<PAGE>
AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON DECEMBER 16, 1997
REGISTRATION NO.
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UNITED STATESSECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
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FORM S-4
REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933
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GLENOIT CORPORATION
(EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)
DELAWARE 2257 13-3862561
(STATE OR OTHER (PRIMARY STANDARD (I.R.S. EMPLOYER
JURISDICTION OF INDUSTRIAL IDENTIFICATION NUMBER)
INCORPORATION OR CLASSIFICATION CODE
ORGANIZATION) NUMBER)
GLENOIT ASSET CORPORATION
(EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)
DELAWARE 2257 51-0343206
(STATE OR OTHER (PRIMARY STANDARD (I.R.S. EMPLOYER
JURISDICTION OF INDUSTRIAL IDENTIFICATION NUMBER)
INCORPORATION OR CLASSIFICATION CODE
ORGANIZATION) NUMBER)
111 WEST 40TH STREET
NEW YORK, NEW YORK 10018
TELEPHONE: (212) 391-3915
(ADDRESS, INCLUDING ZIP CODE, AND TELEPHONE NUMBER, INCLUDING AREA CODE, OF
REGISTRANT'S PRINCIPAL EXECUTIVE OFFICES)
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THOMAS J. O'GORMAN
GLENOIT CORPORATION
111 WEST 40TH STREET
NEW YORK, NEW YORK 10018
TELEPHONE: (212) 391-3915
(NAME, ADDRESS, INCLUDING ZIP CODE, AND TELEPHONE NUMBER, INCLUDING AREA CODE,
OF AGENT FOR SERVICE)
COPY TO:
LANCE C. BALK
KIRKLAND & ELLIS
153 EAST 53RD STREET
NEW YORK, NEW YORK 10022-4675
TELEPHONE: (212) 446-4800
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APPROXIMATE DATE OF COMMENCEMENT OF PROPOSED SALE TO THE PUBLIC: As soon as
practicable after this Registration Statement becomes effective.
If the securities being registered on this Form are being offered in
connection with the formation of a holding company and there is compliance
with General Instruction G, check the following box. [_]
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CALCULATION OF REGISTRATION FEE
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<TABLE>
<CAPTION>
PROPOSED PROPOSED
AMOUNT MAXIMUM MAXIMUM AMOUNT OF
TITLE OF EACH CLASS OF TO BE OFFERING PRICE AGGREGATE REGISTRATION
SECURITIES TO BE REGISTERED REGISTERED PER UNIT(1) OFFERING PRICE(1) FEE
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<S> <C> <C> <C> <C>
Glenoit Corporation's
11% Senior Subordinated
Notes due 2007......... $100,000,000 $1,000 $100,000,000 $29,500.00
</TABLE>
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* Not Applicable
(1) Estimated solely for the purpose of calculating the registration fee.
THE REGISTRANT HEREBY AMENDS THIS REGISTRATION STATEMENT ON SUCH DATE OR
DATES AS MAY BE NECESSARY TO DELAY ITS EFFECTIVE DATE UNTIL THE REGISTRANT
SHALL FILE A FURTHER AMENDMENT WHICH SPECIFICALLY STATES THAT THIS
REGISTRATION STATEMENT SHALL THEREAFTER BECOME EFFECTIVE IN ACCORDANCE WITH
SECTION 8(A) OF THE SECURITIES ACT OF 1933 OR UNTIL THE REGISTRATION STATEMENT
SHALL BECOME EFFECTIVE ON SUCH DATE AS THE COMMISSION, ACTING PURSUANT TO SAID
SECTION 8(A), MAY DETERMINE.
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<PAGE>
++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++
+INFORMATION CONTAINED HEREIN IS SUBJECT TO COMPLETION OR AMENDMENT. A +
+REGISTRATION STATEMENT RELATING TO THESE SECURITIES HAS BEEN FILED WITH THE +
+SECURITIES AND EXCHANGE COMMISSION. THESE SECURITIES MAY NOT BE SOLD NOR MAY +
+OFFERS TO BUY BE ACCEPTED PRIOR TO THE TIME THE REGISTRATION STATEMENT +
+BECOMES EFFECTIVE. THIS PROSPECTUS SHALL NOT CONSTITUTE AN OFFER TO SELL NOR +
+THE SOLICITATION OF AN OFFER TO BUY NOR SHALL THERE BE ANY SALE OF THESE +
+SECURITIES IN ANY STATE IN WHICH SUCH OFFER, SOLICITATION OR SALE WOULD BE +
+UNLAWFUL PRIOR TO REGISTRATION OR QUALIFICATION UNDER SECURITIES LAWS OF ANY +
+SUCH STATE. +
++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++
SUBJECT TO COMPLETION, DATED DECEMBER 16, 1997
PRELIMINARY PROSPECTUS
OFFER FOR ALL OUTSTANDING 11% SENIOR SUBORDINATED NOTES DUE 2007 IN EXCHANGE
FOR 11% SENIOR SUBORDINATED NOTES DUE 2007 OF
GLENOIT CORPORATION
THE EXCHANGE OFFER WILL EXPIRE AT 5:00 P.M., NEW YORK CITY TIME, ON ,
1998, UNLESS EXTENDED.
GLENOIT CORPORATION (the "Company"), a wholly owned subsidiary of Glenoit
Universal, Inc. ("Holdings"), together with its wholly owned subsidiary,
Glenoit Asset Corporation ("GAC"), hereby offers to exchange an aggregate
principal amount of up to $100,000,000 of its 11% Senior Subordinated Notes due
2007 (the "New Notes") for a like principal amount of its 11% Senior
Subordinated Notes due 2007 (the "Old Notes") outstanding on the date hereof
upon the terms and subject to the conditions set forth in this Prospectus and
in the accompanying Letter of Transmittal (which together constitute the
"Exchange Offer"). The New Notes and the Old Notes are collectively hereafter
referred to as the "Notes." The terms of the New Notes are identical in all
material respects to those of the Old Notes, except for certain transfer
restrictions and registration rights relating to the Old Notes. The New Notes
will evidence the same debt as the Old Notes and will be issued pursuant to,
and entitled to the benefits of the Indenture governing the Old Notes dated
April 1, 1997 (the "Indenture"). The New Notes will be general unsecured
obligations of the Company subordinated in right of payment to all present and
future Senior Indebtedness (as defined) of the Company and will rank senior in
right of payment to all of the Company's present and future Subordinated
Obligations (as defined). The Notes will be fully and unconditionally
guaranteed (the "Subsidiary Guaranties") on an unsecured, senior subordinated
basis by GAC and each future Domestic Restricted Subsidiary (as defined) of the
Company (collectively, the "Subsidiary Guarantors"). The Subsidiary Guarantor
is a guarantor of the New Credit Facility (as defined), which ranks senior to
the New Notes, and the obligations of the New Credit Facility are secured by
substantially all of the assets of the Company and the Subsidiary Guarantor. As
of October 4, 1997, (i) Senior Indebtedness of the Company and the Subsidiary
Guarantor is approximately $8.1 million (excluding trade payables, accrued
liabilities and unused commitments under the New Credit Facility) and, (ii) the
Company and its Subsidiaries have no Senior Subordinated Indebtedness
outstanding other than these Notes and no Indebtedness outstanding that is
subordinate in right of payment to these Notes. See "Description of Notes--
Subordination." The terms of the Indenture permits the Company and Subsidiary
Guarantors to incur additional indebtedness, including Senior Indebtedness and
Indebtedness that will rank pari passu with the New Notes, although the Company
has not issued, and does not have any current firm arrangements to issue, any
significant Indebtedness to which the New Notes would rank Senior or pari passu
in right of payment.
The Company will accept for exchange any and all Notes validly tendered and
not withdrawn prior to 5:00 p.m., New York City time, on , 1998, unless
extended by the Company in its sole discretion (the "Expiration Date").
Notwithstanding the foregoing, the Company will not extend the Expiration Date
beyond , 1998. Tenders of Notes may be withdrawn at any time prior to
5:00 p.m. on the Expiration Date. The Exchange Offer is subject to certain
customary conditions. The Notes were sold by the Company on March 26, 1997 to
the Initial Purchasers (as defined) in a transaction (the "Initial Offering")
not registered under the Securities Act in reliance upon an exemption under the
Securities Act. The Initial Purchasers subsequently placed the Notes with
qualified institutional buyers in reliance upon Rule 144A under the Securities
Act. Accordingly, the Notes may not be reoffered, resold or otherwise
transferred in the United States unless registered under the Securities Act or
unless an applicable exemption from the registration requirements of the
Securities Act is available. The New Notes are being offered hereunder in order
to satisfy certain obligations of the Company and the Subsidiary Guarantor
contained in the Registration Agreement dated March 26, 1997 (the "Registration
Rights Agreement"), among the Company, the Subsidiary Guarantor and Salomon
Brothers, Inc. and CIBC Wood Gundy Securities Corp. (the "Initial Purchasers"),
with respect to the Initial Offering. See "The Exchange Offer."
Based on no-action letters issued by the staff of the Securities and Exchange
Commission (the "Commission") to third parties, the Company believes the New
Notes issued pursuant to the Exchange Offer may be offered for resale, resold
and otherwise transferred by any holder thereof (other than any such holder
that is an "affiliate" of the Company or its subsidiaries within the meaning of
Rule 405 under the Securities Act) without compliance with the registration and
prospectus delivery provisions of the Securities Act, provided that such Notes
are acquired in the ordinary course of such holder's business and such holder
has no arrangement or understanding with any person to participate in the
distribution of such Notes. See "The Exchange Offer--Purpose and Effect of the
Exchange Offer" and "The Exchange Offer--Resale of the New Notes." Each broker-
dealer (a "Participating Broker-Dealer") that receives New Notes for its own
account pursuant to the Exchange Offer must acknowledge that it will deliver a
prospectus in connection with any resale of the New Notes. The Letter of
Transmittal states that by so acknowledging and by delivering a prospectus, a
Participating Broker-Dealer will not be deemed to admit that it is an
"underwriter" within the meaning of the Securities Act. This Prospectus, as it
may be amended or supplemented from time to time, may be used by a
Participating Broker-Dealer in connection with resales of New Notes received in
exchange for Old Notes where such Old Notes were acquired by such Participating
Broker-Dealer as a result of market-making activities or other trading
activities. The Company has agreed that, for a period of 180 days after the
Expiration Date, it will make this Prospectus available to any Participating
Broker-Dealer for use in connection with any such resale. See "Plan of
Distribution."
Holders of Old Notes not tendered and accepted in the Exchange Offer will
continue to hold such Old Notes and will be entitled to all the rights and
benefits and will be subject to the limitations applicable thereto under the
Indentures and with respect to transfer under the Securities Act. The Company
will pay all the expenses incurred by it incident to the Exchange Offer. See
"The Exchange Offer."
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Prior to the Exchange Offer, there has been no public market for the Old
Notes. If a market for the New Notes should develop, such New Notes could trade
at a discount from their principal amount. The Company currently does not
intend to list the New Notes on any securities exchange or to seek approval for
quotation through any automated quotation system and no active public market
for the New Notes is currently anticipated. There can be no assurance that any
public market for the New Notes will develop. The Exchange Offer is not
conditioned on any minimum principal amount of Old Notes being tendered for
exchange pursuant to the Exchange Offer. See "Risk Factors--Absence of a Public
Market." Moreover, to the extent that Old Notes are tendered and accepted in
the Exchange Offer, the trading market for untendered and tendered but
unaccepted Notes could be adversely affected.
SEE "RISK FACTORS" COMMENCING ON PAGE 15 FOR A DISCUSSION OF CERTAIN FACTORS
THAT HOLDERS OF OLD NOTES SHOULD CONSIDER IN CONNECTION WITH THE EXCHANGE
OFFER.
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THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS THE COMMISSION
OR ANY STATE SECURITIES COMMISSION PASSED UPON THE ACCURACY OR ADEQUACY OF
THIS PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS A CRIMINAL OFFENSE.
THE DATE OF THIS PROSPECTUS IS , 1998.
<PAGE>
AVAILABLE INFORMATION
The Company and the Subsidiary Guarantor have filed with the Securities and
Exchange Commission (the "Commission") a Registration Statement on Form S-4
(the "Exchange Offer Registration Statement," which term shall encompass all
amendments, exhibits, annexes and schedules thereto) pursuant to the
Securities Act, and the rules and regulations promulgated thereunder, covering
the New Notes being offered hereby. This Prospectus does not contain all the
information set forth in the Exchange Offer Registration Statement. For
further information with respect to the Company, the Subsidiary Guarantor and
the Exchange Offer, reference is made to the Exchange Offer Registration
Statement. Statements made in this Prospectus as to the contents of any
contract, agreement or other document referred to are not necessarily
complete. With respect to each such contract, agreement or other document
filed as an exhibit to the Exchange Offer Registration Statement, reference is
made to the exhibit for a more complete description of the document or matter
involved, and each such Statement shall be deemed qualified in its entirety by
such reference. The Exchange Offer Registration Statement, including the
exhibits thereto, can be inspected and copied at the public reference
facilities maintained by the Commission at Room 1024, 450 Fifth Street, N.W.,
Washington, D.C. 20549, and at the Regional Offices of the Commission at Seven
World Trade Center, Suite 1300, New York, New York 10048 and at 500 West
Madison Street, Suite 1400, Chicago, Illinois 60661. Copies of such materials
can be obtained from the Public Reference Section of the Commission at 450
Fifth Street, N.W., Washington, D.C. 20549, at prescribed rates. In addition,
the Commission maintains a Web site that contains reports, proxy and
information statements and other information regarding registrants that file
electronically with the Commission. The address of such Web site is:
http://www.sec.gov.
As a result of the Exchange Offer, the Company will become subject to the
informational requirements of the Securities Exchange Act of 1934, as amended
(the "Exchange Act"), and in accordance therewith will be required to file
periodic reports and other information with the Commission. In the event the
Company ceases to be subject to the informational requirements of the Exchange
Act, the Company will be required under the Indenture to continue to file with
the Commission the annual and quarterly reports, information, documents or
other reports, including, without limitation, reports on Forms 10-K, 10-Q and
8-K, which would be required pursuant to the information requirements of the
Exchange Act. The Company will also furnish such other reports as may be
required by law.
DISCLOSURE REGARDING FORWARD-LOOKING STATEMENTS
THIS PROSPECTUS INCLUDES "FORWARD-LOOKING STATEMENTS" WITHIN THE MEANING OF
SECTION 27A OF THE SECURITIES ACT AND SECTION 21E OF THE EXCHANGE ACT
(TOGETHER THE "SAFE HARBOR ACTS"). ALL STATEMENTS OTHER THAN STATEMENTS OF
HISTORICAL FACTS INCLUDED IN THIS PROSPECTUS, INCLUDING WITHOUT LIMITATION,
CERTAIN STATEMENTS UNDER THE "PROSPECTUS SUMMARY," "THE COMPANY,"
"MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS" AND "BUSINESS" AND LOCATED ELSEWHERE HEREIN REGARDING THE
COMPANY'S FINANCIAL POSITION AND BUSINESS STRATEGY, MAY CONSTITUTE FORWARD-
LOOKING STATEMENTS. ALTHOUGH THE COMPANY BELIEVES THAT THE EXPECTATIONS
REFLECTED IN SUCH FORWARD-LOOKING STATEMENTS ARE REASONABLE, IT CAN GIVE NO
ASSURANCE THAT SUCH EXPECTATIONS WILL PROVE TO HAVE BEEN CORRECT. IMPORTANT
FACTORS THAT COULD CAUSE ACTUAL RESULTS TO DIFFER MATERIALLY FROM THE
COMPANY'S EXPECTATIONS ("CAUTIONARY STATEMENTS") ARE DISCLOSED IN THIS
PROSPECTUS, INCLUDING WITHOUT LIMITATION IN CONJUNCTION WITH THE FORWARD-
LOOKING STATEMENTS INCLUDED IN THIS PROSPECTUS AND UNDER "RISK FACTORS." ALL
FORWARD-LOOKING STATEMENTS INVOLVE RISKS AND UNCERTAINTIES. THE FORWARD-
LOOKING STATEMENTS CONTAINED IN THIS PROSPECTUS ARE INTENDED TO BE SUBJECT TO
THE SAFE HARBOR PROTECTION PROVIDED BY THE SAFE HARBOR ACTS. ALL SUBSEQUENT
WRITTEN AND ORAL FORWARD-LOOKING STATEMENTS ATTRIBUTABLE TO THE COMPANY OR
PERSONS ACTING ON ITS BEHALF ARE EXPRESSLY QUALIFIED IN THEIR ENTIRETY BY THE
CAUTIONARY STATEMENTS.
2
<PAGE>
SUMMARY
The following summary is qualified in its entirety by, and should be read in
conjunction with, the more detailed information and financial statements,
including the notes thereto, appearing elsewhere in this Prospectus.
Prospective investors are urged to read this Prospectus in its entirety. Unless
the context otherwise requires, references in this Prospectus to (i) the
"Company" or "Glenoit" are to Glenoit Corporation (the issuer of the New Notes)
and its consolidated subsidiaries, and (ii) "Holdings" are to Glenoit
Universal, Ltd., the sole shareholder of the Company. See "--Corporate
Organization." References to fiscal 1994, fiscal 1995 and fiscal 1996 are to
the Company's fiscal years ended December 31, 1994, December 30, 1995 and
January 4, 1997, respectively.
THE COMPANY
OVERVIEW
Glenoit, founded in 1954, is the leading domestic manufacturer and marketer
of specialty fabrics known as "sliver-knit" pile fabrics and a leading domestic
manufacturer of printed rugs for the home. Through its Fabric Division, the
Company produces an extensive line of sliver (pronounced "sly-ver") knit pile
fabrics, principally made from acrylic, which are used in the manufacture of
performance-oriented outerwear, sportswear, coats, accessories, home textiles,
automotive interiors, military uniforms, toys and a variety of other end-use
products. The Company principally manufactures fabrics on a made-to-order basis
and currently has over 1,100 customers. Sliver-knit pile fabrics are produced
through a specialized process in which fabric is manufactured directly from
loose fibers, in contrast to the more traditional knitting process in which
fibers are first spun into yarn and then knit into fabric. Through its Consumer
Products Division, the Company manufactures a wide variety of printed kitchen
rugs, welcome mats, bath rugs and children's area rugs sold primarily through
national discount retailers. The Company believes that it is the largest
producer in the United States of rugs designed specifically for use in the
kitchen. The Fabric Division and Consumer Products Division accounted for
approximately 65% and 35%, respectively, of the Company's net sales of $121.7
million in fiscal 1996.
The Company has experienced rapid growth in sales and earnings before
interest, taxes, depreciation and amortization ("EBITDA") over the past five
years. From fiscal 1992 to fiscal 1996, the Company's net sales have grown from
$56.4 million to $121.7 million, representing a compound annual growth rate
("CAGR") of 21.2%, and EBITDA has grown from $9.3 million to $19.7 million,
representing a CAGR of 20.6%. This growth has principally occurred in the
Fabric Division and is attributable to the Company's development and
introduction of branded, performance-oriented sliver-knit fabrics. These
fabrics were developed to target the increasing consumer preference towards
more casual and comfortable dress and a growing emphasis on outdoor activities
and styling related to outdoor activities. Beginning with Glenaura(TM) in 1993,
the Company has introduced a series of branded, performance-oriented fabrics
which have transformed the Company's Fabric Division from a traditional deep-
pile fabric manufacturer dependent upon the coat market into a diversified
fabric producer serving a broader range of faster growing end-use markets.
Today, the Company's performance-oriented fabrics are principally manufactured
from acrylic micro-fiber and are marketed under the brand names Berber by
Glenoit(TM), Glenaura(TM), Zendura(TM)and GlenPile(TM).
The Company believes that its performance-oriented sliver-knit fabrics offer
apparel manufacturers greater design flexibility and superior performance
characteristics in comparison with competing fleece fabrics. These qualities
include the enhanced design and color capability of "Jacquard" knitting (which
allows the fabrics to have intricate and colorful designs knitted into the
fabric rather than printed onto the surface), added versatility in texture and
feel and greater warmth-to-weight ratios and moisture wickability. These
performance-oriented fabrics have been introduced by the Company's customers
into sportswear lines marketed under brand names such as Liz Claiborne, Jones
New York, Ralph Lauren and Anne Klein; outerwear lines marketed under brand
3
<PAGE>
names such as L.L. Bean, Lands' End, Columbia, Woolrich and Bogner; and private
label programs for retailers such as Saks Fifth Avenue, Nordstrom, Lord &
Taylor, Banana Republic, Victoria's Secret and The Gap.
In addition to performance-oriented sliver-knit fabrics, the Company believes
that it is also the leading manufacturer and marketer of faux furs in the
United States. Faux fur synthetically replicates animal fur such as mink,
beaver and leopard and is typically used in women's and children's coats. The
Company also manufactures fabrics used to cover audio speakers in certain
models of General Motors cars, fireproof fabric marketed under the Glentec(TM)
name used by the United States Navy, and a wide variety of other fabrics used
in the manufacture of toys, golf club head covers, powder puffs, case linings
and other end-use products.
The Company believes that it is currently the principal domestic manufacturer
of sliver-knit fabrics made from micro-fiber (which is defined as fiber having
a diameter of less than one denier). The Company's ability to produce these
fabrics is a result of its (i) manufacturing expertise in the sliver-knitting
process which is more complex and difficult to utilize than traditional
knitting, (ii) state-of-the-art sliver-knitting equipment with proprietary
manufacturing enhancements, (iii) experienced sliver-knitting workforce and
(iv) exclusive supply agreement for Microsupreme (R) acrylic micro-fiber with
Sterling Fibers, Inc. Over the last six years, the Company has replaced or
substantially upgraded all of its knitting equipment. In addition, in September
1995 the Company acquired a 140,000 square-foot sliver- knitting manufacturing
facility through its acquisition of the Borg Textile Corporation (the "Borg
Acquisition") which the Company successfully upgraded and converted to produce
higher-margin micro-fiber fabrics. In addition, effective Aubust 30, 1997 the
Company, through its wholly-owned subsidiary, Glenoit Corporation of Canada
("GCC"), acquired certain assets and liabilities of Collins & Aikman Canada,
Inc.
The Consumer Products Division manufactures a wide variety of printed kitchen
rugs, welcome mats, bath rugs and children's area rugs which are sold to
national discount retailers including Wal-Mart, Kmart and Target, which
typically sell such rugs at retail prices ranging from $3.99 to $9.99. The
Company's kitchen rugs are manufactured under an exclusive licensing agreement
with Barth and Dreyfuss of California, Inc. ("B&D"), a major manufacturer of
kitchen textiles such as towels and potholders. Under the licensing agreement,
the Company has the exclusive right to use B&D's designs on the Company's
kitchen rugs, which are marketed jointly with B&D's kitchen textile products.
The Company believes that its vertically integrated, state-of-the-art
manufacturing and design operations provide the Consumer Products Division with
efficient design capabilities, a low-cost, high-quality product line, and the
ability to manufacture and ship large orders in a short time period. The
Company's technology allows it to take a customer's design and produce numerous
rug samples in as little as two hours, without incurring the expense and the
one month time delay associated with full scale production. The Company's heat
transfer and screen printing capabilities allow it to produce printed rugs that
have an appearance similar to that of woven rugs but cost significantly less to
produce. The Company has the ability to produce over 500,000 rugs per week and
generally ships rugs within five business days after receiving an order.
BUSINESS STRATEGY
Principal elements of the Company's strategy are:
Capitalize on Trend Towards Performance Outerwear and Sportswear. In each
of the last four years, the Company has successfully introduced new
performance-oriented fabrics designed to target the consumer trend toward
more casual and comfortable dress and the greater emphasis on physical
fitness and the outdoors. With its current line of performance-oriented
fabrics, the Company believes that it is well positioned to continue to
capitalize on this trend and will seek to continue to penetrate additional
outerwear and sportswear lines. Furthermore, the Company plans to
capitalize on the demand for performance-oriented
4
<PAGE>
fabrics in international markets such as Japan and Europe through its
distribution agreements with third party sales organizations in these
regions.
Build Brand Awareness. The Company has been building brand awareness for
its performance-oriented fabrics by promoting Glenoit's brand names through
garment hang-tags, a print advertising campaign undertaken jointly with its
supplier of acrylic micro-fiber and designers' advertisements and
retailers' catalogs which mention the Company's fabric by name.
Increase Penetration of Home Textile Market with Innovative New
Products. The Company plans to continue to develop innovative fabric
products for the home textile market, a relatively small but fast growing
segment of the Fabric Division. The Company believes that its micro-fiber
fabrics are well suited for use in products for the home textile market,
and the Company recently began selling its micro-fiber fabrics for use in
throws, covered pillows and comforters.
Leverage Existing Distribution Channels. The Company seeks to utilize its
strong distribution relationships with large national discount retailers
such as Wal-Mart, Kmart and Target to expand distribution of consumer
products. Today, the Company primarily sells kitchen rugs through this
distribution channel; however, the Company is planning to expand its
distribution of welcome mats through this channel. In addition, the Company
seeks to expand distribution of its rugs through other channels such as
hardware and specialty retail stores.
Make Selective Acquisitions. The Company intends to pursue selective
strategic acquisitions in order to increase fabric manufacturing capacity
and broaden fabric and consumer product offerings. The Company believes
that the Borg Acquisition demonstrates its ability to re-train personnel
and upgrade an existing manufacturing operation to produce higher margin
micro-fiber products.
CORPORATE ORGANIZATION
The Company is a wholly-owned subsidiary of Holdings. On August 8, 1997, the
Company merged (the "Internal Merger") with its principal operating subsidiary,
Glenoit Mills ("Mills"), with Glenoit Corporation as the surviving entity. In
addition, the Company formed Glenoit Corporation of Canada ("GCC") as its
wholly-owned subsidiary. Effective August 30, 1997, GCC acquired certain assets
and liabilities of Collins & Aikman Canada, Inc. As a result of this
restructuring, the Company now consists of Glenoit Corporation and its two
principal subsidiaries, Glenoit Asset Corporation ("GAC") and GCC. The Company
does not anticipate that the Internal Merger will impact its business in any
material respect.
In December 1995, the Company consummated a leveraged recapitalization (the
"Recapitalization") pursuant to which, among other things, (i) Holdings
redeemed a portion of its common stock from Stirling Investment Holdings, Inc.
(the "Seller") for consideration consisting of cash, notes (the "Seller Notes")
and the right to receive additional notes (the "Earn-Out Note") and (ii)
Citicorp Venture Capital, Ltd. ("CVC"), certain members of senior management of
CVC and the Company and certain related investors acquired common stock and
junior subordinated pay-in-kind notes of Holdings. For a description of the
Seller Notes, see "Description of Capital Stock and Indebtedness of Holdings--
Seller Notes." The Earn-Out Note has been issued by the Company in satisfaction
of the earn-out obligation of Holdings and such note was repaid with a portion
of the proceeds of the Initial Offering. For information regarding the
ownership of securities of Holdings, see "Principal Stockholders."
The Company is incorporated under the laws of the State of Delaware. The
Company's principal executive offices are located at 111 West 40th Street, New
York, New York 10018, and its telephone number is (212) 391-3915.
5
<PAGE>
THE REFINANCING
On March 26, 1997, the Company completed the Initial Offering pursuant to
which the Company issued $100,000,000 aggregate principal amount 11% Senior
Subordinated Notes due 2007. The net proceeds of the Initial Offering (after
deducting the discount to the Initial Purchasers and expenses in connection
with the Initial Offering and certain related transactions) were $95.4 million.
Such proceeds were used as follows: (i) $26.8 million was used by the Company
to prepay all outstanding Tranche A term loans under the Company's existing
revolving credit and term loan facility (the "Old Credit Facility"), including
accrued and unpaid interest thereon; (ii) $25.0 million was used to prepay all
outstanding Tranche B term loans under the Old Credit Facility, including
accrued and unpaid interest thereon, (iii) $16.6 million was used by the
Company to prepay its 12 1/2% Senior Subordinated Note due December 13, 2003
(the "Equitable Note"), including a prepayment penalty and accrued and unpaid
interest thereon; (iv) $5.7 million was used by the Company to prepay the Earn-
Out Note, including accrued and unpaid interest thereon; (v) $0.8 million was
used to pay fees and expenses in connection with the New Credit Facility; and
(vi) $20.5 million was used to prepay outstanding revolving credit borrowings
under the Old Credit Facility.
Concurrently with the Initial Offering, the Company entered into a $70
million senior credit facility (the "New Credit Facility") with a syndicate of
lenders led by Banque Nationale de Paris ("BNP"), pursuant to which the Company
has available (i) up to $45 million for working capital and general corporate
purposes, subject to a Borrowing Base (as defined in the New Credit Facility),
and (ii) up to $25 million for acquisitions. See "Description of New Credit
Facility." As of October 4, 1997, there is $7.1 million indebtedness and $55.3
million of available borrowing capacity under the New Credit Facility.
Additionally, borrowing under the New Credit Facility is limited under the
terms of the Indenture. See "Description of Notes--Certain Covenants--
Limitation on Indebtedness."
THE INITIAL OFFERING
NOTES..................... $100,000,000 aggregate principal amount of 11%
Senior Subordinated Notes due 2007 (the "Old
Notes") were sold by the Company on March 26, 1997
(the "Initial Offering") to Salomon Brothers, Inc.
and CIBC Wood Gundy Securities Corp. (the "Initial
Purchaser") pursuant to a Purchase Agreement dated
March 26, 1997 (the "Purchase Agreement"). The
Initial Purchasers subsequently resold the Notes to
qualified institutional buyers pursuant to Rule
144A under the Securities Act and to a limited
number of institutional accredited investors who
agreed to comply with certain transfer restrictions
and other conditions.
REGISTRATION RIGHTS
AGREEMENT................ Pursuant to the Purchase Agreement, the Company and
the Initial Purchaser entered into a Registration
Agreement dated March 26, 1997 (the "Registration
Rights Agreement"), which granted the holder of the
Notes certain exchange and registration rights. The
Exchange Offer is intended to satisfy such exchange
rights which shall then terminate upon the
consummation of the Exchange Offer.
THE EXCHANGE OFFER
SECURITIES OFFERED........ Up to $100,000,000 aggregate principal amount of
11% Senior Subordinated Notes due 2007 (the "New
Notes"). The terms of the New Notes and the Old
Notes are identical in all material respects,
6
<PAGE>
except for certain transfer restrictions and
registration rights relating to the Old Notes.
THE EXCHANGE OFFER........ The New Notes are being offered in exchange for a
like principal amount of Old Notes. Old Notes may
be exchanged only in integral multiples of $1,000.
The issuance of the New Notes is intended to
satisfy obligations of the Company contained in the
Registration Rights Agreement.
The Company will issue the New Notes to holders on
or promptly after the Expiration Date.
Based on an interpretation by the staff of the
Commission set forth in no-action letters issued to
third parties, the Company believes that the New
Notes issued pursuant to the Exchange Offer in
exchange for Old Notes may be offered for resale,
resold and otherwise transferred by any holder
thereof (other than any such holder which is an
"affiliate" of the Company within the meaning of
Rule 405 under the Securities Act) without
compliance with the registration and prospectus
delivery provisions of the Securities Act, provided
that such New Notes are acquired in the ordinary
course of such holder's business and that such
holder does not intend to participate and has no
arrangement or understanding with any person to
participate in the distribution of such New Notes.
See "The Exchange Offer--Certain Conditions to the
Exchange Offer."
Each Participating Broker-Dealer that receives the
New Notes for its own account pursuant to the
Exchange Offer must acknowledge that it will
deliver a prospectus in connection with any resale
of such New Notes. The Letter of Transmittal states
that by so acknowledging and by delivering a
prospectus, a Participating Broker-Dealer will not
be deemed to admit that it is an "underwriter"
within the meaning of the Securities Act. The
Prospectus, as it may be amended or supplemented
from time to time, may be used by a Participating
Broker-Dealer in connection with resales of New
Notes received in exchange for Old Notes where such
Notes were acquired by such Participating Broker-
Dealer as a result of market-making activities or
other trading activities. The Company has agreed
that, for a period of 180 days after the Expiration
Date, it will make the Prospectus available to any
Participating Broker-Dealer for use in connection
with any such resale. See "Plan of Distribution."
In addition, to comply with the securities laws of
certain jurisdictions, if applicable, the New Notes
may not be offered for sale unless they have been
registered or qualified for sale in such
jurisdiction or an exemption from registration or
qualification is available and is complied with.
The Company has agreed, pursuant to the
Registration Rights Agreement and subject to
certain specified limitations therein, to register
or qualify the New Notes for offer or sale under
the securities of blue sky laws of such
jurisdictions as any holder of the
7
<PAGE>
Notes reasonably requests in writing. If a holder
of Old Notes does not exchange such Old Notes for
New Notes pursuant to the Exchange Offer, such Old
Notes will continue to be subject to the
restrictions on transfer contained in the legend
thereon. In general, the Old Notes may not be
offered for sale, unless registered under the
Securities Act, except pursuant to an exemption
from, or in a transaction not subject to, the
Securities Act and applicable state securities
laws. Holders of Old Notes do not have any
appraisal or dissenters' rights under the Delaware
General Corporation Law in connection with the
Exchange Offer. See "The Exchange Offer--
Consequences of Failure to Exchange; Resales of New
Notes."
The Old Notes are currently eligible for trading in
Private Offerings, Resales and Trading through
Automated Linkages ("PORTAL") market. Following
commencement of the Exchange Offer but prior to its
consummation, the Old Notes may continue to be
traded in the PORTAL market. Following consummation
of the Exchange Offer, the New Notes will not be
eligible for PORTAL trading.
Any holder who tenders in the Exchange Offer with
the intention to participate, or for the purpose of
participating, in a distribution of the New Notes
could not rely on the position of the staff of the
Commission enunciated in no-action letters and, in
the absence of an exemption therefrom, must comply
with the registration and prospectus delivery
requirements of the Securities Act in connection
with any resale transaction. Failure to comply with
such requirements in such instance may result in
such holder incurring liability under the
Securities Act for which the holder is not
indemnified by the Company.
EXPIRATION DATE........... 5:00 p.m., New York City time, on , 1998
unless the Exchange Offer is extended, in which
case the term "Expiration Date" means the latest
date and time to which the Exchange Offer is
extended.
ACCRUED INTEREST ON THE
EXCHANGE NOTES AND THE
NOTES.................... Each New Note will bear interest from its issuance
date. Holders of Old Notes that are accepted for
exchange will receive, in cash, accrued interest
thereon to, but not including, the issuance date of
the New Notes. Such interest will be paid with the
first interest payment on the New Notes. Interest
on the Old Notes accepted for exchange will cease
to accrue upon issuance of the New Notes.
CONDITIONS TO THE
EXCHANGE OFFER........... The Exchange Offer is subject to certain customary
conditions, which may be waived by the Company. See
"The Exchange Offer--Conditions."
PROCEDURES FOR TENDERING
NOTES.................... Each holder of Notes wishing to accept the Exchange
Offer must complete, sign and date the accompanying
Letter of Transmittal, or a facsimile thereof, in
accordance with the instructions contained herein
and therein, and mail or otherwise deliver such
Letter of Transmittal, or such facsimile, together
with the Notes and any other required
8
<PAGE>
documentation to the Exchange Agent (as defined) at
the address set forth herein. By executing the
Letter of Transmittal, each holder will represent
to the Company that, among other things, the New
Notes acquired pursuant to the Exchange Offer are
being obtained in the ordinary course of business
of the person receiving such Notes, whether or not
such person is the holder, that neither the holder
nor any such other person has any arrangement or
understanding with any person to participate in the
distribution of the New Notes and that neither the
holder nor any such other person is an "affiliate,"
as defined under Rule 405 of the Securities Act, of
the Company. See "The Exchange Offer--Purpose and
Effect of the Exchange Offer" and "--Procedures for
Tendering."
UNTENDERED NOTES.......... Following the consummation of the Exchange Offer,
holders of Notes eligible to participate but who do
not tender their Notes will not have any further
exchange rights and such Notes will continue to be
subject to certain restrictions on transfer.
Accordingly, the liquidity of the market for such
Notes could be adversely affected.
CONSEQUENCES OF FAILURE
TO EXCHANGE.............. The Notes that are not exchanged pursuant to the
Exchange Offer will remain restricted securities.
Accordingly, such Notes may be resold only (i) to
the Company, (ii) pursuant to Rule 144A or Rule 144
under the Securities Act or pursuant to some other
exemption under the Securities Act, (iii) outside
the United States to a foreign person pursuant to
the requirements of Rule 904 under the Securities
Act or (iv) pursuant to an effective registration
statement under the Securities Act. See "The
Exchange Offer--Consequences of Failure to
Exchange."
SHELF REGISTRATION
STATEMENT................ If any holder of the Notes (other than any such
holder which is an "affiliate" of the Company
within the meaning of Rule 405 under the Securities
Act) is not eligible under applicable securities
laws to participate in the Exchange Offer, and such
holder has provided information regarding such
holder and the distribution of such holder's Notes
to the Company for use therein, the Company has
agreed to register the Notes on a shelf
registration statement (the "Shelf Registration
Statement") and use its best efforts to cause it to
be declared effective by the Commission as promptly
as practical on or after the consummation of the
Exchange Offer. The Company has agreed to maintain
the effectiveness of the Shelf Registration
Statement for, under certain circumstances, a
maximum of two years, to cover resales of the Notes
held by any such holders.
SPECIAL PROCEDURES FOR
BENEFICIAL OWNERS........ Any beneficial owner whose Notes are registered in
the name of a broker, dealer, commercial bank,
trust company or other nominee and who wishes to
tender should contact such registered holder
promptly and instruct such registered holder to
tender on such beneficial owner's behalf. If such
beneficial owner wishes to tender on such owner's
own
9
<PAGE>
behalf, such owner must, prior to completing and
executing the Letter of Transmittal and delivering
its Notes, either make appropriate arrangements to
register ownership of the Notes in such owner's
name or obtain a properly completed bond power from
the registered holder. The transfer of registered
ownership may take considerable time. The Company
will keep the Exchange Offer open for not less than
twenty days in order to provide for the transfer of
registered ownership.
GUARANTEED DELIVERY
PROCEDURES............... Holders of Notes who wish to tender their Notes and
whose Notes are not immediately available or who
cannot deliver their Notes, the Letter of
Transmittal or any other documents required by the
Letter of Transmittal to the Exchange Agent (or
comply with the procedures for book-entry transfer)
prior to the Expiration Date must tender their
Notes according to the guaranteed delivery
procedures set forth in "The Exchange Offer--
Guaranteed Delivery Procedures."
WITHDRAWAL RIGHTS......... Tenders may be withdrawn at any time prior to 5:00
p.m., New York City time, on the Expiration Date.
See "The Exchange Offer--Withdrawal of Tenders."
ACCEPTANCE OF NOTES AND
DELIVERY OF NEW NOTES.... The Company will accept for exchange any and all
Notes which are properly tendered in the Exchange
Offer prior to 5:00 p.m., New York City time, on
the Expiration Date. The New Notes issued pursuant
to the Exchange Offer will be delivered promptly
following the Expiration Date. See "The Exchange
Offer--Terms of the Exchange Offer."
USE OF PROCEEDS........... There will be no cash proceeds to the Company from
the exchange pursuant to the Exchange Offer.
EXCHANGE AGENT............ The United States Trust Company of New York is
serving as the Exchange Agent in connection with
the Exchange Offer.
FEDERAL INCOME TAX
CONSEQUENCES............. The exchange of Notes pursuant to the Exchange
Offer should not be a taxable event for federal
income tax purposes. See "Certain Federal Income
Tax Considerations."
THE NEW NOTES
GENERAL................... The form and terms of the New Notes are the same as
the form and terms of the Old Notes (which they
replace) except that (i) the New Notes have been
registered under the Securities Act and, therefore,
will not bear legends restricting the transfer
thereof and (ii) the holders of New Notes will not
be entitled to certain rights under the
Registration Rights Agreement, including the
provisions providing for an increase in the
interest rate on the Old Notes in certain
circumstances relating to the timing of the
Exchange Offer, which rights will terminate as a
general matter when the Exchange Offer is
consummated. See "The Exchange Offer--Purpose and
Effect of the Exchange Offer." The New Notes will
evidence the same debt as the Notes and will be
10
<PAGE>
entitled to the benefits of the Indenture. See
"Description of the Notes."
ISSUER.................... Glenoit Corporation
SECURITIES OFFERED........ $100,000,000 aggregate principal amount of 11%
Senior Subordinated Notes due 2007.
MATURITY DATE............. April 15, 2007
INTEREST PAYMENT DATES.... April 15 and October 15 of each year.
SUBSIDIARY GUARANTIES..... The Notes will be unconditionally guaranteed on a
senior subordinated basis by the Subsidiary
Guarantors under the Subsidiary Guaranties.
SUBORDINATION OF NOTES
AND SUBSIDIARY
GUARANTIES............... The Notes and the Subsidiary Guaranties will be
general unsecured senior subordinated obligations
of the Company and the Subsidiary Guarantors, as
applicable. The Notes and the Subsidiary Guaranties
will be subordinated in right of payment to the
prior payment in full of all present and future
Senior Indebtedness, pari passu with all present
and future Senior Subordinated Indebtedness and
senior to all present and future subordinated
indebtedness of the Company and the Subsidiary
Guarantors, as applicable. As of October 4, 1997,
after the application of the net proceeds of the
Initial Offering thereof, (i) Senior Indebtedness
of the Company and the Subsidiary Guarantors is
approximately $8.1 million (excluding trade
payables, accrued liabilities and unused
commitments under the New Credit Facility) and (ii)
the Company and its subsidiaries have no Senior
Subordinated Indebtedness outstanding (other than
the Notes) and no Indebtedness outstanding that was
subordinate in right of payment to the Notes. See
"Description of Notes--Subordination."
OPTIONAL REDEMPTION....... The Notes will be redeemable at the option of the
Company, in whole or in part, at any time on or
after April 15, 2002, at the redemption prices set
forth herein, plus accrued and unpaid interest to
the redemption date. In addition, at any time and
from time to time prior to April 15, 2000, the
Company may redeem in aggregate up to 25% of the
original principal amount of the Notes at a
redemption price of 110% of the principal amount
thereof, plus accrued and unpaid interest, if any,
to the redemption date, with the proceeds of one or
more Public Equity Offerings following which there
is a Public Market; provided, however, that at
least 75% of the original principal amount of the
Notes remains outstanding immediately after any
such redemption.
CHANGE OF CONTROL......... Upon a Change of Control, each holder of the Notes
may require the Company to repurchase such holder's
Notes, in whole or in part, at a purchase price in
cash equal to 101% of the principal amount thereof
plus accrued and unpaid interest, if any, to the
purchase date. See "Description of Notes--Change of
Control." The New Credit Facility will prohibit the
purchase of outstanding Notes prior to repayment of
11
<PAGE>
the borrowings under the New Credit Facility. In
the event of a Change of Control, there can be no
assurance that the Company will have sufficient
funds to repurchase any of the Notes or be
permitted under the terms of its other indebtedness
to repurchase or redeem the Notes. See "Description
of New Credit Facility."
CERTAIN COVENANTS......... The Indenture (as defined) contains certain
covenants that, among other things, limit the
ability of the Company and its Restricted
Subsidiaries to incur additional Indebtedness; make
certain Restricted Payments and Investments; create
Liens; enter into certain transactions with
Affiliates; consummate certain merger,
consolidation or similar transactions; sell assets;
issue or sell capital stock; or incur Indebtedness
which is both subordinated to Senior Indebtedness
and senior to the Notes. In addition, in certain
circumstances, the Company is required to offer to
purchase Notes at a purchase price equal to 100% of
the principal amount thereof with the net proceeds
of certain asset sales. These covenants are subject
to a number of significant exceptions and
qualifications. See "Description of Notes--Certain
Covenants."
TRANSFER RESTRICTIONS;
ABSENCE OF A PUBLIC
MARKET FOR THE NOTES
COVENANTS................ The New Notes are new securities and there is
currently no established market for the New Notes.
Accordingly, there can be no assurance as to the
development or liquidity of any market for the New
Notes. The Initial Purchasers have advised the
Company that they currently intend to make a market
in the New Notes. However, they are not obligated
to do so, and any market-making with respect to the
New Notes may be discontinued without notice. The
Company does not intend to apply for listing of the
New Notes on any national securities exchange or
for their quotation through the National
Association of Securities Dealers Automated
Quotation System. See "Risk Factors--Transfer
Restrictions; Absence of Public Market."
For additional information regarding the New Notes, see "Description of
Notes."
The address for the Company is 111 West 40th Street, New York, New York 10018
and the telephone number is (212)391-3915.
RISK FACTORS
Holders of Old Notes should carefully consider all of the information set
forth in this Prospectus and, in particular, should evaluate the specific
factors under "Risk Factors" beginning on page 15 for risks in connection with
the Exchange Offer.
12
<PAGE>
SUMMARY CONSOLIDATED HISTORICAL AND
PRO FORMA FINANCIAL DATA
Set forth below are summary historical consolidated financial data and
certain pro forma ratios of the Company for the periods indicated. The
historical consolidated financial data of the Company prior to December 13,
1995 reflect the historical results of Mills. The summary historical financial
data of the Company as of and for the years ended December 30, 1995 and January
4, 1997 have been derived from the Consolidated Financial Statements of the
Company included elsewhere herein, which have been audited by Coopers & Lybrand
L.L.P., independent accountants. The summary historical financial data of the
Company as of and for the year ended December 31, 1994 have been derived from
the Consolidated Financial Statements of the Company included elsewhere herein,
which have been audited by BDO Seidman, LLP, independent accountants. The
summary historical financial data of the Company as of and for the years ended
January 2, 1993 and January 1, 1994 have been derived from the Consolidated
Financial Statements of the Company not included herein, which have been
audited by BDO Seidman, LLP. The information for the nine month periods ended
September 28, 1996 and October 4, 1997 is unaudited, but, in the opinion of the
Company's management, includes all adjustments (consisting only of normal
recurring accruals) necessary for the fair statement of the results for the
periods presented. The results for the nine month period ended October 4, 1997
are not necessarily indicative of the results for the entire year since the
Company's business is seasonal with historically better results in the second
and third quarters. The summary historical and pro forma financial data set
forth below should be read in conjunction with "Selected Historical
Consolidated Financial Data," "Management's Discussion and Analysis of
Financial Condition and Results of Operations," "Unaudited Pro Forma Financial
Data--Pro Forma Consolidated Statement of Income," and the Consolidated
Financial Statements of the Company and related notes thereto included
elsewhere in this Registration Statement.
<TABLE>
<CAPTION>
FISCAL YEAR NINE MONTHS ENDED
------------------------------------------------ ------------------------
SEPTEMBER 28, OCTOBER 4,
1992 1993 1994 1995 1996 1996 1997
------- ------- ------- ------- -------- ------------- ----------
(UNAUDITED)
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C> <C> <C> <C> <C>
STATEMENT OF INCOME
DATA:
Net sales............... $56,443 $62,527 $72,469 $93,840 $121,751 $95,633 $120,822
Cost of sales........... 39,319 43,035 49,594 67,249 86,525 66,450 77,959
------- ------- ------- ------- -------- ------- --------
Gross profit............ 17,124 19,492 22,875 26,591 35,226 29,183 42,863
Operating expenses...... 9,070 10,255 12,550 16,235 18,045 13,146 17,859
------- ------- ------- ------- -------- ------- --------
Income from operations.. 8,054 9,237 10,325 10,356 17,181 16,037 25,004
Interest expense, net... 1,007 973 2,208 3,745 9,125 6,858 8,094
Other expense........... 120 3,265(a) 83 166 589 605 586
Income tax expense...... 2,550 2,050 2,850 3,083 3,354 3,605 6,542
------- ------- ------- ------- -------- ------- --------
Income before
extraordinary loss..... 4,377 2,949 5,184 3,362 4,113 4,969 9,782
Extraordinary loss, net
of tax benefit......... -- -- -- 2,407(b) -- -- 2,857(c)
------- ------- ------- ------- -------- ------- --------
Net Income.............. $ 4,377 $ 2,949 $ 5,184 $ 955 $ 4,113 $ 4,969 $ 6,925
======= ======= ======= ======= ======== ======= ========
OTHER DATA:
Depreciation and
amortization........... $ 1,368 $ 1,124 $ 1,491 $ 1,946 $ 3,097 $ 2,262 $ 2,617
Capital expenditures.... 706 838 1,394 5,239 1,679 1,284 13,315
EBITDA(d)............... 9,302 7,096 11,733 12,136 19,689 17,693 27,035
Adjusted EBITDA(e)...... 9,302 10,532 11,733 12,136 20,990 17,693 27,035
Ratio of earnings to
fixed charges(f)....... 5.24x 3.84x 3.21x 2.30x 1.68x 2.03x 2.71x
PRO FORMA RATIOS:
Ratio of Adjusted EBITDA
to pro forma interest
expense(g)............. 1.79x 2.99x
Ratio of pro forma net
debt to Adjusted
EBITDA................. 4.56x(h) 3.98x(i)
BALANCE SHEET DATA:
Cash and cash
equivalents............ $ 279 $ 196 $ 384 $ 1,023 $ 49 $ 1,792 $ 887
Working capital(j)...... 540 2,844 5,925 17,735 13,340 24,926 26,473
Total assets............ 15,909 14,860 21,317 50,946 49,497 70,269 90,306
Total debt(k)........... 7,804 5,906 27,547 97,857 92,295 112,211 133,410
Stockholder's equity
(deficit).............. 8,105 8,954 (6,231) (46,911) (42,798) (41,942) (43,104)
</TABLE>
13
<PAGE>
- --------
(a) Included in "Other expense" during fiscal 1993 is a one time charge of
$3,436,000 relating to the charge-off of a product supply agreement with a
related party and an investment in a related party. BDO Seidman, LLP issued
a qualified opinion related to the Company's financial statements as of and
for the period ended January 2, 1993 relating to the carrying value of the
product supply agreement.
(b) During fiscal 1995, the Company recognized an extraordinary loss, net of
income tax benefit of $1,240,000, as a result of the early retirement of
the Company's debt obligations. See Notes 4 and 7 to the Consolidated
Financial Statements.
(c) During April 1997, the Company recognized an extraordinary loss, net of
income tax benefit of $1,527,000, as a result of the refinancing of the
Company's debt in connection with the Initial Offering. See Note 7 of the
Consolidated Financial Statements.
(d) EBITDA represents income before extraordinary loss plus income tax
expenses, interest expense (net), depreciation and amortization. The
Company believes that EBITDA provides useful information regarding the
Company's ability to service its debt; however, EBITDA does not represent
cash flow from operations as defined by generally accepted accounting
principles and should not be considered as a substitute for net income as
an indicator of the Company's operating performance or cash flow as a
measure of liquidity. The definition of EBITDA presented herein differs
from the definition of EBITDA in the Indenture. EBITDA has not been
adjusted to reflect certain costs and expenses payable to related parties
prior to fiscal 1996, which were substantially reduced as a result of the
Recapitalization. See "Management's Discussion and Analysis of Financial
Condition and Results of Operations" and "Description of Notes--Certain
Definitions."
(e) Adjusted EBITDA represents EBITDA (See Note (d) above), plus (i) for fiscal
1993, a one time charge of $3,436,000 relating to the charge-off of a
product supply agreement with a related party and an investment in a
related party (See Note (a) above) and (ii) for fiscal 1996, (A) moving
expenses of approximately $320,000 incurred to relocate the Company's
Consumers Products Division and (B) fees of approximately $980,000 for a
consulting project related to process improvement and cash flow management.
Adjusted EBITDA is presented because the Company believes that it provides
useful information regarding the Company's ability to incur and service
debt; however, Adjusted EBITDA does not represent cash flow from operations
as defined by generally accepted accounting principles and should not be
considered as a substitute for net income as an indicator of the Company's
operating performance or cash flow as a measure of liquidity.
(f) For purposes of computing the ratio of earnings to fixed charges, earnings
include income before income taxes and extraordinary loss, plus fixed
charges. Fixed charges consist of interest expense, amortization of debt
issuance costs, and the portion of rental expense which the Company
believes is representative of the interest component of rental expense.
(g) Represents Adjusted EBITDA divided by pro forma interest expense (excluding
pro forma amortization of deferred loan cost of $600,000 and $419,000 for
the periods ending January 4, 1997 and October 4, 1997, respectively). See
"Unaudited Pro Forma Financial Data--Pro Forma Consolidated Statement of
Income."
(h) Represents pro forma net debt of $95,617,000 divided by Adjusted EBITDA.
Pro forma net debt represents total debt and capital lease obligations,
less cash and cash equivalents, on a pro forma basis as of January 4, 1997,
after giving effect to the Initial Offering and the application of the
proceeds thereof.
(i) Represents net debt of $107,189,000 as of October 4, 1997 divided by
Adjusted EBITDA. Net debt represents the sum of long term debt, the line of
credit, and capital lease obligations, less cash and cash equivalents.
(j) Working capital represents consolidated current assets less consolidated
current liabilities.
(k) The Company's fiscal 1994 balance sheet includes indebtedness of Holdings
which has been accounted for as indebtedness of the Company under the
"push-down" method of accounting. This debt was paid off on December 13,
1995. The "push-down" method requires that debt of Holdings, which was
guaranteed and collateralized by the assets of the Company, be treated for
accounting purposes as debt of the Company. See Note 1 to the Consolidated
Financial Statements.
14
<PAGE>
RISK FACTORS
Holders of Old Notes should carefully consider the following factors in
addition to the other information set forth in this Prospectus in connection
with the Exchange Offer. The risk factors set forth below are generally
applicable to the Old Notes as well as the New Notes.
SUBSTANTIAL LEVERAGE
The Company has incurred significant debt in connection with the Initial
Offering. As of October 4, 1997, the Company has outstanding Indebtedness of
$108.1 million (excluding trade payables, accrued liabilities and unused
commitments under the New Credit Facility). The Company's leveraged financial
position poses substantial consequences to holders of the Notes, including the
risks that: (i) a substantial portion of the Company's cash flow from
operations will be dedicated to the payment of interest on the Notes and the
payment of principal and interest under other Indebtedness; (ii) the Company's
highly leveraged position may impede its ability to obtain financing in the
future for working capital, capital expenditures and general corporate
purposes, including acquisitions; (iii) the Company's highly leveraged
financial position may make it more vulnerable to economic downturns and may
limit its ability to withstand competitive pressures; (iv) to the extent that
the Company incurs additional Indebtedness under the New Credit Facility,
which Indebtedness will be at variable rates, the Company may be vulnerable to
increases in interest rates; and (v) the Company's flexibility in planning for
or reacting to changes in market conditions may be limited. The Company
believes that, based on its current level of operations, it will have
sufficient capital to carry on its business and will be able to meet its
scheduled debt service requirements. There can be no assurance, however, that
the future cash flow of the Company will be sufficient to meet the Company's
obligations and commitments. If the Company is unable to generate sufficient
cash flow from operations in the future to service its Indebtedness and to
meet its other commitments, the Company will be required to adopt one or more
alternatives, such as refinancing or restructuring its Indebtedness, selling
material assets or operations or seeking to raise additional debt or equity
capital. There can be no assurance that any of these actions could be effected
on a timely basis or on satisfactory terms or that these actions would enable
the Company to continue to satisfy its capital requirements. In addition, the
terms of existing or future debt agreements, including the Indenture and the
New Credit Facility, may prohibit the Company from adopting any of these
alternatives. See "Management's Discussion and Analysis of Financial Condition
and Results of Operations--Liquidity and Capital Resources," "Description of
Notes" and "Description of New Credit Facility."
SUBORDINATION OF THE NOTES AND THE SUBSIDIARY GUARANTIES; COMPANY STRUCTURE
The Notes will be subordinated in right of payment to all present and future
Senior Indebtedness of the Company, including the principal, premium (if any)
and interest with respect to the Senior Indebtedness of the Company under the
New Credit Facility. The Notes will rank pari passu with all present and
future Senior Subordinated Indebtedness of the Company and will rank senior to
all other subordinated indebtedness of the Company. In addition, the
Subsidiary Guaranties will be subordinated in right of payment to all existing
and future Senior Indebtedness of the Subsidiary Guarantors, will rank pari
passu with all existing and future Senior Subordinated Indebtedness of the
Subsidiary Guarantors and will rank senior to all other subordinated
indebtedness of the Subsidiary Guarantors. Consequently, in the event of a
bankruptcy, liquidation, dissolution, reorganization or similar proceeding
with respect to the Company or any Subsidiary Guarantor, assets of the Company
or such Subsidiary Guarantor will be available to pay obligations of the Notes
only after all Senior Indebtedness of the Company or such Subsidiary Guarantor
has been paid in full, and there can be no assurance that there will be
sufficient assets to pay amounts due on all or any of the Notes. See
"Description of Notes--Subordination."
The Notes are also unsecured and will be effectively subordinated to any
Secured Indebtedness of the Company. The Indebtedness outstanding under the
New Credit Facility will be secured by liens on substantially all of the
assets of the Company. The ability of the Company to comply with the
provisions of the New Credit Facility may be affected by events beyond the
Company's control. The breach of any such provisions could result
15
<PAGE>
in a default under the New Credit Facility, in which case, depending on the
actions taken by the lenders thereunder or their successors or assignees, such
lenders could elect to declare all amounts borrowed under the New Credit
Facility, together with accrued interest, to be due and payable, and the
Company could be prohibited from making payments of interest and principal on
the Notes until the default is cured or all Senior Indebtedness is paid or
satisfied in full. If the Company were unable to repay such borrowings, such
lenders could proceed against the collateral. If the Indebtedness under the
New Credit Facility were accelerated, there can be no assurance that the
assets of the Company would be sufficient to repay in full such Indebtedness
and the other Indebtedness of the Company, including the Notes. See
"Description of New Credit Facility" and "Description of Notes--
Subordination."
The Company is an operating company which derives a portion of its operating
income from its subsidiaries. The holders of the Notes will have no direct
claim against such subsidiaries other than the claim created by the Subsidiary
Guaranties, which may be subject to legal challenge. See "--Risk of Fraudulent
Transfer." If such a challenge were upheld, the Subsidiary Guaranties could be
invalidated and unenforceable. To the extent that any Subsidiary Guaranty is
not enforceable, the rights of holders of the Notes to participate in any
distribution of assets of the applicable Subsidiary Guarantor upon
liquidation, bankruptcy, reorganization or otherwise would, as is the case
with other creditors of the Company, be subject to prior claims of creditors
of that Subsidiary Guarantor. The ability of the Company's subsidiaries to pay
dividends and make other payments may be or become subject to certain
statutory, contractual and other restrictions.
Although the terms of the Indenture will restrict dividends and
distributions to Holdings, the Company will be permitted to make certain
payments to Holdings, including payments (i) in respect of principal and
interest on the Seller Notes; (ii) to cover certain administrative and
operating expenses of Holdings, and (iii) to cover certain tax liabilities
allocable to the Company, subject in each case to certain conditions. The
Indenture does not restrict Holdings or its activities. See "Description of
Notes--Certain Covenants--Limitation on Restricted Payments."
As of October 4, 1997, (i) Senior Indebtedness of the Company and the
Subsidiary Guarantors is approximately $8.1 million (excluding trade payables,
accrued liabilities and unused commitments under the New Credit Facility) and
(ii) the Company and its subsidiaries have no Senior Subordinated Indebtedness
outstanding (other than the Notes) and no indebtedness outstanding that was
subordinate in right of payment to the Old Notes. The Subsidiaries have other
liabilities, including contingent liabilities, which could be substantial.
RESTRICTIVE LOAN COVENANTS
The New Credit Facility includes certain covenants that, among other things,
restrict the Company's ability to: (i) pay dividends and make certain other
restricted payments; (ii) incur additional indebtedness; (iii) grant liens,
other than liens created pursuant to the New Credit Facility and certain
permitted liens; and (iv) sell material assets. The New Credit Facility also
requires the Company to maintain certain financial ratios, including leverage,
interest coverage, fixed charge coverage and minimum net worth. There can be
no assurance that these requirements will be met in the future. If they are
not, the holders of the indebtedness under the New Credit Facility would be
entitled to declare such Indebtedness immediately due and payable. See
"Description of New Credit Facility."
CUSTOMER CONCENTRATION
Approximately 20% of the Company's total net sales (57% of the Consumer
Products Division's net sales) in fiscal 1996 were to three national discount
retailers: Wal-Mart, Kmart and Target. The loss of any of these customers or a
significant reduction in the amount of their business with the Company would
have a material adverse effect on the Company's business, financial condition
and results of operations.
RISKS OF ACQUISITIONS
The Company's strategy contemplates the pursuit of additional acquisition
opportunities, and the Company is currently pursuing several acquisition
opportunities. See "Business--Business Strategy." Each of these
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<PAGE>
acquisition opportunities will require the devotion of substantial management
resources and may require significant capital investment. Furthermore, such
acquisitions will be subject to the many risks inherent in the integration of
new business enterprises into the Company's existing operations. There can be
no assurance that any of these acquisition opportunities will be consummated.
Moreover, the Company may incur significant costs and expenses in connection
with such projects. There can be no assurance that these expenditures will
ultimately result in the integration of profitable operations with the
Company's existing operations.
COMPETITION
The textile industry is highly competitive and no single company is
dominant. The Company's products compete with products offered by large,
vertically integrated textile companies which have greater financial resources
than the Company. The Company also competes with numerous smaller companies
specializing in limited segments of the market. The primary competitive
factors in the textile industry are price, product styling and
differentiation, quality, manufacturing flexibility, delivery time and
customer service. The importance of these factors is determined by the needs
of particular customers and the characteristics of particular products. There
could be a material adverse effect on the Company's business to the extent
that one or more of the Company's competitors gains an advantage with respect
to any key competitive factor. See "Business--Competition." In addition,
imports of foreign-made textile and apparel products are a significant source
of competition for many domestic textile manufacturers. The Company believes
that its United States manufacturing presence and its emphasis on shortening
production and lead times allows the Company to respond more quickly than
foreign producers to changing fashion trends and to its domestic customers'
requirement that suppliers meet tight production schedules and provide rapid
delivery. The Company's continued success, however, will be affected by the
ability of certain of the Company's customers to remain competitive, which may
be affected by the level of imports.
The extent of import protection afforded by the United States government to
domestic textile producers has been, and is likely to remain, subject to
considerable domestic and international political deliberation. In view of the
labor cost advantages and the number of foreign producers of textile products
that compete with certain of the Company's products, substantial elimination
of import protection for domestic textile manufacturers could have a material
adverse effect on the Company's business. In January 1995, a new multilateral
trade organization, the World Trade Organization ("WTO"), was formed by the
members of the General Agreement on Tariffs and Trade ("GATT") to replace
GATT. This new body has set forth the mechanisms by which world trade in
textiles and clothing will be progressively liberalized with the elimination
of quotas and the reduction of duties. The implementation began in January
1995 with the phasing-out of quotas and the reduction of duties to take place
over a 10-year period. The selection of products at each phase is made by each
importing country and must be drawn from each of the four main textile groups:
yarns, fabrics, made-up textiles and apparel. As it implements the WTO
mechanisms, the United States government is negotiating bilateral trade
agreements with developing countries (which are generally exporters of textile
products) that are members of the WTO to get them to reduce their tariffs on
imports of textiles and apparel. The elimination of quotas and the reduction
of tariffs under the WTO may result in increased imports of certain textile
products and apparel into North America. These factors could make the
Company's products less competitive against low cost imports from third world
countries. See "Business--Competition."
The North American Free Trade Agreement ("NAFTA") among Canada, Mexico and
the United States, which became effective on January 1, 1994, has created the
world's largest free-trade zone. NAFTA will phase out all trade restrictions
and tariffs on textiles and apparel among the three countries. There can be no
assurance that the removal of these barriers to trade will not have a material
adverse effect on the Company's business, financial condition and results of
operations.
IMPORTANCE OF B&D LICENSE AGREEMENT; CVC'S INTEREST IN B&D; POSSIBLE SALE OF
B&D
A substantial majority of the products sold by the Consumer Products
Division are manufactured, marketed and sold under a license agreement with
B&D. See "Business--Licenses and Trademarks." Although the Company has the
right to perpetually renew the license agreement for successive one-year terms
(subject to
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<PAGE>
certain conditions), the loss of this license or a deterioration in B&D's
business could have a material adverse effect on the Company's business,
financial condition and results of operations.
Citicorp Venture Capital, Ltd. ("CVC"), the Company's largest shareholder,
has an interest in B&D as a result of CVC's purchase in 1991 of certain notes
of Papercraft Corporation ("Papercraft"), the then-parent company of B&D,
while Papercraft was the subject of a bankruptcy proceeding in the Western
District of Pennsylvania. During the bankruptcy proceeding, a committee of
certain other creditors of Papercraft (the "Committee") sought to have CVC's
claim equitably subordinated to the claims of other creditors. In October
1995, the bankruptcy court denied the Committee's request for equitable
subordination, but limited CVC's claim to the purchase price of the Papercraft
notes (resulting in CVC receiving an 11% interest in the reorganized entity,
which emerged from bankruptcy as BDK Holdings Inc. ("BDK")), rather than the
face value of the notes (which would result in CVC receiving a 41% interest in
BDK). CVC has appealed the bankruptcy court's decision, asserting that the
court erred in establishing and applying a new and previously unrecognized
rule which prohibited CVC from purchasing the notes without first disclosing
to the sellers and the other creditors that it intended to purchase the notes
and that it had a representative on the Papercraft board. The Committee has
also filed an appeal contesting the bankruptcy court's decision not to
equitably subordinate CVC's claim. In addition, CVC believes that the board of
directors of BDK may be seeking to sell the company and has filed a complaint
with the bankruptcy court seeking to prohibit any sale of the disputed
interest in BDK until all appeals of the bankruptcy court's decision have been
exhausted.
PRICE AND AVAILABILITY OF RAW MATERIALS
The Company's principal raw materials are acrylic and polyester, which the
Company purchases from several large chemical companies. The Company's largest
supplier is Sterling Fibers, Inc., which is the exclusive supplier of acrylic
micro-fiber used in the Company's fabrics. The Company seeks to purchase
sufficient amounts of acrylic and polyester to cover existing order
commitments. The Company does not speculate on the price of raw materials.
Although the Company has always been able to obtain sufficient supplies of raw
materials, any shortage or interruption in the supply, variations in the
quality or fluctuations in the cost of raw materials could have a material
adverse effect on the Company's business, financial condition and results of
operations. See "Business--Raw Materials and Suppliers."
CYCLICAL NATURE OF TEXTILE INDUSTRY
Like all manufacturers of textile and textile-related products, the
Company's financial performance tends to fluctuate with the general economic
cycle and respond to market influences such as fashion trends. Reflecting the
cyclical nature of the textile industry, many textile producers tend to
increase capacity during years in which sales are strong. Such increases in
capacity tend to accelerate a general economic downturn in the Company's
textile markets. Any future increases in the capacity to manufacture pile and
other competing fabrics could have a material adverse effect on the Company's
business, financial condition and results of operations.
The popularity and demand for particular textiles and textile-related
products may vary significantly from year to year based on prevailing fashion
trends which cannot be predicted. Due to the highly competitive nature of the
industry, any failure by the Company to rapidly respond to changing fashion
trends could have a material adverse effect on the Company's business,
financial condition and results of operations.
CONTROLLING STOCKHOLDERS
CVC and certain members of senior management of the Company and CVC
beneficially own a majority of the outstanding common stock of Holdings and,
as a result, collectively control the affairs and policies of the Company.
Circumstances may occur in which the interests of these stockholders could be
in conflict with the interests of the holders of the Notes. In addition, these
stockholders may have an interest in pursuing acquisitions, divestitures or
other transactions that, in their judgment, could enhance their equity
investment, even though such transactions might involve risks to the holders
of the Notes. See "--Importance of B&D Licensing Agreement; CVC's Interest in
B&D; Possible Sale of B&D," "Principal Stockholders" and "Certain
Relationships and Related Transactions."
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<PAGE>
CHANGE OF CONTROL
In the event of a Change of Control, each holder of the Notes will have the
right to require the Company to make an offer for cash to repurchase all or
any part of such holder's Notes at a price equal to 101% of the principal
amount thereof, plus accrued and unpaid interest, if any, thereon to the date
of repurchase. A Change of Control will result in an event of default under
the New Credit Facility and may result in a default under other indebtedness
of the Company that may be incurred in the future. The New Credit Facility
will prohibit the purchase of outstanding Notes prior to repayment of the
borrowings under the New Credit Facility. Finally, there can be no assurance
that the Company will have the financial resources necessary to repurchase the
Notes upon a Change of Control. See "Description of Notes--Change of Control."
RISK OF FRAUDULENT TRANSFER
Under applicable provisions of the United States Bankruptcy Code and
comparable provisions of state fraudulent transfer or conveyance laws, if the
Company, at the time it issued the Notes, (i) incurred such indebtedness with
intent to hinder, delay or defraud creditors, or (ii)(a) received less than
reasonably equivalent value or fair consideration for incurring such
indebtedness and (b)(1) was insolvent at the time of incurrence, (2) was
rendered insolvent by reason of such incurrence (and the application of the
proceeds thereof), (3) was engaged or was about to engage in a business or
transaction for which the assets remaining with the Company constituted
unreasonably small capital to carry on its businesses, or (4) intended to
incur, or believed that it would incur, debts beyond its ability to pay such
debts as they mature, then, in each case, a court of competent jurisdiction
could void, in whole or in part, the Notes, or, in the alternative,
subordinate the Notes to existing and future indebtedness of the Company. The
measure of insolvency for purposes of the foregoing will vary depending upon
the law applied in such case. Generally, however, the Company would be
considered insolvent if the sum of its debts, including contingent
liabilities, was greater than all of its assets at fair valuation or if the
present fair saleable value of its assets was less than the amount that would
be required to pay the probable liability on its existing debts, including
contingent liabilities, as they become absolute and matured. The Company
believes that, for purposes of all such insolvency, bankruptcy and fraudulent
transfer or conveyance laws, the Notes are being issued without the intent to
hinder, delay or defraud creditors and for fair value and that the Company,
after the issuance of the Notes and the application of the proceeds thereof,
will be solvent, will have sufficient capital for carrying on its business and
will be able to pay its debts as they mature. There can be no assurance,
however, that a court passing on such questions would agree with the Company's
view.
In addition, the Subsidiary Guaranties may be subject to review under
relevant federal and state fraudulent conveyance and similar statutes in a
bankruptcy or reorganization case or a lawsuit by or on behalf of creditors of
any of the Subsidiary Guarantors. In such a case, the analysis set forth above
would generally apply, except that the Subsidiary Guaranties could also be
subject to the claim that, since the Subsidiary Guaranty was incurred for the
benefit of the Company (and only indirectly for the benefit of the Subsidiary
Guarantors), the obligations of the Subsidiary Guarantor thereunder was
incurred for less than reasonably equivalent value or fair consideration. A
court could void a Subsidiary Guarantor's obligation under the Subsidiary
Guaranties, subordinate the Subsidiary Guaranties to other indebtedness of a
Subsidiary Guarantor or take other action detrimental to the holders of the
Notes.
STRINGENT ENVIRONMENTAL, SAFETY AND HEALTH REGULATION
The Company's operations are subject to increasingly stringent federal,
state and local laws and regulations governing environmental, health and
safety matters. Pursuant to these requirements, the Company's facilities
maintain environmental operating permits that are subject to revocation,
modification and renewal. Violations of such permit requirements could give
rise to substantial fines and/or civil or criminal sanctions. In addition, the
Company may be liable under environmental laws for the cleanup of
contamination that occurs on or from the Company's properties, including
contamination that occurred prior to the Company's ownership or operation of
the properties, or for clean-up of contamination on any off-site location to
which the Company shipped hazardous substances for disposal. There can be no
assurance that the Company is at all times in full compliance
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<PAGE>
with applicable environmental, safety and health requirements or that the
costs or liabilities related to such requirements that may be imposed in the
future will not result in a material adverse effect on the Company's business,
financial condition and results of operations. See "Business--Environmental,
Safety and Health Regulation."
ABSENCE OF PUBLIC MARKET; RESTRICTIONS ON TRANSFER
Prior to the Exchange Offer, there has not been any public market for the
Notes. The Notes have not been registered under the Securities Act and will be
subject to restrictions on transferability to the extent that they are not
exchange for New Notes by holders who are entitled to participate in this
Exchange Offer. The holders of Old Notes (other than any such holder that is
an "affiliate"of the Company within the meaning of Rule 405 under the
Securities Act) who are not eligible to participate in the Exchange Offer are
entitled to certain registration rights, and the Company is required to file a
Shelf Registration Statement with respect to such Notes. The New Notes will
constitute a new issue of securities with no established trading market. The
Company does not intend to list the New Notes on any national securities
exchange or to seek the admission thereof to trading in the National
Association of Securities Dealers Automated Quotation System. The Initial
Purchaser has advised the Company that it currently intends to make a market
in the New Notes, but it is not obligated to do so and may discontinue such
market making at any time. In addition, such market making activity will be
subject to the limits imposed by the Securities Act and the Exchange Act and
may be limited during the Exchange Offer and the pendency of the Shelf
Registration Statements. Accordingly, no assurance can be given that an active
public market or other market will develop for the New Notes or as to the
liquidity of the trading market for the New Notes. If a trading market does
not develop or is not maintained, holders of the New Notes may experience
difficulty in reselling the New Notes or may be unable to sell them at all. If
a market for the New Notes develops, any such market may be discontinued at
any time.
If a public trading market develops for the New Notes, future trading prices
of the New Notes will depend on many factors, including, among other things,
prevailing interest rates, the Company's operating results and the market for
similar securities. Depending on prevailing interest rates, the market for
similar securities and other factors, including the financial condition of the
Company, the New Notes may trade at a discount from their principal amount.
FORWARD-LOOKING STATEMENTS
This Prospectus contains certain forward-looking statements concerning the
Company's operations, economic performance and financial condition, including,
in particular, the likelihood of the Company's success in developing and
expanding its business. These statements are based upon a number of
assumptions and estimates which are inherently subject to significant
uncertainties and contingencies, many of which are beyond the control of the
Company, and reflect future business decisions which are subject to change.
The foregoing description of risk factors specifies the principal
contingencies and uncertainties to which the Company believes it is subject.
Some of these assumptions inevitably will not materialize, and unanticipated
events will occur which will affect the Company's results.
EXCHANGE OFFER PROCEDURES
Issuance of New Notes in exchange for the Old Notes pursuant to the Exchange
Offer will be made only after a timely receipt by the Company of the Old
Notes, a properly completed and duly executed Letter of Transmittal and all
other required documents. Therefore, holders of the Old Notes desiring to
tender such Notes in exchange for New Notes should allow sufficient time to
ensure timely delivery. The Company is under no duty to give notification of
defects or irregularities with respect to the tenders of Notes for exchange.
Notes that are not tendered or are tendered but not accepted will, following
the consummation of the Exchange Offer, continue to be subject to the existing
restrictions upon transfer thereof and, upon consummation of the Exchange
Offer, certain registration rights under the Registration Rights Agreement
will terminate. In addition, any holder of Notes who tenders in the Exchange
Offer for the purpose of participating in a distribution of the New Notes
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<PAGE>
may be deemed to have received restricted securities and, if so, will be
required to comply with the registration and prospectus delivery requirements
of the Securities Act in connection with any resale transactions. Each
Participating Broker-Dealer that receives New Notes for its own account in
exchange for Old Notes, where such Notes were acquired by such Participating
Broker-Dealer as a result of market-making activities or other trading
activities, must acknowledge that it will deliver a prospectus in connection
with any resale of the New Notes. See "Plan of Distribution." To the extent
that Notes are tendered and accepted in the Exchange Offer, the trading market
for untendered and tendered but unaccepted Notes could be adversely affected.
See "The Exchange Offer."
USE OF PROCEEDS
The Exchange Offer is intended to satisfy certain of the Company's
obligations under the Registration Rights Agreement. The Company will not
receive any cash proceeds from the issuance of the New Notes in the Exchange
Offer. The net proceeds of the Initial Offering (after deducting the discount
to the Initial Purchasers and expenses in connection with the Initial Offering
and certain related transactions) were $95.4 million. Such proceeds were used
as follows: (i) $26.8 million was used by the Company to prepay all
outstanding Tranche A term loans under the Company's existing revolving credit
and term loan facility (the "Old Credit Facility"), including accrued and
unpaid interest thereon; (ii) $25.0 million was used to prepay all outstanding
Tranche B term loans under the Old Credit Facility, including accrued and
unpaid interest thereon, (iii) $16.6 million was used by the Company to prepay
its 12 1/2% Senior Subordinated Note due December 13, 2003 (the "Equitable
Note"), including a prepayment penalty and accrued and unpaid interest
thereon; (iv) $5.7 million was used by the Company to prepay the Earn-Out
Note, including accrued and unpaid interest thereon; (v) $0.8 million was used
to pay fees and expenses in connection with the New Credit Facility; and (vi)
$20.5 million was used to prepay outstanding revolving credit borrowings under
the Old Credit Facility. See "The Refinancing."
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<PAGE>
SELECTED HISTORICAL CONSOLIDATED FINANCIAL DATA
Set forth below are selected historical consolidated financial data of the
Company for the periods indicated. The historical consolidated financial data
of the Company prior to December 13, 1995 reflect the historical results of
Mills. The selected historical financial data of the Company as of and for the
years ended December 30, 1995 and January 4, 1997 has been derived from the
Consolidated Financial Statements of the Company included elsewhere herein,
which have been audited by Coopers & Lybrand L.L.P., independent accountants.
The selected historical financial data of the Company as of and for the year
ended December 31, 1994 has been derived from the Consolidated Financial
Statements of the Company included elsewhere herein, which have been audited
by BDO Seidman, LLP, independent accountants. The selected historical
financial data of the Company as of and for the years ended January 2, 1993
and January 1, 1994 has been derived from the Consolidated Financial
Statements of the Company not included herein, which have been audited by BDO
Seidman, LLP. The information for the nine month periods ended September 28,
1996 and October 4, 1997 is unaudited, but, in the opinion of the Company's
management, includes all adjustments (consisting only of normal recurring
accruals) necessary for the fair statement of the results for the periods
presented. The results for the nine month period ended October 4, 1997 are not
necessarily indicative of the results for the entire year, since the Company's
business is seasonal with historically better results in the second and third
quarters. The selected consolidated financial data set forth below should be
read in conjunction with "Management's Discussion and Analysis of Financial
Condition and Results of Operations" and the Consolidated Financial Statements
of the Company and related notes thereto included elsewhere in this
Registration Statement.
<TABLE>
<CAPTION>
FISCAL YEAR NINE MONTHS ENDED
------------------------------------------------- ------------------------
SEPTEMBER 28, OCTOBER 4,
1992 1993 1994 1995 1996 1996 1997
------- ------- ------- -------- -------- ------------- ----------
(UNAUDITED)
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C> <C> <C> <C> <C>
STATEMENT OF INCOME
DATA:
Net sales............... $56,443 $62,527 $72,469 $ 93,840 $121,751 $ 95,633 $120,822
Cost of sales........... 39,319 43,035 49,594 67,249 86,525 66,450 77,959
------- ------- ------- -------- -------- -------- --------
Gross profit............ 17,124 19,492 22,875 26,591 35,226 29,183 42,863
Operating expenses...... 9,070 10,255 12,550 16,235 18,045 13,146 17,859
------- ------- ------- -------- -------- -------- --------
Income from operations.. 8,054 9,237 10,325 10,356 17,181 16,037 25,004
Interest expense, net... 1,007 973 2,208 3,745 9,125 6,858 8,094
Other expense........... 120 3,265(a) 83 166 589 605 586
Income tax expense...... 2,550 2,050 2,850 3,083 3,354 3,605 6,542
------- ------- ------- -------- -------- -------- --------
Income before
extraordinary loss..... 4,377 2,949 5,184 3,362 4,113 4,969 9,782
Extraordinary loss, net
of tax benefit......... -- -- -- 2,407(b) -- -- 2,857(c)
------- ------- ------- -------- -------- -------- --------
Net income.............. $ 4,377 $ 2,949 $ 5,184 $ 955 $ 4,113 $ 4,969 $ 6,925
======= ======= ======= ======== ======== ======== ========
OTHER DATA:
Depreciation and
amortization........... $ 1,368 $ 1,124 $ 1,491 $ 1,946 $ 3,097 $ 2,262 $ 2,617
Capital expenditures.... 706 838 1,394 5,239 1,679 1,284 13,315
EBITDA(d)............... 9,302 7,096 11,733 12,136 19,689 17,693 27,035
Adjusted EBITDA(e)...... 9,302 10,532 11,733 12,136 20,990 17,693 27,035
Ratio of earnings to
fixed charges(f)....... 5.24x 3.84x 3.21x 2.30x 1.68x 2.03x 2.71x
BALANCE SHEET DATA:
Cash and cash
equivalents............ $ 279 $ 196 $ 384 $ 1,023 $ 49 $ 1,792 $ 887
Working capital(g)...... 540 2,844 5,925 17,735 13,340 24,926 26,473
Total assets............ 15,909 14,860 21,317 50,946 49,497 70,269 90,306
Total debt(h)........... 7,804 5,906 27,547 97,857 92,295 112,211 133,410
Stockholder's equity
(deficit).............. 8,105 8,954 (6,231) (46,911) (42,798) (41,942) (43,104)
</TABLE>
- --------
(a) Included in "Other expense" during fiscal 1993 is a one time charge of
$3,436,000 relating to the charge-off of a product supply agreement with
a related party and an investment in a related party. BDO Seidman, LLP
issued a qualified opinion related to the Company's financial statements
as of and for the period ended January 2, 1993 relating to the carrying
value of the product supply agreement.
(b) During fiscal 1995, the Company recognized an extraordinary loss, net of
income tax benefit of $1,240,000, as a result of the early retirement of
the Company's debt obligations. See Notes 4 and 7 to the Consolidated
Financial Statements.
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<PAGE>
(c) During April 1997, the Company recognized an extraordinary loss, net of
income tax benefit of $1,527,000, as a result of the refinancing of the
Company's debt in connection with the Initial Offering. See Note 7 to the
Consolidated Financial Statements.
(d) EBITDA represents income before extraordinary loss plus income tax
expense, interest expense (net), depreciation and amortization. The
Company believes that EBITDA provides useful information regarding the
Company's ability to service its debt; however, EBITDA does not represent
cash flow from operations, as defined by generally accepted accounting
principles and should not be considered as a substitute for net income as
an indicator of the Company's operating performance or cash flow as a
measure of liquidity. The definition of EBITDA presented herein differs
from the definition of EBITDA in the Indenture. EBITDA has not been
adjusted to reflect certain costs and expenses payable to related parties
prior to fiscal 1996, which were substantially reduced as a result of the
Recapitalization. See "Management's Discussion and Analysis of Financial
Condition and Results of Operations" and "Description of Notes--Certain
Definitions."
(e) Adjusted EBITDA represents EBITDA (See Note (d) above), plus (i) for
fiscal 1993, a one time charge of $3,436,000 relating to the charge-off
of a product supply agreement with a related party and an investment in a
related party (See Note (a) above) and (ii) for fiscal 1996, (A) moving
expenses of approximately $320,000 incurred to relocate the Company's
Consumers Product Division and (B) fees of approximately $980,000 for a
consulting project related to process improvement and cash flow
management. Adjusted EBITDA is presented because the Company believes
that it provides useful information regarding the Company's ability to
incur and service debt; however, Adjusted EBITDA does not represent cash
flow from operations as defined by generally accepted accounting
principles and should not be considered as a substitute for net income as
an indicator of the Company's operating performance or cash flow as a
measure of liquidity.
(f) For purposes of computing the ratio of earnings to fixed charges,
earnings include income before income taxes and extraordinary loss, plus
fixed charges. Fixed charges consist of interest expense, amortization of
debt issuance costs, and the portion of rental expense which the Company
believes is representative of the interest component of rental expense.
(g) Working capital represents consolidated current assets less consolidated
current liabilities.
(h) The Company's fiscal 1994 balance sheet includes indebtedness of Holdings
which has been accounted for as indebtedness of the Company under the
"push-down" method of accounting. This debt was paid off on December 13,
1995. The "push-down" method requires that debt of Holdings, which was
guaranteed and collateralized by the assets of the Company, be treated
for accounting purposes as debt of the Company. See Note 1 to the
Consolidated Financial Statements.
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<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
OVERVIEW
The Company's net sales grew from $72.5 million in fiscal 1994 to $121.7
million in fiscal 1996 primarily as a result of rapidly growing demand for the
Company's performance-oriented pile fabrics, which were first introduced in
1993. This demand has been driven by a growing emphasis on outdoor activities
and styling related to outdoor activities. The Company has responded by
developing a line of performance-oriented micro-fiber fabrics, which the
Company believes offer superior performance characteristics in comparison to
competing fleece fabrics. The Company has also invested heavily to upgrade its
fabric manufacturing facilities and increase capacity. In September 1995, the
Company increased manufacturing capacity by 140,000 square feet with the
addition of the Jacksboro, Tennessee facility acquired in the Borg
Acquisition, which the Company upgraded and converted to produce higher margin
micro-fiber products. This facility generated net sales of $24.1 million in
fiscal 1996 and $5.7 million in fiscal 1995. In addition, effective August 30,
1997 the Company, through its wholly-owned subsidiary, Glenoit Corporation of
Canada ("GCC"), acquired certain assets and liabilities of Collins & Aikman
Canada, Inc.
RESULTS OF OPERATIONS
The following table sets forth selected results of operations expressed in
millions of dollars and as a percentage of total net sales for fiscal years
1994, 1995 and 1996 and the nine month periods ended September 28, 1996 and
October 4, 1997.
<TABLE>
<CAPTION>
FISCAL YEAR NINE MONTHS ENDED
-------------------------------------- ---------------------------
SEPTEMBER 28, OCTOBER 4,
1994 1995 1996 1996 1997
----------- ----------- ------------ ------------- ------------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Net sales:
Fabric Division........ $32.3 44.6% $50.2 53.5% $ 79.4 65.2% $ 62.7 65.6% $ 89.9 74.4%
Consumer Products
Division.............. 40.2 55.4 43.6 46.5 42.3 34.8 32.9 34.4 30.9 25.6
----- ----- ----- ----- ------ ----- ------ ------ ------ -----
Total net sales........ 72.5 100.0 93.8 100.0 121.7 100.0 95.6 100.0 120.8 100.0
Cost of sales........... 49.6 68.4 67.2 71.7 86.5 71.1 66.4 69.5 77.9 64.5
----- ----- ----- ----- ------ ----- ------ ------ ------ -----
Gross profit........... 22.9 31.6 26.6 28.3 35.2 28.9 29.2 30.5 42.9 35.5
Operating expenses...... 12.6 17.3 16.2 17.3 18.0 14.8 13.2 13.7 17.9 14.8
----- ----- ----- ----- ------ ----- ------ ------ ------ -----
Income from
operations............ 10.3 14.3 10.4 11.0 17.2 14.1 16.0 16.8 25.0 20.7
Interest expense, net... 2.2 3.1 3.7 4.0 9.1 7.5 6.8 7.2 8.1 6.7
Other expense........... 0.1 0.1 0.2 0.1 0.6 0.5 0.6 0.6 0.6 0.5
Income tax expense...... 2.8 3.9 3.1 3.3 3.4 2.7 3.6 3.8 6.5 5.4
----- ----- ----- ----- ------ ----- ------ ------ ------ -----
Income before
extraordinary loss..... 5.2 7.2 3.4 3.6 4.1 3.4 5.0 5.2 9.8 8.1
Extraordinary loss...... -- -- 2.4 2.6 -- -- -- -- 2.9 2.4
----- ----- ----- ----- ------ ----- ------ ------ ------ -----
Net income............. $ 5.2 7.2% $ 1.0 1.0% $ 4.1 3.4% $ 5.0 5.2% $ 6.9 5.7%
===== ===== ===== ===== ====== ===== ====== ====== ====== =====
</TABLE>
NINE MONTHS ENDED OCTOBER 4, 1997 COMPARED TO NINE MONTHS ENDED SEPTEMBER 28,
1996
Net sales to date through October 4, 1997 increased to $120.8 million or
26.3% compared to $95.6 million for the first nine months of the prior year.
Fabric Division sales increased significantly due to both increased unit
volume and an improved average selling price which reflects an improved sales
mix over the prior year. Sales in the Fabric Division were also positively
impacted by the acquisition made by GCC which generated sales of $1.7 million
from the acquisition date through October 4, 1997. Fabric Division sales
offset a decline in sales in the Consumer Products Division which occurred
primarily in the second quarter as a result of a unit volume shortfall. Open
orders for the Company at October 4 were $15.0 million compared to $13.5
million at the same time last year.
Gross profit year to date through October 4, 1997 was $42.9 million or 35.5%
of net sales compared with $29.2 million or 30.5% of net sales for the first
nine months of the prior year. This increase of $13.7 million or
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46.9% resulted from increased unit volume and higher average selling prices in
the Fabric Division. The improved results in the Fabric Division were
partially offset by the margin effect of a second quarter decline in sales
volume and a third quarter promotional mix in the Consumer Products Division.
Operating expenses year to date through October 4, 1997 were $17.9 million
or 14.8% of net sales compared to $13.1 million or 13.7% of net sales. Dollar
increases over the prior year were primarily in sales related categories such
as commissions and credit collection expense. Accruals for pension,
professional fees, and profit related compensation plans increased over the
prior year.
Operating income was $25.0 million for the nine months ended October 4, 1997
compared to $16.0 million in the prior year. This increase, resulting from the
factors described above, represents an increase of $9.0 million or 55.9%.
Interest expense for the nine months ended October 4, 1997 was $8.1 million
compared to $6.9 million for the same period last year. Interest expense has
increased due to higher levels of debt and a higher effective borrowing rate
as a result of the Initial Offering.
Net income for the nine months ended October 4, 1997 was $9.8 million
(excluding the effect of an extraordinary loss on early extinguishment of debt
of $2.9 million, net of an income tax benefit, related to the refinancing of
the company's debt which took place at April 1, 1997) compared to $5.0 million
for the first nine months of the prior year.
FISCAL YEAR 1996 COMPARED TO FISCAL YEAR 1995
Net sales for fiscal 1996 were $121.7 million, an increase of $27.9 million
or 29.7% over 1995. This sales growth resulted from increased sales in the
Fabric Division which was partially offset by a small sales decline in the
Consumer Products Division. Fabric Division sales increased by $29.2 million,
or 58.2%, primarily driven by increased unit sales of the Company's
performance-oriented fabrics in sportswear, outerwear, accessories and home
textile products, as well as increased unit sales of faux fur fabrics for the
women's and children's coat markets. In addition, the Fabric Division's
average sales price increased as higher-priced performance fabrics became a
larger portion of the sales mix. The addition of the Jacksboro facility for a
full year provided the Company with the capacity for an additional $18.4
million of fabric sales over 1995. In the Consumer Products Division, unit
volume remained stable but unit average sales prices declined slightly due to
increased sales of promotional items by certain of the Company's major
customers.
Gross profit for fiscal 1996 was $35.2 million, an increase of $8.6 million
or 32.5% over 1995. As a percent of net sales, gross profit was 28.9% compared
with 28.3% in the prior year. The Company derived benefits from lower raw
material prices and increased sales volume. Additionally, the Company's
purchase of a facility in Tarboro, North Carolina (which was formerly leased
from a related party) in connection with the Recapitalization resulted in net
lease cost savings of approximately $0.4 million in fiscal 1996. These factors
more than offset the costs of integrating the Jacksboro facility and moving
the operations of the Consumer Products Division into a separate facility in
Tarboro. The cost of this move was approximately $0.3 million.
Operating expenses for fiscal 1996 were $18.0 million, an increase of $1.8
million or 11.1% over fiscal 1995. Operating expenses as a percent of net
sales declined from 17.3% in fiscal 1995 to 14.8% in fiscal 1996. The dollar
increase in operating expenses resulted from growth in sales-related expenses
(primarily commissions), increased research and development expenditures in
the Consumer Products Division, and costs of approximately $1.0 million for
consulting services. Operating expenses declined as a percent of net sales
primarily due to the reduction of certain costs following the
Recapitalization. These costs primarily consisted of management fees and
consulting fees to related parties and associated travel and other expenses of
approximately $1.4 million in fiscal 1995 which were not incurred in fiscal
1996.
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Income from operations for fiscal 1996 was $17.2 million, an increase of
$6.8 million over fiscal 1995. Income from operations as a percent of net
sales was 14.1% in fiscal 1996 compared with 11.0% in fiscal 1995. The
increase in operating income as a percent of net sales was attributable to the
factors resulting in the increase in gross margin and the decrease in
operating expenses as a percent of net sales discussed above.
Net interest expense for fiscal 1996 was $9.1 million compared with $3.7
million in fiscal 1995. The increase of $5.4 million resulted from increased
borrowing incurred in connection with the Recapitalization.
Net income for fiscal 1996 was $4.1 million, an increase of $3.2 million
over fiscal 1995. Net income in 1995 was reduced by an extraordinary loss of
$2.4 million, net of taxes, related to early extinguishment of debt as a part
of the Recapitalization.
Comparison of Fiscal Year 1995 Compared to Fiscal Year 1994
Net sales for fiscal 1995 were $93.8 million, an increase of $21.4 million
or 29.5% over fiscal 1994. The majority of the increase came from the Fabric
Division where sales increased by $17.9 million or 55.4%. Fabric sales grew
primarily as a result of increased unit sales and average sales price for the
Company's higher-priced performance-oriented fabrics. The addition of the
Jacksboro facility for the last three months of the year provided the Company
with the capacity for an additional $5.7 million of fabric sales. Sales in the
Consumer Products Division increased by $3.4 million due to increased unit
sales of both kitchen rugs and welcome mats with stable average unit prices.
Gross profit for fiscal 1995 was $26.6 million, an increase of $3.7 million
or 16.2% over the prior year. As a percent of net sales, gross profit in
fiscal 1995 was 28.3% compared to 31.6% for fiscal 1994. The decrease in gross
margin resulted from significant raw material price increases for polyester
fiber and, to a lesser extent, acrylic fiber, which was partially offset by
production efficiencies associated with increased sales.
Operating expenses for fiscal 1995 were $16.2 million, an increase of $3.7
million or 29.4% over the prior year. As a percent of net sales, operating
expenses were 17.3% in fiscal 1995 which was unchanged from fiscal 1994. The
dollar increases in operating expenses resulted mainly from sales-related
expenditures, primarily commissions.
Income from operations for fiscal 1995 was $10.4 million, a slight increase
over the prior year. As a percent of net sales, income from operations in
fiscal 1995 was 11.0% compared to 14.3% in fiscal 1994. The decrease in
operating income as a percent of net sales was attributable to the factors
resulting in the decrease in gross margin discussed above.
Interest expense for fiscal 1995 was $3.7 million compared to $2.2 million
for fiscal 1994. The increase in interest expense was due primarily to
additional borrowings in support of increased working capital requirements as
a result of the higher level of sales, as well as significant capital
expenditures to upgrade the Jacksboro facility acquired in the Borg
Acquisition.
Net income for fiscal 1995 was $1.0 million, a decrease of $4.2 million
compared to fiscal 1994. Net income in fiscal 1995 was reduced by an
extraordinary loss of $2.4 million, net of taxes, related to early
extinguishment of debt as part of the Recapitalization.
LIQUIDITY AND CAPITAL RESOURCES
The Company relies on internally generated cash flow from operations,
supplemented by borrowings under its senior credit facility and vendor
financing to meet its debt service requirements, capital expenditures and
working capital needs. The Company is highly leveraged.
On April 1, 1997, the Company issued $100 million of senior subordinated
notes (the "Initial Offering"). Concurrently with the Initial Offering, the
Company entered into the New Credit Facility with a syndicate of
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lenders led by BNP, pursuant to which the Company obtained available credit
(i) up to $45.0 million for working capital and general corporate purposes,
subject to a Borrowing Base, and (ii) up to $25.0 million for acquisitions.
The Company also prepaid all outstanding indebtedness under the Old Credit
Facility. At October 4, 1997, there were borrowings of $7.1 million under the
senior credit facility and approximately $55.3 million available to borrow
subject of the terms of the senior credit agreement. A detailed description of
the senior subordinated notes and the senior credit agreement may be found in
the notes to consolidated financial statements.
Principal and interest payments in respect of the Notes and the New Credit
Facility will represent significant liquidity requirements for the Company. In
addition, the Company will be permitted (but will not be obligated) to make
certain payments to Holdings, including payments (i) in respect of principal
and interest of the Seller Notes, (ii) to cover certain administrative and
operating expenses of Holdings and (iii) to cover certain tax liabilities
allocable to the Company, subject in each case to certain conditions as
described under "Description of Notes--Certain Covenants--Limitation on
Restricted Payments."
The Company believes that cash generated from operations, together with
vendor financing and amounts available under the New Credit Facility, will be
adequate to meet its debt service requirements, capital expenditures and
working capital needs for the foreseeable future, although no assurance can be
given in this regard. The Company's future operating performance and ability
to service or refinance the Notes and to extend or refinance its other
indebtedness will be subject to future economic conditions and to financial,
business and other factors beyond the Company's control.
During the nine months ending October 4, 1997, net cash provided by
operating activities was $11.7 million. Operating assets increased resulting
in a use of $17.6 million for working capital needs to support seasonal
growth. Accounts receivable increased by $17.1 million, inventories and other
current assets increased by $530,000. Accrued liabilities increased by $10.5
million, due primarily to accrued interest on senior subordinated notes and
accrued taxes. Accounts payable increased by $4.6 million.
On March 5, 1997, the Company declared a dividend and issued a note in the
amount of approximately $5.8 million (the "Note") to a shareholder of the
Company's Parent in satisfaction of a contingent earnout obligation of the
Company's Parent related to the Recapitalization discussed in the January 4,
1997 financial statements. Additionally, on June 14, 1997, the Company paid a
dividend in the amount of $1.6 million to enable its parent to exercise an
option to repurchase stock and to retire a related note due to the shareholder
from whom the stock was repurchased. This transaction took place pursuant to a
leveraged recapitalization agreement consummated in December 1995 and was
anticipated in both the bond indenture and the senior credit agreement now in
effect.
During fiscal 1996, cash provided by operating activities was $6.4 million.
Changes in operating assets resulted in a use of $0.5 million. Increases in
receivables and a decrease in payables required $2.3 million and $3.0 million,
respectively. Cash was provided by changes in accrued expenses of $1.3
million, changes in inventories and prepaid expenses totaling $1.0 million and
a change in the amount due to/from parent of $2.6 million.
During fiscal 1995 net cash provided by operating activities was $0.2
million. Changes in operating assets resulted in a use of $6.6 million which
consisted of increases in inventory of $2.1 million, increases in receivables
of $3.2 million, and increases in prepaid expenses and receivables due from
parent of $2.4 million. These were offset by increases in accounts payable and
accrued expenses of $1.1 million.
During fiscal 1994 net cash provided by operating activities was $0.1
million. Changes in operating assets resulted in a use of $7.4 million
consisting of an increase of $6.2 million in receivables, an increase in
inventory of $1.2 million, and an increase of $0.7 million in prepaid
expenses, offset by an increase of $0.7 million in accounts payable and
accrued expenses.
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Capital Improvements
Capital expenditures for the nine month period ended October 4, 1997 were
$13.3 million. These additions were primarily in the Fabric Division for
additions of knitting and blending equipment to increase capacity.
Expenditures were also made for upgrades to management information systems.
During fiscal 1994, 1995 and 1996, the Company's capital expenditures were
$1.4 million, $5.2 million and $1.7 million, respectively. In fiscal 1994
through 1996, the Company made total capital additions of approximately $18.3
million (including the estimated fair market value of leased equipment). These
additions included upgrading equipment in the Fabric Division (including the
Jacksboro, Tennessee facility acquired in the Borg Acquisition) to accommodate
the growth in micro-fiber products, as well as upgrading plant and equipment
in the Consumer Products Division. Minimum future lease payments under
capitalized and operating leases for equipment under leases at January 4, 1997
were as follows: 1997--$4.4 million, 1998--$4.4 million, 1999--$3.6 million,
2000--$3.3 million, and thereafter--$6.7 million.
SEASONALITY
The Company's business is seasonal in nature. Generally, there is increased
retail demand for garments and rugs during the fall (back-to-school) and
December holiday selling seasons. Consequently, demand for the Company's
products is generally higher during the Company's second and third fiscal
quarters when such products are produced for these selling seasons.
INFLATION
The Company believes that inflation has not had a material impact on its
results of operations for the three fiscal years ended January 4, 1997 and the
nine months ended October 4, 1997 due to the relatively low rates of inflation
during this period.
