Inc., a Delaware corporation ("ANVIL"),
Anvil Holdings, Inc., a Delaware corporation ("HOLDINGS"), Cottontops, Inc., a
Delaware corporation ("COTTONTOPS", and together with Anvil, Holdings, and any
subsidiary hereinafter formed of any of them, the "COMPANIES"), Bruckmann,
Rosser, Sherrill & Co., Inc., a Delaware corporation (the "CONSULTANT").
WHEREAS, BRS, by and through its officers, employees, agents,
representatives and affiliates, has expertise in the areas of corporate
management, finance, investment, acquisitions and other matters relating to the
business of the Companies; and
WHEREAS, each of the Companies desires to avail themselves,
for the term of this Agreement, of the expertise of the Consultant in the
aforesaid areas (in which it acknowledges the expertise of the Consultant) in
the manner set forth herein;
NOW, THEREFORE, in consideration of the foregoing recitals and
the covenants and conditions herein set forth, the parties hereto agree as
follows:
1. APPOINTMENT. Each of the Companies hereby appoints
the Consultant to render the advisory and consulting services described in
Paragraph 2 hereof for the term of this Agreement.
2. SERVICES OF THE CONSULTANT. The Consultant hereby agrees
that during the term of this Agreement, it shall render to the Companies by and
through its officers, employees, agents, representatives and affiliates as the
Consultant, in its sole discretion, shall designate from time to time, advisory
and consulting services in relation to the affairs of the Companies in
connection with strategic financial planning, and other services not referred to
in the next sentence including, without limitation, advisory and consulting
services in relation to the selection, supervision and retention of independent
auditors, the selection, retention and supervision of outside legal counsel, and
the selection, retention and supervision of investment bankers or other
financial advisors or consultants. It is expressly agreed that the services to
be performed under this Paragraph 2 shall not include investment banking or
other financial advisory services rendered by the Consultant to the Companies in
connection with acquisitions and divestitures by any of the Companies,
refinancings, initial public offerings, sales of stock by the Company, or a
transaction that constitutes a Sale of the Company under that certain
Stockholders Agreement, dated as of March 14, 1997, by and among Holdings, an
affiliate of the Consultant, and certain other parties (the "STOCKHOLDERS
AGREEMENT"); if any such services are rendered, the Consultant shall be entitled
to receive additional compensation for such services.
3. FEES. In consideration of the services contemplated by
Paragraph 2, the Companies and their successors agree to pay, semi-annually in
advance (on March 15 and
<PAGE>
September 15 of each year), an aggregate PER ANNUM fee (the "FEE") equal to
$250,000 to the Consultant, effective as of March 15, 1997 (with the March 15,
1997, September 15, 1997, and March 15, 1998 payments (for a total of $375,000)
due and payable on the date hereof and the September 15, 1998 payment due and
payable on the first day of the 1999 fiscal year). The Fee shall be paid in cash
(including check, bank draft, money order or wire transfer of immediately
available funds).
4. REIMBURSEMENTS. In addition to the Fee, the Companies
shall, at the direction of the Consultant, pay directly or reimburse the
Consultant for its reasonable Out-of-Pocket Expenses incurred in connection with
the services provided for in Paragraph 2 hereof. For the purposes of this
Agreement, the term "OUT-OF-POCKET EXPENSES" shall mean the amounts paid by the
Consultant in connection with the services provided for in Paragraph 2,
including reasonable (i) fees and disbursements of any independent professionals
and organizations, including independent auditors and outside legal counsel,
investment bankers or other financial advisors or consultants, (ii) costs of any
outside services or independent contractors such as financial printers,
couriers, business publication or similar services and (iii) transportation, per
diem, telephone calls, word processing expenses or any similar expense not
associated with its ordinary operations. All reimbursements for Out-of-Pocket
Expenses shall be made promptly upon or as soon as practicable after
presentation by the Consultant to the Companies and any of the Companies of the
statement in connection therewith.
5. INDEMNIFICATION. The Companies will indemnify and hold
harmless the Consultant and its officers, employees, agents, representatives and
affiliates (each being an "INDEMNIFIED PARTY") from and against any and all
losses, claims, damages and liabilities, joint or several, to which such
Indemnified Party may become subject under any applicable federal or state law,
or any claim made by any third party, or otherwise, to the extent they relate to
or arise out of the advisory and consulting services contemplated by this
Agreement or the engagement of the Consultant pursuant to, and the performance
by the Consultant of the services contemplated by this Agreement. The Companies
will reimburse any Indemnified Party for all reasonable costs and expense
(including reasonable attorneys' fees and expenses) as they are incurred in
connection with the investigation of, preparation for or defense of any pending
or threatened claim for which the Indemnified Party would be entitled to
indemnification under the terms of the previous sentence, or any action or
proceeding arising therefrom, whether or not such Indemnified Party is a party
hereto. None of the Companies will be liable under the foregoing indemnification
provision to the extent that any loss, claim, damage, liability, cost or expense
is determined by a court in a final judgment from which no further appeal may be
taken, to have resulted primarily from the gross negligence or willful
misconduct of the Consultant.
6. TERM. This Agreement shall be in effect on the date hereof
and continue until March 15, 2007. The provisions of Paragraph 5 and otherwise
as the context so requires shall survive the termination of this Agreement.
7. PERMITTED ACTIVITIES. Subject to applicable provisions of
Delaware law that impose fiduciary duties upon the Consultant or its partners or
affiliates, nothing herein shall in any way preclude the Consultant or its
respective officers, employees or affiliates from engaging in any
2
<PAGE>
business activities or from performing services for their own account or for the
account of others, including for companies that may be in competition with the
business conducted by the Companies.