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BUSINESS
GENERAL
Glenoit, founded in 1954, is the leading domestic manufacturer and marketer
of specialty fabrics known as "sliver-knit" pile fabrics and a leading
domestic manufacturer of printed rugs for the home. Through its Fabric
Division, the Company produces an extensive line of sliver (pronounced "sly-
ver") knit pile fabrics, principally made from acrylic, which are used in the
manufacture of performance-oriented outerwear, sportswear, coats, accessories,
home textiles, automotive interiors, military uniforms, toys and a variety of
other end-use products. The Company principally manufactures fabrics on a
made-to-order basis and currently has over 1,100 customers. Sliver-knit pile
fabrics are produced through a specialized process in which fabric is
manufactured directly from loose fibers, in contrast to the more traditional
knitting process in which fibers are first spun into yarn and then knit into
fabric. Through its Consumer Products Division, the Company manufactures a
wide variety of printed kitchen rugs, welcome mats, bath rugs and children's
area rugs sold primarily through national discount retailers. The Company
believes that it is the largest producer in the United States of rugs designed
specifically for use in the kitchen. The Fabric Division and Consumer Products
Division accounted for approximately 65% and 35%, respectively, of the
Company's net sales of $121.7 million in fiscal 1996.
The Company has experienced rapid growth in sales and earnings before
interest, taxes, depreciation and amortization ("EBITDA") over the past five
years. From fiscal 1992 to fiscal 1996, the Company's net sales have grown
from $56.4 million to $121.7 million, representing a compound annual growth
rate ("CAGR") of 21.2%, and EBITDA has grown from $9.3 million to $19.7
million, representing a CAGR of 20.6%. This growth has principally occurred in
the Fabric Division and is attributable to the Company's development and
introduction of branded, performance-oriented sliver-knit fabrics. These
fabrics were developed to target the increasing consumer preference towards
more casual and comfortable dress and a growing emphasis on outdoor activities
and styling related to outdoor activities. Beginning with Glenaura(TM) in
1993, the Company has introduced a series of branded, performance-oriented
fabrics which have transformed the Company's Fabric Division from a
traditional deep-pile fabric manufacturer dependent upon the coat market into
a diversified fabric producer serving a broader range of faster growing end-
use markets. Today, the Company's performance-oriented fabrics are principally
manufactured from acrylic micro-fiber and are marketed under the brand names
Berber by Glenoit(TM), Glenaura(TM), Zendura(TM)and GlenPile(TM).
The Company believes that its performance-oriented sliver-knit fabrics offer
apparel manufacturers greater design flexibility and superior performance
characteristics in comparison with competing fleece fabrics. These qualities
include the enhanced design and color capability of "Jacquard" knitting (which
allows the fabrics to have intricate and colorful designs knitted into the
fabric rather than printed onto the surface), added versatility in texture and
feel and greater warmth-to-weight ratios and moisture wickability. These
performance-oriented fabrics have been introduced by the Company's customers
into sportswear lines marketed under brand names such as Liz Claiborne, Jones
New York, Ralph Lauren and Anne Klein; outerwear lines marketed under brand
names such as L.L. Bean, Lands' End, Columbia, Woolrich and Bogner; and
private label programs for retailers such as Saks Fifth Avenue, Nordstrom,
Lord & Taylor, Banana Republic, Victoria's Secret and The Gap.
In addition to performance-oriented sliver-knit fabrics, the Company
believes that it is also the leading manufacturer and marketer of faux furs in
the United States. Faux fur synthetically replicates animal fur such as mink,
beaver and leopard and is typically used in women's and children's coats. The
Company also manufactures fabrics used to cover audio speakers in certain
models of General Motors cars, fireproof fabric marketed under the Glentec(TM)
name used by the United States Navy, and a wide variety of other fabrics used
in the manufacture of toys, golf club head covers, powder puffs, case linings
and other end-use products.
The Company believes that it is currently the principal domestic
manufacturer of sliver-knit fabrics made from micro-fiber (which is defined as
fiber having a diameter of less than one denier). The Company's ability to
produce these fabrics is a result of its (i) manufacturing expertise in the
sliver-knitting process which is more complex and difficult to utilize than
traditional knitting, (ii) state-of-the-art sliver-knitting equipment with
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proprietary manufacturing enhancements, (iii) experienced sliver-knitting
workforce and (iv) exclusive supply agreement for Microsupreme(R) acrylic
micro-fiber with Sterling Fibers, Inc. Over the last six years, the Company
has replaced or substantially upgraded all of its knitting equipment. In
addition, in September 1995 the Company acquired a 140,000 square-foot sliver-
knitting manufacturing facility through its acquisition of the Borg Textile
Corporation (the "Borg Acquisition") which the Company successfully upgraded
and converted to produce higher-margin micro-fiber fabrics.
The Consumer Products Division manufactures a wide variety of printed
kitchen rugs, welcome mats, bath rugs and children's area rugs which are sold
to national discount retailers including Wal-Mart, Kmart and Target, which
typically sell such rugs at retail prices ranging from $3.99 to $9.99. The
Company's kitchen rugs are manufactured under an exclusive licensing agreement
with Barth and Dreyfuss of California, Inc. ("B&D"), a major manufacturer of
kitchen textiles such as towels and potholders. Under the licensing agreement,
the Company has the exclusive right to use B&D's designs on the Company's
kitchen rugs, which are marketed jointly with B&D's kitchen textile products.
The Company believes that its vertically integrated, state-of-the-art
manufacturing and design operations provide the Consumer Products Division
with efficient design capabilities, a low-cost, high-quality product line, and
the ability to manufacture and ship large orders in a short time period. The
Company's technology allows it to take a customer's design and produce
numerous rug samples in as little as two hours, without incurring the expense
and the one month time delay associated with full scale production. The
Company's heat transfer and screen printing capabilities allow it to produce
printed rugs that have an appearance similar to that of woven rugs but cost
significantly less to produce. The Company has the ability to produce over
500,000 rugs per week and generally ships rugs within five business days after
receiving an order.
BUSINESS STRATEGY
Principal elements of the Company's strategy are:
Capitalize on Trend Towards Performance Outerwear and Sportswear. In each of
the last four years, the Company has successfully introduced new performance-
oriented fabrics designed to target the consumer trend toward more casual and
comfortable dress and the greater emphasis on physical fitness and the
outdoors. With its current line of performance-oriented fabrics, the Company
believes that it is well positioned to continue to capitalize on this trend
and will seek to continue to penetrate additional outerwear and sportswear
lines. Furthermore, the Company plans to capitalize on the demand for
performance-oriented fabrics in international markets such as Japan and Europe
through its distribution agreements with third party sales organizations in
these regions.
Build Brand Awareness. The Company has been building brand awareness for its
performance-oriented fabrics by promoting Glenoit's brand names through
garment hang-tags, a print advertising campaign undertaken jointly with its
supplier of acrylic micro-fiber and designers' advertisements and retailers'
catalogs which mention the Company's fabric by name.
Increase Penetration of Home Textile Market with Innovative New
Products. The Company plans to continue to develop innovative fabric products
for the home textile market, a relatively small but fast growing segment of
the Fabric Division. The Company believes that its micro-fiber fabrics are
well suited for use in products for the home textile market, and the Company
recently began selling its micro-fiber fabrics for use in throws, covered
pillows and comforters.
Leverage Existing Distribution Channels. The Company seeks to utilize its
strong distribution relationships with large national discount retailers such
as Wal-Mart, Kmart and Target to expand distribution of consumer products.
Today, the Company primarily sells kitchen rugs through this distribution
channel; however, the Company is planning to expand its distribution of
welcome mats through this channel. In addition, the Company seeks to expand
distribution of its rugs through other channels such as hardware and specialty
retail stores.
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Make Selective Acquisitions. The Company intends to pursue selective
strategic acquisitions in order to increase fabric manufacturing capacity and
broaden fabric and consumer product offerings. The Company believes that the
Borg Acquisition demonstrates its ability to re-train personnel and upgrade an
existing manufacturing operation to produce higher margin micro-fiber
products.
PRODUCTS
Fabric Division
The Fabric Division manufactures a diverse line of sliver-knit pile fabrics
used in the manufacture of performance-oriented outerwear, sportswear, coats,
accessories, home textiles, automotive interiors, military clothing and other
products. The Fabric Division's largest and fastest growing segment is a line
of performance-oriented micro-fiber fabrics which are principally made from
Microsupreme(R) micro-fiber produced by Sterling Fibers, Inc. In 1993, the
Company introduced the first of its performance-oriented fabrics,
Glenaura(TM), and has since introduced Berber by Glenoit(TM) (1994),
Zendura(TM) (1995) and GlenPile(TM) (1996). These fabrics are primarily used
in the manufacture of outerwear, sportswear, and accessories, including coats,
pullovers, heavy shirts, hats, gloves, scarves, robes and slippers, and are
sold to manufacturers of sportswear marketed under brand names such as Liz
Claiborne, Jones New York, Ralph Lauren and Anne Klein; manufacturers of
outerwear marketed under brand names such as L.L. Bean, Lands' End, Columbia,
Woolrich and Bogner; and private label programs for retailers such as Saks
Fifth Avenue, Nordstrom, Lord & Taylor, Banana Republic, Victoria's Secret and
The Gap. In addition, the Company sells micro-fiber fabrics in the home
textile market for use in throws, covered pillows and comforters manufactured
and marketed by Revman Industries Inc. under the brand name Indoor
Outfitters(TM).
The Fabric Division's second largest product category is faux fur which is
composed of fabrics with a heavier, deeper pile than performance-oriented
fabrics and is used in women's and children's coats and linings, which was the
Fabric Division's principal business prior to 1993. Faux fur is typically used
to replicate traditional animal fur such as mink, beaver, seal and leopard.
The Company believes that it is the leading domestic supplier of faux fur and
sells its fabrics to manufacturers of garments that are sold through retailers
such as Saks Fifth Avenue, Bloomingdale's, Nordstrom, Neiman Marcus, Kmart and
JC Penney.
In the automotive market, the Company's fabrics, which allow for greater
sound penetration than other knit or woven fabrics, are used to cover audio
speakers in the interiors of automobiles produced by the Cadillac, Buick and
Oldsmobile divisions of General Motors Corporation. The Company also sells
fabric to the U.S. Government, including a fireproof fabric marketed under the
brand name Glentec(TM), which is used by the United States Navy. In addition,
the Company's fabrics are used in the manufacture of toys, golf club head
covers, powder puffs, linings for golf bags and musical instrument cases and
other end-use products.
Consumer Products Division
The Consumer Products Division produces a wide variety of printed kitchen
rugs, welcome mats, bath rugs and children's area rugs which are typically
two-feet by three-feet in size. The Consumer Product Division's largest
product category is kitchen rugs, which accounted for a substantial majority
of its fiscal 1996 net sales. The Company's kitchen rugs are manufactured
under an exclusive license agreement with B&D. Under this agreement, the
Company has the exclusive right to use B&D copyrighted designs to produce
kitchen rugs that are coordinated with B&D's towels, pot holders and other
kitchen textiles. These products are marketed jointly to retailers as a
coordinated package. In the children's area rug category, the Company produces
rugs decorated with licensed cartoon characters for Couristan, Inc., a major
manufacturer and distributor of area rugs. The Company's rugs have various
surface textures and are made primarily from polyester. The Company also
produces cotton and polypropylene rugs. The Consumer Products Division sells
its rugs directly to national discount retailers such as Wal-Mart, Kmart and
Target, which typically sell such rugs at retail prices ranging from $3.99 to
$9.99.
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SALES AND MARKETING
Fabric Division
The Fabric Division's marketing efforts are handled by an in-house sales
force supported by a customer service department. The Fabric Division
supplements its sales coverage with several experienced commissioned, outside
sales organizations specializing in certain markets. The Fabric Division
maintains a showroom at the Company's headquarters in New York. The Fabric
Division has its own design and research and development departments that
develop exclusive designs for the Company and certain of the Company's
customers. No single customer accounted for more than 4% of the Fabric
Division's net sales in fiscal 1996, reflecting the diversity of its customer
base.
The Fabric Division principally manufactures fabrics on a made-to-order
basis, thereby minimizing its inventory. The Company's performance-oriented
fabrics are marketed principally under the brand names Berber by Glenoit(TM),
Glenaura(TM), Zendura(TM) and GlenPile(TM), and are being increasingly promoted
through garment hang-tags and through a print advertising campaign undertaken
jointly with the Company's supplier of Microsupreme micro-fiber. As a result of
growing consumer recognition of the Company's branded fabrics, designers and
retailers are increasingly using the Company's brand names in their advertising
and catalogs.
Consumer Products Division
The B&D sales force, supervised by the Consumer Products Division's marketing
management, acts as representative agents for substantially all of the Consumer
Products Division's products. In return, the Company pays B&D a variable
royalty on the sale of all rugs printed with B&D designs and also contributes
to the compensation of the B&D sales force. The Consumer Products Division's
marketing management maintains active relationships with key customers, and
marketing calls to these customers are made jointly by the Company and B&D
employees. The Consumer Products Division markets its products primarily to
national discount retailers such as Wal-Mart, Kmart and Target, which
collectively accounted for approximately 57% of the Consumer Products
Division's net sales in fiscal 1996. The Consumer Products Division has
recently entered into strategic marketing relationships in order to increase
distribution of the Company's rugs through hardware stores and specialty retail
gift shops.
In order to support its sales force and respond promptly to the delivery
requirements of its customers, the Consumer Products Division utilizes
Electronic Data Interchange ("EDI") with most of its principal customers. EDI
minimizes the lead time for customer orders, permits a more efficient, targeted
manufacturing schedule, and improves communication, planning and processing
times at each stage of the production cycle. EDI, combined with the Company's
manufacturing capabilities, allows the customer to place an order on Monday and
in most cases have the products shipped by Friday. This rapid order turn-around
has resulted in an expanded relationship with Wal-Mart, Kmart, Target and other
major customers.
MANUFACTURING FACILITIES AND OPERATIONS
The Company operates two manufacturing facilities located in Tarboro, North
Carolina, one manufacturing facility located in Jacksboro, Tennessee, and one
manufacturing facility located in Elmira, Ontario, Canada. The North Carolina
and Canadian facilities are owned by the Company. The Tennessee facility is
leased with an expiration date in September 2005, and an annual rental cost of
approximately $340,000. The Company also maintains a 10,000-square-foot
administrative office and sales showroom at 111 West 40th Street in New York
City's garment district, providing easy access to the Company's major
customers. The lease on the New York office expires on July 31, 2005, and has
an annual rental cost of approximately $296,000. The following table sets forth
certain information relating to the Company's facilities:
<TABLE>
<CAPTION>
LOCATION APPROXIMATE SQUARE FEET USE
-------- ----------------------- ---
<S> <C> <C>
Tarboro, North Carolina
Plant #1................... 427,000 Fabric Division
Plant #2................... 281,000 Consumer Products Division
Jacksboro, Tennessee......... 140,000 Fabric Division
Elmira, Ontario.............. 135,000 Fabric Division
New York, New York........... 10,000 Headquarters and Showroom
</TABLE>
32
<PAGE>
Fabric Division
The Company is a vertically integrated manufacturer involved in all aspects
of the sliver-knitting process including dyeing, carding, knitting and
finishing. Sliver-knit fabrics are produced using a process in which the
fabric is knit directly from loose fibers, in contrast with the more
traditional knitting process in which fibers are first spun into yarn before
being knit into fabric. In the sliver-knitting process, pile is constructed by
attaching loose fibers to a lightweight knit backing. Tufts of fibers are
caught in the tight loops of the knit, allowing their loose ends to stand free
from the backing to form the pile. Because the fibers are added individually,
various colors and types of fiber can be mixed. This allows for versatility in
fabric texture, appearance and technical features. In addition, the Company's
computer controlled sliver-knitting machines have the capability of creating
intricate "Jacquard" patterns by mixing various fibers and colors. The
Company's equipment also performs a number of finishing processes that create
different surface textures from sheared and velvet-like to curled "sherpa" to
"hi-low" patterns with a subtle embossed look. With the Company's state-of-
the-art equipment and experienced research and production personnel, the
Company manufactures a wide variety of fabrics that can be used in a range of
end-use products.
The sliver-knitting process begins with loose fibers that have been selected
for the aesthetic and technical qualities they will lend to the finished
fabric. Most of the fibers used by the Company are pre-dyed by the supplier
and then mixed to create the required shade. The loose fibers are blown
together in air chambers mixing their color and fiber type. The mixed fibers
are subsequently sent through a series of carding machines that aligns them in
the same direction, producing a soft rope called "roving" or "sliver." The
sliver is fed into the sliver- knitting machine where portions of the fibers
are blown by small air jets into the high speed needles. As the needles knit
the lightweight but strong knit backing, the fibers are caught securely into
each of the loops. The high-speed, computerized needles can be programmed to
knit a large variety of patterns using multiple slivers simultaneously. After
knitting, the pile fabric is sent to the finishing area and sheared to the
desired height. The fabric is subsequently placed through a series of
technical finishing processes developed by the Company to control the weight,
thickness and surface texture of the final fabric.
Since 1991, under a new management team, the Company has replaced or
upgraded substantially all of its knitting machines, including those from the
Jacksboro facility acquired in the Borg Acquisition. In addition, the Company
has replaced or upgraded its blending and carding machines and made
modifications to its dyeing and finishing equipment.
Consumer Products Division
The Consumer Products Division's rug manufacturing operations are vertically
integrated. The rug manufacturing process begins with fabric formation
(although the Company purchases certain pre-formed fabrics on the open
market). The fabric is then coated with a durable textured backing. Next, the
fabric is printed with a design and cut into individual rugs. After cutting,
the rugs are "serged" and inspected for quality. The customer's unique price
tag and bar code are attached, and the rugs are packaged for shipment.
The Company's technology allows it to take a customer's design and produce
numerous rug samples in as little as two hours without incurring the expense
and one month delay associated with full scale production. Accordingly, the
Company commences full production only after it has received confirmed orders
from its customers. The Company has the ability to produce over 500,000 rugs
per week and generally ships rugs within five business days after receiving an
order. The Company believes that its production capabilities are an important
competitive advantage.
The Company uses a high-speed, continuous heat transfer printing process
that results in deep and permanent colors which will withstand machine washing
and drying. In addition, heat transfer printed rugs have an appearance similar
to that of rugs woven from dyed yarn, yet can be produced at a substantially
lower cost than woven rugs. In 1995, the Company added screen printing to its
manufacturing capabilities to enable the printing of designs on cotton and
polypropylene rugs as well as to facilitate shorter production runs.
33
<PAGE>
LICENSES AND TRADEMARKS
The Company's principal trademarks are Glenoit(TM), Berber by Glenoit(TM),
Glenaura(TM), Zendura(TM), GlenPile(TM) and Glentec(TM).
Under an agreement with B&D, the Company has the exclusive right to use B&D
copyrighted designs on its printed kitchen rugs in all countries worldwide
except Canada. Under the licensing agreement, the Company is required to pay
B&D a variable royalty (subject to a $250,000 annual minimum) on all products
utilizing B&D designs. This agreement terminates in November 1998 and may be
extended indefinitely at the Company's option in successive one-year periods
by giving written notice to B&D at least 90 days before the expiration of each
term. Under this agreement, the Company is required to maintain a high level
of quality and style and to comply with certain reporting obligations. B&D can
terminate the agreement in the event of a material default by the Company
(including a failure to pay the $250,000 minimum annual royalty).
RAW MATERIALS AND SUPPLIERS
The Company's principal raw materials are acrylic and polyester, which the
Company purchases from several large chemical companies. The Company's largest
supplier is Sterling Fibers, Inc., which is the exclusive supplier of acrylic
micro-fiber used in the Company's fabrics. The Company seeks to purchase
sufficient amounts of acrylic and polyester to cover existing order
commitments. The Company does not speculate on the price of raw materials.
Although the Company has always been able to obtain sufficient supplies of raw
materials, any shortage or interruption in the supply, variations in the
quality or fluctuations in the cost of raw materials could have a material
adverse effect on the Company's business, financial condition or results of
operations. See "Risk Factors--Price and Availability of Raw Materials."
The Company has entered into a supply agreement dated February 1, 1997 by
and between the Company and Sterling Fibers, Inc. (the "Sterling Agreement"),
pursuant to which the Company has the exclusive right to purchase from
Sterling (and the Company has agreed not to purchase from any other supplier)
colored micro-fiber for the purpose of manufacturing pile knits (other than
pile knits based on stretchable yarns such as spandex) in the United States,
Mexico and Canada, subject to the terms and conditions of the Sterling
Agreement. Under the Sterling Agreement, the Company has agreed to purchase
from Sterling certain minimum quantities of Sterling's Microsupreme(R) micro-
fiber, and Sterling and the Company have agreed to promote and advertise
micro-fiber and micro-fiber products. The Sterling Agreement has an initial
term expiring on February 1, 2000, but will be automatically extended for
successive one-year periods unless either party gives written notice to other
party at least one year before the expiration of the current term. Either
party may terminate the Sterling Agreement in the event of a default by the
other party which is not cured within 30 days after notice.
COMPETITION
The textile industry is highly competitive, with no one company dominating
the industry. The Company's competitors range from large vertically integrated
textile companies producing a variety of goods to numerous smaller companies
which direct their efforts at particular niches in the textile markets. Each
of these competitors seeks to set or anticipate fashion trends and respond
quickly to changes in styles with new products. The primary competitive
factors in the textile industry are price, product styling and
differentiation, quality, manufacturing flexibility, delivery time and
customer service. In addition, imports of foreign-made textile and apparel
products are a significant source of competition for many domestic textile
manufacturers. The Company believes that its manufacturing presence in the
United States and its emphasis on shortening production and lead times allows
the Company to respond more quickly than foreign producers to changing fashion
trends and to its domestic customers' requirement that suppliers meet tight
production schedules and provide rapid delivery. The Company's continued
success, however, will be affected by the ability of certain of the Company's
customers to remain competitive, which may be affected by the level of
imports. The Company's continued success will also depend upon the Company's
ability to maintain its manufacturing flexibility and capacity and, most
importantly, its ability to continue to produce innovative, quality products
to satisfy specific customer needs. See "Risk Factors--Competition."
34
<PAGE>
The Fabric Division competes directly with several smaller manufacturers of
sliver-knit pile fabrics, including Monterey Mills, Inc., Tex-Tenn
Corporation, Draper Knitting Company, Inc. and Roller Fabrics Inc. The Company
also competes with manufacturers of competing non-sliver-knit natural and
synthetic fabrics such as high-end fleece. Such manufacturers include Malden
Mills Distributors Corp., Dyersberg Corporation and Menra Mills Corporation.
The Consumer Products Division competes with various manufacturers of rugs
for the home, including foreign rug producers. The Consumer Products
Division's principal competitors are Bacoua Guild Ltd., a subsidiary of
Burlington Industries, Inc., and American Rug Craftsmen, Inc., a subsidiary of
Mohawk Industries, Inc.
EMPLOYEES
The Company benefits from an experienced work force with which it maintains
good working relationships. As of October 4, 1997, the Company employed 1,420
employees, of whom 1,240 were hourly and 180 were salaried.
Of the Company's hourly employees, approximately 448 are represented by the
Union of Needletrades, Industrial Textile Employees and are located in
Jacksboro, Tennessee and Elmira, Ontario. The Tennessee agreement with this
union expires on February 21, 1999. The Canadian agreement expires December
25, 1999. The Company's other facilities are non-unionized.
BACKLOG
The Fabric Division's order backlog was approximately $15.0 million at
October 4, 1997 as compared to approximately $13.5 million at September 28,
1996. Substantially all of the orders outstanding at October 4, 1997 are
expected to be filled within three months of that date. Orders on hand are not
necessarily indicative of total future sales.
No significant order backlog exists for the Consumer Products Division as
most customers order on a weekly basis.
ENVIRONMENTAL, SAFETY AND HEALTH REGULATION
The Company is subject to increasingly stringent federal, state and local
laws and regulations governing, among other things, the management of
hazardous substances, discharges to air and water, and occupational health and
safety. Such laws include the Federal Water Pollution Control Act, the Clean
Air Act and the Resource Conservation and Recovery Act. The Company's
operations, particularly its dyeing and finishing processes, result in the
discharge of substantial quantities of wastewater and hazardous air emissions.
Operating permits establishing discharge and emission limits for these
processes are subject to revocation, modification or renewal, and violations
of such permits may result in substantial fines and/or civil or criminal
sanctions.
The Company may be subject to the requirements of the 1990 Amendments to the
Federal Clean Air Act, including those relating to emissions of hazardous air
pollutants. The Company believes that it will be able to achieve compliance
with such requirements at a cost which will not be material. However, the
Company cannot currently estimate with certainty the impact of future
emissions limitations or enforcement practices upon its operations.
The Company's operations also are governed by certain requirements under the
Occupational Safety and Health Act relating to workplace safety and worker
health which, among other things, establish permissible exposure limits for
cotton dust, formaldehyde, asbestos and noise. In addition, the Company may be
liable under environmental laws, particularly the Federal Comprehensive
Environmental Response, Compensation and Liability Act, for the cleanup of
contamination that occurs on or from the Company's properties, including
contamination that occurred prior to the Company's ownership or operation of
the properties, or for cleanup of contamination on any off-site location to
which the Company shipped hazardous substances for disposal.
35
<PAGE>
The Company believes that it is in compliance in all material respects with
all applicable environmental, health and safety requirements. However, there
can be no assurance that the costs or liabilities related to such requirements
that may be imposed in the future will not result in a material adverse effect
on the Company's business, financial condition and results of operations. See
"Risk Factors--Stringent Environmental, Safety and Health Regulation."
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 Company's business, financial condition or results of
operations.
The Company's and Holding's federal income tax returns for January 1, 1994
and December 31, 1994, have been examined by the Internal Revenue Service
("IRS"). The IRS has assessed taxes, penalties and interest of approximately
$2.7 million relating to the deductibility of certain expenses claimed as
deductions by the Company. The Company is currently in the process of
responding to the IRS. In the opinion of management, adequate provision has
been made in the accompanying financial statements for its income tax
obligations; however, should the Company be responsible for all taxes,
penalties and interest assessed by the IRS, the Company would be required to
pay an additional amount of approximately $1.6 million over amounts currently
accrued. The Company believes that the proposed adjustments by the IRS are
inappropriate and intends to vigorously contest these assessments.
The Company's state income tax returns for the years ended January 1, 1994
and December 31, 1994, have been examined by the New York Department of
Finance, which in April 1997, assessed taxes and interest in the amount of
approximately $130,000. The Company is currently in the process of responding
to the New York Department of Finance, as it believes that the proposed
adjustments made by the New York Department of Finance are inappropriate and
intends to vigorously contest these assessments.
Pursuant to the Recapitalization, the Seller has agreed to indemnify
Holdings against any tax liability of Holdings, the Company or its
subsidiaries incurred prior to the Recapitalization. The term of such
indemnity extends to the applicable statute of limitations for assessing any
such tax. Any claims under the tax indemnity are required to be reduced by any
tax benefit received by Holdings, the Company or its subsidiaries that arise
in connection with the event giving rise to the indemnity claim and may be
satisfied only by offset against the amounts owed by Holdings to the Seller
under the terms of the Seller Notes.
36
<PAGE>
MANAGEMENT
DIRECTORS AND EXECUTIVE OFFICERS
The following table sets forth the names, ages as of October 4, 1997, and a
brief account of the business experience of each director and executive
officer of the Company. Under the terms of the Stockholders Agreement (as
defined), the board of directors of Holdings will be the same as the board of
directors of the Company. See "Certain Relationships and Related
Transactions--Stockholders Agreement."
<TABLE>
<CAPTION>
NAME AGE POSITION
---- --- --------
<S> <C> <C>
Thomas J. O'Gorman.... 63 President, Chief Executive Officer and Director
Larry Levine.......... 64 President and Chief Operating Officer--Fabric
Division
Robert B. Dale(1)..... 49 President and Chief Operating Officer--Consumer
Products Division
Lester D. Sears....... 48 Executive Vice President and Chief Financial Officer
John Mowbray O'Mara... 69 Director
Saleem Muqaddam....... 50 Director
Isaac Shapira......... 44 Director
Joseph M. Silvestri... 35 Director
</TABLE>
- --------
(1) Mr. Dale resigned from the Company effective as of July 1, 1997.
Thomas J. O'Gorman. Mr. O'Gorman has served as the President, Chief
Executive Officer and a Director of the Company since 1991. Mr. O'Gorman has
been in the textile industry since 1956 and has served as the General Manager
of the Menswear Business of Milliken & Co.; President of Knit-Away; and
President of the Denim, Corduroy and Blended Fabrics Divisions of Burlington
Industries, Inc., and Burlington's International Denim operations
headquartered in London. Subsequently, Mr. O'Gorman was the President and a
Director of Greenwood Mills Marketing Company, Inc. Mr. O'Gorman has served on
the Market Committee of the American Textile Manufacturers Institute and as a
member of the Steering Committee of Crafted With Pride in the U.S.A. Council.
Larry Levine. Mr. Levine joined the Company in 1991 as Vice President of
Marketing for the Company's Fabric Division and was promoted to President of
the Fabric Division in 1996. Mr. Levine previously served as the President of
Fabric View Ltd., a textile and marketing company, and was a Vice President
and a founder of Monterey Mills, Inc.
Robert B. Dale. Prior to joining the Company in August 1995 as President and
Chief Operating Officer of the Consumer Products Division, Mr. Dale served 25
years in the textile industry in various capacities, including
President/Corporate Officer of the Bedding Division at Fieldcrest Canon Inc.
("Fieldcrest"); President of Fieldcrest's St. Mary's Brand Division; Executive
Vice President of Fieldcrest's Karastan Bigelow Carpet Division; and
Fieldcrest Brand National Sales Manager. Mr. Dale is currently on the Board of
Directors of the Home Products Fashion Association. Mr. Dale resigned from the
Company effective as of July 1, 1997.
Lester D. Sears. Mr. Sears joined the Company in 1996 as Executive Vice
President and Chief Financial Officer. From 1989 to 1996, Mr. Sears was the
Executive Vice President, Chief Financial Officer and an equity owner of
Perfect Fit Industries, Inc., a privately held company. Prior to 1989, Mr.
Sears was employed in various positions including as Controller of the
Consumer Products Division of Springs Industries, Inc.; Vice President and
Controller of Mill Fabrics, Inc.; and as a certified public accountant for
Deloitte, Haskins and Sells.
John Mowbray O'Mara. Mr. O'Mara has been a management consultant and
private investor since January 1990. From July 1990 to May 1993, he served as
Chairman of the Executive Committee of Quality Care
37
<PAGE>
Systems, Inc., a provider of computer-based "expert" medical cost containment
systems. From August 1988 through December 1989, Mr. O'Mara served as Chairman
of the Board and Chief Executive Officer of Global Natural Resources, Inc.
Prior to serving as Chairman of Global Natural Resources, Inc., Mr. O'Mara
spent 22 years as an investment banker, serving most recently as Managing
Director for Chase Securities Inc., a subsidiary of The Chase Manhattan Bank.
Mr. O'Mara is a director of Baldwin & Lyons, Inc., Plantronics, Inc. and The
Midland Company.
Saleem Muqaddam. Mr. Muqaddam has served as a Vice President of CVC and its
affiliated investment companies since 1989. Previously he spent 15 years with
Citibank, N.A. and its affiliates in senior management positions. Mr. Muqaddam
is a director of Pamida Holdings Corporation, Plantronics, Inc., Chromcraft
Remington Inc. and Fairwood Corporation.
Isaac Shapira. Mr. Shapira has served as a director of Stirling Investment
Holdings, Inc. since December 1994. In addition, Mr. Shapira is the President
of Glenoit (U.K.) Limited, and has been in this position for over 15 years.
Joseph M. Silvestri. Mr. Silvestri has been a director of the Company since
his appointment by CVC in 1994. Mr. Silvestri has been employed by CVC since
1990 and has been a Vice President since 1995. Mr. Silvestri served as
Assistant Vice President of CVC from 1990 to 1995. Mr. Silvestri serves on the
Board of Directors of International Media Group, Triumph Group, Polyfibron
Technologies, Inc., Frozen Specialties, Inc. and Euramax International, Inc.
COMPENSATION OF DIRECTORS
The Company's Board of Directors receive no compensation for their service
as directors. Directors are reimbursed for their out-of-pocket expenses in
connection with their travel to and attendance at meetings of the Board of
Directors or committees thereof.
EXECUTIVE COMPENSATION
The following table sets forth certain information for the fiscal year ended
January 4, 1997, concerning cash and non-cash compensation earned by the Chief
Executive Officer and the three other most highly compensated executive
officers of the Company whose combined salary and bonus exceeded $100,000
during such year.
SUMMARY COMPENSATION TABLE
<TABLE>
<CAPTION>
ANNUAL COMPENSATION
---------------------- OTHER ANNUAL
NAME PRINCIPAL POSITION FISCAL YEAR SALARY ($) BONUS ($) COMPENSATION($)
---- ---------------------------- ----------- ---------- --------- ---------------
<S> <C> <C> <C> <C> <C>
Thomas J. O'Gorman...... Chief Executive Officer 1996 $406,250 $615,271 $106,250(1)
Larry Levine............ President & Chief Operating 1996 204,846 213,100 --
Officer--Fabric Division
Robert B. Dale(4)....... President & Chief Operating 1996 305,769 37,120 --
Officer--Consumer Products
Division
Lester D. Sears(2)...... Executive Vice President & 1996 69,808 50,000 35,000(3)
Chief Financial Officer
</TABLE>
- --------
(1) Amount shown reflects deferred compensation from 1992 through 1995 which
Mr. O'Gorman elected to receive in 1996.
(2) Employed as of August 5, 1996.
(3) Amount shown reflects a signing bonus under the employment agreement with
Mr. Sears. See "--Employment Agreements."
(4) Mr. Dale resigned from the Company effective as of July 1, 1997.
38
<PAGE>
DEFINED BENEFIT PLAN
The Company's retirement benefit provides a maximum monthly benefit
regardless of the employees compensation level of $2,000. The normal
retirement benefit is 45% of the average final compensation of the employee,
reduced pro rata for each year of service less than 25 years.
EMPLOYMENT AGREEMENTS
Mr. O'Gorman has an employment agreement (the "O'Gorman Agreement") with the
Company dated as of December 14, 1995, as amended, which expires on January 1,
2001. The O'Gorman Agreement provides for Mr. O'Gorman's employment as Chief
Executive Officer and President or Chairman, if so elected, of Holdings and
the Company at an annual salary of $400,000 and a bonus based on the financial
performance of the Company. Mr. O'Gorman's employment may be terminated by him
on 12-months' notice to the Company. In the event the Company were to
terminate Mr. O'Gorman for other than "Cause" (as defined therein), Mr.
O'Gorman would be entitled to severance payments consisting of a pro-rated
portion of his annual bonus for the year of termination and his annual salary
and other benefits for 12 months following the date of such termination. The
O'Gorman Agreement also provides that he will not compete with the Company
during the employment term and for a period of 18 months following
termination.
Mr. Sears has an employment agreement (the "Sears Agreement") dated as of
August 5, 1996 which expires on December 31, 1999, subject to one year
renewals thereafter unless either party elects not to renew at least six
months prior to the termination date. The Sears Agreement provides for Mr.
Sears' employment as Executive Vice President and Chief Financial Officer of
the Company at an annual salary of $165,000 and a bonus of $50,000 for the
year ended December 31, 1996. The salary is subject to a minimum increase each
year of 5% and future minimum bonus payments will be the lesser of (x) 66.7%
of Mr. Sear's base salary and (y) a fixed percentage of the Company's EBITDA.
The fixed percentage is calculated by dividing $50,000 by the Company's EBITDA
for the fiscal year ending December 31, 1995. In addition to the payments
provided therein, Mr. Sears received an initial cash payment of $35,000. Mr.
Sears' employment may be terminated by him or the Company at any time. In the
event Mr. Sears' employment is terminated other than for "Cause" (as defined
therein) or Mr. Sears terminates his employment for "Good Reason" (as defined
therein), Mr. Sears will receive as a severance payment a cash lump sum in the
amount of (A) the base salary at its then current annual rate and (B) the
highest annual bonus paid to or accrued by the Company for the term of the
agreement.
39
<PAGE>
PRINCIPAL STOCKHOLDERS
Holdings owns 100% of the Company's common stock. The following table sets
forth, as of December 31, 1996, certain information with respect to each class
of Holdings Common Stock (as defined) beneficially owned by each director of
the Company, all officers and directors of the Company as a group, and each
person known to the Company to own beneficially more than 5% of Holdings
Common Stock of any such class. Unless otherwise noted, the individuals have
sole voting and investment power. As described under "Description of Capital
Stock and Indebtedness of Holdings," certain classes of Holdings Common Stock
are convertible into other classes of Holdings Common Stock. Except as noted
in the footnotes to the table, the information in the table assumes no such
conversion.
<TABLE>
<CAPTION>
CLASS A CLASS B CLASS C CLASS D CLASS E
-------------- -------------- ---------- ---------- ------------
NAME AND ADDRESS SHARES % SHARES % SHARES % SHARES % SHARES %
---------------- ------ ---- ------ ---- ------ --- ------ --- ------- ---
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Citicorp Venture 5,649 52.1% 17,026 78.5% -- -- -- -- -- --
Capital, Ltd. .........
399 Park Avenue
New York, New York
10043
Isaac Shapira(a)........ 1,826 16.8 -- -- 3,579 100% -- -- -- --
c/o Gratch Jacobs &
Brozman
950 Third Avenue
New York, New York
10022
Thomas J. O'Gorman...... 3,112 28.6 -- -- -- -- -- -- -- --
111 West 40th Street
New York, New York
10018
The Equitable Life
Assurance Society of 2,412(b) 18.2 -- -- -- -- -- -- 2,412(d) 100%
the United States......
c/o Alliance Corporate
Finance
Group Incorporated
1345 Avenue of the
Americas
New York, New York
10105
Banque Nationale de 1,715(c) 13.6 1,715(c) 7.3 -- -- -- -- -- --
Paris..................
499 Park Avenue
New York, New York
10022-1245
CCT Partners II, 997 9.2 3,005 13.8 -- -- -- -- -- --
L.P.(d)................
399 Park Avenue
New York, New York
10043
Saleem Muqaddam(e)...... 55 * 167 * -- -- -- -- -- --
c/o Citicorp Venture
Capital, Ltd.
399 Park Avenue
New York, New York
10043
Joseph Silvestri(e)..... 1 * 3 * -- -- -- -- -- --
c/o Citicorp Venture
Capital, Ltd.
399 Park Avenue
New York, New York
10043
John Mowbry O'Mara...... -- -- -- -- -- -- 20 100 -- --
623 Lake Avenue
Greenwich, Connecticut
06830
All officers and 3,707 34.2 170 * 3,579 100 20 100 -- --
directors as a group(e)
(8 persons)............
</TABLE>
- --------
* Represents less than 1%
(a) Includes shares held by Stirling Investment Holdings, Inc., a British
Virgin Islands corporation (the "Seller"). Under Rule 13d-3 under the
Exchange Act, Mr. Shapira is deemed to beneficially own shares held by the
Seller.
(b) Includes a warrant to purchase 2,412 shares of Class A or Class E Stock
with an exercise price of $0.01 per share and an expiration date of
December 14, 2003.
(c) Includes a warrant to purchase 1,715 shares of Class A or Class B Stock
with an exercise price of $0.01 per share and an expiration date of
December 14, 2003.
40
<PAGE>
(d) CCT Partners II, L.P. is a Delaware limited partnership, the limited
partners of which are employees of CVC.
(e) Does not include shares held by CVC or CCT Partners II, L.P. that may be
deemed to be beneficially owned by Messrs. Muqaddam and Silvestri. Messrs.
Muqaddam and Silvestri disclaim beneficial ownership of shares held by CVC
and CCT Partners II, L.P.
Certain stockholders of the Company have entered into the Stockholders
Agreement, which contains certain agreements relating to the composition of the
board of directors of Holdings and its subsidiaries. See "Certain Relationships
and Related Transactions--Stockholders Agreement."
41
<PAGE>
CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
INDEBTEDNESS OF MANAGEMENT
In connection with the O'Gorman Agreement, Mr. O'Gorman received a loan in
the amount of $300,000 from the Company. Pursuant to the O'Gorman Agreement,
the loan bears a simple interest rate equal to the lowest rate in effect
pursuant to the Treasury Regulations so as to preclude the loan from bearing
imputed interest. The loan shall be due on the last day of the Employment
Period (as defined therein) or shall be forgiven if Mr. O'Gorman is still
employed by the Company on December 31, 2003.
STOCKHOLDERS AGREEMENT
Holdings is a party to a stockholders agreement dated December 14, 1995 (the
"Stockholders Agreement") by and among Holdings, CVC, John Mowbry O'Mara
("O'Mara"), BNP, The Equitable Life Assurance Society of the United States
("Equitable"), the Seller, Soannes Investment Corp. ("Soannes"), Thomas J.
O'Gorman and certain other parties thereto (collectively, the "Stockholders"),
which contains certain agreements among the Stockholders relating to the
composition of the board of directors of Holdings and its subsidiaries and
limiting the manner and terms by which the Stockholders may transfer their
shares of Holdings Common Stock or warrants to purchase Holdings Common Stock.
Pursuant to the Stockholders Agreement, the Board of Directors of Holdings
will be composed at all times of five directors as follows: the Chief
Executive Officer of Holdings; two directors appointed by CVC; one director
appointed by O'Mara or the party that then holds the Holdings Common Stock
owned by O'Mara on the date of the execution of the Stockholders Agreement;
one director appointed by the Seller until such time as the Seller and Soannes
together own less than 9.9% of the outstanding Holdings Common Stock, at which
time the remaining director shall be appointed by the holders of a majority of
the shares of Holdings Common Stock owned by the original parties to the
Stockholders Agreement. The composition of the boards of directors of the
Company and its subsidiaries shall be the same as the composition of the board
of directors of Holdings.
Rights Offering. The Stockholders Agreement provides the stockholders with
the right to participate ratably, in accordance with their fully-diluted
common equity ownership, in all additional offerings of Holdings Common Stock
or preferred stock, if any, or of securities exercisable, convertible or
exchangeable for or into Holdings Common Stock (other than certain offerings
permitted by the Stockholders Agreement relating primarily to then outstanding
options and warrants and a public offering of Holdings Common Stock having an
aggregate value of at least $20 million).
Right of First Offer. If a Stockholder wishes to transfer any Holdings
Common Stock or if BNP or Equitable wish to transfer their warrants, Holdings
must first be given the opportunity to purchase all of Holdings Common Stock
or warrants offered (but not less than all) at the same price and on the same
terms as those proposed by the Stockholder transferee. Each other Stockholder
may elect to purchase its pro rata share (but not less than all of its pro
rata share) of Holdings Common Stock or warrants at the same price and on the
same terms, but only in the event that Holdings does not exercise its right to
purchase such Common Stock or warrants.
Tag Along Rights. In the event that CVC proposes to sell Holdings Common
Stock which would result in CVC, O'Gorman and certain related investors
collectively owning less than 50% of the then outstanding Holdings Common
Stock (other than in a registered public offering or other permitted
transaction), the other Stockholders will have the option to participate in
the proposed sale on the same terms and conditions as CVC, with the
participating Stockholders each selling a pro rata number of shares.
Sale of Holdings. If the board of directors of Holdings and holders of a
majority of the Holdings Common Stock then outstanding approve the sale of
Holdings (an "Approved Sale"), each Stockholder has agreed to (i) consent to
such sale and raise no objections against it, (ii) waive any dissenter's
rights and other similar rights and (iii) if such Approved Sale includes the
sale of Holdings Common Stock, each Stockholder will sell all of such
Stockholder's Holdings Common Stock on the terms and conditions approved by
the board of directors of Holdings and holders of the majority of the Holdings
Common Stock then outstanding.
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REGISTRATION RIGHTS AGREEMENT
Holdings is a party to a registration rights agreement (the "Holdings
Registration Rights Agreement") by and among Holdings and the Stockholders.
Pursuant to the terms of the Holdings Registration Rights Agreement CVC, BNP
and Equitable have the right to require Holdings, at the sole expense of
Holdings and subject to certain limitations, to register under the Securities
Act all or part of the shares of Holdings Common Stock (the "Registrable
Securities") held by them. CVC is entitled to demand three long-form
registrations and unlimited short-form registrations, while BNP and Equitable
are entitled to demand one long-form registration and unlimited short-form
registrations; provided, however, that no registration may be demanded within
six months of the effective date of a previous demand registration.
Additionally, CVC is entitled to demand one shelf registration.
All Stockholders are entitled to an unlimited number of "piggyback"
registrations, with Holdings paying all expenses of the offering, whenever
Holdings proposes to register its Common Stock under the Securities Act
(except in the case of an initial public offering).
Pursuant to the Holdings Registration Rights Agreement, Holdings has agreed
to indemnify all holders of Registrable Securities against certain
liabilities, including liabilities under the Securities Act.
TAX SHARING AGREEMENT
Holdings, the Company and GAC will be included in the consolidated United
States federal income tax return of Holdings. Holdings, the Company and GAC
have entered into a Tax Sharing Agreement whereby the Company and GAC will pay
Holdings their respective pro rata share of the total consolidated tax
liability, as set forth in the Tax Sharing Agreement. Under the Tax Sharing
Agreement the Company and GAC are treated as separate tax groups for purposes
of the agreement. The Tax Sharing Agreement provides that if the Company or
GAC has losses that are absorbed by the rest of the consolidated tax group,
the Company, as the case may be, cannot carry those losses forward to offset
its own future taxable income. In the event that the Company and its
subsidiaries are included in a joint, combined, consolidated or unitary state
or local income or franchise tax return with Holdings, the Company will make
payments to Holdings in a manner consistent with that described above for
federal tax purposes. Under the Indenture, the Company will be permitted to
make payments to Holdings under the Tax Sharing Agreement; provided, however,
that certain amendments to the Tax Sharing Agreement will be required if more
than a nominal amount of gross income is generated by Holdings or any
subsidiary of Holdings (other than Mills). See "Description of Notes--Certain
Covenants."
IMPORTANCE OF B&D LICENSE AGREEMENT; CVC'S INTEREST IN B&D; POSSIBLE SALE OF
B&D
A substantial majority of the products sold by the Consumer Products
Division are manufactured, marketed and sold under a license agreement with
B&D. See "Business--Licenses and Trademarks." Although the Company has the
right to perpetually renew the license agreement for successive one-year terms
(subject to certain conditions), the loss of this license or a deterioration
in B&D's business could have a material adverse effect on the Company's
business, financial condition and results of operations.
CVC, the Company's largest shareholder, has an interest in B&D as a result
of CVC's purchase in 1991 of certain notes of Papercraft Corporation
("Papercraft"), the then-parent company of B&D, while Papercraft was the
subject of a bankruptcy proceeding in the Western District of Pennsylvania.
During the bankruptcy proceeding, a committee of certain other creditors of
Papercraft (the "Committee") sought to have CVC's claim equitably subordinated
to the claims of other creditors. In October 1995, the bankruptcy court denied
the Committee's request for equitable subordination, but limited CVC's claim
to the purchase price of the Papercraft notes (resulting in CVC receiving an
11% interest in the reorganized entity, which emerged from bankruptcy as BDK
Holdings Inc. ("BDK")), rather than the face value of the notes (which would
result in CVC receiving a 41% interest in BDK). CVC has appealed the
bankruptcy court's decision, asserting that the court erred in establishing
and applying a new and previously unrecognized rule which prohibited CVC from
purchasing the
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notes without first disclosing to the sellers and the other creditors that it
intended to purchase the notes and that it had a representative on the
Papercraft board. The Committee has also filed an appeal contesting the
bankruptcy court's decision not to equitably subordinate CVC's claim. In
addition, CVC believes that the board of directors of BDK may be seeking to
sell the company and has filed a complaint with the bankruptcy court seeking
to prohibit any sale of the disputed interest in BDK until all appeals of the
bankruptcy court's decision have been exhausted.
The Company believes that its relationship with B&D is excellent and has no
reason to believe that the matters relating to CVC's interest in BDK or any
sale of BDK will have a material adverse effect on the Company's business,
financial condition or results of operations.
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DESCRIPTION OF CAPITAL STOCK AND INDEBTEDNESS OF HOLDINGS
AUTHORIZED CAPITAL STOCK
Holdings' Certificate of Incorporation ("Certificate") provides that
Holdings may issue 126,598.85 shares of Common Stock ("Holdings Common
Stock"), divided into five classes consisting of 49,000 shares of Class A
Common Stock, par value $.001 per share ("Class A Stock"), 25,000 shares of
Class B Common Stock, par value $.001 per share ("Class B Stock"), 3,578.85
shares of Class C Common Stock, par value $.001 per share ("Class C Stock"),
20 shares of Class D Common Stock, par value $.001 per share ("Class D Stock")
and 49,000 shares of Class E Common Stock, par value $.001 per share ("Class E
Stock").
Holders of Class A Stock and Class C Stock are entitled to one vote for each
share held of record on all matters submitted to a vote of the stockholders.
The holders of Class D Stock are entitled to 100 votes for each share held of
record on all matters submitted to a vote of the stockholders. The holders of
Class B Stock and Class E Stock have no right to vote on any matters submitted
to a vote of the stockholders, other than in the case of certain mergers in
which holders of Class B Stock or Class E Stock are being treated differently
from holders of Class A Stock, Class C Stock or Class D Stock. The holders of
all classes of stock receive dividends and participate in liquidations pro
rata at the same rate per share of each class of Common Stock.
Holders of Class B Stock can convert their shares into the same number of
shares of Class A Stock at any time. Holders of Class C Stock can convert
their shares at any time into shares of Class A Stock at the then-applicable
conversion rate as described in the Certificate (currently 1.0 to 1.0).
Holdings can at its option and at any time convert shares of Class C Stock
into shares of Class A Stock at the same applicable conversion rate. Upon the
transfer of ownership of Class E Stock from the original record owner, the
shares will automatically convert into the same number of shares of Class A
Stock. Upon the transfer of any shares other than Class E Stock to the holder
of Class E Stock, such transferred shares automatically will be converted into
the same number of shares of Class E Stock.
SELLER NOTES
In connection with the Recapitalization, Holdings issued the following
Seller Notes:
.Split-Pay Subordinated Note due December 14, 2004. This note was issued at
a discount from its face amount of approximately $2.9 million and the
principal amount accretes at an annual rate of 5% until December 14, 1998.
Thereafter, interest will be payable in cash at an annual rate of 7% or,
if Available Excess Cash Flow (as defined in the note) is not sufficient
to pay such interest in cash, interest will be payable in kind at an
annual rate of 10%. Mandatory prepayments are required upon the occurrence
of certain mergers, public offerings or a Change of Control (as defined in
the note). This note may be prepaid at any time without penalty and is
subordinated to all Senior Indebtedness (as defined in the note).
.PIK Subordinated Note due December 14, 2004. This note has a face amount
of approximately $1.0 million. Interest is payable in kind at an annual
rate of 5% until December 14, 1998 and 10% thereafter. Mandatory
prepayments are required upon the occurrence of certain mergers, public
offerings or a Change of Control (as defined in the note). This note may
be prepaid at any time without penalty and is subordinated to all Senior
Indebtedness (as defined in the note).
.Split-Pay Subordinated Note due December 14, 2004. This note was issued at
a discount from its face amount of approximately $5.7 million and the
principal amount accretes at an annual rate of 5% until December 14, 1998.
Thereafter, interest will be payable in cash at an annual rate of 7% or,
if Available Excess Cash Flow (as defined in the note) is not sufficient
to pay such interest in cash, interest will be payable in kind at an
annual rate of 10%. Mandatory prepayments are required upon the occurrence
of certain mergers, public offerings or a Change of Control (as defined in
the note). This note may be prepaid at any time without penalty and is
subordinated to all Senior Indebtedness (as defined in the note).
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. Deferred Redemption Price Subordinated Note due December 14, 2004. This
note was issued at a discount from its face amount of $1.4 million and the
principal amount accretes at an annual rate of 5% until December 14, 1997.
Thereafter, interest will be payable in kind at an annual rate of 7% until
December 14, 1998 and 10% thereafter. Mandatory prepayments are required
upon the occurrence of certain mergers, public offerings, a Change of
Control (as defined in the note) or upon the exercise by Holdings of its
right to repurchase the shares of Class A Stock owned by the Seller for a
purchase price of $200,000. This note may be prepaid at any time without
penalty and is subordinated to all Senior Indebtedness (as defined in the
note). Holdings repaid the Deferred Redemption Price Subordinated Note on
June 14, 1997.
JUNIOR SUBORDINATED NOTES
In connection with the Recapitalization, Holdings issued a Junior PIK
Subordinated Note (the "CVC Note") with an aggregate principal amount of $12.0
million to CVC. In addition, Holdings issued to an affiliate of the Seller
Junior PIK Subordinated Notes in an aggregate principal amount of $1.6 million
(the "Seller Junior Subordinated Notes" and, together with the CVC Note, the
"Junior Subordinated Notes"). Interest on the Junior Subordinated Notes is
payable in kind at an annual rate of 12.5% and such notes mature on December
14, 2005. The Junior Subordinated Notes may be prepaid at any time without
penalty. There are no mandatory prepayment provisions and no put rights
associated with the Junior Subordinated Notes. The Junior Subordinated Notes
are subordinated in right of payment to all Senior Indebtedness (as defined in
the Junior Subordinated Notes). Concurrently with the Initial Offering, Mr.
O'Gorman exercised his right to purchase from the Seller a Junior Subordinated
PIK Note in a principal amount of $800,000.
DESCRIPTION OF NEW CREDIT FACILITY
In connection with the Initial Offering, the Company entered into the New
Credit Facility with a syndicate of financial institutions for which BNP will
act as agent (the "Agent"). The New Credit Facility provides up to a maximum
aggregate amount of $70.0 million of revolving credit financing. The following
is a summary of the material terms and conditions of the New Credit Facility
and is subject to the detailed provisions of the credit agreement (the "Credit
Agreement") and various related documents to be entered into in connection
with the New Credit Facility.
General. The New Credit Facility consists of a $70.0 million revolving
credit facility, of which up to $45.0 million consists of a senior secured
working capital revolving facility (the "Working Capital Revolver") and of
which up to $25.0 million consists of a senior secured acquisition facility
(the "Acquisition Revolver" and together with the Working Capital Revolver,
the "Revolver"). Proceeds of the Revolver will be used to finance the working
capital and general corporate requirements of the Company and its subsidiaries
and to provide financing in connection with certain acquisitions by the
Company and its subsidiaries. The Working Capital Revolver shall be available
in multiple drawings from time to time to finance the working capital and
general corporate requirements of the Company and its subsidiaries. Amounts
borrowed and repaid may be reborrowed. Availability under the Working Capital
Revolver shall be limited to an amount equal to the lesser of the Borrowing
Base and the Working Capital Revolver commitment. "Borrowing Base" means the
sum of (i) 85% of Eligible Receivables (as defined in the Credit Agreement)
and (ii) 50% of Eligible Inventory (as defined in the Credit Agreement). The
above percentages may be revised from time to time subject to the reasonable
discretion of the Agent. The Acquisition Revolver shall be available in
multiple drawings from time to time following the closing of the Offering and
until December 31, 1999 (the "Acquisition Revolver Term Loan Date"), solely to
provide financing in connection with the acquisition of any Consumer Textile
Business (as defined in the Credit Agreement). Prior to the Acquisition
Revolver Term Loan Date, amounts borrowed and repaid may be reborrowed and
thereafter, amounts borrowed and repaid or prepaid may not be reborrowed.
Interest Rates; Fees. The New Credit Facility may be maintained from time to
time, at the Company's option, as (a) Base Rate Loans (as defined in the
Credit Agreement) which bear interest at the Base Rate (defined
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in the Credit Agreement as the higher of (i) the rate of interest announced
publicly by BNP in New York as its prime rate and (ii) a rate equal to 1/2 of
1% per annum above (x) the rate published by the Telerate service on page five
of its daily report as the "New York Offered Rate" as of 10:00 a.m. New York
City time for such day (or, if such day is not a business day, for the
immediately preceding business day), or (y) if the Telerate service shall
cease to publish or otherwise shall not publish such rates for any day that is
a business day, to the weighted average of the rates on overnight Federal
funds transactions with members of the Federal Reserve System arranged by
Federal funds brokers, as published for such day (or, if such day is not a
business day, for the immediately preceding business day) by the Federal
Reserve Bank of New York, or, if such rate is not so published for any day
that is a business day, the average of the quotations for such day for such
transactions received by the Agent from three Federal funds brokers of
recognized standing selected by it), plus the "Applicable Margin" (as defined
below) or (b) Eurodollar Loans (as defined in the Credit Agreement) bearing
interest at the Eurodollar Rate (adjusted for reserves) as determined by the
Agent for the applicable interest period, plus the Applicable Margin.
"Applicable Margin" means a per annum rate equal to, in the case of the
Working Capital Revolver, 2.00% for Eurodollar Loans and 0.50% for Base Rate
Loans, and in the case of the Acquisition Revolver, 2.50% for Eurodollar Loans
and 1.00% for Base Rate Loans.
Interest on Base Rate Loans will be payable quarterly in arrears on the last
business day of each quarter. Eurodollar Loans may have 1, 2, 3 or 6 month
interest periods. Interest on Eurodollar Loans will be payable in arrears at
the earlier of the end of the applicable interest period and the date which is
three months following the commencement of such interest period.
During the occurrence and during the continuance of a financial covenant
default or a payment default under the New Credit Facility, the Applicable
Margin shall increase by 2% per annum.
The Company has paid a commitment fee calculated at a rate of 0.5% per annum
of the unutilized commitments of the Working Capital Revolver and 0.625% per
annum of the unutilized commitments of the Acquisition Revolver. This fee will
accrue from the date of consummation of the Initial Offering to and including
the date of termination of the New Credit Facility, and will be payable
quarterly in arrears. In addition, the Company will pay a letter of credit fee
on all outstanding letters of credit at the rate of 2% per annum.
Maturity; Optional Prepayments. The Revolver will mature on December 31,
2001 (the "Final Maturity Date"). Amounts outstanding under the Working
Capital Revolver shall be due in full and such commitment shall expire on the
Final Maturity Date. Borrowings under the Acquisition Revolver shall be paid
on a quarterly basis, commencing March 31, 2000, in an amount equal to 5% of
the aggregate outstandings of the Acquisition Revolver on the Acquisition
Revolver Term Loan Date. All outstandings under the Acquisition Revolver shall
be due in full and such commitment shall expire on the Final Maturity Date.
The Company may, upon at least three business days' notice, terminate in whole
or reduce in part the unused portion of the commitments under the New Credit
Facility without premium or penalty. Subject to certain exceptions, the
Company may, upon at least one business day's notice in the case of Base Rate
borrowings and three business days' notice in the case of Eurodollar Rate
borrowings, prepay all or a portion of the New Credit Facility without premium
or penalty, together with accrued interest. Each such prepayment of any
Acquisition Revolver borrowing on or after the Acquisition Revolver Term Loan
Date shall be applied to the scheduled amortization payments thereof ratably.
Mandatory Prepayments. All net cash proceeds from (i) the sale of assets of
the Company and its subsidiaries (excluding Permitted Asset Sales (as defined
in the Credit Agreement)), (ii) the issuance by the Company of additional
indebtedness (other than Permitted Indebtedness (as defined in the Credit
Agreement)) or equity (other than management stock options or any common stock
issued in connection with the acquisition of a Consumer Textile Business), and
(iii) Extraordinary Receipts (as defined in the Credit Agreement) received by
the Company and its subsidiaries are to be applied to repay first, outstanding
borrowings and commitments under the Acquisition Revolver and, second,
outstanding borrowings and commitments under the Working Capital Revolver.
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Collateral. All amounts owing under the New Credit Facility will be secured
by a first priority (subject to permitted liens and encumbrances) perfected
security interest in the present and future assets and property of the Company
and its present and future subsidiaries, including, without limitation,
accounts receivable, inventory, property, plant and equipment, intangibles,
intercompany notes and other personal, intellectual and real property and the
stock of the Company and its present and future subsidiaries.
Covenants. The obligations of the lenders under the New Credit Facility will
be subject to the satisfaction of certain conditions precedent customary in
acquisition credit facilities or otherwise appropriate under the
circumstances. The Company and each of its subsidiaries will be subject to
certain affirmative and negative covenants contained in the New Credit
Facility, including without limitation covenants that restrict, subject to
specified exceptions, (i) the incurrence of additional indebtedness and other
obligations and the granting of additional liens, (ii) mergers, acquisitions,
investments and acquisitions and dispositions of assets, (iii) the incurrence
of capitalized lease obligations, (iv) dividends, (v) prepayments or
repurchase of other indebtedness and amendments to certain agreements
governing indebtedness, including the Indenture and the Notes, (vi) engaging
in transactions with affiliates and formation of subsidiaries, (vii) capital
expenditures, (viii) the use of proceeds and (ix) changes in the Company's or
its subsidiary's lines of business. There are also covenants relating to
compliance with ERISA and environmental and other laws, payment of taxes,
maintenance of corporate existence and rights, maintenance of insurance and
financial reporting. Certain of these covenants are more restrictive than
those set forth in the Indenture. In addition, the New Credit Facility will
require the Company to maintain compliance with certain specified financial
covenants, including covenants relating to maximum leverage ratios, minimum
interest coverage ratios, minimum fixed charge coverage ratios and minimum net
worth.
Events of Default. The New Credit Facility also includes events of default
including, without limitation, non-payment of principal, interest or fees;
violation of covenants; inaccuracy of representations or warranties; cross-
defaults to certain other indebtedness; bankruptcy; and Change of Control (as
defined in the Credit Agreement). The occurrence of any of such events of
default could result in payment blockage of the Notes or in acceleration of
the Company's obligations under the New Credit Facility and foreclosure on the
collateral securing such obligations.
DESCRIPTION OF NOTES
The 11% Senior Subordinated Notes due 2007 (the "New Notes") are to be
issued pursuant to the Indenture, dated as of April 1, 1997 (as defined),
among Glenoit Corporation, Glenoit Asset Corporation and United States Trust
Company of New York as trustee (the "Trustee"). The following is a summary of
the material provisions of the Indenture. This summary does not purport to be
complete and is subject to and is qualified in its entirety by reference to
all the provisions of the Notes and the Indenture (including provisions made
part of the Indentures by reference to the Trust Indenture Act of 1939, as
amended), including the definitions therein of terms not defined herein.
Certain terms used herein are defined below under "--Certain Definitions."
Copies of the forms of the Indenture and Registration Rights Agreement are
available as set forth under "Available Information." For purposes of this
section, references to the "Notes" include the Old and New Notes.
GENERAL
The form and terms of the New Notes are the same as the form and terms of
the Old Notes except that (i) the New Notes will have been registered under
the Securities Act and thus will not bear legends restricting their transfer
pursuant to the Securities Act and (ii) holders of New Notes will not be
entitled to certain rights of holders of the Old Notes under the Registration
Rights Agreement which will terminate upon the consummation of the Exchange
Offer. The Old Notes have been, and the New Notes are to be, issued under an
Indenture, dated as of April 1, 1997 (the "Indenture"), among the Company, the
Subsidiary Guarantor and the United States Trust Company of New York, as
Trustee (the "Trustee").
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The following is a summary of certain provisions of the Indenture and the
Notes, copies of which are available upon request to the Company at the
address set forth under "Available Information". The following summary of
certain provisions of the Indenture does not purport to be complete and is
subject to, and is qualified in its entirety by reference to, all the
provisions of the Indenture, including the definitions of certain terms
therein and those terms made a part thereof by the Trust Indenture Act of
1939, as amended. Capitalized terms used herein and not otherwise defined have
the meanings set forth in the section "--Certain Definitions".
The Indenture provides for the issuance of up to $100,000,000 of Notes and
additional notes or additional series of notes in aggregate principal amounts
not less than $10,000,000 per issuance and not to exceed $30,000,000 in the
aggregate (the New Notes, the Old Notes and any additional series of notes
issued under the Indenture are collectively referred to herein as the
"Notes"). All the Notes will be identical in all respects other than interest
rates and issuance dates.
Principal of, premium, if any, and interest on the Notes will be payable,
and the Notes may be exchanged or transferred, at the office or agency of the
Company in the Borough of Manhattan, The City of New York (which initially
shall be the corporate trust office of the Trustee in New York, New York),
except that, at the option of the Company, payment of interest may be made by
check mailed to the address of the Holders as such address appears in the Note
register.
The Notes will be issued only in fully registered form, without coupons, in
denominations of $1,000 and any integral multiple of $1,000. No service charge
will be made for any registration of transfer or exchange of Notes, but the
Company may require payment of a sum sufficient to cover any transfer tax or
other similar governmental charge payable in connection therewith.
TERMS OF THE NOTES
The Notes are unsecured senior subordinated obligations of the Company,
limited to $130,000,000 aggregate principal amount, and will mature on April
15, 2007. The Old Notes were issued in an aggregate principal amount of
$100,000,000. Interest on the Notes will bear interest at the rate per annum
shown on the cover page hereof from April 1,1997, or from the most recent date
to which interest has been paid or provided for, payable semiannually to
Holders of record at the close of business on the April 1 or October 1
immediately preceding the interest payment date on April 15 and October 15 of
each year. Interest on the Old Notes commenced October 15, 1997. The Company
will pay interest on overdue principal at 1% per annum in excess of such rate,
and it will pay interest on overdue installments of interest at such higher
rate to the extent lawful.
OPTIONAL REDEMPTION
Except as set forth in the following paragraph, the Notes will not be
redeemable at the option of the Company prior to April 15, 2002. Thereafter,
the Notes will be redeemable, at the Company's option, in whole or in part, at
any time or from time to time, upon not less than 30 nor more than 60 days'
prior notice mailed by first-class mail to each Holder's registered address,
at the following redemption prices (expressed in percentages of principal
amount), plus accrued and unpaid interest to the redemption date (subject to
the right of Holders of record on the relevant record date to receive interest
due on the relevant interest payment date), if redeemed during the 12-month
period commencing on April 15 of the years set forth below:
<TABLE>
<CAPTION>
PERIOD REDEMPTION PRICE
------ ----------------
<S> <C>
2002..................................................... 105.500%
2003..................................................... 103.667%
2004..................................................... 101.833%
2005 and thereafter...................................... 100.000%
</TABLE>
In addition, at any time and from time to time prior to April 15, 2000, the
Company may redeem in the aggregate up to 25% of the original principal amount
of the Notes with the proceeds of one or more Public Equity
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Offerings following which there is a Public Market, at a redemption price
(expressed as a percentage of principal amount) of 110% plus accrued and
unpaid interest, if any, to the redemption date (subject to the right of
Holders of record on the relevant record date to receive interest due on the
relevant interest payment date); provided, however, that at least 75% of the
original aggregate principal amount of the Notes must remain outstanding after
each such redemption.
SELECTION
In the case of any partial redemption, selection of the Notes for redemption
will be made by the Trustee on a pro rata basis, by lot or by such other
method as the Trustee in its sole discretion shall deem to be fair and
appropriate, although no Note of $1,000 in original principal amount or less
will be redeemed in part. If any Note is to be redeemed in part only, the
notice of redemption relating to such Note shall state the portion of the
principal amount thereof to be redeemed. A new Note in principal amount equal
to the unredeemed portion thereof will be issued in the name of the Holder
thereof upon cancellation of the original Note.
SUBSIDIARY GUARANTIES
The Company's Domestic Restricted Subsidiary, Glenoit Asset Corporation (the
"Initial Guarantor," and together with all future issuers of Subsidiary
Guaranties, the "Subsidiary Guarantors") as primary obligors and not merely as
sureties, will irrevocably and unconditionally Guarantee on an unsecured
senior subordinated basis the performance and punctual payment when due,
whether at Stated Maturity, by acceleration or otherwise, of all obligations
of the Company under the Indenture and the Notes, whether for payment of
principal of or interest on the Notes, expenses, indemnification or otherwise
(all such obligations guaranteed by the Subsidiary Guarantors being herein
called the "Guaranteed Obligations"). The Subsidiary Guarantors will agree to
pay, in addition to the amount stated above, any and all expenses (including
reasonable counsel fees and expenses) incurred by the Trustee or the Holders
in enforcing any rights under the Subsidiary Guaranties. Each Subsidiary
Guaranty will be limited in amount to an amount not to exceed the maximum
amount that can be Guaranteed by the applicable Subsidiary Guarantor without
rendering such Subsidiary Guaranty voidable under applicable law relating to
fraudulent conveyance or fraudulent transfer or similar laws affecting the
rights of creditors generally. On or after the Issue Date, the Company will
cause each Domestic Restricted Subsidiary to execute and deliver to the
Trustee a supplemental indenture pursuant to which such Domestic Restricted
Subsidiary will guarantee payment of the Notes. See "Certain Covenants--Future
Subsidiary Guarantors" below.
Each Subsidiary Guaranty is a continuing Guarantee and shall (a) remain in
full force and effect until payment in full of all the Guaranteed Obligations,
(b) be binding upon each Subsidiary Guarantor and (c) enure to the benefit of
and be enforceable by the Trustee, the Holders and their successors,
transferees and assigns.
A Subsidiary Guaranty will be released upon the sale of all the capital
stock, or all or substantially all of the assets, of the applicable Subsidiary
Guarantor if such sale is made in compliance with the Indenture.
SUBORDINATION
The Indebtedness evidenced by the Notes and the Subsidiary Guaranties will
be senior subordinated obligations of the Company and the Subsidiary
Guarantors, as the case may be. The payment of the principal of, premium (if
any) and interest on the Notes and the payment of any Subsidiary Guaranty is
subordinate in right of payment, as set forth in the Indenture, to the prior
payment in full of all Senior Indebtedness of the Company or the relevant
Subsidiary Guarantor, as the case may be, whether outstanding on the Issue
Date or thereafter incurred, including the obligations of the Company and such
Subsidiary Guarantor under the New Credit Facility. The Notes and the
Subsidiary Guaranties will also be effectively subordinated to any Secured
Indebtedness of the Company and the Subsidiary Guarantors (even if such
Secured Indebtedness is not Senior Indebtedness) to the extent of the value of
the assets securing such Indebtedness and the Notes will be effectively
subordinated to any liabilities of Subsidiaries other than the Subsidiary
Guarantors.
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As of October 4, 1997, after the application of the net proceeds from the
Initial Offering, (i) Senior Indebtedness of the Company and the Subsidiary
Guarantors is approximately $8.1 million (excluding trade payables, accrued
liabilities and unused commitments under the New Credit Facility) and (ii) the
Company and its subsidiaries have no Senior Subordinated Indebtedness
outstanding (other than the Notes) and no indebtedness outstanding that was
subordinate in right of payment to the Notes. Although the Indenture contains
limitations on the amount of additional Indebtedness that the Company and its
Restricted Subsidiaries may incur, under certain circumstances the amount of
such Indebtedness could be substantial and, in any case, such Indebtedness may
be Senior Indebtedness. See "Certain Covenants--Limitation on Indebtedness."
Only Senior Indebtedness of the Company or a Subsidiary Guarantor will rank
senior to the Notes and the relevant Subsidiary Guaranty in accordance with
the provisions of the Indenture. The Notes and each Subsidiary Guaranty will
in all respects rank pari passu with all other Senior Subordinated
Indebtedness of the Company and the relevant Subsidiary Guarantor,
respectively. The Company and each Subsidiary Guarantor has agreed in the
Indenture that it will not Incur, directly or indirectly, any Indebtedness
that is subordinate or junior in ranking in right of payment to its Senior
Indebtedness unless such Indebtedness is Senior Subordinated Indebtedness or
is expressly subordinated in right of payment to Senior Subordinated
Indebtedness. Unsecured Indebtedness is not deemed to be subordinated or
junior to Secured Indebtedness merely because it is unsecured.
The Company may not pay principal of, premium (if any) or interest on, the
Notes or make any deposit pursuant to the provisions described under "--
Defeasance" below and may not repurchase, redeem or otherwise retire any Notes
(collectively, "pay the Notes") if (i) any Senior Indebtedness is not paid
when due or (ii) any other default on any such Senior Indebtedness occurs and
the maturity of such Senior Indebtedness is accelerated in accordance with its
terms unless, in either case, the default has been cured or waived and any
such acceleration has been rescinded or such Senior Indebtedness has been paid
in full. However, the Company may pay the Notes without regard to the
foregoing if the Company and the Trustee receive written notice approving such
payment from the Representative of the Senior Indebtedness with respect to
which either of the events set forth in clause (i) or (ii) of the immediately
preceding sentence has occurred and is continuing. During the continuance of
any default (other than a default described in clause (i) or (ii) of the
second preceding sentence) with respect to any Designated Senior Indebtedness
pursuant to which the maturity thereof may be accelerated immediately without
further notice (except such notice as may be required to effect such
acceleration) or the expiration of any applicable grace periods, the Company
may not pay the Notes for a period (a "Payment Blockage Period") commencing
upon the receipt by the Trustee (with a copy to the Company) of written notice
(a "Blockage Notice") of such default from the Representative of the holders
of such Designated Senior Indebtedness specifying an election to effect a
Payment Blockage Period and ending 179 days thereafter (or earlier if such
Payment Blockage Period is terminated (i) by written notice to the Trustee and
the Company from the Person or Persons who gave such Blockage Notice, (ii)
because the default giving rise to such Blockage Notice is no longer
continuing or (iii) because such Designated Senior Indebtedness has been
repaid in full). Notwithstanding the provisions described in the immediately
preceding sentence, unless the holders of such Designated Senior Indebtedness
or the Representative of such holders has accelerated the maturity of such
Designated Senior Indebtedness, the Company may resume payments on the Notes
after the end of such Payment Blockage Period. The Notes shall not be subject
to more than one Payment Blockage Period in any consecutive 360-day period,
irrespective of the number of defaults with respect to Designated Senior
Indebtedness during such period.
Upon any payment or distribution of the assets of the Company upon a total
or partial liquidation or dissolution or reorganization of or similar
proceeding relating to the Company or its property, the holders of Senior
Indebtedness will be entitled to receive payment in full of such Senior
Indebtedness before the Noteholders are entitled to receive any payment, and,
until the Senior Indebtedness is paid in full, any payment or distribution to
which Noteholders would be entitled but for the subordination provisions of
the Indenture will be made to holders of such Senior Indebtedness as their
interests may appear. If a payment or distribution is made to Noteholders
that, due to the subordination provisions, should not have been made to them,
such Noteholders are required to hold it in trust for the holders of Senior
Indebtedness and pay it over to them as their interests may appear. Senior
Indebtedness will not be deemed to be paid in full unless all outstanding
commitments thereunder have been terminated.
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If an Event of Default occurs (other than as a result of certain events of
bankruptcy, insolvency or reorganization of the Company or a Significant
Subsidiary), the Trustee or the Holders electing to accelerate the Notes shall
give the holders of all Designated Senior Indebtedness or the Representative
of such holders five business days' prior written notice before accelerating
the Notes; provided, however, that the Trustee or the Holders may so
accelerate the Notes immediately without such notice if at such time payment
of any Designated Senior Indebtedness shall have been accelerated. If payment
of the Notes is accelerated because of an Event of Default, the Company or the
Trustee shall promptly notify the holders of Designated Senior Indebtedness or
the Representative of such holders of the acceleration and, thereafter, the
Company and the Subsidiary Guarantors may pay the Notes only if the Indenture
otherwise permits payment at that time.
The obligations of a Subsidiary Guarantor under its Subsidiary Guaranty are
senior subordinated obligations. As such, the rights of Noteholders to receive
payment by a Subsidiary Guarantor pursuant to its Subsidiary Guaranty will be
subordinated in right of payment to the rights of holders of Senior
Indebtedness of such Subsidiary Guarantor. The terms of the subordination
provisions described above with respect to the Company's obligations under the
Notes apply equally to a Subsidiary Guarantor and the obligations of such
Subsidiary Guarantor under its Subsidiary Guaranty.
By reason of the subordination provisions contained in the Indenture, in the
event of insolvency, creditors of the Company or a Subsidiary Guarantor who
are holders of Senior Indebtedness of the Company or a Subsidiary Guarantor,
as the case may be, may recover more, ratably, than the Noteholders, and
creditors of the Company who are not holders of Senior Indebtedness may
recover less, ratably, than holders of Senior Indebtedness and may recover
more, ratably, than the Noteholders.
The terms of the subordination provisions described above will not apply to
payments from money or the proceeds of U.S. Government Obligations held in
trust by the Trustee for the payment of principal of and interest on the Notes
pursuant to the provisions described under "--Defeasance."
CHANGE OF CONTROL
Upon the occurrence of a Change of Control, each Holder shall have the right
to require that the Company repurchase such Holder's Notes at a purchase price
in cash equal to 101% of the principal amount thereof plus accrued and unpaid
interest, if any, to the date of repurchase (subject to the right of Holders
of record on the relevant record date to receive interest due on the relevant
interest payment date), in accordance with the provisions of the next
paragraph.
Within 30 days following any Change of Control, the Company shall mail a
notice to each Holder with a copy to the Trustee stating: (1) that a Change of
Control has occurred and that such Holder has the right to require the Company
to purchase such Holder's Notes at a purchase price in cash equal to 101% of
the principal amount thereof plus accrued and unpaid interest, if any, to the
date of repurchase (subject to the right of Holders of record on the relevant
record date to receive interest on the relevant interest payment date); (2)
the circumstances and relevant facts and relevant financial information
regarding such Change of Control; (3) the repurchase date (which shall be no
earlier than 30 days nor later than 60 days from the date such notice is
mailed); and (4) the instructions determined by the Company, consistent with
the covenant described hereunder, that a Holder must follow in order to have
its Notes repurchased.
The Company shall comply, to the extent applicable, with the requirements of
Section 14(e) of the Exchange Act and any other securities laws or regulations
in connection with the repurchase of Notes pursuant to the covenant described
hereunder. To the extent that the provisions of any securities laws or
regulations conflict with the provisions of the covenant described hereunder,
the Company shall comply with the applicable securities laws and regulations
and shall not be deemed to have breached its obligations under the covenant
described hereunder by virtue thereof.
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The Change of Control purchase feature is a result of negotiations between
the Company and the Initial Purchasers. Management has no present intention to
engage in a transaction involving a Change of Control, although it is possible
that the Company would decide to do so in the future. Subject to the
limitations discussed below, the Company could, in the future, enter into
certain transactions, including acquisitions, refinancings or other
recapitalizations, that would not constitute a Change of Control under the
Indenture, but that could increase the amount of indebtedness outstanding at
such time or otherwise affect the Company's capital structure or credit
ratings.
The occurrence of certain of the events which would constitute a Change of
Control would constitute a default under the New Credit Facility. Future
Senior Indebtedness of the Company may contain prohibitions of certain events
which would constitute a Change of Control or require such Senior Indebtedness
to be repurchased upon a Change of Control. Moreover, the exercise by the
Holders of their right to require the Company to repurchase the Notes could
cause a default under such Senior Indebtedness, even if the Change of Control
itself does not, due to the financial effect of such repurchase on the
Company. Finally, the Company's ability to pay cash to the Holders upon a
repurchase may be limited by the Company's then existing financial resources.
There can be no assurance that sufficient funds will be available when
necessary to make any repurchases required in connection with a Change of
Control. The Company's failure to purchase the Notes in connection with a
Change in Control would result in a default under the Indenture which would,
in turn, constitute a default under the New Credit Facility. In such
circumstances, the subordination provisions in the Indenture would likely
restrict payment to the Holders of the Notes.
BOOK-ENTRY, DELIVERY AND FORM
Except as set forth in the next paragraph, the Notes sold will be issued in
the form of one or more Global Notes. The Global Notes will be deposited with,
or on behalf of, the Depository and registered in the name of the Depository
or its nominee. Except as set forth below, a Global Note may be transferred,
in whole and not in part, only to the Depository or another nominee of the
Depository. Investors may hold their beneficial interests in a Global Note
directly through the Depository if they have an account with the Depository or
indirectly through organizations which have accounts with the Depository.
Notes that are (i) originally issued to institutional "accredited investors"
(as defined in Rule 501(a)(1), (2), (3) or (7) under the Securities Act) who
are not qualified institutional buyers ("QIBs") or (ii) issued as described
below under "--Certificated Notes" will be issued in definitive form. Upon the
transfer to a QIB of a Note in definitive form, such Note will, unless the
Global Notes have previously been exchanged for Notes in definitive form, be
exchanged for an interest in the Global Notes representing the principal
amount of Notes being transferred.
The Depository has advised the Company as follows: The Depository is a
limited-purpose trust company and organized under the laws of the State of New
York, a member of the Federal Reserve System, a "clearing corporation" within
the meaning of the New York Uniform Commercial Code, and "a clearing agency"
registered pursuant to the provisions of Section 17A of the Securities
Exchange Act of 1934 (the "Exchange Act"). The Depository was created to hold
securities of institutions that have accounts with the Depository
("participants") and to facilitate the clearance and settlement of securities
transactions among its participants in such securities through electronic
book-entry changes in accounts of the participants, thereby eliminating the
need for physical movement of securities certificates. The Depository's
participants include securities brokers and dealers (which may include the
Initial Purchasers), banks, trust companies, clearing corporations and certain
other organizations. Access to the Depository's book-entry system is also
available to others such as banks, brokers, dealers and trust companies that
clear through or maintain a custodial relationship with a participant, whether
directly or indirectly.
Upon the issuance of a Global Note, the Depository will credit, on its book-
entry registration and transfer system, the principal amount of the Notes
represented by such Global Note to the accounts of participants. The accounts
to be credited shall be designated by the Initial Purchasers of such Notes.
Ownership of beneficial interests in a Global Note will be limited to
participants or persons that may hold interests through participants.
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Ownership of beneficial interests in such Global Note will be shown on, and
the transfer of those ownership interests will be effected only through,
records maintained by the Depository (with respect to participants' interest)
and such participants (with respect to the owners of beneficial interests in
the Global Note other than participants). The laws of some jurisdictions may
require that certain purchasers of securities take physical delivery of such
securities in definitive form. Such limits and laws may impair the ability to
transfer or pledge beneficial interests in a Global Note.
So long as the Depository, or its nominee, is the registered Holder and
owner of a Global Note, the Depository or such nominee, as the case may be,
will be considered the sole legal owner and Holder of the related Notes for
all purposes of such Notes and the Indenture. Except as set forth below,
owners of beneficial interests in a Global Note will not be entitled to have
the Notes represented by such Global Note registered in their names, will not
receive or be entitled to receive physical delivery of certificated Notes in
definitive form and will not be considered to be the owners or Holders of any
Notes under such Global Note. The Company understands that under existing
industry practice, in the event an owner of a beneficial interest in a Global
Note desires to take any action that the Depository, as the Holder of such
Global Note, is entitled to take, the Depository would authorize the
participants to take such action, and that the participants would authorize
beneficial owners owning through such participants to take such action or
would otherwise act upon the instructions of beneficial owners owning through
them.
Payment of principal of and interest on Notes represented by a Global Note
registered in the name of and held by the Depository or its nominee will be
made to the Depository or its nominee, as the case may be, as the registered
owner and Holder of such Global Note.
The Company expects that the Depository or its nominee, upon receipt of any
payment of principal of or interest on a Global Note, will credit
participants' accounts with payments in amounts proportionate to their
respective beneficial interests in the principal amount of such Global Note as
shown on the records of the Depository or its nominee. The Company also
expects that payments by participants to owners of beneficial interests in a
Global Note held through such participants will be governed by standing
instructions and customary practices and will be the responsibility of such
participants. The Company will not have any responsibility or liability for
any aspect of the records relating to, or payments made on account of,
beneficial ownership interests in a Global Note for any Note or for
maintaining, supervising or reviewing any records relating to such beneficial
ownership interests or for any other aspect of the relationship between the
Depository and its participants or the relationship between such participants
and the owners of beneficial interests in such Global Note owning through such
participants.
Unless and until it is exchanged in whole or in part for certificated Notes
in definitive form, a Global Note may not be transferred except as a whole by
the Depository to a nominee of such Depository or by a nominee of such
Depository to such Depository or another nominee of such Depository.
Although the Depository has agreed to the foregoing procedures in order to
facilitate transfers of interests in Global Notes among participants of the
Depository, it is under no obligation to perform or continue to perform such
procedures, and such procedures may be discontinued at any time. Neither the
Trustee nor the Company will have any responsibility for the performance by
the Depository or its participants or indirect participants of their
respective obligations under the rules and procedures governing their
operations.
CERTIFICATED NOTES
The Notes represented by a Global Note are exchangeable for certificated
Notes in definitive form of like tenor as such Notes in denominations of
U.S.$1,000 and integral multiples thereof if (i) the Depository notifies the
Company that it is unwilling or unable to continue as Depository for such
Global Note or if at any time the Depository ceases to be a clearing agency
registered under the Exchange Act, (ii) the Company in its discretion at any
time determines not to have all of the Notes represented by such Global Note
or (iii) a default entitling the Holders of the Notes to accelerate the
maturity thereof has occurred and is continuing. Any Note that is
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exchangeable pursuant to the preceding sentence is exchangeable for
certificated Notes issuable in authorized denominations and registered in such
names as the Depository shall direct. Subject to the foregoing, a Global Note
is not exchangeable, except for a Global Note of the same aggregate
denomination to be registered in the name of the Depository or its nominee. In
addition, such certificates will bear the legend referred to under "Notice to
Investors" (unless the Company determines otherwise in accordance with
applicable law) subject, with respect to such Notes, to the provisions of such
legend.
CERTAIN COVENANTS
The Indenture contains covenants including, among others, the following:
Limitation on Indebtedness. (a) The Company shall not, and shall not permit
any Restricted Subsidiary to, Incur, directly or indirectly, any Indebtedness
unless, on the date of such Incurrence, the Consolidated Coverage Ratio
exceeds 2.0 to 1 if such Indebtedness is Incurred prior to April 15, 2000, or
2.25 to 1 if such Indebtedness is Incurred thereafter.
(b) Notwithstanding the foregoing paragraph (a), the Company and its
Restricted Subsidiaries may Incur the following Indebtedness: (1) Indebtedness
Incurred pursuant to the New Credit Facility or any Permitted Receivables
Financing; provided, however, that, after giving effect to any such
Incurrence, the aggregate principal amount of such Indebtedness then
outstanding does not exceed the sum of (x) 60% of the book value of the
inventory of the Company and its Restricted Subsidiaries and (y) 85% of the
book value of the accounts receivable of the Company and its Restricted
Subsidiaries, in each case determined in accordance with GAAP; (2)
Indebtedness of the Company owed to and held by any Wholly Owned Subsidiary or
Indebtedness of a Restricted Subsidiary owed to and held by the Company or a
Wholly Owned Subsidiary; provided, however, that any subsequent issuance or
transfer of any Capital Stock which results in any such Wholly Owned
Subsidiary ceasing to be a Wholly Owned Subsidiary or any subsequent transfer
of such Indebtedness (other than to the Company or a Wholly Owned Subsidiary)
shall be deemed, in each case, to constitute the Incurrence of such
Indebtedness of the issuer thereof; (3) Indebtedness represented by the
Offered Notes and the Subsidiary Guaranties; (4) Indebtedness outstanding on
the Issue Date (other than Indebtedness described in clause (1) or (2) of this
covenant); (5) Refinancing Indebtedness in respect of Indebtedness Incurred
pursuant to paragraph (a) or pursuant to clause (3) or (4) or this clause (5);
(6) Indebtedness in respect of performance bonds, bankers' acceptances,
letters of credit and surety or appeal bonds entered into by the Company and
the Restricted Subsidiaries in the ordinary course of their business; (7)
Hedging Obligations consisting of Interest Rate Agreements and Currency
Agreements entered into in the ordinary course of business and not for the
purpose of speculation; provided, however, that, in the case of Currency
Agreements and Interest Rate Agreements, such Currency Agreements and Interest
Rate Agreements do not increase the Indebtedness of the Company outstanding at
any time other than as a result of fluctuations in foreign currency exchange
rates or interest rates or by reason of fees, indemnities and compensation
payable thereunder; (8) Purchase Money Indebtedness and Capital Lease
Obligations Incurred to finance the acquisition by the Company or a Restricted
Subsidiary of any assets in the ordinary course of business and which do not
exceed $10 million in the aggregate at any time outstanding; (9) Indebtedness
arising from the honoring by a bank or other financial institution of a check,
draft of similar instrument inadvertently (except in the case of daylight
overdrafts) drawn against insufficient funds in the ordinary course of
business, provided that such Indebtedness is extinguished within five business
days of Incurrence; (10) Indebtedness of the Company and its Restricted
Subsidiaries, to the extent the proceeds thereof are immediately used after
the Incurrence thereof to purchase Notes tendered in an offer to purchase made
as a result of a Change of Control; (11) Indebtedness of the Company and its
Restricted Subsidiaries arising from agreements providing for indemnification,
adjustment of purchase price or similar obligations, in any case Incurred in
connection with the disposition of any assets of the Company or any Restricted
Subsidiary (other than Guarantees of Indebtedness Incurred by any Person
acquiring all or any portion of such assets for the purpose of financing such
acquisition), in a principal amount not to exceed the gross proceeds actually
received by the Company or any Restricted Subsidiary in connection with such
disposition; and (12) Indebtedness in an aggregate principal amount which,
together with all other Indebtedness of the Company and Restricted
Subsidiaries outstanding on the date of such Incurrence (other than
Indebtedness permitted by clauses (1) through (11) above or paragraph (a))
does not exceed $30 million.
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(c) Notwithstanding the foregoing, the Company shall not, and shall not
permit any Restricted Subsidiary to, Incur any Indebtedness pursuant to the
foregoing paragraph (b) if the proceeds thereof are used, directly or
indirectly, to Refinance (i) any Subordinated Obligations unless such
Indebtedness shall be subordinated to the Notes and the Subsidiary Guaranties,
as applicable, to at least the same extent as such Subordinated Obligations or
(ii) any Senior Subordinated Indebtedness unless such Indebtedness shall be
Senior Subordinated Indebtedness or shall be subordinated to the Notes and the
Subsidiary Guaranties, as applicable.
(d) For purposes of determining compliance with the foregoing covenant, (i)
in the event that an item of Indebtedness meets the criteria of more than one
of the types of Indebtedness described above, the Company, in its sole
discretion, will classify such item of Indebtedness and only be required to
include the amount and type of such Indebtedness in one of the above clauses
and (ii) an item of Indebtedness may be divided and classified in more than
one of the types of Indebtedness described above.
(e) Notwithstanding paragraphs (a) and (b) above, the Company shall not, and
shall not permit any Subsidiary Guarantor to, Incur (i) any Indebtedness if
such Indebtedness is subordinate or junior in ranking in any respect to any
Senior Indebtedness of the Company or such Subsidiary Guarantor, as
applicable, unless such Indebtedness is Senior Subordinated Indebtedness or is
expressly subordinated in right of payment to Senior Subordinated Indebtedness
or (ii) any Secured Indebtedness that is not Senior Indebtedness of the
Company or such Subsidiary Guarantor, as applicable, unless contemporaneously
therewith effective provision is made to secure the Notes or the Subsidiary
Guaranty, as applicable, equally and ratably with such Secured Indebtedness
for so long as such Secured Indebtedness is secured by a Lien.
Limitation on Restricted Payments. (a) The Company shall not, and shall not
permit any Restricted Subsidiary, directly or indirectly, to make a Restricted
Payment if at the time the Company or such Restricted Subsidiary makes such
Restricted Payment: (1) a Default shall have occurred and be continuing (or
would result therefrom); (2) the Company is not able to Incur an additional
$1.00 of Indebtedness pursuant to paragraph (a) of the covenant described
under "--Limitation on Indebtedness"; or (3) the aggregate amount of such
Restricted Payment together with all other Restricted Payments (the amount of
any payments made in property other than in cash to be valued at the fair
market value of such property, as determined in good faith by the Board of
Directors) declared or made since the Issue Date would exceed the sum of: (A)
50% of the Consolidated Net Income accrued during the period (treated as one
accounting period) from April 1, 1997 to the end of the most recent fiscal
quarter ending at least 45 days (or, if less, the number of days after the end
of such fiscal quarter as the consolidated financial statements of the Company
shall be provided to the Noteholders pursuant to the Indenture) prior to the
date of such Restricted Payment (or, in case such Consolidated Net Income
accrued during such period (treated as one accounting period) shall be a
deficit, minus 100% of such deficit); (B) the aggregate Net Cash Proceeds
received by the Company from the issuance or sale of its Capital Stock (other
than Disqualified Stock) subsequent to the Issue Date (other than an issuance
or sale to a Subsidiary of the Company and other than an issuance or sale to
an employee stock ownership plan or to a trust established by the Company or
any of its Subsidiaries for the benefit of their employees to the extent that
the purchase by such plan or trust is financed by Indebtedness of such plan or
trust to the Company or any Subsidiary or for which the Company or any
Subsidiary is liable, directly or indirectly, as a guarantor or otherwise
(including by the making of cash contributions to such plan or trust which are
used to pay interest or principal on such Indebtedness)); (C) the amount by
which Indebtedness of the Company or its Restricted Subsidiaries is reduced on
the Company's balance sheet upon the conversion or exchange (other than by a
Subsidiary of the Company) subsequent to the Issue Date, of any Indebtedness
of the Company or its Restricted Subsidiaries convertible or exchangeable for
Capital Stock (other than Disqualified Stock) of the Company (less the amount
of any cash, or the fair value of any other property, distributed by the
Company or any Restricted Subsidiary upon such conversion or exchange); and
(D) an amount equal to the sum of (i) the net reduction in Investments in
Unrestricted Subsidiaries resulting from dividends, repayments of loans or
advances or other transfers of assets by any Unrestricted Subsidiary to the
Company or any Restricted Subsidiary, or the receipt of proceeds by the
Company or any Restricted Subsidiary from the sale or other disposition of any
portion of the Capital Stock of any Unrestricted Subsidiary, in each case
occurring subsequent to the Issue Date, and (ii) the portion (proportionate to
the Company's equity
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interest in such Subsidiary) of the fair market value of the net assets of an
Unrestricted Subsidiary at the time such Unrestricted Subsidiary is designated
a Restricted Subsidiary; provided, however, that the foregoing sum shall not
exceed, in the case of any Unrestricted Subsidiary, the amount of Investments
previously made (and treated as a Restricted Payment) by the Company or any
Restricted Subsidiary in such Unrestricted Subsidiary.
(b) The provisions of the foregoing paragraph (a) shall not prohibit: (i)
any purchase or redemption of Capital Stock or Subordinated Obligations of the
Company or any Restricted Subsidiary made by exchange for, or out of the
proceeds of the substantially concurrent sale of, Capital Stock of the Company
(other than Disqualified Stock and other than Capital Stock issued or sold to
a Subsidiary of the Company or an employee stock ownership plan or to a trust
established by the Company or any of its Subsidiaries for the benefit of their
employees to the extent that the purchase by such plan or trust is financed by
Indebtedness of such plan or trust to the Company or any Subsidiary or for
which the Company or any Subsidiary is liable, directly or indirectly, as a
guarantor or otherwise (including by the making of cash contributions to such
plan or trust which are used to pay interest or principal on such
Indebtedness)); provided, however, that (A) such purchase or redemption shall
be excluded from the calculation of the amount of Restricted Payments and (B)
the Net Cash Proceeds from such sale shall be excluded from the calculation of
amounts under clause (3)(B) of paragraph (a) above; (ii) any purchase or
redemption of (A) Subordinated Obligations of the Company made by exchange
for, or out of the proceeds of the substantially concurrent sale of,
Indebtedness of the Company which is permitted to be Incurred pursuant to
paragraphs (b) and (c) of the covenant described under "--Limitation on
Indebtedness" or (B) Subordinated Obligations of a Restricted Subsidiary made
by exchange for, or out of the proceeds of the substantially concurrent sale
of, Indebtedness of such Restricted Subsidiary or the Company which is
permitted to be Incurred pursuant to paragraphs (b) and (c) of the covenant
described under "--Limitation on Indebtedness"; provided, however, that such
purchase or redemption shall be excluded from the calculation of the amount of
Restricted Payments; (iii) any purchase or redemption of (A) Disqualified
Stock of the Company made by exchange for, or out of the proceeds of the
substantially concurrent sale of, Disqualified Stock of the Company or (B)
Disqualified Stock of a Restricted Subsidiary made by exchange for, or out of
the proceeds of the substantially concurrent sale of, Disqualified Stock of
such Restricted Subsidiary or the Company; provided, however, that (1) at the
time of such exchange, no Default or Event of Default shall have occurred and
be continuing or would result therefrom and (2) such purchase or redemption
will be excluded from the calculation of the amount of Restricted Payments;
(iv) cash payments to Holdings (A) in an aggregate amount not to exceed $1.6
million to enable Holdings to (1) prepay the Deferred Redemption Price Note
and (2) purchase 3,651.15 shares of Class A Stock of Holdings held by the
Seller and (B) in an aggregate principal amount not to exceed $5.0 million to
enable Holdings to prepay the Seller Notes; provided, however, that (I) in the
case of subclause (B) of this clause (iv) only, at the time of such payment or
prepayment, the Company would be able to Incur an additional $1.00 of
Indebtedness pursuant to paragraph (a) of the covenant described under "--
Limitation on Indebtedness" after giving pro forma effect to such Restricted
Payment and (II) at the time of such payment or prepayment, no Default shall
have occurred and be continuing (or would result therefrom); provided further,
however, that such payments will be included in the calculation of the amount
of Restricted Payments; (v) cash payments to Holdings to enable Holdings to
pay cash interest on the Split-Pay Notes, as and when the same shall become
due and payable; provided, however, that (1) Holdings shall not have the right
to pay such interest in-kind (including, without limitation, in the form of
additional notes) or otherwise defer the payment of such interest in cash, (2)
the aggregate amount of such payments shall not exceed $300,000 in any six-
month period, (3) at the time of such payment, no Default shall have occurred
and be continuing (or would result therefrom) and (4) such payments will be
included in the calculation of the amount of Restricted Payments; (vi)
Permitted Operating Expense Payments and payments to Holdings that are
required to be made pursuant to the Tax Sharing Agreement; provided, however,
that such payments will be excluded from the calculation of the amount of
Restricted Payments; (vii) upon the occurrence of a Change of Control and
within 60 days after the completion of the offer to repurchase the Notes
pursuant to the covenant described under "--Change of Control" above
(including the purchase of all Notes tendered), any purchase or redemption of
Subordinated Obligations of the Company required pursuant to the terms thereof
as a result of such Change of Control at a purchase or redemption price not to
exceed the outstanding principal amount thereof, plus accrued and unpaid
interest thereon, if any; provided, however, that (A) at the time of such
purchase or redemption, no Default shall have
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occurred and be continuing (or would result therefrom), (B) the Company would
be able to Incur an additional $1.00 of Indebtedness pursuant to paragraph (a)
of the covenant described under "--Limitation on Indebtedness" after giving
pro forma effect to such Restricted Payment, (C) such purchase or redemption
is not made, directly or indirectly, from the proceeds of (or made in
anticipation of) any Issuance of Indebtedness by the Company or any Subsidiary
and (D) such purchase or redemption will be included in the calculation of the
amount of Restricted Payments; (viii) dividends paid within 60 days after the
date of declaration thereof if at such date of declaration such dividend would
have complied with this covenant; provided, however, that (A) at the time of
payment of such dividend, no other Default shall have occurred and be
continuing (or would result therefrom) and (B) such dividend shall be included
in the calculation of the amount of Restricted Payments; or (ix) the
repurchase of, or payments to Holdings to enable Holdings to repurchase,
shares of, or options to purchase shares of, common stock of the Company,
Holdings or any of the Subsidiaries from employees, former employees,
directors or former directors of the Company, Holdings or any of the
Subsidiaries (or permitted transferees of such employees, former employees,
directors or former directors), pursuant to the terms of the agreements
(including employment agreements) or plans (or amendments thereto) approved by
the Board of Directors or the board of directors of Holdings, as the case may
be, under which such individuals purchase or sell or are granted the option to
purchase or sell, shares of such common stock; provided, however, that (A) the
aggregate amount of such repurchases shall not exceed the sum of (1) $1
million and (2) the aggregate amount of cash received by the Company after the
Issue Date from the sale of such shares to, or the exercise of options to
purchase such shares by, employees or directors of the Company, Holdings or
any of the Subsidiaries and (B) such repurchases will be included in the
calculation of the amount of Restricted Payments.
Limitation on Restrictions on Distributions from Restricted
Subsidiaries. The Company shall not, and shall not permit any Restricted
Subsidiary to, create or otherwise cause or permit to exist or become
effective any consensual encumbrance or consensual restriction on the ability
of any Restricted Subsidiary (a) to pay dividends or make any other
distributions on its Capital Stock to the Company or a Restricted Subsidiary
or pay any Indebtedness owed to the Company, (b) to make any loans or advances
to the Company or (c) transfer any of its property or assets to the Company,
except: (i) any encumbrance or restriction pursuant to an agreement in effect
at or entered into on the Issue Date; (ii) any encumbrance or restriction with
respect to a Restricted Subsidiary pursuant to an agreement relating to any
Indebtedness Incurred by such Restricted Subsidiary which was entered into on
or prior to the date on which such Restricted Subsidiary was acquired by the
Company (other than as consideration in, or to provide all or any portion of
the funds or credit support utilized to consummate, the transaction or series
of related transactions pursuant to which such Restricted Subsidiary became a
Restricted Subsidiary or was acquired by the Company) and outstanding on such
date; (iii) any encumbrance or restriction pursuant to an agreement effecting
a Refinancing of Indebtedness Incurred pursuant to an agreement referred to in
clause (i) or (ii) of this covenant (or effecting a Refinancing of such
Refinancing Indebtedness pursuant to this clause (iii)) or contained in any
amendment to an agreement referred to in clause (i) or (ii) of this covenant
or this clause (iii); provided, however, that the encumbrances and
restrictions with respect to such Restricted Subsidiary contained in any such
refinancing agreement or amendment are no more restrictive in any material
respect than the encumbrances and restrictions with respect to such Restricted
Subsidiary contained in such agreements; (iv) any such encumbrance or
restriction consisting of customary non-assignment provisions in leases
governing leasehold interests to the extent such provisions restrict the
transfer of the lease or the property leased thereunder; (v) in the case of
clause (c) above, restrictions contained in security agreements or mortgages
securing Indebtedness of a Restricted Subsidiary to the extent such
restrictions restrict the transfer of the property subject to such security
agreements or mortgages; (vi) any restriction with respect to a Restricted
Subsidiary imposed pursuant to an agreement entered into for the sale or
disposition of all or substantially all the Capital Stock or assets of such
Restricted Subsidiary pending the closing of such sale or disposition; and
(vii) any encumbrance or restriction with respect to any Receivables
Subsidiary pursuant to an agreement related to Indebtedness of the Receivables
Subsidiary which is permitted under the covenant described under "--Limitation
on Indebtedness" or pursuant to any agreement relating to a Financing
Disposition to or by the Receivables Subsidiary.
Limitation on Sales of Assets and Subsidiary Stock. The Company shall not,
and shall not permit any Restricted Subsidiary to consummate any Asset
Disposition unless the Company or such Restricted Subsidiary
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receives consideration at the time of such Asset Disposition at least equal to
the fair market value (including as to the value of all non-cash
consideration), as determined in good faith by the Board of Directors, of the
shares and assets subject to such Asset Disposition and at least 75% (or 100%
in the case of lease payments) of the consideration thereof received by the
Company or such Restricted Subsidiary is in the form of cash or cash
equivalents. In the event and to the extent that the Net Available Cash
received by the Company or any Restricted Subsidiary from one or more Asset
Dispositions occurring on or after the Issue Date exceeds $5 million, then the
Company or such Restricted Subsidiary shall (i) within 360 days after the date
such Net Available Cash so received exceeds $5 million and to the extent the
Company or such Restricted Subsidiary elects (or is required by the terms of
any Senior Indebtedness) to (A) apply an amount equal to such excess Net
Available Cash to prepay, repay or purchase Senior Indebtedness of the Company
or such Restricted Subsidiary, in each case owing to a Person other than the
Company or any Affiliate of the Company or (B) invest (or enter into a binding
commitment to invest, provided that such commitment shall be subject only to
customary conditions (other than financing) and such investment shall be
consummated within 180 days after the end of such 360-day period) an equal
amount, or the amount not so applied pursuant to clause (A), in Additional
Assets (including by means of an Investment in Additional Assets by a
Restricted Subsidiary with Net Available Cash received by the Company or
another Restricted Subsidiary) and (ii) apply such excess Net Available Cash
(to the extent not applied pursuant to clause (i)) as provided in the
following paragraphs of the covenant described hereunder; provided, however,
that in connection with any prepayment, repayment or purchase of Senior
Indebtedness pursuant to clause (A) above, the Company or such Restricted
Subsidiary shall retire such Senior Indebtedness and shall cause the related
loan commitment (if any) to be permanently reduced in an amount equal to the
principal amount so prepaid, repaid or purchased. The amount of such excess
Net Available Cash required to be applied pursuant to clause (ii) above and
not theretofore so applied shall constitute "Excess Proceeds." Pending
application of Net Available Cash pursuant to this provision, such Net
Available Cash shall be invested in Temporary Cash Investments.
If at any time the aggregate amount of Excess Proceeds not theretofore
subject to an Excess Proceeds Offer (as defined below) totals at least $5
million, the Company shall, not later than 30 days after the end of the period
during which the Company is required to apply such Excess Proceeds pursuant to
clause (i) of the immediately preceding paragraph (or, if the Company so
elects, at any time within such period), make an offer (an "Excess Proceeds
Offer") to purchase from the Holders on a pro rata basis an aggregate
principal amount of Notes equal to the Excess Proceeds (rounded down to the
nearest multiple of $1,000) on such date, at a purchase price equal to 100% of
the principal amount of such Notes, plus, in each case, accrued interest (if
any) to the date of purchase (the "Excess Proceeds Payment"). Upon completion
of an Excess Proceeds Offer, the amount of Excess Proceeds remaining after
application pursuant to such Excess Proceeds Offer (including payment of the
purchase price for Notes duly tendered) may be used by the Company for any
corporate purpose (to the extent not otherwise prohibited by the Indenture).
For the purposes of this covenant, the following are deemed to be cash: (x)
the assumption of Senior Indebtedness of the Company or any Restricted
Subsidiary and the release of the Company or such Restricted Subsidiary from
all liability on such Indebtedness in connection with such Asset Disposition
and (y) securities received by the Company or any Restricted Subsidiary from
the transferee that are promptly converted by the Company or such Restricted
Subsidiary into cash.
The Company shall comply, to the extent applicable, with the requirements of
Section 14(e) of the Exchange Act and any other securities laws or regulations
thereunder in the event that such Excess Proceeds are received by the Company
under the covenant described hereunder and the Company is required to
repurchase Notes as described above. To the extent that the provisions of any
securities laws or regulations conflict with the provisions of the covenant
described hereunder, the Company shall comply with the applicable securities
laws and regulations and shall not be deemed to have breached its obligations
under the covenant described hereunder by virtue thereof.
Limitation on Affiliate Transactions. (a) The Company shall not, and shall
not permit any Restricted Subsidiary to, enter into or permit to exist any
transaction (including the purchase, sale, lease or exchange of any
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property, employee compensation arrangements or the rendering of any service)
with any Affiliate of the Company (an "Affiliate Transaction") unless the
terms thereof (1) are no less favorable to the Company or such Restricted
Subsidiary than those that could be obtained at the time of such transaction
in arm's-length dealings with a Person who is not such an Affiliate, (2) if
such Affiliate Transaction involves an amount in excess of $1 million, (i) are
set forth in writing, (ii) comply with clause (1) and (iii) have been approved
by a majority of the disinterested members of the Board of Directors and (3)
if such Affiliate Transaction involves an amount in excess of $5 million, (i)
comply with clause (2) and (ii) have been determined by a nationally
recognized investment banking firm to be fair, from a financial standpoint, to
the Company and its Restricted Subsidiaries.
(b) The provisions of the foregoing paragraph (a) shall not prohibit (i) any
Restricted Payment permitted to be paid pursuant to the covenant described
under "--Limitation on Restricted Payments", (ii) any issuance of securities,
or other payments, awards or grants in cash, securities or otherwise pursuant
to, or the funding of, employment arrangements, stock options and stock
ownership plans in the ordinary course of business and approved by the Board
of Directors, (iii) the grant of stock options or similar rights to employees
and directors of the Company in the ordinary course of business and pursuant
to plans approved by the Board of Directors, (iv) loans or advances to
employees in the ordinary course of business of the Company or its Restricted
Subsidiaries, but in any event not to exceed $1 million in the aggregate
outstanding at any time, (v) fees, compensation or employee benefit
arrangements paid to and indemnity provided for the benefit of directors,
officers or employees of Holdings, the Company or any Subsidiary in the
ordinary course of business, subject, in the case of Holdings, to the
limitation set forth in clause (vi) of paragraph (b) of the covenant described
under "--Limitation on Restricted Payments", (vi) the payment of principal,
interest and other amounts under the Junior Subordinated Notes when due in
accordance with the terms thereof, (vii) any Affiliate Transaction between the
Company and a Restricted Subsidiary or between Restricted Subsidiaries in the
ordinary course of business (so long as the other stockholders of any
participating Restricted Subsidiaries which are not Wholly Owned Subsidiaries
are not themselves Affiliates of the Company), (viii) transactions with B&D
pursuant to the B&D Licensing Agreement or (ix) transactions with a
Receivables Subsidiary pursuant to any Permitted Receivables Financing.
Limitation on the Issuance or Sale of Capital Stock of Restricted
Subsidiaries. The Company shall not (i) sell, pledge, hypothecate or otherwise
dispose of any shares of Capital Stock of a Restricted Subsidiary (other than
pledges of Capital Stock securing Designated Senior Indebtedness) or (ii)
permit any Restricted Subsidiary, directly or indirectly, to issue or sell or
otherwise dispose of any shares of its Capital Stock other than (A) to the
Company or a Wholly Owned Subsidiary or (B) if, immediately after giving
effect to such issuance or sale, such Restricted Subsidiary would no longer
constitute a Restricted Subsidiary. The proceeds of any sale of such Capital
Stock permitted hereby will be treated as Net Available Cash from an Asset
Disposition and must be applied in accordance with the terms of the covenant
described under "--Limitation on Sales of Assets and Subsidiary Stock."
Limitation on Liens. The Company shall not, and shall not permit any
Restricted Subsidiary to, directly or indirectly, Incur or permit to exist any
Lien of any nature whatsoever on any property of the Company or any Restricted
Subsidiary (including Capital Stock of a Restricted Subsidiary), whether owned
at the Issue Date or thereafter acquired, which secures Indebtedness that
ranks pari passu with or subordinated to the Notes or the Subsidiary Guaranty
unless (i) if such Lien secures Indebtedness that ranks pari passu with the
Notes and the Subsidiary Guaranty, the Notes are secured on an equal and
ratable basis with the obligations so secured until such time as such
obligation is no longer secured by a Lien or (ii) if such Lien secures
Indebtedness that is subordinated to the Notes and the Subsidiary Guaranty,
such Lien shall be subordinated to a Lien granted to the holders of the Notes
in the same collateral as that securing such Lien to the same extent as such
subordinated Indebtedness is subordinated to the Note and the Subsidiary
Guaranty.
Merger and Consolidation. The Company shall not consolidate with or merge
with or into, or convey, transfer or lease, in one transaction or a series of
transactions, all or substantially all its assets to, any Person, unless: (i)
the resulting, surviving or transferee Person (the "Successor Company") shall
be a Person organized and existing under the laws of the United States of
America, any State thereof or the District of Columbia and
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the Successor Company (if not the Company) shall expressly assume, by an
indenture supplemental thereto, executed and delivered to the Trustee, in form
satisfactory to the Trustee, all the obligations of the Company under the
Notes and the Indenture; (ii) immediately after giving effect to such
transaction (and treating any Indebtedness which becomes an obligation of the
Successor Company or any Subsidiary as a result of such transaction as having
been Incurred by such Successor Company or such Subsidiary at the time of such
transaction), no Default shall have occurred and be continuing, (iii) except
in the case of a merger the sole purpose of which is to change the Company's
jurisdiction of incorporation, immediately after giving effect to such
transaction, the Successor Company would be able to Incur an additional $1.00
of Indebtedness pursuant to paragraph (a) of the covenant described under "--
Limitation on Indebtedness, (iv) immediately after giving effect to such
transaction, the Successor Company shall have Consolidated Net Worth in an
amount that is not less than the Consolidated Net Worth of the Company
immediately prior to such transaction; and (v) the Company shall have
delivered to the Trustee an Officers' Certificate, stating that such
consolidation, merger or transfer and such supplemental indenture (if any)
comply with the Indenture. Notwithstanding the foregoing clauses (ii), (iii)
and (iv), any Restricted Subsidiary may consolidate with, merge into or
transfer all or part of its properties and assets to the Company or another
Wholly Owned Subsidiary.
The Successor Company shall be the successor to the Company and shall
succeed to, and be substituted for, and may exercise every right and power of,
the Company under the Indenture, but the predecessor Company in the case of a
conveyance, transfer or lease shall not be released from the obligation to pay
the principal of and interest on the Notes.
The Company shall not permit any Subsidiary Guarantor to consolidate with or
merge with or into, or convey, transfer or lease, in one transaction or a
series of transactions, all or substantially all its assets to, any Person,
unless: (i) the resulting, surviving or transferee Person (if not such
Subsidiary) shall be a Person organized and existing under the laws of the
United States of America, any State thereof or the District of Columbia and
the Successor Company (if not such Subsidiary) shall expressly assume, by a
supplemental indenture, in form satisfactory to the Trustee, all the
obligations of such Subsidiary under its Subsidiary Guaranty, (ii) immediately
after giving effect to such transaction on a pro forma basis (and treating any
Indebtedness which becomes an obligation of the resulting, surviving or
transferee Person as a result of such transaction as having been Incurred by
such Person at the time of such transaction), no Default shall have occurred
and be continuing, and (iii) the Company shall have delivered to the Trustee
an Officers' Certificate, stating that such consolidation, merger or transfer
and such supplemental indenture (if any) comply with the Indenture. The
provisions of clauses (i) and (iii) above shall not apply to any transactions
which constitute an Asset Disposition if the Company has complied with the
provisions of the covenant described under""--Limitation on Sales of Assets
and Subsidiary Stock" above.
Future Guarantors. The Company shall cause each Domestic Restricted
Subsidiary to execute and deliver to the Trustee a supplemental indenture
pursuant to which such Restricted Subsidiary will Guarantee payment of the
Notes on the same terms and conditions as those set forth in the Indenture.
Each Subsidiary Guaranty will be limited in amount to an amount not to exceed
the maximum amount that can be Guaranteed by the applicable Subsidiary
Guarantor without rendering such Subsidiary Guaranty voidable under applicable
law relating to fraudulent conveyance or fraudulent transfer or similar laws
affecting the rights of creditors generally.
Tax Sharing Agreement. In the event that, at any time after the Issue Date,
it is expected that more than a nominal amount of gross income will arise in
Holdings, the Company or any other member of Holdings' Federal consolidated
tax group (the "Holdings Group") other than Mills and its subsidiaries, then
the Tax Sharing Agreement will be amended to provide that (a) the Company and
all its subsidiaries in the Holdings Group (including Mills and its
subsidiaries) will be treated as the "Glenoit Group" for purposes of such
Agreement, (b) any interest expense of Holdings (whether or not paid directly
or indirectly by the Company or any of its subsidiaries), and any other
expense of Holdings that is directly or indirectly paid by the Company or any
of its subsidiaries, shall be treated as a deduction of such Glenoit Group,
and (c) such Glenoit Group will be compensated on a current basis to the
extent that its net operating loss deductions or similar items provide a tax
benefit to other members of the Holdings Group.
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SEC Reports. Until such time as the Company shall become subject to the
reporting requirements of Section 13 or 15(d) of the Exchange Act, (a) the
Company shall provide the Trustee, the Initial Purchasers, the Noteholders and
prospective Noteholders (upon request) with such annual reports and such
information, documents and other reports as are specified in Sections 13 and
15(d) of the Exchange Act and applicable to a United States corporation
subject to such Sections, such information, documents and other reports to be
so provided at the times specified for the filing of such information,
documents and reports under such Sections and (b) not later than 45 days after
the end of each fiscal quarter of the Company, the Company shall issue a press
release setting forth a summary of the results of operations of the Company
for such fiscal quarter and shall publish such press release on one of the
following national business and financial wire services: Dow Jones News
Service, Reuters Financial Service, Bloomberg News, PR Newswire or Business
Wire. Thereafter, notwithstanding that the Company may not be required to
remain subject to the reporting requirements of Section 13 or 15(d) of the
Exchange Act, the Company shall file with the SEC and provide the Trustee and
Noteholders and prospective Noteholders (upon request) with such annual
reports and such information, documents and other reports as are specified in
such Sections and applicable to a United States corporation subject to such
Sections, such information, documents and other reports to be so filed and
provided at the times specified for the filing of such information, documents
and reports under such Sections; provided, however, that the Company shall not
be required to file any report, document or other information with the SEC if
the SEC does not permit such filing.
DEFAULTS
An Event of Default is defined in the Indenture as (i) a default in the
payment of interest on the Notes when due (whether or not such payment is
prohibited by the provisions described under "Subordination" above), continued
for 30 days, (ii) a default in the payment of principal of any Note when due
at its Stated Maturity, upon optional redemption, upon required repurchase,
upon declaration or otherwise (whether or not such payment is prohibited by
the provisions described under "Subordination" above), (iii) the failure by
the Company to comply with its obligations under "Certain Covenants--Merger
and Consolidation" above, (iv) the failure by the Company to comply for 30
days after notice with any of its obligations under the covenants described
above under "--Change of Control" or "--Certain Covenants" (other than a
failure to purchase Notes), (v) the failure by the Company to comply for 30
days after notice with its other agreements contained in the Indenture, (vi)
the failure by the Company or any Significant Subsidiary to pay any
Indebtedness within any applicable grace period after final maturity or the
acceleration of any such Indebtedness by the holders thereof because of a
default, if the total amount of such Indebtedness unpaid or accelerated
exceeds $5 million and such failure continues for 10 days after notice (the
"cross acceleration provision"), (vii) certain events of bankruptcy,
insolvency or reorganization of the Company or a Significant Subsidiary (the
"bankruptcy provisions"), (viii) the rendering of any judgment or decree for
the payment of money in excess of $5 million against the Company or a
Significant Subsidiary, if such judgment or decree remains outstanding for a
period of 60 days and is not discharged, waived or stayed within 10 days after
notice (the "judgment default provision") or (ix) a Subsidiary Guaranty ceases
to be in full force and effect (other than in accordance with the terms of
such Subsidiary Guaranty) or a Subsidiary Guarantor denies or disaffirms its
obligations under its Subsidiary Guaranty and such Default continues for 10
days. However, a default under clause (iv) or (v) will not constitute an Event
of Default until the Trustee or the Holders of 25% in aggregate principal
amount of the outstanding Notes notify the Company of the default and the
Company does not cure such default within the time specified in clauses (iv)
and (v) hereof after receipt of such notice.
If an Event of Default occurs and is continuing, the Trustee or the Holders
of at least 25% in aggregate principal amount of the outstanding Notes may
declare the principal of and accrued but unpaid interest on all the Notes to
be due and payable. Upon such a declaration, such principal and interest shall
be due and payable immediately. If an Event of Default relating to certain
events of bankruptcy, insolvency or reorganization of the Company occurs and
is continuing, the principal of and interest on all the Notes will ipso facto
become and be immediately due and payable without any declaration or other act
on the part of the Trustee or any Holders of the Notes. Under certain
circumstances, the Holders of a majority in aggregate principal amount of the
outstanding Notes may rescind any such acceleration with respect to the Notes
and its consequences.
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Subject to the provisions of the Indenture relating to the duties of the
Trustee, in case an Event of Default occurs and is continuing, the Trustee
will be under no obligation to exercise any of the rights or powers under the
Indenture at the request or direction of any of the Holders of the Notes
unless such Holders have offered to the Trustee reasonable indemnity or
security against any loss, liability or expense. Except to enforce the right
to receive payment of principal, premium (if any) or interest when due, no
Holder of a Note may pursue any remedy with respect to the Indenture or the
Notes unless (i) such Holder has previously given the Trustee notice that an
Event of Default is continuing, (ii) Holders of at least 25% in aggregate
principal amount of the outstanding Notes have requested the Trustee to pursue
the remedy, (iii) such Holders have offered the Trustee reasonable security or
indemnity against any loss, liability or expense, (iv) the Trustee has not
complied with such request within 60 days after the receipt thereof and the
offer of security or indemnity and (v) the Holders of a majority in aggregate
principal amount of the outstanding Notes have not given the Trustee a
direction inconsistent with such request within such 60-day period. Subject to
certain restrictions, the Holders of a majority in aggregate principal amount
of the outstanding Notes are given the right to direct the time, method and
place of conducting any proceeding for any remedy available to the Trustee or
of exercising any trust or power conferred on the Trustee. The Trustee,
however, may refuse to follow any direction that conflicts with law or the
Indenture or that the Trustee determines is unduly prejudicial to the rights
of any other Holder of a Note or that would involve the Trustee in personal
liability.
The Indenture provides that if a Default occurs and is continuing and is
known to the Trustee, the Trustee must mail to each Holder of the Notes notice
of the Default within 30 days after it is known to a Trust Officer or written
notice of it is received by the Trustee. Except in the case of a Default in
the payment of principal of or interest on any Note, the Trustee may withhold
notice if and so long as a committee of its trust officers determines that
withholding notice is not opposed to the interest of the Holders of the Notes.
In addition, the Company is required to deliver to the Trustee, within 120
days after the end of each fiscal year, a certificate indicating whether the
signers thereof know of any Default that occurred during the previous year.
The Company also is required to deliver to the Trustee, within 30 days after
the occurrence thereof, written notice of any event which would constitute
certain Defaults, their status and what action the Company is taking or
proposes to take in respect thereof.
AMENDMENTS AND WAIVERS
Subject to certain exceptions, the Indenture may be amended with the consent
of the Holders of a majority in aggregate principal amount of the Notes then
outstanding (including consents obtained in connection with a tender offer or
exchange for the Notes) and any past default or compliance with any provisions
may also be waived with the consent of the Holders of a majority in aggregate
principal amount of the Notes then outstanding. However, without the consent
of each Holder of an outstanding Note affected thereby, no amendment may,
among other things, (i) reduce the amount of Notes whose Holders must consent
to an amendment, (ii) reduce the rate of or extend the time for payment of
interest on any Note, (iii) reduce the principal of or extend the Stated
Maturity of any Note, (iv) reduce the premium payable upon the redemption of
any Note or change the time at which any Note may be redeemed as described
under "--Optional Redemption" above, (v) make any Note payable in money other
than that stated in the Note, (vi) impair the right of any Holder of the Notes
to receive payment of principal of and interest on such Holder's Notes or any
Subsidiary Guaranty on or after the due date therefor or to institute suit for
the enforcement of any payment on or with respect to such Holder's Notes or
any Subsidiary Guaranty or (vii) make any change in the amendment provisions
which require each Holder's consent or in the waiver provisions or (viii) make
any change to the subordination provisions of the Indenture that would
adversely affect the Noteholders.
Without the consent of any Holder of the Notes, the Company and Trustee may
amend the Indenture to cure any ambiguity, omission, defect or inconsistency,
to provide for the assumption by a successor corporation of the obligations of
the Company under the Indenture, to provide for uncertificated Notes in
addition to or in place of certificated Notes (provided that the
uncertificated Notes are issued in registered form for purposes of Section
163(f) of the Code, or in a manner such that the uncertificated Notes are
described in Section 163(f)(2)(B) of the Code), to add guarantees with respect
to the Notes, to release Subsidiary Guarantors when
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permitted by the Indenture, to secure the Notes, to add to the covenants of
the Company for the benefit of the Holders of the Notes or to surrender any
right or power conferred upon the Company, to make any change that does not
adversely affect the rights of any Holder of the Notes or to comply with any
requirement of the SEC in connection with the qualification of the Indenture
under the Trust Indenture Act. However, no amendment may be made to the
subordination provisions of the Indenture that adversely affects the rights of
any Holder of Senior Indebtedness then outstanding unless the Holders of such
Senior Indebtedness (or their Representative) consent to such change.
The consent of the Holders of the Notes is not necessary under the Indenture
to approve the particular form of any proposed amendment. It is sufficient if
such consent approves the substance of the proposed amendment.
After an amendment under the Indenture becomes effective, the Company is
required to mail to Holders of the Notes a notice briefly describing such
amendment. However, the failure to give such notice to all Holders of the
Notes, or any defect therein, will not impair or affect the validity of the
amendment.
TRANSFER
The Notes will be issued in registered form and will be transferable only
upon the surrender of the Notes being transferred for registration of
transfer. The Company may require payment of a sum sufficient to cover any
tax, assessment or other governmental charge payable in connection with
certain transfers and exchanges.
DEFEASANCE
The Company at any time may terminate all its obligations under the Notes
and the Indenture ("legal defeasance"), except for certain obligations,
including those respecting the defeasance trust and obligations to register
the transfer or exchange of the Notes, to replace mutilated, destroyed, lost
or stolen Notes and to maintain a registrar and paying agent in respect of the
Notes. The Company at any time may terminate its obligations under "--Change
of Control" and under the covenants described under "--Certain Covenants"
(other than the covenant described under "--Merger and Consolidation"), the
operation of the cross acceleration provision, the bankruptcy provisions with
respect to Significant Subsidiaries and the judgment default provision
described under "--Defaults" above and the limitations contained in clauses
(iii) and (iv) under "Certain Covenants--Merger and Consolidation" above
("covenant defeasance").
The Company may exercise its legal defeasance option notwithstanding its
prior exercise of its covenant defeasance option. If the Company exercises its
legal defeasance option, payment of the Notes may not be accelerated because
of an Event of Default with respect thereto. If the Company exercises its
covenant defeasance option, payment of the Notes may not be accelerated
because of an Event of Default specified in clause (iv), (vi), (vii) (with
respect only to Significant Subsidiaries) or (viii) under "--Defaults" above
or because of the failure of the Company to comply with clause (iii) or (iv)
under "Certain Covenants--Merger and Consolidation" above. If the Company
exercises its legal defeasance option or its covenant defeasance option, each
Subsidiary Guarantor will be released from all of its obligations with respect
to its Subsidiary Guaranty.
In order to exercise either defeasance option, the Company must irrevocably
deposit in trust (the "defeasance trust") with the Trustee money or U.S.
Government Obligations for the payment of principal and interest on the Notes
to redemption or maturity, as the case may be, and must comply with certain
other conditions, including delivery to the Trustee of an Opinion of Counsel
to the effect that Holders of the Notes will not recognize income, gain or
loss for Federal income tax purposes as a result of such deposit and
defeasance and will be subject to Federal income tax on the same amount and in
the same manner and at the same times as would have been the case if such
deposit and defeasance had not occurred (and, in the case of legal defeasance
only, such Opinion of Counsel must be based on a ruling of the Internal
Revenue Service or other change in applicable Federal income tax law).
CONCERNING THE TRUSTEE
United States Trust Company of New York is to be the Trustee under the
Indenture and has been appointed by the Company as Registrar and Paying Agent
with regard to the Notes.
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The Holders of a majority in aggregate principal amount of the outstanding
Notes will have the right to direct the time, method and place of conducting
any proceeding for exercising any remedy available to the Trustee, subject to
certain exceptions. The Indenture provides that if an Event of Default occurs
(and is not cured), the Trustee will be required, in the exercise of its
power, to use the degree of care of a prudent man in the conduct of his own
affairs. Subject to such provisions, the Trustee will be under no obligation
to exercise any of its rights or powers under the Indenture at the request of
any Holder of Notes, unless such Holder shall have offered to the Trustee
security and indemnity satisfactory to it against any loss, liability or
expense and then only to the extent required by the terms of the Indenture.
GOVERNING LAW
The Indenture provides that it and the Notes will be governed by, and
construed in accordance with, the laws of the State of New York without giving
effect to applicable principles of conflicts of law to the extent that the
application of the law of another jurisdiction would be required thereby.
CERTAIN DEFINITIONS
"Additional Assets" means (i) any property or assets (other than
Indebtedness and Capital Stock) in a Related Business; (ii) the Capital Stock
of a Person that becomes a Restricted Subsidiary as a result of the
acquisition of such Capital Stock by the Company or another Restricted
Subsidiary or (iii) Capital Stock constituting a minority interest in any
Person that at such time is a Restricted Subsidiary; provided, however, that
any such Restricted Subsidiary described in clauses (ii) or (iii) above is
primarily engaged in a Related Business.
"Affiliate" of any specified Person means any other Person, directly or
indirectly, controlling or controlled by or under direct or indirect common
control with such specified Person. For the purposes of this definition,
"control" when used with respect to any Person means the power to direct the
management and policies of such Person, directly or indirectly, whether
through the ownership of voting securities, by contract or otherwise; and the
terms "controlling" and "controlled" have meanings correlative to the
foregoing. For purposes of the provisions described under "Certain Covenants--
Limitation on Affiliate Transactions" and "Certain Covenants--Limitations on
Sales of Assets and Subsidiary Stock" and the definition of the term
"Restricted Payment" only, "Affiliate" shall also mean any beneficial owner of
Capital Stock representing 10% or more of the total voting power of the Voting
Stock (on a fully diluted basis) of the Company or of rights or warrants to
purchase such Capital Stock (whether or not currently exercisable) and any
Person who would be an Affiliate of any such beneficial owner pursuant to the
first sentence hereof.
"Asset Disposition" means any sale, lease, transfer or other disposition (or
series of related sales, leases, transfers or dispositions) by the Company or
any Restricted Subsidiary, including any disposition by means of a merger,
consolidation or similar transaction (each referred to for the purposes of
this definition as a "disposition"), of (i) any shares of Capital Stock of a
Restricted Subsidiary (other than directors' qualifying shares and, to the
extent required by local ownership laws in foreign countries, shares owned by
foreign shareholders), (ii) all or substantially all the assets of any
division, business segment or comparable line of business of the Company or
any Restricted Subsidiary or (iii) any other assets of the Company or any
Restricted Subsidiary having a fair market value (as determined in good faith
by the Board of Directors) in excess of $250,000 disposed of in a single
transaction or series of related transactions outside of the ordinary course
of business of the Company or such Restricted Subsidiary (other than, in the
case of (i), (ii) and (iii) above, (y) a disposition by a Restricted
Subsidiary to the Company or by the Company or a Restricted Subsidiary to a
Wholly Owned Subsidiary and (z) for purposes of the covenant described under
"Certain Covenants--Limitation on Sales of Assets and Subsidiary Stock" only,
a disposition that constitutes a Permitted Investment or a Restricted Payment
permitted by the covenant described under "Certain Covenants--Limitation on
Restricted Payments").
"Attributable Debt" in respect of a Sale/Leaseback Transaction means, as at
the time of determination, the present value (discounted at the interest rate
borne by the Notes, compounded annually) of the total obligations
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of the lessee for rental payments during the remaining term of the lease
included in such Sale/Leaseback Transaction (including any period for which
such lease has been extended).
"Average Life" means, as of the date of determination, with respect to any
Indebtedness or Preferred Stock, the quotient obtained by dividing (i) the sum
of the products of numbers of years from the date of determination to the
dates of each successive scheduled principal payment of such Indebtedness or
redemption or similar payment with respect to such Preferred Stock multiplied
by the amount of such payment by (ii) the sum of all such payments.
"B&D Licensing Agreement" means the Licensing Agreement dated April 21,
1988, between the Company and B&D, as amended on November 21, 1988 and January
23, 1992 (including any extension thereof in accordance with its terms).
"Bank Indebtedness" means any and all amounts payable under or in respect of
the New Credit Facility and the other Loan Documents (as defined in the New
Credit Facility), including principal, premium (if any), interest (including
interest accruing on or after the filing of any petition in bankruptcy or for
reorganization relating to the Company whether or not a claim for post-filing
interest is allowed in such proceedings), fees, charges, expenses,
reimbursement obligations, Guarantees and all other amounts payable thereunder
or in respect thereof.
"Board of Directors" means the Board of Directors of the Company or any
committee thereof duly authorized to act on behalf of such Board.
"Business Day" means each day which is not a Legal Holiday.
"Capital Lease Obligations" means an obligation that is required to be
classified and accounted for as a capital lease for financial reporting
purposes in accordance with GAAP, and the amount of Indebtedness represented
by such obligation shall be the capitalized amount of such obligation
determined in accordance with GAAP; and the Stated Maturity thereof shall be
the date of the last payment of rent or any other amount due under such lease
prior to the first date upon which such lease may be terminated by the lessee
without payment of a penalty.
"Capital Stock" of any Person means any and all shares, interests, rights to
purchase, warrants, options, participations or other equivalents of or
interests in (however designated) equity of such Person, including any
Preferred Stock, but excluding any debt securities convertible into such
equity.
"Change of Control" means the occurrence of any of the following events:
(i) prior to the first public offering of common stock of the Company or
Holdings, the Permitted Holders cease to be the "beneficial owner" (as
defined in Rules 13d-3 and 13d-5 under the Exchange Act), directly or
indirectly, of a majority in the aggregate of the total voting power of the
Voting Stock of Holdings, whether as a result of issuance of securities of
Holdings, any merger, consolidation, liquidation or dissolution of
Holdings, any direct or indirect transfer of securities by the Permitted
Holders or otherwise (for purposes of this clause (i), the Permitted
Holders shall be deemed to beneficially own any Voting Stock of any entity
(the "specified entity") held by any other entity (the "parent entity") so
long as the Permitted Holders beneficially own (as so defined), directly or
indirectly, in the aggregate a majority of the voting power of the Voting
Stock of the parent entity);
(ii) prior to the first public offering of common stock of the Company,
Holdings shall cease to own, directly or through one or more wholly owned
subsidiaries, 100% of the issued and outstanding Voting Stock of the
Company, whether as a result of the issuance of securities, any merger,
consolidation, liquidation or dissolution of the Company, any direct or
indirect transfer of securities by Holdings or otherwise;
(iii) after the first public offering of common stock of the Company or
Holdings, any "person" (as such term is used in Sections 13(d) and 14(d) of
the Exchange Act), other than one or more Permitted
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Holders, is or becomes the beneficial owner (as defined in clause (i)
above, except that for purposes of this clause (iii) such person shall be
deemed to have "beneficial ownership" of all shares that any such person
has the right to acquire, whether such right is exercisable immediately or
only after the passage of time), directly or indirectly, of more than 40%
of the total voting power of the Voting Stock of the Company or Holdings;
provided, however, that the Permitted Holders beneficially own (as defined
in clause (i) above), directly or indirectly, in the aggregate a lesser
percentage of the total voting power of the Voting Stock of the Company or
Holdings, as the case may be, than such other person and do not have the
right or ability by voting power, contract or otherwise to elect or
designate for election a majority of the Board of Directors or the board of
directors of Holdings, as the case may be (for the purposes of this clause
(iii), such other person shall be deemed to beneficially own any Voting
Stock of a specified entity held by a parent entity, if such other person
is the beneficial owner (as defined in this clause (iii)), directly or
indirectly, of more than 40% of the voting power of the Voting Stock of
such parent entity and the Permitted Holders beneficially own (as defined
in clause (i)), directly or indirectly, in the aggregate a lesser
percentage of the voting power of the Voting Stock of such parent entity
and do not have the right or ability by voting power, contract or otherwise
to elect or designate for election a majority of the board of directors of
such parent entity);
(iv) after the first public offering of common stock of the Company or
Holdings, (A) during any period of two consecutive years, individuals who
at the beginning of such period constituted the Board of Directors or the
board of directors of Holdings, as the case may be (together with any new
directors whose election by such board of directors or whose nomination for
election by the shareholders of the Company or Holdings, as the case may
be, was approved by a vote of a majority of the directors of the Company or
Holdings, as the case may be, then still in office who were either
directors at the beginning of such period or whose election or nomination
for election was previously so approved) cease for any reason to constitute
a majority of the Board of Directors or the board of directors of Holdings,
as the case may be, then in office and (B) at any time during such period,
the Permitted Holders cease to be the beneficial owners (as defined in
clause (i) above), directly or indirectly, of a majority of the total
voting power of the Voting Stock of the Company or Holdings, as the case
may be; or
(v) after the first public offering of common stock of the Company or
Holdings, the merger or consolidation of the Company or Holdings with or
into another Person or the merger of another Person with or into the
Company or Holdings, or the sale of all or substantially all the assets of
the Holdings or Company to another Person (other than a Person that is
controlled by the Permitted Holders), and, in the case of any such merger
or consolidation, the securities of the Company or Holdings that are
outstanding immediately prior to such transaction and which represent 100%
of the aggregate voting power of the Voting Stock of the Company or
Holdings are changed into or exchanged for cash, securities or property,
unless pursuant to such transaction such securities are changed into or
exchanged for, in addition to any other consideration, securities of the
surviving corporation that represent immediately after such transaction, at
least a majority of the aggregate voting power of the Voting Stock of the
surviving corporation;
provided, however, that a Change of Control shall not be deemed to occur as a
result of a merger of the Company with or into Holdings in compliance with the
covenant described under "Certain Covenants--Mergers and Consolidation" so
long as a Change of Control has not occurred pursuant to clauses (i), (iii),
(iv) or (v) above with respect to the Successor Company.
"Code" means the Internal Revenue Code of 1986, as amended.
"Consolidated Coverage Ratio" as of any date of determination means the
ratio of (i) the aggregate amount of EBITDA for the period of the most recent
four consecutive fiscal quarters ending at least 45 days (or, if less, the
number of days after the end of such fiscal quarter as the consolidated
financial statements of the Company shall be provided to the Noteholders
pursuant to the Indenture) prior to the date of such determination to (ii)
Consolidated Interest Expense for such four fiscal quarters; provided,
however, that (1) if the Company or any Restricted Subsidiary has Incurred any
Indebtedness since the beginning of such period that remains outstanding on
such date of determination or if the transaction giving rise to the need to
calculate the Consolidated Coverage Ratio is an Incurrence of Indebtedness, or
both, EBITDA and Consolidated Interest Expense for such period shall
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be calculated after giving effect on a pro forma basis to such Indebtedness as
if such Indebtedness had been Incurred on the first day of such period and the
discharge of any other Indebtedness repaid, repurchased, defeased or otherwise
discharged with the proceeds of such new Indebtedness as if such discharge had
occurred on the first day of such period (except that, in the case of
Indebtedness used to finance working capital needs incurred under a revolving
credit or similar arrangement, the amount thereof shall be deemed to be the
average daily balance of such Indebtedness during such four-fiscal-quarter
period), (2) if since the beginning of such period the Company or any
Restricted Subsidiary shall have made any Asset Disposition, the EBITDA for
such period shall be reduced by an amount equal to the EBITDA (if positive)
directly attributable to the assets which are the subject of such Asset
Disposition for such period, or increased by an amount equal to the EBITDA (if
negative), directly attributable thereto for such period and Consolidated
Interest Expense for such period shall be reduced by an amount equal to the
Consolidated Interest Expense directly attributable to any Indebtedness of the
Company or any Restricted Subsidiary repaid, repurchased, defeased, assumed by
a third person (to the extent the Company and its Restricted Subsidiaries are
no longer liable for such Indebtedness) or otherwise discharged with respect
to the Company and its continuing Restricted Subsidiaries in connection with
such Asset Disposition for such period (or, if the Capital Stock of any
Restricted Subsidiary is sold, the Consolidated Interest Expense for such
period directly attributable to the Indebtedness of such Restricted Subsidiary
to the extent the Company and its continuing Restricted Subsidiaries are no
longer liable for such Indebtedness after such sale), (3) if since the
beginning of such period the Company or Holdings shall have consummated a
Public Equity Offering following which there is a Public Market, Consolidated
Interest Expense for such period shall be reduced by an amount equal to the
Consolidated Interest Expense directly attributable to any Indebtedness of the
Company or any Restricted Subsidiary repaid, repurchased, defeased or
otherwise discharged with respect to the Company and its Restricted
Subsidiaries in connection with such Public Equity Offering for such period,
(4) if since the beginning of such period the Company or any Restricted
Subsidiary (by merger or otherwise) shall have made an Investment in any
Restricted Subsidiary (or any Person which becomes a Restricted Subsidiary) or
an acquisition of assets, which acquisition constitutes all or substantially
all of an operating unit of a business, including any such Investment or
acquisition occurring in connection with a transaction requiring a calculation
to be made hereunder, EBITDA and Consolidated Interest Expense for such period
shall be calculated after giving pro forma effect thereto (including the
Incurrence of any Indebtedness) as if such Investment or acquisition occurred
on the first day of such period and (5) if since the beginning of such period
any Person (that subsequently became a Restricted Subsidiary or was merged
with or into the Company or any Restricted Subsidiary since the beginning of
such period) shall have made any Asset Disposition, any Investment or
acquisition of assets that would have required an adjustment pursuant to
clause (3) or (4) above if made by the Company or a Restricted Subsidiary
during such period, EBITDA and Consolidated Interest Expense for such period
shall be calculated after giving pro forma effect thereto as if such Asset
Disposition, Investment or acquisition occurred on the first day of such
period. For purposes of this definition, whenever pro forma effect is to be
given to an acquisition of assets, the amount of income or earnings relating
thereto and the amount of Consolidated Interest Expense associated with any
Indebtedness Incurred in connection therewith, the pro forma calculations
shall be determined in good faith by a responsible financial or accounting
officer of the Company in accordance with Article 11 of Regulation S-X. If any
Indebtedness bears a floating rate of interest and is being given pro forma
effect, the interest of such Indebtedness shall be calculated as if the rate
in effect on the date of determination had been the applicable rate for the
entire period (taking into account any Interest Rate Agreement applicable to
such Indebtedness if such Interest Rate Agreement has a remaining term in
excess of 12 months).
"Consolidated Interest Expense" means, for any period, the total interest
expense of the Company and its consolidated Restricted Subsidiaries, plus, (a)
to the extent not included in such total interest expense, and to the extent
incurred by the Company or its Restricted Subsidiaries, (i) interest expense
attributable to Capital Lease Obligations, (ii) amortization of debt discount,
(iii) capitalized interest, (iv) non-cash interest expenses, (v) commissions,
discounts and other fees and charges owed with respect to letters of credit
and bankers' acceptance financing, (vi) net costs associated with Hedging
Obligations (including amortization of fees), (vii) Preferred Stock dividends
in respect of all Preferred Stock held by Persons other than the Company or a
Wholly Owned Subsidiary, (viii) interest incurred in connection with
Investments in discontinued operations, (ix) interest actually paid on any
Indebtedness of any other Person that is Guaranteed by the Company or any
Restricted
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Subsidiary and (x) the cash contributions to any employee stock ownership plan
or similar trust to the extent such contributions are used by such plan or
trust to pay interest or fees to any Person (other than the Company or any
Wholly Owned Subsidiary) in connection with Indebtedness Incurred by such plan
or trust, minus, (b) to the extent included in such total interest expense,
amortization of deferred financing costs, fees and expenses.
"Consolidated Net Income" means, for any period, the net income of the
Company and its consolidated Subsidiaries; provided, however, that there shall
not be included in such Consolidated Net Income: (i) any net income (or loss)
of any Person if such Person is not a Restricted Subsidiary, except that (A)
subject to the exclusion contained in clause (iv) below, the Company's equity
in the net income of any such Person for such period shall be included in such
Consolidated Net Income up to the aggregate amount of cash actually
distributed by such Person during such period to the Company or a Restricted
Subsidiary as a dividend or other distribution (subject, in the case of a
dividend or other distribution paid to a Restricted Subsidiary, to the
limitations contained in clause (iii) below) and (B) the Company's equity in a
net loss of any such Person (other than an Unrestricted Subsidiary) for such
period shall be included in determining such Consolidated Net Income; (ii) for
purposes of subclause (a)(3)(a) of the covenant described under "Certain
Covenants--Limitation on Restricted Payments" only, any net income (or loss)
of any Person acquired by the Company or a Subsidiary in a pooling of
interests transaction for any period prior to the date of such acquisition;
(iii) any net income of any Restricted Subsidiary if such Restricted
Subsidiary is subject to restrictions, directly or indirectly, on the payment
of dividends or the making of distributions by such Restricted Subsidiary,
directly or indirectly, to the Company, except that (A) subject to the
exclusion contained in clause (iv) below, the Company's equity in the net
income of any such Restricted Subsidiary for such period shall be included in
such Consolidated Net Income up to the aggregate amount of cash that could
have been distributed by such Restricted Subsidiary consistent with such
restriction during such period to the Company or another Restricted Subsidiary
as a dividend or other distribution (subject, in the case of a dividend or
other distribution paid to another Restricted Subsidiary, to the limitation
contained in this clause) and (B) the Company's equity in a net loss of any
such Restricted Subsidiary for such period shall be included in determining
such Consolidated Net Income; (iv) any gain (or loss) realized upon the sale
or other disposition of any assets of the Company or its consolidated
Subsidiaries (including pursuant to any sale-and-leaseback arrangement) which
is not sold or otherwise disposed of in the ordinary course of business and
any gain (or loss) realized upon the sale or other disposition of any Capital
Stock of any Person; (v) extraordinary gains or losses; and (vi) the
cumulative effect of a change in accounting principles. Notwithstanding the
foregoing, for the purposes of the covenant described under "Certain
Covenants--Limitation on Restricted Payments" only, there shall be excluded
from Consolidated Net Income any dividends, repayments of loans or advances or
other transfers of assets from Unrestricted Subsidiaries to the Company or a
Restricted Subsidiary to the extent such dividends, repayments or transfers
increase the amount of Restricted Payments permitted under such covenant
pursuant to clause (a)(3)(D) thereof.
"Consolidated Net Worth" means the total of the amounts shown on the balance
sheet of the Company and its consolidated Subsidiaries, determined on a
consolidated basis in accordance with GAAP, as of the end of the most recent
fiscal quarter of the Company ending at least 45 days prior to the taking of
any action for the purpose of which the determination is being made, as (i)
the par or stated value of all outstanding Capital Stock of the Company plus
(ii) paid-in capital or capital surplus relating to such Capital Stock plus
(iii) any retained earnings or earned surplus less (A) any accumulated deficit
and (B) any amounts attributable to Disqualified Stock.
"Currency Agreement" means, with respect to any Person, any foreign exchange
contract, currency swap agreement or other similar agreement to which such
Person is a party or a beneficiary.
"CVC Investor" means (i) CVC, (ii) Citicorp, N.A. and (iii) any officer,
employee or director of CVC so long as such person shall be an officer,
employee or director of CVC.
"Default" means any event which is, or after notice or passage of time or
both would be, an Event of Default.
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"Deferred Redemption Price Note" means the Deferred Redemption Price Note
due December 14, 2004, issued by Holdings to the Seller pursuant to the
Redemption Agreement, in an aggregate principal amount of $1,400,000.
"Designated Senior Indebtedness" means (i) the Bank Indebtedness, and (ii)
any other Senior Indebtedness of the Company which, at the date of
determination, has an aggregate principal amount outstanding of, or under
which, at the date of determination, the holders thereof are committed to lend
up to, at least $10 million and is specifically designated by the Company in
the instrument evidencing or governing such Senior Indebtedness as "Designated
Senior Indebtedness" for purposes of the Indenture.
"Disqualified Stock" means, with respect to any Person, any Capital Stock
which by its terms (or by the terms of any security into which it is
convertible or for which it is exchangeable) or upon the happening of any
event (i) matures or is mandatorily redeemable pursuant to a sinking fund
obligation or otherwise, (ii) is convertible or exchangeable, at the option of
the holder thereof, for Indebtedness or Disqualified Stock or (iii) is
redeemable at the option of the holder thereof, in whole or in part, in each
case on or prior to the first anniversary of the Stated Maturity of the Notes.
"Domestic Restricted Subsidiary" means any Restricted Subsidiary of the
Company other than a Foreign Restricted Subsidiary.
"EBITDA" for any period means the sum of Consolidated Net Income plus
Consolidated Interest Expense plus, without duplication, the following to the
extent deducted in calculating such Consolidated Net Income: (a) income tax
expense, (b) depreciation expense, (c) amortization expense and (d) all other
non-cash items reducing Consolidated Net Income (other than items that will
require cash payments and for which an accrual or reserve is, or is required
by GAAP to be, made), less all non-cash items increasing Consolidated Net
Income, in each case for such period. Notwithstanding the foregoing, the
provision for taxes based on the income or profits of, and the depreciation
and amortization of, a Subsidiary of the Company shall be added to
Consolidated Net Income to compute EBITDA only to the extent (and in the same
proportion) that the net income of such Subsidiary was included in calculating
Consolidated Net Income.
"Exchange Act" means the Securities Exchange Act of 1934, as amended.
"Financing Disposition" means any sale of any accounts receivable, or
interest therein, by the Company or any Subsidiary to any Receivables
Subsidiary, or by the Receivables Subsidiary, pursuant to a Permitted
Receivables Financing.
"Foreign Restricted Subsidiary" means any Restricted Subsidiary of the
Company which is not organized under the laws of the United States of America
or any State thereof or the District of Columbia.
"GAAP" means generally accepted accounting principles in the United States
of America as in effect as of the Issue Date, including those set forth in (i)
the opinions and pronouncements of the Accounting Principles Board of the
American Institute of Certified Public Accountants, (ii) statements and
pronouncements of the Financial Accounting Standards Board and (iii) such
other statements by such other entity as approved by a significant segment of
the accounting profession.
"Guarantee" means any obligation, contingent or otherwise, of any Person
directly or indirectly guaranteeing any Indebtedness or other obligation of
any Person and any obligation, direct or indirect, contingent or otherwise, of
such Person (i) to purchase or pay (or advance or supply funds for the
purchase or payment of) such Indebtedness or other obligation of such Person
(whether arising by virtue of partnership arrangements, or by agreements to
keep-well, to purchase assets, goods, securities or services, to take-or-pay
or to maintain financial statement conditions or otherwise) or (ii) entered
into for the purpose of assuring in any other manner the obligee of such
Indebtedness or other obligation of the payment thereof or to protect such
obligee against loss in respect thereof (in whole or in part); provided,
however, that the term "Guarantee" shall not include
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endorsements for collection or deposit in the ordinary course of business. The
term "Guarantee" used as a verb has a corresponding meaning. The term
"Guarantor" shall mean any Person Guaranteeing any obligation.
"Hedging Obligations" of any Person means the obligations of such Person
pursuant to any Interest Rate Agreement or Currency Agreement.
"Holder" or "Noteholder" means the Person in whose name a Note is registered
on the Registrar's books.
"Holdings" means Glenoit Universal, Ltd., a Delaware corporation.
"Incur" means issue, assume, Guarantee, incur or otherwise become liable
for; provided, however, that any Indebtedness or Capital Stock of a Person
existing at the time such Person becomes a Subsidiary (whether by merger,
consolidation, acquisition or otherwise) shall be deemed to be Incurred by
such Subsidiary at the time it becomes a Subsidiary; provided further,
however, that in the case of a discount security, neither the accrual of
interest nor the accretion of original issue discount shall be considered an
Incurrence of Indebtedness, but the entire face amount of such security shall
be deemed Incurred upon the issuance of such security. The term "Incurrence"
when used as a noun shall have a correlative meaning.
"Indebtedness" means, with respect to any Person on any date of
determination (without duplication), (i) the principal of and premium (if any)
in respect of (A) indebtedness of such Person for money borrowed and (B)
indebtedness evidenced by notes, debentures, bonds or other similar
instruments for the payment of which such Person is responsible or liable;
(ii) all Capital Lease Obligations of such Person and all Attributable Debt in
respect of Sale/Leaseback Transactions entered into by such Person; (iii) all
obligations of such Person issued or assumed as the deferred purchase price of
property or services, all conditional sale obligations of such Person and all
obligations of such Person under any title retention agreement (but excluding
trade accounts payables arising in the ordinary course of business), which
purchase price or obligation is due more than six months after the date of
placing such property in service or taking delivery and title thereto or the
completion of such services (provided that, in the case of obligations of an
acquired Person assumed in connection with an acquisition of such Person, such
obligations would constitute Indebtedness of such Person); (iv) all
obligations of such Person for the reimbursement of any obligor on any letter
of credit, banker's acceptance or similar credit transaction (other than
obligations with respect to letters of credit securing obligations (other than
obligations described in (i) through (iii) above) entered into in the ordinary
course of business of such Person to the extent such letters of credit are not
drawn upon or, if and to the extent drawn upon, such drawing is reimbursed no
later than the tenth Business Day following receipt by such Person of a demand
for reimbursement following payment on the letter of credit); (v) the amount
of all obligations of such Person with respect to the redemption, repayment or
other repurchase of any Disqualified Stock or, with respect to any Subsidiary
of such Person, any Preferred Stock (but excluding, in each case, any accrued
dividends); (vi) all obligations of the type referred to in clauses (i)
through (v) of other Persons and all dividends of other Persons for the
payment of which, in either case, such Person is responsible or liable,
directly or indirectly, as obligor, guarantor or otherwise, including by means
of any Guarantee; (vii) all obligations of the type referred to in clauses (i)
through (vi) of other Persons secured by any Lien on any property or asset of
such Person (whether or not such obligation is assumed by such Person), the
amount of such obligation being deemed to be the lesser of the value of such
property or assets or the amount of the obligation so secured and (viii) to
the extent not otherwise included in this definition, Hedging Obligations of
such Person. The amount of Indebtedness of any Person at any date shall be the
outstanding balance at such date of all unconditional obligations as described
above and the maximum liability, upon the occurrence of the contingency giving
rise to the obligation, of any contingent obligations as described above at
such date.
"Interest Rate Agreement" means any interest rate swap agreement, interest
rate cap agreement or other financial agreement or arrangement designed to
protect the Company or any Restricted Subsidiary against fluctuations in
interest rates.
"Investment" in any Person means any direct or indirect advance, loan (other
than advances to customers in the ordinary course of business that are
recorded as accounts receivable on the balance sheet of such Person)
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or other extensions of credit (including by way of Guarantee or similar
arrangement) or capital contribution to (by means of any transfer of cash or
other property to others or any payment for property or services for the
account or use of others), or any purchase or acquisition of Capital Stock,
Indebtedness or other similar instruments issued by such Person. For purposes
of the definition of "Unrestricted Subsidiary", the definition of "Restricted
Payment" and the covenant described under "Certain Covenants--Limitation on
Restricted Payments", (i) "Investment" shall include the portion
(proportionate to the Company's equity interest in such Subsidiary) of the
fair market value of the net assets of any Subsidiary of the Company at the
time that such Subsidiary is designated an Unrestricted Subsidiary; provided,
however, that upon a redesignation of such Subsidiary as a Restricted
Subsidiary, the Company shall be deemed to continue to have a permanent
"Investment" in an Unrestricted Subsidiary in an amount equal to (x) the
Company's "Investment" in such Subsidiary at the time of such redesignation
less (y) the portion (proportionate to the Company's equity interest in such
Subsidiary) of the fair market value of the net assets of such Subsidiary at
the time of such redesignation, but in no event shall such Investment be
reduced below zero; and (ii) any property transferred to or from an
Unrestricted Subsidiary shall be valued at its fair market value at the time
of such transfer, in each case as determined in good faith by the Board of
Directors.
"Issue Date" means the date on which the Offered Notes are originally
issued.
"Junior Subordinated Notes" means the 12.50% Junior PIK Subordinated Notes
due December 14, 2005 of Holdings, issued to CVC and Soannes Investment Corp.,
in an original aggregate principal amount of $13,600,000.
"Legal Holiday" means a Saturday, a Sunday or a day on which banking
institutions are not required to be open in the State of New York.
"Lien" means any mortgage, pledge, security interest, encumbrance, lien or
charge of any kind (including any conditional sale or other title retention
agreement or lease in the nature thereof).
"Management Investors" means each of the officers, employees and directors
of the Company or Holdings who own Voting Stock (or options to acquire Voting
Stock) of Holdings on the Issue Date, in each case so long as such person
shall remain an officer, employee or director of Holdings or the Company.
"Net Available Cash" from an Asset Disposition means cash payments received
therefrom (including any cash payments received by way of deferred payment of
principal pursuant to a note or installment receivable or otherwise, but only
as and when received, but excluding any other consideration received in the
form of assumption by the acquiring Person of Indebtedness or other
obligations relating to such properties or assets or received in any other
noncash form) in each case net of (i) all legal, title and recording tax
expenses, commissions and other fees and expenses incurred, and all Federal,
state, provincial, foreign and local taxes required to be paid or accrued as a
liability under GAAP, as a consequence of such Asset Disposition, (ii) all
payments made on any Indebtedness which is secured by any assets subject to
such Asset Disposition, in accordance with the terms of any Lien upon or other
security agreement of any kind with respect to such assets, or which must by
its terms, or in order to obtain a necessary consent to such Asset
Disposition, or by applicable law be, repaid out of the proceeds from such
Asset Disposition, (iii) all distributions and other payments required to be
made to minority interest Holders in Subsidiaries or joint ventures as a
result of such Asset Disposition and (iv) the deduction of appropriate amounts
provided by the seller as a reserve, in accordance with GAAP, against any
liabilities associated with the property or other assets disposed in such
Asset Disposition and retained by the Company or any Restricted Subsidiary
after such Asset Disposition.
"Net Cash Proceeds," with respect to any issuance or sale of Capital Stock,
means the cash proceeds of such issuance or sale net of attorneys' fees,
accountants' fees, underwriters' or placement agents' fees, discounts or
commissions and brokerage, consultant and other fees actually incurred in
connection with such issuance or sale and net of taxes paid or payable as a
result thereof.
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"New Credit Facility" means the revolving credit facility made available
pursuant to the Second Amended and Restated Credit Agreement dated as of the
Issue Date, among the Company, as borrower, Holdings and certain Subsidiaries,
as guarantors, and BNP, as agent and issuing bank for the lenders from time to
time, as the same may be amended, waived, modified, Refinanced or replaced
from time to time (including any successive amendments, modifications,
Refinancings or replacements that increase the aggregate amount of borrowings
outstanding or the aggregate commitments of the lenders thereunder), except to
the extent that any such amendment, waiver, modification, replacement or
Refinancing would be prohibited by the terms of the Indenture) (or, in the
case of any such increase, except to the extent that such increased amount of
borrowings or commitments shall exceed the total amount of such borrowings or
commitments permitted under the terms of the Indenture).
"Permitted Holders" means the CVC Investors, the Management Investors and
their respective Permitted Transferees; provided, however, that in no event
shall the Management Investors and the CVC Investors (other than CVC and
Citicorp, N.A.), collectively, be deemed "Permitted Holders" with respect to
more than 30% of the total voting power of all classes of Voting Stock of the
Company.
"Permitted Investment" means an Investment by the Company or any Restricted
Subsidiary in (i) the Company, (ii) a Restricted Subsidiary or a Person that
will, upon the making of such Investment, become a Restricted Subsidiary;
provided, however, that the primary business of such Restricted Subsidiary is
a Related Business; (iii) another Person if as a result of such Investment
such other Person is merged or consolidated with or into, or transfers or
conveys all or substantially all its assets to, the Company or a Restricted
Subsidiary; provided, however, that such Person's primary business is a
Related Business; (iv) Temporary Cash Investments; (v) receivables owing to
the Company or any Restricted Subsidiary if created or acquired in the
ordinary course of business and payable or dischargeable in accordance with
customary trade terms; provided, however, that such trade terms may include
such concessionary trade terms as the Company or any such Restricted
Subsidiary deems reasonable under the circumstances; (vi) payroll, travel and
similar advances to cover matters that are expected at the time of such
advances ultimately to be treated as expenses for accounting purposes and that
are made in the ordinary course of business; (vii) loans or advances to
employees made in the ordinary course of business consistent with past
practices of the Company or such Restricted Subsidiary and not exceeding $1
million in the aggregate outstanding at any time; (viii) stock, obligations or
securities received in settlement of debts created in the ordinary course of
business and owing to the Company or any Restricted Subsidiary or in
satisfaction of judgments; and (ix) any Person to the extent such Investment
represents the non-cash portion of the consideration received for an Asset
Disposition as permitted pursuant to the covenant described under "Certain
Covenants--Limitation on Sales of Assets and Subsidiary Stock".
"Permitted Operating Expense Payments" means payments to Holdings to enable
Holdings to pay its operating and administrative expenses incurred in the
ordinary course of business in an aggregate amount not to exceed $250,000 in
any year; provided, however, that (i) such payments shall not exceed the sum
of (A) the amount of such costs that are directly related to the business of
the Company and its Restricted Subsidiaries and not to any other business,
subsidiary or investment of Holdings and (B) the Company's allocable share (as
reasonably determined in good faith by the Board of Directors) of such costs
that are not directly related to the business of the Company and its
Restricted Subsidiaries or to any other business, subsidiary or investment of
Holdings (including, without limitation, directors' fees, legal and audit
expenses and corporate franchise taxes), and (ii) such payments are used by
Holdings for such purpose within 10 days of the receipt of such payments.
"Permitted Receivables Financing" means any financing pursuant to which the
Company or any Restricted Subsidiary may sell, convey or otherwise transfer to
a Receivables Subsidiary or any other Person (in the case of a transfer by a
Receivables Subsidiary), or grant a security interest in, any accounts
receivable (and related assets) of the Company or any Restricted Subsidiary;
provided, however, that (i) the covenants, events of default and other
provisions applicable to such financing shall be customary for such
transactions and shall be on market terms (as determined in good faith by the
Board of Directors) at the time such financing is entered into, (ii) the
interest rate applicable to such financing shall be a market interest rate (as
determined in good faith by the Board of Directors) at the time such financing
is entered into and (iii) such financing shall be non-recourse to the
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Company and its Subsidiaries (other than the Receivables Subsidiary) except to
a limited extent customary for such transactions.
"Permitted Transferee" means (a) with respect to any CVC Investor who is an
employee, officer or director of CVC, any spouse or lineal descendant
(including by adoption) of such CVC Investor so long as such CVC Investor
shall be an employee, officer or director of CVC and (b) with respect to any
Management Investor, any spouse or lineal descendant (including by adoption)
of such Management Investor so long as such Management Investor shall be an
employee, officer or director of the Company or Holdings.
"Person" means any individual, corporation, partnership, joint venture,
association, joint-stock company, trust, unincorporated organization,
government or any agency or political subdivision thereof or any other entity.
"PIK Subordinated Note" means the PIK Subordinated Note due December 14,
2004, issued by Holdings to the Seller pursuant to the Redemption Agreement,
in an aggregate principal amount of $1,008,884.01.
"Preferred Stock", as applied to the Capital Stock of any corporation, means
Capital Stock of any class or classes (however designated) which is preferred
as to the payment of dividends, or as to the distribution of assets upon any
voluntary or involuntary liquidation or dissolution of such corporation, over
shares of Capital Stock of any other class of such corporation.
"Principal" of a Note means the principal of the Note plus the premium, if
any, payable on the Note which is due or overdue or is to become due at the
relevant time.
"Public Equity Offering" means an underwritten primary public offering of
common stock of the Company or Holdings pursuant to an effective registration
statement under the Securities Act.
"Public Market" means any time after (i) a Public Equity Offering has been
consummated and (ii) at least 15% of the total issued and outstanding common
stock of the Company or Holdings has been distributed by means of an effective
registration statement under the Securities Act or sales pursuant to Rule 144
under the Securities Act.
"Purchase Money Indebtedness" mean Indebtedness (i) consisting of the
deferred purchase price of property, conditional sale obligations, obligations
under any title retention agreement, other purchase money obligations and
obligations in respect of industrial revenue bonds or similar Indebtedness, in
each case where the maturity of such Indebtedness does not exceed the
anticipated useful life of the asset being financed, and (ii) incurred to
finance the acquisition by the Company or a Restricted Subsidiary of such
asset (including Additional Assets), including additions and improvements;
provided, however, that any Lien arising in connection with any such
Indebtedness shall be limited to the specified asset being financed or, in the
case of real property or fixtures, including additions and improvements, the
real property on which such asset is attached; and provided further, however,
that such Indebtedness is Incurred within 90 days after such acquisition of
such asset by the Company or Restricted Subsidiary.
"Receivables Subsidiary" means a bankruptcy-remote, special-purpose Wholly
Owned Subsidiary formed in connection with a Permitted Receivables Financing.
"Redemption Agreement" means the Redemption Agreement dated October 23,
1995, between Holdings and the Seller as in effect on the Issue Date.
"Refinance" means, in respect of any Indebtedness, to refinance, extend,
renew, refund, repay, prepay, redeem, defease or retire, or to issue other
Indebtedness in exchange or replacement for, such indebtedness. "Refinanced"
and "Refinancing" shall have correlative meanings.
"Refinancing Indebtedness" means Indebtedness that Refinances any
Indebtedness of the Company or any Restricted Subsidiary existing on the Issue
Date or Incurred in compliance with the Indenture; provided, however,
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that (i) such Refinancing Indebtedness has a Stated Maturity no earlier than
the Stated Maturity of the Indebtedness being Refinanced, (ii) such
Refinancing Indebtedness has an Average Life at the time such Refinancing
Indebtedness is Incurred that is equal to or greater than the Average Life of
the Indebtedness being Refinanced, (iii) such Refinancing Indebtedness has an
aggregate principal amount (or if Incurred with original issue discount, an
aggregate issue price) that is equal to or less than the aggregate principal
amount (or if Incurred with original issue discount, the aggregate accreted
value) then outstanding or committed (plus fees and expenses, including any
premium and defeasance costs) under the Indebtedness being Refinanced;
provided further, however, that Refinancing Indebtedness shall not include (x)
Indebtedness of a Subsidiary that Refinances Indebtedness of the Company or
(y) Indebtedness of the Company or a Restricted Subsidiary that Refinances
Indebtedness of an Unrestricted Subsidiary.
"Related Business" means the business of the Company and its Restricted
Subsidiaries on the Issue Date or any business related, ancillary or
complementary (as determined in good faith by the Board of Directors) to the
businesses of the Company and the Restricted Subsidiaries on the Issue Date.
"Representative" means any trustee, agent or representative (if any) for an
issue of Senior Indebtedness of the Company.
"Restricted Payment" means, with respect to any Person, (i) the declaration
or payment of any dividends or any other distributions on or in respect of its
Capital Stock (including any payment in connection with any merger or
consolidation involving such Person) or similar payment to the holders of its
Capital Stock, except dividends or distributions payable solely in its Capital
Stock (other than Disqualified Stock) and except dividends or distributions
payable solely to the Company or a Restricted Subsidiary (and, in the case of
dividends or distributions by a Restricted Subsidiary which is not wholly
owned, to its other shareholders on a pro rata basis or on a basis that
results in the receipt by the Company or a Restricted Subsidiary of dividends
or distributions of greater value than it would receive on a pro rata basis),
(ii) the purchase, redemption or other acquisition or retirement for value of
any Capital Stock of the Company held by any Person or of any Capital Stock of
a Restricted Subsidiary held by any Affiliate of the Company (other than a
Restricted Subsidiary), including the exercise of any option to exchange any
Capital Stock (other than into Capital Stock of the Company that is not
Disqualified Stock), (iii) the purchase, repurchase, redemption, defeasance or
other acquisition or retirement for value, prior to scheduled maturity,
scheduled repayment or scheduled sinking fund payment of any Subordinated
Obligations (other than the purchase, repurchase or other acquisition of
Subordinated Obligations purchased in anticipation of satisfying a sinking
fund obligation, principal installment or final maturity, in each case due
within one year of the date of acquisition), (iv) the payment of any amount
pursuant to any agreement with Holdings or any officer, director or employee
of Holdings or (v) the making of any Investment in any Person (other than a
Permitted Investment).
"Restricted Subsidiary" means any Subsidiary of the Company that is not an
Unrestricted Subsidiary.
"Sale Leaseback Transaction" means an arrangement relating to property now
owned or hereafter acquired whereby the Company or a Restricted Subsidiary
transfers such property to a Person and the Company or a Restricted Subsidiary
leases it from such Person.
"SEC" means the Securities and Exchange Commission.
"Secured Indebtedness" means any Indebtedness of the Company secured by a
Lien. "Secured Indebtedness" of any Subsidiary Guarantor has a correlative
meaning.
"Seller" means Stirling Investment Holdings, Inc., a British Virgin Islands
corporation.
"Seller Notes" means (i) the Split-Pay Notes, the PIK Subordinated Note and
the Deferred Redemption Price Note, in an aggregate principal amount of
$10,980,312.58, and (ii) any additional notes issued in payment of interest on
any notes described in clause (i).
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"Senior Indebtedness" of the Company means (i) Indebtedness of the Company,
whether outstanding on the Issue Date or thereafter Incurred, and all Bank
Indebtedness, and (ii) accrued and unpaid interest (including interest
accruing on or after the filing of any petition in bankruptcy or for
reorganization relating to the Company whether or not a claim for post-filing
interest is allowed in such proceeding) in respect of (A) indebtedness of the
Company for money borrowed and (B) indebtedness evidenced by notes,
debentures, bonds or other similar instruments for the payment of which the
Company is responsible or liable unless, in the instrument creating or
evidencing the same or pursuant to which the same is outstanding, it is
provided that such obligations are subordinate in right of payment to the
Notes; provided, however, that Senior Indebtedness shall not include (1) any
obligation of the Company to any Subsidiary, (2) any liability for Federal,
state, local or other taxes owed or owing by the Company, (3) any accounts
payable or other liability to trade creditors arising in the ordinary course
of business (including guarantees thereof or instruments evidencing such
liabilities), (4) any Indebtedness of the Company (and any accrued and unpaid
interest in respect thereof) which is subordinate or junior in any respect
(other than as a result of the Indebtedness being unsecured) to any other
Indebtedness or other obligation of the Company, including any Senior
Subordinated Indebtedness and any Subordinated Obligations, (5) any
obligations with respect to any Capital Stock or (6) that portion of any
Indebtedness which at the time of Incurrence is Incurred in violation of the
Indenture. "Senior Indebtedness" of any Subsidiary Guarantor has a correlative
meaning.
"Senior Subordinated Indebtedness" of the Company means the Notes and any
other Indebtedness of the Company that specifically provides that such
Indebtedness is to rank pari passu with the Notes in right of payment and is
not subordinated by its terms in right of payment to any Indebtedness or other
obligation of the Company which is not Senior Indebtedness; provided, however,
that "Senior Subordinated Indebtedness" shall specifically include the Seller
Notes (and any Senior Subordinated Indebtedness Incurred to Refinance such
notes). "Senior Subordinated Indebtedness" of any Subsidiary Guarantor has a
correlative meaning.
"Significant Subsidiary" means any Restricted Subsidiary that would be a
"Significant Subsidiary" of the Company within the meaning of Rule 1-02 under
Regulation S-X promulgated by the SEC.
"Split-Pay Notes" means (i) the Split-Pay Subordinated Note due December 14,
2004, issued by Holdings to the Seller pursuant to the Redemption Agreement,
in an aggregate principal amount of $2,888,930.82, and (ii) the Split-Pay
Subordinated Note due December 14, 2004, issued by Holdings to Iris Holdings,
Inc. pursuant to the Redemption Agreement, in an aggregate principal amount of
$5,682,497.75.
"Stated Maturity" means, with respect to any security, the date specified in
such security as the fixed date on which the final payment of principal of
such security is due and payable, including pursuant to any mandatory
redemption provision (but excluding any provision providing for the repurchase
of such security at the option of the holder thereof upon the happening of any
contingency unless such contingency has occurred).
"Subordinated Obligation" means any Indebtedness of the Company (whether
outstanding on the Issue Date or thereafter Incurred) which is subordinate or
junior in right of payment to the Notes pursuant to a written agreement to
that effect. "Subordinated Obligation" of any Subsidiary Guarantor has a
correlative meaning.
"Subsidiary" means, in respect of any Person, any corporation, association,
partnership or other business entity of which more than 50% of the total
voting power of shares of Capital Stock or other interests (including
partnership interests) entitled (without regard to the occurrence of any
contingency) to vote in the election of directors, managers or trustees
thereof is at the time owned or controlled, directly or indirectly, by (i)
such Person, (ii) such Person and one or more Subsidiaries of such Person or
(iii) one or more Subsidiaries of such Person.
"Subsidiary Guarantor" means each Subsidiary designated as such on the
signature pages of the Indenture and any other Subsidiary that has issued a
Subsidiary Guaranty.
"Subsidiary Guaranty" means the Guarantee by a Subsidiary Guarantor of the
Company's obligations with respect to the Notes.
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"Tax Sharing Agreement" means the Tax Sharing Agreement dated as of December
14, 1995, among Holdings, the Company and Glenoit Assets Corp., as in effect
on the Issue Date and as the same shall be amended in accordance with the
covenant described under "Certain Covenants--Tax Sharing Agreement."
"Temporary Cash Investments" means any of the following: (i) any investment
in direct obligations of the United States of America or any agency thereof or
obligations guaranteed by the United States of America or any agency thereof,
(ii) investments in time deposit accounts, certificates of deposit and money
market deposits maturing within 180 days of the date of acquisition thereof
issued by a bank or trust company which is organized under the laws of the
United States of America, any state thereof or any foreign country recognized
by the United States, and which bank or trust company has capital, surplus and
undivided profits aggregating in excess of $50,000,000 (or the foreign
currency equivalent thereof) and has outstanding debt which is rated "A" (or
such similar equivalent rating) or higher by at least one nationally
recognized statistical rating organization (as defined in Rule 436 under the
Securities Act) or any money-market fund sponsored by an registered broker
dealer or mutual fund distributor, (iii) repurchase obligations with a term of
not more than 30 days for underlying securities of the types described in
clause (i) above entered into with a bank meeting the qualifications described
in clause (ii) above, (iv) investments in commercial paper, maturing not more
than 90 days after the date of acquisition, issued by a corporation (other
than an Affiliate of the Company) organized and in existence under the laws of
the United States of America or any foreign country recognized by the United
States of America with a rating at the time as of which any investment therein
is made of "P-1" (or higher) according to Moody's Investors Service, Inc. or
"A-1" (or higher) according to Standard and Poor's Ratings Group, and (v)
investments in securities with maturities of six months or less from the date
of acquisition issued or fully guaranteed by any state, commonwealth or
territory of the United States of America, or by any political subdivision or
taxing authority thereof, and rated at least "A" by Standard & Poor's Ratings
Group or "A" by Moody's Investors Service, Inc.
"Unrestricted Subsidiary" means (i) any Subsidiary of the Company that at
the time of determination shall be designated an Unrestricted Subsidiary by
the Board of Directors in the manner provided below and (ii) any Subsidiary of
an Unrestricted Subsidiary. The Board of Directors may designate any
Subsidiary of the Company (including any newly acquired or newly formed
Subsidiary) to be an Unrestricted Subsidiary unless such Subsidiary or any of
its Subsidiaries owns any Capital Stock or Indebtedness of, or holds any Lien
on any property of, the Company or any other Subsidiary of the Company that is
not a Subsidiary of the Subsidiary to be so designated; provided, however,
that either (A) the Subsidiary to be so designated has total assets of $1,000
or less or (B) if such Subsidiary has assets greater than $1,000, such
designation would be permitted under the covenant described under "Certain
Covenants--Limitation on Restricted Payments". The Board of Directors may
designate any Unrestricted Subsidiary to be a Restricted Subsidiary; provided,
however, that immediately after giving effect to such designation (x) the
Company could Incur $1.00 of additional Indebtedness under paragraph (a) of
the covenant described under "Certain Covenants--Limitation on Indebtedness"
and (y) no Default shall have occurred and be continuing. Any such designation
by the Board of Directors shall be evidenced to the Trustee by promptly filing
with the Trustee a copy of the board resolution giving effect to such
designation and an Officers' Certificate certifying that such designation
complied with the foregoing provisions.
"U.S. Government Obligations" means direct obligations (or certificates
representing an ownership interest in such obligations) of the United States
of America (including any agency or instrumentality thereof) for the payment
of which the full faith and credit of the United States of America is pledged
and which are not callable at the issuer's option.
"Voting Stock" of a Person means all classes of Capital Stock or other
interests (including partnership interests) of such Person then outstanding
and normally entitled (without regard to the occurrence of any contingency) to
vote in the election of directors, managers or trustees thereof.
"Wholly Owned Subsidiary" means a Restricted Subsidiary all the Capital
Stock of which (other than directors' qualifying shares) is owned by the
Company and/or one or more Wholly Owned Subsidiaries.
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THE EXCHANGE OFFER
TERMS OF THE EXCHANGE OFFER; PERIOD FOR TENDERING OLD NOTES
Upon the terms and subject to the conditions set forth in this Prospectus
and in the accompanying Letter of Transmittal (which together constitute the
Exchange Offer), the Company will accept for exchange Old Notes which are
properly tendered on or prior to the Expiration Date and not withdrawn as
permitted below. As used herein, the term "Expiration date" means 5:00 P.M.,
New York City time, on , 1998; provided, however, that if the Company has
extended the period of time for which the Exchange Offer is open, the term
"Expiration Date" means the latest time and date to which the Exchange Offer
is extended.
As of the date of this Prospectus, $100.0 million aggregate principal amount
of the Old Notes are outstanding. This Prospectus, together with the Letter of
Transmittal, is first being sent on or about , 1998 to all holders of Old
Notes known to the Company. The Company's obligation to accept Old Notes for
exchange pursuant to the Exchange offer is subject to certain conditions as
set forth under "--Certain Conditions to the Exchange Offer" below.
The Company expressly reserves the right, at any time or from time to time,
to extend the period of time during which the Exchange Offer is open, and
thereby delay acceptance for any exchange of any Old Notes, by giving notice
of such extension to the holders thereof. During any such extension, all Old
Notes previously tendered will remain subject to the Exchange Offer and may be
accepted for exchange by the Company. Any Old Notes not accepted for exchange
for any reason will be returned without expense to the tendering holder
thereof as promptly as practicable after the expiration or termination of the
Exchange Offer.
The Company expressly reserves the right to amend or terminate the Exchange
Offer, and not to accept for exchange any Old Notes not theretofore accepted
for exchange, upon the occurrence of any of the conditions of the Exchange
Offer specified below under "--Certain Conditions to the Exchange Offer." The
Company will give notice of any extension, amendment, non-acceptance or
termination to the holders of the Old Notes as promptly as practicable, such
notice in the case of any extension to be issued no later than 9:00 A.M., New
York City time, on the next business day after the previously scheduled
Expiration Date.
PROCEDURES FOR TENDERING OLD NOTES
The tender to the Company of Old Notes by a holder thereof as set forth
below and the acceptance thereof by the Company will constitute a binding
agreement between the tendering holder and the Company upon the terms and
subject to the conditions set forth in this Prospectus and in the accompanying
Letter of Transmittal. Except as set forth below, a holder who wishes to
tender Old Notes for exchange pursuant to the Exchange Offer must transmit a
properly completed and duly executed Letter of Transmittal, including all
other documents required by such Letter of Transmittal, to United States Trust
Company of New York (the "Exchange Agent") at one of the addresses set forth
below under "Exchange Agent" on or prior to the Expiration Date. In addition
either (i) certificates for such Old Notes must be received by the Exchange
Agent along with the Letter of Transmittal or (ii) a timely confirmation of a
book-entry transfer (a "Book-Entry Confirmation") of such Old Notes, if such
procedure is available, into the Exchange Agent's account at The Depository
Trust Company (the "Book-Entry Transfer Facility") pursuant to the procedure
for book-entry transfer described below, must be received by the Exchange
Agent prior to the Expiration Date, or the holder must comply with the
guaranteed delivery procedures described below. THE METHOD OF DELIVERY OF OLD
NOTES, LETTER OF TRANSMITTAL AND ALL OTHER REQUIRED DOCUMENTS IS AT THE
ELECTION AND RISK OF THE HOLDER, IF SUCH DELIVERY IS BY MAIL, IT IS
RECOMMENDED THAT REGISTERED MAIL, PROPERLY INSURED, WITH RETURN RECEIPT
REQUESTED, BE USED. IN ALL CASES, SUFFICIENT TIME SHOULD BE ALLOWED TO ASSURE
TIMELY DELIVERY. NO LETTERS OF TRANSMITTAL OR OLD NOTES SHOULD BE SENT TO THE
COMPANY.
Signatures on a Letter of Transmittal or a notice of withdrawal, as the case
may be, must be guaranteed unless the Old Notes surrendered for exchange
pursuant thereto are tendered (i) by registered holder of the Old
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Notes who has not completed the box entitled "Special Issuance Instructions"
or "Special Delivery Instructions" on the Letter of Transmittal or (ii) for
the account of an Eligible Institution (as defined below). In the event that
signatures are required to be guaranteed, such guarantees must be by a firm
that is a member or participant in the Securities Transfer Agents Medallion
Program, the New York Stock Exchange Medallion Signature Program or the Stock
Exchange Medallion Program or by an "eligible guarantor institution" within
the meaning of Rule 17Ad-15 under the Exchange Act (collectively, "Eligible
Institutions"). If Old Notes are registered in the name of a person other than
a signer of the Letter of Transmittal, the Old Notes surrendered for exchange
must be endorsed by or be accompanied by a written instrument or instruments
of transfer or exchange, in satisfactory form as determined by the Company in
its sole discretion, duly executed by, the registered holder with the
signature thereon guaranteed by an Eligible Institution.
All questions as to the validity, form, eligibility (including time of
receipt) and acceptance of Old Notes tendered for exchange will be determined
by the Company in its sole discretion, which determination shall be final and
binding. The Company reserves the absolute right to reject any and all tenders
of any particular Old Notes not properly tendered or to not accept any
particular Old Notes which acceptance might, in the judgment of the Company or
its counsel, be unlawful. The Company also reserves the absolute right to
waive any defects or irregularities or conditions of the Exchange Offer as to
any particular Old Notes either before or after the Expiration Date. The
interpretation of the terms and conditions of the Exchange Offer as to any
particular Old Notes either before or after the Expiration Date (including the
Letter of Transmittal and the instructions thereto) by the Company shall be
final and binding on all parties. Unless waived, any defects or irregularities
in connection with tenders of Old Notes for exchange must be cured within such
reasonable period of time as the Company shall determine. Neither the Company,
the Exchange Agent nor any other person shall be under any duty to give
notification of any defect or irregularity with respect to any tender of Old
Notes for exchange, nor shall any of them incur any liability for failure to
give such notification. The Exchange Offer is subject to certain customary
conditions relating to compliance with any applicable law, or any applicable
interpretation by any staff of the Commission, or any order of any
governmental agency or court of law. See "--Certain Conditions to the Exchange
Offer."
If the Letter of Transmittal or any Old Notes or powers of attorney are
signed by trustees, executors, administrators, guardians, attorneys-in-fact,
officers of corporations or others acting in a fiduciary or representative
capacity, such persons should so indicate when signing, and, unless waived by
the Company, proper evidence satisfactory to the Company of their authority to
do so must be submitted.
By tendering, each holder will represent to the Company that, among other
things, the New Notes acquired pursuant to the Exchange Offer are being
obtained in the ordinary course of business of the holder and any beneficial
holder, that neither the holder nor any such beneficial holder has an
arrangement or understanding with any person to participate in the
distribution of such New Notes and that neither the holder nor any such person
is an "affiliate," as defined under Rule 405 of the Securities Act of the
Company. If the holder is a broker-dealer that receives New Notes for its own
account pursuant to the Exchange Offer, it must acknowledge that it acquired
the Old Notes for its own account as the result of market-making activities or
other trading activities, and must agree that it will deliver a prospectus
meeting the requirements of the Securities Act in connection with any resale
of such New Notes.
ACCEPTANCE OF OLD NOTES FOR EXCHANGE; DELIVERY OF NEW NOTES
For each Old Note accepted for exchange, the holder of such Old Note will
receive a New Note having a principal amount equal to that of the surrendered
Old Note. For purposes of the Exchange Offer, the Company shall be deemed to
have accepted properly tendered Old Notes for exchange when and if the Company
has given oral and written notice thereof to the Exchange Agent.
In all cases, issuance of New Notes for Old Notes that are accepted for
exchange pursuant to the Exchange Offer will be made only after timely receipt
by the Exchange Agent of certificates for such Old Notes or a timely Book-
Entry Confirmation of such Old Notes into the Exchange Agent's accountant the
Book-Entry Transfer
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Facility, a properly completed and duly executed Letter of Transmittal and all
other required documents. If any tendered Old Notes are not accepted for any
reason set forth in the terms and conditions of the Exchange Offer or if Old
Notes are submitted for a greater principal amount than the holder desires to
exchange, such unaccepted or non-exchanged Old Notes will be returned without
expense to the tendering holder thereof (or, in the case of Old Notes tendered
by book-entry transfer into the Exchange Agent's account at the Book-Entry
Transfer Facility pursuant to the book-entry transfer procedures described
below, such non-exchanged Old Notes will be credited to an account maintained
with such Book-Entry Transfer Facility) as promptly as practicable after the
expiration of the Exchange Offer.
BOOK-ENTRY TRANSFER
Any financial institution that is a participant in the Book-Entry Transfer
Facility's systems may make book-entry delivery of Old Notes by causing the
Book-Entry Transfer Facility to transfer such Old Notes into the Exchange
Agent's account at the Book-Entry Transfer Facility in accordance with such
Book-Entry Transfer Facility's procedures for transfer. However, although
delivery of Old Notes may be effected through book-entry transfer at the Book-
Entry Transfer Facility, the Letter of Transmittal or facsimile thereof with
any required signature guarantees and any other required documents must, in
any case, be transmitted to and received by the Exchange Agent at one of the
addresses set forth below under "Exchange Agent" on or prior to the Expiration
Date or the guaranteed deliver procedures described below must be complied
with.
GUARANTEED DELIVERY PROCEDURES
If a registered holder of the Old Notes desires to tender such Old Notes and
the Old Notes are not immediately available, or time will not permit such
holder's Old Notes or other required documents to reach the Exchange Agent
before the Expiration Date, or the procedure for book-entry transfer cannot be
completed on a timely basis, a tender may be affected if (i) the tender is
made through an Eligible Institution, (ii) prior to the Expiration Date, the
Exchange Agent receives from such Eligible Institution a properly completed
and duly executed Letter of Transmittal (or a facsimile thereof) and Notice of
Guaranteed Delivery, substantially in the form provided by the Company (by
telegram, telex, facsimile and transmission, mail or hand delivery), setting
forth the name and address of the holder of Old Notes and the amount of Old
Notes tendered, stating that the tender is being made thereby and guaranteeing
that within five New York Stock Exchange ("NYSE") trading days after the date
of execution of the Notice of Guaranteed Delivery, the certificates for all
physically tendered Old Notes, in proper form for transfer or a confirmation
of book-entry transfer of such Old Notes into the Exchange Agent's account at
the Book-Entry Transfer Facility (a "Book-Entry Confirmation"), as the case
may be, and any other documents required by the Letter of Transmittal will be
deposited by the Eligible Institution with the Exchange Agent and (iii) the
certificates for all physically tendered Old Notes, in proper form for
transfer, or a Book-Entry Confirmation, as the case may be, and all other
documents required by the Letter of Transmittal are received by the Exchange
Agent within five NYSE trading days after the date of execution of the Notice
of Guaranteed Delivery.
WITHDRAWAL OF TENDERS
Tenders of Old Notes may be withdrawn at any time prior to 5:00 P.M., New
York City time on the Expiration Date. For a withdrawal to be effective, a
written notice of withdrawal must be received by the Exchange Agent at one of
the addresses set forth below under "Exchange Agent." Any such notice of
withdrawal must specify the name of the person having tendered the Old Notes
to be withdrawn, identify the Old Notes to be withdrawn (including the
principal amount of such Old Notes), and (where certificates for Old Notes
have been transmitted) specify the name in which such Old Notes are
registered, if different from that of the withdrawing holder. If certificates
for Old Notes have been delivered or otherwise identified to the Exchange
Agent, then, prior to the release of such certificates, the withdrawing holder
must also submit the serial number of the particular certificates to be
withdrawn and a signed notice of withdrawal with signatures guaranteed by an
Eligible Institution unless such holder is an Eligible Institution. If Old
Notes have been tendered pursuant to the procedure for book-entry transfer
described above, any notice of withdrawal must specify the name and number
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of the account at the Book-Entry Transfer Facility to be credited with the
withdrawn Old Notes and otherwise comply with the procedures of such facility.
All questions as to the validity, form and eligibility (including time of
receipt) of such notices will be determined by the Company, whose
determination shall be final and binding on all parties. Any Old Notes so
withdrawn will be deemed not to have been validly tendered for exchange which
are not exchanged for any reason will be returned to the holder thereof
without cost to such holder (or, in the case of Old Notes tendered by book-
entry transfer into the Exchange Agent's account at the Book-Entry Transfer
Facility pursuant to the book entry transfer described above, such Old Notes
will be credited to an account maintained with such Book-Entry Transfer
Facility for the Old Notes) as soon as practicable after withdrawal, rejection
of tender or termination of the Exchange Offer. Properly withdrawn Old Notes
may be retendered by following one of the procedures described under "--
Procedures for Tendering Old Notes" above at any time on or prior to the
Expiration Date.
CERTAIN CONDITIONS TO THE EXCHANGE OFFER
Notwithstanding any other provision of the Exchange Offer, the Company shall
not be required to accept for exchange, or to issue New Notes in exchange for,
any Old Notes and may terminate or amend the Exchange Offer if at any time
before the Expiration Date, the Company determines that the Exchange Offer
violates applicable law, any applicable interpretation of the staff of the
Commission or any order of any governmental agency or court of competent
jurisdiction.
The foregoing conditions are for the sole benefit of the Company and may be
asserted by the Company regardless of the circumstances giving rise to any
such condition or may be waived by the Company in whole or in part at any time
and from time to time in its reasonable discretion. The failure by the Company
at any time to exercise any of the foregoing rights shall not be deemed a
waiver of such right and each such right shall be deemed an ongoing right
which may be asserted at any time and from time to time.
In addition, the Company will not accept for exchange any Old Notes
tendered, and no New Notes will be issued in exchange for any such Old Notes,
if prior to the Expiration Date any stop order shall be threatened or in
effect with respect to the Registration Statement of which this Prospectus
constitutes a part or the qualification of the Indenture under the Trust
Indenture Act of 1939, as amended (the "TIA"). In any such event, the Company
is required to use every reasonable effort to obtain the withdrawal of any
stop order at the earliest possible time.
EXCHANGE AGENT
United States Trust Company of New York has been appointed as the Exchange
Agent for the Exchange Offer. All executed Letters of Transmittal should be
directed to the Exchange Agent at the address set forth below. Questions and
requests for assistance, requests for additional copies of this Prospectus or
of the Letter of Transmittal and requests for Notices of Guaranteed Delivery
should be directed to the Exchange Agent addressed as follows:
United States Trust
Company of New York
114 West 47 Street
New York, NY 10036
Via Facsimile: (212) 852-1626
Confirm by Telephone: (212) 852-1614
For Information: (212) 858-2103
DELIVERY OTHER THAN AS SET FORTH ABOVE WILL NOT CONSTITUTE A VALID DELIVERY.
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FEES AND EXPENSES
The Company will not make any payments to brokers, dealers or other
soliciting acceptances of the Exchange Offer. The principal solicitation is
being made by mail; however, additional solicitations may be made in person or
by telephone by officers and employees of the Company.
The expenses to be incurred in connection with the Exchange Officer will be
paid by the Company. Such expenses include fees and expenses of the Exchange
Agent and Trustee, accounting and legal fees and printing costs among others.
ACCOUNTING TREATMENT
The New Notes will be recorded at the same carrying value as the Old Notes,
which is the principal amount as reflected in the Company's accounting records
on the date of the exchange. Accordingly, no gain or loss for accounting
purposes will be recognized. The expenses of the Exchange Offer will be
capitalized for accounting purposes.
TRANSFER TAXES
Holders who tender their Old Notes for exchange will not be obligated to pay
any transfer taxes in connection therewith, except that holders who instruct
the Company to register New Notes in the name of, or request that Old Notes
not tendered or not accepted in the Exchange Offer be returned to, a person
other than the registered tendering holder will be responsible for the payment
of any applicable transfer tax thereon.
CONSEQUENCES OF FAILURE TO EXCHANGE; RESALES OF NEW NOTES
Holders of Old Notes who do not exchange their Old Notes for New Notes
pursuant to the Exchange Offer will continue to be subject to the restrictions
on transfer of such Old Notes as set forth in the legend thereon as a
consequence of the issuance of the Old Notes pursuant to the exemptions from,
or in transactions not subject to, the registration requirements of, the
Securities Act and applicable state securities law. Old Notes not exchanged
pursuant to the Exchange Offer will continue to accrue interest at 11% per
annum and will otherwise remain outstanding in accordance with their terms.
Holders of Old Notes do not have any appraisal or dissenters' rights under the
Delaware General Corporation Law in connection with the Exchange Offer. In
general, the Old Notes may not be offered or sold unless registered under the
Securities Act, except pursuant to an exemption from, or in a transaction not
subject to, the Securities Act and applicable state securities laws. To the
extent that Old Notes are exchanged for New Notes, the market for the Old
Notes may be adversely affected. The Company does not currently anticipate
that it will registered the Old Notes under the Securities Act. However, (i)
if the Initial Purchasers so request with respect to Old Notes not eligible to
be exchanged for New Notes in the Exchange Offer and held by them following
consummation of the Exchange Offer or (ii) if any holder of Old Notes is not
eligible to participate in the Exchange Offer, or, in the case of any holder
of Old Notes that participates in the Exchange Offer, does not receive freely
tradable New Notes in exchange for Old Notes, the Company is obligated to file
a Registration Statement on the appropriate form under the Securities Act
relating to the Old Notes held by such persons.
Based on certain interpretive letters issue by the staff of the Commission
to third parties in unrelated transactions, it is the Company's view that New
Notes issued pursuant to the Exchange Offer may be offered for resale, resold
or otherwise transferred by holders thereof (other than (i) any such holder
which is an "affiliate" of the Company within the meaning of Rule 405 under
the Securities Act or (ii) any broker-dealer that purchases Notes from the
Company to resell pursuant to Rule 144A or any other available exemption)
without compliance with the registration and prospectus delivery provisions of
the Securities Act, provided that such New Notes are acquired in the ordinary
course of such holders' business and such holders have no intention, or any
arrangement or understanding with any person, to participate in the
distribution of such New Notes. If any holder has any arrangement or
understanding with respect to the distribution of the New Notes to be acquired
pursuant to the Exchange Offer, such holder (i) could not rely on the
applicable interpretations of the staff of the Commission
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and (ii) must comply with the registration and prospectus delivery
requirements of the Securities Act in connection with a secondary resale
transaction. A broker-dealer who holds Old Notes that were acquired for its
own account as a result of market-making or other trading activities may be
deemed to be an "underwriter" within the meaning of the Securities Act and
must, therefore, deliver a prospectus meeting the requirements of the
Securities Act in connection with any resale of New Notes. Each such broker-
dealer that acquired New Notes as a result of market-making activities or
other trading activities, must acknowledge in the Letter of Transmittal that
it will delivery a prospectus in connection with any resale of such New Notes.
See "Plan of Distribution."
In addition, to comply with the securities laws of certain jurisdictions, if
applicable, the New Notes may not be offered or sold unless they have been
registered or qualified for sale in such jurisdiction or an exemption from
registration or qualification is available and is complied with. The Company
has agreed, pursuant to the Registration Rights Agreement and subject to
certain specified limitations therein, to register or qualify the New Notes
for offer or sale under the securities or blue sky laws of such jurisdictions
as any holder of the Notes reasonably requests in writing.
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CERTAIN UNITED STATES FEDERAL INCOME TAX CONSIDERATIONS
The following is a discussion of certain material United States federal
income tax consequences of the acquisition, ownership and disposition of the
Notes. Unless otherwise stated, this discussion is limited to the tax
consequences to those persons who are original owners of the Notes and who
hold such Notes as capital assets. As used in this discussion, a "U.S. Holder"
means any beneficial owner of a Note that is for United States federal income
tax purposes (i) a citizen or resident of the United States, (ii) a
corporation created or organized under the laws of the United States or of any
political subdivision thereof or (iii) a person otherwise subject to United
States federal income taxation on its worldwide income regardless of the
sources of such income. This discussion does not address specific tax
consequences that may be relevant to particular persons (including, for
example, foreign persons, financial institutions, broker-dealers, insurance
companies, tax-exempt organizations, and persons in special situations, such
as those who hold Notes as part of a straddle, hedge, conversion transaction,
or other integrated investment) except where otherwise specifically stated.
This discussion does not address the tax consequences to persons that have a
functional currency other than the United States dollar. In addition, this
discussion does not address United States federal alternative minimum tax
consequences or any aspect of state, local or foreign taxation. This
discussion is based upon the Internal Revenue Code of 1986, as amended (the
"Code"), the Treasury Department regulations promulgated thereunder, and
administrative and judicial interpretations thereof, all of which are subject
to change, possibly on a retroactive basis.
PROSPECTIVE TENDERERS OF THE OLD NOTES ARE URGED TO CONSULT THEIR TAX
ADVISORS CONCERNING THE UNITED STATES FEDERAL INCOME TAX CONSEQUENCES TO THEM
OF ACQUIRING, OWNING AND DISPOSING OF THE NOTES, AS WELL AS THE APPLICATION OF
STATE, LOCAL AND FOREIGN INCOME AND OTHER TAX LAWS.
INTEREST INCOME
A U.S. Holder will recognize ordinary income when it receives or accrues
interest on the Notes in accordance with such Holder's method of tax
accounting. A U.S. Holder may be entitled to treat interest income on the
Notes as "investment income" for purposes of computing certain limitations
concerning the deductibility of investment interest expense.
The Notes are not expected to be issued with "original issue discount"
within the meaning of Section 1273 of the Code ("OID"). A U.S. Holder who
purchases a Note after the initial distribution thereof at a discount that
exceeds a statutorily defined de minimis amount will be subject to the "market
discount" rules of the Code, and a U.S. Holder who purchases a Note at a
premium will be subject to the bond premium amortization rules of the Code.
DISPOSITION OF NOTES
Upon the sale, exchange or retirement of a Note, a U.S. Holder will
recognize gain or loss equal to the difference between the amount realized on
the sale, exchange or retirement (other than amounts representing accrued and
unpaid interest) and such Holder's adjusted tax basis in the Note. A U.S.
Holder's adjusted tax basis in a Note will be equal to such Holder's cost for
the Note, (i) increased by any interest that has accrued on the Note since the
last interest payment date, as well as any OID, market discount and gain
previously included by such Holder in income with respect to the Note, and
(ii) decreased by any bond premium previously amortized and any principal
payments previously received by such Holder with respect to such Note. Subject
to the market discount rules, any such gain or loss will be capital gain or
loss, long- or short-term depending upon whether the U.S. Holder has held the
Note for more than one year. Subject to certain limited exceptions, capital
losses cannot be used to offset ordinary income.
A cash basis holder that sells a Note between interest payment dates will be
required to treat an amount equal to accrued but unpaid interest through the
date of sale as ordinary interest income, and to add such amount to its basis
in the Offered Note.
THE EXCHANGE BY A U.S. HOLDER OF AN OLD NOTE FOR A NEW NOTE PURSUANT
TO THE EXCHANGE OFFER SHOULD NOT CONSTITUTE A TAXABLE EXCHANGE.
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TAX CONSEQUENCES TO FOREIGN HOLDERS
For purposes of this discussion, a "Foreign Holder" is any beneficial owner
that is not a U.S. Holder, and a "Holder" is any U.S. Holder or Foreign
Holder.
A Foreign Holder generally will not be subject to United States federal
income taxes on payments of principal or interest on the Notes so long as the
Foreign Holder (i) is not actually or constructively a "10 percent
shareholder" of the Company or a "controlled foreign corporation" with respect
to which the Company is "related" (directly or indirectly) through stock
ownership within the meaning of the Code, and (ii) provides an appropriate
statement, signed under penalties of perjury, certifying that the beneficial
owner of the Note is a foreign person and providing that foreign person's name
and address. If the information provided in this statement changes, the
foreign person must so inform the Company within 30 days of such change. The
statement generally must be provided in the year a payment of principal or
interest occurs or in either of the two preceding years. If the foregoing
conditions are not satisfied, then interest paid on the Notes will be subject
to United States withholding tax at a rate of 30 percent, unless such rate is
reduced or eliminated pursuant to an applicable tax treaty.
Any capital gain a Foreign Holder realizes on the sale, redemption,
retirement or other taxable disposition of an Offered Note will be exempt from
United States federal income and withholding tax, provided that (i) the gain
is not effectively connected with the Foreign Holder's conduct of a trade or
business in the United States, and (ii) in the case of a Foreign Holder that
is an individual, the Foreign Holder is not present in the United States for
183 days or more in the taxable year.