8. GENERAL.
(a) No amendment or waiver of any provision of this
Agreement, or consent to any departure by either party from any such
provision, shall in any event be effective unless the same shall be in
writing and signed by the parties to this Agreement and then such
amendment, waiver or consent shall be effective only in the specific
instance and for the specific purpose for which given.
(b) Any and all notices hereunder shall, in the
absence of receipted hand delivery, be deemed duly given when mailed,
if the same shall be sent by registered or certified mail, return
receipt requested, and the mailing date shall be deemed the date from
which all time periods pertaining to a date of notice shall run.
Notices shall be addressed to the parties at the following addresses:
If to the Companies:
Anvil Knitwear, Inc.
228 East 45th Street
New York, New York 10017
Attention: Chief Administrative Officer
With copies, which shall not constitute notice:
399 Venture Partners, Inc.
c/o Citicorp Venture Capital, Ltd.
399 Park Avenue, 14th Floor
New York, New York 10043
Attention: David F. Thomas
c/o Bruckmann, Rosser, Sherrill & Co., Inc.
126 East 56th Street, 29th Floor
New York, New York 10022
Attention: Bruce C. Bruckmann
If to the Consultant:
c/o Bruckmann, Rosser, Sherrill & Co., Inc.
126 East 56th Street, 29th Floor
New York, New York 10022
Attention: Bruce C. Bruckmann
3
<PAGE>
In any case, with copies to:
Kirkland & Ellis
Citicorp Center
153 E. 53rd Street
New York, New York 10022-4675
Attention: Kirk A. Radke, Esq.
(c) This Agreement shall constitute the entire
Agreement between the parties with respect to the subject matter
hereof, and shall supersede all previous oral and written (and all
contemporaneous oral) negotiations, commitments, agreements and
understandings relating hereto.
(D) THIS AGREEMENT SHALL BE GOVERNED BY, AND ENFORCED
IN ACCORDANCE WITH THE LAWS OF THE STATE OF NEW YORK. THE PARTIES TO
THIS AGREEMENT HEREBY AGREE TO SUBMIT TO THE EXCLUSIVE JURISDICTION OF
THE FEDERAL AND STATE COURTS LOCATED IN THE STATE OF NEW YORK IN ANY
ACTION OR PROCEEDING ARISING OUT OF OR RELATING TO THIS AGREEMENT.
(e) This Agreement shall inure to the benefit of, and
be binding upon, the Companies and the Consultant and their respective
successors and assigns.
(f) This Agreement may be executed in two or more
counterparts, and by different parties on separate counterparts, each
set of counterparts showing execution by all parties shall be deemed an
original, but all of which shall constitute one and the same
instrument.
(g) Each of the Companies shall cause their
respective subsidiaries and hereinafter formed or acquired to execute a
counterpart to this Agreement, thereby assuming the rights and
obligations of a Company under this Agreement; PROVIDED that the
obligations of a subsidiary hereunder shall terminate at the time such
subsidiary is no longer a subsidiary of any of the Companies.
(h) The waiver by any party of any breach of this
Agreement shall not operate as or be construed to be a waiver by such
party of any subsequent breach.
(i) This Agreement may not be assigned by the
Consultant except to an affiliate; provided that under no circumstances
may an entity that is not an affiliate of the Consultant have the right
to the benefits, or the obligations, under this Agreement.
* * * * *
4
<PAGE>
IN WITNESS WHEREOF, the parties have caused this Management
Agreement to be executed and delivered by their duty authorized officers or
agents as set forth below.
BRUCKMANN, ROSSER, SHERRILL & CO., INC.
By:
----------------------------------------
Name:
Title:
ANVIL KNITWEAR, INC.
By:
----------------------------------------
Name:
Title:
ANVIL HOLDINGS, INC.
By:
----------------------------------------
Name:
Title:
COTTONTOPS, INC.
By:
----------------------------------------
Name:
Title:
<PAGE>
ANVIL HOLDINGS, INC. EXHIBIT 21
SUBISIDIARIES OF THE REGISTRANT
<TABLE>
<CAPTION>
NAME OF CORPORATION JURISDICTION OF INCORPORATION
- ------------------- ------------ ----------------
<S> <C>
Anvil Knitwear, Inc. Delaware
Anvil (Czech), Inc. Delaware
Anvil s.r.o. Czech Republic
Cottontops, Inc. North Carolina
A.K.H., S.A. Honduras
Livna, Limitada El Salvador
</TABLE>
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM ANVIL
HOLDINGS' FINANCIAL STATEMENTS INCLUDED IN ITS 10-K FOR THE YEAR ENDED JANUARY
30, 1999 AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL
STATEMENTS.
</LEGEND>
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> JAN-30-1999
<PERIOD-START> FEB-01-1998
<PERIOD-END> JAN-30-1999
<CASH> 3,397
<SECURITIES> 0
<RECEIVABLES> 31,867
<ALLOWANCES> 635
<INVENTORY> 41,356
<CURRENT-ASSETS> 80,748
<PP&E> 61,511
<DEPRECIATION> 23,975
<TOTAL-ASSETS> 150,930
<CURRENT-LIABILITIES> 30,333
<BONDS> 126,835
36,139
0
<COMMON> 39
<OTHER-SE> (74,436)
<TOTAL-LIABILITY-AND-EQUITY> 150,930
<SALES> 217,302
<TOTAL-REVENUES> 217,302
<CGS> 179,092
<TOTAL-COSTS> 25,525
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 18,344
<INCOME-PRETAX> (5,659)
<INCOME-TAX> (2,264)
<INCOME-CONTINUING> (3,395)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (3,395)
<EPS-PRIMARY> 11.46
<EPS-DILUTED> 11.46
</TABLE>