If the interest gain or other income a Foreign Holder recognizes on an
Offered Note is effectively connected with the Foreign Holder's conduct of a
trade or business in the United States, the Foreign Holder (although exempt
from the withholding tax previously discussed if an appropriate statement is
furnished) generally will be subject to United States federal income tax on
the interest, gain or other income at regular federal income tax rates. In
addition, if the Foreign Holder is a foreign corporation, it may be subject to
a branch profits tax equal to 30 percent of its "effectively connected
earnings and profits", as adjusted for certain items, unless it qualifies for
a lower rate under an applicable tax treaty.
INFORMATION REPORTING AND BACKUP WITHHOLDING
The Company will be required to report annually to the IRS and to each
Holder of record, the amount of interest paid on the Offered Notes (and the
amount of interest withheld for federal income taxes, if any) for each
calender year, except as to certain Holders (generally, corporations, tax-
exempt organizations, qualified pension and profit-sharing trusts, individual
retirement accounts, or nonresident aliens who provide certification as to
their status). Each Holder (other than Holders who are not subject to the
reporting requirements) will be required to provide to the Company, under
penalties of perjury, certain information relating to backup withholding.
Should a Holder that is required to provide such information fail to do so,
the Company will be required to withhold 31% of the interest otherwise payable
to such Holder and to remit the withheld amount to the IRS as a credit against
the Holder's federal income tax liability.
PLAN OF DISTRIBUTION
Each broker-dealer that receives New Notes for its own account pursuant to
the Exchange Offer must acknowledge that it will deliver a Prospectus in
connection with any resale of such New Notes. This Prospectus, as it may be
amended or supplemented from time to time, may be used by a broker-dealer in
connection with resales of New Notes received in exchange for Old Notes where
such Old Notes were acquired as a result of market-making activities or other
trading activities. The Company and the Subsidiary Guarantor have agreed that,
for a period of 180 days after the Expiration Date, it will make this
Prospectus, as amended or supplemented, available to any broker-dealer to use
in connection with any such resale. In addition, until , 1998 (90 days
after the date of this Prospectus), all dealers effecting transactions in the
New Notes may be required to deliver a Prospectus.
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Neither the Company nor the Subsidiary Guarantor will receive any proceeds
from any sale of New Notes by broker-dealers. New Notes received by broker-
dealers for their own account pursuant to the Exchange Offer may be sold from
time to time in one or more transactions in the over-the-counter market, in
negotiated transactions, through the writing of options on the New Notes or a
combination of such methods of resale, at market prices prevailing at the time
of resale, at prices related to such prevailing market prices or negotiated
prices. Any such resale may be made directly to purchasers or to or through
brokers or dealers who may receive compensation in the form of commissions or
concessions from any such broker-dealer or the purchasers of any such New
Notes. Any broker-dealer that resells New Notes that were received by it for
its own account pursuant to the Exchange Offer and any broker or dealer that
participates in a distribution of such New Notes may be deemed to be an
"underwriter" within the meaning of the Securities Act and any profit on such
resale of New Notes and any commissions or concessions received by any such
person may be deemed to be underwriting compensation under the Securities Act.
The Letter of Transmittal states that, by acknowledging that it will deliver
and by delivering a Prospectus, a broker-dealer will not be deemed to admit
that it is an "underwriter" within the meaning of the Securities Act.
For a period of 180 days after the Expiration Date, the Company will
promptly send additional copies of this Prospectus and any amendment or
supplement to this Prospectus to an Broker-Dealer that requests such documents
in the Letter of Transmittal. The Company and the Subsidiary Guarantor have
jointly and severally agreed to pay all expenses incident to the Exchange
Offer (including expenses of one counsel for the holders of the Old Notes)
other than commissions or concessions of any brokers or dealers and will
indemnify the holders of the Old Notes (including any Broker-Dealers) against
certain liabilities, including liabilities under the Securities Act.
LEGAL MATTERS
The validity of the New Notes offered hereby will be passed upon for the
Company by Kirkland & Ellis, New York, New York.
EXPERTS
The Consolidated Financial Statements of the Company for each of the two
years in the period ended January 4, 1997 included in this Prospectus and
Registration Statement have been audited by Coopers & Lybrand L.L.P.,
independent accountants, as stated in their report appearing elsewhere herein.
The Consolidated Financial Statements of the Company for the year ended
December 31, 1994 included in this Prospectus and Registration Statement have
been audited by BDO Seidman, LLP, independent accountants, as stated in their
report appearing elsewhere herein. Such financial statements are so included
in reliance on such reports given upon the authority of said firms as experts
in accounting and auditing.
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GLENOIT CORPORATION AND SUBSIDIARIES
INDEX TO CONSOLIDATED FINANCIAL STATEMENTS
<TABLE>
<S> <C>
Unaudited Pro Forma Financial Data--Pro Forma Consolidated Statement of
Income for the year ended January 4, 1997................................ F-2
Unaudited Pro Forma Financial Data--Pro Forma Consolidated Statement of
Income for the nine months ended October 4, 1997......................... F-3
Notes to Unaudited Pro Forma Consolidated Statements of Income............ F-4
Report of Independent Accountants......................................... F-5
Report of Independent Accountants......................................... F-6
Consolidated Balance Sheets as of December 30, 1995, January 4, 1997 and
October 4, 1997 (unaudited).............................................. F-7
Consolidated Statements of Income for the years ended December 31, 1994,
December 30, 1995 and January 4, 1997 and for the nine months ended
September 28, 1996 (unaudited) and October 4, 1997 (unaudited)........... F-9
Consolidated Statements of Stockholder's Deficit for the periods ended
December 31, 1994, December 30, 1995, January 4, 1997 and October 4, 1997
(unaudited).............................................................. F-10
Consolidated Statements of Cash Flows for the years ended December 31,
1994, December 30, 1995 and January 4, 1997 and for the nine months ended
September 28, 1996 (unaudited) and October 4, 1997 (unaudited)........... F-11
Notes to Consolidated Financial Statements................................ F-12
</TABLE>
F-1
<PAGE>
UNAUDITED PRO FORMA FINANCIAL DATA
The unaudited pro forma consolidated statements of income data for fiscal
1996 and the nine months ended October 4, 1997 set forth below gives pro forma
effect to the issuance of the Notes and the application of the net proceeds
therefrom to repay in full the Old Credit Facility and the 12.5% Senior
Subordinated Note due 2003 (the "Senior Subordinated Note"), as if such
transactions had been consummated at the beginning of the period presented.
The pro forma adjustments are described in the notes hereto and are based upon
available information and certain assumptions that the Company believes are
reasonable. The unaudited pro forma financial data does not purport to reflect
the results of operations of the Company that actually would have resulted had
the transactions described above been consummated for the period indicated or
to project the Company's results of operations or financial position for any
future period. The unaudited pro forma financial data should be read in
conjunction with the notes hereto and the Consolidated Financial Statements of
the Company and related notes thereto included elsewhere in this Prospectus
and Registration Statement.
PRO FORMA CONSOLIDATED STATEMENT OF INCOME
YEAR ENDED JANUARY 4, 1997
(UNAUDITED)
<TABLE>
<CAPTION>
OFFERING
ACTUAL ADJUSTMENTS PRO FORMA
-------- -------------- ---------
(IN THOUSANDS)
<S> <C> <C> <C>
Net sales.................................. $121,751 $121,751
Costs of sales............................. 86,525 86,525
-------- --------
Gross profit........................... 35,226 35,226
-------- --------
Operating expenses:
Selling.................................. 10,262 10,262
Administrative........................... 5,636 5,636
Research and development................. 2,147 2,147
-------- --------
Total operating expenses............... 18,045 18,045
-------- --------
Income from operations..................... 17,181 17,181
-------- --------
Other income (expense):
Interest expense......................... (9,161) 8,842 (1) (11,700)
(11,381)(2)
Interest income.......................... 36 36
Amortization of deferred financing (642) 642 (3) (600)
costs................................... (600)(4)
Other.................................... 53 53
-------- -------- --------
Total other expense.................... (9,714) (2,497) (12,211)
-------- -------- --------
Income before income taxes................. 7,467 (2,497) 4,970
Income tax expense......................... 3,354 (964)(5) 2,390
-------- -------- --------
Net income................................. $ 4,113 $ (1,533) $ 2,580
======== ======== ========
</TABLE>
F-2
<PAGE>
PRO FORMA CONSOLIDATED STATEMENT OF INCOME
NINE MONTHS ENDED OCTOBER 4, 1997
(UNAUDITED)
<TABLE>
<CAPTION>
OFFERING
ACTUAL ADJUSTMENTS PRO FORMA
-------- ----------- ---------
(IN THOUSANDS)
<S> <C> <C> <C>
Net sales.................................. $120,822 $120,822
Costs of sales............................. 77,959 77,959
-------- --------
Gross profit........................... 42,863 42,863
-------- --------
Operating expenses:
Selling.................................. 9,646 9,646
Administrative........................... 6,725 6,725
Research and Development................. 1,488 1,488
-------- --------
17,859 17,859
-------- --------
Income from operations..................... 25,004 25,004
-------- --------
Other income (expense):
Interest expense......................... (8,094) 1,930 (6) (9,009)
(2,845)(7)
Amortization of deferred financing
costs................................... (429) 160 (8) (419)
(150)(9)
Other.................................... (157) (157)
-------- ------ --------
Total other expense.................... (8,680) (905) (9,585)
-------- ------ --------
Income before income taxes and
extraordinary loss........................ 16,324 (905) 15,419
Income tax expense......................... 6,542 (362)(10) 6,180
-------- ------ --------
Income before extraordinary loss........... $ 9,782 $ (543) $ 9,239
======== ====== ========
</TABLE>
F-3
<PAGE>
NOTES TO UNAUDITED PRO FORMA CONSOLIDATED STATEMENTS OF INCOME
(1) Adjustment to eliminate interest expense incurred under the Old Credit
Facility and the Senior Subordinated Note (collectively the "Old Debt")
refinanced by the Company with the net proceeds from the sale of the
Notes.
(2) Adjustment to reflect interest expense associated with the Notes, assuming
an interest rate of 11.0% per annum and commitment fees on the New Credit
Facility of $381,000.
(3) Adjustment to eliminate amortization expense for deferred financing costs
incurred under the Old Debt refinanced by the Company with the net
proceeds from the sale of the Notes. As a result of the early
extinguishment of debt, the Company recognized an extraordinary loss of
$4,384,000, representing the charge-off of deferred loan costs of
$2,884,000 and the payment of prepayment penalties of $1,500,000, and a
tax benefit of $1,527,000.
(4) Adjustment to reflect the amortization of underwriting discounts and
commissions and other expenses of the Offering and the cost associated
with the New Credit Facility.
(5) Adjustment to income tax expense for impacts of the adjustments from the
sale of the Notes at the marginal income tax rate of the Company of
approximately 39%.
(6) Adjustment to eliminate interest expense incurred under the Old Debt that
was refinanced on April 1, 1997 by the Company with the net proceeds for
the sale of the Notes.
(7) Adjustment to reflect interest expense associated with the Notes and
commitment fees on the New Credit Facility for the period from January 5,
1997 to April 1, 1997.
(8) Adjustment to eliminate amortization expense for deferred financing costs
incurred under the Old Debt which was refinanced on April 1, 1997.
(9) Adjustment to reflect amortization of underwriting discounts and
commissions and other expenses of the Offering and the cost associated
with the New Credit Facility.
(10) Adjustment to income tax expense for impacts of the adjustments from the
sale of the Notes at the Company's effective tax rate of 40%.
F-4
<PAGE>
REPORT OF INDEPENDENT ACCOUNTANTS
The Board of Directors
Glenoit Corporation
We have audited the accompanying consolidated balance sheets of Glenoit
Corporation and subsidiary (the "Company"), a wholly-owned subsidiary of
Glenoit Universal, Ltd., as of December 30, 1995 and January 4, 1997, and the
related consolidated statements of income, stockholder's deficit, and cash
flows for the years then ended. These financial statements are the
responsibility of the Company's management. Our responsibility is to express
an opinion on these financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to
obtain reasonable assurance about whether the financial statements are free of
material misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial statements. An audit
also includes assessing the accounting principles used and significant
estimates made by management, as well as evaluating the overall financial
statement presentation. We believe that our audits provide a reasonable basis
for our opinion.
In our opinion, the consolidated financial statements referred to above
present fairly, in all material respects, the financial position of Glenoit
Corporation and subsidiary as of December 30, 1995 and January 4, 1997, and
the consolidated results of their operations and their cash flows for the
years then ended in conformity with generally accepted accounting principles.
Coopers & Lybrand L.L.P.
Raleigh, North Carolina
February 5, 1997, except for the information presented in Note 8, for which
the date is March 5, 1997
F-5
<PAGE>
REPORT OF INDEPENDENT ACCOUNTANTS
The Board of Directors
Glenoit Mills, Inc. and Subsidiary
We have audited the accompanying consolidated statements of income, cash
flows and stockholder's deficit of Glenoit Mills, Inc. and subsidiary, a
wholly-owned subsidiary of Glenoit Universal, Ltd., for the year ended
December 31, 1994. These financial statements are the responsibility of the
Company's management. Our responsibility is to express an opinion on these
financial statements based on our audit.
We conducted our audit in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to
obtain reasonable assurance about whether the financial statements are free of
material misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial statements. An audit
also includes assessing the accounting principles used and significant
estimates made by management, as well as evaluating the overall financial
statement presentation. We believe that our audit provides a reasonable basis
for our opinion.
In our opinion, the consolidated financial statements referred to above
present fairly, in all material respects, the results of operations and cash
flows of Glenoit Mills, Inc. and subsidiary for the year ended December 31,
1994, in conformity with generally accepted accounting principles.
BDO Seidman, LLP
Greensboro, North Carolina
February 8, 1995
F-6
<PAGE>
GLENOIT CORPORATION AND SUBSIDIARIES
(A WHOLLY OWNED SUBSIDIARY OF GLENOIT UNIVERSAL, LTD.)
CONSOLIDATED BALANCE SHEETS
<TABLE>
<CAPTION>
DECEMBER 30, JANUARY 4, OCTOBER 4,
1995 1997 1997
------------ ------------ ------------
(UNAUDITED)
<S> <C> <C> <C>
ASSETS
Current Assets:
Cash and cash equivalents.......... $ 1,022,756 $ 48,817 $ 887,092
Receivables:
Trade accounts receivable, net of
allowance of $250,000, $470,000
and $449,000 (unaudited) as of
December 30, 1995, January 4,
1997 and October 4, 1997,
respectively.................... 16,085,004 18,615,029 39,517,284
Other receivables................ 682,809 349,980 229,045
Inventories.......................... 7,851,716 7,535,920 9,424,041
Deferred tax asset................... 474,100 300,824 300,824
Due from parent...................... 1,639,029
Prepaid expenses and other current
assets.............................. 1,414,055 750,340 483,605
------------ ------------ ------------
Total current assets........... 29,169,469 27,600,910 50,841,891
------------ ------------ ------------
Property, plant and equipment:
Land............................... 340,923 340,923 1,018,614
Buildings and improvements......... 5,800,876 6,717,146 8,998,320
Machinery and equipment............ 19,894,765 21,632,224 30,175,462
Computer equipment................. 614,582 711,220 766,604
Furniture and fixtures............. 513,526 681,327 800,228
Leasehold improvements............. 263,430 397,884 411,276
Equipment under capital leases..... 850,277 1,636,246 1,636,246
Construction-in-progress........... 906,678 5,914,105
------------ ------------ ------------
Total.......................... 29,185,057 32,116,970 49,720,855
Less accumulated depreciation and
amortization...................... (15,558,683) (17,687,558) (19,616,853)
------------ ------------ ------------
Net property, plant and
equipment..................... 13,626,374 14,429,412 30,104,002
------------ ------------ ------------
Other assets:
Notes receivable from related
party............................. 235,000 211,500 193,500
Intangible assets, net of
accumulated amortization of
$801,948, $1,015,755 and
$1,186,755 (unaudited)
as of December 30, 1995, January
4, 1997 and
October 4, 1997, respectively .... 4,302,547 4,246,737 4,049,776
Deferred loan costs and other, net
of accumulated amortization of
$18,876, $660,673 and $307,200
(unaudited) as of December 30,
1995, January 4, 1997 and October
4, 1997, respectively............. 3,612,431 3,008,762 5,116,709
------------ ------------ ------------
Total assets................... $ 50,945,821 $ 49,497,321 $ 90,305,878
============ ============ ============
</TABLE>
The accompanying notes are an integral part of the consolidated financial
statements.
F-7
<PAGE>
GLENOIT CORPORATION AND SUBSIDIARIES
(A WHOLLY OWNED SUBSIDIARY OF GLENOIT UNIVERSAL, LTD.)
CONSOLIDATED BALANCE SHEETS
<TABLE>
<CAPTION>
DECEMBER 30, JANUARY 4, OCTOBER 4,
1995 1997 1997
------------ ------------ ------------
(UNAUDITED)
<S> <C> <C> <C>
LIABILITIES AND STOCKHOLDER'S DEFICIT
Current liabilities:
Accounts payable................... $ 5,951,661 $ 2,994,133 $ 8,675,106
Accrued expenses................... 626,177 1,180,682 8,649,500
Accrued compensation............... 744,897 1,464,622 3,203,307
Current maturities of the line of
credit............................ 1,316,239
Current maturities of long-term
debt.............................. 4,000,000 5,000,000
Current maturities of capital lease
obligations....................... 111,862 571,037 571,037
Due to Parent...................... 1,734,023 3,269,664
------------ ------------ ------------
Total current liabilities...... 11,434,597 14,260,736 24,368,614
Line of credit--less current
maturities.......................... 16,433,768 12,683,761 7,100,000
Long-term debt--less current
maturities.......................... 68,000,000 63,000,000 100,000,000
Capital lease obligations--less
current maturities.................. 814,403 404,752
Deferred income taxes................ 1,988,411 1,536,739 1,536,739
------------ ------------ ------------
Total liabilities.............. 97,856,776 92,295,639 133,410,105
------------ ------------ ------------
Commitments and contingencies
Stockholder's deficit:
Common stock, $.01 par value, 1,000
shares authorized, issued and
outstanding as of December 30,
1995, January 4, 1997 and October
4, 1997 (unaudited)............... 10 10 10
Additional paid-in capital......... 1,161,713 1,161,713 1,161,713
Accumulated deficit................ (48,072,678) (43,960,041) (44,378,492)
Currency translation adjustment.... -- -- 112,542
------------ ------------ ------------
Total stockholder's deficit.... (46,910,955) (42,798,318) (43,104,227)
------------ ------------ ------------
Total liabilities and
stockholder's deficit......... $ 50,945,821 $ 49,497,321 $ 90,305,878
============ ============ ============
</TABLE>
The accompanying notes are an integral part of the consolidated financial
statements.
F-8
<PAGE>
GLENOIT CORPORATION AND SUBSIDIARIES
(A WHOLLY OWNED SUBSIDIARY OF GLENOIT UNIVERSAL, LTD.)
CONSOLIDATED STATEMENTS OF INCOME
<TABLE>
<CAPTION>
YEARS ENDED NINE MONTHS ENDED
---------------------------------------- --------------------------
DECEMBER 31, DECEMBER 30, JANUARY 4, SEPTEMBER 28, OCTOBER 4,
1994 1995 1997 1996 1997
------------ ------------ ------------ ------------- ------------
(UNAUDITED)
<S> <C> <C> <C> <C> <C>
Net sales............... $72,469,849 $93,840,334 $121,750,833 $95,633,007 $120,821,914
Cost of sales........... 49,594,359 67,249,156 86,525,495 66,449,572 77,958,622
----------- ----------- ------------ ----------- ------------
Gross profit........ 22,875,490 26,591,178 35,225,338 29,183,435 42,863,292
----------- ----------- ------------ ----------- ------------
Operating expenses:
Selling............... 6,588,033 8,872,334 10,262,349 7,490,001 9,646,405
Administrative........ 4,213,999 5,488,617 5,635,692 4,013,916 6,725,045
Research and develop-
ment................. 1,747,973 1,874,306 2,146,627 1,642,781 1,487,977
----------- ----------- ------------ ----------- ------------
Total operating
expenses........... 12,550,005 16,235,257 18,044,668 13,146,698 17,859,427
----------- ----------- ------------ ----------- ------------
Income from operations.. 10,325,485 10,355,921 17,180,670 16,036,737 25,003,865
----------- ----------- ------------ ----------- ------------
Other income (expense):
Interest expense...... (2,328,424) (3,807,550) (9,160,537) (6,857,503) (8,093,954)
Interest income....... 120,166 62,740 35,882
Deferred gain on sale
of land and build-
ing.................. 213,210
Amortization of
deferred financing
costs................ (376,314) (225,429) (641,806) (472,154) (429,077)
Other................. 80,195 59,085 52,932 (133,633) (156,737)
----------- ----------- ------------ ----------- ------------
Total other ex-
pense.............. (2,291,167) (3,911,154) (9,713,529) (7,463,290) (8,679,768)
----------- ----------- ------------ ----------- ------------
Income before income
taxes and extraordinary
loss................... 8,034,318 6,444,767 7,467,141 8,573,447 16,324,097
Income tax expense...... 2,850,000 3,082,934 3,354,504 3,604,703 6,542,083
----------- ----------- ------------ ----------- ------------
Income before extraordi-
nary loss.............. 5,184,318 3,361,833 4,112,637 4,968,744 9,782,014
Extraordinary loss on
early extinguishment of
debt, net of tax
benefit of $1,240,000
for the year ended
December 30, 1995 and
$1,527,000 (unaudited)
for the nine months
ended October 4, 1997.. 2,407,006 2,856,884
----------- ----------- ------------ ----------- ------------
Net income.............. $ 5,184,318 $ 954,827 $ 4,112,637 $ 4,968,744 $ 6,925,130
=========== =========== ============ =========== ============
Net income per common
share
Income before extraor-
dinary loss.......... $ 5,184 $ 3,362 $ 4,113 $ 4,969 $ 9,782
Extraordinary loss on
early extinguishment
of debt.............. (2,407) 2,857
----------- ----------- ------------ ----------- ------------
Net income............ $ 5,184 $ 955 $ 4,113 $ 4,969 $ 6,925
=========== =========== ============ =========== ============
Weighted average shares
outstanding............ 1,000 1,000 1,000 1,000 1,000
=========== =========== ============ =========== ============
</TABLE>
The accompanying notes are an integral part of the consolidated financial
statements.
F-9
<PAGE>
GLENOIT CORPORATION AND SUBSIDIARIES
(A WHOLLY OWNED SUBSIDIARY OF GLENOIT UNIVERSAL, LTD.)
CONSOLIDATED STATEMENTS OF STOCKHOLDER'S DEFICIT
FOR THE PERIODS ENDED DECEMBER 31, 1994, DECEMBER 30, 1995, JANUARY 4, 1997 AND
OCTOBER 4, 1997 (UNAUDITED)
<TABLE>
<CAPTION>
RETAINED
SHARES OF ADDITIONAL EARNINGS CURRENCY
COMMON COMMON PAID-IN (ACCUMULATED TRANSLATION
STOCK STOCK CAPITAL DEFICIT) ADJUSTMENT TOTAL
--------- ------ ---------- ------------ ----------- ------------
<S> <C> <C> <C> <C> <C> <C>
Balance as of January 1,
1994................... 1,000 $10 $ 139,990 $ 8,813,925 $ -- $ 8,953,925
Net income.............. 5,184,318 5,184,318
Dividends............... (20,368,946) (20,368,946)
----- --- ---------- ------------ -------- ------------
Balance as of December
31, 1994............... 1,000 10 139,990 (6,370,703) (6,230,703)
Combination of Tarboro
Properties, Ltd........ 1,021,723 1,021,723
Net income.............. 954,827 954,827
Property dividends...... (2,170,541) (2,170,541)
Cash dividends.......... (40,486,261) (40,486,261)
----- --- ---------- ------------ -------- ------------
Balance as of December
30, 1995............... 1,000 10 1,161,713 (48,072,678) (46,910,955)
Net income.............. 4,112,637 4,112,637
----- --- ---------- ------------ -------- ------------
Balance as of January 4,
1997................... 1,000 10 1,161,713 (43,960,041) (42,798,318)
Net income (unaudited).. 6,925,130 6,925,130
Dividends (unaudited)... (7,343,581) (7,343,581)
Currency translation
adjustment
(unaudited)............ 112,542 112,542
----- --- ---------- ------------ -------- ------------
Balance as of October 4,
1997 (unaudited)....... 1,000 $10 $1,161,713 $(44,378,492) $112,542 $(43,104,227)
===== === ========== ============ ======== ============
</TABLE>
The accompanying notes are an integral part of the consolidated financial
statements.
F-10
<PAGE>
GLENOIT CORPORATION AND SUBSIDIARIES
(A WHOLLY OWNED SUBSIDIARY OF GLENOIT UNIVERSAL, LTD.)
CONSOLIDATED STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
YEARS ENDED NINE MONTHS ENDED
--------------------------------------- ---------------------------
DECEMBER 31, DECEMBER 30, JANUARY 4, SEPTEMBER 28, OCTOBER 4,
1994 1995 1997 1996 1997
------------ ------------ ----------- ------------- ------------
(UNAUDITED)
<S> <C> <C> <C> <C> <C>
Cash flows from
operating activities:
Net income............. $ 5,184,318 $ 954,827 $ 4,112,637 $ 4,968,744 $ 6,925,130
Adjustments to
reconcile net income
to net cash provided
by operating
activities:
Loss on early
extinguishment of
debt................. 3,647,006 4,383,884
Interest on notes
"pushed down" from
Parent............... 1,092,307
Deferred income
taxes................ 120,000 264,311 (278,396)
Depreciation and
amortization......... 1,491,278 1,946,085 3,096,902 2,262,280 2,617,233
Gain on sale of
property and
equipment............ (126,088) (22,311) (26,158) 129,255
Deferred income....... (213,210)
Effect of foreign
currency exchange
rate................. 112,542
Changes in operating
assets and
liabilities, net of
acquired operating
assets and
liabilities:
Trade and other
receivables........ (6,181,774) (3,210,376) (2,329,232) (18,020,269) (17,064,678)
Inventories.......... (1,237,547) (2,124,194) 315,796 (675,364) (855,182)
Prepaid expenses and
other............... (721,408) (800,049) 660,715 625,026 324,996
Due to/from parent... (1,639,029) 2,555,722 2,262,108 1,535,641
Accounts payable..... 320,675 836,296 (2,957,528) 4,395,590 4,619,346
Accrued expenses and
other liabilities... 413,683 306,277 1,274,230 3,693,883 8,986,004
----------- ------------ ----------- ------------ ------------
Net cash provided by
(used in) operating
activities......... 142,234 181,154 6,428,535 (514,160) 11,714,171
----------- ------------ ----------- ------------ ------------
Cash flows from
investing activities:
Purchases of acquired
business.............. (7,836,137) (8,013,406)
Purchases of and
additions to property,
plant and equipment... (1,393,537) (5,239,490) (1,704,631) (1,283,542) (13,314,999)
Proceeds from sale of
property and equipment
and refunds of
deposits.............. 192,099 316,400 200,139 26,650
----------- ------------ ----------- ------------ ------------
Net cash used in
investing
activities......... (1,201,438) (13,075,627) (1,388,231) (1,083,403) (21,301,755)
----------- ------------ ----------- ------------ ------------
Cash flows from
financing activities:
Advances on notes
receivable-related
parties............... (181,633) (1,297,787)
Collections of notes
receivable-related
parties............... 888,328
Combination of Tarboro
Properties, Ltd....... 303,574
Decrease in restricted
cash.................. 200,000
Payments on capital
lease obligations..... (300,385) (155,806) (362,668) (283,626) (409,651)
Proceeds from line of
credit and issuance of
debt.................. 93,281,453 8,200,000 2,650,000 25,100,000
Payments on line of
credit and debt....... (722,084) (27,137,681) (14,633,768)
Payments for financing
costs................. (6,283,760) (35,137) (6,920,909)
Net change in advances
from factor on
accounts receivable... 2,828,327 (5,578,598)
Decrease of deferred
financing costs....... 71,834
Increase (decrease) in
due to parent......... (248,693) 817,330
Dividends paid......... (400,000) (40,486,261) (1,600,000)
Payment of note payable
to related party...... (5,743,581)
----------- ------------ ----------- ------------ ------------
Net cash provided by
(used in) financing
activities......... 1,247,366 13,533,462 (6,014,243) 2,366,374 10,425,859
----------- ------------ ----------- ------------ ------------
Net increase
(decrease) in cash
and cash
equivalents........ 188,162 638,989 (973,939) 768,811 838,275
Cash and cash
equivalents at
beginning of period.... 195,605 383,767 1,022,756 1,022,756 48,817
----------- ------------ ----------- ------------ ------------
Cash and cash
equivalents at end of
period................. $ 383,767 $ 1,022,756 $ 48,817 $ 1,791,567 $ 887,092
=========== ============ =========== ============ ============
</TABLE>
The accompanying notes are an integral part of the consolidated financial
statements.
F-11
<PAGE>
GLENOIT CORPORATION AND SUBSIDIARIES
(A WHOLLY OWNED SUBSIDIARY OF GLENOIT UNIVERSAL, LTD.)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Description of Business
On December 13, 1995, Glenoit Universal, Ltd., (the "Company's Parent")
formed a wholly-owned subsidiary, Glenoit Corporation, formerly Glenoit
Intermediate, Inc., and exchanged all of the issued and outstanding stock of
Glenoit Mills, Inc. and subsidiary ("Mills") for all of the issued and
outstanding shares of common stock of Glenoit Corporation. Accordingly, the
accompanying financial statements of Glenoit Corporation and subsidiary (the
"Company") reflect the historical results of Mills prior to December 13, 1995.
The Company is engaged primarily in the manufacture of fabric and household
rugs with plants in eastern North Carolina and a plant in eastern Tennessee.
The Company offers a wide variety of textile products to customers in the
retail, apparel, and automotive industries throughout the United States.
Basis of Presentation
On December 13, 1995, the Company's Parent acquired all of the issued and
outstanding stock of Tarboro Properties, Ltd. ("Tarboro"), a company related
through common ownership. Tarboro owns the plants located in eastern North
Carolina in which Mills operates. The Company's Parent has accounted for the
acquisition similar to a pooling-of-interests and, accordingly, has restated
all financial data for the year ended December 30, 1995 as of January 1, 1995.
Due to immateriality, the Company's Parent has not restated any periods prior
to January 1, 1995.
On December 13, 1995, the Company's Parent contributed all of the issued and
outstanding stock of Tarboro, with a carryover basis of $1,021,723, to the
Company. In accordance with the accounting followed by the Company's Parent,
the Company has recorded the contribution as of January 1, 1995 at Tarboro's
basis. Further, the results of operations of Tarboro have been included with
the Company since January 1, 1995.
In September 1997, Glenoit Corporation's newly formed wholly-owned
subsidiary, Glenoit Corporation of Canada ("Glenoit Canada"), acquired certain
assets and liabilities of Collins & Aikman Canada, Inc. (see Note 3). In
addition, Glenoit Corporation merged with Glenoit Mills, Inc. and Tarboro in
September 1997. Accordingly, at October 4, 1997 the financial statements
presented include the amounts of Glenoit Corporation and its wholly-owned
subsidiaries Glenoit Canada and Glenoit Asset Corporation.
The consolidated financial statements of the Company as of December 31, 1994
include a $15 million guaranteed secured note (the "Guaranteed Secured Note")
and a note payable to a financial institution with an original principal
amount of $8 million ("Note Payable") entered into by the Company's Parent
during 1994. Mills was the guarantor and its assets were primary collateral
under these obligations. Accordingly, the Company has reflected ("pushed
down") the debt, the related debt issue costs, interest expense, amortization
of the debt issue costs, and extraordinary losses from early extinguishment of
the debt in its financial statements. All proceeds from the issuance of the
Guaranteed Secured Note and the Note Payable, net of interest expense and debt
issue costs, have been treated as "deemed" dividends to the Company's Parent
in the 1994 financial statements. As described in Note 7, these obligations
were paid off by the Company's Parent during 1995.
Interim Financial Presentation
The financial statements and related notes thereto as of October 4, 1997 and
for the nine months ended September 28, 1996 and October 4, 1997 (collectively
the "Interim Financial Statements") are unaudited. The unaudited Interim
Financial Statements have been prepared in accordance with generally accepted
accounting principles for interim financial information. Accordingly, they do
not include all of the information and footnotes required by generally
accepted accounting principles for complete financial statements. In the
opinion of
F-12
<PAGE>
GLENOIT CORPORATION AND SUBSIDIARIES
(A WHOLLY OWNED SUBSIDIARY OF GLENOIT UNIVERSAL, LTD.)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
management, all adjustments considered necessary for a fair presentation have
been included. Operating results for interim periods are not necessarily
indicative of results for the full year.
Principles of Consolidation
The consolidated financial statements as of and for the three years ended
January 4, 1997 include the accounts of Glenoit Corporation and its wholly-
owned subsidiary Glenoit Mills, Inc. and its subsidiaries Glenoit Asset Corp.
and Tarboro Properties, Ltd. At October 4, 1997, the accompanying financial
statement include the accounts of Glenoit Corporation and its wholly-owned
subsidiaries Glenoit Canada and Glenoit Asset Corporation. All material
intercompany accounts and transactions are eliminated. The Company reports its
operations on a fifty-two/fifty-three week fiscal year.
Use of Estimates
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported amounts of assets and liabilities and
disclosure of contingent assets and liabilities at the date of the financial
statements and the reported amounts of revenues and expenses during the
reporting period. Actual results could differ from those estimates.
Cash Flow Statements
The Company considers all highly liquid investments with a maturity of three
months or less when purchased to be cash equivalents. During 1994, the Company
had noncash financing activities of $23,000,000 of debt borrowings, $750,000
of debt repayments, acquisition of deferred loan costs of $1,188,747, and
$1,092,307 of interest paid as a result of debt and related accounts being
pushed down from its Parent. In addition, the Company also had $19,968,946 of
deemed dividends as a result of this push down of debt. During 1996, the
Company entered into a capital lease of $1,636,246, which is a noncash
investing and financing activity.
Inventories
Inventories are valued at the lower of cost or market. Cost is determined by
the first-in, first-out (FIFO) method.
Property, Plant and Equipment
Property, plant and equipment is stated at cost; property, plant and
equipment obtained through purchase business combinations is stated at
estimated fair value as of the date of acquisition. Property and equipment
under capital leases are initially recorded at the lower of the present value
of the future minimum lease payments or the fair value of the related
equipment.
Depreciation (which includes the amortization of capital leased assets) is
computed using the straight-line method over the related asset's estimated
useful life as follows:
<TABLE>
<S> <C>
Buildings and improvements.................................... 27 to 40 years
Machinery and equipment....................................... 5 to 12 years
Computer equipment............................................ 5 years
Furniture and equipment....................................... 5 to 12 years
</TABLE>
F-13
<PAGE>
GLENOIT CORPORATION AND SUBSIDIARIES
(A WHOLLY OWNED SUBSIDIARY OF GLENOIT UNIVERSAL, LTD.)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
Deferred Loan Costs
Deferred loan costs, primarily composed of loan origination costs and legal
fees, are amortized over the term of the related loan agreement using the
straight-line method.
Intangible Assets
Intangible assets principally represent the amount by which the costs of
acquired net assets exceeded their related fair value (goodwill) as of the
date of acquisition. Goodwill is being amortized on a straight-line basis over
lives of twenty and forty years. The carrying value of goodwill will be
reviewed if the facts and circumstances suggest that it is impaired. If this
review indicates that goodwill will not be recoverable as determined based on
the undiscounted cash flows of the entity acquired over the remaining
amortization period, the Company will adjust the carrying value of goodwill.
Net Sales
The Company recognizes a sale when title passes to the customer (usually at
the date of shipment). Amounts which are determined to be uncollectible are
charged to operating expense. Sales returns and allowances are recorded
against sales based on management's estimates of sales returns. Net sales from
customers in excess of 10% of consolidated net sales in the respective year is
as follows:
<TABLE>
<CAPTION>
DECEMBER 31, 1994 DECEMBER 30, 1995 JANUARY 4, 1997
----------------- ----------------- ---------------
<S> <C> <C> <C>
Customer A............... 14% 10% 11%
Customer B............... 10% 11% 9%
</TABLE>
Research and Development Costs
Research and development costs are charged to expense as incurred.
Income Taxes
The Company follows the asset and liability method of accounting for income
taxes pursuant to Statement of Financial Accounting Standards No. 109
"Accounting for Income Taxes". Under this method, deferred tax assets and
liabilities are determined based on differences between the financial
reporting and tax basis of assets and liabilities and are measured using the
enacted tax rates and laws that will be in effect when the differences are
expected to reverse.
Net Income Per Common Share
Net income per common share is based upon the weighted average number of
common shares outstanding in the respective year.
Concentration of Credit Risk
The Company's principal financial instruments subject to potential
concentration of credit risk are cash and cash equivalents and trade accounts
receivable. The Company places cash deposits with federally insured financial
institutions; however, at times deposits have exceeded the amounts insured by
the Federal Deposit Insurance Corporation. The concentration of credit risk
with respect to trade accounts receivable is limited due to the large number
of customers and their dispersion across different geographic locations.
Although the
F-14
<PAGE>
GLENOIT CORPORATION AND SUBSIDIARIES
(A WHOLLY OWNED SUBSIDIARY OF GLENOIT UNIVERSAL, LTD.)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
Company does not require collateral for unpaid balances, credit losses have
been within management's expectations.
Fair Values of Financial Instruments
On January 1, 1995, the Company adopted the provisions of Statement of
Financial Accounting Standards No. 107, "Disclosures about Fair Value of
Financial Instruments" ("FAS No. 107"). The Company's primary financial
instruments subject to the provisions of FAS No. 107 are debt instruments. The
fair values of these instruments are based on market quotations for similar
instruments and present value calculations using market interest rates. Based
on the Company's calculation of fair value, the Company believes there is no
material difference between the carrying value and fair value of these
instruments.
Foreign Currency
Foreign currency activity is reported in accordance with Statement of
Financial Accounting Standards No. 52, "Foreign Currency Translation" ("FAS
No. 52"). FAS No. 52 generally provides that the assets and liabilities of
foreign operations be translated at the current exchange rate as of the end of
the accounting period and that revenues and expenses be translated using
average exchange rates. The resulting translation adjustments arising from
foreign currency translations are accumulated as a separate component of
stockholder's deficit. Gains and losses resulting from foreign currency
transactions are recognized in income.
Adoption of New Accounting Pronouncements
The Company will adopt Statement of Financial Standards No. 131 "Disclosures
about Segments of an Enterprise and Related Information" ("SFAS No. 131") for
its 1998 fiscal year. SFAS No. 131 requires the Company to report selected
information about operating segments in its financial reports issued to
shareholders. It also establishes standards for related disclosures about
products and services, geographic areas, and major customers. The Company has
yet to determine the impact, if any, of adoption of the new pronouncement.
The Company will adopt Statement of Financial Standards No. 130 "Reporting
Comprehensive Income" ("SFAS No. 130") for its 1998 fiscal year. SFAS No. 130
requires the Company to display an amount representing the total comprehensive
income for the period in a financial statement which is displayed with the
same prominence as other financial statements. Upon adoption, all prior period
data presented will be restated to conform to the provisions of SFAS No. 130.
The Company has yet to determine the impact, if any, of adoption of the new
pronouncement.
Reclassifications
Certain amounts in the prior years' financial statements have been
reclassified to conform to the presentation used in the current year with no
effect on stockholder's deficit or net income.
2. RECAPITALIZATION
On December 13, 1995, the Company's Parent completed a series of
transactions in order to consummate a leveraged recapitalization (the
"Recapitalization"). The Company obtained two new financing arrangements: an
$80 million credit facility from a financial institution and a $15 million
note from another financial institution. The Company used the proceeds from
these borrowings to pay off all of the Company's outstanding debt as of
December 13, 1995 (see Note 7 for further discussion of this financing and
payoff of the Company's debt) and
F-15
<PAGE>
GLENOIT CORPORATION AND SUBSIDIARIES
(A WHOLLY OWNED SUBSIDIARY OF GLENOIT UNIVERSAL, LTD.)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
2. RECAPITALIZATION (CONTINUED)
to terminate the Company's factor agreement (see Note 4). In addition, the
Company paid a cash dividend of $40,486,261 to the Company's Parent.
3. ACQUISITIONS
On September 9, 1995, the Company, through a wholly-owned subsidiary,
acquired certain assets and liabilities of Borg Textiles Corporation ("Borg"),
a manufacturer of textile goods in Jacksboro, Tennessee, in a transaction
accounted for as a purchase business combination for total consideration of
approximately $10.1 million (consisting of cash consideration of approximately
$7.8 million and assumed liabilities of $2.3 million). The excess of total
acquisition costs over the fair value of the approximately $6.4 million of
assets acquired has been recorded as goodwill, which is being amortized over a
twenty year life. The results of operations of the acquired business have been
included in the consolidated financial statements since the acquisition date.
The following unaudited pro forma summary of consolidated results of
operations have been prepared as if Borg had been acquired as of January 2,
1994.
<TABLE>
<CAPTION>
YEAR ENDED
-------------------------
DECEMBER 31, DECEMBER 30,
1994 1995
------------ ------------
<S> <C> <C>
Net sales....................................... $86,022,000 $108,161,000
=========== ============
Income before extraordinary loss................ $ 4,838,000 $ 2,205,000
=========== ============
Net income (loss)............................... $ 4,838,000 $ (202,000)
=========== ============
Income per common share before extraordinary
loss........................................... $ 4,838 $ 2,205
=========== ============
Net income (loss) per common share.............. $ 4,838 $ (202)
=========== ============
</TABLE>
These pro forma results do not purport to be indicative of the results that
would have actually been obtained if Borg had been acquired as of January 2,
1994.
Effective August 30, 1997, Glenoit Corporation through Glenoit Canada,
acquired certain assets and certain liabilities of Collins & Aikman Canada,
Inc. for cash consideration of approximately $8.0 million, subject to post-
closing adjustment. The acquisition has been accounted for as a purchase and,
accordingly, the operating results of the acquired business have been included
in the results of operations since the acquisition date. The purchase price
allocation attributed approximately $3.5 million to net working capital items
and approximately $4.5 million to property, plant and equipment. For the years
ended December 28, 1996 and December 23, 1995, the acquired business had sales
of approximately $11.6 million and $9.6 million, respectively. Net income and
net income per common share for the periods presented in the accompanying
unaudited consolidated statements of income would not differ significantly on
a pro forma basis adjusted for this acquisition.
4. FACTOR RECEIVABLES
On December 13, 1995, the Company terminated its agreement with a factor for
total cash consideration of approximately $9,160,000. The consideration paid
included the repayment of $4,283,000 to the factor for advances and related
interest previously borrowed, the repurchase of $4,727,000 of accounts
receivable previously sold to the factor under the factor agreement, and a
termination fee of $150,000. The Company has accounted for this termination
fee as an extraordinary loss on the early extinguishment of debt.
F-16
<PAGE>
GLENOIT CORPORATION AND SUBSIDIARIES
(A WHOLLY OWNED SUBSIDIARY OF GLENOIT UNIVERSAL, LTD.)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
4. FACTOR RECEIVABLES (CONTINUED)
Prior to December 13, 1995, the Company's factor agreement called for the
factor to purchase substantially all trade receivables without recourse up to
maximums established by the factor for each customer account. Receivables
purchased in excess of these limitations were subject to recourse in the event
of nonpayment by the customer. The factor agreement, as amended on June 14,
1994, allowed for advances up to 95% of the factored receivables with interest
charged on the net advances at 1% over the prime rate.
5. RELATED PARTY TRANSACTIONS
The Company has an unsecured 4% note receivable from an officer with a face
amount of $300,000. The note will be forgiven by the Company under certain
circumstances and, accordingly, the Company is recognizing compensation
expense over the term of the note, which is expected to be December 31, 2005.
The unamortized balance at December 30, 1995, January 4, 1997, and October 4,
1997 was $235,000, $211,500 and $193,500 (unaudited), respectively.
During 1995, the Company loaned a shareholder of the Company's Parent a
total of $1,297,787 in the form of notes receivable bearing interest at rates
ranging from 4% to 9%. During 1995, the shareholder repaid $888,328 of these
notes. On December 13, 1995, the Company distributed a noncash dividend of
$2,170,541, which represented the balance of these notes at the distribution
date and certain other receivables and assets to the Company's Parent.
During the year ended December 30, 1995, the Company sold approximately
$645,000 in merchandise to a company owned indirectly by a shareholder of the
Company's Parent. During the years ended December 30, 1995 and January 4,
1997, the Company paid a total of approximately $650,000 and $175,000,
respectively, to companies under common ownership and related parties for
management and consulting fees.
Included in other receivables at January 4, 1997 are receivables of
approximately $297,000 from companies indirectly owned by a shareholder of the
Company's Parent.
On March 5, 1997, the Company declared a dividend and issued a note in the
amount of approximately $5.8 million (the "Note") to a shareholder of the
Company's Parent in satisfaction of a contingent earnout obligation of the
Company's Parent related to the Recapitalization discussed in Note 2. This
note contained a mandatory prepayment provision which required the Company to
retire the Note and accrued interest as of the date of a bond offering of the
Company. On April 1, 1997, the date of the bond offering described in Note 4,
the Company retired the Note from the proceeds of the bond offering.
On June 14, 1997, the Company declared a dividend in the amount of $1.6
million to enable the Company's Parent to exercise an option to repurchase
shares of the Company's Parent's common stock and to repay a note due to a
shareholder of the Company's Parent. This transaction was related to the
Recapitalization discussed in Note 2. Additionally, as part of the same
transaction the Company made a loan of $931,263 to an officer at an interest
rate of prime plus 1/2%. The principal and interest were repaid in full on
August 12, 1997.
In August 1997, the Company's Parent granted an officer of the Company
1,286.211 options for shares of the Company's Parent's Class A common stock at
an exercise price of $37,500 in the aggregate. The officer exercised the
options immediately; however, the stock is restricted and subject to certain
vesting requirements. Under the grant, the officer is entitled to one-third of
the shares of stock immediately, which are subject to vesting requirements.
The Company must meet certain financial targets in each of the Company's 1997
and 1998 fiscal years in order for the officer to be entitled to the remaining
two-thirds shares, which are then subject to
F-17
<PAGE>
GLENOIT CORPORATION AND SUBSIDIARIES
(A WHOLLY OWNED SUBSIDIARY OF GLENOIT UNIVERSAL, LTD.)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
5. RELATED PARTY TRANSACTIONS (CONTINUED)
vesting requirements. All options in which the officer becomes entitled vest
50% after the delivery of the independent accountants' report on the Company's
1998 fiscal year and 50% one year thereafter.
6. INVENTORIES
Inventories are summarized as follows:
<TABLE>
<CAPTION>
DECEMBER 30, JANUARY 4, OCTOBER 4,
1995 1997 1997
------------ ---------- -----------
(UNAUDITED)
<S> <C> <C> <C> <C>
Raw materials........................ $3,330,118 $2,567,060 $3,097,508
Work-in-progress..................... 1,322,157 1,432,577 1,887,762
Finished goods....................... 3,199,441 3,536,283 4,438,771
---------- ---------- ----------
Total Inventories.................. $7,851,716 $7,535,920 $9,424,041
========== ========== ========== ===
</TABLE>
7. CREDIT FACILITY AND LONG-TERM DEBT
At December 30, 1995, January 4, 1997 and October 4, 1997, long-term debt
with financial institutions consisted of the following:
<TABLE>
<CAPTION>
DECEMBER 30, JANUARY 4, OCTOBER 4,
1995 1997 1997
------------ ----------- ------------
(UNAUDITED)
<S> <C> <C> <C>
Term A Note Payable issued under
the Senior Credit Facility....... $32,000,000 $28,000,000 $ --
Term B Note Payable issued under
the Senior Credit Facility....... 25,000,000 25,000,000
Senior Subordinated note payable
at 12.5%......................... 15,000,000 15,000,000
Senior Subordinated Notes at 11%.. -- -- 100,000,000
----------- ----------- ------------
Total........................... 72,000,000 68,000,000 100,000,000
Less: current maturities.......... (4,000,000) (5,000,000)
----------- ----------- ------------
Total long-term debt............ $68,000,000 $63,000,000 $100,000,000
=========== =========== ============
</TABLE>
On April 1, 1997, the Company issued $100,000,000 of senior subordinated
notes (the "Senior Subordinated Notes") in a private placement bond offering.
The Senior Subordinated Notes bear interest at a fixed rate of 11% and are
redeemable on April 15, 2007. The Company at its option, can prepay these
notes at a price of 105.5% of the original principal amount, beginning on
April 15, 2002. The premium declines by 1.833% thereafter each year beginning
on April 15 until reduced to the original principal amount. Additionally,
prior to April 15, 2000, the Company may redeem in the aggregate up to 25% of
the original aggregate principal amount with the proceeds of one or more
Public Equity Offerings, as defined in the Indenture governing the Senior
Subordinated Notes, at a redemption price of 110% of the original principal
amount. Upon a Change of Control of the Company, as defined in the Indenture
governing the Senior Subordinated Notes, the holder of a Senior Subordinated
Note may require the Company to redeem the note at a price of 101% of the
principal amount. Interest is payable semi-annually, commencing October 15,
1997.
On April 1, 1997, the Company also entered into a $70 million senior credit
facility (the "Facility") with a financial institution. Of the total
commitment of $70 million under the Facility, $25 million is designated as an
Acquisition Commitment and $45 million as a Working Capital Commitment, which
is limited to the Borrowing
F-18
<PAGE>
GLENOIT CORPORATION AND SUBSIDIARIES
(A WHOLLY OWNED SUBSIDIARY OF GLENOIT UNIVERSAL, LTD.)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
7. CREDIT FACILITY AND LONG-TERM DEBT (CONTINUED)
Base as defined in the Facility. The Company may borrow under the Acquisition
Facility through December 31, 1999. The bank also extended up to a total of $5
million in letters of credit to the Company; however, the amount is limited to
the amount of the unused Working Capital Commitment. At October 4, 1997, the
Company had $7.1 million outstanding under the Working Capital Commitment, had
approximately $30.3 million available under the Working Capital Commitment and
$25 million available under the Acquisition Commitment.
At the option of the Company, the Company may designate advances under the
Facility to bear interest at the Base Rate, as defined in the Facility, plus
.5% for an Acquisition Commitment Advance and 1% for a Working Capital
Commitment Advance or the Eurodollar Rate plus 2% for an Acquisition
Commitment Advance or 2.5% for a Working Capital Commitment Advance. The
Company must pay a commitment fee equal to five eighths of one percent per
year of the unused Acquisition Commitment and one half of one percent per year
of the unused Working Capital Commitment. Additionally, the Company must pay a
letter of credit fee of two percent per year of the average available amount
under the letters of credit for each quarter such letters of credit are
outstanding.
All interest, commitment fees and letter of credit fees under the Facility
are payable quarterly beginning June 30, 1997. The principal balance of the
Acquisition Commitment is repayable quarterly commencing on March 31, 2000 in
amounts equal to one-twentieth of the aggregate principal balance then
outstanding, with the balance due on December 31, 2001. The Working Capital
commitment is due on December 31, 2001. Prior to December 31, 1999, the
Company may be required to prepay the Acquisition Commitment and Working
Capital Commitment in amounts equal to the Net Cash Proceeds of the sale of
assets, stock, debt securities or any other Net Cash Proceeds, as defined by
the Facility. The Acquisition and Working Capital Commitments would then be
permanently reduced by such payment.
The Facility and Senior Subordinated Notes have various covenants that
require the Company to: maintain key financial ratios, restrict corporate
borrowings, limit the Company's ability to pay dividends, limit the type and
amount of certain investments which may be undertaken by the Company, limit
the Company's disposition of assets, limit the Company's ability to enter into
operating and capital leases, and restrict the Company's ability to issue
shares of its stock.
Substantially all of the Company's assets and operations are pledged as
collateral for the Facility. The Company's Parent and Glenoit Asset
Corporation have guaranteed the Company's obligations under the Facility and
pledged their assets as collateral; however, the Company's Parent and Glenoit
Asset Corporation have no substantive assets or operations and rely on the
Company to fund their obligations.
The Senior Subordinated Notes are unconditionally guaranteed, on a joint and
several basis, by Glenoit Asset Corporation. Glenoit Asset Corporation's
operations consist solely of leasing certain trademarks and other intangibles
to Glenoit Corporation. Accordingly, Glenoit Asset Corporation's assets and
operations consist primarily of intercompany assets and operations with
Glenoit Corporation. In addition, the Senior Subordinated Notes are
collateralized by all of the assets and shares of common stock of both Glenoit
Corporation and Glenoit Asset Corporation. Glenoit Canada has not guaranteed
the Senior Subordinated Notes nor do the assets of Glenoit Canada serve as
collateral for the Senior Subordinated Notes. Prior to the formation of
Glenoit Canada in June 1997, all of Glenoit Corporation's and its wholly-owned
subsidiary's assets were pledged as collateral for the Senior Subordinated
Notes and all of Glenoit Corporation's wholly-owned subsidiaries
unconditionally guaranteed the Senior Subordinated Notes.
The following tables present summarized unaudited balance sheet information
of Glenoit Corporation, Glenoit Asset Corporation, and Glenoit Canada as of
October 4, 1997 and the related summarized unaudited
F-19
<PAGE>
GLENOIT CORPORATION AND SUBSIDIARIES
(A WHOLLY OWNED SUBSIDIARY OF GLENOIT UNIVERSAL, LTD.)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
7. CREDIT FACILITY AND LONG-TERM DEBT (CONTINUED)
operating statement information for the nine months then ended. The Company
believes that separate financial statements and other disclosures regarding
Glenoit Asset Corporation, the sole subsidiary guarantor of the Senior
Subordinated Notes, are not material to investors. Summarized balance sheet
information, in thousands, as of October 4, 1997 are as follows:
<TABLE>
<CAPTION>
GLENOIT ASSET
GLENOIT CORP. GLENOIT CANADA CORP. ELIMINATIONS CONSOLIDATED
------------- -------------- ------------- ------------ ------------
<S> <C> <C> <C> <C> <C>
Assets:
Current Assets........ $ 45,344 $ 5,431 $ 67 $ $ 50,842
Non-current assets.... 65,984 5,346 22,798 (54,664) 39,464
-------- ------- ------- -------- --------
Total............... $111,328 $10,777 $22,865 $(54,664) $ 90,306
======== ======= ======= ======== ========
Liabilities and
shareholder's equity
(deficit):
Current liabilities... $ 22,699 $ 1,505 $ 165 $ $ 24,369
Non-current liabili-
ties................. 131,839 (22,798) 109,041
Stockholder's equity
(deficit)............ (43,210) 9,272 22,700 (31,866) (43,104)
-------- ------- ------- -------- --------
Total............... $111,328 $10,777 $22,865 $(54,664) $ 90,306
======== ======= ======= ======== ========
</TABLE>
Summarized operating statements information, in thousands, for the nine
month period ended October 4, 1997 is as follows:
<TABLE>
<CAPTION>
GLENOIT ASSET
GLENOIT CORP. GLENOIT CANADA CORP. ELIMINATIONS CONSOLIDATED
------------- -------------- ------------- ------------ ------------
<S> <C> <C> <C> <C> <C>
Net sales............... $119,134 $1,688 $5,149 $(5,149) $120,822
Cost of sales and
operating expenses..... 99,656 1,302 9 (5,149) 95,818
Other expense (income)
net.................... 8,612 72 (4) 8,680
Extraordinary loss,
net.................... 2,857 2,857
Income taxes............ 4,629 113 1,800 6,542
-------- ------ ------ ------- --------
Net income.............. $ 3,380 $ 201 $3,344 $ 0 $ 6,925
======== ====== ====== ======= ========
</TABLE>
On April 1, 1997, the Company utilized the proceeds from the 11% Senior
Subordinated Notes to retire the Company's existing debt with financial
institutions, which included the balance of the $80 million senior credit
facility (the Term A and B Notes and the Working Capital line of credit) and
the $15 million 12.5% Senior Subordinated Note. Additionally, on April 1,
1997, the Company retired a note to a shareholder of the Company's Parent in
the amount of approximately $5.8 million (see Note 5). As a result of the
Company's payoff of these obligations, the Company charged to earnings
$2,884,000 of net deferred loan costs and a $1,500,000 prepayment penalty
related to the $15 million 12.5% Senior Subordinated Note. The Company has
recognized an extraordinary loss from the early extinguishment of debt of
$2,857,000, which is net of a tax benefit of $1,527,000 related to these
changes.
Prior to the refinancing, the Company had an $80 million credit facility
(the "Old Facility") and a $15 million senior subordinated note (the "$15
Million Senior Subordinated Note"). At the option of the Company, the Company
could designate the Term A and Term B portions of the Old Facility to bear
interest at the Base
F-20
<PAGE>
GLENOIT CORPORATION AND SUBSIDIARIES
(A WHOLLY OWNED SUBSIDIARY OF GLENOIT UNIVERSAL, LTD.)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
7. CREDIT FACILITY AND LONG-TERM DEBT (CONTINUED)
Rate (which is defined as the higher of the bank's prime rate or one-half of
one percent above the Federal Funds Rate) plus 1.75% and 2.25%, respectively,
or the LIBOR rate plus 3.25% and 3.75%, respectively. The working capital line
of credit portion of the Old Facility bore interest at the Base Rate plus 1.5%
or the LIBOR rate plus 3%. The $15 Million Senior Subordinated Note bore
interest at 12.5%.
On December 13, 1995, the Company utilized the proceeds from the Old Facility
and the $15 Million Senior Subordinated Note to pay off the Company's then
existing debt with financial institutions, including $4.8 million of debt
issued in connection with the 1995 acquisition described in Note 3 and the debt
pushed down to the Company. As a result of the Company's payoff of these debts,
the Company charged to earnings $1,218,000 of net deferred loan costs and
$2,279,000 paid as a prepayment penalty related to the Guaranteed Secured
Notes. The Company recognized an extraordinary loss from the early
extinguishment of debt of $3,497,000 related to these charges in 1995.
During the years ended December 31, 1994, December 30, 1995 and January 4,
1997, the Company paid $2,199,000, $3,870,000, and $8,730,000, respectively, in
cash for interest.
8. COMMITMENTS AND CONTINGENCIES
The Company's Parent is a holding company and as a result does not have any
substantive assets or operations that generate revenues or cash flows.
Accordingly, the Company's Parent relies on the Company's distribution of
dividends in order to fund its operations and meet its obligations, including
its interest and principal payments. In April 1997, the Company declared a
dividend of $1.6 million to the Company's Parent (see Note 5). The dividend was
used to pay a $1.4 million obligation to a shareholder of the Company's Parent
and to repurchase shares of the Company's Parent's common stock.
The Company's Parent has obligations with a face amount of approximately $24
million, bearing interest at stated rates between 5% to 12.5%, to shareholders
("Shareholder Notes") with principal due in 2004 and 2005. These obligations
are not reflected in the Company's accompanying balance sheets or income
statements. Subject to existing debt restrictions, Shareholder Notes with a
face amount of approximately $9.7 million contain certain acceleration clauses.
They include the sale of stock in a registered public offering, certain mergers
and certain changes of existing shareholder ownership. At the option of the
Company's Parent, subject to the Company's existing debt restrictions (Note 7),
the interest may be paid by the issuance of additional notes or in cash.
However, the Company's Parent must pay interest in cash on certain of the
Shareholder Notes if defined levels of consolidated cash flows of the Company's
Parent are attained.
Annual interest payments during the next five years are approximately $2
million in 1997 and 1998, and approximately $2.6 million per year thereafter,
excluding interest on notes that may be issued to pay interest. Assuming the
Company's Parent pays all interest payments related to the Shareholder Notes
with additional notes, the Company's ultimate distribution of dividends in
order for the Company's Parent to meet its existing debt obligations is
expected to be approximately $63 million beginning December 2004 through
December 2005. However, the Company may be required to declare dividends in
order for the Company's Parent to fund certain of its obligations in cash as
discussed above. Such amounts could approximate $3 million in the aggregate and
are due through December 2004, if the defined levels of consolidated cash flow
of the Company's Parent are met.
9. LEASES
The Company leases certain equipment under operating leases that expire
through December 2005. Rent expense, including the rent of the buildings
discussed below, was $2,778,000, $2,797,000, and $3,640,000 during the years
ended December 31, 1994, December 30, 1995 and January 4, 1997, respectively.
F-21
<PAGE>
GLENOIT CORPORATION AND SUBSIDIARIES
(A WHOLLY OWNED SUBSIDIARY OF GLENOIT UNIVERSAL, LTD.)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
9. LEASES (CONTINUED)
In December 1982, the Company sold its land and manufacturing facility
located in Tarboro, North Carolina to Tarboro Properties, Ltd. ("Tarboro"),
and leased the facility back under the terms of a lease originally expiring in
December 1994. The sale resulted in a deferred gain which was fully amortized
through 1994. Rent expense related to this facility in 1994 was $1,000,000
(see Note 1, "Basis of Presentation").
On January 1, 1995, the Company entered into a lease with a company, whose
shareholders are indirectly shareholders of the Company's Parent, for a
warehouse in Tarboro, North Carolina. On December 13, 1995, the Company
through its wholly-owned subsidiary Mills, acquired the warehouse from this
company for a purchase price of approximately $1,263,000, which approximated
its net carrying value. As a result, the Company was released from obligation
under this lease effective December 13, 1995. Rent expense related to this
facility during 1995 was $458,000.
As of January 4, 1997 future net minimum lease payments under capital leases
and future minimum rental payments required under operating leases that have
initial or remaining noncancelable terms in excess of one year are as follows:
<TABLE>
<CAPTION>
CAPITAL OPERATING
LEASES LEASES
---------- -----------
<S> <C> <C>
1997............................................... $ 697,500 $ 3,679,000
1998............................................... 747,000 3,679,000
1999............................................... 124,500 3,492,000
2000............................................... 3,311,000
2001............................................... 2,585,000
Thereafter......................................... 4,074,000
---------- -----------
Total minimum lease payments..................... 1,569,000 $20,820,000
===========
Less amounts representing interest, calculated at
the Company's incremental borrowing rate........ 183,560
----------
Present value of net minimum lease payments........ 1,385,440
Current maturities of capital lease obligations.... (571,037)
----------
Capital lease obligations--less current obliga-
tions............................................. $ 814,403
==========
</TABLE>
F-22
<PAGE>
GLENOIT CORPORATION AND SUBSIDIARIES
(A WHOLLY OWNED SUBSIDIARY OF GLENOIT UNIVERSAL, LTD.)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
10. INCOME TAXES
The provision for federal and state income taxes consist of the following
components:
<TABLE>
<CAPTION>
DECEMBER 31, DECEMBER 30, JANUARY 4,
1994 1995 1997
------------ ------------ ----------
<S> <C> <C> <C>
Current:
Federal.............................. $2,670,000 $1,455,623 $3,260,957
State................................ 60,000 123,000 371,943
---------- ---------- ----------
2,730,000 1,578,623 3,632,900
---------- ---------- ----------
Deferred:
Federal.............................. 100,000 339,551 (263,662)
State................................ 20,000 (75,240) (14,734)
---------- ---------- ----------
120,000 264,311 (278,396)
---------- ---------- ----------
Total.............................. $2,850,000 $1,842,934 $3,354,504
========== ========== ==========
</TABLE>
The 1995 provision for federal and state income taxes has been allocated to
income before income taxes and extraordinary loss, and the extraordinary loss
on early extinguishment of debt.
A reconciliation of the provision for income taxes to the federal statutory
rate of 34% is as follows:
<TABLE>
<CAPTION>
DECEMBER 31, DECEMBER 31, JANUARY 4,
1994 1995 1997
------------ ------------ ----------
<S> <C> <C> <C>
Statutory federal income tax expense.. $2,732,000 $ 951,000 $2,539,000
State income taxes, net of federal
benefit.............................. 80,000 107,000 275,000
Contingencies and nondeductible ex-
penses............................... 25,000 709,000 475,000
Foreign sales corporation profits..... (44,000)
Other................................. 57,000 75,934 65,504
---------- ---------- ----------
Income tax expense.................... $2,850,000 $1,842,934 $3,354,504
========== ========== ==========
</TABLE>
Deferred income taxes reflect the tax effects of differences between the
carrying amounts of assets and liabilities for financial reporting and income
tax purposes. The significant components of the Company's deferred tax assets
and liabilities at December 30, 1995 and January 4, 1997 are as follows:
<TABLE>
<CAPTION>
DECEMBER 31, JANUARY 4,
1995 1997
------------ ----------
<S> <C> <C>
Deferred tax assets:
Capital loss carry forwards.......................... $ 416,440 $ 416,440
Accrued liabilities.................................. 88,404 141,366
Asset valuation allowances........................... 385,696 138,473
Other................................................ 20,985
---------- ----------
Gross deferred assets................................ 890,540 717,264
Valuation allowance.................................. (416,440) (416,440)
---------- ----------
Total.............................................. $ 474,100 $ 300,824
========== ==========
Deferred tax liabilities:
Depreciation and amortization........................ $1,315,411 $1,515,248
Contingencies........................................ 673,000
Other................................................ 21,491
---------- ----------
Total.............................................. $1,988,411 $1,536,739
========== ==========
</TABLE>
F-23
<PAGE>
GLENOIT CORPORATION AND SUBSIDIARIES
(A WHOLLY OWNED SUBSIDIARY OF GLENOIT UNIVERSAL, LTD.)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
10. INCOME TAXES (CONTINUED)
A deferred tax asset is required to be recognized for the tax benefit of
deductible temporary differences and net operating loss carryforwards. A
valuation allowance is recognized if it is more likely than not that some or
all of the deferred tax asset will not be realized. The valuation allowance
was provided for the charge-off of an investment in 1993 which is a capital
loss realizable as an offset against capital gains in future periods.
The Company's and its Parent's federal income tax returns for January 1,
1994 and December 31, 1994, have been examined by the Internal Revenue Service
("IRS"). The IRS has assessed taxes, penalties and interest relating to the
deductibility of certain expenses claimed as deductions by the Company. The
Company is currently in the process of responding to the IRS. In the opinion
of management, adequate provision has been made in the accompanying financial
statements for its income tax obligations; however, should the Company be
responsible for all taxes, penalties and interest assessed by the IRS, the
Company would be required to pay an additional amount of approximately $1.6
million over amounts currently accrued. The Company believes that the proposed
adjustments by the IRS are inappropriate and intends to vigorously contest
these assessments. It is reasonably possible that the Company's current
estimate of its obligations related to the IRS assessment will change in the
near term.
The Company's state income tax returns for the years ended January 1, 1994
and December 31, 1994, have been examined by the New York Department of
Finance. In April 1997, the New York Department of Finance assessed taxes and
interest in the amount of approximately $130,000. The Company is currently in
the process of responding to the New York Department of Finance. The Company
believes that the proposed adjustments made by the New York Department of
Finance are inappropriate and intends to vigorously contest these assessments.
The Company's Parent has an indemnification agreement with a shareholder
with respect to certain tax obligations. While tax obligations are the expense
and liability of the Company and its Parent, the indemnification agreement
provides for an additional contribution of capital to the Company's Parent
from this shareholder via reductions of long-term obligations due the
shareholder from the Company's Parent.
The Company and the Company's Parent have entered into a Tax Sharing
Agreement whereby the Company will pay the Company's Parent its respective pro
rata share of the total consolidated tax liability or receive its respective
pro rata share of the total consolidated tax refund, as set forth in the tax
sharing agreement. Under the Tax Sharing Agreement, the Company and the
Company's Parent are treated as separate tax groups.
During the years ended December 31, 1994, December 30, 1995 and January 4,
1997, the Company paid $2,997,000, $3,486,000, and $2,952,000, respectively,
in cash for taxes.
F-24
<PAGE>
GLENOIT CORPORATION AND SUBSIDIARIES
(A WHOLLY OWNED SUBSIDIARY OF GLENOIT UNIVERSAL, LTD.)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
11. EMPLOYEE BENEFIT PLANS
The Company has non-contributory pension plans covering substantially all of
its employees. The benefits are based on years of service and the employee's
compensation during the years of credited service. The Company's funding
policy is to contribute annually the maximum amount that can be deducted for
federal income tax purposes. Assets of the plan are managed by a trustee and
invested in marketable securities, money market instruments, and mutual funds.
Based on the actuarial valuation as of January 1, 1996 no contribution was
required for 1996. The following sets forth the plan's status based on
actuarial studies as of December 31, 1995 and December 31, 1996:
<TABLE>
<CAPTION>
DECEMBER 30, JANUARY 4,
1995 1997
------------ ----------
<S> <C> <C>
Actuarial present value of benefit obligations:
Accumulated benefit obligation, including vested
benefits of $6,843,489 and $7,878,842,
respectively.................................... $7,208,001 $8,362,919
========== ==========
Projected benefit obligation for service rendered
to date......................................... $8,008,890 $9,905,860
Plan assets at fair value, primarily money market
funds, guaranteed investment contracts, and an-
nuity contracts................................. 8,340,668 9,242,634
---------- ----------
Plan assets in excess of projected benefit
obligation (projected benefit obligation in
excess of plan assets).......................... 331,778 (663,226)
Unrecognized prior service cost.................. 626,603 474,714
Unrecognized net asset being amortized over 12
years (salaried) and 9 years (non-salaried)..... (439,941) (325,462)
Unrecognized (gain) loss......................... (360,151) 364,639
---------- ----------
Prepaid pension cost (accrued pension) included
in other current assets (accrued expenses)...... $ 158,289 $ (149,335)
========== ==========
</TABLE>
<TABLE>
<CAPTION>
DECEMBER 31, DECEMBER 30, JANUARY 4,
1994 1995 1997
------------ ------------ ----------
<S> <C> <C> <C>
Net pension cost includes the follow-
ing components:
Service cost--benefits earned dur-
ing the period.................... $ 376,390 $ 432,085 $ 530,689
Interest cost on projected benefit
obligations....................... 485,993 556,019 666,149
Actual return on plan assets....... 116,262 (1,452,735) (972,441)
Net amortization and deferral of
unrecognized net gain (loss)...... (642,973) 952,598 344,316
--------- ----------- ---------
Net periodic pension expense for
year.............................. $ 335,672 $ 487,967 $ 568,713
========= =========== =========
</TABLE>
A weighted average discount rate of 7.5% and a 4.5% rate of increase in
future compensation levels in determining the actuarial present value of the
projected benefit obligations for both 1995 and 1996 was used in determining
the actuarial present value of the projected benefit obligations. The expected
long-term rate of return of pension plan assets was 8% for both 1995 and 1996.
In 1995, the Company established a defined contribution plan (the "Plan")
for all hourly employees in Tennessee. Under the Plan, the Company must
contribute 2.5% of employee salaries to the Plan each plan year. Contributions
were approximately $25,000 and $95,000 during the years ended December 30,
1995 and January 4, 1997, respectively. Amounts contributed are invested by a
trustee in a variety of investment options, including marketable securities
and mutual funds.
F-25
<PAGE>
GLENOIT CORPORATION AND SUBSIDIARIES
(A WHOLLY OWNED SUBSIDIARY OF GLENOIT UNIVERSAL, LTD.)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
12. OTHER CONTINGENCIES
From time to time, the Company is involved in litigation which arises in the
ordinary course of business. Management believes the ultimate disposition of
these matters will not have a material adverse effect on the Company's
consolidated financial position or results of operations.
F-26
<PAGE>
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
NO DEALER, SALESPERSON OR OTHER PERSON HAS BEEN AUTHORIZED TO GIVE ANY INFOR-
MATION OR TO MAKE ANY REPRESENTATIONS OTHER THAN THOSE CONTAINED IN THIS REG-
ISTRATION STATEMENT IN CONNECTION WITH THE OFFER MADE HEREBY, AND, IF GIVEN OR
MADE, SUCH INFORMATION OR REPRESENTATIONS MUST NOT BE RELIED UPON AS HAVING
BEEN AUTHORIZED BY THE COMPANY OR THE INITIAL PURCHASERS. NEITHER THE DELIVERY
OF THIS REGISTRATION STATEMENT NOR ANY SALE MADE HEREUNDER SHALL, UNDER ANY
CIRCUMSTANCES, CREATE ANY IMPLICATION THAT THERE HAS BEEN NO CHANGE IN THE AF-
FAIRS OF THE COMPANY SINCE THE DATE AS OF WHICH INFORMATION IS GIVEN IN THIS
REGISTRATION STATEMENT. THIS REGISTRATION STATEMENT DOES NOT CONSTITUTE AN OF-
FER OR SOLICITATION BY ANYONE IN ANY JURISDICTION IN WHICH SUCH OFFER OR SO-
LICITATION IS NOT AUTHORIZED OR IN WHICH THE PERSON MAKING SUCH OFFER OR SO-
LICITATION IS NOT QUALIFIED TO DO SO OR TO ANY PERSON TO WHOM IT IS UNLAWFUL
TO MAKE SUCH OFFER OR SOLICITATION.
----------------
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
Available Information.................................................... 2
Summary.................................................................. 3
Risk Factors............................................................. 15
Use of Proceeds.......................................................... 21
Capitalization...........................................................
Selected Historical Consolidated Financial Data.......................... 22
Management's Discussion and Analysis of Financial Condition and Results
of Operations........................................................... 24
Business................................................................. 29
Management............................................................... 37
Principal Stockholders................................................... 40
Certain Relationships and Related Transactions........................... 42
Description of Capital Stock and Indebtedness of Holdings................ 45
Description of New Credit Facility....................................... 46
Description of Notes..................................................... 48
Exchange Offer; Registration Rights...................................... 78
Certain Federal Income Tax Considerations................................ 84
Plan of Distribution..................................................... 85
Legal Matters............................................................ 86
Experts.................................................................. 86
Index to Consolidated Financial Statements............................... F-1
</TABLE>
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
$100,000,000
GLENOIT CORPORATION
11% SENIOR SUBORDINATED NOTES DUE 2007
REGISTRATION STATEMENT
DATED , 1998
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
<PAGE>
PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
ITEM 20. INDEMNIFICATION OF DIRECTORS AND OFFICERS.
The Company is incorporated under the laws of the State of Delaware. Section
145 of the General Corporation Law of the State of Delaware, inter alia,
("Section 145") provides that a Delaware corporation may indemnify any persons
who were, are or are threatened to be made, parties to any threatened, pending
or completed action, suit or proceeding, whether civil, criminal,
administrative or investigative (other than an action by or in the right of
such corporation), by reason of the fact that such person is or was an
officer, director, employee or agent of such corporation, or is or was serving
at the request of such corporation as a director, officer employee or agent of
another corporation or enterprise. The indemnity may include expenses
(including attorneys' fees), judgments, fines and amounts paid in settlement
actually and reasonably incurred by such person in connection with such
action, suit or proceeding, provided such person acted in good faith and in a
manner he reasonably believed to be in or not opposed to the corporation's
best interests and, with respect to any criminal action or proceeding, had no
reasonable cause to believe that his conduct was illegal. A Delaware
corporation may indemnify any persons who are, were or are threatened to be
made, a party to any threatened, pending or completed action or suit by or in
the right of the corporation by reason of the fact that such person was a
director, officer, employee or agent of such corporation, or is or was serving
at the request of such corporation as a director, officer, employee or agent
of another corporation or enterprise. The indemnity may include expenses
(including attorneys' fees) actually and reasonably incurred by such person in
connection with the defense or settlement of such action or suit, provided
such person acted in good faith and in a manner he reasonably believed to be
in or not opposed to the corporation's best interests, provided that no
indemnification is permitted without judicial approval if the officer,
director, employee or agent is adjudged to be liable to the corporation. Where
an officer, director, employee or agent is successful on the merits or
otherwise in the defense of any action referred to above, the corporation must
indemnify him against the expenses which such officer or director has actually
and reasonably incurred.
The Company's Certificate of Incorporation provides for the indemnification
of directors and officers of the Company to the fullest extent permitted by
the General Corporation Law of the State of Delaware, as it currently exists
or may hereafter be amended.
Section 145 further authorizes a corporation to purchase and maintain
insurance on behalf of any person who is or was a director, officer, employee
or agent of the corporation, or is or was serving at the request of the
corporation as a director, officer, employee or agent of another corporation
or enterprise, against any liability asserted against him and incurred by him
in any such capacity, arising out of his status as such, whether or not the
corporation would otherwise have the power to indemnify him under Section 145.
The Company maintains and has in effect insurance policies covering all of
the Company's directors and officers against certain liabilities for actions
taken in such capacities, including liabilities under the Securities Act of
1933.
II-1
<PAGE>
ITEM 21. EXHIBITS AND FINANCIAL STATEMENT SCHEDULES.
(a) Exhibits.
<TABLE>
<C> <S>
3.1 Certificate of Incorporation of Glenoit Corporation.
3.2 By-Laws of Glenoit Corporation
3.3 Certificate of Incorporation of Glenoit Asset Corporation*
3.4 By-Laws of Glenoit Asset Corporation*
4.1 Indenture dated as of April 1, 1997 between Glenoit Corporation, the
Subsidiary Guarantors (as defined therein) and United States Trust
Company of New York.
4.2 Purchase Agreement dated as of March 26, 1997 among Glenoit
Corporation, the Subsidiary Guarantors (as defined therein), Salomon
Brothers Inc. and CIBC Wood Gundy Securities Corp.
4.3 Registration Agreement dated as of March 26, 1997 among Glenoit
Corporation, the Subsidiary Guarantors (as defined therein), Salomon
Brothers Inc. and CIBC Wood Gundy Securities Corp.
5.1 Opinion and consent of Kirkland & Ellis.
10.1 Second Amended and Restated Credit Agreement dated as of April 1, 1997
among Glenoit Corporation, the banks, financial institutions and other
institutional lenders listed on the signature pages thereto as the
Restatement Lenders, the Banque Nationale de Paris, as Administrative
Agent for the Lender Parties (as defined therein).
10.5 Shareholders Agreement dated as of [ ] by and among [ ].*
21.1 Subsidiaries of Glenoit Corporation.
23.1 Consent of Coopers & Lybrand L.L.P., independent auditors.
23.2 Consent of BDO Seidman, LLP, independent auditors.
23.3 Consent of Kirkland & Ellis (included in Exhibit 5.1).
24.1 Powers of Attorney (included in signature page).
25.1 Statement of Eligibility of Trustee on Form T-1.
27.1 Financial Data Schedule.
99.1 Form of Letter of Transmittal.
99.2 Form of Notice of Guaranteed Delivery.
99.3 Form of Tender Instructions.
</TABLE>
- --------
* To be filed by amendment.
(b) Financial Statement Schedules
Not applicable
II-2
<PAGE>
ITEM 22. UNDERTAKINGS.
The undersigned registrant hereby undertakes:
(1) To file, during any period in which offers or sales are being made, a
post-effective amendment to this registration statement:
(i) To include any prospectus required by Section 10(a)(3) of the
Securities Act of 1933;
(ii) To reflect in the prospectus any facts or events arising after
the effective date of the registration statement (or the most
recent post-effective amendment thereof) which, individually or
in the aggregate, represent a fundamental change in the
information set forth in the registration statement.
(iii) To include any material information with respect to the plan of
distribution not previously disclosed in the registration
statement or any material change to such information in the
registration statement;
(2) That, for the purpose of determining any liability under the
Securities Act of 1933, each such post-effective amendment shall be
deemed to be a new registration statement relating to the Securities
offered therein, and the offering of such Securities at the time
shall be deemed to be the initial bona fide offering thereof;
(3) To remove from registration by means of a post-effective amendment
any of the Securities being registered which remain unsold at the
termination of the offering; and
(4) That for purposes of determining any liability under the Securities
Act of 1933, the information omitted from the form of prospectus
filed as part of this registration statement in reliance upon Rule
430A and contained in a form of prospectus filed by the registrant
pursuant to Rule 424(b)(1) or (4) or 497(h) under the Securities Act
shall be deemed to be part of this registration statement as of the
time it was declared effective.
(5) That for the purpose of determining liability under the Securities
Act of 1933, each post-effective amendment that contains a form of
prospectus shall be deemed to be a new registration statement
relating to the securities offered therein, and the offering of such
securities at that time shall be deemed to be the initial bona fide
offering thereof.
(6) To respond to requests for information that is incorporated by
reference into the prospectus pursuant to Item 4, 10(b), 11 or 13 of
this form, within one business day of receipt of such request, and to
send the incorporated documents by first class mail or other equally
prompt means. This includes information contained in documents filed
subsequent to the effective date of the registration statement
through the date of responding to the request.
(7) To supply by means of a post-effective amendment all information
concerning a transaction, and the company being acquired involved
therein, that was not the subject of and included in the registration
statement when it became effective.
In so far as indemnification for liabilities arising under the Securities
Act of 1933 (the "Securities Act") may be permitted to directors, officers and
controlling persons of the registrant pursuant to the provisions described
under Item 20 or otherwise, the registrant has been advised that in the
opinion of the Securities and exchange Commission such indemnification is
against public policy as expressed in the Securities At and is, therefore,
unenforceable. In the event that a claim for indemnification against such
liabilities (other than the payment by the registrant of expenses incurred or
paid by a director, officer or controlling person of the registrant in the
successful defense of any action, suit or proceeding) is asserted by such
director, officer or controlling person in connection with the securities
being registered, the registrant will, unless in the opinion of its counsel
the matter has been settled by controlling precedent, submit to a court of
appropriate jurisdiction the question whether such indemnification by it is
against public policy as expressed in the Securities Act and will be governed
by the final adjudication of such issue.
II-3
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Act, the registrant has duly
caused this registration statement to be signed on its behalf by the
undersigned, thereunto duly authorized, in the city of New York, state of New
York, on December 16, 1997.
GLENOIT CORPORATION
/s/ Thomas J. O'Gorman
By___________________________________
Thomas J. O'Gorman
President, Chief Executive Officer
and Director (principal executive
officer)
POWER OF ATTORNEY
KNOW ALL MEN BY THESE PRESENTS, that each person whose signature appears
below constitutes and appoints Thomas J. O'Gorman and Lester D. Sears his true
and lawful attorney-in-fact and agent, with full power of substitution and
resubstitution, for him and in his name, place and stead, in any and all
capacities (including his capacity as a director and/or officer of Glenoit
Corporation to sign any and all amendments (including post-effective
amendments) to this registration statement and any subsequent registration
statement filed pursuant to Rule 462(b) under the Securities Act of 1933, and
to file the same, with all exhibits thereto, and other documents in connection
therewith, with the Securities and Exchange Commission, granting unto said
attorney-in-fact and done in and about the premises, as fully to all intents
and purposes as he might or could do in person, hereby ratifying and
confirming all that said attorney-in-fact and agent or his substitute or
substitutes, may lawfully do or cause to be done by virtue hereof.
Pursuant to the requirements of the Securities Act of 1933, this
Registration Statement and power of attorney have been signed by the following
persons on December 16, 1997 in the capacities indicated:
/s/ Thomas J. O'Gorman
By___________________________________
Thomas J. O'Gorman
President, Chief Executive Officer
and Director (principal executive
officer)
/s/ Lester D. Sears
By___________________________________
Lester D. Sears
Executive Vice President and Chief
Financial Officer (principal
financial and accounting officer)
II-4
<PAGE>
/s/ John Mowbray O'Mara
By___________________________________
John Mowbray O'Mara
Director
/s/ Saleem Muqaddam
By___________________________________
Saleem Muqaddam
Director
/s/ Isaac Shapira
By___________________________________
Isaac Shapira
Director
/s/ Joseph M. Silvestri
By___________________________________
Joseph M. Silvestri
Director
II-5
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Act, the registrant has duly
caused this registration statement to be signed on its behalf by the
undersigned, thereunto duly authorized, in the city of New York, state of New
York, on December 16, 1997.
GLENOIT ASSET CORPORATION
/s/ Thomas J. O'Gorman
By
-----------------------------------
Thomas J. O'Gorman
President, Chief Executive
Officer and Director (principal
executive officer)
POWER OF ATTORNEY
KNOW ALL MEN BY THESE PRESENTS, that each person whose signature appears
below constitutes and appoints Thomas J. O'Gorman and Lester D. Sears his true
and lawful attorney-in-fact and agent, with full power of substitution and
resubstitution, for him and in his name, place and stead, in any and all
capacities (including his capacity as a director and/or officer of Glenoit
Corporation to sign any and all amendments (including post-effective
amendments) to this registration statement and any subsequent registration
statement filed pursuant to Rule 462(b) under the Securities Act of 1933, and
to file the same, with all exhibits thereto, and other documents in connection
therewith, with the Securities and Exchange Commission, granting unto said
attorney-in-fact and done in and about the premises, as fully to all intents
and purposes as he might or could do in person, hereby ratifying and
confirming all that said attorney-in-fact and agent or his substitute or
substitutes, may lawfully do or cause to be done by virtue hereof.
Pursuant to the requirements of the Securities Act of 1933, this
Registration Statement and power of attorney have been signed by the following
persons on December 16, 1997 in the capacities indicated:
/s/ Thomas J. O'Gorman
By
-----------------------------------
Thomas J. O'Gorman
President, Chief Executive
Officer and Director (principal
executive officer)
/s/ Lester D. Sears
By
-----------------------------------
Lester D. Sears
Executive Vice President,
Assistant Secretary (principal
financial and accounting
officer)
/s/ Peter J. Winnington
By
-----------------------------------
Peter J. Winnington
Secretary and Vice President
/s/ Thomas L. Harrell
By
-----------------------------------
Thomas L. Harrell
Assistant Treasurer
II-6
<PAGE>
EXHIBIT 3.1
CERTIFICATE OF AMENDMENT
TO
CERTIFICATE OF INCORPORATION
OF
GLENOIT INTERMEDIATE HOLDINGS, INC.
Under Section 242 of the Delaware General Corporation Law
---------------------------------------------------------
The undersigned, being the President of Glenoit Intermediate Holdings,
Inc., a corporation organized and existing under and by virtue of the General
Corporation Law of the State of Delaware (the "Corporation"), does hereby
certify as follows:
1. The name of the Corporation is Glenoit Intermediate Holdings, Inc.
2. The Certificate of Incorporation of the Corporation was filed with the
Secretary of State of Delaware on November 5, 1995.
3. The Certificate of Incorporation of the Corporation is hereby amended
to effect a change in Article One thereof, relating to the name of the
Corporation, accordingly Article One of the Certificate of Incorporation shall
be amended by striking out Article One thereof and by substituting in lieu of
said Article the following new Article One:
"ARTICLE ONE
-----------
The name of the corporation is Glenoit Corporation (hereinafter called the
"Corporation")."
4. The Board of Directors of the Corporation, pursuant to Sections 141(f)
and 242 of the General Corporation Law of the State of Delaware, adopted
resolutions approving the foregoing amendment.
5. That the sole holder of the Corporation's issued and outstanding
capital stock approved and adopted the Certificate of Amendment in accordance
with Sections 228 and 242 of the General Corporation Law of the State of
Delaware.
* * * *
<PAGE>
IN WITNESS WHEREOF, the undersigned, being the President of the
Corporation, under penalties of perjury does hereby declare and certify that
this is the act and deed of the Corporation and the facts stated herein are
true, and accordingly has hereunto signed this Certificate of Amendment to
Certificate of Incorporation this 11th day of March, 1997
By: /s/ Thomas O'Gorman
--------------------------------
Thomas O'Gorman, President
2
<PAGE>
EXHIBIT 3.2
BY-LAWS
-------
OF
--
GLENOIT CORPORATION
A DELAWARE CORPORATION
ARTICLE I
---------
OFFICES
-------
Section 1. Registered Office. The registered office of the corporation in
--------- -----------------
the State of Delaware shall be located at 1013 Centre Road, in the City of
Wilmington, County of New Castle. The name of the corporation's registered agent
at such address shall be Corporation Service Company. The registered office
and/or registered agent of the corporation may be changed from time to time by
action of the board of directors.
Section 2. Other Offices. The corporation may also have offices at such
--------- -------------
other places, both within and without the State of Delaware, as the board of
directors may from time to time determine or the business of the corporation may
require.
ARTICLE II
----------
MEETINGS OF STOCKHOLDERS
------------------------
Section 1. Place and Time of Meetings. An annual meeting of the
--------- --------------------------
stockholders shall be held each year for the purpose of electing directors and
conducting such other proper business as may come before the meeting. The date,
time and place of the annual meeting may be determined by resolution of the
board of directors or as set by the president of the corporation.
Section 2. Special Meetings. Special meetings of stockholders may be
--------- ----------------
called for any purpose (including, without limitation, the filling of board
vacancies and newly created directorships), and may be held at such time and
place, within or without the State of Delaware, as shall be stated in a notice
of meeting or in a duly executed waiver of notice thereof. Such meetings may be
called at any time by two or more members of the board of directors or the
president and shall be called by the president upon the written request of
holders of shares entitled to cast not less than fifty percent (50%) of the
outstanding shares of any series or class of the corporation's Capital Stock.
<PAGE>
Section 3. Place of Meetings. The board of directors may designate any
--------- -----------------
place, either within or without the State of Delaware, as the place of meeting
for any annual meeting or for any special meeting called by the board of
directors. If no designation is made, or if a special meeting be otherwise
called, the place of meeting shall be the principal executive office of the
corporation.
Section 4. Notice. Whenever stockholders are required or permitted to
--------- ------
take action at a meeting, written or printed notice stating the place, date,
time, and, in the case of special meetings, the purpose or purposes, of such
meeting, shall be given to each stockholder entitled to vote at such meeting not
less than 10 nor more than 60 days before the date of the meeting. All such
notices shall be delivered, either personally or by mail, by or at the direction
of the board of directors, the president or the secretary, and if mailed, such
notice shall be deemed to be delivered when deposited in the United States mail,
postage prepaid, addressed to the stockholder at his, her or its address as the
same appears on the records of the corporation. Attendance of a person at a
meeting shall consti tute a waiver of notice of such meeting, except when the
person attends for the express purpose of objecting at the beginning of the
meeting to the transaction of any business because the meeting is not lawfully
called or convened.
Section 5. Stockholders List. The officer having charge of the stock
--------- -----------------
ledger of the corporation shall make, at least 10 days before every meeting of
the stockholders, a complete list of the stockholders entitled to vote at such
meeting arranged in alphabetical order, showing the address of each stockholder
and the number of shares registered in the name of each stockholder. Such list
shall be open to the examination of any stockholder, for any purpose germane to
the meeting, during ordinary business hours, for a period of at least 10 days
prior to the meeting, either at a place within the city where the meeting is to
be held, which place shall be specified in the notice of the meeting or, if not
so specified, at the place where the meeting is to be held. The list shall also
be produced and kept at the time and place of the meeting during the whole time
thereof, and may be inspected by any stockholder who is present.
Section 6. Quorum. Except as otherwise provided by applicable law or by
--------- ------
the Certificate of Incorporation, a majority of the outstanding shares of the
corporation entitled to vote, represented in person or by proxy, shall
constitute a quorum at a meeting of stockholders. If less than a majority of
the outstanding shares are represented at a meeting, a majority of the shares so
represented may adjourn the meeting from time to time in accordance with Section
7 of this Article, until a quorum shall be present or represented.
Section 7. Adjourned Meetings. When a meeting is adjourned to another
--------- ------------------
time and place, notice need not be given of the adjourned meeting if the time
and place thereof are announced at the meeting at which the adjournment is
taken. At the adjourned meeting the corporation may transact any business which
might have been transacted at the original meeting. If the adjournment is for
more than thirty days, or if after the adjournment a new record date is fixed
for the adjourned meeting, a notice of the adjourned meeting shall be given to
each stockholder of record entitled to vote at the meeting.
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<PAGE>
Section 8. Vote Required. When a quorum is present, the affirmative vote
--------- -------------
of the majority of shares present in person or represented by proxy at the
meeting and entitled to vote on the subject matter shall be the act of the
stockholders, unless the question is one upon which by express provisions of an
applicable law or of the certificate of incorporation a different vote is
required, in which case such express provision shall govern and control the
decision of such question. Where a separate vote by class is required, the
affirmative vote of the majority of shares of such class present in person or
represented by proxy at the meeting shall be the act of such class.
Section 9. Voting Rights. Except as otherwise provided by the General
--------- -------------
Corporation Law of the State of Delaware or by the certificate of incorporation
of the corporation or any amendments thereto and subject to Section 3 of Article
VI hereof, every stockholder shall at every meeting of the stockholders be
entitled to one vote in person or by proxy for each share of common stock held
by such stockholder.
Section 10. Proxies. Each stockholder entitled to vote at a meeting of
---------- -------
stockholders or to express consent or dissent to corporate action in writing
without a meeting may authorize another person or persons to act for him, her or
it by proxy. Every proxy must be signed by the stockholder granting the proxy
or by his, her or its attorney-in-fact. No proxy shall be voted or acted upon
after three years from its date, unless the proxy provides for a longer period.
A duly executed proxy shall be irrevocable if it states that it is irrevocable
and if, and only as long as, it is coupled with an interest sufficient in law to
support an irrevocable power. A proxy may be made irrevocable regardless of
whether the interest with which it is coupled is an interest in the stock itself
or an interest in the Corporation generally.
Section 11. Action by Written Consent. Unless otherwise provided in the
---------- -------------------------
certificate of incorporation, any action required to be taken at any annual or
special meeting of stockholders of the corporation, or any action which may be
taken at any annual or special meeting of such stockholders, may be taken
without a meeting, without prior notice and without a vote, if a consent or
consents in writing, setting forth the action so taken and bearing the dates of
signature of the stockholders who signed the consent or consents, shall be
signed by the holders of outstanding stock having not less than a majority of
the shares entitled to vote, or, if greater, not less than the minimum number of
votes that would be necessary to authorize or take such action at a meeting at
which all shares entitled to vote thereon were present and voted and shall be
delivered to the corporation by delivery to its registered office in the state
of Delaware, or the corporation's principal place of business, or an officer or
agent of the corporation having custody of the book or books in which
proceedings of meetings of the stockholders are recorded. Delivery made to the
corporation's registered office shall be by hand or by certified or registered
mail, return receipt requested provided, however, that no consent or consents
delivered by certified or registered mail shall be deemed delivered until such
consent or consents are actually received at the registered office. All
consents properly delivered in accordance with this section shall be deemed to
be recorded when so delivered. No written consent shall be effective to take the
corporate action referred to therein unless, within sixty days of the earliest
dated consent delivered to the corporation as required by this section, written
consents signed by the holders of a sufficient number of shares to take such
corporate action
-3-
<PAGE>
are so recorded. Prompt notice of the taking of the corporate action without a
meeting by less than unanimous written consent shall be given to those
stockholders who have not consented in writing. Any action taken pursuant to
such written consent or consents of the stockholders shall have the same force
and effect as if taken by the stockholders at a meeting thereof.
ARTICLE III
-----------
DIRECTORS
---------
Section 1. General Powers. The business and affairs of the corporation
--------- --------------
shall be managed by or under the direction of the board of directors.
Section 2. Number, Election and Term of Office. The number of directors
--------- -----------------------------------
which shall constitute the first board shall be three (3). Thereafter, the
number of directors shall be established from time to time by resolution of the
board. The directors shall be elected by a plurality of the votes of the shares
present in person or represented by proxy at the meeting and entitled to vote in
the election of directors. The directors shall be elected in this manner at the
annual meeting of the stockholders, except as provided in Section 4 of this
Article III. Each director elected shall hold office until a successor is duly
elected and qualified or until his or her earlier death, resignation or removal
as hereinafter provided.
Section 3. Removal and Resignation. Any director or the entire board of
--------- -----------------------
directors may be removed at any time, with or without cause, by the holders of a
majority of the shares then entitled to vote at an election of directors.
Whenever the holders of any class or series are entitled to elect one or more
directors by the provisions of the corporation's certificate of incorporation,
the provisions of this section shall apply, in respect to the removal without
cause or a director or directors so elected, to the vote of the holders of the
outstanding shares of that class or series and not to the vote of the
outstanding shares as a whole. Any director may resign at any time upon written
notice to the corporation.
Section 4. Vacancies. Except as otherwise provided by the Certificate of
--------- ---------
Incorporation of the corporation or any amendments thereto, vacancies and newly
created directorships resulting from any increase in the authorized number of
directors may be filled by a majority vote of the holders of the corporation's
outstanding stock entitled to vote thereon. Each director so chosen shall hold
office until a successor is duly elected and qualified or until his or her
earlier death, resignation or removal as herein provided.
Section 5. Annual Meetings. The annual meeting of each newly elected
--------- ---------------
board of directors shall be held without other notice than this by-law
immediately after, and at the same place as, the annual meeting of stockholders.
Section 6. Other Meetings and Notice. Regular meetings, other than the
--------- -------------------------
annual meeting, of the board of directors may be held without notice at such
time and at such place as shall from time
-4-
<PAGE>
to time be determined by resolution of the board. Special meetings of the board
of directors may be called by or at the request of the president or vice
president on at least 24 hours notice to each director, either personally, by
telephone, by mail, or by telegraph; in like manner and on like notice the
president must call a special meeting on the written request of at least a
majority of the directors.
Section 7. Quorum, Required Vote and Adjournment. A majority of the
--------- -------------------------------------
total number of directors shall constitute a quorum for the transaction of
business. The vote of a majority of directors present at a meeting at which a
quorum is present shall be the act of the board of directors. If a quorum shall
not be present at any meeting of the board of directors, the directors present
thereat may adjourn the meeting from time to time, without notice other than
announcement at the meeting, until a quorum shall be present.
Section 8. Committees. The board of directors may, by resolution passed
--------- ----------
by a majority of the whole board, designate one or more committees, each
committee to consist of one or more of the directors of the corporation, which
to the extent provided in such resolution or these by-laws shall have and may
exercise the powers of the board of directors in the management and affairs of
the corporation except as otherwise limited by law. The board of directors may
designate one or more directors as alternate members of any committee, who may
replace any absent or disqualified member at any meeting of the committee. Such
committee or committees shall have such name or names as may be determined from
time to time by resolution adopted by the board of directors. Each committee
shall keep regular minutes of its meetings and report the same to the board of
directors when required.
Section 9. Committee Rules. Each committee of the board of directors may
--------- ---------------
fix its own rules of procedure and shall hold its meetings as provided by such
rules, except as may otherwise be provided by a resolution of the board of
directors designating such committee. Unless otherwise provided in such a
resolution, the presence of at least a majority of the members of the committee
shall be necessary to constitute a quorum. In the event that a member and that
member's alternate, if alternates are designated by the board of directors as
provided in Section 8 of this Article III, of such committee is or are absent or
disqualified, the member or members thereof present at any meeting and not
disqualified from voting, whether or not such member or members constitute a
quorum, may unanimously appoint another member of the board of directors to act
at the meeting in place of any such absent or disqualified member.
Section 10. Communications Equipment. Members of the board of directors
---------- ------------------------
or any committee thereof may participate in and act at any meeting of such board
or committee through the use of a conference telephone or other communications
equipment by means of which all persons participating in the meeting can hear
each other, and participation in the meeting pursuant to this section shall
constitute presence in person at the meeting.
Section 11. Waiver of Notice and Presumption of Assent. Any member of the
---------- ------------------------------------------
board of directors or any committee thereof who is present at a meeting shall be
conclusively presumed to have waived notice of such meeting except when such
member attends for the express purpose of
-5-
<PAGE>
objecting at the beginning of the meeting to the transaction of any business
because the meeting is not lawfully called or convened. Such member shall be
conclusively presumed to have assented to any action taken unless his or her
dissent shall be entered in the minutes of the meeting or unless his or her
written dissent to such action shall be filed with the person acting as the
secretary of the meeting before the adjournment thereof or shall be forwarded by
registered mail to the secretary of the corporation immediately after the
adjournment of the meeting. Such right to dissent shall not apply to any member
who voted in favor of such action.
Section 12. Action by Written Consent. Unless otherwise restricted by the
---------- -------------------------
certificate of incorporation, any action required or permitted to be taken at
any meeting of the board of directors, or of any committee thereof, may be taken
without a meeting if all members of the board or committee, as the case may be,
consent thereto in writing, and the writing or writings are filed with the
minutes of proceedings of the board or committee.
ARTICLE IV
----------
OFFICERS
--------
Section 1. Number. The officers of the corporation shall be elected by
--------- ------
the board of directors and shall consist of a chairman, if any is elected, a
president, one or more vice presidents, a secretary, a treasurer, and such other
officers and assistant officers as may be deemed necessary or desirable by the
board of directors. Any number of offices may be held by the same person,
except that no person may simultaneously hold the office of president and
secretary. In its discretion, the board of directors may choose not to fill any
office for any period as it may deem advisable.
Section 2. Election and Term of Office. The officers of the corporation
--------- ---------------------------
shall be elected annually by the board of directors at its first meeting held
after each annual meeting of stockholders or as soon thereafter as conveniently
may be. The president shall appoint other officers to serve for such terms as
he or she deems desirable. Vacancies may be filled or new offices created and
filled at any meeting of the board of directors. Each officer shall hold office
until a successor is duly elected and qualified or until his or her earlier
death, resignation or removal as hereinafter provided.
Section 3. Removal. Any officer or agent elected by the board of
--------- -------
directors may be removed by the board of directors whenever in its judgment the
best interests of the corporation would be served thereby, but such removal
shall be without prejudice to the contract rights, if any, of the person so
removed.
Section 4. Vacancies. Any vacancy occurring in any office because of
--------- ---------
death, resignation, removal, disqualification or otherwise, may be filled by the
board of directors for the unexpired portion of the term by the board of
directors then in office.
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<PAGE>
Section 5. Compensation. Compensation of all officers shall be fixed by
--------- ------------
the board of directors, and no officer shall be prevented from receiving such
compensation by virtue of his or her also being a director of the corporation.
Section 6. The Chairman of the Board. The Chairman of the Board, if one
---------- -------------------------
shall have been elected, shall be a member of the board, an officer of the
Corporation, and, if present, shall preside at each meeting of the board of
directors or shareholders. The Chairman of the Board shall, in the absence or
disability of the president, act with all of the powers and be subject to all
the restrictions of the president. He shall advise the president, and in the
president's absence, other officers of the Corporation, and shall perform such
other duties as may from time to time be assigned to him by the board of
directors.
Section 7. The President. The president shall be the chief executive
--------- -------------
officer of the corporation. In the absence of the Chairman of the Board or if a
Chairman of the Board shall have not been elected, the president shall preside
at all meetings of the stockholders and board of directors at which he or she is
present; subject to the powers of the board of directors, shall have general
charge of the business, affairs and property of the corporation, and control
over its officers, agents and employees; and shall see that all orders and
resolutions of the board of directors are carried into effect. The president
shall have such other powers and perform such other duties as may be prescribed
by the board of directors or as may be provided in these by-laws.
Section 8. Vice-presidents. The vice-president, if any, or if there shall
--------- ---------------
be more than one, the vice-presidents in the order determined by the board of
directors shall, in the absence or disability of the president, act with all of
the powers and be subject to all the restrictions of the president. The vice-
presidents shall also perform such other duties and have such other powers as
the board of directors, the president or these by-laws may, from time to time,
prescribe.
Section 9. The Secretary and Assistant Secretaries. The secretary shall
--------- ---------------------------------------
attend all meetings of the board of directors, all meetings of the committees
thereof and all meetings of the stockholders and record all the proceedings of
the meetings in a book or books to be kept for that purpose. Under the
president's supervision, the secretary shall give, or cause to be given, all
notices required to be given by these by-laws or by law; shall have such powers
and perform such duties as the board of directors, the president or these by-
laws may, from time to time, prescribe; and shall have custody of the corporate
seal of the corporation. The secretary, or an assistant secretary, shall have
authority to affix the corporate seal to any instrument requiring it and when so
affixed, it may be attested by his or her signature or by the signature of such
assistant secretary. The board of directors may give general authority to any
other officer to affix the seal of the corporation and to attest the affixing by
his or her signature. The assistant secretary, or if there be more than one,
the assistant secretaries in the order determined by the board of directors,
shall, in the absence or disability of the secretary, perform the duties and
exercise the powers of the secretary and shall perform such other duties and
have such other powers as the board of directors, the president, or secretary
may, from time to time, prescribe.
-7-
<PAGE>
Section 10. The Treasurer and Assistant Treasurer. The treasurer shall
---------- -------------------------------------
have the custody of the corporate funds and securities; shall keep full and
accurate accounts of receipts and disbursements in books belonging to the
corporation; shall deposit all monies and other valuable effects in the name and
to the credit of the corporation as may be ordered by the board of directors;
shall cause the funds of the corporation to be disbursed when such disbursements
have been duly authorized, taking proper vouchers for such disbursements; and
shall render to the president and the board of directors, at its regular meeting
or when the board of directors so requires, an account of the corporation; shall
have such powers and perform such duties as the board of directors, the presi
dent or these by-laws may, from time to time, prescribe. If required by the
board of directors, the treasurer shall give the corporation a bond (which shall
be rendered every six years) in such sums and with such surety or sureties as
shall be satisfactory to the board of directors for the faithful performance of
the duties of the office of treasurer and for the restoration to the
corporation, in case of death, resignation, retirement, or removal from office,
of all books, papers, vouchers, money, and other property of whatever kind in
the possession or under the control of the treasurer belonging to the
corporation. The assistant treasurer, or if there shall be more than one, the
assistant treasurers in the order determined by the board of directors, shall in
the absence or disability of the treasurer, perform the duties and exercise the
powers of the treasurer. The assistant treasurers shall perform such other
duties and have such other powers as the board of directors, the president or
treasurer may, from time to time, prescribe.
Section 11. Other Officers, Assistant Officers and Agents. Officers,
---------- ---------------------------------------------
assistant officers and agents, if any, other than those whose duties are
provided for in these by-laws, shall have such authority and perform such duties
as may from time to time be prescribed by resolution of the board of directors.
Section 12. Absence or Disability of Officers. In the case of the absence
---------- ---------------------------------
or disability of any officer of the corporation and of any person hereby
authorized to act in such officer's place during such officer's absence or
disability, the board of directors may by resolution delegate the powers and
duties of such officer to any other officer or to any director, or to any other
person whom it may select.
ARTICLE V
---------
INDEMNIFICATION OF OFFICERS, DIRECTORS AND OTHERS
-------------------------------------------------
Section 1. Nature of Indemnity. Each person who was or is made a party or
--------- -------------------
is threatened to be made a party to or is involved in any action, suit or
proceeding, whether civil, criminal, administrative or investigative
(hereinafter a "proceeding"), by reason of the fact that he or a person of whom
he is the legal representative, is or was a director or officer, of the
corporation or is or was serving at the request of the corporation as a
director, officer, employee, fiduciary, or agent of another corporation or of a
partnership, joint venture, trust or other enterprise, including service with
respect to employee benefit plans, whether the basis of such proceeding is
alleged action in an official capacity as a director, officer, employee,
fiduciary or agent or in any other capacity while serving as a director,
officer, employee, fiduciary or agent, shall be indemnified and held harmless
-8-
<PAGE>
by the corporation to the fullest extent which it is empowered to do so by the
General Corporation Law of the State of Delaware, as the same exists or may
hereafter be amended (but, in the case of any such amendment, only to the extent
that such amendment permits the corporation to provide broader indemnification
rights than said law permitted the corporation to provide prior to such
amendment) against all expense, liability and loss (including attorneys' fees
actually and reasonably incurred by such person in connection with such
proceeding and such indemnification shall inure to the benefit of his or her
heirs, executors and administrators; provided, however, that, except as provided
in Section 2 hereof, the corporation shall indemnify any such person seeking
indemnification in connection with a proceeding initiated by such person only if
such proceeding was authorized by the board of directors of the corporation.
The right to indemnification conferred in this Article V shall be a contract
right and, subject to Sections 2 and 5 hereof, shall include the right to be
paid by the corporation the expenses incurred in defending any such proceeding
in advance of its final disposition. The corporation may, by action of its
board of directors, provide indemnification to employees and agents of the
corporation with the same scope and effect as the foregoing indemnification of
directors and officers.
Section 2. Procedure for Indemnification of Directors and Officers. Any
--------- -------------------------------------------------------
indemnification of a director or officer of the corporation under Section 1 of
this Article V or advance of expenses under Section 5 of this Article V shall be
made promptly, and in any event within 30 days, upon the written request of the
director or officer. If a determination by the corporation that the director or
officer is entitled to indemnification pursuant to this Article V is required,
and the corporation fails to respond within sixty days to a written request for
indemnity, the corporation shall be deemed to have approved the request. If the
corporation denies a written request for indemnification or advancing of
expenses, in whole or in part, or if payment in full pursuant to such request is
not made within 30 days, the right to indemnification or advances as granted by
this Article V shall be enforceable by the director or officer in any court of
competent jurisdiction. Such person's costs and expenses incurred in connection
with successfully establishing his or her right to indemnification, in whole or
in part, in any such action shall also be indemnified by the corporation. It
shall be a defense to any such action (other than an action brought to enforce a
claim for expenses incurred in defending any proceeding in advance of its final
disposition where the required undertaking, if any, has been tendered to the
corporation) that the claimant has not met the standards of conduct which make
it permissible under the General Corporation Law of the State of Delaware for
the corporation to indemnify the claimant for the amount claimed, but the burden
of such defense shall be on the corporation. Neither the failure of the
corporation (including its board of directors, independent legal counsel, or its
stockholders) to have made a determination prior to the commencement of such
action that indemnification of the claimant is proper in the circumstances
because he or she has met the applicable standard of conduct set forth in the
General Corporation Law of the State of Delaware, nor an actual determination by
the corporation (including its board of directors, independent legal counsel, or
its stockholders) that the claimant has not met such applicable standard of
conduct, shall be a defense to the action or create a presumption that the
claimant has not met the applicable standard of conduct.
-9-
<PAGE>
Section 3. Nonexclusivity of Article V. The rights to indemnification and
--------- ---------------------------
the payment of expenses incurred in defending a proceeding in advance of its
final disposition conferred in this Article V shall not be exclusive of any
other right which any person may have or hereafter acquire under any statute,
provision of the certificate of incorporation, by-law, agreement, vote of
stockholders or disinterested directors or otherwise.
Section 4. Insurance. The corporation may purchase and maintain insurance
--------- ---------
on its own behalf and on behalf of any person who is or was a director, officer,
employee, fiduciary, or agent of the corporation or was serving at the request
of the corporation as a director, officer, employee or agent of another
corporation, partnership, joint venture, trust or other enterprise against any
liability asserted against him or her and incurred by him or her in any such
capacity, whether or not the corporation would have the power to indemnify such
person against such liability under this Article V.
Section 5. Expenses. Expenses incurred by any person described in Section
--------- --------
1 of this Article V in defending a proceeding shall be paid by the corporation
in advance of such proceeding's final disposition unless otherwise determined by
the board of directors in the specific case upon receipt of an undertaking by or
on behalf of the director or officer to repay such amount if it shall ultimately
be determined that he or she is not entitled to be indemnified by the
corporation. Such expenses incurred by other employees and agents may be so
paid upon such terms and conditions, if any, as the board of directors deems
appropriate.
Section 6. Employees and Agents. Persons who are not covered by the
--------- --------------------
foregoing provisions of this Article V and who are or were employees or agents
of the corporation, or who are or were serving at the request of the corporation
as employees or agents of another corporation, partnership, joint venture, trust
or other enterprise, may be indemnified to the extent authorized at any time or
from time to time by the board of directors.
Section 7. Contract Rights. The provisions of this Article V shall be
--------- ---------------
deemed to be a contract right between the corporation and each director or
officer who serves in any such capacity at any time while this Article V and the
relevant provisions of the General Corporation Law of the State of Delaware or
other applicable law are in effect, and any repeal or modification of this
Article V or any such law shall not affect any rights or obligations then
existing with respect to any state of facts or proceeding then existing.
Section 8. Merger or Consolidation. For purposes of this Article V,
--------- -----------------------
references to "the corporation" shall include, in addition to the resulting
corporation, any constituent corporation (including any constituent of a
constituent) absorbed in a consolidation or merger which, if its separate
existence had continued, would have had power and authority to indemnify its
directors, officers, and employees or agents, so that any person who is or was a
director, officer, employee or agent of such constituent corporation, or is or
was serving at the request of such constituent corporation as a director,
officer, employee or agent of another corporation, partnership, joint venture,
trust or other enterprise, shall stand in the same position under this Article V
with respect
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<PAGE>
to the resulting or surviving corporation as he or she would have with respect
to such constituent corporation if its separate existence had continued.
ARTICLE VI
----------
CERTIFICATES OF STOCK
---------------------
Section 1. Form. Every holder of stock in the corporation shall be
--------- ----
entitled to have a certificate, signed by, or in the name of the corporation by
the chairman of the board, the president or a vice-president and the secretary
or an assistant secretary of the corporation, certifying the number of shares
owned by such holder in the corporation. If such a certificate is countersigned
(1) by a transfer agent or an assistant transfer agent other than the
corporation or its employee or (2) by a registrar, other than the corporation or
its employee, the signature of any such chairman of the board, president, vice-
president, secretary, or assistant secretary may be facsimiles. In case any
officer or officers who have signed, or whose facsimile signature or signatures
have been used on, any such certificate or certificates shall cease to be such
officer or officers of the corporation whether because of death, resignation or
otherwise before such certificate or certificates have been delivered by the
corporation, such certificate or certificates may nevertheless be issued and
delivered as though the person or persons who signed such certificate or
certificates or whose facsimile signature or signatures have been used thereon
had not ceased to be such officer or officers of the corporation. All
certificates for shares shall be consecutively numbered or otherwise identified.
The name of the person to whom the shares represented thereby are issued, with
the number of shares and date of issue, shall be entered on the books of the
corporation. Shares of stock of the corporation shall only be transferred on
the books of the corporation by the holder of record thereof or by such holder's
attorney duly authorized in writing, upon surrender to the corporation of the
certificate or certificates for such shares endorsed by the appropriate person
or persons, with such evidence of the authenticity of such endorsement,
transfer, authorization, and other matters as the corporation may reasonably
require, and accompanied by all necessary stock transfer stamps. In that event,
it shall be the duty of the corporation to issue a new certificate to the person
entitled thereto, cancel the old certificate or certificates, and record the
transaction on its books. The board of directors may appoint a bank or trust
company organized under the laws of the United States or any state thereof to
act as its transfer agent or registrar, or both in connection with the transfer
of any class or series of securities of the corporation.
Section 2. Lost Certificates. The board of directors may direct a new
--------- -----------------
certificate or certificates to be issued in place of any certificate or
certificates previously issued by the corporation alleged to have been lost,
stolen, or destroyed, upon the making of an affidavit of that fact by the person
claiming the certificate of stock to be lost, stolen, or destroyed. When
authorizing such issue of a new certificate or certificates, the board of
directors may, in its discretion and as a condition precedent to the issuance
thereof, require the owner of such lost, stolen, or destroyed certificate or
certificates, or his or her legal representative, to give the corporation a bond
sufficient to indemnify
-11-
<PAGE>
the corporation against any claim that may be made against the corporation on
account of the loss, theft or destruction of any such certificate or the
issuance of such new certificate.
Section 3. Fixing a Record Date for Stockholder Meetings. In order that
--------- ---------------------------------------------
the corporation may determine the stockholders entitled to notice of or to vote
at any meeting of stockholders or any adjournment thereof, the board of
directors may fix a record date, which record date shall not precede the date
upon which the resolution fixing the record date is adopted by the board of
directors, and which record date shall not be more than sixty nor less than ten
days before the date of such meeting. If no record date is fixed by the board
of directors, the record date for determining stockholders entitled to notice of
or to vote at a meeting of stockholders shall be the close of business on the
next day preceding the day on which notice is given, or if notice is waived, at
the close of business on the day next preceding the day on which the meeting is
held. A determination of stockholders of record entitled to notice of or to
vote at a meeting of stockholders shall apply to any adjournment of the meeting;
provided, however, that the board of directors may fix a new record date for the
adjourned meeting.
Section 4. Fixing a Record Date for Action by Written Consent. In order
--------- --------------------------------------------------
that the corporation may determine the stockholders entitled to consent to
corporate action in writing without a meeting, the board of directors may fix a
record date, which record date shall not precede the date upon which the
resolution fixing the record date is adopted by the board of directors, and
which date shall not be more than ten days after the date upon which the
resolution fixing the record date is adopted by the board of directors. If no
record date has been fixed by the board of directors, the record date for
determining stockholders entitled to consent to corporate action in writing
without a meeting, when no prior action by the board of directors is required by
statute, shall be the first date on which a signed written consent setting forth
the action taken or proposed to be taken is delivered to the corporation by
delivery to its registered office in the State of Delaware, its principal place
of business, or an officer or agent of the corporation having custody of the
book in which proceedings of meetings of stockholders are recorded. Delivery
made to the corporation's registered office shall be by hand or by certified or
registered mail, return receipt requested. If no record date has been fixed by
the board of directors and prior action by the board of directors is required by
statute, the record date for determining stockholders entitled to consent to
corporate action in writing without a meeting shall be at the close of business
on the day on which the board of directors adopts the resolution taking such
prior action.
Section 5. Fixing a Record Date for Other Purposes. In order that the
--------- ---------------------------------------
corporation may determine the stockholders entitled to receive payment of any
dividend or other distribution or allotment or any rights or the stockholders
entitled to exercise any rights in respect of any change, conversion or exchange
of stock, or for the purposes of any other lawful action, the board of directors
may fix a record date, which record date shall not precede the date upon which
the resolution fixing the record date is adopted, and which record date shall be
not more than sixty days prior to such action. If no record date is fixed, the
record date for determining stockholders for any such purpose shall be at the
close of business on the day on which the board of directors adopts the
resolution relating thereto.
-12-
<PAGE>
Section 6. Subscriptions for Stock. Unless otherwise provided for in the
--------- -----------------------
subscription agreement, subscriptions for shares shall be paid in full at such
time, or in such installments and at such times, as shall be determined by the
board of directors. Any call made by the board of directors for payment on
subscriptions shall be uniform as to all shares of the same class or as to all
shares of the same series. In case of default in the payment of any installment
or call when such payment is due, the corporation may proceed to collect the
amount due in the same manner as any debt due the corporation.
ARTICLE VII
-----------
GENERAL PROVISIONS
------------------
Section 1. Dividends. Dividends upon the capital stock of the
--------- ---------
corporation, subject to the provisions of the certificate of incorporation, if
any, may be declared by the board of directors at any regular or special
meeting, pursuant to law. Dividends may be paid in cash, in property, or in
shares of the capital stock, subject to the provisions of the certificate of
incorporation. Before payment of any dividend, there may be set aside out of
any funds of the corporation available for dividends such sum or sums as the
directors from time to time, in their absolute discretion, think proper as a
reserve or reserves to meet contingencies, or for equalizing dividends, or for
repairing or maintaining any property of the corporation, or any other purpose
and the directors may modify or abolish any such reserve in the manner in which
it was created.
Section 2. Checks, Drafts or Orders. All checks, drafts, or other orders
--------- ------------------------
for the payment of money by or to the corporation and all notes and other
evidences of indebtedness issued in the name of the corporation shall be signed
by such officer or officers, agent or agents of the corporation, and in such
manner, as shall be determined by resolution of the board of directors or a duly
authorized committee thereof.
Section 3. Contracts. The board of directors may authorize any officer or
--------- ---------
officers, or any agent or agents, of the corporation to enter into any contract
or to execute and deliver any instrument in the name of and on behalf of the
corporation, and such authority may be general or confined to specific
instances.
Section 4. Loans. The corporation may lend money to, or guarantee any
--------- -----
obligation of, or otherwise assist any officer or other employee of the
corporation or of its subsidiary, including any officer or employee who is a
director of the corporation or its subsidiary, whenever, in the judgment of the
directors, such loan, guaranty or assistance may reasonably be expected to
benefit the corporation. The loan, guaranty or other assistance may be with or
without interest, and may be unsecured, or secured in such manner as the board
of directors shall approve, including, without limitation, a pledge of shares of
stock of the corporation. Nothing in this section contained shall be deemed to
deny, limit or restrict the powers of guaranty or warranty of the corporation at
common law or under any statute.
-13-
<PAGE>
Section 5. Fiscal Year. The fiscal year of the corporation shall be fixed
--------- -----------
by resolution of the board of directors.
Section 6. Corporate Seal. The board of directors may provide a corporate
--------- --------------
seal which shall be in the form of a circle and shall have inscribed thereon the
name of the corporation and the words "Corporate Seal, Delaware". The seal may
be used by causing it or a facsimile thereof to be impressed or affixed or
reproduced or otherwise.
Section 7. Voting Securities Owned By Corporation. Voting securities in
--------- --------------------------------------
any other corporation held by the corporation shall be voted by the president,
unless the board of directors specifically confers authority to vote with
respect thereto, which authority may be general or confined to specific
instances, upon some other person or officer. Any person authorized to vote
securities shall have the power to appoint proxies, with general power of
substitution.
Section 8. Inspection of Books and Records. Any stockholder of record, in
--------- -------------------------------
person or by attorney or other agent, shall, upon written demand under oath
stating the purpose thereof, have the right during the usual hours for business
to inspect for any proper purpose the corporation's stock ledger, a list of its
stockholders, and its other books and records, and to make copies or extracts
therefrom. A proper purpose shall mean any purpose reasonably related to such
person's interest as a stockholder. In every instance where an attorney or
other agent shall be the person who seeks the right to inspection, the demand
under oath shall be accompanied by a power of attorney or such other writing
which authorizes the attorney or other agent to so act on behalf of the
stockholder. The demand under oath shall be directed to the corporation at its
registered office in the State of Delaware or at its principal place of
business.
Section 9. Section Headings. Section headings in these by-laws are for
--------- ----------------
convenience of reference only and shall not be given any substantive effect in
limiting or otherwise construing any provision herein.
Section 10. Inconsistent Provisions. In the event that any provision of
---------- -----------------------
these by-laws is or becomes inconsistent with any provision of the certificate
of incorporation, the General Corporation Law of the State of Delaware or any
other applicable law, the provision of these by-laws shall not be given any
effect to the extent of such inconsistency but shall otherwise be given full
force and effect.
ARTICLE VIII
------------
AMENDMENTS
----------
These by-laws may be amended, altered, or repealed and new by-laws adopted
at any meeting of the board of directors by a majority vote. The fact that the
power to adopt, amend, alter, or repeal
-14-
<PAGE>
the by-laws has been conferred upon the board of directors shall not divest the
stockholders of the same powers.
-15-
<PAGE>
EXHIBIT 4.1
EXECUTION COPY
================================================================================
GLENOIT CORPORATION
11% Senior Subordinated Notes due 2007
--------------------------------------------------
INDENTURE
Dated as of April 1, 1997
--------------------------------------------------
UNITED STATES TRUST COMPANY OF NEW YORK
Trustee
================================================================================
<PAGE>
TABLE OF CONTENTS
Page
----
ARTICLE 1
Definitions and Incorporation by Reference
SECTION 1.01. Definitions ........................ 1
SECTION 1.02. Other Definitions .................. 28
SECTION 1.03. Incorporation by Reference
of Trust Indenture Act ........... 28
SECTION 1.04. Rules of Construction .............. 29
ARTICLE 2
The Securities
SECTION 2.01. Amount of Securities; Issuable in
Series............................ 29
SECTION 2.02. Form and Dating .................... 31
SECTION 2.03. Execution and Authentication ....... 31
SECTION 2.04. Registrar and Paying Agent ......... 32
SECTION 2.05. Paying Agent To Hold Money in Trust 33
SECTION 2.07. Replacement Securities ............. 33
SECTION 2.08. Outstanding Securities ............. 34
SECTION 2.09. Temporary Securities ............... 34
SECTION 2.10. Cancellation ....................... 34
SECTION 2.11. Defaulted Interest ................. 35
SECTION 2.12. CUSIP Numbers ...................... 35
ARTICLE 3
Redemption
SECTION 3.01. Notices to Trustee ................. 35
SECTION 3.02. Selection of Securities To Be
Redeemed ......................... 36
SECTION 3.03. Notice of Redemption ............... 36
SECTION 3.04. Effect of Notice of Redemption ..... 37
SECTION 3.05. Deposit of Redemption Price ........ 37
SECTION 3.06. Securities Redeemed in Part ........ 37
<PAGE>
Contents, p. 2
Page
----
ARTICLE 4
Covenants
SECTION 4.01. Payment of Securities .............. 37
SECTION 4.02. SEC Reports ........................ 38
SECTION 4.03. Limitation on Indebtedness ......... 38
SECTION 4.04. Limitation on Restricted Payments .. 41
SECTION 4.05. Limitation on Restrictions on
Distributions from Restricted
Subsidiaries ..................... 46
SECTION 4.06. Limitation on Sales of Assets and
Subsidiary Stock ................. 47
SECTION 4.07. Limitation on Affiliate Trans-
actions .......................... 51
SECTION 4.08. Limitation on the Sale or
Issuance of Capital Stock of
Restricted Subsidiaries .......... 52
SECTION 4.09. Change of Control .................. 53
SECTION 4.10. Limitation on Liens ................ 54
SECTION 4.11. Compliance Certificate ............. 54
SECTION 4.12. Further Instruments and Acts ....... 55
SECTION 4.13. Future Guarantors .................. 55
SECTION 4.14. Tax Sharing Agreement............... 55
ARTICLE 5
Successor Company
SECTION 5.01. When Company May Merge or Transfer
Assets ........................... 55
SECTION 5.02. When a Subsidiary Guarantor May
Merge or Transfer Assets ......... 57
ARTICLE 6
Defaults and Remedies
SECTION 6.01. Events of Default .................. 57
SECTION 6.02. Acceleration ....................... 60
SECTION 6.03. Other Remedies ..................... 60
SECTION 6.04. Waiver of Past Defaults ............ 61
SECTION 6.05. Control by Majority ................ 61
<PAGE>
Contents, p. 3
Page
----
SECTION 6.06. Limitation on Suits ................ 61
SECTION 6.07. Rights of Holders to Receive
Payment .......................... 62
SECTION 6.08. Collection Suit by Trustee ......... 62
SECTION 6.09. Trustee May File Proofs of Claim ... 62
SECTION 6.10. Priorities ......................... 63
SECTION 6.11. Undertaking for Costs .............. 63
SECTION 6.12. Waiver of Stay or Extension Laws ... 63
ARTICLE 7
Trustee
SECTION 7.01. Duties of Trustee .................. 64
SECTION 7.02. Rights of Trustee .................. 65
SECTION 7.03. Individual Rights of Trustee ....... 66
SECTION 7.04. Trustee's Disclaimer ............... 66
SECTION 7.05. Notice of Defaults ................. 66
SECTION 7.06. Reports by Trustee to Holders ...... 66
SECTION 7.07. Compensation and Indemnity ......... 67
SECTION 7.08. Replacement of Trustee ............. 67
SECTION 7.09. Successor Trustee by Merger ........ 69
SECTION 7.10. Eligibility; Disqualification ...... 69
SECTION 7.11. Preferential Collection
of Claims Against Company ........ 69
ARTICLE 8
Discharge of Indenture; Defeasance
SECTION 8.01. Discharge of Liability on Securi-
ties; Defeasance ................. 69
SECTION 8.02. Conditions to Defeasance ........... 71
SECTION 8.03. Application of Trust Money ......... 72
SECTION 8.04. Repayment to Company ............... 72
SECTION 8.05. Indemnity for Government
Obligations ...................... 72
SECTION 8.06. Reinstatement ...................... 73
<PAGE>
Contents, p. 4
Page
----
ARTICLE 9
Amendments
SECTION 9.01. Without Consent of Holders ......... 73
SECTION 9.02. With Consent of Holders ............ 74
SECTION 9.03. Compliance with Trust Indenture Act 75
SECTION 9.04. Revocation and Effect of
Consents and Waivers.............. 75
SECTION 9.05. Notation on or Exchange of
Securities ....................... 76
SECTION 9.06. Trustee To Sign Amendments ......... 76
SECTION 9.07. Payment for Consent ................ 76
ARTICLE 10
Subordination
SECTION 10.01. Agreement To Subordinate ........... 77
SECTION 10.02. Liquidation, Dissolution, Bankruptcy
.................................... 78
SECTION 10.04. Acceleration of Payment of
Securities ....................... 79
SECTION 10.05. When Distribution Must Be Paid Over 79
SECTION 10.07. Relative Rights .................... 79
SECTION 10.08. Subordination May Not Be Impaired
by Company ....................... 80
SECTION 10.09. Rights of Trustee and Paying Agent . 80
SECTION 10.10. Distribution or Notice to
Representative ................... 80
SECTION 10.11. Article 10 Not To Prevent Events
of Default or Limit Right To
Accelerate ....................... 80
SECTION 10.12. Trust Moneys Not Subordinated ...... 81
SECTION 10.13. Trustee Entitled To Rely ........... 81
SECTION 10.14. Trustee To Effectuate Subordination 82
SECTION 10.15. Trust Not Fiduciary for Holders
on Senior Indebtedness............ 82
SECTION 10.16. Reliance by Holders of Senior
Indebtedness on Subordination
Provisions ....................... 82
<PAGE>
Contents, p. 5
Page
----
ARTICLE 11
Subsidiary Guaranties
SECTION 11.01. Guaranties ......................... 82
SECTION 11.02. Limitation on Liability ............ 85
SECTION 11.03. Successors and Assigns ............. 85
SECTION 11.04. No Waiver .......................... 85
SECTION 11.05. Modification ....................... 85
SECTION 11.06. Release of Subsidiary Guarantor .... 86
SECTION 11.07. Execution of Supplemental
Indenture for Future Subsidiary
Guarantors ....................... 86
ARTICLE 12
Subordination of Subsidiary Guaranties
SECTION 12.01. Agreement To Subordinate ........... 86
SECTION 12.02. Liquidation, Dissolution, Bankruptcy 87
SECTION 12.03. Default on Senior Indebtedness of
Subsidiary Guarantor.............. 87
SECTION 12.04. Demand for Payment ................. 88
SECTION 12.05. When Distribution Must Be Paid Over 88
SECTION 12.06. Subrogation......................... 89
SECTION 12.07. Relative Rights .................... 89
SECTION 12.08. Subordination May Not Be Impaired
by Company ....................... 89
SECTION 12.09. Rights of Trustee and Paying Agent . 89
SECTION 12.10. Distribution or Notice to
Representative ................... 90
SECTION 12.11. Article 12 Not To Prevent
Defaults Under a Subsidiary
Guaranty or Limit Right To
Demand Payment ................... 90
SECTION 12.12. Trustee Entitled To Rely ........... 90
SECTION 12.13. Trustee To Effectuate Subordination
SECTION 12.14. Trust Not Fiduciary for Holders
on Senior Indebtedness of
Subsidiary Guarantor.............. 91
SECTION 12.15. Reliance by Holders of Senior
Indebtedness on Subordination
Provisions ....................... 91
<PAGE>
Contents, p. 6
Page
----
ARTICLE 13
Miscellaneous
SECTION 13.01. Trust Indenture Act Controls ....... 92
SECTION 13.02. Notices ............................ 92
SECTION 13.03. Communication by Holders with
Other Holders .................... 93
SECTION 13.04. Certificate and Opinion as to
Conditions Precedent ............. 93
SECTION 13.05. Statements Required in
Certificate or Opinion ........... 93
SECTION 13.06. When Securities Disregarded ........ 94
SECTION 13.07. Rules by Trustee, Paying Agent and
Registrar ........................ 94
SECTION 13.08. Legal Holidays ..................... 94
SECTION 13.09. Governing Law ...................... 94
SECTION 13.10. No Recourse Against Others ......... 94
SECTION 13.11. Successors ......................... 95
SECTION 13.12. Multiple Originals ................. 95
SECTION 13.13. Table of Contents; Headings ........ 95
Appendix A Provisions Relating to Initial
Securities and Exchange Securities
Exhibit 1 to
Appendix A Form of Initial Security
Exhibit A Form of Exchange Security
Exhibit B Form of Supplemental Indenture
<PAGE>
CROSS-REFERENCE TABLE
TIA Indenture
Section Section
------- ---------
310(a)(1) .............................................7.10
(a)(2) .............................................7.10
(a)(3) .............................................N.A.
(a)(4) .............................................N.A.
(b) .............................................7.08; 7.10
(c) .............................................N.A.
311(a) .............................................7.11
(b) .............................................7.11
(c) .............................................N.A.
312(a) .............................................2.06
(b) .............................................13.03
(c) .............................................13.03
313(a) .............................................7.06
(b)(1) .............................................N.A.
(b)(2) .............................................7.06
(c) .............................................13.02
(d) .............................................7.06
314(a) .............................................4.02; 4.11; 13.02
(b) .............................................N.A.
(c)(1) .............................................13.04
(c)(2) ............................................13.04
(c)(3) .............................................N.A.
(d) .............................................N.A.
(e) .............................................13.05
(f) .............................................4.11
315(a) .............................................7.01
(b) .............................................7.05; 13.02
(c) .............................................7.01
(d) .............................................7.01
(e) .............................................6.11
316(a)(last
sentence) ............................................13.06
(a)(1)(A) .............................................6.05
(a)(1)(B) .............................................6.04
(a)(2) .............................................N.A.
(b) .............................................6.07
317(a)(1) .............................................6.08
(a)(2) .............................................6.09
(b) .............................................2.05
318(a) .............................................13.01
N.A. Means Not Applicable.
- ----------
Note: This Cross-Reference Table shall not, for any purposes, be
deemed to be part of this Indenture.
<PAGE>
EXECUTION COPY
INDENTURE dated as of April 1, 1997, among GLENOIT
CORPORATION, a Delaware corporation (the "Company"), certain of
the Company's subsidiaries signatory hereto (each, a "Subsidiary
Guarantor" and, collectively, the "Subsidiary Guarantors") and
UNITED STATES TRUST COMPANY OF NEW YORK, as Trustee (the
"Trustee").
Each party agrees as follows for the benefit of the other party and
for the equal and ratable benefit of the Holders of the Company's 11% Senior
Subordinated Notes due April 15, 2007, to be issued, from time to time, in one
or more series as in this Indenture provided (the "Initial Securities") and, if
and when issued pursuant to a registered exchange for the Initial Securities,
the Company's 11% Senior Subordinated Notes due April 15, 2007 (the "Exchange
Securities" and, together with the Initial Securities, the "Securities"):
ARTICLE 1
Definitions and Incorporation by Reference
------------------------------------------
SECTION 1.01. Definitions.
------------
"Additional Assets" means (i) any property or assets (other than
-----------------
Indebtedness and Capital Stock) in a Related Business; (ii) the Capital Stock of
a Person that becomes a Restricted Subsidiary as a result of the acquisition of
such Capital Stock by the Company or another Restricted Subsidiary; or (iii)
Capital Stock constituting a minority interest in any Person that at such time
is a Restricted Subsidiary; provided, however, that any such Restricted
-------- -------
Subsidiary described in clauses (ii) or (iii) above is primarily engaged in a
Related Business.
"Affiliate" of any specified Person means any other Person, directly
---------
or indirectly, controlling or controlled by or under direct or indirect common
control with such specified Person. For the purposes of this definition,
"control" when used with respect to any Person means the power to direct the
management and policies of such Person, directly or indirectly, whether through
the ownership of voting securities, by contract or otherwise;
<PAGE>
2
and the terms "controlling" and "controlled" have meanings correlative to the
foregoing. For purposes of Sections 4.04, 4.06 and 4.07 only, "Affiliate"
shall also mean any beneficial owner of Capital Stock representing 10% or more
of the total voting power of the Voting Stock (on a fully diluted basis) of the
Company or of rights or warrants to purchase such Capital Stock (whether or not
currently exercisable) and any Person who would be an Affiliate of any such
beneficial owner pursuant to the first sentence hereof.
"Asset Disposition" means any sale, lease, transfer or other
-----------------
disposition (or series of related sales, leases, transfers or dispositions) by
the Company or any Restricted Subsidiary, including any disposition by means of
a merger, consolidation or similar transaction (each referred to for the
purposes of this definition as a "disposition"), of (i) any shares of Capital
Stock of a Restricted Subsidiary (other than directors' qualifying shares and,
to the extent required by local ownership laws in foreign countries, shares
owned by foreign shareholders), (ii) all or substantially all the assets of any
division, business segment or comparable line of business of the Company or any
Restricted Subsidiary or (iii) any other assets of the Company or any Restricted
Subsidiary having a fair market value (as determined in good faith by the Board
of Directors) in excess of $250,000 disposed of in a single transaction or
series of related transactions outside of the ordinary course of business of the
Company or such Restricted Subsidiary (other than, in the case of (i), (ii) and
(iii) above, (y) a disposition by a Restricted Subsidiary to the Company or by
the Company or a Restricted Subsidiary to a Wholly Owned Subsidiary and (z) for
purposes of Section 4.06 only, a disposition that constitutes a Permitted
Investment or Restricted Payment permitted by Section 4.04).
"Attributable Debt" in respect of a Sale/Leaseback Transaction means,
-----------------
as at the time of determination, the present value (discounted at the interest
rate borne by the Notes, compounded annually) of the total obligations of the
lessee for rental payments during the remaining term of the lease included in
such Sale/Leaseback Transaction (including any period for which such lease has
been extended).
<PAGE>
3
"Average Life" means, as of the date of determination, with respect
------------
to any Indebtedness or Preferred Stock, the quotient obtained by dividing (i)
the sum of the products of the numbers of years from the date of determination
to the dates of each successive scheduled principal payment of such Indebtedness
or redemption or similar payment with respect to such Preferred Stock multiplied
by the amount of such payment by (ii) the sum of all such payments.
"B&D" means Barth & Dreyfuss of California, Inc.
---
"B&D Licensing Agreement" means the Licensing Agreement dated April
-----------------------
21, 1988 between Mills and B&D, as amended on November 21, 1988 and January 23,
1992 (including any extension thereof in accordance with its terms).
"Bank Indebtedness" means any and all amounts payable under or in
-----------------
respect of the New Credit Facility and the other Loan Documents (as defined in
the New Credit Facility), including principal, premium (if any), interest
(including interest accruing on or after the filing of any petition in
bankruptcy or for reorganization relating to the Company whether or not a claim
for post-filing interest is allowed in such proceedings), fees, charges,
expenses, reimbursement obligations, Guarantees and all other amounts payable
thereunder or in respect thereof.
"Board of Directors" means the Board of Directors of the Company or
------------------
any committee thereof duly authorized to act on behalf of such Board.
"Business Day" means each day which is not a Legal Holiday.
------------
"Capital Lease Obligations" means an obligation that is required to be
-------------------------
classified and accounted for as a capital lease for financial reporting purposes
in accordance with GAAP, and the amount of Indebtedness represented by such
obligation shall be the capitalized amount of such obligation determined in
accordance with GAAP; and the Stated Maturity thereof shall be the date of the
last payment of rent or any other amount due under such lease prior to the first
date upon which such lease may be terminated by the lessee without payment of a
penalty.
<PAGE>
4
"Capital Stock" of any Person means any and all shares, interests,
-------------
rights to purchase, warrants, options, participations or other equivalents of or
interests in (however designated) equity of such Person, including any Preferred
Stock, but excluding any debt securities convertible into such equity.
"Change of Control" means the occurrence of any of the following
-----------------
events:
(i) prior to the first public offering of common stock of the Company
or Holdings, the Permitted Holders cease to be the "beneficial owner" (as
defined in Rules 13d-3 and 13d-5 under the Exchange Act), directly or
indirectly, of a majority in the aggregate of the total voting power of the
Voting Stock of Holdings, whether as a result of issuance of securities of
Holdings, any merger, consolidation, liquidation or dissolution of
Holdings, any direct or indirect transfer of securities by the Permitted
Holders or otherwise (for purposes of this clause (i) the Permitted Holders
shall be deemed to beneficially own any Voting Stock of any entity (the
"specified entity") held by any other entity (the "parent entity") so long
as the Permitted Holders beneficially own (as so defined), directly or
indirectly, in the aggregate a majority of the voting power of the Voting
Stock of the parent entity);
(ii) prior to the first public offering of common stock of the
Company, Holdings shall cease to own, directly or through one or more
wholly owned subsidiaries, 100% of the issued and outstanding Voting Stock
of the Company, whether as a result of the issuance of securities, any
merger, consolidation, liquidation or dissolution of the Company, any
direct or indirect transfer of securities by Holdings or otherwise;
(iii) after the first public offering of common stock of the Company
or Holdings, any "person" (as such term is used in Sections 13(d) and 14(d)
of the Exchange Act), other than one or more Permitted Holders, is or
becomes the beneficial owner (as defined in clause (i) above, except that
for purposes of this clause (iii) such person shall be deemed to have
<PAGE>
5
"beneficial ownership" of all shares that any such person has the right to
acquire, whether such right is exercisable immediately or only after the
passage of time), directly or indirectly, of more than 40% of the total
voting power of the Voting Stock of the Company or Holdings; provided,
--------
however, that the Permitted Holders beneficially own (as defined in clause
-------
(i) above), directly or indirectly, in the aggregate a lesser percentage of
the total voting power of the Voting Stock of the Company or Holdings, as
the case may be, than such other person and do not have the right or
ability by voting power, contract or otherwise to elect or designate for
election directors of the Company or Holdings having a majority of the
Board of Directors or the board of directors of Holdings, as the case may
be (for the purposes of this clause (iii), such other person shall be
deemed to beneficially own any Voting Stock of a specified entity held by a
parent entity, if such other person is the beneficial owner (as defined in
this clause (iii)), directly or indirectly, of more than 40% of the voting
power of the Voting Stock of such parent entity and the Permitted Holders
beneficially own (as defined in clause (i) above), directly or indirectly,
in the aggregate a lesser percentage of the voting power of the Voting
Stock of such parent entity and do not have the right or ability by voting
power, contract or otherwise to elect or designate for election directors
having a majority of the board of directors of such parent entity);
(iv) after the first public offering of common stock of the Company or
Holdings, (A) during any period of two consecutive years, individuals who
at the beginning of such period constituted the Board of Directors or the
board of directors of Holdings, as the case may be (together with any new
directors whose election by such board of directors or whose nomination for
election by the shareholders of the Company or Holdings, as the case may
be, was approved by a vote of a majority of the directors of the Company or
Holdings, as the case may be, then still in office who were either
directors at the beginning of such period or whose election or nomination
for election was previously so approved) cease for any reason to constitute
a majority of the
<PAGE>
6
Board of Directors or the board of directors of Holdings, as the case may
be, then in office and (B) at any time during such period, the Permitted
Holders cease to be the beneficial owners (as defined in clause (i) above),
directly or indirectly, of a majority of the total voting power of the
Voting Stock of the Company or Holdings, as the case may be; or
(v) after the first public offering of common stock of the Company or
Holdings, the merger or consolidation of the Company or Holdings with or
into another Person or the merger of another Person with or into the
Company or Holdings, or the sale of all or substantially all the assets of
the Company or Holdings to another Person (other than a Person that is
controlled by the Permitted Holders), and, in the case of any such merger
or consolidation, the securities of the Company or Holdings that are
outstanding immediately prior to such transaction and which represent 100%
of the aggregate voting power of the Voting Stock of the Company or
Holdings are changed into or exchanged for cash, securities or property,
unless pursuant to such transaction such securities are changed into or
exchanged for, in addition to any other consideration, securities of the
surviving corporation that represent immediately after such transaction, at
least a majority of the aggregate voting power of the Voting Stock of the
surviving corporation;
provided, however, that a Change of Control shall not be deemed to occur as a
- -------- -------
result of a merger of the Company with or into Holdings, in compliance with
Section 5.01, so long as a Change of Control has not occurred pursuant to
clauses (i), (iii), (iv) or (v) above with respect to the Successor Company.
"Code" means the Internal Revenue Code of 1986, as amended.
----
"Company" means the party named as such in this Indenture until a
-------
successor replaces it and, thereafter, means the successor and, for purposes of
any provision contained herein and required by the TIA, each other obligor on
the indenture securities.
<PAGE>
7
"Consolidated Coverage Ratio" as of any date of determination means
---------------------------
the ratio of (i) the aggregate amount of EBITDA for the period of the most
recent four consecutive fiscal quarters ending at least 45 days (or, if less,
the number of days after the end of such fiscal quarter as the consolidated
financial statements of the Company shall be provided to the Securityholders
pursuant to the Indenture) prior to the date of such determination to (ii)
Consolidated Interest Expense for such four fiscal quarters; provided, however,
-------- -------
that:
(1) if the Company or any Restricted Subsidiary has Incurred any
Indebtedness since the beginning of such period that remains outstanding on such
date of determination or if the transaction giving rise to the need to calculate
the Consolidated Coverage Ratio is an Incurrence of Indebtedness, or both,
EBITDA and Consolidated Interest Expense for such period shall be calculated
after giving effect on a pro forma basis to such Indebtedness as if such
Indebtedness had been Incurred on the first day of such period and the discharge
of any other Indebtedness repaid, repurchased, defeased or otherwise discharged
with the proceeds of such new Indebtedness as if such discharge had occurred on
the first day of such period (except that, in the case of Indebtedness used to
finance working capital needs incurred under a revolving credit or similar
arrangement, the amount thereof shall be deemed to be the average daily balance
of such Indebtedness during such four-fiscal-quarter period);
(2) if since the beginning of such period the Company or any
Restricted Subsidiary shall have made any Asset Disposition, the EBITDA for such
period shall be reduced by an amount equal to the EBITDA (if positive) directly
attributable to the assets which are the subject of such Asset Disposition for
such period, or increased by an amount equal to the EBITDA (if negative),
directly attributable thereto for such period and Consolidated Interest Expense
for such period shall be reduced by an amount equal to the Consolidated Interest
Expense directly attributable to any Indebtedness of the Company or any
Restricted Subsidiary repaid, repurchased, defeased, assumed by a third person
(to the extent the Company and its Restricted Subsidiaries are no longer liable
for such Indebtedness) or otherwise discharged with respect to the
<PAGE>
8
Company and its continuing Restricted Subsidiaries in connection with such Asset
Disposition for such period (or, if the Capital Stock of any Restricted
Subsidiary is sold, the Consolidated Interest Expense for such period directly
attributable to the Indebtedness of such Restricted Subsidiary to the extent the
Company and its continuing Restricted Subsidiaries are no longer liable for such
Indebtedness after such sale);
(3) if since the beginning of such period the Company or Holdings
shall have consummated a Public Equity Offering following which there is a
Public Market, Consolidated Interest Expense for such period shall be reduced by
an amount equal to the Consolidated Interest Expense directly attributable to
any Indebtedness of the Company or any Restricted Subsidiary repaid,
repurchased, defeased or otherwise discharged with respect to the Company and
its Restricted Subsidiaries in connection with such Public Equity Offering for
such period;
(4) if since the beginning of such period the Company or any
Restricted Subsidiary (by merger or otherwise) shall have made an Investment in
any Restricted Subsidiary (or any Person which becomes a Restricted Subsidiary)
or an acquisition of assets, which acquisition constitutes all or substantially
all of an operating unit of a business, including any such Investment or
acquisition occurring in connection with a transaction requiring a calculation
to be made hereunder, EBITDA and Consolidated Interest Expense for such period
shall be calculated after giving pro forma effect thereto (including the
Incurrence of any Indebtedness) as if such Investment or acquisition occurred on
the first day of such period; and
(5) if since the beginning of such period any Person (that
subsequently became a Restricted Subsidiary or was merged with or into the
Company or any Restricted Subsidiary since the beginning of such period) shall
have made any Asset Disposition, any Investment or acquisition of assets that
would have required an adjustment pursuant to clause (3) or (4) above if made by
the Company or a Restricted Subsidiary during such period, EBITDA and
Consolidated Interest Expense for such period shall be calculated after giving
pro forma effect thereto as if such Asset Disposition, Investment or acquisition
occurred on the
<PAGE>
9
first day of such period. For purposes of this definition, whenever pro forma
effect is to be given to an acquisition of assets, the amount of income or
earnings relating thereto and the amount of Consolidated Interest Expense
associated with any Indebtedness Incurred in connection therewith, the pro forma
calculations shall be determined in good faith by a responsible financial or
accounting Officer of the Company in accordance with Article 11 of Regulation S-
X. If any Indebtedness bears a floating rate of interest and is being given pro
forma effect, the interest of such Indebtedness shall be calculated as if the
rate in effect on the date of determination had been the applicable rate for the
entire period (taking in to account any Interest Rate Agreement applicable to
such Indebtedness if such Interest Rate Agreement has a remaining term in excess
of 12 months).
"Consolidated Interest Expense" means, for any period, the total
-----------------------------
interest expense of the Company and its consolidated Restricted Subsidiaries,
plus, (a) to the extent not included in such total interest expense, and to the
extent incurred by the Company or its Restricted Subsidiaries, (i) interest
expense attributable to Capital Lease Obligations, (ii) amortization of debt
discount, (iii) capitalized interest, (iv) non-cash interest expenses, (v)
commissions, discounts and other fees and charges owed with respect to letters
of credit and bankers' acceptance financing, (vi) net costs associated with
Hedging Obligations (including amortization of fees), (vii) Preferred Stock
dividends in respect of all Preferred Stock held by Persons other than the
Company or a Wholly Owned Subsidiary, (viii) interest incurred in connection
with Investments in discontinued operations, (ix) interest actually paid on any
Indebtedness of any other Person that is Guaranteed by the Company or any
Restricted Subsidiary and (x) the cash contributions to any employee stock
ownership plan or similar trust to the extent such contributions are used by
such plan or trust to pay interest or fees to any Person (other than the Company
or any Wholly Owned Subsidiary) in connection with Indebtedness Incurred by such
plan or trust, minus, (b) to the extent included in such total interest expense,
amortization of deferred financing costs, fees and expenses.
<PAGE>
10
"Consolidated Net Income" means, for any period, the net income of the
-----------------------
Company and its consolidated Subsidiaries; provided, however, that there shall
-------- -------
not be included in such Consolidated Net Income:
(i) any net income (or loss) of any Person if such Person is not a
Restricted Subsidiary, except that (A) subject to the exclusion contained
in clause (iv) below, the Company's equity in the net income of any such
Person for such period shall be included in such Consolidated Net Income up
to the aggregate amount of cash actually distributed by such Person during
such period to the Company or a Restricted Subsidiary as a dividend or
other distribution (subject, in the case of a dividend or other
distribution paid to a Restricted Subsidiary, to the limitations contained
in clause (iii) below) and (B) the Company's equity in a net loss of any
such Person (other than an Unrestricted Subsidiary) for such period shall
be included in determining such Consolidated Net Income;
(ii) for purposes of subclause (a)(3)(A) of Section 4.04 only, any net
income (or loss) of any Person acquired by the Company or a Subsidiary in a
pooling of interests transaction for any period prior to the date of such
acquisition;
(iii) any net income of any Restricted Subsidiary if such Restricted
Subsidiary is subject to restrictions, directly or indirectly, on the
payment of dividends or the making of distributions by such Restricted
Subsidiary, directly or indirectly, to the Company, except that (A) subject
to the exclusion contained in clause (iv) below, the Company's equity in
the net income of any such Restricted Subsidiary for such period shall be
included in such Consolidated Net Income up to the aggregate amount of cash
that could have been distributed by such Restricted Subsidiary consistent
with such restriction during such period to the Company or another
Restricted Subsidiary as a dividend or other distribution (subject, in the
case of a dividend or other distribution paid to another Restricted
Subsidiary, to the limitation contained in this clause) and (B) the
Company's equity in a net loss of any such Restricted Subsidiary for such
period shall
<PAGE>
11
be included in determining such Consolidated Net Income;
(iv) any gain (or loss) realized upon the sale or other disposition of
any assets of the Company or its consolidated Subsidiaries (including
pursuant to any sale-and-leaseback arrangement) which is not sold or
otherwise disposed of in the ordinary course of business and any gain (but
not loss) realized upon the sale or other disposition of any Capital Stock
of any Person;
(v) extraordinary gains or losses; and
(vi) the cumulative effect of a change in accounting principles.
Notwithstanding the foregoing, for the purpose of Section 4.04 only, there shall
be excluded from Consolidated Net Income any dividends, repayments of loans or
advances or other transfers of assets from Unrestricted Subsidiaries to the
Company or a Restricted Subsidiary to the extent such dividends, repayments or
transfers increase the amount of Restricted Payments permitted under such
Section pursuant to clause (a)(3)(D) thereof.
"Consolidated Net Worth" means the total of the amounts shown on the
----------------------
balance sheet of the Company and its consolidated Subsidiaries, determined on a
consolidated basis, as of the end of the most recent fiscal quarter of the
Company ending at least 45 days prior to the taking of any action for the
purpose of which the determination is being made, as (i) the par or stated value
of all outstanding Capital Stock of the Company plus (ii) paid-in capital or
capital surplus relating to such Capital Stock plus (iii) any retained earnings
or earned surplus less (A) any accumulated deficit and (B) any amounts
attributable to Disqualified Stock.
"Currency Agreement" means with respect to any Person, any foreign
------------------
exchange contract, currency swap agreement or other similar agreement as to
which such Person is a party or a beneficiary.
<PAGE>
12
"CVC Investor" means (i) CVC, (ii) Citicorp, N.A. and (iii) any
------------
officer, employee or director of CVC so long as such person shall be an officer,
employee or director of CVC.
"Default" means any event which is, or after notice or passage of time
-------
or both would be, an Event of Default.
"Deferred Redemption Price Note" means the Deferred Redemption Price
------------------------------
Note due December 14, 2004, issued by Holdings to the Seller pursuant to the
Redemption Agreement in an aggregate principal amount of $1,400,000.
"Designated Senior Indebtedness" means (i) the Bank Indebtedness and
------------------------------
(ii) any other Senior Indebtedness of the Company which, at the date of
determination, has an aggregate principal amount outstanding of, or under which,
at the date of determination, the holders thereof are committed to lend up to,
at least $10 million and is specifically designated by the Company in the
instrument evidencing or governing such Senior Indebtedness as "Designated
Senior Indebtedness" for purposes of this Indenture.
"Disqualified Stock" means, with respect to any Person, any Capital
------------------
Stock which by its terms (or by the terms of any security into which it is
convertible or for which it is exchangeable) or upon the happening of any event
(i) matures or is mandatorily redeemable pursuant to a sinking fund obligation
or otherwise, (ii) is convertible or exchangeable, at the option of the holder
thereof, for Indebtedness or Disqualified Stock or (iii) is redeemable at the
option of the holder thereof, in whole or in part, in each case on or prior to
the first anniversary of the Stated Maturity of the Securities.
"Domestic Restricted Subsidiary" means any Restricted Subsidiary of
------------------------------
the Company other than a Foreign Restricted Subsidiary.
"EBITDA" for any period means the sum of Consolidated Net Income, plus
------
Consolidated Interest Expense plus the following, without duplication, to the
extent deducted in calculating such Consolidated Net Income:
<PAGE>
13
(a) income tax expense, (b) depreciation expense, (c) amortization expense and
(d) all other non-cash items reducing Consolidated Net Income (other than items
that will require cash payments and for which an accrual or reserve is, or is
required by GAAP to be, made), less all non-cash items increasing Consolidated
Net Income, in each case for such period. Notwithstanding the foregoing, the
provision for taxes based on the income or profits of, and the depreciation and
amortization of, a Subsidiary of the Company shall be added to Consolidated Net
Income to compute EBITDA only to the extent (and in the same proportion) that
the net income of such Subsidiary was included in calculating Consolidated Net
Income.
"Excess Proceeds" has the meaning set forth in Section 4.06(a).
---------------
"Exchange Act" means the Securities Exchange Act of 1934, as amended.
------------
"Financing Disposition" means any sale of any accounts receivable, or
---------------------
interest therein, by the Company or any Subsidiary to any Receivables
Subsidiary, or by the Receivables Subsidiary, pursuant to a Permitted
Receivables Financing.
"Foreign Restricted Subsidiary" means any Restricted Subsidiary of the
-----------------------------
Company which is not organized under the laws of the United States of America or
any State thereof or the District of Columbia.
"GAAP" means generally accepted accounting principles in the United
----
States of America as in effect as of the Issue Date, including those set forth
(i) in the opinions and pronouncements of the Accounting Principles Board of the
American Institute of Certified Public Accountants, (ii) in statements and
pronouncements of the Financial Accounting Standards Board and (iii) in such
other statements by such other entity as approved by a significant segment of
the accounting profession.
"Mills" means Glenoit Mills, Inc., a Delaware corporation.
-----
<PAGE>
14
"Guarantee" means any obligation, contingent or otherwise, of any
---------
Person directly or indirectly guaranteeing any Indebtedness or other obligation
of any other Person and any obligation, direct or indirect, contingent or
otherwise, of such Person (i) to purchase or pay (or advance or supply funds for
the purchase or payment of) such Indebtedness or other obligation of such Person
(whether arising by virtue of partnership arrangements, or by agreements to
keep-well, to purchase assets, goods, securities or services, to take-or-pay or
to maintain financial statement conditions or otherwise) or (ii) entered into
for the purpose of assuring in any other manner the obligee of such Indebtedness
or other obligation of the payment thereof or to protect such obligee against
loss in respect thereof (in whole or in part); provided, however, that the term
-------- -------
"Guarantee" shall not include endorsements for collection or deposit in the
ordinary course of business. The term "Guarantee" used as a verb has a
corresponding meaning. The term "Guarantor" shall mean any Person Guaranteeing
any obligation.
"Hedging Obligations" of any Person means the obligations of such
-------------------
Person pursuant to any Interest Rate Agreement or Currency Agreement.
"Holder" or "Securityholder" means the Person in whose name a Security
------ --------------
is registered on the Registrar's books.
"Holdings" means Glenoit Universal, Ltd., a Delaware corporation.
--------
"Incur" means issue, assume, Guarantee, incur or otherwise become
-----
liable for; provided, however, that any Indebtedness or Capital Stock of a
-------- -------
Person existing at the time such Person becomes a Subsidiary (whether by merger,
consolidation, acquisition or otherwise) shall be deemed to be Incurred by such
Subsidiary at the time it becomes a Subsidiary; and provided further, however,
---------------- -------
that in the case of a discount security, neither the accrual of interest nor the
accretion of original issue discount shall be considered an Incurrence of
Indebtedness, but the entire face amount of such security shall be deemed
Incurred upon the issuance of such security. The term "Incurrence" when used as
a noun shall have a correlative meaning.
<PAGE>
15
"Indebtedness" means, with respect to any Person on any date of
------------
determination (without duplication):
(i) the principal of and premium (if any) in respect of (A)
indebtedness of such Person for money borrowed and (B) indebtedness
evidenced by notes, debentures, bonds or other similar instruments for the
payment of which such Person is responsible or liable;
(ii) all Capital Lease Obligations of such Person and all Attributable
Debt in respect of Sale/Leaseback Transactions entered into by such Person;
(iii) all obligations of such Person issued or assumed as the deferred
purchase price of property or services, all conditional sale obligations of
such Person and all obligations of such Person under any title retention
agreement (but excluding trade accounts payable arising in the ordinary
course of business), which purchase price or obligation is due more than
six months after the date of placing such property in service or taking
delivery and title thereto or the completion of such services (provided
--------
that, in the case of obligations of an acquired Person assumed in
connection with an acquisition of such Person, such obligations would
constitute Indebtedness of such Person);
(iv) all obligations of such Person for the reimbursement of any
obligor on any letter of credit, banker's acceptance or similar credit
transaction (other than obligations with respect to letters of credit
securing obligations (other than obligations described in clauses (i)
through (iii) above) entered into in the ordinary course of business of
such Person to the extent such letters of credit are not drawn upon or, if
and to the extent drawn upon, such drawing is reimbursed no later than the
tenth Business Day following receipt by such Person of a demand for
reimbursement following payment on the letter of credit);
(v) the amount of all obligations of such Person with respect to the
redemption, repayment or other repurchase of any Disqualified Stock or,
with respect
<PAGE>
16
to any Subsidiary of such Person, any Preferred Stock (but excluding, in
each case, any accrued dividends);
(vi) all obligations of the type referred to in clauses (i) through
(v) of other Persons and all dividends of other Persons for the payment of
which, in either case, such Person is responsible or liable, directly or
indirectly, as obligor, guarantor or otherwise, including by means of any
Guarantee;
(vii) all obligations of the type referred to in clauses (i) through
(vi) of other Persons secured by any Lien on any property or asset of such
Person (whether or not such obligation is assumed by such Person), the
amount of such obligation being deemed to be the lesser of the value of
such property or assets or the amount of the obligation so secured; and
(viii) to the extent not otherwise included in this definition,
Hedging Obligations of such Person.
The amount of Indebtedness of any Person at any date shall be the outstanding
balance at such date of all unconditional obligations as described above and the
maximum liability, upon the occurrence of the contingency giving rise to the
obligation, of any contingent obligations as described above at such date.
"Indenture" means this Indenture as amended or supplemented from time
---------
to time.
"Interest Rate Agreement" means any interest rate swap agreement,
-----------------------
interest rate cap agreement or other financial agreement or arrangement designed
to protect the Company or any Restricted Subsidiary against fluctuations in
interest rates.
"Investment" in any Person means any direct or indirect advance, loan
----------
(other than advances to customers in the ordinary course of business that are
recorded as accounts receivable on the balance sheet of such Person) or other
extensions of credit (including by way of Guarantee or similar arrangement) or
capital contribution to (by means of any transfer of cash or other property to
others or any payment for property or services for the account or use of
<PAGE>
17
others), or any purchase or acquisition of Capital Stock, Indebtedness or other
similar instruments issued by such Person. For purposes of the definition of
"Unrestricted Subsidiary", the definition of "Restricted Payment" and Section
4.04, (i) "Investment" shall include the portion (proportionate to the Company's
equity interest in such Subsidiary) of the fair market value of the net assets
of any Subsidiary of the Company at the time that such Subsidiary is designated
an Unrestricted Subsidiary; provided, however, that upon a redesignation of such
-------- -------
Subsidiary as a Restricted Subsidiary, the Company shall be deemed to continue
to have a permanent "Investment" in an Unrestricted Subsidiary equal to an
amount (if positive) equal to (x) the Company's "Investment" in such Subsidiary
at the time of such redesignation less (y) the portion (proportionate to the
Company's equity interest in such Subsidiary) of the fair market value of the
net assets of such Subsidiary at the time of such redesignation; and (ii) any
property transferred to or from an Unrestricted Subsidiary shall be valued at
its fair market value at the time of such transfer, in each case as determined
in good faith by the Board of Directors.
"Issue Date" means the date on which the Initial Securities are
----------
originally issued.
"Junior Subordinated Notes" means the 12.50% Junior PIK Subordinated
-------------------------
Notes due December 14, 2005 of Holdings, issued to CVC and Soannes Investment
Corp., in an original aggregate principal amount of $13,600,000.
"Lien" means any mortgage, pledge, security interest, encumbrance,
----
lien or charge of any kind (including any conditional sale or other title
retention agreement or lease in the nature thereof).
"Management Investors" means each of the officers, employees and
--------------------
directors of the Company or Holdings who own Voting Stock (or options to acquire
Voting Stock) of Holdings on the Issue Date, in each case so long as such person
shall remain an officer, employee or director of the Company or Holdings.
"Net Available Cash" from an Asset Disposition means cash payments
------------------
received therefrom (including any cash
<PAGE>
18
payments received by way of deferred payment of principal pursuant to a note or
installment receivable or otherwise, but only as and when received, but
excluding any other consideration received in the form of assumption by the
acquiring Person of Indebtedness or other obligations relating to such
properties or assets or received in any other noncash form) in each case net of
(i) all legal, title and recording tax expenses, commissions and other fees and
expenses incurred, and all Federal, state, provincial, foreign and local taxes
required to be paid or accrued as a liability under GAAP, as a consequence of
such Asset Disposition, (ii) all payments made on any Indebtedness which is
secured by any assets subject to such Asset Disposition, in accordance with the
terms of any Lien upon or other security agreement of any kind with respect to
such assets, or which must by its terms, or in order to obtain a necessary
consent to such Asset Disposition, or by applicable law be, repaid out of the
proceeds from such Asset Disposition, (iii) all distributions and other payments
required to be made to minority interest Holders in Subsidiaries or joint
ventures as a result of such Asset Disposition and (iv) the deduction of
appropriate amounts provided by the seller as a reserve, in accordance with
GAAP, against any liabilities associated with the property or other assets
disposed in such Asset Disposition and retained by the Company or any Restricted
Subsidiary after such Asset Disposition.
"Net Cash Proceeds", with respect to any issuance or sale of Capital
-----------------
Stock, means the cash proceeds of such issuance or sale net of attorneys' fees,
accountants' fees, underwriters' or placement agents' fees, discounts or
commissions and brokerage, consultant and other fees actually incurred in
connection with such issuance or sale and net of taxes paid or payable as a
result thereof.
"New Credit Facility" means the revolving credit facility made
-------------------
available pursuant to the Credit Agreement dated as of the Issue Date, among the
Company, as borrower, Holdings and certain Subsidiaries, as guarantors, and
Banque Nationale de Paris, as agent and issuing bank for the lenders from time
to time, as the same may be amended, waived, modified, Refinanced or replaced
from time to time (including any successive amendments, modifications,
Refinancings or replacements that increase the aggregate
<PAGE>
19
amount of borrowings outstanding or the aggregate commitments of the lenders
thereunder), except to the extent that any such amendment, waiver, modification,
replacement or Refinancing would be prohibited by the terms of the Indenture
(or, in the case of any such increase, except to the extent that such increased
amount of borrowings or commitments exceeds the total amount of such borrowings
or commitments permitted under the terms of the Indenture).
"Officer" means the Chairman of the Board, the Chief Executive
-------
Officer, the Chief Financial Officer, the President, any Vice President, the
Treasurer or the Secretary of the Company.
"Officers' Certificate" means a certificate signed by two Officers.
---------------------
"Opinion of Counsel" means a written opinion from legal counsel who is
------------------
acceptable to the Trustee. The counsel may be an employee of or counsel to the
Company or the Trustee.
"Permitted Holders" means the CVC Investors, the Management Investors
-----------------
and their respective Permitted Transferees; provided, however, that in no event
-------- -------
shall the Management Investors and the CVC Investors (other than CVC and
Citicorp, N.A.), collectively, be deemed "Permitted Holders" with respect to
more than 30% of the total voting power of all classes of Voting Stock of the
Company.
"Permitted Investment" means an Investment by the Company or any
--------------------
Restricted Subsidiary in (i) the Company; (ii) a Restricted Subsidiary or a
Person that will, upon the making of such Investment, become a Restricted
Subsidiary; provided, however, that the primary business of such Restricted
-------- -------
Subsidiary is a Related Business; (iii) another Person if as a result of such
Investment such other Person is merged or consolidated with or into, or
transfers or conveys all or substantially all its assets to, the Company or a
Restricted Subsidiary; provided, however, that such Person's primary business is
-------- -------
a Related Business; (iv) Temporary Cash Investments; (v) receivables owing to
the Company or any Restricted Subsidiary if created or acquired in the ordinary
course of business and payable or dischargeable in accordance with customary
trade terms;
<PAGE>
20
provided, however, that such trade terms may include such concessionary trade
- -------- -------
terms as the Company or any such Restricted Subsidiary deems reasonable under
the circumstances; (vi) payroll, travel and similar advances to cover matters
that are expected at the time of such advances ultimately to be treated as
expenses for accounting purposes and that are made in the ordinary course of
business; (vii) loans or advances to employees made in the ordinary course of
business consistent with past practices of the Company or such Restricted
Subsidiary and not exceeding $1 million in the aggregate outstanding at any
time; (viii) stock, obligations or securities received in settlement of debts
created in the ordinary course of business and owing to the Company or any
Restricted Subsidiary or in satisfaction of judgments and (ix) any Person to the
extent such Investment represents the non-cash portion of the consideration
received for an Asset Disposition as permitted pursuant to Section 4.06.
"Permitted Operating Expense Payments" means payments to Holdings to
------------------------------------
enable Holdings to pay its operating and administrative expenses incurred in the
ordinary course of business in an aggregate amount not to exceed $250,000 in any
year; provided, however, that (i) such payments shall not exceed the sum of (A)
-------- -------
the amount of such costs that are directly related to the business of the
Company and its Restricted Subsidiaries and not to any other business,
subsidiary or investment of Holdings and (B) the Company's allocable share (as
reasonably determined in good faith by the Board of Directors) of such costs
that are not directly related to the business of the Company and its Restricted
Subsidiaries or to any other business, subsidiary or investment of Holdings
(including, without limitation, directors' fees, legal and audit expenses and
corporate franchise taxes), and (ii) such payments are used by Holdings for such
purpose within 10 days of the receipt of such payments.
"Permitted Receivables Financing" means any financing pursuant to
-------------------------------
which the Company or any Restricted Subsidiary may sell, convey or otherwise
transfer to a Receivables Subsidiary or any other Person (in the case of a
transfer by a Receivables Subsidiary), or grant a security interest in, any
accounts receivable (and related assets) of the Company or any Restricted
Subsidiary; provided, however,
-------- -------
<PAGE>
21
that (i) the covenants, events of default and other provisions applicable to
such financing shall be customary for such transactions and shall be on market
terms (as determined in good faith by the Board of Directors) at the time such
financing is entered into, (ii) the interest rate applicable to such financing
shall be a market interest rate (as determined in good faith by the Board of
Directors) at the time such financing is entered into and (iii) such financing
shall be non-recourse to the Company and its Subsidiaries (other than the
Receivables Subsidiary) except to a limited extent customary for such
transactions.
"Permitted Transferee" means, (a) with respect to any CVC Investor who
--------------------
is an employee, officer or director of CVC, any spouse or lineal descendant
(including by adoption) of such CVC Investor so long as such CVC Investor shall
be an employee, officer or director of CVC and (b) with respect to any
Management Investor, any spouse or lineal descendant (including by adoption) of
such Management Investor so long as such Management Investor shall be an
employee, officer or director of the Company.
"Person" means any individual, corporation, partnership, joint
------
venture, association, joint-stock company, trust, unincorporated organization,
government or any agency or political subdivision thereof or any other entity.
"PIK Subordinated Note" means the PIK Subordinated Note due December
---------------------
14, 2004, issued by Holdings to the Seller pursuant to the Redemption Agreement,
in an aggregate principal amount of $1,008,884.01.
"Preferred Stock", as applied to the Capital Stock of any corporation,
---------------
means Capital Stock of any class or classes (however designated) which is
preferred as to the payment of dividends, or as to the distribution of assets
upon any voluntary or involuntary liquidation or dissolution of such
corporation, over shares of Capital Stock of any other class of such
corporation.
"principal" of a Note means the principal of the Note plus the
---------
premium, if any, payable on the Note which is due or overdue or is to become due
at the relevant time.
<PAGE>
22
"Public Equity Offering" means an underwritten primary public offering
----------------------
of common stock of the Company or Holdings pursuant to an effective registration
statement under the Securities Act.
"Public Market" means any time after (i) a Public Equity Offering has
-------------
been consummated and (ii) at least 15% of the total issued and outstanding
common stock of the Company or Holdings has been distributed by means of an
effective registration statement under the Securities Act or sales pursuant to
Rule 144 under the Securities Act.
"Purchase Money Indebtedness" mean Indebtedness (i) consisting of the
---------------------------
deferred purchase price of property, conditional sale obligations, obligations
under any title retention agreement, other purchase money obligations and
obligations in respect of industrial revenue bonds or similar Indebtedness, in
each case where the maturity of such Indebtedness does not exceed the
anticipated useful life of the asset being financed, and (ii) incurred to
finance the acquisition by the Company or a Restricted Subsidiary of such asset,
including additions and improvements; provided, however, that any Lien arising
-------- -------
in connection with any such Indebtedness shall be limited to the specified asset
being financed or, in the case of real property or fixtures, including additions
and improvements, the real property on which such asset is attached; and
provided further, however, that such Indebtedness is Incurred within 90 days
- ---------------- -------
after such acquisition of such asset by the Company or Restricted Subsidiary.
"Receivables Subsidiary" means a bankruptcy-remote, special-purpose
----------------------
Wholly Owned Subsidiary formed in connection with a Permitted Receivables
Financing.
"Redemption Agreement" means the Redemption Agreement dated October
--------------------
23, 1995, between Holdings and the Seller, as in effect on the Issue Date.
"Refinance" means, in respect of any Indebtedness, to refinance,
---------
extend, renew, refund, repay, prepay, redeem, defease or retire, or to issue
other Indebtedness in exchange or replacement for, such indebtedness.
"Refinanced" and "Refinancing" shall have correlative meanings.
<PAGE>
23
"Refinancing Indebtedness" means Indebtedness that Refinances any
------------------------
Indebtedness of the Company or any Restricted Subsidiary existing on the Issue
Date or Incurred in compliance with this Indenture, including Indebtedness that
refinances Refinancing Indebtedness; provided, however, that (i) such
-------- -------
Refinancing Indebtedness has a Stated Maturity no earlier than the Stated
Maturity of the Indebtedness being Refinanced, (ii) the Refinancing Indebtedness
has an Average Life at the time such Refinancing Indebtedness is Incurred that
is equal to or greater than the Average Life of the Indebtedness being
Refinanced and (iii) such Refinancing Indebtedness has an aggregate principal
amount (or if Incurred with original issue discount, an aggregate issue price)
that is equal to or less than the aggregate principal amount (or if Incurred
with original issue discount, the aggregate accredited value) then outstanding
or committed (plus fees and expenses, including any premium and defeasance
costs) under the Indebtedness being Refinanced; provided further, however, that
-------- ------- -------
Refinancing Indebtedness shall not include (x) Indebtedness of a Subsidiary that
Refinances Indebtedness of the Company or (y) Indebtedness of the Company or a
Restricted Subsidiary that Refinances Indebtedness of an Unrestricted
Subsidiary.
"Related Business" means the business of the Company and its
----------------
Restricted Subsidiaries on the Issue Date or any business related, ancillary or
complementary (as determined in good faith by the Board of Directors) to the
businesses of the Company and the Restricted Subsidiaries on the Issue Date.
"Representative" means any trustee, agent or representative (if any)
--------------
for an issue of Senior Indebtedness of the Company.
"Restricted Payment" means, with respect to any Person, (i) the
------------------
declaration or payment of any dividends or any other distributions on or in
respect of its Capital Stock (including any payment in connection with any
merger or consolidation involving such Person) or similar payment to the holders
of its Capital Stock, except dividends or distributions payable solely in its
Capital Stock (other than Disqualified Stock)) and except dividends or
distributions payable solely to the Company or a Restricted Subsidiary (and, if
such Restricted Subsidiary is not wholly
<PAGE>
24
owned, to its other shareholders on a pro rata basis or on a basis that results
in the receipt by the Company or a Restricted Subsidiary of dividends or
distributions of greater value than it would receive on a pro rata basis), (ii)
the purchase, redemption or other acquisition or retirement for value of any
Capital Stock of the Company held by any Person or of any Capital Stock of a
Restricted Subsidiary held by any Affiliate of the Company (other than a
Restricted Subsidiary), including the exercise of any option to exchange any
Capital Stock (other than into Capital Stock of the Company that is not
Disqualified Stock), (iii) the purchase, repurchase, redemption, defeasance or
other acquisition or retirement for value, prior to scheduled maturity,
scheduled repayment or scheduled sinking fund payment of any Subordinated
Obligations (other than the purchase, repurchase, or other acquisition of
Subordinated Obligations purchased in anticipation of satisfying a sinking fund
obligation, principal installment or final maturity, in each case due within one
year of the date of acquisition), (iv) the payment of any amount pursuant to any
agreement with Holdings or any officer, director or employee of Holdings or (v)
the making of any Investment in any Person (other than a Permitted Investment).
"Restricted Subsidiary" means any Subsidiary of the Company that is
---------------------
not an Unrestricted Subsidiary.
"Sale/Leaseback Transaction" means an arrangement relating to property
--------------------------
now owned or hereafter acquired whereby the Company or a Restricted Subsidiary
transfers such property to a Person and the Company or a Restricted Subsidiary
leases it from such Person.
"SEC" means the Securities and Exchange Commission.
---
"Secured Indebtedness" means any Indebtedness of the Company secured
--------------------
by a Lien. "Secured Indebtedness" of any Subsidiary Guarantor has a correlative
--------------------
meaning.
"Seller" means Stirling Investment Holdings, Inc., a British Virgin
------
Islands corporation.
<PAGE>
25
"Seller Notes" means (i) the Split-Pay Notes, the PIK Subordinated
------------
Note and the Deferred Redemption Price Note, in an aggregate principal amount of
$10,980,312.58, and (ii) any additional notes issued in payment of interest on
any notes described in clause (i).
"Senior Indebtedness" of the Company means (i) Indebtedness of the
-------------------
Company, whether outstanding on the Issue Date or thereafter Incurred, and all
Bank Indebtedness, and (ii) accrued and unpaid interest (including interest
accruing on or after the filing of any petition in bankruptcy or for
reorganization relating to the Company whether or not a claim for post-filing
interest is allowed in such proceeding) in respect of (A) indebtedness of the
Company for money borrowed and (B) indebtedness evidenced by notes, debentures,
bonds or other similar instruments for the payment of which the Company is
responsible or liable unless, in the instrument creating or evidencing the same
or pursuant to which the same is outstanding, it is provided that such
obligations are subordinate in right of payment to the Securities; provided,
--------
however, that Senior Indebtedness shall not include (1) any obligation of the
- -------
Company to any Subsidiary, (2) any liability for Federal, state, local or other
taxes owed or owing by the Company, (3) any accounts payable or other liability
to trade creditors arising in the ordinary course of business (including
guarantees thereof or instruments evidencing such liabilities), (4) any
Indebtedness of the Company (and any accrued and unpaid interest in respect
thereof) which is subordinate or junior in any respect (other than as a result
of the Indebtedness being unsecured) to any other Indebtedness or other
obligation of the Company including any Senior Subordinated Indebtedness and any
Subordinated Obligations, (5) any obligations with respect to any Capital Stock
or (6) that portion of any Indebtedness which at the time of Incurrence is
Incurred in violation of this Indenture. "Senior Indebtedness" of any
-------------------
Subsidiary Guarantor has a correlative meaning.
"Senior Subordinated Indebtedness" of the Company means the Securities
--------------------------------
and any other Indebtedness of the Company that specifically provides that such
Indebtedness is to rank pari passu with the Securities in right of payment and
is not subordinated by its terms in right of payment to any Indebtedness or
other obligation of the Company which is
<PAGE>
26
not Senior Indebtedness; provided, however, that "Senior Subordinated
-------- -------
Indebtedness" shall specifically include the Seller Notes (and any Senior
Subordinated Indebtedness Incurred to Refinance such notes). "Senior
Subordinated Indebtedness" of any Subsidiary Guarantor has a correlative
meaning.
"Significant Subsidiary" means any Restricted Subsidiary that would be
----------------------
a "Significant Subsidiary" of the Company within the meaning of Rule 1-02 under
Regulation S-X promulgated by the SEC.
"Split-Pay Notes" means (i) the Split-Pay Subordinated Note due
---------------
December 14, 2004, issued by Holdings to the Seller pursuant to the Redemption
Agreement, in an aggregate principal amount of $2,888,930.82, and (ii) the
Split-Pay Subordinated Note due December 14, 2004, issued by Holdings to Iris
Holdings, Inc. pursuant to the Redemption Agreement, in an aggregate principal
amount of $5,682,497.75.
"Stated Maturity" means, with respect to any security, the date
---------------
specified in such security as the fixed date on which the final payment of
principal of such security is due and payable, including pursuant to any
mandatory redemption provision (but excluding any provision providing for the
repurchase of such security at the option of the holder thereof upon the
happening of any contingency unless such contingency has occurred).
"Subordinated Obligation" of the Company means any Indebtedness of the
-----------------------
Company (whether outstanding on the Issue Date or thereafter Incurred) which is
subordinate or junior in right of payment to the Securities pursuant to a
written agreement to that effect. "Subordinated Obligation" of any Subsidiary
-----------------------
Guarantor has a correlative meaning.
"Subsidiary" means, in respect of any Person, any corporation,
----------
association, partnership or other business entity of which more than 50% of the
total voting power of shares of Capital Stock or other interests (including
partnership interests) entitled (without regard to the occurrence of any
contingency) to vote in the election of directors, managers or trustees thereof
is at the time owned or controlled, directly or indirectly, by (i) such Person,
<PAGE>
27
(ii) such Person and one or more Subsidiaries of such Person or (iii) one or
more Subsidiaries of such Person.
"Subsidiary Guarantor" means each Subsidiary designated as such on the
--------------------
signature pages hereto and any other Subsidiary that has issued a Subsidiary
Guaranty.
"Subsidiary Guaranty" means any Guarantee of the Securities which may
-------------------
from time to time be executed and delivered pursuant to this Indenture. Each
such Subsidiary Guaranty shall be in the form prescribed in this Indenture.
"Tax Sharing Agreement" means the Tax Sharing Agreement dated as of
---------------------
December 14, 1995, among Holdings, the Company, Mills, Glenoit Assets Corp. and
Tarboro Properties, Ltd., as in effect on the Issue Date and as the same shall
be amended in accordance with Section 4.14.
"Temporary Cash Investments" means any of the following: (i) any
--------------------------
investment in direct obligations of the United States of America or any agency
thereof or obligations guaranteed by the United States of America or any agency
thereof, (ii) investments in time deposit accounts, certificates of deposit and
money market deposits maturing within 180 days of the date of acquisition
thereof issued by a bank or trust company which is organized under the laws of
the United States of America, any state thereof or any foreign country
recognized by the United States, and which bank or trust company has capital,
surplus and undivided profits aggregating in excess of $50,000,000 (or the
foreign currency equivalent thereof) and has outstanding debt which is rated "A"
(or such similar equivalent rating) or higher by at least one nationally
recognized statistical rating organization (as defined in Rule 436 under the
Securities Act) or any money-market fund sponsored by a registered broker dealer
or mutual fund distributor, (iii) repurchase obligations with a term of not more
than 30 days for underlying securities of the types described in clause (i)
above entered into with a bank meeting the qualifications described in clause
(ii) above, (iv) investments in commercial paper, maturing not more than 90 days
after the date of acquisition, issued by a corporation (other than an Affiliate
of the Company) organized and in existence under the laws of the United States
of America, any State thereof or the District of
<PAGE>
28
Columbia or any foreign country recognized by the United States of America with
a rating at the time as of which any investment therein is made of "P-1" (or
higher) according to Moody's Investors Service, Inc. or "A-1" (or higher)
according to Standard and Poor's Ratings Group, and (v) investments in
securities with maturities of six months or less from the date of acquisition
issued or fully guaranteed by any state, commonwealth or territory of the United
States of America, or by any political subdivision or taxing authority thereof,
and rated at least "A" by Standard & Poor's Ratings Group or "A" by Moody's
Investors Service, Inc.
"TIA" means the Trust Indenture Act of 1939 (15 U.S.C. (S)(S) 77aaa-
--- ------
77bbbb) as in effect on the date of this Indenture.
"Trustee" means the party named as such in this Indenture until a
-------
successor replaces it and, thereafter, means the successor.
"Trust Officer" means the Chairman of the Board, the President or any
-------------
other officer or assistant officer of the Trustee assigned by the Trustee to
administer its corporate trust matters.
"Uniform Commercial Code" means the New York Uniform Commercial Code
-----------------------
as in effect from time to time.
"Unrestricted Subsidiary" means (i) any Subsidiary of the Company that
-----------------------
at the time of determination shall be designated an Unrestricted Subsidiary by
the Board of Directors in the manner provided below and (ii) any Subsidiary of
an Unrestricted Subsidiary. The Board of Directors may designate any Subsidiary
of the Company (including any newly acquired or newly formed Subsidiary of the
Company) to be an Unrestricted Subsidiary unless such Subsidiary or any of its
Subsidiaries owns any Capital Stock or Indebtedness of, or holds any Lien on any
property of, the Company or any other Subsidiary of the Company that is not a
Subsidiary of the Subsidiary to be so designated; provided, however, that either
-------- -------
(A) the Subsidiary to be so designated has total assets of $1,000 or less or (B)
if such Subsidiary has assets greater than $1,000, such designation would be
permitted under Section 4.04. The Board of
<PAGE>
29
Directors may designate any Unrestricted Subsidiary to be a Restricted
Subsidiary; provided, however, that immediately after giving effect to such
-------- -------
designation (x) the Company could Incur $1.00 of additional Indebtedness under
Section 4.03(a) and (y) no Default shall have occurred and be continuing. Any
such designation by the Board of Directors shall be evidenced to the Trustee by
promptly filing with the Trustee a copy of the resolution of the Board of
Directors giving effect to such designation and an Officers' Certificate
certifying that such designation complied with the foregoing provisions.
"U.S. Government Obligations" means direct obligations (or
---------------------------
certificates representing an ownership interest in such obligations) of the
United States of America (including any agency or instrumentality thereof) for
the payment of which the full faith and credit of the United States of America
is pledged and which are not callable at the issuer's option.
"Voting Stock" of a Person means all classes of Capital Stock or other
------------
interests (including partnership interests) of such Person then outstanding and
normally entitled (without regard to the occurrence of any contingency) to vote
in the election of directors, managers or trustees thereof.
"Wholly Owned Subsidiary" means a Restricted Subsidiary all the
-----------------------
Capital Stock of which (other than directors' qualifying shares) is owned by the
Company and/or one or more Wholly Owned Subsidiaries.
<PAGE>
30
SECTION 1.02. Other Definitions.
------------------
Defined in
Term Section
---- ----------
"Affiliate Transaction"....... 4.07
"Bankruptcy Law".............. 6.01
"Blockage Notice"............. 10.03
"covenant defeasance option".. 8.01(b)
"Custodian"................... 6.01
"Event of Default"............ 6.01
"legal defeasance option"..... 8.01(b)
"Legal Holiday................ 13.08
"Offer"....................... 4.06
"Offer Amount"........... 4.06
"Offer Period"................ 4.06
"pay the Securities"..... 10.03
"Paying Agent"................ 2.04
"Payment Blockage Period"..... 10.03
"Purchase Date"............... 4.06
"Registrar".............. 2.04
"Successor Company"........... 5.01
SECTION 1.03. Incorporation by Reference of Trust Indenture Act.
--------------------------------------------------
This Indenture is subject to the mandatory provisions of the TIA which are
incorporated by reference in and made a part of this Indenture. The following
TIA terms have the following meanings:
"Commission" means the SEC.
"indenture securities" means the Securities.
"indenture security holder" means a Securityholder.
"indenture to be qualified" means this Indenture.
"indenture trustee" or "institutional trustee" means the Trustee.
<PAGE>
31
"obligor" on the indenture securities means the Company and any other
obligor on the indenture securities.
All other TIA terms used in this Indenture that are defined by the
TIA, defined by TIA reference to another statute or defined by SEC rule have the
meanings assigned to them by such definitions.
SECTION 1.04. Rules of Construction. Unless the context otherwise
----------------------
requires:
(1) a term has the meaning assigned to it;
(2) an accounting term not otherwise defined has the meaning assigned
to it in accordance with GAAP;
(3) "or" is not exclusive;
(4) "including" means including without limitation;
(5) words in the singular include the plural and words in the plural
include the singular;
(6) unsecured Indebtedness shall not be deemed to be subordinate or
junior to Secured Indebtedness merely by virtue of its nature as unsecured
Indebtedness;
(7) the principal amount of any noninterest bearing or other discount
security at any date shall be the principal amount thereof that would be
shown on a balance sheet of the issuer dated such date prepared in
accordance with GAAP; and
(8) the principal amount of any Preferred Stock shall be (i) the
maximum liquidation value of such Preferred Stock or (ii) the maximum
mandatory redemp tion or mandatory repurchase price with respect to such
Preferred Stock, whichever is greater.
ARTICLE 2
The Securities
--------------
<PAGE>
32
SECTION 2.01. Amount of Securities; Issuable in Series. The
-----------------------------------------
aggregate principal amount of Securities which may be authenticated and
delivered under this Indenture is $130,000,000. All Securities shall be
identical in all respects other than issue price and issuance dates. The
Securities may be issued in one or more series; provided, however, that any
-------- -------
Securities issued with original issue discount ("OID") for Federal income tax
purposes shall not be issued as part of the same series as any Securities that
are issued with a different amount of OID or are not issued with OID. All
Securities of any one series shall be substantially identical except as to
denomination.
Subject to Section 2.03, the Trustee shall authenticate Securities for
original issue on the Issue Date in the aggregate principal amount of
$100,000,000 (the "Original Securities"). With respect to any Securities issued
after the Issue Date (except for Securities authenticated and delivered upon
registration of transfer of, or in exchange for, or in lieu of, Original
Securities pursuant to Sections 2.07, 2.08 or 2.09 or Appendix A), there shall
be established in or pursuant to a Board Resolution, and subject to Section
2.03, set forth, or determined in the manner provided in an Officer's
Certificate, or established in one or more indentures supplemental hereto, prior
to the issuance of such Securities:
(1) whether such Securities shall be issued as part of a new or
existing series of Securities and the title of such Securities (which shall
distinguish the Securities of the series from Securities of any other
series);
(2) the aggregate principal amount of such Securities which may be
authenticated and delivered under this Indenture, which shall be in
aggregate principal amounts of not less than $10 million per issuance and
not to exceed $30 million in the aggregate (except for Securities
authenticated and delivered upon registration of transfer of, or in
exchange for, or in lieu of, other Securities of the series pursuant to
Sections 2.07, 2.08 or 2.09 or Appendix A and except for Securities which,
pursuant to Section 2.03, are
<PAGE>
33
deemed never to have been authenticated and delivered hereunder);
(3) the date from which interest on such Securities shall accrue;
(4) if applicable, that such Securities shall be issuable in whole or
in part in the form of one or more Global Securities and, in such case, the
respective Depositories for such Global Securities, the form of any legend
or legends which shall be borne by any such Global Security in addition to
or in lieu of that set forth in Exhibit 1 to Appendix A and any
circumstances in addition to or in lieu of those set forth in Section 2.3
of Appendix A in which any such Global Security may be exchanged in whole
or in part for Securities registered, and any transfer of such Global
Security in whole or in part may be registered, in the name or names of
Persons other than the Depository for such Global Security or a nominee
thereof; and
(5) if applicable, that such Securities shall not be issued in the
form of Initial Securities subject to Appendix A, but shall be issued in
the form of Exchange Securities as set forth in Exhibit A.
If any of the terms of any series are established by action taken
pursuant to a resolution of the Board of Directors, a copy of an appropriate
record of such action shall be certified by the Secretary or any Assistant
Secretary of the Company and delivered to the Trustee at or prior to the
delivery of the Officers' Certificate or the trust indenture supplementary
thereto setting forth the terms of the series.
SECTION 2.02. Form and Dating. Provisions relating to the Initial
----------------
Securities of each series and the Exchange Securities are set forth in Appendix
A, which is hereby incorporated in and expressly made part of this Indenture.
The Initial Securities of each series and the Trustee's certificate of
authentication shall be substantially in the form of Exhibit 1 to Appendix A
which is hereby incorporated in and expressly made a part of this Indenture.
The Exchange Securities and the Trustee's certificate of authentication shall be
substantially in the
<PAGE>
34
form of Exhibit A, which is hereby incorporated in and expressly made a part of
this Indenture. The Securities of each series may have notations, legends or
endorsements required by law, stock exchange rule, agreements to which the
Company is subject, if any, or usage (provided that any such notation, legend or
endorsement is in a form acceptable to the Company). Each Security shall be
dated the date of its authentication. The terms of the Securities of each
series set forth in Exhibit 1 to Appendix A and Exhibit A are part of the terms
of this Indenture.
SECTION 2.03. Execution and Authentication. Two Officers shall sign
-----------------------------
the Securities for the Company by manual or facsimile signature. The Company's
seal shall be impressed, affixed, imprinted or reproduced on the Secu rities
and may be in facsimile form.
If an Officer whose signature is on a Security no longer holds that
office at the time the Trustee authenticates the Security, the Security shall
be valid nevertheless.
At any time and from time to time after the execution and delivery of
this Indenture, the Company may deliver Securities of any series executed by the
Company to the Trustee for authentication, together with a written order of the
Company in the form of an Officer's Certificate for the authentication and
delivery of such Securities, and the Trustee in accordance with such written
order of the Company shall authenticate and deliver such Securities.
A Security shall not be valid until an authorized signatory of the
Trustee manually signs the certificate of authentication on the Security. The
signature shall be conclusive evidence that the Security has been
authenticated under this Indenture.
The Trustee may appoint an authenticating agent reasonably acceptable
to the Company to authenticate the Securities. Unless limited by the terms of
such appointment, an authenticating agent may authenticate Securities whenever
the Trustee may do so. Each reference in this Indenture to authentication by
the Trustee includes authentication by such agent. An authenticating agent
has the
<PAGE>
35
same rights as any Registrar, Paying Agent or agent for service of notices and
demands.
SECTION 2.04. Registrar and Paying Agent. The Company shall maintain
---------------------------
an office or agency where Securities may be presented for registration of
transfer or for exchange (the "Registrar") and an office or agency where
Securities may be presented for payment (the "Paying Agent"). The Registrar
shall keep a register of the Securities and of their transfer and exchange. The
Company may have one or more co-registrars and one or more additional paying
agents; provided, however, that so long as United States Trust Company of New
-------- -------
York shall be the Trustee, without the consent of the Trustee, there shall be no
more than one Registrar or Paying Agent. The term "Paying Agent" includes any
additional paying agent.
The Company shall enter into an appropriate agency agreement with any
Registrar, Paying Agent or co-registrar not a party to this Indenture, which
shall incorporate the terms of the TIA. The agreement shall implement the
provisions of this Indenture that relate to such agent. The Company shall notify
the Trustee of the name and address of any such agent. If the Company fails to
maintain a Registrar or Paying Agent, the Trustee shall act as such and shall
be entitled to appropriate compensation therefor pursuant to Section 7.07. The
Company or any of its domestically incorporated Wholly Owned Subsidiaries may
act as Paying Agent, Registrar, co-registrar or transfer agent.
The Company initially appoints the Trustee as Registrar and Paying
Agent in connection with the Securities.
SECTION 2.05. Paying Agent To Hold Money in Trust. Prior to each due
------------------------------------
date of the principal and interest on any Security, the Company shall deposit
with the Paying Agent a sum sufficient to pay such principal and interest when
so becoming due. The Company shall require each Paying Agent (other than the
Trustee) to agree in writing that the Paying Agent shall hold in trust for the
benefit of Securityholders or the Trustee all money held by the Paying Agent for
the payment of principal of or interest on the Securities and shall notify the
Trustee of any default by the Company in making any such payment. If the
Company or a
<PAGE>
36
Subsidiary acts as Paying Agent, it shall segregate the money held by it as
Paying Agent and hold it as a separate trust fund. The Company at any time may
require a Paying Agent to pay all money held by it to the Trustee and to account
for any funds disbursed by the Paying Agent. Upon complying with this Section,
the Paying Agent shall have no further liability for the money delivered to the
Trustee.
SECTION 2.06. Securityholder Lists. The Trustee shall preserve in as
---------------------
current a form as is reasonably practicable the most recent list available to
it of the names and addresses of Securityholders. If the Trustee is not the
Registrar, the Company shall furnish to the Trustee, in writing at least five
Business Days before each interest payment date and at such other times as the
Trustee may request in writing, a list in such form and as of such date as the
Trustee may reasonably require of the names and addresses of Securityholders.
SECTION 2.07. Replacement Securities. If a mutilated Security is
-----------------------
surrendered to the Registrar or if the Holder of a Security claims that the
Security has been lost, destroyed or wrongfully taken, the Company shall issue
and the Trustee shall authenticate a replacement Security if the requirements of
Section 8-405 of the Uniform Commercial Code are met and the Holder satisfies
any other reasonable requirements of the Trustee. If required by the Trustee or
the Company, such Holder shall furnish an indemnity bond sufficient in the
judgment of the Company and the Trustee to protect the Company, the Trustee, the
Paying Agent, the Registrar and any co-registrar from any loss which any of them
may suffer if a Security is replaced. The Company and the Trustee may charge
the Holder for their expenses in replacing a Security.
Every replacement Security is an additional obligation of the Company.
SECTION 2.08. Outstanding Securities. Securities outstanding at any
-----------------------
time are all Securities authenticated by the Trustee except for those canceled
by it, those delivered to it for cancellation and those described in this
Section as not outstanding. A Security does not cease to be outstanding because
the Company or an Affiliate of the Company holds the Security.
<PAGE>
37
If a Security is replaced pursuant to Section 2.07, it ceases to be
outstanding unless the Trustee and the Company receive proof satisfactory to
them that the replaced Security is held by a bona fide purchaser, in which event
the replacement Security shall cease to be outstanding, subject to the
provisions of Section 8-405 of the Uniform Commercial Code.
If the Paying Agent segregates and holds in trust, in accordance with
this Indenture, on a redemption date or maturity date money sufficient to pay
all principal and interest payable on that date with respect to the Securities
(or portions thereof) to be redeemed or maturing, as the case may be, and the
Paying Agent is not prohibited from paying such money to the Securityholders on
that date pursuant to the terms of this Indenture, then on and after that date
such Securities (or portions thereof) cease to be outstanding and interest on
them ceases to accrue.
SECTION 2.09. Temporary Securities. Until definitive Securities are
---------------------
ready for delivery, the Company may prepare and the Trustee shall authenticate
temporary Securities. Temporary Securities shall be substantially in the form
of definitive Securities but may have variations that the Company considers
appropriate for temporary Securities. Without unreasonable delay, the Company
shall prepare and the Trustee shall authenticate definitive Securities and
deliver them in exchange for temporary Securities.
SECTION 2.10. Cancellation. The Company at any time may deliver
-------------
Securities to the Trustee for cancellation. The Registrar and the Paying Agent
shall forward to the Trustee any Securities surrendered to them for registration
of transfer, exchange or payment. The Trustee and no one else shall cancel and
destroy (subject to the record retention requirements of the Exchange Act) all
Securities surrendered for registration of transfer, exchange, payment or
cancellation and deliver a certificate of such destruction to the Company. The
Company may not issue new Securities to replace Securities it has redeemed, paid
or delivered to the Trustee for cancellation.
SECTION 2.11. Defaulted Interest. If the Company defaults in a
-------------------
payment of interest on the Securities, the
<PAGE>
38
Company shall pay defaulted interest (plus interest on such defaulted interest
to the extent lawful) in any lawful manner. The Company may pay the defaulted
interest to the persons who are Securityholders on a subsequent special record
date. The Company shall fix or cause to be fixed any such special record date
and payment date to the reasonable satisfaction of the Trustee and shall
promptly mail to each Securityholder a notice that states the special record
date, the payment date and the amount of defaulted interest to be paid.
SECTION 2.12. CUSIP Numbers. The Company in issuing the Securities
--------------
may use "CUSIP" numbers (if then generally in use) and, if so, the Trustee shall
use "CUSIP" numbers in notices of redemption as a convenience to Holders;
provided, however, that any such notice may state that no representation is made
-------
as to the correctness of such numbers either as printed on the Securities or as
contained in any notice of a redemption and that reliance may be placed only on
the other identification numbers printed on the Securities, and any such
redemption shall not be affected by any defect in or omission of such numbers.
ARTICLE 3
Redemption
----------
SECTION 3.01. Notices to Trustee. If the Company elects to redeem
-------------------
Securities pursuant to paragraph 5 of the Securities, it shall notify the
Trustee in writing of the redemption date, the principal amount of Securities to
be redeemed and the paragraph of the Securities pursuant to which the redemption
will occur.
The Company shall give each notice to the Trustee provided for in this
Section at least 45 days before the redemption date unless the Trustee consents
to a shorter period. Such notice shall be accompanied by an Officers'
Certificate and an Opinion of Counsel from the Company to the effect that such
redemption will comply with the conditions herein.
SECTION 3.02. Selection of Securities To Be Redeemed. If fewer than
---------------------------------------
all the Securities are to be
<PAGE>
39
redeemed, the Trustee shall select the Securities to be redeemed pro rata or by
lot or by a method that complies with applicable legal and securities exchange
requirements, if any, and that the Trustee considers fair and appropriate and in
accordance with methods generally used at the time of selection by fiduciaries
in similar circumstances. The Trustee shall make the selection from outstanding
Securities not previously called for redemption. The Trustee may select for
redemption portions of the principal of Securities that have denominations
larger than $1,000. Securities and portions of them the Trustee selects shall
be in amounts of $1,000 or a whole multiple of $1,000. Provisions of this
Indenture that apply to Securities called for redemption also apply to portions
of Securities called for redemption. The Trustee shall notify the Company
promptly of the Securities or portions of Securities to be redeemed.
SECTION 3.03. Notice of Redemption. At least 30 days but not more
---------------------
than 60 days before a date for redemption of Securities, the Company shall
mail a notice of redemption by first-class mail to each Holder of Securities to
be redeemed.
The notice shall identify the Securities to be redeemed and shall
state:
(1) the redemption date;
(2) the redemption price;
(3) the name and address of the Paying Agent;
(4) that Securities called for redemption must be surrendered to the
Paying Agent to collect the redemp tion price;
(5) if fewer than all the outstanding Securities are to be redeemed,
the identification and principal amounts of the particular Securities to be
redeemed;
(6) that, unless the Company defaults in making such redemption
payment or the Paying Agent is pro hibited from making such payment
pursuant to the terms of this Indenture, interest on Securities (or portion
<PAGE>
40
thereof) called for redemption ceases to accrue on and after the redemption
date; and
(7) that no representation is made as to the correctness or accuracy
of the CUSIP number, if any, listed in such notice or printed on the
Securities.
At the Company's request, the Trustee shall give the notice of
redemption in the Company's name and at the Company's expense. In such event,
the Company shall provide the Trustee with the information required by this
Section at least 45 days before the redemption date.
SECTION 3.04. Effect of Notice of Redemption. Once notice of
-------------------------------
redemption is mailed, Securities called for redemption become due and payable on
the redemption date and at the redemption price stated in the notice. Upon
surrender to the Paying Agent, such Securities shall be paid at the redemption
price stated in the notice, plus accrued interest to the redemption date.
Failure to give notice or any defect in the notice to any Holder shall not
affect the validity of the notice to any other Holder.
SECTION 3.05. Deposit of Redemption Price. Prior to the redemption
----------------------------
date, the Company shall deposit with the Paying Agent (or, if the Company or a
Subsidiary is the Paying Agent, shall segregate and hold in trust) money
sufficient to pay the redemption price of and accrued interest on all
Securities to be redeemed on that date other than Securities or portions of
Securities called for redemption which have been delivered by the Company to the
Trustee for cancellation.
SECTION 3.06. Securities Redeemed in Part. Upon surrender of a
----------------------------
Security that is redeemed in part, the Company shall execute and the Trustee
shall authenticate for the Holder (at the Company's expense) a new Security
equal in principal amount to the unredeemed portion of the Security
surrendered.
<PAGE>
41
ARTICLE 4
Covenants
---------
SECTION 4.01. Payment of Securities. The Company shall promptly pay
----------------------
the principal of and interest on the Securities on the dates and in the manner
provided in the Securities and in this Indenture. Principal and interest shall
be considered paid on the date due if on such date the Trustee or the Paying
Agent holds in accordance with this Indenture money sufficient to pay all
principal and interest then due and the Trustee or the Paying Agent, as the case
may be, is not prohibited from paying such money to the Securityholders on that
date pursuant to the terms of this Indenture.
The Company shall pay interest on overdue principal at the rate
specified therefor in the Securities, and it shall pay interest on overdue
installments of interest at the same rate to the extent lawful.
SECTION 4.02. SEC Reports. Until such time as the Company shall
------------
become subject to the reporting requirements of Section 13 or 15(d) of the
Exchange Act, (a) the Company shall provide the Trustee, the Initial Purchasers,
the Securityholders and prospective Securityholders (upon request) with such
annual reports and such information, documents and other reports as are
specified in Sections 13 and 15(d) of the Exchange Act and applicable to a U.S.
corporation subject to such Sections, such information, documents and other
reports to be so provided at the times specified for the filing of such
information, documents and reports under such Sections and (b) not later than 45
days after the end of each fiscal quarter of the Company, the Company shall
issue a press release setting forth a summary of the results of operations of
the Company for such fiscal quarter and shall publish such press release on one
of the following national business and financial wire services: Dow Jones News
Service, Reuters Financial Service, Bloomberg News, PR Newswire or Business
Wire. Thereafter, notwithstanding that the Company may not be required to
remain subject to the reporting requirements of Section 13 or 15(d) of the
Exchange Act, the Company shall file with the SEC and provide the Trustee and
Securityholders and prospective Securityholders (upon
<PAGE>
42
request) with such annual reports and such information, documents and other
reports as are specified in such Sections and applicable to a U.S. corporation
subject to such Sections, such information, documents and other reports to be so
filed and provided at the times specified for the filing of such information,
documents and reports under such Sections; provided, however, that the Company
-------- -------
shall not be required to file any report, document or other information with the
SEC if the SEC does not permit such filing.
SECTION 4.03. Limitation on Indebtedness. (a) The Company shall not
---------------------------
and shall not permit any Restricted Subsidiary to Incur, directly or indirectly,
any Indebtedness unless, on the date of such Incurrence, the Consolidated
Coverage Ratio exceeds 2.00 to 1 if such Indebtedness is Incurred prior to April
15, 2000 or 2.25 to 1 if such Indebtedness is Incurred thereafter.
(b) Notwithstanding the foregoing paragraph (a), the Company and its
Restricted Subsidiaries may Incur any or all of the following Indebtedness:
(1) Indebtedness Incurred pursuant to the New Credit Facility or any
Permitted Receivables Financing; provided, however, that, after giving
-------- -------
effect to any such Incurrence, the aggregate principal amount of such
Indebtedness then outstanding does not exceed the sum of (x) 60% of the
book value of the inventory of the Company and its Restricted Subsidiaries
and (y) 85% of the book value of the accounts receivable of the Company and
its Restricted Subsidiaries, in each case determined in accordance with
GAAP;
(2) Indebtedness of the Company owed to and held by any Wholly Owned
Subsidiary or Indebtedness of a Restricted Subsidiary owed to and held by
the Company or a Wholly Owned Subsidiary; provided, however, that any
-------- -------
subsequent issuance or transfer of any Capital Stock which results in any
such Wholly Owned Subsidiary ceasing to be a Wholly Owned Subsidiary or any
subsequent transfer of such Indebtedness (other than to the Company or a
Wholly Owned Subsidiary) shall be deemed, in each case, to constitute the
Incurrence of such Indebtedness of the issuer thereof;
<PAGE>
43
(3) Indebtedness of the Company represented by the Securities and the
Subsidiary Guarantees;
(4) Indebtedness outstanding on the Issue Date (other than
Indebtedness described in clause (1) or (2) of this Section 4.03(b);
(5) Refinancing Indebtedness in respect of Indebtedness Incurred
pursuant to Section 4.03(a) or pursuant to clause (3) or (4) of this
Section 4.03(b) or this paragraph (5);
(6) Indebtedness in respect of performance bonds, bankers'
acceptances, letters of credit and surety or appeal bonds entered into by
the Company and the Restricted Subsidiaries in the ordinary course of their
business;
(7) Hedging Obligations consisting of Interest Rate Agreements and
Currency Agreements entered into in the ordinary course of business and not
for the purpose of speculation; provided, however, that, in the case of
-------- -------
Currency Agreements and Interest Rate Agreements, such Currency Agreements
and Interest Rate Agreements do not increase the Indebtedness of the
Company outstanding at any time other than as a result of fluctuations in
foreign currency exchange rates or interest rates or by reason of fees,
indemnities and compensation payable thereunder;
(8) Purchase Money Indebtedness and Capital Lease Obligations Incurred
to finance the acquisition by the Company or a Restricted Subsidiary of any
assets in the ordinary course of business and which do not exceed $10
million in the aggregate at any time outstanding;
(9) Indebtedness arising from the honoring by a bank or other
financial institution of a check, draft or similar instrument inadvertently
(except in the case of daylight overdrafts) drawn against insufficient
funds in the ordinary course of business, provided that such Indebtedness
--------
is extinguished within five business days of Incurrence;
<PAGE>
44
(10) Indebtedness of the Company and its Restricted Subsidiaries, to
the extent the proceeds thereof are immediately used after the Incurrence
thereof to purchase Securities tendered in an offer to purchase made as a
result of a Change of Control;
(11) Indebtedness of the Company and its Restricted Subsidiaries
arising from agreements providing for indemnification, adjustment of
purchase price or similar obligations, in any case Incurred in connection
with the disposition of any assets of the Company or any Restricted
Subsidiary (other than Guarantees of Indebtedness Incurred by any Person
acquiring all or any portion of such assets for the purpose of financing
such acquisition), in a principal amount not to exceed the gross proceeds
actually received by the Company or any Restricted Subsidiary in connection
with such disposition; and
(12) Indebtedness in an aggregate principal amount which, together
with all other Indebtedness of the Company and its Restricted Subsidiaries
outstanding on the date of such Incurrence (other than Indebtedness
permitted by clauses (1) through (11) of this Section 4.03(b) or Section
4.03(a)) does not exceed $30 million.
(c) Notwithstanding the foregoing, the Company shall not, and shall
not permit any Restricted Subsidiary to, Incur any Indebtedness pursuant to
Section 4.03(b) if the proceeds thereof are used, directly or indirectly, to
Refinance (i) any Subordinated Obligations unless such Indebtedness shall be
subordinated to the Securities and the Subsidiary Guaranties, as applicable, to
at least the same extent as such Subordinated Obligations or (ii) any Senior
Subordinated Indebtedness unless such Indebtedness shall be Senior Subordinated
Indebtedness or shall be subordinated to the Securities and the Subsidiary
Guaranties, as applicable.
(d) For purposes of determining compliance with this Section 4.03,
(i) in the event that an item of Indebtedness meets the criteria of more than
one of the types of Indebtedness described in this Section, the Company, in its
sole discretion, will classify such item of Indebtedness and only be required to
include the amount and
<PAGE>
45
type of such Indebtedness in one of the above clauses and (ii) an item of
Indebtedness may be divided and classified in more than one of the types of
Indebtedness described herein.
(e) Notwithstanding Section 4.03(a) and 4.03(b), the Company shall
not, and shall not permit any Subsidiary Guarantor to, Incur (i) any
Indebtedness if such Indebtedness is subordinate or junior in ranking in any
respect to any Senior Indebtedness of the Company or any Subsidiary Guarantor,
as applicable, unless such Indebtedness is Senior Subordinated Indebtedness or
is expressly subordinated in right of payment to Senior Subordinated
Indebtedness or (ii) any Secured Indebtedness that is not Senior Indebtedness of
the Company or any Subsidiary Guarantor, as applicable, unless contemporaneously
therewith effective provision is made to secure the Securities or Subsidiary
Guaranty, as applicable, equally and ratably with such Secured Indebtedness for
so long as such Secured Indebtedness is secured by a Lien.
SECTION 4.04. Limitation on Restricted Payments. (a) The Company
----------------------------------
shall not, and shall not permit any Restricted Subsidiary, directly or
indirectly, to make a Restricted Payment if at the time the Company or such
Restricted Subsidiary makes such Restricted Payment:
(1) a Default shall have occurred and be continuing (or would result
therefrom);
(2) the Company is not able to Incur an additional $1.00 of
Indebtedness pursuant to Section 4.03(a); or
(3) the aggregate amount of such Restricted Payment together with
all other Restricted Payments (the amount of any payments made in property
other than in cash to be valued at the fair market value of such property,
as determined in good faith by the Board of Directors) declared or made
since the Issue Date would exceed the sum of:
(A) 50% of the Consolidated Net Income accrued during the period
(treated as one accounting period) from April 1, 1997 to the end of
the most recent fiscal quarter ending at least 45 days
<PAGE>
46
(or, if less, the number of days after the end of such fiscal quarter
as the consolidated financial statements of the Company shall be
provided to the Securityholders pursuant to the Indenture) prior to
the date of such Restricted Payment (or, in case such Consolidated Net
Income accrued during such period (treated as one accounting period)
shall be a deficit, minus 100% of such deficit);
(B) the aggregate Net Cash Proceeds received by the Company from
the issuance or sale of its Capital Stock (other than Disqualified
Stock) subsequent to the Issue Date (other than an issuance or sale to
a Subsidiary of the Company and other than an issuance or sale to an
employee stock ownership plan or to a trust established by the Company
or any of its Subsidiaries for the benefit of their employees to the
extent that the purchase by such plan or trust is financed by
Indebtedness of such plan or trust to the Company or any Subsidiary or
for which the Company or any Subsidiary is liable, directly or
indirectly, as a guarantor or otherwise (including by the making of
cash contributions to such plan or trust which are used to pay
interest or principal on such Indebtedness));
(C) the amount by which Indebtedness of the Company or its
Restricted Subsidiaries is reduced on the Company's balance sheet upon
the conversion or exchange (other than by a Subsidiary of the Company)
subsequent to the Issue Date, of any Indebtedness of the Company or
its Restricted Subsidiaries convertible or exchangeable for Capital
Stock (other than Disqualified Stock) of the Company (less the amount
of any cash, or the fair value of any other property, distributed by
the Company or any Restricted Subsidiary upon such conversion or
exchange); and
(D) an amount equal to the sum of (i) the net reduction in
Investments in Unrestricted Subsidiaries resulting from dividends,
repayments of loans or advances or other transfers of assets by any
Unrestricted Subsidiary to the Company or
<PAGE>
47
any Restricted Subsidiary, or the receipt of proceeds by the Company
or any Restricted Subsidiary from the sale or other disposition of any
portion of the Capital Stock of any Unrestricted Subsidiary, in each
case occurring subsequent to the Issue Date, and (ii) the portion
(proportionate to the Company's equity interest in such Subsidiary) of
the fair market value of the net assets of an Unrestricted Subsidiary
at the time such Unrestricted Subsidiary is designated a Restricted
Subsidiary; provided, however, that the foregoing sum shall not
-------- -------
exceed, in the case of any Unrestricted Subsidiary, the amount of
Investments previously made (and treated as a Restricted Payment) by
the Company or any Restricted Subsidiary in such Unrestricted
Subsidiary.
(b) The provisions of Section 4.04(a) shall not prohibit:
(1) any purchase or redemption of Capital Stock or Subordinated
Obligations of the Company or any Restricted Subsidiary made by exchange
for, or out of the proceeds of the substantially concurrent sale of,
Capital Stock of the Company (other than Disqualified Stock and other than
Capital Stock issued or sold to a Subsidiary of the Company or an employee
stock ownership plan or to a trust established by the Company or any of its
Subsidiaries for the benefit of their employees to the extent that the
purchase by such plan or trust is financed by Indebtedness of such plan or
trust to the Company or any Subsidiary or for which the Company or any
Subsidiary is liable, directly or indirectly, as a guarantor or otherwise
(including by the making of cash contributions to such plan or trust which
are used to pay interest or principal on such Indebtedness)); provided,
--------
however, that (A) such purchase or redemption shall be excluded from the
-------
calculation of the amount of Restricted Payments and (B) the Net Cash
Proceeds from such sale shall be excluded from the calculation of amounts
under Section 4.04(a)(3)(B);
(2) any purchase or redemption of (A) Subordinated Obligations of the
Company made by exchange for, or out
<PAGE>
48
of the proceeds of the substantially concurrent sale of, Indebtedness of
the Company which is permitted to be Incurred pursuant to paragraphs (b)
and (c) of Section 4.03 or (B) Subordinated Obligations of a Restricted
Subsidiary made by exchange for, or out of the proceeds of the
substantially concurrent sale of, Indebtedness of such Restricted
Subsidiary or the Company which is permitted to be Incurred pursuant to
paragraphs (b) and (c) of Section 4.03; provided, however, that such
-------- -------
purchase or redemption shall be excluded from the calculation of the amount
of Restricted Payments;
(3) any purchase or redemption of (A) Disqualified Stock of the
Company made by exchange for, or out of the proceeds of the substantially
concurrent sale of, Disqualified Stock of the Company or (B) Disqualified
Stock of a Restricted Subsidiary made by exchange for, or out of the
proceeds of the substantially concurrent sale of, Disqualified Stock of
such Restricted Subsidiary or the Company; provided, however, that (i) at
-------- -------
the time of such exchange, no Default or Event of Default shall have
occurred and be continuing or would result therefrom and (ii) such purchase
or redemption will be excluded from the calculation of the amount of
Restricted Payments;
(4) cash payments to Holdings (A) in an aggregate amount not to exceed
$1.6 million to enable Holdings to (1) prepay the Deferred Redemption Price
Note and (2) purchase 3,651.15 shares of Class A Common Stock of Holdings
held by the Seller and (B) in an aggregate principal amount not to exceed
$5 million to enable Holdings to prepay the Seller Notes; provided,
--------
however, that (i) in the case of subclause (B) of this clause (4) only, at
-------
the time of such payment or prepayment, the Company would be able to Incur
an additional $1.00 of Indebtedness pursuant to Section 4.03(a) after
giving pro forma effect to such Restricted Payment and (ii) at the time of
such payment or prepayment, no Default shall have occurred and be
continuing (or would result therefrom); provided further, however, that
---------------- -------
such payments will be included in the calculation of the amount of
Restricted Payments;
<PAGE>
49
(5) cash payments to Holdings to enable Holdings to pay cash interest
on the Split-Pay Notes, as and when the same shall become due and payable;
provided, however, that (A) Holdings shall not have the right to pay such
-------- -------
interest in-kind (including, without limitation, in the form of additional
notes) or otherwise defer the payment of such interest in cash, (B) the
aggregate amount of such payments shall not exceed $300,000 in any six-
month period, (C) at the time of such payment, no Default shall have
occurred and be continuing (or would result therefrom) and (D) such
payments will be included in the calculation of the amount of Restricted
Payments;
(6) Permitted Operating Expense Payments and payments to Holdings that
are required to be made pursuant to the Tax Sharing Agreement; provided,
--------
however, that such payments will be excluded from the amount of Restricted
-------
Payments;
(7) upon the occurrence of a Change of Control and within 60 days
after the completion of the offer to repurchase the Securities pursuant to
Section 4.09 (including the purchase of all Securities tendered), any
purchase or redemption of Subordinated Obligations of the Company required
pursuant to the terms thereof as a result of such Change of Control at a
purchase or redemption price not to exceed the outstanding principal amount
thereof, plus accrued and unpaid interest thereon, if any; provided,
--------
however, that (A) at the time of such purchase or redemption, no Default
-------
shall have occurred and be continuing (or would result therefrom), (B) the
Company would be able to Incur an additional $1.00 of Indebtedness pursuant
to Section 4.03(a) after giving pro forma effect to such Restricted
Payment, (C) such purchase or redemption is not made, directly or
indirectly, from the proceeds of (or made in anticipation of) any Issuance
of Indebtedness by the Company or any Subsidiary and (D) such purchase or
redemption will be included in the calculation of the amount of Restricted
Payments;
(8) dividends paid within 60 days after the date of declaration
thereof if at such date of declaration such dividend would have complied
with Section 4.04(a);
<PAGE>
50
provided, however, that (A) at the time of payment of such dividend, no
-------- -------
other Default shall have occurred and be continuing (or would result
therefrom) and (B) such dividend shall be included in the calculation of
the amount of Restricted Payments; or
(9) the repurchase of, or payments to Holdings to enable Holdings to
repurchase, shares of, or options to purchase shares of, common stock of
the Company, Holdings or any of the Subsidiaries from employees, former
employees, directors or former directors of the Company, Holdings or any of
the Subsidiaries (or permitted transferees of such employees, former
employees, directors or former directors), pursuant to the terms of the
agreements (including employment agreements) or plans (or amendments
thereto) approved by the Board of Directors or the board of directors of
Holdings, as the case may be, under which such individuals purchase or sell
or are granted the option to purchase or sell, shares of such common stock;
provided, however, that (A) the aggregate amount of such repurchases shall
-------- -------
not exceed the sum of (i) $1 million and (ii) the aggregate amount of cash
received by the Company after the Issue Date from the sale of such shares
to, or the exercise of options to purchase such shares by, employees or
directors of the Company, Holdings or any of the Subsidiaries and (B) such
repurchases shall be included in the calculation of the amount of
Restricted Payments.
SECTION 4.05. Limitation on Restrictions on Distributions from
------------------------------------------------
Restricted Subsidiaries. The Company shall not, and shall not permit any
- ------------------------
Restricted Subsidiary to, create or otherwise cause or permit to exist or become
effective any consensual encumbrance or consensual restriction on the ability of
any Restricted Subsidiary to (i) pay dividends or make any other distributions
on its Capital Stock to the Company or a Restricted Subsidiary or pay any
Indebtedness owed to the Company, (ii) make any loans or advances to the Company
or (iii) transfer any of its property or assets to the Company, except:
(1) any encumbrance or restriction pursuant to an agreement in effect
at or entered into on the Issue Date;
<PAGE>
51
(2) any encumbrance or restriction with respect to a Restricted Subsidiary
pursuant to an agreement relating to any Indebtedness Incurred by such
Restricted Subsidiary which was entered into on or prior to the date on
which such Restricted Subsidiary was acquired by the Company (other than as
consideration in, or to provide all or any portion of the funds or credit
support utilized to consummate, the transaction or series of related
transactions pursuant to which such Restricted Subsidiary became a
Restricted Subsidiary or was acquired by the Company) and outstanding on
such date;
(3) any encumbrance or restriction pursuant to an agreement effecting
a Refinancing of Indebtedness Incurred pursuant to an agreement referred to
in clause (1) or (2) of this Section 4.05 or this clause (3) or contained
in any amendment to an agreement referred to in clause (1) or (2) of this
Section 4.05 or this clause (3) or contained in any amendment to an
agreement referred to in clause (1) or (2) of this Section 4.05 or this
clause (3); provided, however, that the encumbrances and restrictions with
-------- -------
respect to such Restricted Subsidiary contained in any such refinancing
agreement or amendment are no more restrictive in any material respect than
the encumbrances and restrictions with respect to such Restricted
Subsidiary contained in such agreements;
(4) any such encumbrance or restriction consisting of customary
nonassignment provisions in leases governing leasehold interests to the
extent such provisions restrict the transfer of the lease or the property
leased thereunder;
(5) in the case of clause (iii) of this Section 4.05, restrictions
contained in security agreements or mortgages securing Indebtedness of a
Restricted Subsidiary to the extent such restrictions restrict the transfer
of the property subject to such security agreements or mortgages;
(6) any restriction with respect to a Restricted Subsidiary imposed
pursuant to an agreement entered into for the sale or disposition of all or
<PAGE>
52
substantially all the Capital Stock or assets of such Restricted Subsidiary
pending the closing of such sale or disposition; and
(7) any encumbrance or restriction with respect to any Receivables
Subsidiary pursuant to an agreement related to Indebtedness of the
Receivables Subsidiary which is permitted under Section 4.03 or pursuant to
any agreement relating to a Financing Disposition to or by the Receivables
Subsidiary.
SECTION 4.06. Limitation on Sales of Assets and Subsidiary Stock.
---------------------------------------------------
(a) The Company shall not, and shall not permit any Restricted Subsidiary to
consummate any Asset Disposition unless (i) the Company or such Restricted
Subsidiary receives consideration at the time of such Asset Disposition at least
equal to the fair market value (including as to the value of all noncash
consideration), as determined in good faith by the Board of Directors, of the
shares and assets subject to such Asset Disposition, and (ii) at least 75% (or
100% in the case of lease payments) of the consideration thereof received by the
Company or such Restricted Subsidiary is in the form of cash or cash
equivalents. In the event and to the extent that the aggregate Net Available
Cash received by the Company or any Restricted Subsidiary from one or more Asset
Disposition occurring on or after the Issue Date exceeds $5 million, then the
Company or such Restricted Subsidiary shall (A) within 360 days after the
receipt of such Net Available Cash and to the extent the Company or such
Restricted Subsidiary elects (or is required by the terms of any Senior
Indebtedness) to (1) apply an amount equal to such excess Net Available Cash to
prepay, repay or purchase Senior Indebtedness of the Company or such Restricted
Subsidiary, in each case owing to a Person other than the Company or any
Affiliate of the Company or (2) invest (or enter into a binding commitment to
invest, provided that such commitment shall be subject only to customary
--------
conditions (other than financing) and such investment shall be consummated
within 360 days after the end of such 360-day period) an equal amount, or the
amount not so applied pursuant to clause (1), in Additional Assets (including by
means of an Investment in Additional Assets by a Restricted Subsidiary with Net
Available Cash received by the Company or another Restricted Subsidiary) and (B)
apply such excess Net Available Cash (to
<PAGE>
53
the extent not applied pursuant to clause (A)), to make an Offer (as defined
below) to purchase Securities pursuant to and subject to the conditions of
Section 4.06(b); provided, however that in connection with any prepayment,
-------- -------
repayment or purchase of Senior Indebtedness pursuant to clause (A) above, the
Company or such Restricted Subsidiary shall retire such Senior Indebtedness and
shall cause the related loan commitment (if any) to be permanently reduced in an
amount equal to the principal amount so prepaid, repaid or purchased. The
amount of such excess Net Available Cash required to be applied pursuant to
clause (B) above and not theretofore so applied shall constitute "Excess
Proceeds". Pending application of Net Available Cash pursuant to this covenant,
such Net Available Cash shall be invested in Temporary Cash Investments.
For the purposes of this Section 4.06(a)(ii), the following are deemed
to be cash: (x) the assumption of Senior Indebtedness of the Company or any
Restricted Subsidiary and the release of the Company or such Restricted
Subsidiary from all liability on such Indebtedness in connection with such Asset
Disposition and (y) securities received by the Company or any Restricted
Subsidiary from the transferee that are promptly converted by the Company or
such Restricted Subsidiary into cash.
(b) In the event of an Asset Disposition that requires the purchase
of Securities pursuant to clause (B) of Section 4.06(a), the Company shall be
required to purchase an aggregate principal amount of Securities equal to the
Excess Proceeds (rounded down to the nearest multiple of $1,000) which have been
tendered by Holders pursuant to an offer, commenced within 30 days following the
expiration of the applicable period referred to clause (A) of Section 4.06(a)
(or, if the Company so elects, at any time within such period), by the Company
for the Securities (the "Offer") at a purchase price of 100% of their principal
amount plus accrued and unpaid interest, if any, to the date of purchase in
accordance with the procedures (including prorationing in the event of
oversubscription) set forth in Section 4.06(c). If the aggregate purchase price
of Securities tendered pursuant to the Offer is less than the Net Available Cash
allotted to the purchase of the Securities, such remaining Net Available Cash
may be used by the Company for any corporate purpose (to the extent not
<PAGE>
54
otherwise prohibited by the Indenture). The Company shall not be required to
make an Offer for Securities pursuant to this Section if the Net Available Cash
available therefor (after application of the proceeds as provided in clause (A)
of Section 4.06(a)) is less than $5 million (which lesser amount shall be
carried forward for purposes of determining whether an Offer is required with
respect to the Net Available Cash from any subsequent Asset Disposition).
(c) (1) Promptly, and in any event within 30 days after the Company
becomes obligated to make an Offer, the Company shall be obligated to deliver to
the Trustee and send, by first-class mail to each Holder, a written notice
stating that the Holder may elect to have his Securities purchased by the
Company either in whole or in part (subject to prorationing as hereinafter
described in the event the Offer is oversubscribed) in integral multiples of
$1,000 of principal amount, at the applicable purchase price. The notice shall
specify a purchase date not less than 30 days nor more than 60 days after the
date of such notice (the "Purchase Date") and shall contain such information
concerning the business of the Company which the Company in good faith believes
will enable such Holders to make an informed decision (which at a minimum will
include (i) the most recently filed Annual Report on Form 10-K (including
audited consolidated financial statements) of the Company, the most recent
subsequently filed Quarterly Report on Form 10-Q and any Current Report on Form
8-K of the Company filed subsequent to such Quarterly Report, other than Current
Reports describing Asset Dispositions otherwise described in the offering
materials, or corresponding successor reports (or, until such time as the
Company shall become subject to the reporting requirements of Section 13 or
15(d) of the Exchange Act, corresponding reports prepared pursuant to Section
4.02), (ii) a description of material developments in the Company's business
subsequent to the date of the latest of such reports, and (iii) if material,
appropriate pro forma financial information) and all instructions and materials
necessary to tender Securities pursuant to the Offer, together with the
information contained in clause (2).
(2) Not later than the date upon which written notice of an Offer is
delivered to the Trustee as provided above, the Company shall deliver to the
Trustee an Officers'
<PAGE>
55
Certificate as to (i) the amount of the Offer (the "Offer Amount"), (ii) the
allocation of the Net Available Cash from the Asset Dispositions pursuant to
which such Offer is being made and (iii) the compliance of such allocation with
the provisions of Section 4.06(a). On such date, the Company shall also
irrevocably deposit with the Trustee or with a paying agent (or, if the Company
is acting as its own paying agent, segregate and hold in trust) in Temporary
Cash Investments, maturing on the last day prior to the Purchase Date or on the
Purchase Date if funds are immediately available by open of business, an amount
equal to the Offer Amount to be held for payment in accordance with the
provisions of this Section. Upon the expiration of the period for which the
Offer remains open (the "Offer Period"), the Company shall deliver to the
Trustee for cancellation the Securities or portions thereof which have been
properly tendered to and are to be accepted by the Company. The Trustee shall,
on the Purchase Date, mail or deliver payment to each tendering Holder in the
amount of the purchase price. In the event that the aggregate purchase price of
the Securities delivered by the Company to the Trustee is less than the Offer
Amount, the Trustee shall deliver the excess to the Company immediately after
the expiration of the Offer Period for application in accordance with this
Section.
(3) Holders electing to have a Security purchased shall be required
to surrender the Security, with an appropriate form duly completed, to the
Company at the address specified in the notice at least three Business Days
prior to the Purchase Date. Holders shall be entitled to withdraw their
election if the Trustee or the Company receives not later than one Business Day
prior to the Purchase Date, a telegram, telex, facsimile transmission or letter
setting forth the name of the Holder, the principal amount of the Security which
was delivered for purchase by the Holder and a statement that such Holder is
withdrawing his election to have such Security purchased. If at the expiration
of the Offer Period the aggregate principal amount of Securities surrendered by
Holders exceeds the Offer Amount, the Company shall select the Securities to be
purchased on a pro rata basis (with such adjustments as may be deemed
appropriate by the Company so that only Securities in denominations of $1,000,
or integral multiples thereof, shall be purchased). Holders whose Securities
are purchased only in part shall be
<PAGE>
56
issued new Securities equal in principal amount to the unpurchased portion of
the Securities surrendered.
(4) At the time the Company delivers Securities to the Trustee which
are to be accepted for purchase, the Company shall also deliver an Officers'
Certificate stating that such Securities are to be accepted by the Company
pursuant to and in accordance with the terms of this Section 4.06. A Security
shall be deemed to have been accepted for purchase at the time the Trustee,
directly or through an agent, mails or delivers payment therefor to the
surrendering Holder.
(d) The Company shall comply, to the extent applicable, with the
requirements of Section 14(e) of the Exchange Act and any other securities laws
or regulations in connection with the repurchase of Securities pursuant to this
Section. To the extent that the provisions of any securities laws or
regulations conflict with the provisions of this Section, the Company shall
comply with the applicable securities laws and regulations and shall not be
deemed to have breached its obligations under this Section by virtue thereof.
SECTION 4.07. Limitation on Affiliate Transactions. (a) The Company
-------------------------------------
shall not, and shall not permit any Restricted Subsidiary to, enter into or
permit to exist any transaction (including the purchase, sale, lease or exchange
of any property, employee compensation arrangements or the rendering of any
service) with any Affiliate of the Company (an "Affiliate Transaction") unless
the terms thereof (i) are no less favorable to the Company or such Restricted
Subsidiary than those that could be obtained at the time of such transaction in
arm's-length dealings with a Person who is not such an Affiliate, (ii) if such
Affiliate Transaction involves an amount in excess of $1 million, (1) are set
forth in writing, (2) comply with clause (i), and (3) have been approved by a
majority of disinterested members of the Board of Directors and (iii) if such
Affiliate Transaction involves an amount in excess of $5 million, (1) comply
with clause (ii) and (2) have been determined by a nationally recognized
investment banking firm to be fair, from a financial standpoint, to the Company
and its Restricted Subsidiaries.
<PAGE>
57
(b) The provisions of Section 4.07(a) shall not prohibit (i) any
Restricted Payment permitted to be paid pursuant to Section 4.04, (ii) any
issuance of securities, or other payments, awards or grants in cash, securities
or otherwise pursuant to, or the funding of, employment arrangements, stock
options and stock ownership plans in the ordinary course of business and
approved by the Board of Directors, (iii) the grant of stock options or similar
rights to employees and directors of the Company in the ordinary course of
business pursuant to plans approved by the Board of Directors, (iv) loans or
advances to employees in the ordinary course of business of the Company or its
Restricted Subsidiaries, but in any event not to exceed $1 million in the
aggregate outstanding at any time, (v) fees, compensation or employee benefit
arrangements paid to and indemnity provided for the benefit of directors,
officers or employees of Holdings, the Company or any Subsidiary in the ordinary
course of business, subject in the case of Holdings, to the limitation set-forth
in Section 4.04(b)(6), (vi) the payment of interest, principal and other amounts
under the Junior Subordinated Notes when due in accordance with the terms
thereof, (vii) any Affiliate Transaction between the Company and a Restricted
Subsidiary or between Restricted Subsidiaries in the ordinary course of business
(so long as the other stockholders of any participating Restricted Subsidiaries
which are not Wholly Owned Restricted Subsidiaries and are not themselves
Affiliates of the Company), (viii) transactions with B&D pursuant to the B&D
Licensing Agreement or (ix) transactions with a Receivables Subsidiary pursuant
to any Permitted Receivables Financing.
SECTION 4.08. Limitation on the Sale or Issuance of Capital Stock of
------------------------------------------------------
Restricted Subsidiaries. The Company shall not (i) sell, pledge, hypothecate or
- ------------------------
otherwise dispose of any shares of Capital Stock of a Restricted Subsidiary
(other than pledges of Capital Stock securing Designated Senior Indebtedness),
or (ii) permit any Restricted Subsidiary, directly or indirectly, to issue or
sell or otherwise dispose of any shares of its Capital Stock other than (A) to
the Company or a Wholly Owned Subsidiary or (B) if, immediately after giving
effect to such issuance, sale or other disposition, such Restricted Subsidiary
would no longer constitute a Restricted Subsidiary. The proceeds of any sale of
such Capital Stock permitted hereby will be
<PAGE>
58
treated as Net Available Cash from an Asset Disposition and must be applied in
accordance with the terms of Section 4.06.
SECTION 4.09. Change of Control. (a) Upon the occurrence of a
------------------
Change of Control, each Holder shall have the right to require that the Company
repurchase all or a portion of such Holder's Securities at a purchase price in
cash equal to 101% of the principal amount thereof plus accrued and unpaid
interest, if any, to the date of repurchase (subject to the right of Holders of
record on the relevant record date to receive interest due on the relevant
interest payment date), in accordance with the terms contemplated in Section
4.09(b).
(b) Within 30 days following any Change of Control, the Company shall
mail a notice to each Holder with a copy to the Trustee stating:
(1) that a Change of Control has occurred and that such Holder has the
right to require the Company to purchase such Holder's Securities at a
purchase price in cash equal to 101% of the principal amount thereof plus
accrued and unpaid interest, if any, to the date of repurchase (subject to
the right of Holders of record on the relevant record date to receive
interest on the relevant interest payment date);
(2) the circumstances and relevant facts and financial information
regarding such Change of Control;
(3) the repurchase date (which shall be no earlier than 30 days nor
later than 60 days from the date such notice is mailed); and
(4) the instructions determined by the Company, consistent with this
Section, that a Holder must follow in order to have its Securities
purchased.
(c) Holders electing to have a Security purchased will be required to
surrender the Security, with an appropriate form duly completed, to the
Company at the address specified in the notice at least three Business Days
prior to the purchase date. Holders will be entitled to withdraw their election
if the Trustee or the Company receives not
<PAGE>
59
later than one Business Day prior to the purchase date, a telegram, telex,
facsimile transmission or letter setting forth the name of the Holder, the
principal amount of the Security which was delivered for purchase by the Holder
and a statement that such Holder is withdrawing his election to have such
Security purchased.
(d) On the purchase date, all Securities purchased by the Company
under this Section shall be delivered by the Trustee for cancellation, and the
Company shall pay the purchase price plus accrued and unpaid interest, if any,
to the Holders entitled thereto.
(e) The Company shall comply, to the extent applicable, with the
requirements of Section 14(e) of the Exchange Act and any other securities laws
or regulations thereunder in connection with the repurchase of Securities
pursuant to this Section. To the extent that the provisions of any securities
laws or regulations conflict with provisions of this Section, the Company shall
comply with the applicable securities laws and regulations and shall not be
deemed to have breached its obligations under this Sec tion by virtue thereof.
SECTION 4.10. Limitation on Liens. The Company shall not, and shall
--------------------
not permit any Restricted Subsidiary to, directly or indirectly, Incur or permit
to exist any Lien of any nature whatsoever on any property of the Company or any
Restricted Subsidiary (including Capital Stock of a Restricted Subsidiary),
whether owned at the Issue Date or thereafter acquired, which secures
Indebtedness that ranks pari passu with or subordinated to the Securities or the
Subsidiary Guaranty, as applicable, unless (i) if such Lien secures Indebtedness
that ranks pari passu with the Securities or the Subsidiary Guaranty, as
applicable, the Securities are secured on an equal and ratable basis with the
obligations so secured until such time as such obligation is no longer secured
by a Lien or (ii) if such Lien secures Indebtedness that is subordinated to the
Securities or the Subsidiary Guaranty, as applicable, such Lien shall be
subordinated to a Lien granted to the Securityholders in the same collateral as
that securing such Lien to the same extent as such subordinated Indebtedness is
subordinated to the Securities or the Subsidiary Guaranty, as applicable.
<PAGE>
60
SECTION 4.11. Compliance Certificate. The Company shall deliver to
-----------------------
the Trustee within 120 days after the end of each fiscal year of the Company an
Officers' Certificate stating that in the course of the performance by the
signers of their duties as Officers of the Company they would normally have
knowledge of any Default and whether or not the signers know of any Default that
occurred during such period. If they do, the certificate shall describe the
Default, its status and what action the Company is taking or proposes to take
with respect thereto. The Company also shall comply with TIA (S) 314(a)(4).
SECTION 4.12. Further Instruments and Acts. Upon request of the
-----------------------------
Trustee, the Company will execute and deliver such further instruments and do
such further acts as may be reasonably necessary or proper to carry out more
effectively the purpose of this Indenture.
SECTION 4.13. Future Guarantors. After the date of this Indenture,
------------------
the Company shall cause each Domestic Restricted Subsidiary (other than each
such Subsidiary that is a party hereto) to execute and deliver to the Trustee a
supplemental indenture in the form of Exhibit B hereto pursuant to which such
Subsidiary shall Guarantee payment of the Securities as provided in Section
11.07.
SECTION 4.14. Tax Sharing Agreement. In the event that, at any time
----------------------
after the Issue Date, it is expected that more than a nominal amount of gross
income will arise in Holdings, the Company or any other member of Holdings'
Federal Consolidated tax group (the "Holdings Group") other than Mills and its
Subsidiaries, then the Tax Sharing Agreement will be amended to provide that (i)
the Company and all its Subsidiaries in the Holdings Group (including Mills and
its Subsidiaries) will be treated as the "Glenoit Group" for purposes of such
Agreement, (ii) any interest expense of Holdings (whether or not paid directly
or indirectly by the Company or any of its Subsidiaries), and any other expense
of Holdings that is directly or indirectly paid by the Company or any of its
Subsidiaries, shall be treated as a deduction of such Glenoit Group, and (iii)
such Glenoit Group will be compensated on a current basis to the extent that its
net operating loss deductions or similar items provide a tax benefit to other
members of the Holdings Group.
<PAGE>
61
ARTICLE 5
Successor Company
-----------------
SECTION 5.01. When Company May Merge or Transfer Assets. The Company
------------------------------------------
shall not consolidate with or merge with or into, or convey, transfer or lease,
in one transaction or a series of transactions, all or substantially all its
assets to, any Person, unless:
(i) the resulting, surviving or transferee Person (the "Successor
Company") shall be a Person organized and existing under the laws of the
United States of America, any State thereof or the District of Columbia and
the Successor Company (if not the Company) shall expressly assume, by an
indenture supplemental hereto, executed and delivered to the Trustee, in
form satisfactory to the Trustee, all the obligations of the Company under
the Securities and this Indenture;
(ii) immediately after giving effect to such transaction (and treating
any Indebtedness which becomes an obligation of the Successor Company or
any Subsidiary as a result of such transaction as having been Incurred by
the Successor Company or such Subsidiary at the time of such transaction),
no Default shall have occurred and be continuing;
(iii) except in the case of a merger the sole purpose of which is to
change the Company's jurisdiction of incorporation, immediately after
giving effect to such transaction, the Successor Company would be able to
Incur an additional $1.00 of Indebtedness pursuant to Section 4.03(a);
(iv) immediately after giving effect to such transaction, the
Successor Company shall have Consolidated Net Worth in an amount which is
not less than the Consolidated Net Worth of the Company immediately prior
to such transaction; and
(v) the Company shall have delivered to the Trustee an Officers'
Certificate stating that such
<PAGE>
62
consolidation, merger or transfer and such supplemental indenture (if any)
comply with this Indenture.
Notwithstanding the foregoing clauses (ii), (iii) and (iv), any
Restricted Subsidiary may consolidate with, merge into or transfer all or part
of its properties and assets to the Company or another Wholly Owned Subsidiary.
The Successor Company shall be the successor to the Company and shall
succeed to, and be substituted for, and may exercise every right and power of,
the Company under this Indenture, but the predecessor Company in the case of a
conveyance, transfer or lease shall not be released from the obligation to pay
the principal of and interest on the Securities.
SECTION 5.02. When a Subsidiary Guarantor May Merge or Transfer
-------------------------------------------------
Assets. The Company shall not permit any Subsidiary Guarantor to consolidate
- -------
with or merge with or into, or convey, transfer or lease, in one transaction or
series of transactions, all or substantially all of its assets to any Person
unless:
(i) the resulting, surviving or transferee Person (if not such
Subsidiary) shall be a Person organized and existing under the laws of the
United States of America, or any State hereof or the District of Columbia,
and such Person (if not such Subsidiary) shall expressly assume, by an
amendment to this Indenture, in a form acceptable to the Trustee, all the
obligations of such Subsidiary, if any, under its Subsidiary Guaranty;
(ii) immediately after giving effect to such transaction or
transactions on a pro forma basis (and treating any Indebtedness which
becomes an obligation of the resulting, surviving or transferee Person as a
result of such transaction as having been issued by such Person at the time
of such transaction), no Default shall have occurred and be continuing; and
(iii) the Company delivers to the Trustee an Officers' Certificate
stating that such consolidation, merger or transfer and such amendment to
this Indenture, if any, complies with this Indenture;
<PAGE>
63
provided, however, that the foregoing clauses (i) and (iii) shall not apply to
-------- -------
any transaction which constitutes an Asset Disposition if the Company has
complied with the applicable provisions of Section 4.06 with respect to such
Asset Disposition.
ARTICLE 6
Defaults and Remedies
---------------------
SECTION 6.01. Events of Default. An "Event of Default" occurs if:
------------------
(1) the Company defaults in any payment of interest on any Security
when the same becomes due and payable, whether or not such payment shall be
prohibited by Article 10, and such default continues for a period of 30
days;
(2) the Company defaults in the payment of the principal of any
Security when the same becomes due and payable at its Stated Maturity, upon
optional redemption, upon required repurchase, upon declaration or
otherwise, whether or not such payment shall be prohibited by Article 10;
(3) the Company fails to comply with Section 5.01;
(4) the Company fails to comply with Section 4.02, 4.03, 4.04, 4.05,
4.06, 4.07, 4.08, 4.09, 4.10 or 4.13 (other than a failure to purchase
Securities when required under Section 4.06 or 4.09) and such failure
continues for 30 days after the notice specified below;
(5) the Company or any Subsidiary Guarantor fails to comply with any
of its agreements in the Securities or this Indenture (other than those
referred to in clause (1), (2), (3) or (4) above) and such failure
continues for 30 days after the notice specified below;
(6) Indebtedness of the Company or any Significant Subsidiary is not
paid within any applicable grace period after final maturity or is
accelerated by the holders thereof because of a default and the total
<PAGE>
64
amount of such Indebtedness unpaid or accelerated exceeds $5 million or its
foreign currency equivalent at the time and such non-payment or
acceleration continues for 10 days after the notice specified below;
(7) the Company or any Significant Subsidiary pursuant to or within
the meaning of any Bankruptcy Law:
(A) commences a voluntary case;
(B) consents to the entry of an order for relief against it in an
involuntary case;
(C) consents to the appointment of a Custodian of it or for any
substantial part of its property; or
(D) makes a general assignment for the benefit of its
creditors;
or takes any comparable action under any foreign laws relating to
insolvency;
(8) a court of competent jurisdiction enters an order or decree under
any Bankruptcy Law that:
(A) is for relief against the Company or any Significant
Subsidiary in an involuntary case;
(B) appoints a Custodian of the Company or any Significant
Subsidiary or for any substantial part of its property;
(C) orders the winding up or liquidation of the Company or any
Significant Subsidiary; or
(D) any similar relief is granted under any foreign laws;
and in each such case the order or decree remains unstayed and in effect
for 60 days;
(9) any judgment or decree for the payment of money in excess of $5
million or its foreign currency
<PAGE>
65
equivalent at the time is entered against the Company or any Significant
Subsidiary, remains outstanding for a period of 60 days following the entry
of such judgment or decree and is not discharged, waived or the execution
thereof stayed within 10 days after the notice specified below; or
(10) a Subsidiary Guaranty ceases to be in full force and effect
(other than in accordance with the terms of such Subsidiary Guaranty) or a
Subsidiary Guarantor denies or disaffirms its obligations under its
Subsidiary Guaranty and such Default continues for a period of 10 days
after the notice specified below.
The foregoing will constitute Events of Default whatever the reason
for any such Event of Default and whether it is voluntary or involuntary or is
effected by operation of law or pursuant to any judgment, decree or order of any
court or any order, rule or regulation of any administrative or governmental
body.
The term "Bankruptcy Law" means Title 11, United States Code, or any
------------------
similar Federal or state law for the relief of debtors. The term "Custodian"
means any receiver, trustee, assignee, liquidator, custodian or similar official
under any Bankruptcy Law.
A Default under clause (4) or (5) is not an Event of Default until the
Trustee or the Holders of at least 25% in aggregate principal amount of the
Securities notify the Company of the Default and the Company does not cure such
Default within the time specified after receipt of such notice. Such notice
must specify the Default, demand that it be remedied and state that such notice
is a "Notice of Default" (and, if given by the Holders, a copy of such notice
shall also be given to the Trustee).
The Company shall deliver to the Trustee, within 30 days after the
occurrence thereof, written notice in the form of an Officers' Certificate of
any Event of Default under clause (3), (7) or (10) and any event which with the
giving of notice or the lapse of time would become an Event of Default under
clause (4), (5), (6), (8) or (9), its status and what action the Company is
taking or proposes to take with respect thereto.
<PAGE>
66
SECTION 6.02. Acceleration. If an Event of Default (other than an
-------------
Event of Default specified in Section 6.01(7) or (8) with respect to the
Company) occurs and is continuing, the Trustee by notice to the Company, or the
Holders of at least 25% in aggregate principal amount of the Securities by
notice to the Company and the Trustee, may declare the principal of and accrued
interest on all the Securities to be due and payable. Upon such a declaration,
such principal and interest shall be due and payable immediately. If an Event
of Default specified in Section 6.01(7) or (8) with respect to the Company
occurs, the principal of and interest on all the Securities shall ipso facto
---- -----
become and be immediately due and payable without any declaration or other act
on the part of the Trustee or any Securityholders. The Holders of a majority in
aggregate principal amount of the Securities by notice to the Trustee may
rescind an acceleration and its consequences if the rescission would not
conflict with any judgment or decree and if all existing Events of Default have
been cured or waived except nonpayment of principal or interest that has become
due solely because of acceleration. No such rescission shall affect any
subsequent Default or impair any right consequent thereto.
SECTION 6.03. Other Remedies. If an Event of Default occurs and is
---------------
continuing, the Trustee may pursue any available remedy to collect the payment
of principal of or interest on the Securities or to enforce the performance of
any provision of the Securities or this Indenture.
The Trustee may maintain a proceeding even if it does not possess any
of the Securities or does not produce any of them in the proceeding. A delay or
omission by the Trustee or any Securityholder in exercising any right or remedy
accruing upon an Event of Default shall not impair the right or remedy or
constitute a waiver of or acquies cence in the Event of Default. No remedy is
exclusive of any other remedy. All available remedies are cumulative.
SECTION 6.04. Waiver of Past Defaults. The Holders of a majority in
------------------------
aggregate principal amount of the Securities by notice to the Trustee may waive
an existing Default and its consequences except (i) a Default in the payment of
the principal of or interest on a Security or (ii) a Default in respect of a
provision that under Section
<PAGE>
67
9.02 cannot be amended without the consent of each Securityholder affected.
When a Default is waived, it is deemed cured, but no such waiver shall extend to
any subsequent or other Default or impair any consequent right.
SECTION 6.05. Control by Majority. The Holders of a majority in
--------------------
aggregate principal amount of the Securities may direct the time, method and
place of conducting any proceeding for any remedy available to the Trustee or of
exercising any trust or power conferred on the Trustee. However, the Trustee
may refuse to follow any direction that conflicts with law or this Indenture or,
subject to Section 7.01, that the Trustee determines is unduly prejudicial to
the rights of other Securityholders or would involve the Trustee in personal
liability; provided, however, that the Trustee may take any other action deemed
-------- -------
proper by the Trustee that is not inconsistent with such direction. Prior to
taking any action hereunder, the Trustee shall be entitled to indemnification
satisfactory to it in its sole discretion against all losses and expenses caused
by taking or not taking such action.
SECTION 6.06. Limitation on Suits. A Securityholder may not pursue
--------------------
any remedy with respect to this Indenture or the Securities unless:
(1) the Holder gives to the Trustee written notice stating that an
Event of Default is continuing;
(2) the Holders of at least 25% in aggregate principal amount of the
Securities make a written request to the Trustee to pursue the remedy;
(3) such Holder or Holders offer to the Trustee reasonable security or
indemnity against any loss, liability or expense;
(4) the Trustee does not comply with the request within 60 days after
receipt of the request and the offer of security or indemnity; and
(5) the Holders of a majority in aggregate principal amount of the
Securities do not give the Trustee a direction inconsistent with the
request during such 60-day period.
<PAGE>
68
A Securityholder may not use this Indenture to prejudice the rights of
another Securityholder or to obtain a preference or priority over another
Securityholder.
SECTION 6.07. Rights of Holders to Receive Payment. Notwithstanding
-------------------------------------
any other provision of this Indenture, the right of any Holder to receive
payment of principal of and interest on the Securities held by such Holder, on
or after the respective due dates expressed in the Secu rities, or to bring
suit for the enforcement of any such payment on or after such respective dates,
shall not be impaired or affected without the consent of such Holder.
SECTION 6.08. Collection Suit by Trustee. If an Event of Default
---------------------------
specified in Section 6.01(1) or (2) occurs and is continuing, the Trustee may
recover judgment in its own name and as trustee of an express trust against the
Company for the whole amount then due and owing (together with interest on any
unpaid interest to the extent lawful) and the amounts provided for in Section
7.07.
SECTION 6.09. Trustee May File Proofs of Claim. The Trustee may file
---------------------------------
such proofs of claim and other papers or documents as may be necessary or
advisable in order to have the claims of the Trustee and the Securityholders
allowed in any judicial proceedings relative to the Company, its creditors or
its property and, unless prohibited by law or applicable regulations, may vote
on behalf of the Holders in any election of a trustee in bankruptcy or other
Person performing similar functions, and any Custodian in any such judicial
proceeding is hereby authorized by each Holder to make payments to the Trustee
and, in the event that the Trustee shall consent to the making of such payments
directly to the Holders, to pay to the Trustee any amount due it for the
reasonable compensation, expenses, disbursements and advances of the Trustee,
its agents and its counsel, and any other amounts due the Trustee under Section
7.07.
SECTION 6.10. Priorities. If the Trustee collects any money or
-----------
property pursuant to this Article 6, it shall pay out the money or property in
the following order:
FIRST: to the Trustee for amounts due under Section 7.07;
<PAGE>
69
SECOND: to holders of Senior Indebtedness of the Company to the
extent required by Article 10;
THIRD: to Securityholders for amounts due and unpaid on the
Securities for principal and interest, ratably, without preference or
priority of any kind, according to the amounts due and payable on the
Securities for principal and interest, respectively; and
FOURTH: to the Company.
The Trustee may fix a record date and payment date for any payment to
Securityholders pursuant to this Section. At least 15 days before such record
date, the Company shall mail to each Securityholder and the Trustee a notice
that states the record date, the payment date and amount to be paid.
SECTION 6.11. Undertaking for Costs. In any suit for the enforcement
----------------------
of any right or remedy under this Indenture or in any suit against the Trustee
for any action taken or omitted by it as Trustee, a court in its discretion may
require the filing by any party litigant in the suit of an undertaking to pay
the costs of the suit, and the court in its discretion may assess reasonable
costs, including reasonable attorneys' fees, against any party litigant in the
suit, having due regard to the merits and good faith of the claims or defenses
made by the party litigant. This Section does not apply to a suit by the
Trustee, a suit by a Holder pursuant to Section 6.07 or a suit by Holders of
more than 10% in aggregate principal amount of the Securities.
SECTION 6.12. Waiver of Stay or Extension Laws. The Company (to the
---------------------------------
extent it may lawfully do so) shall not at any time insist upon, or plead, or in
any manner whatsoever claim or take the benefit or advantage of, any stay or
extension law wherever enacted, now or at any time hereafter in force, which may
affect the covenants or the performance of this Indenture; and the Company (to
the extent that it may lawfully do so) hereby expressly waives all benefit or
advantage of any such law, and shall not hinder, delay or impede the execution
of any power herein granted to the Trustee, but shall suffer and permit the
execution of every such power as though no such law had been enacted.
<PAGE>
70
ARTICLE 7
Trustee
-------
SECTION 7.01. Duties of Trustee. (a) If an Event of Default has
------------------
occurred and is continuing, the Trustee shall exercise the rights and powers
vested in it by this Indenture and use the same degree of care and skill in
their exercise as a prudent Person would exercise or use under the circumstances
in the conduct of such Person's own affairs.
(b) Except during the continuance of an Event of Default:
(1) the Trustee undertakes to perform such duties and only such duties
as are specifically set forth in this Indenture and no implied covenants or
obligations shall be read into this Indenture against the Trustee; and
(2) in the absence of bad faith on its part, the Trustee may
conclusively rely, as to the truth of the statements and the correctness of
the opinions expressed therein, upon certificates or opinions furnished to
the Trustee and conforming to the requirements of this Indenture.
However, the Trustee shall examine the certificates and opinions to
determine whether or not they conform to the requirements of this
Indenture.
(c) The Trustee may not be relieved from liability for its own
negligent action, its own negligent failure to act or its own wilful misconduct,
except that:
(1) this paragraph does not limit the effect of paragraph (b) of this
Section;
(2) the Trustee shall not be liable for any error of judgment made in
good faith by a Trust Officer unless it is proved that the Trustee was
negligent in ascertaining the pertinent facts; and
(3) the Trustee shall not be liable with respect to any action it
takes or omits to take in good faith
<PAGE>
71
in accordance with a direction received by it pursuant to Section 6.05.
(d) Every provision of this Indenture that in any way relates to the
Trustee is subject to paragraphs (a), (b) and (c) of this Section.
(e) The Trustee shall not be liable for interest on any money
received by it except as the Trustee may agree in writing with the Company.
(f) Money held in trust by the Trustee need not be segregated from
other funds except to the extent required by law.
(g) No provision of this Indenture shall require the Trustee to
expend or risk its own funds or otherwise incur financial liability in the
performance of any of its duties hereunder or in the exercise of any of its
rights or powers, if it shall have reasonable grounds to believe that repayment
of such funds or adequate indemnity against such risk or liability is not
reasonably assured to it.
(h) Every provision of this Indenture relating to the conduct or
affecting the liability of or affording protection to the Trustee shall be
subject to the provisions of this Section and to the provisions of the TIA.
SECTION 7.02. Rights of Trustee. (a) The Trustee may rely on any
------------------
document believed by it to be genuine and to have been signed or presented by
the proper person. The Trustee need not investigate any fact or matter stated
in the document.
(b) Before the Trustee acts or refrains from acting, it may require
an Officers' Certificate or an Opinion of Counsel. The Trustee shall not be
liable for any action it takes or omits to take in good faith in reliance on the
Officers' Certificate or Opinion of Counsel.
(c) The Trustee may act through agents and shall not be responsible
for the misconduct or negligence of any agent appointed with due care.
<PAGE>
72
(d) The Trustee shall not be liable for any action it takes or omits
to take in good faith which it believes to be authorized or within its rights or
powers; provided, however, that the Trustee's conduct does not constitute wilful
--------- -------
misconduct or negligence.
(e) The Trustee may consult with counsel, and the advice or opinion
of counsel with respect to legal matters relating to this Indenture and the
Securities shall be full and complete authorization and protection from
liability in respect to any action taken, omitted or suffered by it hereunder
in good faith and in accordance with the advice or opinion of such counsel.
SECTION 7.03. Individual Rights of Trustee. The Trustee in its
-----------------------------
individual or any other capacity may become the owner or pledgee of Securities
and may otherwise deal with the Company or its Affiliates with the same rights
it would have if it were not Trustee. Any Paying Agent, Registrar, co-registrar
or co-paying agent may do the same with like rights. However, the Trustee must
comply with Sections 7.10 and 7.11.
SECTION 7.04. Trustee's Disclaimer. The Trustee shall not be
---------------------
responsible for and makes no representation as to the validity or adequacy of
this Indenture or the Securities, it shall not be accountable for the
Company's use of the proceeds from the Securities, and it shall not be
responsible for any statement of the Company in the Inden ture or in any
document issued in connection with the sale of the Securities or in the
Securities other than the Trustee's certificate of authentication.
SECTION 7.05. Notice of Defaults. If a Default occurs and is
-------------------
continuing and if it is known to the Trustee, the Trustee shall mail to each
Securityholder notice of the Default within 30 days after it is known to a Trust
Officer or written notice of it is received by the Trustee. Except in the case
of a Default in payment of principal of or interest on any Security (including
payments pursuant to the mandatory redemption provisions of such Security, if
any), the Trustee may withhold the notice if and so long as the Trustee in good
faith determines that withholding the notice is in the interests of
Securityholders.
<PAGE>
73
SECTION 7.06. Reports by Trustee to Holders. As promptly as
------------------------------
practicable after each May 15 beginning with May 15, 1998, and in any event
prior to June 15 in each year, the Trustee shall mail to each Securityholder a
brief report dated as of such date that complies with TIA (S) 313(a). The
Trustee also shall comply with TIA (S) 313(b).
A copy of each report at the time of its mailing to Securityholders
shall be filed with the SEC and each stock exchange (if any) on which the
Securities are listed. The Company agrees to notify promptly the Trustee
whenever the Securities become listed on any stock exchange and of any delisting
thereof.
SECTION 7.07. Compensation and Indemnity. The Company shall pay to
---------------------------
the Trustee promptly upon request from time to time reasonable compensation for
its services. The Trustee's compensation shall not be limited by any law on
compensation of a trustee of an express trust. The Company shall reimburse the
Trustee promptly upon request for all reasonable out-of-pocket expenses incurred
or made by it, including costs of collection, in addition to the compensation
for its services. Such expenses shall include the reasonable compensation and
expenses, disbursements and advances of the Trustee's agents, counsel,
accountants and experts. The Company shall indemnify the Trustee against any
and all loss, liability or expense (including attorneys' fees) incurred by it in
connection with the acceptance and administration of this trust and the
performance of its duties hereunder. The Trustee shall notify the Company
promptly of any claim for which it may seek indemnity. Failure by the Trustee
to so notify the Company shall not relieve the Company of its obligations
hereunder. The Company shall defend the claim and the Trustee may have separate
counsel and the Company shall pay the fees and expenses of such counsel. The
Company need not reimburse any expense or indemnify against any loss, liability
or expense incurred by the Trustee through the Trustee's own wilful misconduct,
negligence or bad faith. The Company need not pay for any settlement made by
the Trustee without the Company's consent, such consent not to be unreasonably
withheld.
To secure the Company's payment obligations in this Section, the
Trustee shall have a lien prior to the
<PAGE>
74
Securities on all money or property held or collected by the Trustee other than
money or property held in trust to pay principal of and interest on particular
Securities.
The Company's payment obligations pursuant to this Section shall
survive the discharge of this Indenture. When the Trustee incurs expenses after
the occurrence of a Default specified in Section 6.01(7) or (8) with respect to
the Company, the expenses are intended to constitute expenses of administration
under the Bankruptcy Law.
SECTION 7.08. Replacement of Trustee. The Trustee may resign at any
-----------------------
time by so notifying the Company. The Holders of a majority in aggregate
principal amount of the Securities may remove the Trustee by so notifying the
Trustee and may appoint a successor Trustee. The Company shall remove the
Trustee if:
(1) the Trustee fails to comply with Section 7.10;
(2) the Trustee is adjudged bankrupt or insolvent;
(3) a receiver or other public officer takes charge of the Trustee or
its property; or
(4) the Trustee otherwise becomes incapable of acting.
If the Trustee resigns, is removed by the Company or by the Holders of
a majority in aggregate principal amount of the Securities and such Holders do
not reasonably promptly appoint a successor Trustee, or if a vacancy exists in
the office of Trustee for any reason (the Trustee in such event being referred
to herein as the retiring Trustee), the Company shall promptly appoint a
successor Trustee.
A successor Trustee shall deliver a written acceptance of its
appointment to the retiring Trustee and to the Company. Thereupon the
resignation or removal of the retiring Trustee shall become effective, and the
successor Trustee shall have all the rights, powers and duties of the Trustee
under this Indenture. The successor Trustee shall mail a notice of its
succession to Securityholders. The retiring Trustee shall promptly transfer all
property held
<PAGE>
75
by it as Trustee to the successor Trustee, subject to the lien provided for in
Section 7.07.
If a successor Trustee does not take office within 60 days after the
retiring Trustee resigns or is removed, the retiring Trustee or the Holders of
10% in aggregate principal amount of the Securities may petition any court of
competent jurisdiction for the appointment of a successor Trustee.
If the Trustee fails to comply with Section 7.10, any Securityholder
may petition any court of competent jurisdiction for the removal of the Trustee
and the appointment of a successor Trustee.
Notwithstanding the replacement of the Trustee pursuant to this
Section, the Company's obligations under Section 7.07 shall continue for the
benefit of the retiring Trustee.
SECTION 7.09. Successor Trustee by Merger. If the Trustee
----------------------------
consolidates with, merges or converts into, or transfers all or substantially
all its corporate trust business or assets to, another corporation or banking
associa tion, the resulting, surviving or transferee corporation without any
further act shall be the successor Trustee.
In case at the time such successor or successors by merger, conversion
or consolidation to the Trustee shall succeed to the trusts created by this
Indenture any of the Securities shall have been authenticated but not delivered,
any such successor to the Trustee may adopt the certificate of authentication of
any predecessor trustee, and deliver such Securities so authenticated; and in
case at that time any of the Securities shall not have been authenticated, any
successor to the Trustee may authenticate such Securities either in the name of
any predecessor hereunder or in the name of the successor to the Trustee; and in
all such cases such certificates shall have the full force which it is anywhere
in the Securities or in this Indenture provided that the certificate of the
Trustee shall have.
SECTION 7.10. Eligibility; Disqualification. The Trustee shall at
------------------------------
all times satisfy the requirements of TIA (S) 310(a). The Trustee shall have a
combined capital and
<PAGE>
76
surplus of at least $50,000,000 as set forth in its most recent published annual
report of condition. The Trustee shall comply with TIA (S) 310(b); provided,
--------
however, that there shall be excluded from the operation of TIA (S) 310(b)(1)
- -------
any indenture or indentures under which other securities or certificates of
interest or participation in other securities of the Company are outstanding
if the requirements for such exclusion set forth in TIA (S) 310(b)(1) are met.
SECTION 7.11. Preferential Collection of Claims Against Company. The
--------------------------------------------------
Trustee shall comply with TIA (S) 311(a), excluding any creditor relationship
listed in TIA (S) 311(b). A Trustee who has resigned or been removed shall be
subject to TIA (S) 311(a) to the extent indicated.
ARTICLE 8
Discharge of Indenture; Defeasance
----------------------------------
SECTION 8.01. Discharge of Liability on Securities; Defeasance.
-------------------------------------------------
(a) When (i) the Company delivers to the Trustee all outstanding Securities
(other than Securities replaced pursuant to Section 2.07) for cancellation or
(ii) all outstanding Securities have become due and payable, whether at maturity
or as a result of the mailing of a notice of redemption pursuant to Article 3
hereof and the Company irrevocably deposits with the Trustee funds sufficient
to pay at maturity or upon redemption all outstanding Securities, including
interest thereon to maturity or such redemption date (other than Securities
replaced pursuant to Section 2.07), and if in either case the Company pays all
other sums payable hereunder by the Company, then this Indenture shall, subject
to Sections 8.01(c), cease to be of further effect. The Trustee shall
acknowledge satisfaction and discharge of this Indenture on demand of the
Company accompanied by an Officers' Certificate and an Opinion of Counsel and at
the cost and expense of the Company.
(b) Subject to Sections 8.01(c) and 8.02, the Company at any time may
terminate (i) all its obligations under the Securities and this Indenture
("legal defeasance option") or (ii) its obligations under Sections 4.02, 4.03,
4.04, 4.05, 4.06, 4.07, 4.08, 4.09, 4.10 and 4.13 and the
<PAGE>
77
operation of Sections 6.01(4), 6.01(6), 6.01(7), 6.01(8) and 6.01(9) (but, in
the case of Sections 6.01(7) and (8), with respect only to Significant
Subsidiaries) ("covenant defeasance option") or contained in Sections 5.01(iii)
and (iv). The Company may exercise its legal defeasance option notwithstanding
its prior exercise of its covenant defeasance option.
If the Company exercises its legal defeasance option, payment of the
Securities may not be accelerated because of an Event of Default. If the
Company exercises its covenant defeasance option, payment of the Securities may
not be accelerated because of an Event of Default specified in Sections 6.01(4),
6.01(6), 6.01(7), 6.01(8) and 6.01(9) (but, in the case of Sections 6.01(7) and
(8), with respect only to Significant Subsidiaries) or because of the failure of
the Company to comply with Section 5.01(iii) or (iv). If the Company exercises
its legal defeasance option or its covenant defeasance option, each Subsidiary
Guarantor, if any, shall be released from all its obligations under its
Subsidiary Guaranty.
Upon satisfaction of the conditions set forth herein and upon request
of the Company, the Trustee shall acknowledge in writing the discharge of those
obligations that the Company terminates.
(c) Notwithstanding clauses (a) and (b) above, the Company's
obligations in Sections 2.04, 2.05, 2.06, 2.07, 7.07, 7.08, 8.04, 8.05 and 8.06
shall survive until the Securities have been paid in full. Thereafter, the
Company's obligations in Sections 7.07, 8.04 and 8.05 shall survive.
SECTION 8.02. Conditions to Defeasance. The Company may exercise its
-------------------------
legal defeasance option or its covenant defeasance option only if:
(1) the Company irrevocably deposits in trust with the Trustee money
or U.S. Government Obligations for the payment of principal of and interest
on the Securities to maturity or redemption, as the case may be;
(2) the Company delivers to the Trustee a certificate from a
nationally recognized firm of independent
<PAGE>
78
accountants expressing their opinion that the payments of principal and
interest when due and without reinvestment on the deposited U.S. Government
Obligations plus any deposited money without investment will provide cash
at such times and in such amounts as will be sufficient to pay principal
and interest when due on all the Securities to maturity or redemption, as
the case may be;
(3) 123 days pass after the deposit is made and during the 123-day
period no Default specified in Sections 6.01(7) or (8) with respect to the
Company occurs which is continuing at the end of the period;
(4) the deposit does not constitute a default under any other
agreement binding on the Company and is not prohibited by Article 10;
(5) the Company delivers to the Trustee an Opinion of Counsel to the
effect that the trust resulting from the deposit does not constitute, or is
qualified as, a regulated investment company under the Investment Company
Act of 1940;
(6) in the case of the legal defeasance option, the Company shall have
delivered to the Trustee an Opinion of Counsel stating that (i) the Company
has received from, or there has been published by, the Internal Revenue
Service a ruling, or (ii) since the date of this Indenture there has been a
change in the applicable Federal income tax law, in either case to the
effect that, and based thereon such Opinion of Counsel shall confirm that,
the Securityholders will not recognize income, gain or loss for Federal
income tax purposes as a result of such defeasance and will be subject to
Federal income tax on the same amounts, in the same manner and at the same
times as would have been the case if such defeasance had not occurred;
(7) in the case of the covenant defeasance option, the Company shall
have delivered to the Trustee an Opinion of Counsel to the effect that the
Securityholders will not recognize income, gain or loss for Federal
income tax purposes as a result of such covenant defeasance and will be
subject to Federal income
<PAGE>
79
tax on the same amounts, in the same manner and at the same times as would
have been the case if such covenant defeasance had not occurred; and
(8) the Company delivers to the Trustee an Officers' Certificate and
an Opinion of Counsel, each stating that all conditions precedent to the
defeasance and discharge of the Securities as contemplated by this Article
8 have been complied with.
Before or after a deposit, the Company may make arrangements
satisfactory to the Trustee for the redemption of Securities at a future date in
accordance with Article 3.
SECTION 8.03. Application of Trust Money. The Trustee shall hold in
---------------------------
trust money or U.S. Government Obligations deposited with it pursuant to this
Article 8. It shall apply the deposited money and the money from U.S.
Government Obligations through the Paying Agent and in accordance with this
Indenture to the payment of principal of and interest on the Securities. Money
and securities so held in trust are not subject to Article 10.
SECTION 8.04. Repayment to Company. The Trustee and the Paying Agent
---------------------
shall promptly turn over to the Company upon request any excess money or
securities held by them at any time.
Subject to any applicable abandoned property law, the Trustee and the
Paying Agent shall pay to the Company upon request any money held by them for
the payment of principal or interest that remains unclaimed for two years, and,
thereafter, Securityholders entitled to the money must look to the Company for
payment as general creditors.
SECTION 8.05. Indemnity for Government Obligations. The Company
-------------------------------------
shall pay and shall indemnify the Trustee against any tax, fee or other charge
imposed on or assessed against deposited U.S. Government Obligations or the
principal and interest received on such U.S. Government Obligations.
SECTION 8.06. Reinstatement. If the Trustee or Paying Agent is
--------------
unable to apply any money or U.S. Government Obligations in accordance with this
Article 8 by reason of
<PAGE>
80
any legal proceeding or by reason of any order or judgment of any court or
governmental authority enjoining, restraining or otherwise prohibiting such
application, the Company's obligations under this Indenture and the Securities
shall be revived and reinstated as though no deposit had occurred pursuant to
this Article 8 until such time as the Trustee or Paying Agent is permitted to
apply all such money or U.S. Government Obligations in accordance with this
Article 8; provided, however, that, if the Company has made any payment of
--------- -------
interest on or principal of any Securities because of the reinstatement of its
obligations, the Company shall be subrogated to the rights of the Holders of
such Securities to receive such payment from the money or U.S. Government
Obligations held by the Trustee or Paying Agent.
ARTICLE 9
Amendments
----------
SECTION 9.01. Without Consent of Holders. The Company, the
--------------------------
Subsidiary Guarantors and the Trustee may amend this Indenture or the Securities
without notice to or consent of any Securityholder:
(1) to cure any ambiguity, omission, defect or inconsistency;
(2) to comply with Article 5;
(3) to provide for uncertificated Securities in addition to or in
place of certificated Securities; provided, however, that the
-------- -------
uncertificated Securities are issued in registered form for purposes of
Section 163(f) of the Code or in a manner such that the uncertificated
Securities are described in Section 163(f)(2)(B) of the Code;
(4) to make any change in Article 10 or Article 12 that would limit or
terminate the benefits available to any holder of Senior Indebtedness of
the Company or any Subsidiary Guarantor (or Representatives therefor) under
Article 10 or Article 12, respectively;
<PAGE>
81
(5) to add further Guarantees with respect to the Securities or to
release Subsidiary Guarantors when permitted by the terms hereof, or to
secure the Securities;
(6) to add to the covenants of the Company for the benefit of the
Holders or to surrender any right or power herein conferred upon the
Company;
(7) to comply with any requirements of the SEC in connection with
qualifying, or maintaining the qualification of, this Indenture under the
TIA; or
(8) to make any change that does not adversely affect the rights of
any Securityholder.
An amendment under this Section may not make any change that adversely
affects the rights under Article 10 or Article 12 of any holder of Senior
Indebtedness of the Company or any Subsidiary Guarantor then outstanding unless
the holders of such Senior Indebtedness (or any group or representative thereof
authorized to give a consent) consent to such change.
After an amendment under this Section becomes effective, the Company
shall mail to Securityholders a notice briefly describing such amendment. The
failure to give such notice to all Securityholders, or any defect therein, shall
not impair or affect the validity of an amendment under this Section.
SECTION 9.02. With Consent of Holders. The Company, the Subsidiary
------------------------
Guarantors and the Trustee may amend this Indenture or the Securities without
notice to any Securityholder but with the written consent of the Holders of at
least a majority in aggregate principal amount of the Securities. However,
without the consent of each Securityholder affected thereby, an amendment may
not:
(1) reduce the amount of Securities whose Holders must consent to an
amendment;
(2) reduce the rate of or extend the time for payment of interest on
any Security;
<PAGE>
82
(3) reduce the principal of or extend the Stated Maturity of any
Security;
(4) reduce the premium payable upon the redemption of any Security or
change the time at which any Security may be redeemed in accordance with
Article 3;
(5) make any Security payable in money other than that stated in the
Security;
(6) make any change in Article 10 or Article 12 that adversely affects
the rights of any Securityholder under Article 10 or Article 12;
(7) impair the right of any Holder to institute suit for enforcement
of any payment on or with respect to such Holder's Securities or any Subsidiary
Guaranty; or
(8) make any change in Section 6.04 or 6.07 or the second sentence of
this Section.
It shall not be necessary for the consent of the Holders under this
Section to approve the particular form of any proposed amendment, but it shall
be sufficient if such consent approves the substance thereof.
An amendment under this Section may not make any change that adversely
affects the rights under Article 10 or Article 12 of any holder of Senior
Indebtedness of the Company or any Subsidiary Guarantor then outstanding unless
the holders of such Senior Indebtedness (or any group or representative thereof
authorized to give a consent) consent to such change.
After an amendment under this Section becomes effective, the Company
shall mail to Securityholders a notice briefly describing such amendment. The
failure to give such notice to all Securityholders, or any defect therein, shall
not impair or affect the validity of an amendment under this Section.
SECTION 9.03. Compliance with Trust Indenture Act. Every amendment
------------------------------------
to this Indenture or the Securities shall comply with the TIA as then in effect.
<PAGE>
83
SECTION 9.04. Revocation and Effect of Consents and Waivers. A
----------------------------------------------
consent to an amendment or a waiver by a Holder of a Security shall bind the
Holder and every subsequent Holder of that Security or portion of the Security
that evidences the same debt as the consenting Holder's Security, even if
notation of the consent or waiver is not made on the Security. However, any
such Holder or subsequent Holder may revoke the consent or waiver as to such
Holder's Security or portion of the Security if the Trustee receives the notice
of revocation before the date the amendment or waiver becomes effective. After
an amendment or waiver becomes effective, it shall bind every Securityholder.
An amendment or waiver becomes effective upon the execution of such amendment or
waiver by the Trustee.
The Company may, but shall not be obligated to, fix a record date for
the purpose of determining the Securityholders entitled to give their consent or
take any other action described above or required or permitted to be taken
pursuant to this Indenture. If a record date is fixed, then notwithstanding the
immediately preceding paragraph, those Persons who were Securityholders at such
record date (or their duly designated proxies), and only those Persons, shall be
entitled to give such consent or to revoke any consent previously given or to
take any such action, whether or not such Persons continue to be Holders after
such record date. No such consent shall be valid or effective for more than 120
days after such record date.
SECTION 9.05. Notation on or Exchange of Securities. If an
--------------------------------------
amendment changes the terms of a Security, the Trustee may require the Holder of
the Security to deliver it to the Trustee. The Trustee may place an appropriate
notation on the Security regarding the changed terms and return it to the
Holder. Alternatively, if the Company or the Trustee so determines, the Company
in exchange for the Security shall issue and the Trustee shall authenticate a
new Security that reflects the changed terms. Failure to make the appropriate
notation or to issue a new Security shall not affect the validity of such
amendment.
SECTION 9.06. Trustee To Sign Amendments. The Trustee shall sign any
---------------------------
amendment authorized pursuant to this Article 9 if the amendment does not
adversely affect the rights, duties, liabilities or immunities of the Trustee.
<PAGE>
84
If it does, the Trustee may but need not sign it. In signing such amendment
the Trustee shall be entitled to receive indemnity reasonably satisfactory to it
and to receive, and (subject to Section 7.01) shall be fully protected in
relying upon, an Officers' Certificate and an Opinion of Counsel stating that
such amendment is authorized or permitted by this Indenture.
SECTION 9.07. Payment for Consent. Neither the Company nor any
--------------------
Affiliate of the Company shall, directly or indirectly, pay or cause to be paid
any consideration, whether by way of interest, fee or otherwise, to any Holder
for or as an inducement to any consent, waiver or amendment of any of the terms
or provisions of this Indenture or the Securities unless such consideration is
offered to be paid to all Holders that so consent, waive or agree to amend in
the time frame set forth in solicitation documents relating to such consent,
waiver or agreement.
ARTICLE 10
Subordination
-------------
SECTION 10.01. Agreement To Subordinate. The Company agrees, and
-------------------------
each Securityholder by accepting a Security agrees, that the Indebtedness
evidenced by the Securities is subordinated in right of payment, to the extent
and in the manner provided in this Article 10, to the prior payment of all
Senior Indebtedness of the Company and that the subordination is for the benefit
of and enforceable by the holders of such Senior Indebtedness. The Securities
shall in all respects rank pari passu with all other Senior Subordinated
---- -----
Indebtedness of the Company and only Senior Indebtedness of the Company shall
rank senior to the Securities in accordance with the provisions set forth
herein. All provisions of this Article 10 shall be subject to Section 10.12.
SECTION 10.02. Liquidation, Dissolution, Bankruptcy. Upon any
-------------------------------------
payment or distribution of the assets of the Company to creditors upon a total
or partial liquidation
<PAGE>
85
or a total or partial dissolution of the Company or in a bankruptcy,
reorganization, insolvency, receivership or similar proceeding relating to the
Company or its property:
(1) holders of Senior Indebtedness of the Company shall be entitled to
receive payment in full of such Senior Indebtedness before Securityholders
shall be entitled to receive any payment of principal of or interest on the
Securities; and
(2) until such Senior Indebtedness is paid in full, any distribution
to which Securityholders would be entitled but for this Article 10 shall be
made to holders of such Senior Indebtedness as their interests may appear,
except that Securityholders may receive shares of stock and any debt
securities that are subordinated to Senior Indebtedness, and to any debt
securities received by holders of Senior Indebtedness, of the Company to at
least the same extent as the Securities.
An issue of Senior Indebtedness will not be deemed to be paid in full
unless all outstanding commitments thereunder have been terminated.
SECTION 10.03. Default on Senior Indebtedness. The Company may not
-------------------------------
pay the principal of or interest on the Securities or make any deposit pursuant
to Section 8.01 and may not repurchase, redeem or otherwise retire any
Securities (collectively, "pay the Securities") if (i) any Senior Indebtedness
is not paid when due or (ii) any other default on Senior Indebtedness occurs and
the maturity of such Senior Indebtedness is accelerated in accordance with its
terms unless, in either case, (x) the default has been cured or waived and any
such acceleration has been rescinded or (y) such Senior Indebtedness has been
paid in full; provided, however, that the Company may pay the Securities without
-------- -------
regard to the foregoing if the Company and the Trustee receive written notice
approving such payment from the Representative of such Senior Indebtedness.
During the continuance of any default (other than a default described in clause
(i) or (ii) of the preceding sentence) with respect to any Designated Senior
Indebtedness pursuant to which the maturity thereof may be accelerated
immediately without further notice (except such notice as may be
<PAGE>
86
required to effect such acceleration) or the expiration of any applicable grace
periods, the Company may not pay the Securities for a period (a "Payment
Blockage Period") commencing upon the receipt by the Company and the Trustee of
written notice (a "Blockage Notice") of such default from the Representative of
such Designated Senior Indebtedness specifying an election to effect a Payment
Blockage Period and ending 179 days thereafter (or earlier if such Payment
Blockage Period is terminated (i) by written notice to the Trustee and the
Company from the Person or Persons who gave such Blockage Notice, (ii) by
repayment in full of such Designated Senior Indebtedness or (iii) because the
default giving rise to such Blockage Notice is no longer continuing).
Notwithstanding the provisions described in the immediately preceding sentence
(but subject to the provisions contained in the first sentence of this Section),
unless the holders of such Designated Senior Indebtedness or the Representative
of such holders shall have accelerated the maturity of such Designated Senior
Indebtedness, the Company may resume payments on the Securities after such
Payment Blockage Period. Not more than one Blockage Notice may be given in any
consecutive 360-day period, irrespective of the number of defaults with respect
to Designated Senior Indebtedness during such period.
SECTION 10.04. Acceleration of Payment of Securities. If an Event of
--------------------------------------
Default shall have occurred and be continuing (other than an Event of Default
pursuant to Section 6.01(7) or 6.01(8)), the Trustee or the Holders of the
Securities electing to accelerate the Securities pursuant to Section 6.02 shall
give the holders of all Designated Senior Indebtedness (or their
Representatives) five Business Days' prior written notice before accelerating
the Securities, which notice shall state that it is a "Notice of Intent to
Accelerate"; provided, however, that the Trustee or such Holders may so
-------- -------
accelerate the Securities immediately without such notice if at such time
payment of any Designated Senior Indebtedness shall have been accelerated. If
payment of the Securities is accelerated because of an Event of Default, the
Company or the Trustee shall promptly notify the holders of the Designated
Senior Indebtedness (or their Representatives) of the acceleration.
SECTION 10.05. When Distribution Must Be Paid Over. If a
------------------------------------
distribution is made to Securityholders that
<PAGE>
87
because of this Article 10 should not have been made to them, the
Securityholders who receive the distribution shall hold it in trust for holders
of Senior Indebtedness of the Company and pay it over to them as their interests
may appear.
SECTION 10.06. Subrogation. After all Senior Indebtedness of the
------------
Company is paid in full and until the Securities are paid in full,
Securityholders shall be subrogated to the rights of holders of such Senior
Indebtedness to receive distributions applicable to such Senior Indebtedness. A
distribution made under this Article 10 to holders of such Senior Indebtedness
which otherwise would have been made to Securityholders is not, as between the
Company and Securityholders, a payment by the Company on such Senior
Indebtedness.
SECTION 10.07. Relative Rights. This Article 10 defines the relative
----------------
rights of Securityholders and holders of Senior Indebtedness of the Company.
Nothing in this Indenture shall:
(1) impair, as between the Company and Securityholders, the
obligation of the Company, which is absolute and unconditional, to pay
principal of and interest on the Securities in accordance with their terms;
or
(2) prevent the Trustee or any Securityholder from exercising its
available remedies upon a Default, subject to the rights of holders of
Senior Indebtedness of the Company to receive distributions otherwise
payable to Securityholders.
SECTION 10.08. Subordination May Not Be Impaired by Company. No
---------------------------------------------
right of any holder of Senior Indebtedness of the Company to enforce the
subordination of the Indebtedness evidenced by the Securities shall be impaired
by any act or failure to act by the Company or by its failure to comply with
this Indenture.
SECTION 10.09. Rights of Trustee and Paying Agent. Notwithstanding
-----------------------------------
Section 10.03, the Trustee or Paying Agent may continue to make payments on the
Securities and shall not be charged with knowledge of the existence of
<PAGE>
88
facts that would prohibit the making of any such payments unless, not less than
two Business Days prior to the date of such payment, a Trust Officer of the
Trustee receives notice satisfactory to it that payments may not be made under
this Article 10. The Company, the Registrar or co-registrar, the Paying Agent,
a Representative or a holder of Senior Indebtedness may give the notice;
provided, however, that, if an issue of Senior Indebtedness of the Company has a
- -------- -------
Representative, only the Representative may give the notice.
The Trustee in its individual or any other capacity may hold Senior
Indebtedness of the Company with the same rights it would have if it were not
Trustee. The Registrar and co-registrar and the Paying Agent may do the same
with like rights. The Trustee shall be entitled to all the rights set forth in
this Article 10 with respect to any Senior Indebtedness of the Company which may
at any time be held by it, to the same extent as any other holder of such Senior
Indebtedness; and nothing in Article 7 shall deprive the Trustee of any of its
rights as such holder. Nothing in this Article 10 shall apply to claims of, or
payments to, the Trustee under or pursuant to Section 7.07.
SECTION 10.10. Distribution or Notice to Representative. Whenever
-----------------------------------------
a distribution is to be made or a notice given to holders of Senior Indebtedness
of the Company, the distribution may be made and the notice given to their
Representative (if any).
SECTION 10.11. Article 10 Not To Prevent Events of Default or Limit
----------------------------------------------------
Right To Accelerate. The failure to make a payment pursuant to the Securities
- --------------------
by reason of any provision in this Article 10 shall not be construed as pre
venting the occurrence of a Default. Except as specifically provided in Section
10.04, nothing in this Article 10 shall have any effect on the right of the
Securityholders or the Trustee to accelerate the maturity of the Securities.
SECTION 10.12. Trust Moneys Not Subordinated. Notwithstanding
------------------------------
anything contained herein to the contrary, payments from money or the proceeds
of U.S. Government Obligations held in trust under Article 8 by the Trustee for
the payment of principal of and interest on the Securities shall not be
subordinated to the prior payment of any Senior Indebtedness or subject to the
restrictions set forth in
<PAGE>
89
this Article 10, and none of the Securityholders shall be obligated to pay over
any such amount to the Company or any holder of Senior Indebtedness of the
Company or any other creditor of the Company.
SECTION 10.13. Trustee Entitled To Rely. Upon any payment or
-------------------------
distribution pursuant to this Article 10, the Trustee and the Securityholders
shall be entitled to rely (i) upon any order or decree of a court of competent
juris diction in which any proceedings of the nature referred to in Section
10.02 are pending, (ii) upon a certificate of the liquidating trustee or agent
or other Person making such payment or distribution to the Trustee or to the
Security holders or (iii) upon the Representatives for the holders of Senior
Indebtedness of the Company for the purpose of ascertaining the Persons entitled
to participate in such payment or distribution, the holders of such Senior
Indebtedness and other Indebtedness of the Company, the amount thereof or
payable thereon, the amount or amounts paid or distributed thereon and all other
facts pertinent thereto or to this Article 10. In the event that the Trustee
determines, in good faith, that evidence is required with respect to the right
of any Person as a holder of Senior Indebtedness of the Company to participate
in any payment or distribution pursuant to this Article 10, the Trustee may
request such Person to furnish evidence to the reasonable satisfaction of the
Trustee as to the amount of such Senior Indebtedness held by such Person, the
extent to which such Person is entitled to participate in such payment or
distribution and other facts pertinent to the rights of such Person under this
Article 10, and, if such evidence is not furnished, the Trustee may defer any
payment to such Person pending judicial determination as to the right of such
Person to receive such payment. The provisions of Sections 7.01 and 7.02 shall
be applicable to all actions or omissions of actions by the Trustee pursuant to
this Article 10.
SECTION 10.14. Trustee To Effectuate Subordination. Each
------------------------------------
Securityholder by accepting a Security author izes and directs the Trustee on
his behalf to take such action as may be necessary or appropriate to acknowledge
or effectuate the subordination between the Securityholders and the holders of
Senior Indebtedness of the Company as
<PAGE>
90
provided in this Article 10 and appoints the Trustee as attorney-in-fact for any
and all such purposes.
SECTION 10.15. Trustee Not Fiduciary for Holders of Senior
--------------------------------------------
Indebtedness. The Trustee shall not be deemed to owe any fiduciary duty to the
- -------------
holders of Senior Indebtedness and shall not be liable to any such holders if it
shall mistakenly pay over or distribute to Securityholders or the Company or any
other Person, money or assets to which any holders of Senior Indebtedness of the
Company shall be entitled by virtue of this Article 10 or otherwise.
SECTION 10.16. Reliance by Holders of Senior Indebtedness on
---------------------------------------------
Subordination Provisions. Each Securityholder by accepting a Security
- -------------------------
acknowledges and agrees that the foregoing subordination provisions are, and are
intended to be, an inducement and a consideration to each holder of any Senior
Indebtedness of the Company, whether such Senior Indebtedness was created or
acquired before or after the issuance of the Securities, to acquire and continue
to hold, or to continue to hold, such Senior Indebtedness and such holder of
such Senior Indebtedness shall be deemed conclusively to have relied on such
subordination provisions in acquiring and continuing to hold, or in continuing
to hold, such Senior Indebtedness.
ARTICLE 11
Subsidiary Guaranties
---------------------
SECTION 11.01. Guaranties. Each Subsidiary Guarantor hereby
-----------
unconditionally and irrevocably guarantees, jointly and severally, to each
Holder and to the Trustee and its successors and assigns (a) the full and
punctual payment of principal of and interest on the Securities when due,
whether at maturity, by acceleration, by redemption or otherwise, and all other
monetary obligations of the Company under this Indenture and the Securities and
(b) the full and punctual performance within applicable grace periods of all
other obligations of the Company under this Indenture and the Securities (all
the foregoing being hereinafter collectively called the "Obligations"). Each
Subsidiary Guarantor further agrees that the Obligations may be extended or
renewed, in whole or in part, without notice or
<PAGE>
91
further assent from such Subsidiary Guarantor and that such Subsidiary Guarantor
will remain bound under this Article 11 notwithstanding any extension or renewal
of any Obligation.
Each Subsidiary Guarantor waives presentation to, demand of, payment
from and protest to the Company of any of the Obligations and also waives notice
of protest for nonpayment. Each Subsidiary Guarantor waives notice of any
default under the Securities or the Obligations. The obligations of each
Subsidiary Guarantor hereunder shall not be affected by (a) the failure of any
Holder or the Trustee to assert any claim or demand or to enforce any right or
remedy against the Company or any other Person under this Indenture, the
Securities or any other agreement or otherwise; (b) any extension or renewal of
any thereof; (c) any rescission, waiver, amendment or modification of any of the
terms or provisions of this Indenture, the Securities or any other agreement;
(d) the release of any security held by any Holder or the Trustee for the
Obligations or any of them; (e) the failure of any Holder or the Trustee to
exercise any right or remedy against any other guarantor of the Obligations; or
(f) any change in the ownership of such Subsidiary Guarantor.
Each Subsidiary Guarantor further agrees that its Subsidiary Guaranty
herein constitutes a guarantee of payment, performance and compliance when due
(and not a guarantee of collection) and waives any right to require that any
resort be had by any Holder or the Trustee to any security held for payment of
the Obligations.
Each Subsidiary Guaranty is, to the extent and in the manner set forth
in Article 12, subordinated and subject in right of payment to the prior payment
in full of the principal of and premium, if any, and interest on all Senior
Indebtedness of the Subsidiary Guarantor giving such Subsidiary Guaranty and
each Subsidiary Guaranty is made subject to such provisions of this Indenture.
Except as expressly set forth in Sections 8.01(b), 11.02 and 11.06,
the obligations of each Subsidiary Guarantor hereunder shall not be subject to
any reduction, limitation, impairment or termination for any reason, including
any claim of waiver, release, surrender, alteration or compromise, and shall not
be subject to any
<PAGE>
92
defense of setoff, counterclaim, recoupment or termination whatsoever or by
reason of the invalidity, illegality or unenforceability of the Obligations or
otherwise. Without limiting the generality of the foregoing, the obligations of
each Subsidiary Guarantor herein shall not be discharged or impaired or
otherwise affected by the failure of any Holder or the Trustee to assert any
claim or demand or to enforce any remedy under this Indenture, the Securities or
any other agreement, by any waiver or modification of any thereof, by any
default, failure or delay, willful or otherwise, in the performance of the
obligations, or by any other act or thing or omission or delay to do any other
act or thing which may or might in any manner or to any extent vary the risk of
such Subsidiary Guarantor or would otherwise operate as a discharge of such
Subsidiary Guarantor as a matter of law or equity.
Each Subsidiary Guarantor further agrees that its Guarantee herein
shall continue to be effective or be reinstated, as the case may be, if at any
time payment, or any part thereof, of principal of or interest on any Obligation
is rescinded or must otherwise be restored by any Holder or the Trustee upon the
bankruptcy or reorganization of the Company or otherwise.
In furtherance of the foregoing and not in limitation of any other
right which any Holder or the Trustee has at law or in equity against any
Subsidiary Guarantor by virtue hereof, upon the failure of the Company to pay
the principal of or interest on any Obligation when and as the same shall become
due, whether at maturity, by acceleration, by redemption or otherwise, or to
perform or comply with any other Obligation, each Subsidiary Guarantor hereby
promises to and will, upon receipt of written demand by the Trustee, forthwith
pay, or cause to be paid, in cash, to the Holders or the Trustee an amount equal
to the sum of (i) the unpaid amount of such Obligations, (ii) accrued and unpaid
interest on such Obligations (but only to the extent not prohibited by law) and
(iii) all other monetary Obligations of the Company to the Holders and the
Trustee.
Each Subsidiary Guarantor agrees that it shall not be entitled to any
right of subrogation in respect of any Obligations guaranteed hereby until
payment in full of all Obligations and all obligations to which the Obligations
are
<PAGE>
93
subordinated as provided in Article 12. Each Subsidiary Guarantor further
agrees that, as between it, on the one hand, and the Holders and the Trustee, on
the other hand, (x) the maturity of the Obligations Guaranteed hereby may be
accelerated as provided in Article 6 for the purposes of such Subsidiary
Guarantor's Subsidiary Guaranty herein, notwithstanding any stay, injunction or
other prohibition preventing such acceleration in respect of the Obligations
guaranteed hereby, and (y) in the event of any declaration of acceleration of
such obligations as provided in Article 6, such Obligations (whether or not due
and payable) shall forthwith become due and payable by such Subsidiary Guarantor
for the purposes of this Section.
Each Subsidiary Guarantor also agrees to pay any and all costs and
expenses (including reasonable attorneys' fees) incurred by the Trustee or any
Holder in enforcing any rights under this Section.
SECTION 11.02. Limitation on Liability. Any term or provision of
------------------------
this Indenture to the contrary notwithstanding, the maximum, aggregate amount of
the obligations guaranteed hereunder by any Subsidiary Guarantor shall not
exceed the maximum amount that can be hereby guaranteed without rendering this
Indenture, as it relates to such Subsidiary Guarantor, voidable under applicable
law relating to fraudulent conveyance or fraudulent transfer or similar laws
affecting the rights of creditors generally.
SECTION 11.03. Successors and Assigns. This Article 11 shall be
-----------------------
binding upon each Subsidiary Guarantor and its successors and assigns and shall
enure to the benefit of the successors and assigns of the Trustee and the
Holders and, in the event of any transfer or assignment of rights by any Holder
or the Trustee, the rights and privileges conferred upon that party in this
Indenture and in the Securities shall automatically extend to and be vested in
such transferee or assignee, all subject to the terms and conditions of this
Indenture.
SECTION 11.04. No Waiver. Neither a failure nor a delay on the part
----------
of either the Trustee or the Holders in exercising any right, power or privilege
under this Article 11 shall operate as a waiver thereof, nor shall a single or
partial exercise thereof preclude any other or further
<PAGE>
94
exercise of any right, power or privilege. The rights, remedies and benefits of
the Trustee and the Holders herein expressly specified are cumulative and not
exclusive of any other rights, remedies or benefits which either may have under
this Article 11 at law, in equity, by statute or otherwise.
SECTION 11.05. Modification. No modification, amendment or waiver of
-------------
any provision of this Article 11, nor the consent to any departure by any
Subsidiary Guarantor therefrom, shall in any event be effective unless the same
shall be in writing and signed by the Trustee, and then such waiver or consent
shall be effective only in the specific instance and for the purpose for which
given. No notice to or demand on any Subsidiary Guarantor in any case shall
entitle such Subsidiary Guarantor to any other or further notice or demand in
the same, similar or other circumstances.
SECTION 11.06. Release of Subsidiary Guarantor. This Subsidiary
--------------------------------
Guaranty as to any Subsidiary Guarantor shall terminate and be of no further
force or effect upon the sale or other transfer (i) by such Subsidiary Guarantor
of all or substantially all of its assets or (ii) by the Company of all of its
stock or other equity interests in such Subsidiary Guarantor, to a Person that
is not an Affiliate of the Company; provided, however, that such sale or
-------- -------
transfer shall be deemed to constitute an Asset Disposition and the Company
shall comply with all applicable provisions of Section 4.06 with respect to such
Asset Disposition.
SECTION 11.07. Execution of Supplemental Indenture for Future
----------------------------------------------
Subsidiary Guarantors. Each Subsidiary which is required to become a Subsidiary
- ----------------------
Guarantor pursuant to Section 4.13 shall promptly execute and deliver to the
Trustee a supplemental indenture in the form of Exhibit B hereto pursuant to
which such Subsidiary shall become a Subsidiary Guarantor under this Article 11
and shall guarantee the Obligations. Concurrently with the execution and
delivery of such supplemental indenture, the Company shall deliver to the
Trustee an Opinion of Counsel to the effect that such supplemental indenture has
been duly authorized, executed and delivered by such Subsidiary and that,
subject to the application of bankruptcy, insolvency,
<PAGE>
95
moratorium, fraudulent conveyance or transfer and other similar laws relating to
creditors' rights generally and to the principles of equity, whether considered
in a proceeding at law or in equity, the Subsidiary Guaranty of such Subsidiary
Guarantor is a legal, valid and binding obligation of such Subsidiary Guarantor,
enforceable against such Subsidiary Guarantor in accordance with its terms.
ARTICLE 12
Subordination of Subsidiary Guaranties
--------------------------------------
SECTION 12.01. Agreement To Subordinate. Each Subsidiary Guarantor
-------------------------
agrees, and each Securityholder by accepting a Security agrees, that the
Obligations of such Subsidiary Guarantor are subordinated in right of payment,
to the extent and in the manner provided in this Article 12, to the prior
payment of all Senior Indebtedness of such Subsidiary Guarantor and that the
subordination is for the benefit of and enforceable by the holders of such
Senior Indebtedness. The Obligations of a Subsidiary Guarantor shall in all
respects rank pari passu with all other Senior Subordinated Indebtedness of such
---- -----
Subsidiary Guarantor and only Senior Indebtedness of such Subsidiary Guarantor
(including such Subsidiary Guarantor's Guarantee of Senior Indebtedness of the
Company) shall rank senior to the Obligations of such Subsidiary Guarantor in
accordance with the provisions set forth herein.
SECTION 12.02. Liquidation, Dissolution, Bankruptcy. Upon any
-------------------------------------
payment or distribution of the assets of any Subsidiary Guarantor to creditors
upon a total or partial liquidation or a total or partial dissolution of such
Subsidiary Guarantor or in a bankruptcy, reorganization, insolvency,
receivership or similar proceeding relating to such Subsidiary Guarantor or its
property:
(1) holders of Senior Indebtedness of such Subsidiary Guarantor shall
be entitled to receive payment in full of such Senior Indebtedness before
Securityholders shall be entitled to receive any payment pursuant to any
Obligations of such Subsidiary Guarantor; and
<PAGE>
96
(2) until the Senior Indebtedness of any Subsidiary Guarantor is paid in
full, any distribution to which Securityholders would be entitled but for
this Article 12 shall be made to holders of such Senior Indebtedness as
their interests may appear, except that Securityholders may receive shares
of stock and any debt securities of such Subsidiary Guarantor that are
subordinated to Senior Indebtedness, and to any debt securities received by
holders of Senior Indebtedness, of such Subsidiary Guarantor, to at least
the same extent as the Obligations of such Subsidiary Guarantor are
subordinated to Senior Indebtedness of such Subsidiary Guarantor.
An issue of Senior Indebtedness will not be deemed to be paid in full
unless all outstanding commitments thereunder have been terminated.
SECTION 12.03. Default on Senior Indebtedness of Subsidiary
--------------------------------------------
Guarantor. No Subsidiary Guarantor may make any payment pursuant to any of its
- ----------
Obligations or repurchase, redeem or otherwise retire or defease any Securities
or other Obligations (collectively, "pay its Subsidiary Guaranty") if (i) any
Senior Indebtedness of such Subsidiary Guarantor is not paid when due or (ii)
any other default on Senior Indebtedness of such Subsidiary Guarantor occurs and
the maturity of such Senior Indebtedness is accelerated in accordance with its
terms unless, in either case, (x) the default has been cured or waived and any
such acceleration has been rescinded or (y) such Senior Indebtedness has been
paid in full; provided, however, that any Subsidiary Guarantor may pay its
-------- -------
Subsidiary Guaranty without regard to the foregoing if such Subsidiary Guarantor
and the Trustee receive written notice approving such payment from the
Representatives of such Senior Indebtedness. No Subsidiary Guarantor may pay
its Subsidiary Guaranty during the continuance of any Payment Blockage Period
after receipt by the Company and the Trustee of a Payment Notice under Section
10.03. Notwithstanding the provisions described in the immediately preceding
sentence (but subject to the provisions contained in the first sentence of this
Section), unless the holders of Designated Senior Indebtedness giving such
Payment Notice or the Representative of such holders shall have accelerated the
maturity of such Designated Senior Indebtedness, any Subsidiary Guarantor may
resume
<PAGE>
97
payments pursuant to its Subsidiary Guaranty after such Payment Blockage Period.
SECTION 12.04. Demand for Payment. If an Event of Default shall have
-------------------
occurred and be continuing (other than an Event of Default pursuant to Section
6.01(7) or 6.01(8)), the Trustee or the Holders of the Securities electing to
accelerate the Securities pursuant to Section 6.02 shall give the holders of all
Designated Senior Indebtedness (or their Representatives) five Business Days'
prior written notice before making a demand for payment by a Subsidiary
Guarantor pursuant to Article 11, which notice shall state that it is a "Notice
of Intent to Demand Payment"; provided, however, that the Trustee or such
-------- -------
Holders may so demand payment immediately without such notice if at such time
payment of any Designated Senior Indebtedness shall have been accelerated. If a
demand for payment is made on a Subsidiary Guarantor pursuant to Article 11, the
Trustee shall promptly notify the holders of the Designated Senior Indebtedness
(or their Representatives) of such demand.
SECTION 12.05. When Distribution Must Be Paid Over. If a
------------------------------------
distribution is made to Securityholders that because of this Article 12 should
not have been made to them, the Securityholders who receive the distribution
shall hold it in trust for holders of the relevant Senior Indebtedness and pay
it over to them or their Representatives as their interests may appear.
SECTION 12.06. Subrogation. After all Senior Indebtedness of a
------------
Subsidiary Guarantor is paid in full and until the Securities are paid in full,
Securityholders shall be subrogated to the rights of holders of such Senior
Indebtedness to receive distributions applicable to Senior Indebtedness. A
distribution made under this Article 12 to holders of such Senior Indebtedness
which otherwise would have been made to Securityholders is not, as between the
relevant Subsidiary Guarantor and Securityholders, a payment by such Subsidiary
Guarantor on such Senior Indebtedness.
<PAGE>
98
SECTION 12.07. Relative Rights. This Article 12 defines the relative
----------------
rights of Securityholders and holders of Senior Indebtedness of a Subsidiary
Guarantor. Nothing in this Indenture shall:
(1) impair, as between a Subsidiary Guarantor and Securityholders, the
obligation of such Subsidiary Guarantor, which is absolute and
unconditional, to pay the Obligations to the extent set forth in Article 11
or the relevant Subsidiary Guaranty; or
(2) prevent the Trustee or any Securityholder from exercising its
available remedies upon a default by such Subsidiary Guarantor under the
Obligations, subject to the rights of holders of Senior Indebtedness of
such Subsidiary Guarantor to receive distributions otherwise payable to
Securityholders.
SECTION 12.08. Subordination May Not Be Impaired by Company. No
---------------------------------------------
right of any holder of Senior Indebtedness of any Subsidiary Guarantor to
enforce the subordination of the Obligations of such Subsidiary Guarantor shall
be impaired by any act or failure to act by such Subsidiary Guarantor or by its
failure to comply with this Indenture.
SECTION 12.09. Rights of Trustee and Paying Agent. Notwithstanding
-----------------------------------
Section 12.03, the Trustee or Paying Agent may continue to make payments on any
Subsidiary Guaranty and shall not be charged with knowledge of the existence of
facts that would prohibit the making of any such payments unless, not less than
two Business Days prior to the date of such payment, a Trust Officer of the
Trustee receives written notice satisfactory to it that payments may not be made
under this Article 12. The Company, the relevant Subsidiary Guarantor, the
Registrar or co-registrar, the Paying Agent, a Representative or a holder of
Senior Indebtedness of any Subsidiary Guarantor may give the notice; provided,
--------
however, that, if an issue of Senior Indebtedness of any Subsidiary Guarantor
- -------
has a Representative, only the Representative may give the notice.
The Trustee in its individual or any other capacity may hold Senior
Indebtedness with the same rights it would have if it were not the Trustee. The
Registrar and co-registrar and the Paying Agent may do the same with like
<PAGE>
99
rights. The Trustee shall be entitled to all the rights set forth in this
Article 12 with respect to any Senior Indebtedness of any Subsidiary Guarantor
which may at any time be held by it, to the same extent as any other holder of
Senior Indebtedness; and nothing in Article 7 shall deprive the Trustee of any
of its rights as such holder. Nothing in this Article 12 shall apply to claims
of, or payments to, the Trustee under or pursuant to Section 7.07.
SECTION 12.10. Distribution or Notice to Representative. Whenever
-----------------------------------------
a distribution is to be made or a notice given to holders of Senior Indebtedness
of any Subsidiary Guarantor, the distribution may be made and the notice given
to their Representative (if any).
SECTION 12.11. Article 12 Not To Prevent Defaults Under a Subsidiary
-----------------------------------------------------
Guaranty or Limit Right To Demand Payment. The failure to make a payment
- ------------------------------------------
pursuant to a Subsidiary Guaranty by reason of any provision in this Article 12
shall not be construed as preventing the occurrence of a default under such
Subsidiary Guaranty. Except as specifically provided in Section 12.04, nothing
in this Article 12 shall have any effect on the right of the Securityholders or
the Trustee to make a demand for payment on any Subsidiary Guarantor pursuant to
Article 11 or the relevant Subsidiary Guaranty.
SECTION 12.12. Trustee Entitled To Rely. Upon any payment or
-------------------------
distribution pursuant to this Article 12, the Trustee and the Securityholders
shall be entitled to rely (i) upon any order or decree of a court of competent
jurisdiction in which any proceedings of the nature referred to in Section
12.02 are pending, (ii) upon a certificate of the liquidating trustee or agent
or other Person making such payment or distribution to the Trustee or to the
Securityholders or (iii) upon the Representatives for the holders of Senior
Indebtedness of any Subsidiary Guarantor for the purpose of ascertaining the
Persons entitled to participate in such payment or distribution, the holders of
such Senior Indebtedness and other indebtedness of such Subsidiary Guarantor,
the amount thereof or payable thereon, the amount or amounts paid or distributed
thereon and all other facts pertinent thereto or to this Article 12. In the
event that the Trustee determines, in good faith, that evidence is required with
respect to the right of any Person as a holder
<PAGE>
100
of Senior Indebtedness of any Subsidiary Guarantor to participate in any payment
or distribution pursuant to this Article 12, the Trustee may request such Person
to furnish evidence to the reasonable satisfaction of the Trustee as to the
amount of Senior Indebtedness of such Subsidiary Guarantor held by such Person,
the extent to which such Person is entitled to participate in such payment or
distribution and other facts pertinent to the rights of such Person under this
Article 12, and, if such evidence is not furnished, the Trustee may defer any
payment to such Person pending judicial determination as to the right of such
Person to receive such payment. The provisions of Sections 7.01 and 7.02 shall
be applicable to all actions or omissions of actions by the Trustee pursuant to
this Article 12.
SECTION 12.13. Trustee To Effectuate Subordination. Each
------------------------------------
Securityholder by accepting a Security author izes and directs the Trustee on
his behalf to take such action as may be necessary or appropriate to acknowledge
or effectuate the subordination between the Securityholders and the holders of
Senior Indebtedness of any Subsidiary Guarantor as provided in this Article 12
and appoints the Trustee as attorney-in-fact for any and all such purposes.
SECTION 12.14. Trustee Not Fiduciary for Holders of Senior
--------------------------------------------
Indebtedness of Subsidiary Guarantor. The Trustee shall not be deemed to owe
- -------------------------------------
any fiduciary duty to the holders of Senior Indebtedness of any Subsidiary
Guarantor and shall not be liable to any such holders if it shall mistakenly pay
over or distribute to Securityholders or the Company or any other Person, money
or assets to which any holders of such Senior Indebtedness shall be entitled by
virtue of this Article 12 or otherwise.
SECTION 12.15. Reliance by Holders of Senior Indebtedness on
---------------------------------------------
Subordination Provisions. Each Securityholder by accepting a Security
- -------------------------
acknowledges and agrees that the foregoing subordination provisions are, and are
intended to be, an inducement and a consideration to each holder of any Senior
Indebtedness of any Subsidiary Guarantor, whether such Senior Indebtedness was
created or acquired before or after the issuance of the Securities, to acquire
and continue to hold, or to continue to hold, such Senior Indebtedness and such
holder of Senior Indebtedness
<PAGE>
101
shall be deemed conclusively to have relied on such subordination provisions in
acquiring and continuing to hold, or in continuing to hold, such Senior
Indebtedness.
ARTICLE 13
Miscellaneous
-------------
SECTION 13.01. Trust Indenture Act Controls. If any provision of
-----------------------------
this Indenture limits, qualifies or con flicts with another provision which is
required to be included in this Indenture by the TIA, the required provision
shall control.
SECTION 13.02. Notices. Any notice or communication shall be in
--------
writing and delivered in person, or sent by registered or certified mail, by air
courier guaranteeing overnight delivery or by fax (promptly confirmed by
telephone) and addressed as follows:
if to the Company or any Subsidiary Guarantor:
Glenoit Corporation
111 West 40th Street
New York, NY 10018
Attention: Chief Executive Officer
Phone: (212) 391-3915
Fax: (212) 391-2341
if to the Trustee:
United States Trust Company of New York
114 West 47th Street
New York, NY 10036-1532
Attention: Corporate Trust Department
Phone: (212) 852-1676
Fax: (212) 852-1626/27
The Company or the Trustee by notice to the other may designate
additional or different addresses for subse quent notices or communications.
Any notice or communication mailed to a Securityholder shall be
mailed to the Securityholder at the Securityholder's
<PAGE>
102
address as it appears on the registration books of the Registrar and shall be
sufficiently given if so mailed within the time prescribed.
Failure to mail a notice or communication to a Securityholder or any
defect in it shall not affect its sufficiency with respect to other
Securityholders. If a notice or communication is given in the manner provided
above, it is duly given, whether or not the addressee receives it.
SECTION 13.03. Communication by Holders with Other Holders.
--------------------------------------------
Securityholders may communicate pursuant to TIA (S) 312(b) with other
Securityholders with respect to their rights under this Indenture or the
Securities. The Company, the Trustee, the Registrar and anyone else shall have
the protection of TIA (S) 312(c).
SECTION 13.04. Certificate and Opinion as to Conditions Precedent.
---------------------------------------------------
Upon any request or application by the Company to the Trustee to take or refrain
from taking any action under this Indenture, the Company shall furnish to the
Trustee:
(1) an Officers' Certificate in form and substance reasonably
satisfactory to the Trustee stating that, in the opinion of the signers,
all conditions precedent, if any, provided for in this Indenture relating
to the proposed action have been complied with; and
(2) an Opinion of Counsel in form and substance reasonably
satisfactory to the Trustee stating that, in the opinion of such counsel,
all conditions precedent, if any, provided for in this Indenture relating
to the proposed action have been complied with.
SECTION 13.05. Statements Required in Certificate or Opinion. Each
----------------------------------------------
certificate or opinion with respect to compliance with a covenant or condition
provided for in this Indenture shall include:
(1) a statement that the individual making such certificate or opinion
has read such covenant or condition;
<PAGE>
103
(2) a brief statement as to the nature and scope of the examination or
investigation upon which the statements or opinions contained in such
certificate or opinion are based;
(3) a statement that, in the opinion of such individual, he has made
such examination or investigation as is necessary to enable him to express
an informed opinion as to whether or not such covenant or condition has
been complied with; and
(4) a statement as to whether or not, in the opinion of such
individual, such covenant or condition has been complied with.
SECTION 13.06. When Securities Disregarded. In determining whether
----------------------------
the Holders of the required principal amount of Securities have concurred in any
direction, waiver or consent, Securities owned by the Company or by any Person
directly or indirectly controlling or controlled by or under direct or indirect
common control with the Company shall be disregarded and deemed not to be
outstanding, except that, for the purpose of determining whether the Trustee
shall be protected in relying on any such direction, waiver or consent, only
Securities which the Trustee knows are so owned shall be so disregarded. Also,
subject to the foregoing, only Securities outstanding at the time shall be
considered in any such determination.
SECTION 13.07. Rules by Trustee, Paying Agent and Registrar. The
---------------------------------------------
Trustee may make reasonable rules for action by or a meeting of Securityholders.
The Registrar and the Paying Agent may make reasonable rules for their
functions.
SECTION 13.08. Legal Holidays. A "Legal Holiday" is a Saturday, a
---------------
Sunday or a day on which banking institu tions are not required to be open in
the State of New York. If a payment date is a Legal Holiday, payment shall be
made on the next succeeding day that is not a Legal Holiday, and no interest
shall accrue for the intervening period. If a regular record date is a Legal
Holiday, the record date shall not be affected.
SECTION 13.09. Governing Law. This Indenture and the Securities
--------------
shall be governed by, and construed in
<PAGE>
104
accordance with, the laws of the State of New York but without giving effect to
applicable principles of conflicts of law to the extent that the application of
the laws of another jurisdiction would be required thereby.
SECTION 13.10. No Recourse Against Others. A director, officer,
---------------------------
employee or stockholder, as such, of the Company shall not have any liability
for any obligations of the Company under the Securities or this Indenture or for
any claim based on, in respect of or by reason of such obligations or their
creation. By accepting a Security, each Securityholder shall waive and release
all such liability. The waiver and release shall be part of the consideration
for the issue of the Securities.
SECTION 13.11. Successors. All agreements of the Company in this
-----------
Indenture and the Securities shall bind its successors. All agreements of the
Trustee in this Indenture shall bind its successors.
SECTION 13.12. Multiple Originals. The parties may sign any number
-------------------
of copies of this Indenture. Each signed copy shall be an original, but all of
them together represent the same agreement. One signed copy is enough to prove
this Indenture.
SECTION 13.13. Table of Contents; Headings. The table of contents,
----------------------------
cross-reference sheet and headings of the Articles and Sections of this
Indenture have been inserted for convenience of reference only, are not intended
to be considered a part hereof and shall not modify or restrict any of the terms
or provisions hereof.
<PAGE>
105
IN WITNESS WHEREOF, the parties have caused this Indenture to be duly
executed as of the date first written above.
GLENOIT CORPORATION,
by
-------------------------------------
Name:
Title:
SUBSIDIARY GUARANTORS:
GLENOIT MILLS, INC.,
by
-------------------------------------
Name:
Title:
GLENOIT ASSETS CORP.
by
-------------------------------------
Name:
Title:
TARBORO PROPERTIES, LTD.,
by
-------------------------------------
Name:
Title:
UNITED STATES TRUST COMPANY OF NEW YORK,
by
-------------------------------------
Name:
Title:
<PAGE>
APPENDIX A
FOR OFFERINGS TO QUALIFIED INSTITUTIONAL BUYERS PURSUANT TO RULE 144A,
INSTITUTIONAL "ACCREDITED INVESTORS" (AS DEFINED IN RULE 501(A)(1), (2), (3) OR
(7)) AND TO CERTAIN PERSONS IN OFFSHORE TRANSACTIONS IN RELIANCE ON REGULATION
S.
PROVISIONS RELATING TO INITIAL SECURITIES
-----------------------------------------
AND EXCHANGE SECURITIES
-----------------------
1. Definitions
-----------
1.1 Definitions
-----------
For the purposes of this Appendix A the following terms shall have the
meanings indicated below:
"Definitive Security" means a certificated Initial Security bearing
the restricted securities legend set forth in Section 2.3(d) and which is held
by an IAI in accordance with Section 2.1(c).
"Depository" means The Depository Trust Company, its nominees and
their respective successors.
"Exchange Securities" means the 11% Senior Subordinated Notes Due 2007
to be issued pursuant to this Indenture in connection with a Registered Exchange
Offer pursuant to the Registration Agreement.
"IAI" means an institutional "accredited investor" as described in
Rule 501(a)(1), (2), (3) or (7) under the Securities Act.
"Initial Purchasers" means Salomon Brothers Inc and CIBC Wood Gundy
Securities Corp.
"Initial Securities" means the 11% Senior Subordinated Notes Due 2007,
to be issued, from time to time, in one or more series as provided for in this
Indenture.
"Purchase Agreement" means the Purchase Agreement dated March 26,
1997, among the Company, the Subsidiary Guarantors and the Initial Purchasers.
"QIB" means a "qualified institutional buyer" as defined in Rule 144A.
"Registered Exchange Offer" means the offer by the Company, pursuant
to the Registration Agreement, to certain
<PAGE>
2
Holders of Initial Securities, to issue and deliver to such Holders, in exchange
for the Initial Securities, a like aggregate principal amount of Exchange
Securities registered under the Securities Act.
"Registration Agreement" means the Registration Agreement dated March
26, 1997, among the Company, the Subsidiary Guarantors and the Initial
Purchasers.
"Securities" means the Initial Securities and the Exchange Securities,
treated as a single class.
"Securities Act" means the Securities Act of 1933, as amended.
"Securities Custodian" means the custodian with respect to a Global
Security (as appointed by the Depository), or any successor person thereto and
shall initially be the Trustee.
"Shelf Registration Statement" means the registration statement issued
by the Company in connection with the offer and sale of Initial Securities
pursuant to the Registration Agreement.
"Transfer Restricted Securities" means Definitive Securities and
Securities that bear or are required to bear the legend set forth in Section
2.3(d) hereto.
1.2 Other Definitions
-----------------
Defined in
----------
Term Section:
---- -------
"Agent Members".......................................... 2.1(b)
"Global Security"........................................ 2.1(a)
"Regulation S"........................................... 2.1(a)
"Rule 144A".............................................. 2.1(a)
2. The Securities
--------------
2.1 Form and Dating
---------------
The Initial Securities are being offered and sold by the Company
pursuant to the Purchase Agreement.
<PAGE>
3
(a) Global Securities. Initial Securities offered and sold to a QIB
------------------
in reliance on Rule 144A under the Securities Act ("Rule 144A") or in reliance
on Regulation S under the Securities Act ("Regulation S"), in each case as
provided in the Purchase Agreement, shall be issued initially in the form of one
or more permanent global Securities in definitive, fully registered form without
interest coupons with the global securities legend and restricted securities
legend set forth in Exhibit 1 hereto (each, a "Global Security"), which shall be
deposited on behalf of the purchasers of the Initial Securities represented
thereby with the Trustee, as custodian for the Depository (or with such other
custodian as the Depository may direct), and registered in the name of the
Depository or a nominee of the Depository, duly executed by the Company and
authenticated by the Trustee as provided in the Indenture. The aggregate
principal amount of the Global Securities may from time to time be increased or
decreased by adjustments made on the records of the Trustee and the Depository
or its nominee as hereinafter provided.
(b) Book-Entry Provisions. This Section 2.1(b) shall apply only to a
----------------------
Global Security deposited with or on behalf of the Depository.
The Company shall execute and the Trustee shall, in accordance with
this Section 2.1(b) and pursuant to an order of the Company, authenticate and
deliver initially one or more Global Securities that (a) shall be registered in
the name of the Depository for such Global Security or Global Securities or the
nominee of such Depository and (b) shall be delivered by the Trustee to such
Depository or pursuant to such Depository's instructions or held by the Trustee
as custodian for the Depository.
Members of, or participants in, the Depository ("Agent Members") shall
have no rights under this Indenture with respect to any Global Security held on
their behalf by the Depository or by the Trustee as the custodian of the
Depository or under such Global Security, and the Depository may be treated by
the Company, the Trustee and any agent of the Company or the Trustee as the
absolute owner of such Global Security for all purposes whatsoever.
Notwithstanding the foregoing, nothing herein shall prevent the Company, the
Trustee or any agent of the Company or the Trustee from giving effect to any
written certification, proxy or other
<PAGE>
4
authorization furnished by the Depository or impair, as between the Depository
and its Agent Members, the operation of customary practices of such Depository
governing the exercise of the rights of a holder of a beneficial interest in any
Global Security.
(c) Definitive Securities. Except as provided in this Section 2.1 or
----------------------
Sections 2.3 or 2.4, owners of beneficial interests in Global Securities will
not be entitled to receive physical delivery of certificated Securities.
Purchasers of Initial Securities who are IAI's and are not QIBs and did not
purchase Initial Securities sold in reliance on Regulation S will receive
Definitive Securities; provided, however, that upon transfer of such Definitive
-------- -------
Securities to a QIB, such Definitive Securities will, unless the Global Security
has previously been exchanged, be exchanged for an interest in a Global Security
pursuant to the provisions of Section 2.3.
2.2 Authentication. The Trustee shall authenticate and deliver on the
---------------
Issue Date: (1) Initial Securities for original issue in an aggregate principal
amount of $100,000,000 and (2) Exchange Securities for issue only in a
Registered Exchange Offer pursuant to the Registration Agreement, for a like
principal amount of Initial Securities, upon a written order of the Company
signed by two Officers or by an Officer and either an Assistant Treasurer or an
Assistant Secretary of the Company. Such order shall specify the amount of the
Securities to be authenticated and the date on which the original issue of
Securities is to be authenticated and whether the Securities are to be Initial
Securities or Exchange Securities. The aggregate principal amount of Securities
outstanding at any time may not exceed $130,000,000, except as provided in
Section 2.08 of this Indenture.
2.3 Transfer and Exchange. (a) Transfer and Exchange of Definitive
---------------------- -----------------------------------
Securities. When Definitive Securities are presented to the Registrar or a co-
- -----------
registrar with a request:
(x) to register the transfer of such Definitive Securities; or
(y) to exchange such Definitive Securities for an equal principal
amount of Definitive Securities of other authorized denominations,
<PAGE>
5
the Registrar or co-registrar shall register the transfer or make the exchange
as requested if its reasonable requirements for such transaction are met;
provided, however, that the Definitive Securities surrendered for transfer or
- -------- -------
exchange:
(i) shall be duly endorsed or accompanied by a written instrument of
transfer in form reasonably satisfactory to the Company and the Registrar
or co-registrar, duly executed by the Holder thereof or his attorney duly
authorized in writing; and
(ii) are being transferred or exchanged pursuant to an effective
registration statement under the Securities Act, pursuant to Section 2.3(b)
or pursuant to clause (A), (B) or (C) below, and are accompanied by the
following additional information and documents, as applicable:
(A) if such Definitive Securities are being delivered to the
Registrar by a Holder for registration in the name of such Holder,
without transfer, a certification from such Holder to that effect (in
the form set forth on the reverse of the Security); or
(B) if such Definitive Securities are being transferred to the
Company, a certification to that effect (in the form set forth on the
reverse of the Security); or
(C) if such Definitive Securities are being transferred pursuant
to an exemption from registration in accordance with Rule 144, (i) a
certification to that effect (in the form set forth on the reverse of
the Security) and (ii) if the Company or Registrar so requests, an
opinion of counsel or other evidence reasonably satisfactory to them
as to the compliance with the restrictions set forth in the legend set
forth in Section 2.3(d)(i).
(b) Restrictions on Transfer of a Definitive Security for a
-------------------------------------------------------
Beneficial Interest in a Global Security. A Definitive Security may not be
- -----------------------------------------
exchanged for a beneficial interest in a Global Security except upon
satisfaction of the requirements set forth below. Upon receipt by the Trustee
of
<PAGE>
6
a Definitive Security, duly endorsed or accompanied by appropriate instruments
of transfer, in form satisfactory to the Trustee, together with:
(i) certification, in the form set forth on the reverse of the
Security, that such Definitive Security is being transferred (A) to a QIB
in accordance with Rule 144A, or (B) outside the United States in an
offshore transaction within the meaning of Regulation S and in compliance
with Rule 904 under the Securities Act; and
(ii) written instructions directing the Trustee to make, or to direct
the Securities Custodian to make, an adjustment on its books and records
with respect to such Global Security to reflect an increase in the
aggregate principal amount of the Securities represented by the Global
Security, such instructions to contain information regarding the Depositary
account to be credited with such increase,
then the Trustee shall cancel such Definitive Security and cause, or direct the
Securities Custodian to cause, in accordance with the standing instructions and
procedures existing between the Depository and the Securities Custodian, the
aggregate principal amount of Securities represented by the Global Security to
be increased by the aggregate principal amount of the Definitive Security to be
exchanged and shall credit or cause to be credited to the account of the Person
specified in such instructions a beneficial interest in the Global Security
equal to the principal amount of the Definitive Security so cancelled. If no
Global Securities are then outstanding and the Global Security has not been
previously exchanged pursuant to Section 2.4, the Company shall issue and the
Trustee shall authenticate, upon written order of the Company in the form of an
Officers' Certificate, a new Global Security in the appropriate principal
amount.
(c) Transfer and Exchange of Global Securities. (i) The transfer
-------------------------------------------
and exchange of Global Securities or beneficial interests therein shall be
effected through the Depository, in accordance with this Indenture (including
applicable restrictions on transfer set forth herein, if any) and the procedures
of the Depository therefor. A transferor of a beneficial interest in a Global
Security shall deliver to
<PAGE>
7
the Registrar a written order given in accordance with the Depositary's
procedures containing information regarding the participant account of the
Depositary to credited with a beneficial interest in the Global Security. The
Registrar shall, in accordance with such instructions instruct the Depositary to
credit to the account of the Person specified in such instructions a beneficial
interest in the Global Security and to debit the account of the Person making
the transfer the beneficial interest in the Global Security being transferred.
(ii) Notwithstanding any other provisions of this Appendix A (other
than the provisions set forth in Section 2.4), a Global Security may not be
transferred as a whole except by the Depository to a nominee of the
Depository or by a nominee of the Depository to the Depository or another
nominee of the Depository or by the Depository or any such nominee to a
successor Depository or a nominee of such successor Depository.
(iii) In the event that a Global Security is exchanged for Securities
in definitive registered form pursuant to Section 2.4 prior to the
consummation of a Registered Exchange Offer or the effectiveness of a Shelf
Registration Statement with respect to such Securities, such Securities may
be exchanged only in accordance with such procedures as are substantially
consistent with the provisions of this Section 2.3 (including the
certification requirements set forth on the reverse of the Initial
Securities intended to ensure that such transfers comply with Rule 144A or
Regulation S, as the case may be) and such other procedures as may from
time to time be adopted by the Company.
(d) Legend.
-------
(i) Except as permitted by the following paragraphs (ii), (iii) and
(iv), each Security certificate evidencing the Global Securities and the
Definitive Securities (and all Securities issued in exchange therefor or
in substitution thereof) shall bear a legend in substantially the following
form:
"THIS SECURITY HAS NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF
1933, AS AMENDED (THE "SECURITIES ACT"). THE HOLDER HEREOF, BY PURCHASING
THIS SECURITY,
<PAGE>
8
AGREES FOR THE BENEFIT OF THE COMPANY THAT THIS SECURITY MAY NOT BE RESOLD,
PLEDGED OR OTHERWISE TRANSFERRED (X) PRIOR TO THE SECOND ANNIVERSARY OF THE
ISSUANCE HEREOF (OR A PREDECESSOR SECURITY HERETO) OR (Y) BY ANY HOLDER
THAT WAS AN AFFILIATE OF THE COMPANY AT ANY TIME DURING THE THREE MONTHS
PRECEDING THE DATE OF SUCH TRANSFER, IN EITHER CASE OTHER THAN (1) TO THE
COMPANY, (2) SO LONG AS THIS SECURITY IS ELIGIBLE FOR RESALE PURSUANT TO
RULE 144A UNDER THE SECURITIES ACT ("RULE 144A") TO A PERSON WHOM THE
SELLER REASONABLY BELIEVES IS A QUALIFIED INSTITUTIONAL BUYER WITHIN THE
MEANING OF RULE 144A PURCHASING FOR ITS OWN ACCOUNT OR FOR THE ACCOUNT OF A
QUALIFIED INSTITUTIONAL BUYER TO WHOM NOTICE IS GIVEN THAT THE RESALE
PLEDGE OR OTHER TRANSFER IS BEING MADE IN RELIANCE ON RULE 144A (AS
INDICATED BY THE BOX CHECKED BY THE TRANSFEROR ON THE CERTIFICATE OF
TRANSFER ON THE REVERSE OF THIS SECURITY), (3) IN AN OFFSHORE TRANSACTION
IN ACCORDANCE WITH REGULATION S UNDER THE SECURITIES ACT (AS INDICATED BY
THE BOX CHECKED BY THE TRANSFEROR ON THE CERTIFICATE ON THE REVERSE OF THIS
SECURITY), AND, IF SUCH TRANSFER IS BEING EFFECTED BY CERTAIN TRANSFERORS
SPECIFIED IN THE INDENTURE (AS DEFINED BELOW) PRIOR TO THE EXPIRATION OF
THE "40 DAY RESTRICTED PERIOD" (WITHIN THE MEANING OF RULE 903(c)(3) OF
REGULATION S UNDER THE SECURITIES ACT), A CERTIFICATE WHICH MAY BE OBTAINED
FROM THE COMPANY OR THE TRUSTEE, (4) TO AN INSTITUTION THAT IS AN
"ACCREDITED INVESTOR" AS DEFINED IN RULE 501 (A)(1), (2), (3) OR (7) UNDER
THE SECURITIES ACT (AS INDICATED BY THE BOX CHECKED BY THE TRANSFEROR ON
THE REVERSE OF THIS SECURITY) THAT IS ACQUIRING THIS SECURITY FOR
INVESTMENT PURPOSES AND NOT FOR DISTRIBUTION, AND A CERTIFICATE, WHICH MAY
BE OBTAINED FROM THE TRUSTEE, IS DELIVERED BY THE TRANSFEREE TO THE COMPANY
AND THE TRUSTEE (PROVIDED THAT CERTAIN HOLDERS SPECIFIED IN THE INDENTURE
MAY NOT TRANSFER THIS SECURITY PURSUANT TO THIS CLAUSE (4) PRIOR TO THE
EXPIRATION OF THE "40 DAY RESTRICTED PERIOD" (WITHIN THE MEANING OF RULE
903(c)(3) OF REGULATION S UNDER THE SECURITIES ACT), (5) PURSUANT TO AN
EXEMPTION FROM REGISTRATION UNDER THE SECURITIES ACT PROVIDED BY RULE 144
(IF APPLICABLE) UNDER THE SECURITIES ACT, OR (6) PURSUANT TO AN EFFECTIVE
REGISTRATION STATEMENT UNDER THE SECURITIES ACT, IN EACH CASE IN ACCORDANCE
WITH ANY APPLICABLE SECURITIES LAWS OF ANY STATE OF THE UNITED STATES. AN
INSTITUTIONAL ACCREDITED INVESTOR HOLDING
<PAGE>
9
THIS SECURITY AGREES IT WILL FURNISH TO THE COMPANY AND THE TRUSTEE SUCH
CERTIFICATES AND OTHER INFORMATION AS THEY MAY REASONABLY REQUIRE TO
CONFIRM THAT ANY TRANSFER BY IT OF THIS SECURITY COMPLIES WITH THE
FOREGOING RESTRICTIONS. THE HOLDER HEREOF, BY PURCHASING THIS SECURITY,
REPRESENTS AND AGREES FOR THE BENEFIT OF THE COMPANY THAT IT IS (1) A
QUALIFIED INSTITUTIONAL BUYER WITHIN THE MEANING OF RULE 144A OR (2) AN
INSTITUTION THAT IS AN "ACCREDITED INVESTOR" AS DEFINED IN RULE 501(a)(1),
(2), (3) OR (7) UNDER THE SECURITIES ACT AND THAT IT IS HOLDING THIS
SECURITY FOR INVESTMENT PURPOSES AND NOT FOR DISTRIBUTION OR (3) A NON-U.S.
PERSON OUTSIDE THE UNITED STATES WITHIN THE MEANING OF (OR AN ACCOUNT
SATISFYING THE REQUIREMENTS OF PARAGRAPH (o)(2) OR RULE 902 UNDER)
REGULATION S UNDER THE SECURITIES ACT."
Each Definitive Security will also bear the following additional
legend:
"IN CONNECTION WITH ANY TRANSFER, THE HOLDER WILL DELIVER TO THE
REGISTRAR AND TRANSFER AGENT SUCH CERTIFICATES AND OTHER INFORMATION
AS SUCH TRANSFER AGENT MAY REASONABLY REQUIRE TO CONFIRM THAT THE
TRANSFER COMPLIES WITH THE FOREGOING RESTRICTIONS."
(ii) Upon any sale or transfer of a Transfer Restricted Security
(including any Transfer Restricted Security represented by a Global
Security) pursuant to Rule 144 under the Securities Act:
(A) in the case of any Transfer Restricted Security that is a
Definitive Security, the Registrar shall permit the Holder thereof to
exchange such Transfer Restricted Security for a Definitive Security
that does not bear the legend set forth above and rescind any
restriction on the transfer of such Transfer Restricted Security; and
(B) in the case of any Transfer Restricted Security that is
represented by a Global Security, the Registrar shall permit the
Holder thereof to exchange such Transfer Restricted Security for a
Definitive Security that does not bear the legend
<PAGE>
10
set forth above and rescind any restriction on the transfer of such
Transfer Restricted Security,
in either case, if the Holder certifies in writing to the Registrar that its
request for such exchange was made in reliance on Rule 144 (such certification
to be in the form set forth on the reverse of the Initial Security).
(iii) After a transfer of any Initial Securities during the period of
the effectiveness of a Shelf Registration Statement with respect to such
Initial Securities, all requirements pertaining to legends on such Initial
Security will cease to apply, the requirements requiring any such Initial
Security issued to certain Holders be issued in global form will cease to
apply, and an Initial Security in certificated or global form without
legends will be available to the transferee of the Holder of such Initial
Securities upon exchange of such transferring Holder's certificated Initial
Security. Upon the occurrence of any of the circumstances described in
this paragraph, the Company will deliver an Officers' Certificate to the
Trustee instructing the Trustee to issue Securities without legends.
(iv) Upon the consummation of a Registered Exchange Offer with
respect to the Initial Securities pursuant to which certain Holders of such
Initial Securities are offered Exchange Securities in exchange for their
Initial Securities, all requirements pertaining to such Initial Securities
that Initial Securities issued to certain Holders be issued in global form
will cease to apply and certificated Initial Securities with the restricted
securities legend set forth in Exhibit 1 hereto will be available to
Holders of such Initial Securities that do not exchange their Initial
Securities, and Exchange Securities in certificated or global form will be
available to Holders that exchange such Initial Securities in such
Registered Exchange Offer. Upon the occurrence of any of the circumstances
described in this paragraph, the Company will deliver an Officers'
Certificate to the Trustee instructing the Trustee to issue Securities
without legends.
(e) Cancellation or Adjustment of Global Security. At such time as
----------------------------------------------
all beneficial interests in a Global Security
<PAGE>
11
have either been exchanged for certificated or Definitive Securities, redeemed,
repurchased or canceled, such Global Security shall be returned to the
Depository for cancellation or retained and canceled by the Trustee. At any
time prior to such cancellation, if any beneficial interest in a Global Security
is exchanged for certificated or Definitive Securities, repurchased or canceled,
the principal amount of Securities represented by such Global Security shall be
reduced and an adjustment shall be made on the books and records of the Trustee
(if it is then the Securities Custodian for such Global Security) with respect
to such Global Security, by the Trustee or the Securities Custodian, to reflect
such reduction.
(f) Obligations with Respect to Transfers and Exchanges of
----------------------------------------- ------------
Securities.
- -----------
(i) To permit registrations of transfers and exchanges, the Company
shall execute and the Trustee shall authenticate certificated Securities,
Definitive Securities and Global Securities at the Registrar's or co-
registrar's request.
(ii) No service charge shall be made for any registration of transfer
or exchange, but the Company may require payment of a sum sufficient to
cover any transfer tax, assessments, or similar governmental charge payable
in connection therewith (other than any such transfer taxes, assessments or
similar governmental charge payable upon exchange or transfer pursuant to
Section 3.08).
(iii) The Registrar or co-registrar shall not be required to register
the transfer of or exchange of any Security for a period beginning 15 days
before the mailing of a notice of an offer to repurchase Securities or 15
days before an interest payment date.
(iv) Prior to the due presentation for registration of transfer of
any Security, the Company, the Trustee, the Paying Agent, the Registrar or
any co-registrar may deem and treat the person in whose name a Security is
registered as the absolute owner of such Security for the purpose of
receiving payment of principal of and interest on such Security and for all
other purposes whatsoever, whether or not such Security is overdue, and
none of the
<PAGE>
12
Company, the Trustee, the Paying Agent, the Registrar or any co-registrar
shall be affected by notice to the con trary.
(v) All Securities issued upon any transfer or exchange pursuant to
the terms of this Indenture shall evidence the same debt and shall be
entitled to the same benefits under this Indenture as the Securities
surrendered upon such transfer or exchange.
(g) No Obligation of the Trustee.
-----------------------------
(i) The Trustee shall have no responsibility or obligation to any
beneficial owner of a Global Security, a member of, or a participant in the
Depository or other Person with respect to the accuracy of the records of
the Depository or its nominee or of any participant or member thereof, with
respect to any ownership interest in the Securities or with respect to the
delivery to any participant, member, beneficial owner or other Person
(other than the Depository) of any notice (including any notice of
redemption) or the payment of any amount, under or with respect to such
Securities. All notices and communications to be given to the Holders and
all payments to be made to Holders under the Securities shall be given or
made only to the registered Holders (which shall be the Depository or its
nominee in the case of a Global Security). The rights of beneficial owners
in any Global Security shall be exercised only through the Depository
subject to the applicable rules and procedures of the Depository. The
Trustee may rely and shall be fully protected in relying upon information
furnished by the Depository with respect to its members, participants and
any beneficial owners.
(ii) The Trustee shall have no obligation or duty to monitor,
determine or inquire as to compliance with any restrictions on transfer
imposed under this Indenture or under applicable law with respect to any
transfer of any interest in any Security (including any transfers between
or among Depository participants, members or beneficial owners in any
Global Security) other than to require delivery of such certificates and
other documentation or evidence as are expressly required by, and to do so
if and when expressly required by, the terms of this
<PAGE>
13
Indenture, and to examine the same to determine substantial compliance as
to form with the express requirements hereof.
2.4 Certificated Securities
-----------------------
(a) A Global Security deposited with the Depository or with the
Trustee as custodian for the Depository pursuant to Section 2.1 shall be
transferred to the beneficial owners thereof in the form of certificated
Securities in an aggregate principal amount equal to the principal amount of
such Global Security, in exchange for such Global Security, only if such
transfer complies with Section 2.3 and (i) the Depository notifies the Company
that it is unwilling or unable to continue as Depository for such Global
Security or if at any time such Depository ceases to be a "clearing agency"
registered under the Exchange Act and a successor depositary is not appointed by
the Company within 90 days of such notice, or (ii) an Event of Default has
occurred and is continuing or (iii) the Company, in its sole discretion,
notifies the Trustee in writing that it elects to cause the issuance of
certificated Securities under this Indenture.
(b) Any Global Security that is transferable to the beneficial owners
thereof pursuant to this Section 2.4 shall be surrendered by the Depository to
the Trustee, to be so transferred, in whole or from time to time in part,
without charge, and the Trustee shall authenticate and deliver, upon such
transfer of each portion of such Global Security, an equal aggregate principal
amount of certificated Initial Securities of authorized denominations. Any
portion of a Global Security transferred pursuant to this Section shall be
executed, authenticated and delivered only in denominations of $1,000 and any
integral multiple thereof and registered in such names as the Depository shall
direct. Any certificated Initial Security delivered in exchange for an interest
in the Global Security shall, except as otherwise provided by Section 2.3(d),
bear the restricted securities legend set forth in Exhibit 1 hereto.
(c) Subject to the provisions of Section 2.4(b), the registered
Holder of a Global Security may grant proxies and otherwise authorize any
Person, including Agent Members and Persons that may hold interests through
Agent Members, to
<PAGE>
14
take any action which a Holder is entitled to take under this Indenture or the
Securities.
(d) In the event of the occurrence of either of the events specified
in Section 2.4(a)(i), (ii) or (iii), the Company will promptly make available to
the Trustee a reasonable supply of certificated Securities in definitive, fully
registered form without interest coupons.
<PAGE>
EXHIBIT 1
to APPENDIX A
[FORM OF FACE OF INITIAL SECURITY]
[Global Securities Legend]
UNLESS THIS CERTIFICATE IS PRESENTED BY AN AUTHORIZED REPRESENTATIVE
OF THE DEPOSITORY TRUST COMPANY, A NEW YORK CORPORATION ("DTC"), NEW YORK, NEW
YORK, TO THE COMPANY OR ITS AGENT FOR REGISTRATION OF TRANSFER, EXCHANGE OR
PAYMENT, AND ANY CERTIFICATE ISSUED IS REGISTERED IN THE NAME OF CEDE & CO. OR
SUCH OTHER NAME AS IS REQUESTED BY AN AUTHORIZED REPRESENTATIVE OF DTC (AND ANY
PAYMENT IS MADE TO CEDE & CO., OR TO SUCH OTHER ENTITY AS IS REQUESTED BY AN
AUTHORIZED REPRESENTATIVE OF DTC) ANY TRANSFER, PLEDGE OR OTHER USE HEREOF FOR
VALUE OR OTHERWISE BY OR TO ANY PERSON IS WRONGFUL INASMUCH AS THE REGISTERED
OWNER HEREOF, CEDE & CO., HAS AN INTEREST HEREIN.
TRANSFERS OF THIS GLOBAL SECURITY SHALL BE LIMITED TO TRANSFERS IN
WHOLE, BUT NOT IN PART, TO NOMINEES OF DTC OR TO A SUCCESSOR THEREOF OR SUCH
SUCCESSOR'S NOMINEE AND TRANSFERS OF PORTIONS OF THIS GLOBAL SECURITY SHALL BE
LIMITED TO TRANSFERS MADE IN ACCORDANCE WITH THE RESTRICTIONS SET FORTH IN THE
INDENTURE REFERRED TO ON THE REVERSE HEREOF.
[Restricted Securities Legend]
THIS SECURITY HAS NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF
1933, AS AMENDED (THE "SECURITIES ACT"). THE HOLDER HEREOF, BY PURCHASING THIS
SECURITY, AGREES FOR THE BENEFIT OF THE COMPANY THAT THIS SECURITY MAY NOT BE
RESOLD, PLEDGED OR OTHERWISE TRANSFERRED (X) PRIOR TO THE SECOND ANNIVERSARY OF
THE ISSUANCE HEREOF (OR A PREDECESSOR SECURITY HERETO) OR (Y) BY ANY HOLDER THAT
WAS AN AFFILIATE OF THE COMPANY AT ANY TIME DURING THE THREE MONTHS PRECEDING
THE DATE OF SUCH TRANSFER, IN EITHER CASE OTHER THAN (1) TO THE COMPANY, (2) SO
LONG AS THIS SECURITY IS ELIGIBLE FOR RESALE PURSUANT TO RULE 144A UNDER THE
SECURITIES ACT ("RULE 144A") TO A PERSON WHOM THE SELLER REASONABLY BELIEVES IS
A QUALIFIED INSTITUTIONAL BUYER WITHIN THE MEANING OF RULE 144A PURCHASING FOR
ITS OWN ACCOUNT OR FOR THE ACCOUNT OF A QUALIFIED INSTITUTIONAL BUYER TO WHOM
NOTICE IS GIVEN THAT THE RESALE PLEDGE OR OTHER TRANSFER IS BEING MADE IN
RELIANCE ON RULE 144A (AS INDICATED BY THE BOX CHECKED BY THE TRANSFEROR ON THE
CERTIFICATE OF TRANSFER ON THE REVERSE OF THIS SECURITY), (3) IN AN OFFSHORE
TRANSACTION IN ACCORDANCE WITH REGULATION S UNDER THE SECURITIES ACT (AS
INDICATED BY THE BOX CHECKED BY THE TRANSFEROR ON THE CERTIFICATE ON THE REVERSE
OF THIS SECURITY), AND, IF SUCH TRANSFER IS BEING EFFECTED BY
<PAGE>
2
CERTAIN TRANSFERORS SPECIFIED IN THE INDENTURE (AS DEFINED BELOW) PRIOR TO THE
EXPIRATION OF THE "40 DAY RESTRICTED PERIOD" (WITHIN THE MEANING OF RULE
903(c)(3) OF REGULATION S UNDER THE SECURITIES ACT), A CERTIFICATE WHICH MAY BE
OBTAINED FROM THE COMPANY OR THE TRUSTEE, (4) TO AN INSTITUTION THAT IS AN
"ACCREDITED INVESTOR" AS DEFINED IN RULE 501 (A)(1), (2), (3) OR (7) UNDER THE
SECURITIES ACT (AS INDICATED BY THE BOX CHECKED BY THE TRANSFEROR ON THE REVERSE
OF THIS SECURITY) THAT IS ACQUIRING THIS SECURITY FOR INVESTMENT PURPOSES AND
NOT FOR DISTRIBUTION, AND A CERTIFICATE, WHICH MAY BE OBTAINED FROM THE TRUSTEE,
IS DELIVERED BY THE TRANSFEREE TO THE COMPANY AND THE TRUSTEE (PROVIDED THAT
CERTAIN HOLDERS SPECIFIED IN THE INDENTURE MAY NOT TRANSFER THIS SECURITY
PURSUANT TO THIS CLAUSE (4) PRIOR TO THE EXPIRATION OF THE "40 DAY RESTRICTED
PERIOD" (WITHIN THE MEANING OF RULE 903(c)(3) OF REGULATION S UNDER THE
SECURITIES ACT), (5) PURSUANT TO AN EXEMPTION FROM REGISTRATION UNDER THE
SECURITIES ACT PROVIDED BY RULE 144 (IF APPLICABLE) UNDER THE SECURITIES ACT, OR
(6) PURSUANT TO AN EFFECTIVE REGISTRATION STATEMENT UNDER THE SECURITIES ACT, IN
EACH CASE IN ACCORDANCE WITH ANY APPLICABLE SECURITIES LAWS OF ANY STATE OF THE
UNITED STATES. AN INSTITUTIONAL ACCREDITED INVESTOR HOLDING THIS SECURITY
AGREES IT WILL FURNISH TO THE COMPANY AND THE TRUSTEE SUCH CERTIFICATES AND
OTHER INFORMATION AS THEY MAY REASONABLY REQUIRE TO CONFIRM THAT ANY TRANSFER BY
IT OF THIS SECURITY COMPLIES WITH THE FOREGOING RESTRICTIONS. THE HOLDER
HEREOF, BY PURCHASING THIS SECURITY, REPRESENTS AND AGREES FOR THE BENEFIT OF
THE COMPANY THAT IT IS (1) A QUALIFIED INSTITUTIONAL BUYER WITHIN THE MEANING OF
RULE 144A OR (2) AN INSTITUTION THAT IS AN "ACCREDITED INVESTOR" AS DEFINED IN
RULE 501(a)(1), (2), (3) or (7) UNDER THE SECURITIES ACT AND THAT IT IS HOLDING
THIS SECURITY FOR INVESTMENT PURPOSES AND NOT FOR DISTRIBUTION OR (3) A NON-U.S.
PERSON OUTSIDE THE UNITED STATES WITHIN THE MEANING OF (OR AN ACCOUNT SATISFYING
THE REQUIREMENTS OF PARAGRAPH (o)(2) OR RULE 902 UNDER) REGULATION S UNDER THE
SECURITIES ACT.
[IN CONNECTION WITH ANY TRANSFER, THE HOLDER WILL DELIVER TO THE REGISTRAR AND
TRANSFER AGENT SUCH CERTIFICATES AND OTHER INFORMATION AS SUCH TRANSFER AGENT
MAY REASONABLY REQUIRE TO
<PAGE>
3
CONFIRM THAT THE TRANSFER COMPLIES WITH THE FOREGOING RESTRICTIONS.]/1/
- ----------
/1/ Include if a Definitive Security to be held by an institutional
"accredited investor" (as defined in Rule 501(a),(1),(2),(3) or (7) under the
Securities Act).
<PAGE>
4
CUSIP No. $
No.
11% Senior Subordinated Notes Due April 15, 2007
GLENOIT CORPORATION, a Delaware corporation, for value received,
hereby promises to pay to , or registered assigns, the
principal sum of United States Dollars on April 15, 2007.
Interest Payment Dates: April 15 and October 15, commencing October
15, 1997.
Record Dates: April 1 and October 1.
Additional provisions of this Security are set forth on the other side
of this Security.
GLENOIT CORPORATION,
by
-----------------------
President
-----------------------
Secretary
<PAGE>
5
TRUSTEE'S CERTIFICATE OF
AUTHENTICATION Dated:
UNITED STATES TRUST COMPANY OF NEW YORK,
as Trustee, certifies
that this is one of
the Securities referred
to in the Indenture.
by
--------------------------
Authorized Signatory
<PAGE>
6
[FORM OF REVERSE SIDE OF INITIAL SECURITY]
11% Senior Subordinated Notes Due April 15, 2007
1. Interest
--------
(a) General. Glenoit Corporation, a Delaware corporation (such
--------
corporation, and its successors and assigns under the Indenture hereinafter
referred to, being herein called the "Company"), promises to pay interest on the
principal amount of this Security at the rate per annum shown above. The
Company will pay interest semiannually on April 15 and October 15 of each year.
Interest on the Securities will accrue from the most recent date to which
interest has been paid or, if no interest has been paid, from the Issue Date.
Interest will be computed on the basis of a 360-day year of twelve 30-day
months. The Company shall pay interest on overdue principal at the rate borne
by the Securities plus 1% per annum, and it shall pay interest on overdue
installments of interest at the same rate to the extent lawful.
(b) Special Interest. The holder of this Security is entitled to the
-----------------
benefits of a Registration Agreement, dated as of March 26, 1997, among the
Company, the Subsidiary Guarantors and the Purchasers named therein (the
"Registration Agreement"). Capitalized terms used in this paragraph (b) but not
defined herein have the meanings assigned to them in the Registration Agreement.
In the event that (i) neither the Exchange Offer Registration
Statement nor the Shelf Registration Statement has been filed with the
Commission on or prior to the 270th day following the date of original issuance
of the Securities, (ii) neither the Exchange Offer Registration Statement nor
the Shelf Registration Statement has been declared effective on or prior to the
345th day following the date of original issuance of the Securities, (iii) the
Registered Exchange Offer has not been consummated or the Shelf Registration
Statement has not been declared effective on or prior to the 375th day following
the date of original issuance of the Securities, or (iv) after either the
<PAGE>
7
Exchange Offer Registration Statement or the Shelf Registration Statement has
been declared effective, such Registration Statement thereafter ceases to be
effective or usable in connection with resales of the Securities at any time
that the Company is obligated to maintain the effectiveness thereof pursuant to
the Registration Agreement (each such event referred to in clauses (i) through
(iv) above being referred to herein as a "Registration Default"), interest (the
"Special Interest") shall accrue (in addition to stated interest on the Notes)
from and including the date on which the first such Registration Default shall
occur to but excluding the date on which all Registration Defaults have been
cured, at a rate per annum equal to 0.25% of the principal amount of the
Securities; provided, however, that such rate per annum shall increase by 0.25%
-------- -------
per annum from and including the 91st day after the first such Registration
Default (and each successive 91st day thereafter) unless and until all
Registration Defaults have been cured, provided further, however, that in no
---------------- -------
event shall the Special Interest accrue at a rate in excess of 1.00% per annum.
The Special Interest will be payable in cash semiannually in arrears each April
15 and October 15 commencing April 15, 1998.
2. Method of Payment
-----------------
The Company will pay interest on the Securities (except defaulted
interest) to the Persons who are registered holders of Securities at the close
of business on the April 1 or October 1 immediately preceding the interest
payment date even if Securities are canceled after the record date and on or
before the interest payment date. Holders must surrender Securities to a Paying
Agent to collect principal payments. The Company will pay principal and
interest in money of the United States that at the time of payment is legal
tender for payment of public and private debts. Payments in respect of the
Securities represented by a Global Security (including principal, premium and
interest) will be made by wire transfer of immediately available funds to the
accounts specified by The Depository Trust Company. The Company will make all
payments in respect of a certificated Security (including principal, premium and
interest), by mailing a check to the registered address of each Holder thereof;
provided, however, that
- -------- -------
<PAGE>
8
payments on the Securities may also be made, in the case of a Holder of at least
$1,000,000 aggregate principal amount of Securities, by wire transfer to a U.S.
dollar account maintained by the payee with a bank in the United States if such
Holder elects payment by wire transfer by giving written notice to the Trustee
or the Paying Agent to such effect designating such account no later than 30
days immediately preceding the relevant due date for payment (or such other date
as the Trustee may accept in its discretion).
3. Paying Agent and Registrar
--------------------------
Initially, United States Trust Company of New York, a New York
corporation ("Trustee"), will act as Paying Agent and Registrar. The Company
may appoint and change any Paying Agent, Registrar or co-registrar without
notice. The Company or any of its domestically incorporated Wholly Owned
Subsidiaries may act as Paying Agent, Registrar or co-registrar.
4. Indenture
---------
The Company issued the Securities under an Indenture dated as of
April 1, 1997 ("Indenture"), between the Company, the Subsidiary Guarantors and
the Trustee. The terms of the Securities include those stated in the Indenture
and those made part of the Indenture by reference to the Trust Indenture Act of
1939 (15 U.S.C. (S)(S) 77aaa-77bbbb) as in effect on the date of the Indenture
------
(the "Act"). Terms defined in the Indenture and not defined herein have the
meanings ascribed thereto in the Indenture. The Securities are subject to all
such terms, and Securityholders are referred to the Indenture and the Act for a
statement of those terms.
The Securities are unsecured senior subordinated obligations of the
Company limited to $130,000,000 aggregate principal amount at any one time
outstanding (subject to Sections 2.01 and 2.08 of the Indenture). This Security
is one of the Initial Securities referred to in the Indenture issued in an
aggregate principal amount of $100,000,000. The Securities include the Initial
Securities, any Exchange
<PAGE>
9
Securities issued in exchange for the Initial Securities and up to $30,000,000
aggregate principal amount of additional securities that may be issued under the
Indenture. The Initial Securities, the Exchange Securities and such additional
securities are treated as a single class of securities under the Indenture. The
Indenture imposes certain limitations on the Incurrence of Indebtedness by the
Company and its Restricted Subsidiaries; the payment of dividends on, and
redemption of, Capital Stock of the Company and its Restricted Subsidiaries and
the redemption of certain Subordinated Obligations of the Company and its
Restricted Subsidiaries; Investments; sales of assets and Restricted Subsidiary
Capital Stock; certain transactions with Affiliates of the Company; the sale or
issuance of Capital Stock of the Restricted Subsidiaries; the creation of Liens;
and consolidations, mergers and transfers of all or substantially all of the
Company's assets. In addition, the Indenture prohibits certain restrictions on
distributions and dividends from Restricted Subsidiaries.
To guarantee the due and punctual payment of the principal and
interest, if any, on the Securities and all other amounts payable by the Company
under the Indenture and the Securities when and as the same shall be due and
payable, whether at maturity, by acceleration or otherwise, according to the
terms of the Securities and the Indenture, the Subsidiary Guarantors have
unconditionally guaranteed the Obligations on a senior subordinated basis
pursuant to the terms of the Indenture.
5. Optional Redemption
-------------------
Except as set forth in the next two paragraphs, the Securities may not
be redeemed prior to April 15, 2002. On and after that date, the Company may
redeem the Securities in whole at any time or in part from time to time at the
following redemption prices (expressed in percentages of principal amount), plus
accrued and unpaid interest, if any, to the redemption date (subject to the
right of Holders
<PAGE>
10
of record on the relevant record date to receive interest due on the relevant
interest payment date that is on or prior to the date of redemption), if
redeemed during the 12-month period beginning on or after April 15 of the years
set forth below:
<TABLE>
<S> <C>
Redemption
Period Price
- --------------------- ----------
2002................. 105.500%
2003................. 103.667%
2004................. 101.833%
2005 and thereafter.. 100.000%
</TABLE>
Notwithstanding the foregoing, at any time prior to April 15, 2000,
the Company may redeem in the aggregate up to 25% of the original aggregate
principal amount of Securities with the proceeds of one or more Public Equity
Offerings following which there is a Public Market, at a redemption price
(expressed as a percentage of principal amount thereof) of 110.000% plus accrued
and unpaid interest, if any, to the redemption date (subject to the right of
Holders of record on the relevant record date to receive interest due on the
relevant interest payment date that is on or prior to the date of redemption);
provided, however, that at least 25% of the original aggregate principal amount
- -------- -------
of the Securities must remain outstanding after each such redemption.
6. Notice of Redemption
--------------------
Notice of redemption will be mailed by first-class mail at least 30
days but not more than 60 days before the redemption date to each Holder of
Securities to be redeemed at his registered address. Securities in
denominations larger than $1,000 may be redeemed in part but only in whole
multiples of $1,000. If money sufficient to pay the redemption price of and
accrued interest on all Securities (or portions thereof) to be redeemed on the
redemption date is deposited with the Paying Agent on or before the redemption
date and certain other conditions are satisfied, on and after such date interest
ceases to accrue on such Securities (or such portions thereof) called for
redemption.
<PAGE>
11
7. Put Provisions
--------------
Upon a Change of Control, unless the Company has elected to redeem the
Securities pursuant to paragraph 5, any Holder of Securities will have the
right, subject to certain conditions specified in the Indenture, to cause the
Company to repurchase all or any part of the Securities of such Holder at a
purchase price equal to 101% of the principal amount of the Securities to be
repurchased plus accrued and unpaid interest, if any, to the date of purchase
(subject to the right of Holders of record on the relevant record date to
receive interest due on the relevant interest payment date that is on or prior
to the date of purchase) as provided in, and subject to the terms of, the
Indenture.
<PAGE>
12
8. Subordination
-------------
The Securities are subordinated to Senior Indebtedness of the Company,
as defined in the Indenture. To the extent provided in the Indenture, Senior
Indebtedness of the Company must be paid before the Securities may be paid. In
addition, each Subsidiary Guaranty is subordinated to Senior Indebtedness of the
relevant Subsidiary Guarantors, as defined in the Indenture. The Company and
each Subsidiary Guarantor agrees, and each Securityholder by accepting a
Security agrees, to the subordination provisions contained in the Indenture and
authorizes the Trustee to give it effect and appoints the Trustee as attorney-
in-fact for such purpose.
9. Denominations; Transfer; Exchange
---------------------------------
The Securities are in registered form without coupons in denominations
of $1,000 (or in the case of Definitive Securities sold to institutional
accredited investors as described in Rule 501(a)(1), (2), (3) or (7) under the
Securities Act, minimum denominations of $250,000, unless the Company otherwise
consents) and whole multiples of $1,000. A Holder may transfer or exchange
Securities in accordance with the Indenture. Upon any transfer or exchange, the
Registrar and the Trustee may require a Holder, among other things, to furnish
appropriate endorsements or transfer documents and to pay any taxes required
by law or permitted by the Indenture. The Registrar need not register the
transfer of or exchange any Securities selected for redemption (except, in the
case of a Security to be redeemed in part, the portion of the Security not to be
redeemed) or to transfer or exchange any Securities for a period of 15 days
prior to a selection of Securities to be redeemed or 15 days before an interest
payment date.
10. Persons Deemed Owners
---------------------
The registered Holder of this Security may be treated as the owner of
it for all purposes.
11. Unclaimed Money
---------------
<PAGE>
13
If money for the payment of principal or interest remains unclaimed
for two years, the Trustee or Paying Agent shall pay the money back to the
Company at its written request unless an abandoned property law designates
another Person. After any such payment, Holders entitled to the money must look
only to the Company and not to the Trustee for payment.
12. Discharge and Defeasance
------------------------
Subject to certain conditions, the Company at any time may terminate
some or all of its obligations under the Securities and the Indenture if the
Company deposits with the Trustee money or U.S. Government Obligations for the
payment of principal and interest on the Securities to redemption or maturity,
as the case may be.
13. Amendment, Waiver
-----------------
Subject to certain exceptions set forth in the Indenture, (i) the
Indenture or the Securities may be amended with the written consent of the
Holders of at least a majority in aggregate principal amount outstanding of the
Securities and (ii) any default or noncompliance with any provision may be
waived with the written consent of the Holders of a majority in aggregate
principal amount outstanding of the Securities. Subject to certain exceptions
set forth in the Indenture, without the consent of any Securityholder, the
Company, the Subsidiary Guarantors and the Trustee may amend the Indenture or
the Securities to cure any ambiguity, omission, defect or inconsistency, or to
comply with Article V of the Indenture, or to provide for uncertificated
Securities in addition to or in place of certificated Securities, or to make
certain changes in the subordination provisions, or to add guarantees with
respect to the Securities or to secure the Securities, or to add additional
covenants or surrender rights and powers conferred on the Company, or to comply
with any request of the SEC in connection with qualifying the Indenture under
the Act, or to make any other change that does not adversely affect the rights
of any Securityholder, or to provide for the issuance and authorization of the
Exchange Securities.
<PAGE>
14
14. Defaults and Remedies
---------------------
Under the Indenture, Events of Default include (i) default for 30 days
in payment of interest on the Securities (whether or not such payment is
prohibited by the subordination provision of the Indenture); (ii) default in
payment of principal on the Securities at maturity, upon redemption pursuant to
paragraph 5 of the Securities, upon acceleration or otherwise, or failure by the
Company to redeem or purchase, upon declaration or otherwise (whether or not
such payment is prohibited by the subordination provision of the Indenture),
Securities when required; (iii) failure by the Company or any Subsidiary
Guarantor to comply with other agreements in the Indenture or the Securities, in
certain cases subject to notice and lapse of time; (iv) certain accelerations
(including failure to pay within any grace period after final maturity) of other
Indebtedness of the Company if the amount accelerated (or so unpaid) exceeds
$5,000,000 and such acceleration continues for 10 days after notice; (v) certain
events of bankruptcy, insolvency or reorganization with respect to the Company
and the Significant Subsidiaries; (vi) certain judgments or decrees not covered
by insurance for the payment of money in excess of $5,000,000 or its foreign
currency equivalent against the Company or a Significant Subsidiary; and (vii) a
Subsidiary Guaranty ceasing to be in full force and effect (other than in
accordance with its terms) and such default continues for 10 days after notice.
If any of certain Events of Default enumerated in the Indenture occurs and is
continuing, the Trustee or the Holders of at least 25% in aggregate principal
amount of the Securities may declare all the Securities to be due and payable
immediately. Certain events of bankruptcy or insolvency are Events of Default
which will result in the Securities being due and payable immediately upon the
occurrence of such Events of Default.
Securityholders may not enforce the Indenture or the Securities except
as provided in the Indenture. The Trustee may refuse to enforce the Indenture
or the Securities unless it receives reasonable indemnity or security.
Subject to certain limitations, Holders of a majority in principal amount of the
Securities may direct the Trustee in its exercise of any trust or power. The
Trustee may withhold from Securityholders notice of any continuing Default
(except a Default in payment of principal or interest) if it
<PAGE>
15
determines that withholding notice is in the interest of the Holders.
15. Trustee Dealings with the Company
---------------------------------
Subject to certain limitations imposed by the Act, the Trustee under
the Indenture, in its individual or any other capacity, may become the owner or
pledgee of Securities and may otherwise deal with and collect obligations owed
to it by the Company or its Affiliates and may otherwise deal with the Company
or its Affiliates with the same rights it would have if it were not Trustee.
16. No Recourse Against Others
--------------------------
A director, officer, employee or stockholder, as such, of the Company
or any Subsidiary Guarantor shall not have any liability for any obligations of
the Company or a Subsidiary Guarantor under the Securities or the Indenture or
for any claim based on, in respect of or by reason of such obligations or their
creation. By accepting a Security, each Securityholder waives and releases all
such liability. The waiver and release are part of the consideration for the
issue of the Securities.
17. Governing Law
-------------
THIS SECURITY SHALL BE GOVERNED BY, AND CONSTRUED IN ACCORDANCE WITH,
THE LAWS OF THE STATE OF NEW YORK BUT WITHOUT GIVING EFFECT TO APPLICABLE
PRINCIPLES OF CONFLICTS OF LAW TO THE EXTENT THAT THE APPLICATION OF THE LAWS OF
ANOTHER JURISDICTION WOULD BE REQUIRED THEREBY.
18. Authentication
--------------
This Security shall not be valid until an authorized signatory of
the Trustee (or an authenticating agent) manually signs the certificate of
authentication on the other side of this Security.
<PAGE>
16
19. Abbreviations
-------------
Customary abbreviations may be used in the name of a Securityholder or
an assignee, such as TEN COM (=tenants in common), TEN ENT (=tenants by the
entireties), JT TEN (=joint tenants with rights of survivorship and not as
tenants in common), CUST (=custodian), and U/G/M/A (=Uniform Gift to Minors
Act).
20. Holders' Compliance with Registration Agreement
-----------------------------------------------
Each Holder of a Security, by acceptance hereof, acknowledges and
agrees to the provisions of the Registration Agreement, including, without
limitation, the obligations of the Holders with respect to a registration and
the indemnification of the Company to the extent provided therein.
21. CUSIP Numbers
-------------
Pursuant to a recommendation promulgated by the Committee on Uniform
Security Identification Procedures the Company has caused CUSIP numbers to be
printed on the Securities and has directed the Trustee to use CUSIP numbers in
notices of redemption as a convenience to Securityholders. No representation is
made as to the accuracy of such numbers either as printed on the Securities or
as contained in any notice of redemption and reliance may be placed only on the
other identification numbers placed thereon.
THE COMPANY WILL FURNISH TO ANY SECURITYHOLDER UPON WRITTEN REQUEST AND
WITHOUT CHARGE TO THE SECURITYHOLDER A COPY OF THE INDENTURE WHICH HAS IN IT THE
TEXT OF THIS SECURITY IN LARGER TYPE.
<PAGE>
17
ASSIGNMENT FORM
To assign this Security, fill in the form below:
I or we assign and transfer this Security to
(Print or type assignee's name, address and zip code)
(Insert assignee's soc. sec. or tax I.D. No.)
and irrevocably appoint agent to transfer this
Security on the books of the Company. The agent may substitute another to act
for him.
____________________________________________________________
Date: ________________ Your Signature: _____________________
____________________________________________________________
Sign exactly as your name appears on the other side of this Security.
In connection with any transfer of any of the Securities evidenced by this
certificate occurring prior to the expiration of the period referred to in Rule
144(k) under the Securities Act after the later of the date of original issuance
of such Securities and the last date, if any, on which such Securities were
owned by the Company or any Affiliate of the Company, the undersigned confirms
that such Securities are being transferred in accordance with its terms:
CHECK ONE BOX BELOW
(1) [ ] to the Company; or
(2) [ ] pursuant to an effective registration statement under the
Securities Act of 1933; or
<PAGE>
18
(3) [ ] inside the United States to a "qualified institutional buyer" (as
defined in Rule 144A under the Securities Act of 1933) that
purchases for its own account or for the account of a qualified
institutional buyer to whom notice is given that such transfer is
being made in reliance on Rule 144A, in each case pursuant to and
in compliance with Rule 144A under the Securities Act of 1933; or
(4) [ ] outside the United States in an offshore transaction within the
meaning of Regulation S under the Securities Act in compliance
with Rule 904 under the Securities Act of 1933; or
(5) [ ] to an institutional "accredited investor" (as defined in Schedule
501(a)(1), (2), (3) or (7) under the Securities Act of 1933) that
has furnished to the Trustee a signed letter containing certain
representations and agreements (the form of which letter can be
obtained from the Trustee); or
(6) [ ] pursuant to another available exemption from registration
provided by Rule 144 under the Securities Act of 1933.
Unless one of the boxes is checked, the Trustee will refuse to
register any of the Securities evidenced by this certificate in the
name of any person other than the registered holder thereof;
provided, however, that if box (4), (5) or (6) is checked,
-------- -------
the Trustee may require, prior to registering any such transfer of the
Securities, such legal opinions, certifications and other information
as the Company has reasonably requested to confirm that such transfer
is being made pursuant to an exemption from, or in a transaction not
<PAGE>
19
subject to, the registration requirements of the Securities Act of 1933,
such as the exemption provided by Rule 144 under such Act.
------------------------
Signature
Signature Guarantee:
- ----------------------------- ------------------------
Signature must be guaranteed Signature
- ------------------------------------------------------------
<PAGE>
20
TO BE COMPLETED BY PURCHASER IF (3) ABOVE IS CHECKED.
The undersigned represents and warrants that it is purchasing this
Security for its own account or an account with respect to which it exercises
sole investment discretion and that it and any such account is a "qualified
institutional buyer" within the meaning of Rule 144A under the Securities Act of
1933, and is aware that the sale to it is being made in reliance on Rule 144A
and acknowledges that it has received such information regarding the Company as
the undersigned has requested pursuant to Rule 144A or has determined not to
request such information and that it is aware that the transferor is relying
upon the undersigned's foregoing representations in order to claim the exemption
from registration provided by Rule 144A.
Dated: ________________ ______________________________
NOTICE: To be executed by
an executive officer
<PAGE>
21
[TO BE ATTACHED TO GLOBAL SECURITIES]
SCHEDULE OF INCREASES OR DECREASES IN GLOBAL SECURITY
The following increases or decreases in this Global Security have been
made:
<TABLE>
<CAPTION>
Date of Amount of Amount of Principal amount Signature of
Exchange decrease increase of this Global authorized
in Principal in Principal Security following Signatory of
Amount of this Amount of this such decrease or Trustee or
Global Security Global Security increase Securities
Custodian
<S> <C> <C> <C> <C>
</TABLE>
<PAGE>
22
OPTION OF HOLDER TO ELECT PURCHASE
If you want to elect to have this Security purchased by the Company
pursuant to Section 4.09 of the Indenture, check the box:
[ ]
If you want to elect to have only part of this Security purchased by
the Company pursuant to Section 4.09 of the Indenture, state the amount in
principal amount: $
Date: _______________ Your Signature: ______________________
(Sign exactly as your name
appears on the other side of
this Security.)
Signature Guarantee: _______________________________________
(Signature must be guaranteed)
<PAGE>
EXHIBIT A
[FORM OF FACE OF EXCHANGE SECURITY]
CUSIP No.
No. $
11% Senior Subordinated Notes Due April 15, 2007
GLENOIT CORPORATION, a Delaware corporation, for value received, hereby promises
to pay to , or registered assigns, the principal sum of
United States Dollars on April 15, 2007.
Interest Payment Dates: April 15 and October 15, commencing October 15, 1997.
Record Dates: April 1 and October 1.
Additional provisions of this Security are set forth on the other side of this
Security.
GLENOIT CORPORATION,
by
--------------------
President
--------------------
Secretary
<PAGE>
2
TRUSTEE'S CERTIFICATE OF
AUTHENTICATION Dated:
UNITED STATES TRUST COMPANY OF NEW YORK,
as Trustee, certifies
that this is one of
the Securities referred
to in the Indenture.
by
_____________________________
Authorized Signatory
- ----------------------
*/ If the Security is to be issued in global form, add the Global Securities
- -
Legend from Exhibit 1 to Appendix A and the attachment from such Exhibit 1
captioned "TO BE ATTACHED TO GLOBAL SECURITIES - SCHEDULE OF INCREASES OR
DECREASES IN GLOBAL SECURITY".
<PAGE>
3
[FORM OF REVERSE SIDE OF EXCHANGE SECURITY]
11% Senior Subordinated Notes Due April 15, 2007
1. Interest
--------
Glenoit Corporation, a Delaware corporation (such corporation, and its
successors and assigns under the Indenture hereinafter referred to, being herein
called the "Company"), promises to pay interest on the principal amount of this
Security at the rate per annum shown above. The Company will pay interest
semiannually on April 15 and October 15 of each year. Interest on the
Securities will accrue from the most recent date to which interest has been paid
or, if no interest has been paid, from the Issue Date. Interest will be
computed on the basis of a 360-day year of twelve 30-day months. The Company
shall pay interest on overdue principal at the rate borne by the Securities plus
1% per annum, and it shall pay interest on overdue installments of interest at
the same rate to the extent lawful.
2. Method of Payment
-----------------
The Company will pay interest on the Securities (except defaulted
interest) to the Persons who are registered holders of Securities at the close
of business on the April 1 or October 1 immediately preceding the interest
payment date even if Securities are canceled after the record date and on or
before the interest payment date. Holders must surrender Securities to a Paying
Agent to collect principal payments. The Company will pay principal and
interest in money of the United States that at the time of payment is legal
tender for payment of public and private debts. Payments in respect of the
Securities represented by a Global Security (including principal, premium and
interest) will be made by wire transfer of immediately available funds to the
accounts specified by The Depository Trust Company. The Company will make all
payments in respect of a certificated Security (including principal, premium and
interest), by mailing a check to the registered
<PAGE>
4
address of each Holder thereof; provided, however, that payments on the
-------- -------
Securities may also be made, in the case of a Holder of at least $1,000,000
aggregate principal amount of Securities, by wire transfer to a U.S. dollar
account maintained by the payee with a bank in the United States if such Holder
elects payment by wire transfer by giving written notice to the Trustee or the
Paying Agent to such effect designating such account no later than 30 days
immediately preceding the relevant due date for payment (or such other date as
the Trustee may accept in its discretion).
3. Paying Agent and Registrar
--------------------------
Initially, United States Trust Company of New York, a New York
corporation ("Trustee"), will act as Paying Agent and Registrar. The Company
may appoint and change any Paying Agent, Registrar or co-registrar without
notice. The Company or any of its domestically incorporated Wholly Owned
Subsidiaries may act as Paying Agent, Registrar or co-registrar.
4. Indenture
---------
The Company issued the Securities under an Indenture dated as of
April 1, 1997 ("Indenture"), between the Company, the Subsidiary Guarantors and
the Trustee. The terms of the Securities include those stated in the Indenture
and those made part of the Indenture by reference to the Trust Indenture Act of
1939 (15 U.S.C. (S)(S) 77aaa-77bbbb) as in effect on the date of the Indenture
------
(the "Act"). Terms defined in the Indenture and not defined herein have the
meanings ascribed thereto in the Indenture. The Securities are subject to all
such terms, and Securityholders are referred to the Indenture and the Act for a
statement of those terms.
The Securities are unsecured senior subordinated obligations of the
Company limited to $130,000,000 aggregate principal amount at any one time
outstanding (subject to Sections 2.01 and 2.08 of the Indenture). This Security
is one of the Exchange Securities referred to in the Indenture issued in an
aggregate principal amount of $100,000,000.
<PAGE>
5
The Securities include the Initial Securities, any Exchange Securities issued in
exchange for the Initial Securities and up to $30,000,000 aggregate principal
amount of additional securities that may be issued under the Indenture. The
Initial Securities, the Exchange Securities and such additional securities are
treated as a single class of securities under the Indenture. The Indenture
imposes certain limitations on the Incurrence of Indebtedness by the Company and
its Restricted Subsidiaries; the payment of dividends on, and redemption of,
Capital Stock of the Company and its Restricted Subsidiaries and the redemption
of certain Subordinated Obligations of the Company and its Restricted
Subsidiaries; Investments; sales of assets and Restricted Subsidiary Capital
Stock; certain transactions with Affiliates of the Company; the sale or issuance
of Capital Stock of the Restricted Subsidiaries; the creation of Liens; and
consolidations, mergers and transfers of all or substantially all of the
Company's assets. In addition, the Indenture prohibits certain restrictions on
distributions and dividends from Restricted Subsidiaries.
To guarantee the due and punctual payment of the principal and
interest, if any, on the Securities and all other amounts payable by the Company
under the Indenture and the Securities when and as the same shall be due and
payable, whether at maturity, by acceleration or otherwise, according to the
terms of the Securities and the Indenture, the Subsidiary Guarantors have
unconditionally guaranteed the Obligations on a senior subordinated basis
pursuant to the terms of the Indenture.
5. Optional Redemption
-------------------
Except as set forth in the next two paragraphs, the Securities may not
be redeemed prior to April 15, 2002. On and after that date, the Company may
redeem the Securities in whole at any time or in part from time to time at the
following redemption prices (expressed in percentages of principal amount), plus
accrued and unpaid interest, if any, to the redemption date (subject to the
right of Holders
<PAGE>
6
of record on the relevant record date to receive interest due on the relevant
interest payment date that is on or prior to the date of redemption), if
redeemed during the 12-month period beginning on or after April 15 of the years
set forth below:
Redemption
Period Price
- --------------------- ----------
2002................. 105.500%
2003................. 103.667%
2004................. 101.833%
2005 and thereafter.. 100.000%
Notwithstanding the foregoing, at any time prior to April 15, 2000,
the Company may redeem in the aggregate up to 25% of the original aggregate
principal amount of Securities with the proceeds of one or more Public Equity
Offerings following which there is a Public Market, at a redemption price
(expressed as a percentage of principal amount thereof) of 110.000% plus accrued
and unpaid interest, if any, to the redemption date (subject to the right of
Holders of record on the relevant record date to receive interest due on the
relevant interest payment date that is on or prior to the date of redemption);
provided, however, that at least 75% of the original aggregate principal amount
- -------- -------
of the Securities must remain outstanding after each such redemption.
6. Notice of Redemption
--------------------
Notice of redemption will be mailed by first-class mail at least 30
days but not more than 60 days before the redemption date to each Holder of
Securities to be redeemed at his registered address. Securities in
denominations larger than $1,000 may be redeemed in part but only in whole
multiples of $1,000. If money sufficient to pay the redemption price of and
accrued interest on all Securities (or portions thereof) to be redeemed on the
redemption date is deposited with the Paying Agent on or before the redemption
date and certain other conditions are satisfied, on and after such date interest
ceases to accrue on such Securities (or such portions thereof) called for
redemption.
<PAGE>
7
7. Put Provisions
--------------
Upon a Change of Control, unless the Company has elected to redeem the
Securities pursuant to paragraph 5, any Holder of Securities will have the
right, subject to certain conditions specified in the Indenture, to cause the
Company to repurchase all or any part of the Securities of such Holder at a
purchase price equal to 101% of the principal amount of the Securities to be
repurchased plus accrued and unpaid interest, if any, to the date of purchase
(subject to the right of Holders of record on the relevant record date to
receive interest due on the relevant interest payment date that is on or prior
to the date of purchase) as provided in, and subject to the terms of, the
Indenture.
8. Subordination
-------------
The Securities are subordinated to Senior Indebtedness of the Company,
as defined in the Indenture. To the extent provided in the Indenture, Senior
Indebtedness of the Company must be paid before the Securities may be paid. In
addition, each Subsidiary Guaranty is subordinated to Senior Indebtedness of the
relevant Subsidiary Guarantor, as defined in the Indenture. The Company and
each Subsidiary Guarantor agrees, and each Securityholder by accepting a
Security agrees, to the subordination provisions contained in the Indenture and
authorizes the Trustee to give it effect and appoints the Trustee as attorney-
in-fact for such purpose.
9. Denominations; Transfer; Exchange
---------------------------------
The Securities are in registered form without coupons in denominations
of $1,000 and whole multiples of $1,000. A Holder may transfer or exchange
Securities in accordance with the Indenture. Upon any transfer or exchange, the
Registrar and the Trustee may require a Holder, among other things, to furnish
appropriate endorsements or transfer documents and to pay any taxes required
by law or permitted by the Indenture. The Registrar need not register the
transfer of or exchange any Securities selected for redemption (except, in the
case of a Security to be redeemed in part, the portion of the Security not to be
<PAGE>
8
redeemed) or to transfer or exchange any Securities for a period of 15 days
prior to a selection of Securities to be redeemed or 15 days before an interest
payment date.
10. Persons Deemed Owners
---------------------
The registered Holder of this Security may be treated as the owner of
it for all purposes.
11. Unclaimed Money
---------------
If money for the payment of principal or interest remains unclaimed
for two years, the Trustee or Paying Agent shall pay the money back to the
Company at its written request unless an abandoned property law designates
another Person. After any such payment, Holders entitled to the money must look
only to the Company and not to the Trustee for payment.
12. Discharge and Defeasance
------------------------
Subject to certain conditions, the Company at any time may terminate
some or all of its obligations under the Securities and the Indenture if the
Company deposits with the Trustee money or U.S. Government Obligations for the
payment of principal and interest on the Securities to redemption or maturity,
as the case may be.
13. Amendment, Waiver
-----------------
Subject to certain exceptions set forth in the Indenture, (i) the
Indenture or the Securities may be amended with the written consent of the
Holders of at least a majority in principal amount outstanding of the Securities
and (ii) any default or noncompliance with any provision may be waived with the
written consent of the Holders of a majority in principal amount outstanding of
the Securities. Subject to certain exceptions set forth in the Indenture,
without the consent of any Securityholder, the Company, the Subsidiary
Guarantors and the Trustee may amend the Indenture or the Securities to cure any
ambiguity, omission, defect or inconsistency, or to comply with Article V of the
<PAGE>
9
Indenture, or to provide for uncertificated Securities in addition to or in
place of certificated Securities, or to make certain changes in the
subordination provisions, or to add guarantees with respect to the Securities or
to secure the Securities, or to add additional covenants or surrender rights and
powers conferred on the Company, or to comply with any request of the SEC in
connection with qualifying the Indenture under the Act, or to make any other
change that does not adversely affect the rights of any Securityholder, or to
provide for the issuance and authorization of the Exchange Securities.
14. Defaults and Remedies
---------------------
Under the Indenture, Events of Default include (i) default for 30 days
in payment of interest on the Securities (whether or not such payment is
prohibited by the subordination provision of the Indenture); (ii) default in
payment of principal on the Securities at maturity, upon redemption pursuant to
paragraph 5 of the Securities, upon acceleration or otherwise, or failure by the
Company to redeem or purchase, upon declaration or otherwise (whether or not
such payment is prohibited by the subordination provision of the Indenture),
Securities when required; (iii) failure by the Company or any Subsidiary
Guarantor to comply with other agreements in the Indenture or the Securities, in
certain cases subject to notice and lapse of time; (iv) certain accelerations
(including failure to pay within any grace period after final maturity) of other
Indebtedness of the Company if the amount accelerated (or so unpaid) exceeds
$5,000,000 and such acceleration continues for 10 days after notice; (v) certain
events of bankruptcy, insolvency or reorganization with respect to the Company
and the Significant Subsidiaries; (vi) certain judgments or decrees not covered
by insurance for the payment of money in excess of $5,000,000 or its foreign
currency equivalent against the Company or a Significant Subsidiary; and (vii) a
Subsidiary Guaranty ceasing to be in full force and effect (other than in
accordance with its terms) and such default continues for 10 days after notice.
If any of certain Events of Default enumerated in the Indenture occurs and is
continuing, the Trustee or the Holders of at least 25% in principal amount of
the Securities may declare all the Securities to be due and payable immediately.
Certain
<PAGE>
10
events of bankruptcy or insolvency are Events of Default which will result in
the Securities being due and payable immediately upon the occurrence of such
Events of Default.
Securityholders may not enforce the Indenture or the Securities except
as provided in the Indenture. The Trustee may refuse to enforce the Indenture
or the Securi ties unless it receives reasonable indemnity or security.
Subject to certain limitations, Holders of a majority in principal amount of the
Securities may direct the Trustee in its exercise of any trust or power. The
Trustee may with hold from Securityholders notice of any continuing Default
(except a Default in payment of principal or interest) if it determines that
withholding notice is in the interest of the Holders.
15. Trustee Dealings with the Company
---------------------------------
Subject to certain limitations imposed by the Act, the Trustee under
the Indenture, in its individual or any other capacity, may become the owner or
pledgee of Securities and may otherwise deal with and collect obligations owed
to it by the Company or its Affiliates and may otherwise deal with the Company
or its Affiliates with the same rights it would have if it were not Trustee.
16. No Recourse Against Others
--------------------------
A director, officer, employee or stockholder, as such, of the Company
or any Subsidiary Guarantor shall not have any liability for any obligations of
the Company or a Subsidiary Guarantor under the Securities or the Indenture or
for any claim based on, in respect of or by reason of such obligations or their
creation. By accepting a Security, each Securityholder waives and releases all
such liability. The waiver and release are part of the consideration for the
issue of the Securities.
17. Governing Law
-------------
THIS SECURITY SHALL BE GOVERNED BY, AND CONSTRUED IN ACCORDANCE WITH,
THE LAWS OF THE STATE OF NEW YORK BUT
<PAGE>
11
WITHOUT GIVING EFFECT TO APPLICABLE PRINCIPLES OF CONFLICTS OF LAW TO THE EXTENT
THAT THE APPLICATION OF THE LAWS OF ANOTHER JURISDICTION WOULD BE REQUIRED
THEREBY.
18. Authentication
--------------
This Security shall not be valid until an authorized signatory of
the Trustee (or an authenticating agent) manually signs the certificate of
authentication on the other side of this Security.
19. Abbreviations
-------------
Customary abbreviations may be used in the name of a Securityholder or
an assignee, such as TEN COM (=tenants in common), TEN ENT (=tenants by the
entireties), JT TEN (=joint tenants with rights of survivorship and not as
tenants in common), CUST (=custodian), and U/G/M/A (=Uniform Gift to Minors
Act).
20. Holders' Compliance with Registration Agreement
-----------------------------------------------
Each Holder of a Security, by acceptance hereof, acknowledges and
agrees to the provisions of the Registration Agreement, including, without
limitation, the obligations of the Holders with respect to a registration and
the indemnification of the Company to the extent provided therein.
21. CUSIP Numbers
-------------
Pursuant to a recommendation promulgated by the Committee on Uniform
Security Identification Procedures the Company has caused CUSIP numbers to be
printed on the Securities and has directed the Trustee to use CUSIP numbers in
notices of redemption as a convenience to Securityholders. No representation is
made as to the accuracy of such numbers either as printed on the Securities or
as contained in any notice of redemption and reliance may be placed only on the
other identification numbers placed thereon.
<PAGE>
12
THE COMPANY WILL FURNISH TO ANY SECURITYHOLDER UPON WRITTEN REQUEST AND
WITHOUT CHARGE TO THE SECURITYHOLDER A COPY OF THE INDENTURE WHICH HAS IN IT THE
TEXT OF THIS SECURITY IN LARGER TYPE.
<PAGE>
13
ASSIGNMENT FORM
To assign this Security, fill in the form below:
I or we assign and transfer this Security to
(Print or type assignee's name, address and zip code)
(Insert assignee's soc. sec. or tax I.D. No.)
and irrevocably appoint agent to transfer this
Security on the books of the Company. The agent may substitute another to act
for him.
____________________________________________________________
Date: ________________ Your Signature: _____________________
____________________________________________________________
Sign exactly as your name appears on the other side of this Security.
<PAGE>
14
OPTION OF HOLDER TO ELECT PURCHASE
If you want to elect to have this Security purchased by the Company
pursuant to Section 4.09 of the Indenture, check the box:
[ ]
If you want to elect to have only part of this Security purchased by
the Company pursuant to Section 4.09 of the Indenture, state the amount:
$
Date: __________________ Your Signature: __________________
(Sign exactly as your name appears
on the other side of the Security)
Signature Guarantee:_______________________________________
<PAGE>
EXHIBIT B
FORM OF SUPPLEMENTAL INDENTURE
SUPPLEMENTAL INDENTURE (this "Supplemental Indenture"),
dated as of , among [SUBSIDIARY GUARANTOR]
(the "Subsidiary Guarantor"), a subsidiary of Glenoit Corporation
(or its successor), a Delaware corporation (the "Company"),
GLENOIT CORPORATION, on behalf of itself and the Subsidiary
Guarantors (the "Existing Subsidiary Guarantors") under the
Indenture referred to below, and UNITED STATES TRUST COMPANY OF
NEW YORK, a New York corporation, as trustee under the indenture
referred to below (the "Trustee").
W I T N E S S E T H :
WHEREAS the Company has heretofore executed and delivered to the
Trustee an Indenture (the "Indenture"), dated as of April 1, 1997, providing for
the issuance of an aggregate principal amount of $130,000,000 of 11% Senior
Subordinated Notes due 2007 (the "Securities");
WHEREAS Section 4.13 of the Indenture provides that under certain
circumstances the Company is required to cause the New Subsidiary Guarantor to
execute and deliver to the Trustee a supplemental indenture pursuant to which
the New Subsidiary Guarantor shall unconditionally guarantee all of the
Company's obligations under the Securities pursuant to a Subsidiary Guaranty on
the terms and conditions set forth herein; and
WHEREAS pursuant to Section 9.01 of the Indenture, the Trustee, the
Company and Existing Subsidiary Guarantors are authorized to execute and deliver
this Supplemental Indenture;
NOW THEREFORE, in consideration of the foregoing and for other good
and valuable consideration, the receipt of which is hereby acknowledged, the New
Subsidiary Guarantor, the Company, the Existing Subsidiary Guarantors and the
Trustee mutually covenant and agree for the equal
<PAGE>
2
and ratable benefit of the holders of the Securities as follows:
1. Definitions. (a) Capitalized terms used herein without
------------
definition shall have the meanings assigned to them in the Indenture.
(b) For all purposes of this Supplement, except as otherwise herein
expressly provided or unless the context otherwise requires: (i) the terms and
expressions used herein shall have the same meanings as corresponding terms and
expressions used in the Indenture; and (ii) the words "herein," "hereof" and
"hereby" and other words of similar import used in this Supplement refer to this
Supplement as a whole and not to any particular section hereof.
2. Agreement to Guarantee. The New Subsidiary Guarantor hereby
-----------------------
agrees, jointly and severally with all other Subsidiary Guarantors, to guarantee
the Company's obligations under the Securities on the term and subject to the
conditions set forth in Article 11 of the Indenture and to be bound by all other
applicable provisions of the Indenture.
3. Ratification of Indenture; Supplemental Indentures Part of
----------------------------------------------------------
Indenture. Except as expressly amended hereby, the Indenture is in all respects
- ----------
ratified and confirmed and all the terms, conditions and provisions thereof
shall remain in full force and effect. This Supplemental Indenture shall form a
part of the Indenture for all purposes, and every holder of Securities
heretofore or hereafter authenticated and delivered shall be bound hereby.
4. Governing Law. THIS SUPPLEMENTAL INDENTURE SHALL BE GOVERNED BY,
--------------
AND CONSTRUED IN ACCORDANCE WITH, THE LAWS OF THE STATE OF NEW YORK BUT WITHOUT
GIVING EFFECT TO APPLICABLE PRINCIPLES OF CONFLICTS OF LAW TO THE EXTENT THAT
THE APPLICATION OF THE LAWS OF ANOTHER JURISDICTION WOULD BE REQUIRED THEREBY.
5. Trustee Makes No Representation. The Trustee makes no
--------------------------------
representation as to the validity or sufficiency of this Supplemental Indenture.
<PAGE>
3
6. Counterparts. The parties may sign any number of copies of this
-------------
Supplemental Indenture. Each signed copy shall be an original, but all of them
together represent the same agreement.
7. Effect of Headings. The Section headings herein are for
-------------------
convenience only and shall not effect the construction thereof.
IN WITNESS WHEREOF, the parties hereto have caused this Supplemental
Indenture to be duly executed as of the date first above written.
[NEW SUBSIDIARY GUARANTOR],
by
-----------------------------------
Name:
Title:
GLENOIT CORPORATION, on behalf of
itself and the Existing Subsidiary
Guarantors,
by
-----------------------------------
Name:
Title:
UNITED STATES TRUST COMPANY OF NEW
YORK, as Trustee,
by
-----------------------------------
Name:
Title:
<PAGE>
GLENOIT CORPORATION
11% Senior Subordinated Notes Due 2007
PURCHASE AGREEMENT
New York, New York
March 26, 1997
To: SALOMON BROTHERS INC
CIBC WOOD GUNDY SECURITIES CORP.
In care of:
Salomon Brothers Inc
Seven World Trade Center
New York, New York 10048
Ladies and Gentlemen:
Glenoit Corporation, a Delaware corporation (the "Company"), proposes
to issue and sell to you (the "Purchasers") $100,000,000 principal amount of its
11% Senior Subordinated Notes Due 2007 (the "Notes") to be unconditionally
guaranteed on a senior subordinated basis (the "Guarantees" and, together with
the Notes, the "Securities") by certain of the Company's subsidiaries
signatories hereto (collectively, the "Guarantors"). The Securities are to be
issued under an indenture (the "Indenture") to be dated as of April 1, 1997,
among the Company, the Guarantors and United States Trust Company of New York,
as trustee (the "Trustee").
The sale of the Securities to you will be made without registration of
the Securities under the Securities Act of 1933, as amended (the "Securities
Act"), in reliance upon exemptions from the registration requirements of the
Securities Act. You have advised the Company that you will make an offering of
the Securities purchased by you hereunder in accordance with Section 4 hereof as
soon as you deem advisable after the execution and delivery of this Agreement.
In connection with the sale of the Securities, the Company has
prepared a preliminary offering memorandum, dated March 13, 1997 (the
"Preliminary Memorandum"), and a final offering memorandum, dated March 26, 1997
(the "Final Memorandum"). Each of the Preliminary Memorandum and the
<PAGE>
2
Final Memorandum sets forth certain information concerning the Company, the
Guarantors and the Securities. The Company and the Guarantors, jointly and
severally, hereby confirm that they have authorized the use of the Preliminary
Memorandum and the Final Memorandum, and any amendment or supplement thereto, in
connection with the offer and sale of the Securities by the Purchasers. Unless
stated to the contrary, all references herein to the Final Memorandum are to the
Final Memorandum at the Execution Time (as defined below) and are not meant to
include any amendment or supplement thereto subsequent to the Execution Time.
The holders of the Securities will be entitled to the benefits of the
Registration Agreement dated the date hereof, among the Company, the Guarantors
and the Purchasers (the "Registration Agreement").
Capitalized terms used herein without definition have the respective
meanings assigned to them in the Final Memorandum.
1. Representations and Warranties. The Company and the Guarantors
-------------------------------
jointly and severally represent and warrant to, and agree with, the Purchasers
as set forth below in this Section 1.
(a) The Preliminary Memorandum, at the date thereof, did not contain any untrue
statement of a material fact or omit to state any material fact (other than
pricing terms and other financial terms intentionally left blank) necessary to
make the statements therein, in the light of the circumstances under which they
were made, not misleading. The Final Memorandum, at the date hereof, does not,
and at the Closing Date will not (and any amendment or supplement thereto, at
the date thereof and at the Closing Date, will not), contain any untrue
statement of a material fact or omit to state any material fact necessary to
make the statements therein, in the light of the circumstances under which they
were made, not misleading; provided, however, that no representation or warranty
-------- -------
is made as to the information contained in or omitted from the Preliminary
Memorandum or the Final Memorandum, or any amendment or supplement thereto, in
reliance upon and in conformity with information furnished in writing to the
Company by or on behalf of the Purchasers specifically for inclusion therein,
<PAGE>
3
it being understood that the only such information is that described in Section
8(b) hereof.
(b) Each of the Company and the Guarantors has been duly incorporated
and is an existing corporation in good standing under the laws of the State
of Delaware, with the power and authority to own its properties and conduct
its business as described in the Final Memorandum; and each of the Company
and the Guarantors is duly qualified to do business as a foreign
corporation and is in good standing in all other jurisdictions in which its
ownership or lease of property or the conduct of its business requires such
qualification, except to the extent that the failure to so qualify or be in
good standing would not have a material adverse effect on the condition
(financial or other), business, properties or results of operations of the
Company and its subsidiaries taken as a whole.
(c) None of the Company, the Guarantors, any of their respective
Affiliates (as defined in Rule 501(b) of Regulation D under the Securities
Act ("Regulation D")), nor any person acting on its or their behalf has
directly, or indirectly, (i) made offers or sales of any security, or
solicited offers to buy any security, under circumstances that would
require the registration of the Securities under the Securities Act or (ii)
engaged in any form of general solicitation or general advertising (within
the meaning of Regulation D) in connection with the offering of the
Securities.
(d) None of the Company, the Guarantors, any of their respective
Affiliates, nor any person acting on its or their behalf has engaged in any
directed selling efforts (as that term is defined in Regulation S under the
Securities Act ("Regulation S")) with respect to the Securities, and each
of them has complied with the offering restrictions requirement of
Regulation S.
(e) Neither the Company nor any Guarantor has taken, directly or
indirectly, any action prohibited by Regulation M under the Securities
Exchange Act of 1934, as amended (the "Exchange Act"), in connection with
any offering of the Securities.
<PAGE>
4
(f) The Securities satisfy the eligibility requirements set forth in
Rule 144A(d)(3) under the Securities Act.
(g) Each of the Company and the Guarantors has full corporate power
and authority to enter into this Agreement, the Registration Agreement, the
Indenture, the Securities and the New Credit Facility (as defined in
Section 6(i) hereof) and to perform the transactions contemplated hereby
and thereby (the "Transactions"). This Agreement has been duly authorized,
executed and delivered by the Company and each Guarantor and constitutes a
valid and binding obligation of the Company and each Guarantor, and the
execution and delivery of the Registration Agreement, the Indenture, the
Securities and the New Credit Facility have been duly authorized by the
Company and each Guarantor party thereto and, when duly executed and
delivered by the parties thereto, will constitute valid and binding
obligations of the Company and each such Guarantor, enforceable against the
Company and each such Guarantor in accordance with their respective terms,
subject to applicable bankruptcy, insolvency, reorganization, moratorium
and similar laws affecting creditors' rights and remedies generally and to
general principles of equity (regardless of whether enforcement is sought
in a proceeding at law or in equity).
(h) Upon execution and delivery of the Indenture, and when the Notes
are issued, authenticated and delivered in accordance with the Indenture
and paid for in accordance with the terms of this Agreement, (i) the Notes
will constitute valid and binding obligations of the Company enforceable
against the Company in accordance with their terms and entitled to the
benefits of the Indenture and (ii) the Guarantees will constitute valid and
binding obligations of the Guarantors enforceable against the Guarantors in
accordance with their terms, in each case subject to applicable bankruptcy,
insolvency, reorganization, moratorium and similar laws affecting
creditors' rights and remedies generally and to general principles of
equity (regardless of whether enforcement is sought in a proceeding at law
or in equity).
(i) The execution, delivery and performance of this Agreement, the
Registration Agreement, the
<PAGE>
5
Indenture, the Securities and the New Credit Facility by the Company and
each Guarantor party thereto and the consummation of the Transactions will
not result in a breach or violation of any of the terms and provisions of,
or constitute a default under (i) the articles of incorporation, by-laws or
other organizational documents of the Company or any of the Subsidiaries,
(ii) any statute, rule or regulation applicable to the Company or any
Subsidiary or any order of any governmental agency or body or any court
having jurisdiction over the Company or any Subsidiary or any of their
respective properties, (iii) any agreement or instrument relating to
borrowed money to which the Company or any Subsidiary is a party or by
which the Company or any Subsidiary is bound or to which any of their
respective properties is subject, or (iv) any other material agreement or
instrument to which the Company or any of the Subsidiaries is a party or by
which the Company or any of the Subsidiaries is bound or to which any of
their respective properties is subject. No consent, approval,
authorization or other order of any court, regulatory body, administrative
agency or other governmental body which has not already been obtained is
required for the execution and delivery of this Agreement, the Registration
Agreement, the Indenture, the Securities, the New Credit Facility or the
consummation of the Transactions, except such as may be required under the
Securities Act with respect to the Registration Agreement, and such as may
be required by state securities or blue sky laws in connection with the
offering and sale of the Securities. The term "Subsidiary" means each
person of which a majority of the voting equity securities of other
interests is owned, directly or indirectly, by the Company.
(j) The consolidated financial statements with respect to the Company
included in the Final Memorandum present fairly the consolidated financial
position of the Company and its consolidated subsidiaries as of the dates
shown and their results of operations and cash flows for the periods shown,
and such consolidated financial statements have been prepared in conformity
with the generally accepted accounting principles in the United States
applied on a consistent basis.
<PAGE>
6
(k) Since the date of the latest audited consolidated financial
statements of the Company included in the Final Memorandum, there has been
no material adverse change, nor to the Company's and the Guarantors'
knowledge, after due inquiry, any development or event involving a
prospective material adverse change, in the condition (financial or other),
business, properties or results of operations of the Company and its
subsidiaries taken as a whole, and since the date of the latest audited
consolidated financial statements of the Company included in the Final
Memorandum, there has been no dividend or distribution of any kind
declared, paid or made by the Company on any class of its capital stock.
(l) Except as disclosed in the Final Memorandum, (i) there are no
legal or governmental actions, suits or proceedings pending or, to the best
of the Company's and the Guarantors' knowledge, threatened against or
affecting Holdings, the Company, any of the Subsidiaries or any of their
respective properties that, if adversely determined, could reasonably be
expected, individually or in the aggregate, to have a material adverse
effect on the condition (financial or otherwise), properties, business,
results of operations or prospects of the Company and its Subsidiaries,
taken as a whole, or materially and adversely affect the ability of the
Company or any Guarantor to perform its obligations under this Agreement,
the Indenture, the Registration Agreement, the Securities or the New Credit
Facility (a "Material Adverse Effect"), and (ii) no labor disturbance by
the employees of the Company or any of its Subsidiaries exists or, to the
best of the Company's and the Guarantors' knowledge, is imminent, in either
case which could reasonably be expected, individually or in the aggregate,
to have a Material Adverse Effect. Neither the Company nor any of its
Subsidiaries is a party or subject to the provisions of any material
injunction, judgment, decree or order of any court, regulatory body,
administrative agency or other governmental body.
(m) Except as disclosed in the Final Memorandum, the Company and its
Subsidiaries have good and marketable title to all real properties and all
other properties and assets owned by them and necessary to conduct the
business now operated by them, in each case
<PAGE>
7
free from liens, encumbrances and defects that would materially affect the
value thereof or materially interfere with the use made or to be made
thereof by them or that could reasonably be expected to have a Material
Adverse Effect; and except as disclosed in the Final Memorandum, the
Company and its Subsidiaries hold any leased real or personal property
necessary to the conduct of the business now operated by them under valid
and enforceable leases with no exceptions that would materially interfere
with the use made or to be made thereof by them or that could reasonably be
expected to have a Material Adverse Effect.
(n) Except as disclosed in the Final Memorandum, the Company and its
Subsidiaries have sufficient trademarks, trade names, patent rights,
copyrights, licenses, approvals and governmental authorizations to conduct
their businesses as now conducted; the expiration of any trademarks, trade
names, patent rights, copyrights, licenses, approvals or governmental
authorizations would not have a Material Adverse Effect; the Company's and
its Subsidiaries' controlling persons, key employees and stockholders have
all necessary material permits, licenses and other authorizations required
by applicable law for the Company and its Subsidiaries to conduct their
businesses as now conducted.
(o) Except as disclosed in the Final Memorandum, neither the Company
nor any of its Subsidiaries is (i) in violation of any statute, any rule,
regulation, decision or order of any governmental agency or body or any
court, domestic or foreign, relating to the use, disposal or release of
hazardous or toxic substances or relating to the protection or restoration
of the environment or human exposure to hazardous or toxic substances
(collectively, "Environmental Laws"), (ii) owns or operates any real
property contaminated with any substance that is subject to any
Environmental Laws, (iii) is liable for any off-site disposal or
contamination pursuant to any Environmental Laws, or (iv) is subject to any
claim relating to any Environmental Laws, which violation, contamination,
liability or claim referred to in clauses (i), (ii), (iii) or (iv) could
reasonably be expected, individually or in the aggregate, to have a
Material Adverse Effect; and the Company is not aware of any
<PAGE>
8
pending investigation which might lead to such a claim except for any such
claim that could not reasonably be expected to have a Material Adverse
Effect.
(p) The information provided by the Company pursuant to Section 5(g)
hereof will not, at the date thereof, contain any untrue statement of a
material fact or omit to state any material fact necessary to make the
statements therein, in the light of the circumstances under which they were
made, not misleading.
(q) It is not necessary in connection with the offer, sale and
delivery of the Securities in the manner contemplated by this Agreement and
the Final Memorandum to register the Securities under the Securities Act or
to qualify the Indenture under the Trust Indenture Act of 1939, as amended
(the "Trust Indenture Act").
(r) Neither the Company nor any Guarantor is an "investment company"
within the meaning of the Investment Company Act of 1940, as amended (the
"Investment Company Act"), without taking account of any exemption arising
out of the number of holders of the Company's or such Guarantor's
securities.
(s) Except as contemplated by this Agreement, neither the Company nor
any Guarantor has paid or agreed to pay to any person any compensation for
soliciting another to purchase any securities of the Company or such
Guarantor.
2. Purchase and Sale. Subject to the terms and conditions and in
------------------
reliance upon the representations and warranties herein set forth, the Company
agrees to sell to the Purchasers, and the Purchasers agree to purchase from the
Company severally and not jointly, at a purchase price of 96.809% of the
principal amount thereof, plus accrued interest, if any, from April 1, 1997, to
the Closing Date, the principal amount of the Securities set forth opposite each
Purchaser's name in Schedule I hereto.
3. Delivery and Payment. Delivery of and payment for the Securities
---------------------
shall be made at 10:00 AM, New York City time, on April 1, 1997, or such later
date as the Purchasers may agree or as provided in Section 9 hereof (such date
and
<PAGE>
9
time of delivery and payment for the Securities being herein called the "Closing
Date"). Delivery of the Securities shall be made to the Purchasers against
payment by the Purchasers of the purchase price thereof to or upon the order of
the Company by wire transfer in Federal (same day) funds to a U.S. dollar
account in New York previously designated by the Company or such other manner of
payment as may be designated by the Company and agreed to by the Purchasers not
less than two business days prior to the Closing Date. Delivery of the
Securities shall be made at the offices of Cravath, Swaine & Moore ("Counsel for
the Purchasers"), Worldwide Plaza, 825 Eighth Avenue, New York, New York.
Certificates for the Securities shall be registered in such names and in such
denominations as the Purchasers may request not less than three full business
days in advance of the Closing Date.
The Company agrees to have the certificates for the Securities
available for inspection, checking and packaging by the Purchasers in New York,
New York, not later than 1:00 PM on the business day prior to the Closing Date.
4. Offering of Securities. Each Purchaser (i) acknowledges that the
-----------------------
Securities have not been registered under the Securities Act and may not be
offered or sold except pursuant to an exemption from, or in a transaction not
subject to, the registration requirements of the Securities Act or pursuant to
an effective registration statement under the Securities Act and (ii) severally
and not jointly, represents and warrants to and agrees, with the Company that:
(a) It has not offered or sold, and will not offer or sell, any
Securities except (i) to those it reasonably believes to be qualified
institutional buyers (as defined in Rule 144A under the Securities Act) and
that, in connection with each such sale, it has taken or will take
reasonable steps to ensure that the purchaser of such Securities is aware
that such sale is being made in reliance on Rule 144A or (ii) to other
institutional "accredited investors" (as defined in Rule 501(a)(1), (2),
(3) or (7) of Regulation D) who provide to it and to the Company a letter
in the form of Exhibit A hereto or (iii) in accordance with the
restrictions set forth in Exhibit B hereto.
<PAGE>
10
(b) Neither it nor any person acting on its behalf has made or will
make offers or sales of the Securities in the United States by means of any
form of general solicitation or general advertising (within the meaning of
Regulation D) in the United States, except pursuant to a registered public
offering as provided in the Registration Agreement.
5. Agreements. The Company and the Guarantors jointly and severally
-----------
agree with the Purchasers that:
(a) The Company and the Guarantors will furnish to the Purchasers,
without charge, as many copies of the Final Memorandum and any supplements
and amendments thereof or thereto as the Purchasers may reasonably request.
The Company and the Guarantors will pay the expenses of printing or other
production of all documents relating to the offering.
(b) The Company will not amend or supplement the Final Memorandum
without the prior consent of the Purchasers. If at any time prior to the
completion of the sale of the Securities by the Purchasers, any event
occurs as a result of which the Final Memorandum as then amended or
supplemented would include any untrue statement of a material fact or omit
to state any material fact necessary to make the statements therein in the
light of the circumstances under which they were made not misleading, or if
it shall be necessary to amend or supplement the Final Memorandum to comply
with applicable law, the Company and the Guarantors will promptly notify
the Purchasers of the same and will prepare and provide to the Purchasers
pursuant to Section 5(a) an amendment or supplement which will correct such
statement or omission or effect such compliance. Neither the Purchasers'
consent to, nor the Purchasers' delivery to offerees or investors of, any
such amendment or supplement shall constitute a waiver of any of the
conditions set forth in Section 6 of this Agreement.
(c) The Company will arrange for the qualification of the
Securities for sale by the Purchasers under the laws of such jurisdictions
as the Purchasers may designate and will maintain such qualifications in
effect so long as required for the sale of the Securities; provided,
--------
however, neither the Company nor
-------
<PAGE>
11
any Guarantor shall be required to do business in any jurisdiction where it
is not now so qualified or to take any action which would subject it to
general or unlimited service of process in any jurisdiction where it is not
now so subject. Each of the Company and the Guarantors will promptly
advise the Purchasers of the receipt by it of any notification with respect
to the suspension of the qualification of the Securities for sale in any
jurisdiction or the initiation or threatening of any proceeding for such
purpose.
(d) During the period from the Closing Date until two years after the
Closing Date, none of the Company, the Guarantors, any of their respective
Affiliates, nor any person acting on its or their behalf, will resell any
Securities that have been acquired by any of them, except for any such
Securities resold in a transaction registered under the Securities Act.
(e) None of the Company, the Guarantors nor any of their Affiliates,
nor any person acting on its or their behalf, will, directly or indirectly,
make offers or sales of any security, or solicit offers to buy any
security, under circumstances that would require the registration of the
Securities under the Securities Act.
(f) None of the Company, the Guarantors nor any of their Affiliates,
nor any person acting on its or their behalf, will engage in any form of
general solicitation or general advertising (within the meaning of
Regulation D) in connection with any offer or sale of the Securities in the
United States, except pursuant to a registered public offering as provided
in the Registration Agreement.
(g) The Company shall, during any period in the two years after the
Closing Date in which the Company is not subject to Section 13 or 15(d) of
the Exchange Act, provide to each holder of such restricted securities and
to each prospective purchaser (as designated by such holder) of such
restricted securities, upon the request of such holder or prospective
purchaser, any information required to be provided by Rule 144A(d)(4) under
the Securities Act. This covenant is intended to be for the benefit of the
holders, and the prospective purchasers designated by
<PAGE>
12
such holders, from time to time of such restricted securities.
(h) None of the Company, the Guarantors nor any of their Affiliates,
nor any person acting on its or their behalf will engage in any directed
selling efforts with respect to the Securities except pursuant to a
registered public offering as provided in the Registration Agreement, and
each of them will comply with the offering restrictions requirement of
Regulation S. Terms used in this paragraph have the meanings given to
them by Regulation S.
(i) None of the Company, the Guarantors, any of their respective
Affiliates, nor any person acting on its or their behalf, will sell, offer
for sale or solicit offers to buy or otherwise negotiate in respect of any
security (as defined in the Securities Act) the offering of which security
will be integrated with the sale of the Securities in a manner which would
require the registration of the Securities under the Securities Act (except
as provided in the Registration Agreement).
(j) The Company shall include information substantially in the form
set forth in Exhibit C in each Final Memorandum.
(k) The Company and the Guarantors shall use their best efforts in
cooperation with the Purchasers to permit the Securities to be eligible for
clearance and settlement through The Depository Trust Company.
(l) The Company will not, until 180 days following the Closing Date,
without the prior written consent of Salomon Brothers Inc, offer, sell or
contract to sell, or otherwise dispose of, directly or indirectly, or
announce the offering of, or file a registration statement for, any debt
securities issued or guaranteed by the Company or any Guarantor (other than
(i) the Securities, (ii) pursuant to a registered public offering as
provided in the Registration Agreement or (iii) the negotiation,
syndication or arrangement of the New Credit Facility (as defined in the
Final Memorandum). Neither the Company nor any Guarantor will at any time
offer, sell, contract to sell or otherwise dispose of, directly or
indirectly, any securities under circumstances where such offer,
<PAGE>
13
sale, contract or disposition would cause the exemption afforded by Section
4(2) of the Securities Act or the safe harbor of Regulation S thereunder to
cease to be applicable to the offer and sale of the Securities as
contemplated by this Agreement and the Final Memorandum.
(m) The Company will apply the net proceeds of the Offering and the
sale of the Securities in the manner set forth in the Final Memorandum
under the caption "Use of Proceeds."
(n) Neither the Company nor any Guarantor will take, directly or
indirectly, any action prohibited by Regulation M under the Securities
Exchange Act of 1934, as amended (the "Exchange Act"), in connection with
any offering of the Securities.
(o) The Company and the Guarantors hereby agree to permit the
Securities to be designated PORTAL eligible securities, will pay the
requisite fees related thereto and have been advised by the National
Association of Securities Dealers, Inc. PORTAL Market that the Securities
have or will be designated PORTAL eligible securities in accordance with
the rules and regulations of the National Association of Securities
Dealers, Inc.
6. Conditions to the Obligations of the Purchasers. The obligations
------------------------------------------------
of the Purchasers to purchase the Securities shall be subject to the accuracy of
the representations and warranties on the part of the Company contained herein
at the date and time that this Agreement is executed and delivered by the
parties hereto (the "Execution Time") and the Closing Date, to the accuracy of
the statements of the Company and the Guarantors made in any
<PAGE>
14
certificates pursuant to the provisions hereof, to the performance by the
Company and the Guarantors of their respective obligations hereunder and to the
following additional conditions:
(a) The Company shall have furnished to the Purchasers the opinion of
Kirkland & Ellis, counsel for the Company, dated the Closing Date, to the
effect that:
(i) each of the Company and the Subsidiaries has been duly
incorporated and is validly existing as a corporation in good standing
under the laws of the State of Delaware, with full corporate power and
authority to own its properties and conduct its business as described
in the Final Memorandum, and is duly qualified to do business as a
foreign corporation and is in good standing under the laws of each
jurisdiction listed in a schedule to such counsel's opinion (which
schedule shall list all jurisdictions in which the Company has
represented to such counsel that the Company or its Subsidiaries
conduct material business or lease material property);
(ii) all the outstanding shares of capital stock of each
Subsidiary have been duly and validly authorized and issued and are
fully paid and nonassessable, and all outstanding shares of capital
stock of the Subsidiaries are owned by the Company either directly or
through wholly owned subsidiaries free and clear of any perfected
security interest and, to the knowledge of such counsel, any other
security interests, claims, liens or encumbrances (other than the
pledges of capital stock of the Subsidiaries pursuant to the New
Credit Facility);
(iii) the Company's authorized equity capitalization is as set
forth in the Final Memorandum; and the Securities conform to the
description thereof contained in the Final Memorandum;
(iv) the summaries in the Final Memorandum of statutes, legal and
governmental proceedings and contracts and other documents under the
headings
<PAGE>
15
"Certain Relationships and Related Transactions", "Description of
Capital Stock and Indebtedness of Holdings", "Description of New
Credit Facility", "Legal Proceedings" (excluding the first paragraph
under such heading) and "Certain Federal Income Tax Considerations"
accurately describe in all material respects the provisions purported
to be so summarized;
(v) the Indenture conforms as to form in all material respects
with the requirements of the Trust Indenture Act and the rules and
regulations of the Commission applicable to an indenture which is
qualified thereunder;
(vi) no authorization, approval, consent or order of, or filing
or registration with, any court or governmental body or agency is
required for the execution, delivery and performance of this
Agreement, the Indenture, the Registration Agreement, the Securities
and the New Credit Facility or for the consummation of the Transac
tions, except such as may be required under the Securities Act with
respect to the Registration Agreement and the transactions
contemplated thereunder and such as may be required under state
securities or blue sky laws (as to which such counsel need not express
any opinion) in connection with the offer and sale of the Securities;
(vii) neither the Company nor any Subsidiary nor CVC is, or after
giving effect to the offering and sale of the Securities and the
application of the net proceeds therefrom will be, an "investment
company" within the meaning of the Investment Company Act of 1940, as
amended, and the rules and regulations of the Commission thereunder;
(viii) the Company and each of the Guarantors which is a party
thereto has full corporate right, power and authority to execute and
deliver the Indenture, the Securities, the Registration Agreement, the
New Credit Facility and this Agreement and to perform its respective
obligations hereunder and thereunder; and all corporate action
required to be taken for the due
<PAGE>
16
and proper authorization, execution and delivery of the Indenture, the
Securities, the Registration Agreement, the New Credit Facility and
this Agreement and the consummation of the Transactions have been duly
and validly taken;
(ix) each of this Agreement, the Indenture, the Registration
Agreement and the New Credit Facility has been duly authorized,
executed and delivered by the Company and each of the Guarantors which
is a party thereto, and each constitutes (with respect to the
Indenture, assuming due authorization, execution and delivery by the
Trustee and with respect to this Agreement and the Registration
Agreement, assuming due authorization, execution and delivery by the
Initial Purchasers) a valid and legally binding agreement, enforceable
in accordance with its terms subject to applicable bankruptcy,
insolvency, reorganization, moratorium, fraudulent transfer and
similar laws affecting creditors' rights and remedies generally and to
general principles of equity (regardless of whether enforcement is
sought in a proceeding at law or in equity);
(x) the Securities are in the form contemplated by the Indenture
and have been duly authorized and executed by the Company and each
Guarantor and, upon the due authentication and delivery thereof by the
Trustee pursuant to the Indenture and payment therefor by the Initial
Purchasers in accordance with the terms of this Agreement, will be
duly and validly issued and outstanding and will constitute valid and
legally binding obligations of the Company and the Guarantors entitled
to the benefits of the Indenture and enforceable in accordance with
their terms, subject to applicable bankruptcy, insolvency,
reorganization, moratorium, fraudulent transfer and similar laws
affecting creditors' rights and remedies generally and to general
principles of equity (regardless of whether enforcement is sought in a
proceeding at law or in equity);
<PAGE>
17
(xi) the execution, delivery and performance of this Agreement,
the Registration Agreement, the Indenture, the Securities and the New
Credit Facility by the Company and each Guarantor party thereto and
the consummation of the Transactions will not result in a breach or
violation of any of the terms and provisions of, or constitute a
default under (i) the articles of incorporation or by-laws of the
Company or any Guarantor, (ii) any statute, rule or regulation under
Federal law, New York State law or the Delaware General Corporation
Law applicable to the Company or any Guarantor or any judgment, order
or decree known to such counsel of any governmental agency or body or
any court having jurisdiction over the Company or any Subsidiary or
any of their respective properties to which the Company or any
Guarantor is a named party or (iii) any agreement or instrument listed
on a schedule to such counsel's opinion by which the Company or any of
the Subsidiaries is bound or to which any of their respective
properties is subject;
(xii) except as disclosed in the Final Memorandum under the
heading "Legal Proceedings" (other than the first paragraph thereof),
to the best knowledge of such counsel, there is no pending or
threatened legal action or suit or judicial, arbitral or other
administrative proceeding to which the Company or any of the
Subsidiaries is a named party or of which any property or assets of
the Company or any of the Subsidiaries is the subject that,
individually or in the aggregate, (A) questions the validity of this
Agreement, the Registration Agreement, the Indenture, the Securities
or the New Credit Facility or any action taken or to be taken pursuant
hereto or thereto, or (B) if determined adversely to the Company or
any of the Subsidiaries, could reasonably be expected to have a
Material Adverse Effect;
(xiii) it is not necessary in connection with the offer, sale
and delivery of the Securities in the manner contemplated by this
Agreement to register the Securities under the
<PAGE>
18
Securities Act or to qualify the Indenture under the Trust Indenture
Act; and
(xiv) in addition, such counsel shall state that such counsel
has participated in conferences with directors, officers and other
representatives of the Company and the Guarantors, representatives of
the independent public accountants for the Company and the Guarantors,
representatives of the Purchasers and Counsel for the Purchasers, at
which conferences the contents of the Final Memorandum and related
matters were discussed and, although such counsel has not undertaken,
except as otherwise indicated in its opinion, to determine
independently, and is not passing upon and assumes no responsibility
for the accuracy, completeness or fairness of the statements contained
in the Final Memorandum (except as expressly provided above), nothing
has come to such counsel's attention which has caused such counsel to
believe that the Final Memorandum (or any supplement thereto) as of
the date of the Final Memorandum (or any such supplement) and as of
the Closing Date, contained or contains an untrue statement of a
material fact or omitted or omits to state any material fact necessary
in order to make the statements therein, in the light of the
circumstances under which they were made, not misleading (it being
understood that such counsel need express no view with respect to the
financial statements and notes thereto and financial statement
schedules and other financial, statistical and accounting data
included in the Final Memorandum).
In rendering such opinion, such counsel may rely (A) as to
matters involving the application of laws of any jurisdiction other than
the State of New York, the State of Delaware or the United States, to the
extent they deem proper and specified in such opinion, upon the opinion of
other counsel who are satisfactory to Counsel for the Purchasers, copies of
which shall be provided to the Purchasers and (B) as to matters of fact, to
the extent they deem proper, on certificates of responsible officers of the
Company and public officials, copies of which shall be provided to the
Purchasers. Such opinion may be limited to the
<PAGE>
19
General Corporation Law of the State of Delaware and the laws of the State
of New York, and the federal laws of the United States.
All references in this Section 6(a) to the Final Memorandum shall
be deemed to include any amendment or supplement thereto at the Closing
Date.
(b) The Purchasers shall have received from Cravath, Swaine & Moore,
Counsel for the Purchasers, such opinion or opinions, dated the Closing
Date, with respect to the issuance and sale of the Securities, the Final
Memorandum (as amended or supplemented at the Closing Date) and other
related matters as the Purchasers may reasonably require, and the Company
shall have furnished to such counsel such documents as they request for the
purpose of enabling them to pass upon such matters.
(c) The Company shall have furnished to the Purchasers a certificate
of the Company, signed by the Chairman of the Board or the President and
the principal financial or accounting officer of the Company, dated the
Closing Date, to the effect that the signers of such certificate have
carefully examined the Final Memorandum, any amendment or supplement to the
Final Memorandum and this Agreement and that:
(i) the representations and warranties of the Company and the
Guarantors in this Agreement are true and correct in all material
respects on and as of the Closing Date with the same effect as if made
on the Closing Date and the Company and the Guarantors have complied
with all the agreements and satisfied all the conditions on its part
to be performed or satisfied at or prior to the Closing Date; and
(ii) since the date of the most recent finan cial statements
included in the Final Memorandum there has been no adverse change in
the condition (financial or other), earnings, business or properties
of the Company and its Subsidiaries, which is material to the Company
and its Subsidiaries taken as a whole whether or not arising from
transactions in the ordinary course of business, except as set forth
in or
<PAGE>
20
contemplated in the Final Memorandum (exclusive of any amendment or
supplement thereof or thereto).
(d) At the Execution Time and at the Closing Date, Coopers & Lybrand
LLP shall have furnished to the Purchasers a letter or letters, dated
respectively as of the Execution Time and as of the Closing Date, in form
and substance satisfactory to the Purchasers, stating in effect that:
(i) they are independent certified public accountants with
respect to the Company within the meaning of Rule 101 of the American
Institute of Certified Public Accountants' Code of Professional
Conduct and its interpretations and rulings;
(ii) in their opinion the audited consolidated financial
statements included in the Final Memorandum and reported on by them
comply in form in all material respects with the accounting
requirements of the Exchange Act and the related published rules and
regulations thereunder that would apply to the Final Memorandum if the
Final Memorandum were a prospectus included in a registration
statement on Form S-1 under the Securities Act;
(iii) based upon the procedures detailed in such letter with
respect to the period subsequent to the date of the latest audited
financial statements included in the Final Memorandum, including the
reading of minutes and inquiries of certain officials of the Company
who have responsibility for financial and accounting matters and
certain other limited procedures requested by the Purchasers and
described in detail in such letter, nothing has come to their
attention that causes them to believe that:
(1) the consolidated financial information included under
the headings "Selected Historical Consolidated Financial Data",
"Summary--Summary Consolidated Historical Financial Data" and
"Compensation of Executive Officers" is not in conformity with
the disclosure requirements of Regulation S-K that would apply to
the Final
<PAGE>
21
Memorandum if the Final Memorandum were a prospectus included in
a registration statement on Form S-1 under the Securities Act;
(2) at a specified date not more than five days prior to
the date of the letter, there were any changes in the capital
stock of the Company, increases in the long-term debt of the
Company or decreases in the stockholders' equity or net current
assets of the Company as compared with the amounts shown in the
December 31, 1996, audited consolidated balance sheet included in
the Final Memorandum; or
(3) for the period from January 1, 1997, to a date not more
than five days prior to the date of the letter, there were any
decreases, as compared with the corresponding period in the
preceding year, in net sales, income from continuing operations
or net income of the Company and its subsidiaries, except in all
instances for increases or decreases which are set forth in such
letter, in which case the letter shall be accompanied by an
explanation by the Company as to the significance thereof unless
said explanation is not deemed necessary by the Purchasers;
(iv) they have compared specified dollar amounts (or percentages
derived from such dollar amounts) and other financial information
contained in the Final Memorandum (in each case to the extent that
such dollar amounts, percentages and other information are derived
from the general accounting records of the Company and its
subsidiaries or are derived from such records by analysis or
computation) with the results obtained from inquiries, a reading of
such general accounting records and other procedures specified in such
letter and have found such dollar amounts, percentages and other
information to be in agreement with such results, except as otherwise
specifically set forth in such letter.
<PAGE>
22
References to the Final Memorandum in this para graph (d) include any
amendment or supplement thereof or thereto at the date of the letter.
(e) Subsequent to the Execution Time or, if earlier, the dates as of
which information is given in the Final Memorandum, there shall not have
been (i) any change or decrease specified in the letter referred to in
paragraph (d) of this Section 6 or (ii) any change, or any development
involving a prospective change, in or affecting the business or properties
of the Company and its Subsidiaries the effect of which, in any case
referred to in clause (i) or (ii) above, is, in the judgment of the
Purchasers, so material and adverse as to make it impractical or
inadvisable to market the Securities as contemplated by the Final
Memorandum.
(f) At the Execution Time, BDO Seidman shall have furnished to the
Purchasers a letter, dated as of the Execution Time, in form and substance
satisfactory to the Purchasers, stating in effect that:
(i) they were independent certified public accountants with
respect to the Company within the meaning of Rule 101 of the American
Institute of Certified Public Accountants' Code of Professional
Conduct and its interpretations and rulings during the time they
served as the Company's auditors;
(ii) in their opinion the audited consolidated financial
statements included in the Final Memorandum and reported on by them
comply in form in all material respects with the accounting
requirements of the Exchange Act and the related published rules and
regulations thereunder that would apply to the Final Memorandum if the
Final Memorandum were a prospectus included in a registration
statement on Form S-1 under the Securities Act; and
(iii) they have compared specified dollar amounts (or
percentages derived from such dollar amounts) and other financial
information contained in the Final Memorandum (in each case to the
extent that such dollar amounts, percentages and other information are
derived from the general accounting records of the Company and its
<PAGE>
23
subsidiaries subject to the internal controls of the Company's
accounting system or are derived directly from such records by
analysis or computation) with the results obtained from inquiries, a
reading of such general accounting records and other procedures
specified in such letter and have found such dollar amounts,
percentages and other financial information to be in agreement with
such results, except as otherwise specifically set forth in such
letter.
References to the Final Memorandum in this para graph (f) include any
amendment or supplement thereof or thereto at the date of the letter.
(g) Subsequent to the Execution Time, there shall not have been (i)
any decrease in the rating of the Securities or any of the Company's or any
Guarantor's other debt securities by any "nationally recognized statistical
rating organization" (as defined for purposes of Rule 436(g) under the
Securities Act) or (ii) any notice given of any intended or potential
decrease in any such rating or that such organization has under
surveillance or review (other than any such notice with positive
implications of a possible upgrading) its rating of the Securities or any
of the Company's or any Guarantor's other debt securities.
(h) On or prior to the Closing Date, the Registration Agreement shall
have been executed substantially in the form hereto delivered to you and
shall have been delivered to you and the Trustee.
(i) The credit agreement relating to the New Credit Facility (the
"New Credit Facility") shall have been executed and delivered by the
parties thereto. The terms of the New Credit Facility shall be reasonably
satisfactory to the Purchasers, and the Purchasers shall have received
conformed counterparts of the New Credit Facility and all other documents
and agreements entered into and received in connection with therewith.
There shall exist at and as of the Closing Date (after giving effect to the
Transactions) no condition that would constitute a default (or an event
that with notice or lapse of time, or both, would constitute a default)
under the New Credit Facility.
<PAGE>
24
(j) On or prior to the Closing Date, the Company and the Guarantors
shall have furnished to the Purchasers such further information,
certificates and documents as the Purchasers may reasonably request.
If any of the conditions specified in this Section 6 shall not have
been fulfilled when and as provided in this Agreement, or if any of the opinions
and certificates mentioned above or elsewhere in this Agreement shall not be
reasonably satisfactory in form and substance to the Purchasers and Counsel for
the Purchasers, this Agreement and all obligations of the Purchasers hereunder
may be canceled at, or at any time prior to, the Closing Date by the Purchasers.
Notice of such cancellation shall be given to the Company in writing or
telegraph confirmed in writing.
The documents required to be delivered by this Section 6 shall be
delivered at the office of Cravath, Swaine & Moore, Counsel for the Purchasers,
at Worldwide Plaza, 825 Eighth Avenue, New York, New York, on the Closing Date.
7. Reimbursement of Expenses. If the sale of the Securities provided
--------------------------
for herein is not consummated because of any termination pursuant to Section 6
or Section 10 hereof or because of any refusal, inability or failure on the part
of the Company or any Guarantor to perform any agreement herein or comply with
any provision hereof, in each case other than by reason of a default by the
Purchasers, the Company and the Guarantors jointly and severally will reimburse
the Purchasers upon demand for all reasonable out-of-pocket expenses (including
reasonable fees and reasonable disbursements of counsel) that shall have been
incurred by it in connection with the proposed purchase and sale of the
Securities.
8. Indemnification and Contribution. (a) The Company and the
---------------------------------
Guarantors jointly and severally agree to indemnify and hold harmless each
Purchaser, each director, officer, employee and agent of any Purchaser and each
other person, if any, who controls any Purchaser within the meaning of Section
15 of the Securities Act or Section 20 of the Exchange Act against any and all
losses, claims, damages or liabilities, joint or several, to which they or any
of them may become subject under the Securities Act, the Exchange Act or other
Federal or state statutory law or
<PAGE>
25
regulation, at common law or otherwise, insofar as such losses, claims, damages
or liabilities (or actions in respect thereof) arise out of or are based upon
any untrue statement or alleged untrue statement of a material fact contained in
the Preliminary Memorandum, the Final Memorandum or any information provided by
the Company to any holder or prospective purchaser of Securities pursuant to
Section 5(g) hereof, or in any amendments thereof or supplements thereto, or
arise out of or are based upon the omission or alleged omission to state therein
a material fact required to be stated therein or necessary to make the
statements therein, in light of the circumstances under which they were made,
not misleading, and agrees to reimburse each such indemnified party, as
incurred, for any legal or other expenses reasonably incurred by them in
connection with investigating or defending any such loss, claim, damage,
liability or action; provided, however, that neither the Company nor any
-------- -------
Guarantor will be liable in any such case to the extent that any such loss,
claim, damage or liability arises out of or is based upon any such untrue
statement or alleged untrue statement or omission or alleged omission made in
the Preliminary Memorandum or the Final Memorandum, or in any amendment thereof
or supplement thereto, in reliance upon and in conformity with written
information furnished to the Company by or on behalf of the Purchasers
specifically for inclusion therein, it being understood that the only such
information is that described in Section 8(b); and provided further, however,
---------------- -------
that with respect to any untrue statement or omission or alleged untrue
statement or omission made in the Preliminary Memorandum, the indemnity
agreement contained in this Section 8(a) shall not inure to the benefit of any
indemnified party to the extent that the sale to the person asserting any such
losses, claims, damages or liabilities was an initial resale of Securities by
any Purchaser and any such loss, claim, damage or liability of such indemnified
party results from the fact that there was not sent or given to such person, at
or prior to the written confirmation of the sale of such Securities to such
person, a copy of any revised Preliminary Memorandum, the Final Memorandum or
the Final Memorandum as amended or supplemented, if the Company had previously
furnished copies thereof to such Purchaser and the revised Preliminary
Memorandum, the Final Memorandum or the Final Memorandum as amended or
supplemented corrected such untrue statement or omission or alleged untrue
statement or omission. This indemnity agreement will be in
<PAGE>
26
addition to any liability which the Company and the Guarantors may otherwise
have.
(b) The Purchasers, severally and not jointly, agree to indemnify and
hold harmless each of the Company and the Guarantors, their respective directors
and officers, and each other person, if any, who controls the Company or any
Guarantor within the meaning of Section 15 of the Securities Act or Section 20
of the Exchange Act, to the same extent as the foregoing indemnity from the
Company and the Guarantors to the Purchasers, but only with reference to written
information relating to the Purchasers furnished to the Company by or on behalf
of the Purchasers specifically for inclusion in the Preliminary Memorandum or
the Final Memorandum, or in any amendment thereof or supplement thereto. This
indemnity agreement will be in addition to any liability which the Purchasers
may otherwise have. The Company and the Guarantors acknowledge that the
statements set forth in the last paragraph of the cover page and under the
heading "Plan of Distribution" in the Preliminary Memorandum and the Final
Memorandum constitute the only information furnished in writing by or on behalf
of the Purchasers for inclusion in the Preliminary Memorandum or the Final
Memorandum, or in any amendment or supplement thereto.
(c) Promptly after receipt by an indemnified party under this Section
8 of notice of the commencement of any action, such indemnified party will, if a
claim in respect thereof is to be made against the indemnifying party under this
Section 8, notify the indemnifying party in writ ing of the commencement
thereof; but the failure so to notify the indemnifying party (i) will not
relieve it from liability under paragraph (a) or (b) above unless and to the
extent it did not otherwise learn of such action and such failure results in the
forfeiture by the indemnifying party of substantial rights and defenses and (ii)
will not, in any event, relieve the indemnifying party from any obligations to
any indemnified party other than the indemnification obligation provided in
paragraph (a) or (b) above. The indemnifying party shall be entitled to appoint
as counsel one firm of attorneys of the indemnifying party's choice at the
indemnifying party's expense, which counsel, together with one local counsel in
each jurisdiction, shall act on behalf of all the indemnified parties in any
action for which indemnification is sought (in which case the indemnifying
party shall not thereafter be responsible for the fees
<PAGE>
27
and expenses of any separate counsel retained by the indemnified party or
parties except as set forth below); provided, however, that such counsel shall
-------- -------
be reasonably satisfactory to the indemnified party. Notwithstanding the
indemnifying party's election to appoint counsel to represent the indemnified
party in an action, the indemnified party shall have the right to employ
separate counsel (including local counsel), and the indemnified party shall bear
the fees, costs and expenses of such separate counsel unless (i) the use of
counsel chosen by the indemnifying party to represent the indemnified party
would, in the reasonable judgment of the indemnified party, present such counsel
with a conflict of interest, (ii) the actual or potential defendants in, or
targets of, any such action include both the indemnified party and the
indemnifying party and the indemnified party shall have reasonably concluded
that there may be legal defenses available to it and/or other indemnified
parties which are different from or additional to those available to the
indemnifying party, (iii) the indemnifying party shall not have employed counsel
satisfactory to the indemnified party to represent the indemnified party within
a reasonable time after notice of the institution of such action or (iv) the
indemnifying party shall authorize the indemnified party to employ separate
counsel at the expense of the indemnifying party. No indemnifying party shall be
liable for any settlement of any such action effected without its written
consent (which consent shall not be unreasonably withheld), but if settled with
its written consent or if there be a final judgment for the plaintiff in any
such action, the indemnifying party agrees to indemnify and hold harmless any
indemnified party from and against any loss or liability by reason of such
settlement or judgment. An indemnifying party will not, without the prior
written consent of the indemnified par ties, settle or compromise or consent to
the entry of any judgment with respect to any pending or threatened claim,
action, suit or proceeding in respect of which indemnification or contribution
may be sought hereunder (whether or not the indemnified parties are actual or
potential parties to such claim or action) unless such settlement, compromise or
consent includes an unconditional release of each indemnified party from all
liability arising out of such claim, action, suit or proceeding.
(d) In the event that the indemnity provided in paragraph (a) or (b)
of this Section 8 is unavailable to or insufficient to hold harmless an
indemnified party for any
<PAGE>
28
reason, the Company and the Guarantors on the one hand and the Purchasers on the
other hand agree to contribute to the aggregate losses, claims, damages and
liabilities (including legal or other expenses reasonably incurred in connection
with investigating or defending same) (collectively "Losses") to which the
Company and the Guarantors or the Purchasers, as applicable, may be subject in
such proportion as is appropriate to reflect the relative benefits received by
the Company and the Guarantors or the Purchasers, as applicable, from the
offering of the Securities; provided, however, that in no case shall the
-------- -------
Purchasers be responsible for any amount in excess of the purchase discount or
commis sion applicable to the Securities purchased by the Purchas ers
hereunder. If the allocation provided by the immediately preceding sentence is
unavailable for any reason, the Company and the Guarantors on the one hand and
the Purchasers on the other hand shall contribute in such proportion as is
appropriate to reflect not only such relative benefits but also the relative
fault of the Company and the Guarantors or the Purchasers, as applicable, in
connection with the statements or omissions which resulted in such Losses as
well as any other relevant equitable considerations. Benefits received by the
Company and the Guarantors shall be deemed to be equal to the total net proceeds
from the offering (before deducting expenses), and benefits received by the
Purchasers shall be deemed to be equal to the total purchase discounts and
commissions, in each case as set forth on the cover page of the Final
Memorandum. Relative fault shall be determined by reference to whether any
alleged untrue statement or omission relates to information provided by the
Company, the Guarantors or the Purchasers. The Company, the Guarantors and the
Purchasers agree that it would not be just and equitable if contribution were
determined by pro rata allocation or any other method of allocation which does
not take account of the equitable considerations referred to above.
Notwithstanding the provisions of this paragraph (d), no person guilty of
fraudulent misrepresentation (within the meaning of Section 11(f) of the
Securities Act) shall be entitled to contribution from any person who was not
guilty of such fraudulent misrepresentation. For purposes of this Section 8,
each person who controls the Purchasers within the meaning of Section 15 of the
Securities Act or Section 20 of the Exchange Act and each director, officer,
employee and agent of a Purchaser shall have the same rights to contribution as
such Purchaser, and each person who controls the Company or any Guarantor within
the meaning of
<PAGE>
29
either the Securities Act or the Exchange Act and each officer and director of
the Company or any Guarantor shall have the same rights to contribution as the
Company and the Guarantors, subject in each case to the applicable terms and
conditions of this paragraph (d).
9. Default by a Purchaser. If any one or more Purchasers shall fail
-----------------------
to purchase and pay for any of the Securities agreed to be purchased by such
Purchaser hereunder and such failure to purchase shall constitute a default in
the performance of its or their obligations under this Agreement, the remaining
Purchasers shall be obligated severally to take up and pay for (in the
respective proportions which the principal amount of Securities set forth
opposite their names in Schedule I hereto bears to the aggregate principal
amount of Securities set forth opposite the names of all the remaining
Purchaser(s)) the Securities which the defaulting Purchaser or Purchasers agreed
but failed to purchase; provided, however, that in the event that the aggregate
-------- -------
principal amount of Securities which the defaulting Purchaser or Purchasers
agreed but failed to purchase shall exceed 10% of the aggregate principal amount
of Securities set forth in Schedule I hereto, the remaining Purchasers shall
have the right to purchase all, but shall not be under any obligation to
purchase any, of the Securities, and if such non-defaulting Purchasers do not
purchase all the Securities, this Agreement will terminate without liability to
any non-defaulting Purchaser, the Company or any Guarantor. In the event of a
default by any Purchaser as set forth in this Section 9, the Closing Date shall
be postponed for such period, not exceeding seven days, as the Purchasers shall
determine in order that the required changes in the Final Memorandum or in any
other documents or arrangements may be effected. Nothing contained in this
Agreement shall relieve any defaulting Purchaser of its liability, if any, to
the Company, any Guarantor or any non-defaulting Purchaser for damages
occasioned by its default hereunder.
10. Termination. This Agreement shall be subject to termination in
------------
the absolute discretion of the Purchasers, by notice given to the Company prior
to delivery of and payment for the Securities, if prior to such time (i) trading
in securities generally on the New York Stock Exchange or the National
Association of Securities Dealers Automated Quotation System ("NASDAQ") shall
have been suspended or limited or minimum prices shall have been
<PAGE>
30
established on either of such Exchange or NASDAQ, (ii) a banking moratorium
shall have been declared either by Federal or New York State authorities or
(iii) there shall have occurred any outbreak or escalation of hostilities,
declaration by the United States of a national emergency or war or other
calamity or crisis the effect of which on financial markets is such as to make
it, in the judgment of the Purchasers, impracticable or inadvisable to proceed
with the offering or delivery of the Securities as contemplated by the Final
Memorandum.
11. Representations and Indemnities to Survive. The respective
-------------------------------------------
agreements, representations, warranties, indemnities and other statements of the
Company or its officers and of the Purchaser set forth in or made pursuant to
this Agreement will remain in full force and effect, regardless of any
investigation made by or on behalf of the Purchasers or the Company or any of
the officers, directors or controlling persons referred to in Section 8 hereof,
and will survive delivery of and payment for the Securities. The provisions of
Sections 7 and 8 hereof shall survive the termination or cancellation of this
Agreement.
12. Notices. All communications hereunder will be in writing and
--------
effective only on receipt, and, if sent to the Purchasers, will be mailed,
delivered or sent by fax (212-783-2823) and confirmed to them, in care of
Salomon Brothers Inc, Seven World Trade Center, New York, New York, 10048; or,
if sent to the Company, will be mailed, delivered or sent by fax (212-391-2341)
and confirmed to it at 111 West 40th Street, New York, NY 10018, attention:
Chief Executive Officer, with a copy mailed, delivered or sent by fax (212-446-
4900) to Kirk A. Radke, Esq., Kirkland & Ellis, 153 East 53rd Street, 39th
Floor, New York, NY 10022.
13. Successors. This Agreement will inure to the benefit of and be
-----------
binding upon the parties hereto and their respective successors and the officers
and directors and controlling persons referred to in Section 8 hereof, and,
except as expressly set forth in Section 5(g), no other person will have any
right or obligation hereunder.
14. Applicable Law. THIS AGREEMENT WILL BE GOVERNED BY AND
---------------
CONSTRUED IN ACCORDANCE WITH THE LAWS OF THE STATE OF NEW YORK (WITHOUT REGARD
TO THE CONFLICT OF LAW PROVISIONS THEREOF).
<PAGE>
31
15. Business Day. For purposes of this Agreement, "business day"
-------------
means each Monday, Tuesday, Wednesday, Thursday and Friday that is not a day on
which banking institutions in The City of New York, New York are authorized or
obligated by law, executive order or regulation to close.
16. Counterparts. This Agreement may be executed in one or more
-------------
counterparts, each of which will be deemed to be an original, but all such
counterparts will together constitute one and the same instrument.
<PAGE>
32
If the foregoing is in accordance with your under standing of our
agreement, please sign and return to us the enclosed duplicate hereof, whereupon
this letter and your acceptance shall represent a binding agreement between the
Company and the Purchasers.
Very truly yours,
GLENOIT CORPORATION,
by
--------------------------------
Name:
Title:
SUBSIDIARY GUARANTORS:
GLENOIT MILLS, INC.,
by
--------------------------------
Name:
Title:
GLENOIT ASSETS CORP.,
by
--------------------------------
Name:
Title:
TARBORO PROPERTIES, LTD.,
by
--------------------------------
Name:
Title:
<PAGE>
33
The foregoing Agreement is hereby
confirmed and accepted as of the
date first above written.
SALOMON BROTHERS INC
CIBC WOOD GUNDY SECURITIES CORP.
by SALOMON BROTHERS INC
by
--------------------------------
Name:
Title: Vice President
<PAGE>
SCHEDULE I
Principal Amount
of Securities
Purchasers to be Purchased
- ---------- ----------------
Salomon Brothers Inc . . . . $ 60,000,000
CIBC Wood Gundy Securities
Corp. . . . . . . . . . . . 40,000,000
------------
Total . . . . . . . . $100,000,000
============
<PAGE>
EXHIBIT A
Form of Investment Letter
-------------------------
for Institutional Accredited Investors
--------------------------------------
Glenoit Corporation
c/o United States Trust Company of New York, as Trustee
114 West 47th Street
New York, New York 10036
Attn: Corporate Trust Department
Ladies and Gentlemen:
In connection with our proposed purchase of $_____ aggregate
principal amount of 11% Senior Subordinated Notes Due 2007 (the "Notes") of
Glenoit Corporation, a Delaware corporation (the "Company"), we confirm that:
1. We understand that the Notes have not been registered under the
Securities Act of 1933 (the "Securities Act"), and may not be sold except
as permitted in the following sentence. We understand and agree, on our
own behalf and on behalf of any accounts for which we are acting as
hereinafter stated, (x) that such Notes are being offered only in a
transaction not involving any public offering within the meaning of the
Securities Act, (y) that if we decide to resell, pledge or otherwise
transfer such Notes within two years after the later of the date of the
original issuance of the Notes and the last date on which the Company or
any affiliate of the Company was the owner of such Notes (or any
predecessor of such Notes), or if within three months after we cease to be
an affiliate (within the meaning of Rule 144 under the Securities Act) of
the Company, such Notes may be resold, pledged or transferred only (i) to
the Company, (ii) so long as the Notes are eligible for resale pursuant to
Rule 144A under the Securities Act ("Rule 144A"), to a person whom we
reasonably believe is a "qualified institutional buyer" (as defined in Rule
144A) ("QIB") that purchases for its own account or for the account of QIB
to whom notice is given that the resale, pledge or transfer is being made
in reliance on Rule 144A (as indicated by the box checked by the transferor
on the Certificate of Transfer on the reverse of the certificate for the
Notes), (iii) in an offshore transaction in accordance with Regulation S
under the Securities Act (as indicated by the box checked by the transferor
on the Certificate of Transfer on the reverse of the certificate for the
<PAGE>
ii
Notes), (iv) to an institution that is an "accredited investor" as defined
in Rule 501(a)(1), (2), (3) or (7) under the Securities Act (as indicated
by the box checked by the transferor on the Certificate of Transfer on the
reverse of the certificate for the Notes) which has certified to the
Company and the Trustee that it is such an accredited investor and is
acquiring the Notes for investment purposes and not for distribution, (v)
pursuant to an exemption from registration under the Securities Act
provided by Rule 144 (if applicable) under the Securities Act, or (vi)
pursuant to an effective registration statement under the Securities Act,
in each case in accordance with any applicable securities laws of any state
of the United States, and we will notify any purchaser of the Notes from us
of the above resale restriction, if then applicable. We further understand
that in connection with any transfer of the Notes by us that the Company
and the Trustee may request, and if so requested we will furnish, such
certificates, legal opinions and other information as they may reasonably
require to confirm that any such transfer complies with the foregoing
restrictions.
2. We are able to fend for ourselves in the transactions contemplated
by this Offering Memorandum, we have such knowledge and experience in
financial and business matters as to be capable of evaluating the merits
and risks of our investment in the Notes, and we and any accounts for which
we are acting are each able to bear the economic risk of our or its
investment and can afford the complete loss of such investment.
3. We understand that the minimum principal amount of Notes that may
be purchased by an institutional accredited investor is $100,000.
4. We understand that the Company, Salomon Brothers Inc and CIBC Wood
Gundy Securities Corp. as the initial purchasers of the Notes ("Initial
Purchasers"), and others will rely upon the truth and accuracy of the
foregoing acknowledgements, representations and agreements, and we agree
that if any of the acknowledgements, representations and warranties deemed
to have been made by us by our purchase of Notes, for our own account or of
one or more accounts as to each of which we exercise sole investment
discretion, are no
<PAGE>
iii
longer accurate, we shall promptly notify the Company and the Initial
Purchasers.
5. We are acquiring the Notes purchased by us for investment purposes
and not for distribution, for our own account or for one or more accounts
as to each of which we exercise sole investment discretion and we are or
such account is an institutional "accredited investor" (as defined in Rule
501(a)(1), (2), (3) or (7) of Regulation D under the Securities Act).
6. We have received a copy of the Offering Memorandum relating to the
offering of the Notes and acknowledge that we have had access to such
financial and other information, and have been afforded the opportunity to
ask questions of the Company and receive answers thereto, as we deem
necessary in connection with our decision to purchase Notes.
7. You are entitled to rely upon this letter and you are irrevocably
authorized to produce this letter or a copy hereof to any interested party
in any administrative or legal proceeding or official inquiry with respect
to the matters covered hereby.
Very truly yours,
-------------------------------
(Name of Purchaser)
By:
----------------------------
Date:
--------------------------
<PAGE>
EXHIBIT B
Selling Restrictions for Offers and
-----------------------------------
Sales outside the United States
-------------------------------
(a) The Securities have not been and will not be registered under the
Securities Act and may not be offered or sold within the United States or to, or
for the account or benefit of, U.S. persons except in accordance with Regulation
S under the Securities Act or pursuant to an exemption from the registration
requirements of the Securities Act. Each Purchaser represents and agrees that,
except as otherwise permitted by Section 4(a)(i) or (ii) of the Agreement to
which this is an exhibit, it has offered and sold the Securities, and will offer
and sell the Securities, (i) as part of their distribution at any time and (ii)
otherwise until 40 days after the later of the commencement of the offering and
the Closing Date, only in accordance with Rule 903 of Regulation S under the
Securities Act. Accordingly, each Purchaser represents and agrees that neither
it, nor any of its affiliates nor any person acting on its or their behalf has
engaged or will engage in any directed selling efforts with respect to the
Securities, and that it and they have complied and will comply with the offering
restrictions requirement of Regulation S. Each Purchaser agrees that, at or
prior to the confirmation of sale of Securities (other than a sale of Securities
pursuant to Section 4(a)(i) or (ii) of the Agreement to which this is an
exhibit), it shall have sent to each distributor, dealer or person receiving a
selling concession, fee or other remuneration that purchases Securities from it
during the restricted period a confirmation or notice to substantially the
following effect:
"The Securities covered hereby have not been registered under the
U.S. Securities Act of 1933 (the "Securities Act") and may not be
offered or sold within the United States or to, or for the account or
benefit of, U.S. persons (i) as part of their distribution at any time
or (ii) otherwise until 40 days after the later of the commencement of
the offering and April 1, 1997, except in either case in accordance
with Regulation S, Rule 144A or other exemption from registration
under the Securities Act. Terms used above have the meanings given to
them by Regulation S."
(b) Each Purchaser also represents and agrees that it has not entered
and will not enter into any contractual arrangement with any distributor with
respect to the distribution of the Securities, except with its affiliates or
with the prior written consent of the Company.
<PAGE>
ii
(c) Terms used in this Section have the meanings given to them by
Regulation S.
<PAGE>
EXHIBIT C
NOTICE TO INVESTORS
Offers and Sales by the Initial Purchasers
- ------------------------------------------
The Notes have not been registered under the Securities Act and may
not be offered or sold in the United States or to, or for the account or benefit
of, U.S. persons except in accordance with an applicable exemption from the
registration requirements thereof. Accordingly, the Notes are being offered and
sold only (1) in the United States to qualified institutional buyers ("Qualified
Institutional Buyers") under Rule 144A under the Securities Act and other
institutional "accredited investors" (as defined in Rule 501(a)(1), (2), (3) or
(7) under the Securities Act) ("Institutional Accredited Investors") in a
private sale exempt from the registration requirements of the Securities Act,
and (2) outside the United States to non-U.S. persons ("foreign purchasers") in
reliance upon Regulation S under the Securities Act. Each Institutional
Accredited Investor that is a purchaser of Notes from an Initial Purchaser will
be required to sign a certificate in the form provided by an Initial Purchaser.
Each foreign purchaser that is a purchaser of Notes from the Initial Purchasers
(an "Initial Foreign Purchaser") will be required to sign a certificate in the
form provided by the Initial Purchasers. The only Notes that will be eligible
to be deposited with The Depository Trust Company are Notes held by Qualified
Institutional Buyers and Institutional Accredited Investors.
Investor Representations and Restrictions on Resale
- ---------------------------------------------------
Each purchaser of the Notes will be deemed to have represented and
agreed as follows:
(1) it is acquiring the Notes for its own account or for an account
with respect to which it exercises sole investment discretion, and that it
or such account is a Qualified Institutional Buyer, an Institutional
Accredited Investor acquiring the Notes for investment purposes and not for
distribution or a foreign purchaser outside the United States;
(2) it acknowledges that the Notes have not been registered under the
Securities Act and may not be sold except as permitted below;
(3) it understands and agrees (x) that such Notes are being offered
only in a transaction not involving
<PAGE>
ii
any public offering within the meaning of the Securities Act, and (y) that
(A) if within two years after the later of the date of original issuance of
the Notes and the last date on which the Company or any affiliate of the
Company was the owner of such Notes (or any predecessor of such Notes) or
if it was during the three months preceding such date of transfer an
affiliate of the Company, it decides to resell, pledge or otherwise
transfer such Notes on which the legend set forth below appears, such Notes
may be resold, pledged or transferred only (i) to the Company, (ii) so
long as such Security is eligible for resale pursuant to Rule 144A, to a
person whom the seller reasonably believes is a Qualified Institutional
Buyer that purchases for its own account or for the account of a Qualified
Institutional Buyer to whom notice is given that the resale, pledge or
transfer is being made in reliance on Rule 144A (as indicated by the box
checked by the transferor on the Certificate of Transfer on the reverse of
the Note), (iii) in an offshore transaction in accordance with Regulation S
(as indicated by the box checked by the transferor on the Certificate of
Transfer on the reverse of the Note) but, if such transfer is being
effected by an Initial Foreign Purchaser or any foreign purchaser who has
purchased Notes from an Initial Foreign Purchaser or from any person other
than a QIB or an Institutional Accredited Investor pursuant to this clause
(iii) prior to the expiration of the 40 day restricted period (within the
meaning of Rule 903(c)(3) of Regulation S under the Securities Act), the
transferee shall have certified to the Company and the Trustee for the
Notes that such transferee is a non-U.S. Person (within the meaning of
Regulation S) and that such transferee is acquiring the Notes in an
offshore transaction, (iv) to an Institutional Accredited Investor (as
indicated by the box checked by the transferor on the Certificate of
Transfer on the reverse of the Note if such Note is not in book-entry form)
who has certified to the Company and the Trustee for the Notes that such
transferee is an Institutional Accredited Investor and is acquiring the
Notes for investment purposes and not for distribution, (provided that no
Initial Foreign Purchaser or any foreign purchaser who has purchased Notes
from an Initial Foreign Purchaser or from any person other than a QIB or an
Institutional Accredited Investor pursuant to clause (iii) shall be
permitted to transfer any Notes purchased by it to an
<PAGE>
iii
Institutional Accredited Investor pursuant to this clause (iv) prior to the
expiration of the "40 day restricted period" (within the meaning of Rule
903(c)(3) of Regulation S under the Securities Act)), (v) pursuant to an
exemption from registration under the Securities Act provided by Rule 144
(if applicable under, the Securities Act, or (vi) pursuant to an effective
registration statement under the Securities Act, in each case in accordance
with any applicable securities laws of any state of the United States, (B)
the purchaser will, and each subsequent holder is required to, notify any
purchaser of Notes from it of the resale restrictions referred to in (A)
above, if then applicable, and (C) with respect to any transfer of Notes by
an Institu tional Accredited Investor, such holder will deliver to the
Company and the Trustee such certificates and other information as they may
reasonably require to confirm that the transfer by it complies with the
foregoing restrictions;
(4) it understands that the notification require ment referred to in
(3) above will be satisfied in the case only of transfer by physical
delivery of certificated Notes other than a global certificate by virtue of
the fact that the following legend will be placed on the Notes unless
otherwise agreed by the Company:
"THIS SECURITY HAS NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF
1933, AS AMENDED (THE "SECURITIES ACT"). THE HOLDER HEREOF, BY
PURCHASING THIS SECURITY, AGREES FOR THE BENEFIT OF THE COMPANY THAT
THIS SECURITY MAY NOT BE RESOLD, PLEDGED OR OTHERWISE TRANSFERRED (X)
PRIOR TO THE SECOND ANNIVERSARY OF THE LATER OF THE DATE OF THE
ISSUANCE HEREOF OR THE LAST DATE ON WHICH THE COMPANY OR AN AFFILIATE
OF THE COMPANY WAS THE OWNER OF THIS SECURITY (OR ANY PREDECESSOR
SECURITY HERETO) OR (Y) BY ANY HOLDER THAT WAS AN AFFILIATE OF THE
COMPANY AT ANY TIME DURING THE THREE MONTHS PRECEDING THE DATE OF SUCH
TRANSFER, IN EITHER CASE, OTHER THAN (1) TO THE COMPANY, (2) SO LONG
AS THIS SECURITY IS ELIGIBLE FOR RESALE PURSUANT TO RULE 144A UNDER
THE SECURITIES ACT ("RULE 144A"), TO A PERSON WHOM THE SELLER
REASONABLY BELIEVES IS A QUALIFIED INSTITUTIONAL BUYER WITHIN THE
MEANING OF RULE 144A, PURCHASING FOR ITS OWN ACCOUNT OR FOR
<PAGE>
iv
THE ACCOUNT OF A QUALIFIED INSTITUTIONAL BUYER TO WHOM NOTICE IS GIVEN
THAT THE RESALE, PLEDGE OR OTHER TRANSFER IS BEING MADE IN RELIANCE ON
RULE 144A (AS INDICATED BY THE BOX CHECKED BY THE TRANSFEROR ON THE
CERTIFICATE OF TRANSFER ON THE REVERSE OF THIS SECURITY), (3) IN AN
OFFSHORE TRANSACTION IN ACCORDANCE WITH REGULATION S UNDER THE
SECURITIES ACT (AS INDICATED BY THE BOX CHECKED BY THE TRANSFEROR ON
THE CERTIFICATE OF TRANSFER ON THE REVERSE OF THIS SECURITY), (4) TO
AN INSTITU TION THAT IS AN "ACCREDITED INVESTOR" AS DEFINED IN RULE
501(a)(1), (2), (3) OR (7) UNDER THE SECURITIES ACT (AS INDICATED BY
THE BOX CHECKED BY THE TRANSFEROR ON THE CERTIFICATE OF TRANSFER ON
THE REVERSE OF THIS SECURITY) THAT IS ACQUIRING THIS SECURITY FOR
INVESTMENT PURPOSES AND NOT FOR DISTRIBUTION, AND A CERTIFICATE IN THE
FORM ATTACHED TO THIS SECURITY IS DELIVERED BY THE TRANSFEREE TO THE
COMPANY AND THE TRUSTEE, (5) PURSUANT TO AN EXEMPTION FROM
REGISTRATION UNDER THE SECURITIES ACT PROVIDED BY RULE 144 (IF
APPLICABLE) UNDER THE SECURITIES ACT OR (6) PURSUANT TO AN EFFECTIVE
REGISTRATION STATEMENT UNDER THE SECURITIES ACT, IN EACH CASE IN
ACCORDANCE WITH ANY APPLICABLE SECURITIES LAWS OF ANY STATE OF THE
UNITED STATES. AN INSTITUTIONAL ACCREDITED INVESTOR HOLDING THIS
SECURITY AGREES THAT IT WILL FURNISH TO THE COMPANY AND THE TRUSTEE
SUCH CERTIFICATES AND OTHER INFORMATION AS THEY MAY REASONABLY REQUIRE
TO CONFIRM THAT ANY TRANSFER BY IT OF THIS SECURITY COMPLIES WITH THE
FOREGOING RESTRICTIONS. THE HOLDER HEREOF, BY PURCHASING THIS
SECURITY, REPRESENTS AND AGREES FOR THE BENEFIT OF THE COMPANY THAT IT
IS (1) A QUALIFIED INSTITUTIONAL BUYER WITHIN THE MEANING OF RULE 144A
OR (2) AN INSTITUTION THAT IS AN "ACCREDITED INVESTOR" AS DEFINED IN
RULE 501(a)(1), (2), (3) OR (7) UNDER THE SECURITIES ACT AND THAT IT
IS HOLDING THIS SECURITY FOR INVESTMENT PURPOSES AND NOT FOR
DISTRIBUTION OR (3) A NON-U.S. PERSON OUTSIDE THE UNITED STATES WITHIN
THE MEANING OF (OR AN ACCOUNT SATISFYING THE REQUIREMENTS OF PARAGRAPH
(0)(2) OF RULE 902 UNDER) REGULATION S UNDER THE SECURITIES ACT.";
(5) it (i) is able to fend for itself in the transactions contemplated
by this Offering Memorandum;
<PAGE>
v
(ii) has such knowledge and experience in financial and business matters as
to be capable of evaluating the merits and risks of its prospective
investment in the Notes; and (iii) has the ability to bear the economic
risks of its prospective investment and can afford the complete loss of
such investment; and
(6) it understands that the Company, the Initial Purchasers and others
will rely upon the truth and accuracy of the foregoing acknowledgements,
representations and agreements and agrees that if any of the
acknowledgements, representations and warranties deemed to have been made
by it by its purchase of Notes are no longer accurate, it shall promptly
notify the Company and the Initial Purchasers. If it is acquiring the
Notes as a fiduciary or agent for one or more investor accounts, it
represents that it has sole investment discretion with respect to each such
account and it has full power to make the foregoing acknowledgements,
representations and agreements on behalf of such account.
<PAGE>
GLENOIT CORPORATION
11% Senior Subordinated Notes Due 2007
REGISTRATION AGREEMENT
New York, New York
March 26, 1997
To: SALOMON BROTHERS INC
CIBC WOOD GUNDY SECURITIES CORP.
In care of:
Salomon Brothers Inc
Seven World Trade Center
New York, New York 10048
Ladies and Gentlemen:
Glenoit Corporation, a Delaware corporation (the "Company"), proposes
to issue and sell to certain purchasers (the "Purchasers"), upon the terms set
forth in a purchase agreement dated the date hereof (the "Purchase Agreement"),
$100,000,000 aggregate principal amount of its 11% Senior Subordinated Notes due
2007 (the "Notes") (the "Initial Placement"), to be unconditionally guaranteed
on a senior subordinated basis (the "Guarantees" and, together with the Notes,
the "Securities") by certain of the Company's subsidiaries signatories hereto
(collectively, the "Guarantors"). As an inducement to the Purchasers to enter
into the Purchase Agreement and in satisfaction of a condition to your
obligations thereunder, the Company and the Guarantors jointly and severally
agree with you, (i) for your benefit and the benefit of the other Purchasers and
(ii) for the benefit of the holders from time to time of the Securities
(including you and the other Purchasers) (each of the foregoing a "Holder" and
together the "Holders"), as follows:
1. Definitions. Capitalized terms used herein without definition
------------
shall have their respective meanings set forth in the Purchase Agreement. As
used in this Agreement, the following capitalized defined terms shall have the
following meanings:
<PAGE>
2
"Act" means the Securities Act of 1933, as amended, and the rules and
---
regulations of the Commission promulgated thereunder.
"Affiliate" of any specified person means any other person which,
---------
directly or indirectly, is in control of, is controlled by, or is under common
control with, such specified person. For purposes of this definition, control
of a person means the power, direct or indirect, to direct or cause the
direction of the management and policies of such person whether by contract or
otherwise; and the terms "controlling" and "controlled" have meanings
correlative to the foregoing.
"Closing Date" has the meaning set forth in the Purchase Agreement.
------------
"Commission" means the Securities and Exchange Commission.
----------
"Exchange Act" means the Securities Exchange Act of 1934, as amended,
------------
and the rules and regulations of the Commission promulgated thereunder.
"Exchange Offer Registration Period" means the one-year period
----------------------------------
following the consummation of the Registered Exchange Offer, exclusive of any
period during which any stop order shall be in effect suspending the
effectiveness of the Exchange Offer Registration Statement.
"Exchange Offer Registration Statement" means a registration statement
-------------------------------------
of the Company on an appropriate form under the Act with respect to the
Registered Exchange Offer, all amendments and supplements to such registration
statement, including post-effective amendments, in each case including the
Prospectus contained therein, all exhibits thereto and all material incorporated
by reference therein.
"Exchanging Dealer" means any Holder (which may include the
-----------------
Purchasers) which is a broker-dealer, electing to exchange Securities acquired
for its own account as a result of market-making activities or other trading
activities, for New Securities.
"Final Memorandum" has the meaning set forth in the Purchase
----------------
Agreement.
"Holder" has the meaning set forth in the preamble hereto.
------
<PAGE>
3
"Holders' Counsel" has the meaning set forth in Section 5.
----------------
"Indenture" means the Indenture relating to the Securities and the New
---------
Securities dated as of April 1, 1997, among, the Company, the Guarantors and
United States Trust Company of New York, as trustee, as the same may be amended
from time to time in accordance with the terms thereof.
"Initial Placement" has the meaning set forth in the preamble hereto.
-----------------
"Losses" has the meaning set forth in Section 6(d) hereof.
------
"Majority Holders" means the Holders of a majority of the aggregate
----------------
principal amount of securities registered under a Registration Statement.
"Managing Underwriters" means the investment banker or investment
---------------------
bankers and manager or managers that shall administer an underwritten offering.
"New Securities" means debt securities of the Company unconditionally
--------------
guaranteed on a senior subordinated basis by the Guarantors and identical in all
material respects to the Securities (except that the cash interest and interest
rate step-up provisions and the transfer restrictions will be modified or
eliminated, as appropriate), to be issued under the Indenture.
"Prospectus" means the prospectus included in any Registration
----------
Statement (including, without limitation, a prospectus that discloses
information previously omitted from a prospectus filed as part of an effective
registration statement in reliance upon Rule 430A under the Act), as amended or
supplemented by any prospectus supplement, with respect to the terms of the
offering of any portion of the Securities or the New Securities, covered by such
Registration Statement, and all amendments and supplements to the Prospectus,
including post-effective amendments.
"Registered Exchange Offer" means the proposed offer to the Holders to
-------------------------
issue and deliver to such Holders, in exchange for the Securities, a like
principal amount of the New Securities.
"Registrable Securities" has the meaning set forth in Section 3(a).
----------------------
<PAGE>
4
"Registration Statement" means any Exchange Offer Registration
----------------------
Statement or Shelf Registration Statement that covers any of the Securities or
the New Securities pursuant to the provisions of this Agreement, amendments and
supplements to such registration statement, including post-effective amendments,
in each case including the Prospectus contained therein, all exhibits thereto
and all material incorporated by reference therein.
"Securities" has the meaning set forth in the preamble hereto.
----------
"Shelf Registration" means a registration effected pursuant to
------------------
Section 3 hereof.
"Shelf Registration Period" has the meaning set forth in Section
-------------------------
3(b) hereof.
"Shelf Registration Statement" means a "shelf" registration statement
----------------------------
of the Company pursuant to the provisions of Section 3 hereof which covers some
or all of the Securities or New Securities, as applicable, on an appropriate
form under Rule 415 under the Act, or any similar rule that may be adopted by
the Commission, amendments and supplements to such registration statement,
including post-effective amendments, in each case including the Prospectus
contained therein, all exhibits thereto and all material incorporated by
reference therein.
"Trustee" means the trustee with respect to the Securities and the New
-------
Securities under the Indenture and any successor trustee.
"underwriter" means any underwriter of Securities in connection with
-----------
an offering thereof under a Shelf Registration Statement.
2. Registered Exchange Offer; Resales of New Securities by Exchanging
------------------------------------------------------------------
Dealers; Private Exchange. (a) The Company and the Guarantors shall prepare
- --------------------------
and, not later than 270 days after the date of the original issuance of the
Notes, shall file with the Commission the Exchange Offer Registration Statement
with respect to the Registered Exchange Offer. The Company and the Guarantors
shall cause the Exchange Offer Registration Statement to become effective under
the Act within 345 days after the date of the original issuance of the Notes.
(b) Upon the effectiveness of the Exchange Offer Registration
Statement, the Company and the Guarantors shall promptly commence the Registered
Exchange Offer, it being
<PAGE>
5
the objective of such Registered Exchange Offer to enable each Holder electing
to exchange Securities for New Securities (assuming that such Holder is not an
affiliate of the Company or any Guarantor within the meaning of the Act,
acquires the New Securities in the ordinary course of such Holder's business and
has no arrangements with any person to participate in the distribution of the
New Securities) to trade such New Securities from and after their receipt
without any limitations or restrictions under the Act and without material
restrictions under the securities laws of a substantial proportion of the
several states of the United States.
(c) In connection with the Registered Exchange Offer, the Company
and the Guarantors shall:
(i) mail to each Holder a copy of the Prospectus forming part of the
Exchange Offer Registration Statement, together with an appropriate letter
of transmittal and related documents;
(ii) keep the Registered Exchange Offer open for not less than 30 days
and not more than 45 days after the date notice thereof is mailed to the
Holders (or longer if required by applicable law);
(iii) utilize the services of a depositary for the Registered Exchange
Offer with an address in the Borough of Manhattan, The City of New York;
and
(iv) comply in all respects with all applicable laws.
(d) As soon as practicable after the close of the Registered Exchange
Offer, the Company and the Guarantors shall:
(i) accept for exchange all Securities validly tendered and not
validly withdrawn pursuant to the Registered Exchange Offer;
(ii) deliver to the Trustee for cancellation all Securities so
accepted for exchange; and
(iii) cause the Trustee promptly to authenticate and deliver to each
Holder of Securities New Securities equal in principal amount to the
Securities of such Holder so accepted for exchange.
(e) The Purchasers, the Company and the Guarantors acknowledge that,
pursuant to current
<PAGE>
6
interpretations by the Commission's staff of Section 5 of the Act, and in the
absence of an applicable exemption therefrom, each Exchanging Dealer is required
to deliver a Prospectus in connection with a sale of any New Securities received
by such Exchanging Dealer pursuant to the Registered Exchange Offer in exchange
for Securities acquired for its own account as a result of market-making
activities or other trading activities. Accordingly, the Company and the
Guarantors shall:
(i) include the information set forth in Annex A hereto on the cover
of the Exchange Offer Registration Statement, in Annex B hereto in the
forepart of the Exchange Offer Registration Statement in a section setting
forth details of the Exchange Offer, in Annex C hereto in the underwriting
or plan of distribution section of the Prospectus forming a part of the
Exchange Offer Registration Statement, and in Annex D hereto in the Letter
of Transmittal delivered pursuant to the Registered Exchange Offer; and
(ii) use its best efforts to keep the Exchange Offer Registration
Statement continuously effective under the Act during the Exchange Offer
Registration Period for delivery by Exchanging Dealers in connection with
sales of New Securities received pursuant to the Registered Exchange Offer,
as contemplated by Section 4(h) below.
(f) In the event that any Purchaser determines that it is not
eligible to participate in the Registered Exchange Offer with respect to the
exchange of Securities constituting any portion of an unsold allotment, at the
request of such Purchaser, the Company and the Guarantors shall issue and
deliver to such Purchaser or the party purchasing New Securities registered
under a Shelf Registration Statement as contemplated by Section 3 hereof from
such Purchaser, in exchange for such Securities, a like principal amount of New
Securities. The Company and the Guarantors shall seek to cause the CUSIP
service bureau to issue the same CUSIP number for such New Securities as for New
Securities issued pursuant to the Registered Exchange Offer.
3. Shelf Registration. If, (i) because of any change in law or
-------------------
applicable interpretations thereof by the Commission's staff, the Company and
the Guarantors determine upon advice of its outside counsel that they are not
permitted to effect the Registered Exchange Offer as contemplated by Section 2
hereof, or (ii) if for any other reason the Exchange Offer Registration
Statement is not
<PAGE>
7
declared effective within 345 days after the Closing Date or the Registered
Exchange Offer is not consummated within 375 days after the Closing Date, or
(iii) if any Purchaser so requests with respect to Securities (or any New
Securities received pursuant to Section 2(f)) not eligible to be exchanged for
New Securities in a Registered Exchange Offer or, in the case of any Initial
Purchaser that participates in any Registered Exchange Offer, such Initial
Purchaser does not receive freely tradeable New Securities, or (iv) any Holder
(other than an Initial Purchaser) is not eligible to participate in the
Registered Exchange Offer or, in the case of any such Holder that participates
in the Registered Exchange Offer, such Holder does not receive freely tradeable
New Securities in exchange for tendered Securities, other than by reason of such
Holder being an affiliate of the Company within the meaning of the Act (it being
understood that, for purposes of this Section 3, (x) the requirement that a
Purchaser deliver a Prospectus containing the information required by Items 507
and/or 508 of Regulation S-K under the Act in connection with sales of New
Securities acquired in exchange for such Securities shall result in such New
Securities being not "freely tradeable" but (y) the requirement that an
Exchanging Dealer deliver a Prospectus in connection with sales of New
Securities acquired in the Registered Exchange Offer in exchange for Securities
acquired as a result of market-making activities or other trading activities
shall not result in such New Securities being not "freely tradeable"), the
following provisions shall apply:
(a) The Company and the Guarantors shall as promptly as practicable
(but in no event not more than 30 days after so required or requested pursuant
to this Section 3) file with the Commission and thereafter shall cause to be
declared effective under the Act a Shelf Registration Statement relating to the
offer and sale of the Securities or the New Securities, as applicable, by the
Holders from time to time in accordance with the methods of distribution elected
by such Holders and set forth in such Shelf Registration Statement (such
Securities or New Securities, as applicable, to be sold by Holders under such
Shelf Registration Statement being referred to herein as "Registrable
Securities"); provided, that with respect to New Securities received by a
--------
Purchaser in exchange for Securities constituting any portion of an unsold
allotment, the Company and the Guarantors may, if permitted by current
interpretations by the Commission's staff, file a post-effective amendment to
the Exchange Offer Registration Statement containing the information required by
Regulation S-K Items 507 and/or 508, as applicable, in satisfaction of its
obligations under this paragraph (a) with respect
<PAGE>
8
thereto, and any such Exchange Offer Registration Statement, as so amended,
shall be referred to herein as, and governed by the provisions herein applicable
to, a Shelf Registration Statement.
(b) The Company and the Guarantors shall use their best efforts to
keep the Shelf Registration Statement continuously effective in order to permit
the Prospectus forming part thereof to be usable by Holders for a period of
three years from the date the Shelf Registration Statement is declared effective
by the Commission (or until one year after such effective date if such Shelf
Registration Statement is filed at the request of a Purchaser) or such shorter
period that will terminate when all the Securities or New Securities, as
applicable, covered by the Shelf Registration Statement have been sold pursuant
to the Shelf Registration Statement (in any such case, such period being called
the "Shelf Registration Period"). The Company and the Guarantors shall be
deemed not to have used their best efforts to keep the Shelf Registration
Statement effective during the requisite period if any of them voluntarily takes
any action that would result in Holders of securities covered thereby not being
able to offer and sell such securities during that period, unless (i) such
action is required by applicable law or (ii) such action is taken by the Company
or any Guarantor in good faith and for valid business reasons (not including
avoidance of the Company's or such Guarantor's obligations hereunder), including
the acquisition or divestiture of assets, so long as the Company or such
Guarantor promptly thereafter complies with the requirements of Section 4(k)
hereof, if applicable.
4. Registration Procedures. In connection with any Shelf
------------------------
Registration Statement and, to the extent applicable, any Exchange Offer
Registration Statement, the following provisions shall apply:
(a) The Company and the Guarantors shall furnish to you, prior to the
filing thereof with the Commission, a copy of any Shelf Registration
Statement and any Exchange Offer Registration Statement, and each amendment
thereof and each amendment or supplement, if any, to the Prospectus
included therein and shall use their best efforts to reflect in each such
document, when so filed with the Commission, such comments as you may
reasonably and timely propose.
(b) The Company and the Guarantors shall ensure that (i) any
Registration Statement and any amendment thereto and any Prospectus forming
part thereof and any amendment or supplement thereto complies in all
<PAGE>
9
material respects with the Act and the rules and regulations thereunder,
(ii) any Registration Statement and any amendment thereto does not, when it
becomes effective, contain an untrue statement of a material fact or omit
to state a material fact required to be stated therein or necessary to make
the statements therein not misleading and (iii) any Prospectus forming part
of any Registration Statement, and any amendment or supplement to such
Prospectus, does not include an untrue statement of a material fact or omit
to state a material fact necessary in order to make the statements, in the
light of the circumstances under which they were made, not misleading.
(c) (1) The Company and the Guarantors shall advise you and, in the
case of a Shelf Registration Statement, the Holders of securities covered
thereby, and, if requested by you or any such Holder, confirm such advice
in writing:
(i) when a Registration Statement and any amendment thereto has
been filed with the Commission and when the Registration Statement or
any post-effective amendment thereto has become effective; and
(ii) of any request by the Commission for amendments or
supplements to the Registration Statement or the Prospectus included
therein or for additional information.
(2) The Company and the Guarantors shall advise you and, in the case
of a Shelf Registration Statement, the Holders of securities covered
thereby, and, in the case of an Exchange Offer Registration Statement, any
Exchanging Dealer which has provided in writing to the Company a telephone
or facsimile number and address for notices, and, if requested by you or
any such Holder or Exchanging Dealer, confirm such advice in writing:
(i) of the issuance by the Commission of any stop order
suspending the effectiveness of the Registration Statement or the
initiation of any proceedings for that purpose;
(ii) of the receipt by the Company or any Guarantor of any
notification with respect to the suspension of the qualification of
the securities included therein for sale in any jurisdiction or the
initiation or threatening of any proceeding for such purpose; and
<PAGE>
10
(iii) of the happening of any event that requires the making of any
changes in the Registration Statement or the Prospectus so that, as of
such date, the statements therein are not misleading and do not omit
to state a material fact required to be stated therein or necessary to
make the statements therein (in the case of the Prospectus, in the
light of the circumstances under which they were made) not misleading
(which advice shall be accompanied by an instruction to suspend the
use of the Prospectus until the requisite changes have been made).
(d) The Company and the Guarantors shall use their best efforts to
obtain the withdrawal of any order suspending the effectiveness of any
Registration Statement at the earliest possible time.
(e) The Company and the Guarantors shall furnish to each Holder of
securities included within the coverage of any Shelf Registration
Statement, without charge, at least one copy of such Shelf Registration
Statement and any post-effective amendment thereto, including financial
statements and schedules, and, if the Holder so requests in writing, any
documents incorporated by reference therein and all exhibits (including
those incorporated by reference therein).
(f) The Company and the Guarantors shall, during the Shelf
Registration Period, deliver to each Holder of securities included within
the coverage of any Shelf Registration Statement, without charge, as many
copies of the Prospectus (including each preliminary Prospectus) included
in such Shelf Registration Statement and any amendment or supplement
thereto as such Holder may reasonably request; and the Company and the
Guarantors consent to the use of the Prospectus or any amendment or
supplement thereto by each of the selling Holders of securities in
connection with the offering and sale of the securities covered by the
Prospectus or any amendment or supplement thereto.
(g) The Company and the Guarantors shall furnish to each Exchanging
Dealer which so requests, without charge, at least one copy of the Exchange
Offer Registration Statement and any post-effective amendment thereto,
including financial statements and schedules, any documents incorporated by
reference therein, and, if the Exchanging Dealer so requests in writing,
any documents incorporated by reference therein and all
<PAGE>
11
exhibits (including those incorporated by reference therein).
(h) The Company and the Guarantors shall, during the Exchange Offer
Registration Period, promptly deliver to each Exchanging Dealer, without
charge, as many copies of the Prospectus included in such Exchange Offer
Registration Statement and any amendment or supplement thereto as such
Exchanging Dealer may reasonably request for delivery by such Exchanging
Dealer in connection with a sale of New Securities received by it pursuant
to the Registered Exchange Offer; and the Company and the Guarantors
consent to the use of the Prospectus or any amendment or supplement thereto
by any such Exchanging Dealer, as aforesaid.
(i) Prior to the Registered Exchange Offer or any other offering of
securities pursuant to any Registration Statement, the Company and the
Guarantors shall register or qualify or cooperate with the Holders of
securities included therein and Holders' Counsel in connection with the
registration or qualification of such securities for offer and sale under
the securities or blue sky laws of such jurisdictions as any such Holder
reasonably requests in writing and do any and all other acts or things
necessary or advisable to enable the offer and sale in such jurisdictions
of the securities covered by such Registration Statement; provided,
--------
however, that neither the Company nor any Guarantor will be required to
-------
qualify generally to do business in any jurisdiction where it is not then
so qualified or to take any action which would subject it to general
service of process or to taxation in any such jurisdiction where it is not
then so subject.
(j) The Company and the Guarantors shall cooperate with the Holders
of Securities to facilitate the timely preparation and delivery of
certificates representing Securities to be sold pursuant to any
Registration Statement free of any restrictive legends and in such
denominations and registered in such names as Holders may request prior to
sales of Securities pursuant to such Registration Statement.
(k) Upon the occurrence of any event contemplated by paragraph
(c)(2)(iii) above, the Company and the Guarantors shall promptly prepare a
post-effective amendment to any Registration Statement or an amendment or
supplement to the related Prospectus or file any other required document so
that, as thereafter
<PAGE>
12
delivered to purchasers of the securities included therein, the Prospectus
will not include an untrue statement of a material fact or omit to state
any material fact necessary to make the statements therein, in the light of
the circumstances under which they were made, not misleading.
(l) Not later than the effective date of any such Registration
Statement hereunder, the Company and the Guarantors shall provide a CUSIP
number for the Securities or New Securities, as the case may be, registered
under such Registration Statement, and provide the Trustee with printed
certificates for such Securities or New Securities, in a form, if requested
by the applicable Holder or Holder's counsel, eligible for deposit with The
Depository Trust Company.
(m) The Company and the Guarantors shall use their best efforts to
comply with all applicable rules and regulations of the Commission to the
extent and so long as they are applicable to the Registered Exchange Offer
or the Shelf Registration and will make generally available to its security
holders a consolidated earnings statement (which need not be audited)
covering a twelve-month period commencing after the effective date of the
Registration Statement and ending not later than 15 months thereafter, as
soon as practicable after the end of such period, which consolidated
earnings statement shall satisfy the provisions of Section 11(a) of the
Securities Act.
(n) The Company and the Guarantors shall cause the Indenture to be
qualified under the Trust Indenture Act of 1939, as amended, on or prior to
the effective date of any Shelf Registration Statement or Exchange Offer
Registration Statement.
(o) The Company may require each Holder of Registrable Securities to
be sold pursuant to any Shelf Registration Statement to furnish to the
Company such information regarding such Holder and the distribution of such
securities as the Company may from time to time reasonably require for
inclusion in such Registration Statement.
(p) The Company and the Guarantors shall, if requested, promptly
incorporate in a Prospectus supplement or post-effective amendment to a
Shelf Registration Statement, such information as the Managing Underwriters
and Majority Holders reasonably agree should be included therein and shall
make all
<PAGE>
13
required filings of such Prospectus supplement or post-effective amendment
as soon as notified of the matters to be incorporated in such Prospectus
supplement or post-effective amendment.
(q) In the case of any Shelf Registration Statement, the Company and
the Guarantors shall enter into such agreements (including underwriting
agreements) and take all other appropriate actions in order to expedite or
facilitate the registration or the disposition of the Securities, and in
connection therewith, if an underwriting agreement is entered into, cause
the same to contain indemnification provisions and procedures no less
favorable than those set forth in Section 6 hereof (or such other
provisions and procedures acceptable to the Majority Holders and the
Managing Underwriters, if any), with respect to all parties to be
indemnified pursuant to Section 6 hereof from Holders of Securities to the
Company and the Guarantors.
(r) In the case of any Shelf Registration Statement, the Company and
the Guarantors shall (i) make reasonably available for inspection by the
Holders of securities to be registered thereunder, any underwriter
participating in any disposition pursuant to such Registration Statement,
and any attorney, accountant or other agent retained by the Holders or any
such underwriter all relevant financial and other records, pertinent
corporate documents and properties of the Company and its subsidiaries;
(ii) cause the Company's and the Guarantors' officers, directors and
employees to supply all relevant information reasonably requested by the
Holders or any such underwriter, attorney, accountant or other agent in
connection with any such Registration Statement as is customary for similar
due diligence examinations; provided, however, that any information that is
-------- -------
designated in writing by the Company, in good faith, as confidential at the
time of delivery of such information shall be kept confidential by the
Holders or any such underwriter, attorney, accountant or other agent,
unless such disclosure is made in connection with a court proceeding or
required by law, or such information becomes available to the public
generally or through a third party without an accompanying obligation of
confidentiality; (iii) make such representations and warranties to the
Holders of securities registered thereunder and the underwriters, if any,
in form, substance and scope as are customarily made by issuers to
underwriters in primary underwritten offerings; (iv)
<PAGE>
14
obtain opinions of counsel to the Company and the Guarantors (which counsel
and opinions (in form, scope and substance) shall be reasonably
satisfactory to the Managing Underwriters, if any) addressed to each
selling Holder and the underwriters, if any, covering such matters as are
customarily covered in opinions requested in underwritten offerings and
such other matters as may be reasonably requested by such Holders and
underwriters; (v) obtain "cold comfort" letters (or, in the case of any
person that does not satisfy the conditions for receipt of a "cold comfort"
letter specified in Statement on Auditing Standards No. 72, an "agreed-upon
procedures letter") and updates thereof from the independent certified
public accountants of the Company and the Guarantors (and, if necessary,
any other independent certified public accountants of any subsidiary of the
Company or of any business acquired by the Company for which financial
statements and financial data are, or are required to be, included in the
Registration Statement), addressed to each selling Holder of securities
registered thereunder and the underwriters, if any, in customary form and
covering matters of the type customarily covered in "cold comfort" letters
in connection with primary underwritten offerings; and (vi) deliver such
documents and certificates as may be reasonably requested by the Majority
Holders and the Managing Underwriters, if any, including those to evidence
compliance with Section 4(k) and with any customary conditions contained in
the underwriting agreement or other agreement entered into by the Company
and the Guarantors. The foregoing actions set forth in clauses (iii),
(iv), (v) and (vi) of this Section 4(r) shall be performed at (A) the
effective date of such Registration Statement and each post-effective
amendment thereto and (B) each closing under any underwriting or similar
agreement as and to the extent required thereunder.
(s) In the case of any Exchange Offer Registration Statement, the
Company and the Guarantors shall (i) make reasonably available for
inspection by each Purchaser, and any attorney, accountant or other agent
retained by such Purchaser, all relevant financial and other records,
pertinent corporate documents and properties of the Company and its
subsidiaries; (ii) cause the Company's and the Guarantors' officers,
directors and employees to supply all relevant information reasonably
requested by such Purchaser or any such attorney, accountant or other agent
in connection with any such Registration Statement as is customary for
similar due diligence
<PAGE>
15
examinations; provided, however, that any information that is designated in
-------- -------
writing by the Company, in good faith, as confidential at the time of
delivery of such information shall be kept confidential by such Purchaser
or any such attorney, accountant or other agent, unless such disclosure is
made in connection with a court proceeding or required by law, or such
information becomes available to the public generally or through a third
party without an accompanying obligation of confidentiality; (iii) make
such representations and warranties to such Purchaser, in form, substance
and scope as are customarily made by issuers to underwriters in primary
underwritten offerings; (iv) obtain opinions of counsel to the Company and
the Guarantors, which counsel and opinions (in form, scope and substance)
shall be reasonably satisfactory to such Purchaser and its counsel,
addressed to such Purchaser, covering such matters as are customarily
covered in opinions requested in underwritten offerings and such other
matters as may be reasonably requested by such Purchaser or its counsel;
(v) obtain "cold comfort" letters and updates thereof from the independent
certified public accountants of the Company and the Guarantors (and, if
necessary, any other independent certified public accountants of any
subsidiary of the Company or of any business acquired by the Company for
which financial statements and financial data are, or are required to be,
included in the Registration Statement), addressed to such Purchaser, in
customary form and covering matters of the type customarily covered in
"cold comfort" letters in connection with primary underwritten offerings,
or if requested by such Purchaser or its counsel in lieu of a "cold
comfort" letter, an agreed-upon procedures letter under Statement on
Auditing Standards No. 35, covering matters requested by such Purchaser or
its counsel; and (vi) deliver such documents and certificates as may be
reasonably requested by such Purchaser or its counsel, including those to
evidence compliance with Section 4(k) and with conditions customarily
contained in underwriting agreements. The foregoing actions set forth in
clauses (iii), (iv), (v), and (vi) of this Section 4(s) shall be performed
at the close of the Registered Exchange Offer and the effective date of any
post-effective amendment to the Exchange Offer Registration Statement.
5. Registration Expenses. The Company and the Guarantors shall bear
----------------------
all expenses incurred in connection with the performance of their obligations
under Sections 2, 3 and 4 hereof and, in the event of any Shelf Registration
<PAGE>
16
Statement, will reimburse the Holders for the reasonable fees and disbursements
of one firm or counsel (in addition to one local counsel in each relevant
jurisdiction) designated by the Majority Holders to act as counsel for the
Holders in connection therewith ("Holders' Counsel"), and, in the case of any
Exchange Offer Registration Statement, will reimburse the Purchasers for the
reasonable fees and disbursements of counsel acting in connection therewith.
6. Indemnification and Contribution. (a) In connection with any
---------------------------------
Registration Statement, the Company and the Guarantors, jointly and severally,
agree to indemnify and hold harmless each Holder of securities covered thereby
(including each Purchaser and, with respect to any Prospectus delivery as
contemplated in Section 4(h) hereof, each Exchanging Dealer), the directors,
officers, employees and agents of each such Holder and each other person, if
any, who controls any such Holder within the meaning of Section 15 the Act or
Section 20 of the Exchange Act against any and all losses, claims, damages or
liabilities, joint or several, to which they or any of them may become subject
under the Act, the Exchange Act or other Federal or state statutory law or
regulation, at common law or otherwise, insofar as such losses, claims, damages
or liabilities (or actions in respect thereof) arise out of or are based upon
any untrue statement or alleged untrue statement of a material fact contained in
the Registration Statement as originally filed or in any amendment thereof, or
in any preliminary Prospectus or Prospectus, or in any amendment thereof or
supplement thereto, or arise out of or are based upon the omission or alleged
omission to state therein a material fact required to be stated therein or
necessary to make the statements therein not misleading, and agrees to reimburse
each such indemnified party, as incurred, for any legal or other expenses
reasonably incurred by them in connection with investigating or defending any
such loss, claim, damage, liability or action; provided, however, that (i)
-------- -------
neither the Company nor any Guarantor will be liable in any case to the extent
that any such loss, claim, damage or liability arises out of or is based upon
any such untrue statement or alleged untrue statement or omission or alleged
omission made therein in reliance upon and in conformity with written
information furnished to the Company by or on behalf of any such Holder
specifically for inclusion therein and (ii) neither the Company nor any
Guarantor shall be liable to any indemnified party under this indemnity
agreement with respect to the Registration Statement or Prospectus to the extent
that any such loss, claim, damage or liability of such indemnified party results
solely from an untrue statement of a material fact contained in, or the omission
of a material fact from, the Registration Statement
<PAGE>
17
or Prospectus which untrue statement or omission was corrected in an amended or
supplemented Registration Statement or Prospectus, if the person alleging such
loss, claim, damage or liability was not sent or given, at or prior to the
written confirmation of such sale, a copy of the amended or supplemented
Registration Statement or Prospectus if the Company had previously furnished
copies thereof to such indemnified party and if delivery of a prospectus is
required by the Act and was not so made. This indemnity agreement will be in
addition to any liability which the Company and the Guarantors may otherwise
have.
The Company also agrees to indemnify or contribute to Losses of, as
provided in Section 6(d), any underwriters of Securities registered under a
Shelf Registration Statement, their officers and directors and each person who
controls such underwriters on substantially the same basis as that of the
indemnification of the Purchasers and the selling Holders provided in this
Section 6(a) and shall, if requested by any Holder, enter into an underwriting
agreement reflecting such agreement, as provided in Section 4(q) hereof.
(b) Each Holder of securities covered by a Registration Statement
(including each Purchaser and, with respect to any Prospectus delivery as
contemplated in Section 4(h) hereof, each Exchanging Dealer) severally agrees to
indemnify and hold harmless the Company and each Guarantor, each of their
respective directors and officers and each other person, if any, who controls
the Company or such Guarantor within the meaning of Section 15 of the Act or
Section 20 of the Exchange Act to the same extent as the foregoing indemnity
from the Company and the Guarantors to each such Holder, but only with reference
to written information relating to such Holder furnished to the Company by or on
behalf of such Holder specifically for inclusion in the documents referred to in
the foregoing indemnity. This indemnity agreement will be in addition to any
liability which any such Holder may otherwise have.
(c) Promptly after receipt by an indemnified party under this Section
6 of notice of the commencement of any action, such indemnified party will, if a
claim in respect thereof is to be made against the indemnifying party under this
Section 6, notify the indemnifying party in writing of the commencement thereof;
but the failure so to notify the indemnifying party (i) will not relieve it from
liability under paragraph (a) or (b) above unless and to the extent it did not
otherwise learn of such action and such failure results in the forfeiture by the
indemnifying party of substantial rights and defenses and (ii) will not, in any
<PAGE>
18
event, relieve the indemnifying party from any obligations to any indemnified
party other than the indemnification obligation provided in paragraph (a) or (b)
above. The indemnifying party shall be entitled to appoint as counsel one firm
of attorneys of the indemnifying party's choice at the indemnifying party's
expense, which counsel, together with one local counsel in each jurisdiction,
shall act on behalf of all the indemnified parties in any action for which
indemnification is sought (in which case the indemni fying party shall not
thereafter be responsible for the fees and expenses of any separate counsel
retained by the indem nified party or parties except as set forth below);
provided, however, that such counsel shall be reasonably satisfactory to the
- -------- -------
indemnified party. Notwithstanding the indemnifying party's election to appoint
counsel to represent the indemnified party in an action, the indemnified party
shall have the right to employ separate counsel (including local counsel), and
the indemnified party shall bear the fees, costs and expenses of such separate
counsel (and local counsel) unless (i) the use of counsel chosen by the
indemnifying party to represent the indemnified party would, in the reasonable
judgment of the indemnified party, present such counsel with a conflict of
interest, (ii) the actual or potential defendants in, or targets of, any such
action include both the indemnified party and the indemnifying party and the
indemnified party shall have reasonably concluded that there may be legal
defenses available to it and/or other indemnified parties which are different
from or additional to those available to the indemnifying party, (iii) the
indemnifying party shall not have employed counsel reasonably satisfactory to
the indemnified party to represent the indemnified party within a reasonable
time after notice of the institution of such action or (iv) the indemnifying
party shall authorize the indemnified party to employ separate counsel at the
expense of the indemnifying party. No indemnifying party shall be liable for
any settlement of any such action effected without its written consent (which
consent shall not be unreasonably withheld), but if settled with its written
consent or if there be a final judgment for the plaintiff in any such action,
the indemnifying party agrees to indemnify and hold harmless any indemnified
party from and against any loss or liability by reason of such settlement or
judgment. An indemnifying party will not, without the prior written consent of
the indemnified parties, settle or compromise or consent to the entry of any
judgment with respect to any pending or threatened claim, action, suit or
proceeding in respect of which indemnification or contribution may be sought
hereunder (whether or not the indemnified parties are actual or potential
parties to such claim or action) unless such settlement, compromise or consent
includes an
<PAGE>
19
unconditional release of each indemnified party from all liability arising out
of such claim, action, suit or proceeding.
(d) In the event that the indemnity provided in paragraph (a) or (b)
of this Section 6 is unavailable to or insufficient to hold harmless an
indemnified party for any reason, then each applicable indemnifying party, in
lieu of indemnifying such indemnified party, shall have a joint and several
obligation to contribute to the aggregate losses, claims, damages and
liabilities (including legal or other expenses reasonably incurred in connection
with investigating or defending same) (collectively "Losses") to which such
indemnified party may be subject in such proportion as is appropriate to reflect
the relative benefits received by such indemnifying party, on the one hand, and
such indemnified party, on the other hand, from the Initial Placement and the
Registration Statement which resulted in such Losses; provided, however, that in
-------- -------
no case shall any Purchaser or any subsequent Holder of any Security or New
Security be responsible, in the aggregate, for any amount in excess of the
purchase discount or commission applicable to such Security, or in the case of a
New Security, applicable to the Security which was exchangeable into such New
Security, as set forth on the cover page of the Final Memorandum, nor shall any
underwriter be responsible for any amount in excess of the underwriting discount
or commission applicable to the securities purchased by such underwriter under
the Registration Statement which resulted in such Losses. If the allocation
provided by the immediately preceding sentence is unavailable for any reason,
the indemnifying party and the indemnified party shall contribute in such
proportion as is appropriate to reflect not only such relative benefits but also
the relative fault of such indemnifying party, on the one hand, and such
indemnified party, on the other hand, in connection with the statements or
omissions which resulted in such Losses as well as any other relevant equitable
considerations. Benefits received by the Company and the Guarantors shall be
deemed to be equal to the sum of (x) the total net proceeds from the Initial
Placement (before deducting expenses) as set forth on the cover page of the
Final Memorandum and (y) the total amount of additional interest which the
Company and the Guarantors were not required to pay as a result of registering
the securities covered by the Registration Statement which resulted in such
Losses. Benefits received by the Purchasers shall be deemed to be equal to the
total purchase discounts and commissions as set forth on the cover page of the
Final Memorandum, and benefits received by any other Holders shall be deemed to
be equal to the value of receiving Securities or New
<PAGE>
20
Securities, as applicable, registered under the Act. Benefits received by any
underwriter shall be deemed to be equal to the total underwriting discounts and
commissions, as set forth on the cover page of the Prospectus forming a part of
the Registration Statement which resulted in such Losses. Relative fault shall
be determined by reference to whether any alleged untrue statement or omission
relates to information provided by the indemnifying party, on the one hand, or
by the indemnified party, on the other hand. The parties agree that it would
not be just and equitable if contribution were determined by pro rata allocation
or any other method of allocation which does not take account of the equitable
considerations referred to above. Notwithstanding the provisions of this
paragraph (d), no person guilty of fraudulent misrepresentation (within the
meaning of Section 11(f) of the Act) shall be entitled to contribution from any
person who was not guilty of such fraudulent misrepresentation. For purposes of
this Section 6, each person who controls a Holder within the meaning of either
the Act or the Exchange Act and each director, officer, employee and agent of
such Holder shall have the same rights to contribution as such Holder, and each
person who controls the Company or any Guarantor within the meaning of either
the Act or the Exchange Act, each officer of the Company or any Guarantor who
shall have signed the Registration Statement and each director of the Company or
any Guarantor shall have the same rights to contribution as the Company and the
Guarantors, subject in each case to the applicable terms and conditions of this
paragraph (d).
(e) The provisions of this Section 6 will remain in full force and
effect, regardless of any investigation made by or on behalf of any Holder, the
Company or any Guarantor or any of the officers, directors or controlling
persons referred to in Section 6 hereof, and will survive the sale by a Holder
of securities covered by a Registration Statement.
7. Miscellaneous.
--------------
(a) No Inconsistent Agreements. Neither the Company nor any
---------------------------
Guarantor has, as of the date hereof, entered into, nor shall it, on or
after the date hereof, enter into, any agreement with respect to its
securities that is inconsistent with the rights granted to the Holders
herein or otherwise conflicts with the provisions hereof.
(b) Amendments and Waivers. The provisions of this Agreement,
-----------------------
including the provisions of this sentence, may not be amended, qualified,
modified or
<PAGE>
21
supplemented, and waivers or consents to departures from the provisions
hereof may not be given, unless the Company has obtained the written
consent of the Holders of at least a majority of the then outstanding
aggregate principal amount of Securities (or, after the consummation of any
Exchange Offer in accordance with Section 2 hereof, of New Securities);
provided that, with respect to any matter that directly or indirectly
--------
affects the rights of any Purchaser hereunder, the Company shall obtain the
written consent of each such Purchaser against which such amendment,
qualification, supplement, waiver or consent is to be effective.
Notwithstanding the foregoing (except the foregoing proviso), a waiver or
consent to departure from the provisions hereof with respect to a matter
that relates exclusively to the rights of Holders whose securities are
being sold pursuant to a Registration Statement and that does not directly
or indirectly affect the rights of other Holders may be given by the
Majority Holders, determined on the basis of securities being sold rather
than registered under such Registration Statement.
(c) Notices. All notices and other communications provided for or
--------
permitted hereunder shall be made in writing by hand-delivery, first-class
mail, fax or air courier guaranteeing overnight delivery:
(1) if to a Holder, at the most current address given by such
holder to the Company in accordance with the provisions of this
Section 7(c), which address initially is, with respect to each Holder,
the address of such Holder maintained by the registrar under the
Indenture, with a copy in like manner to Salomon Brothers Inc by fax
(212-783-2823) and confirmed by mail to them at Seven World Trade
Center, New York, New York 10048;
(2) if to you, initially at the respective addresses set forth in
the Purchase Agreement; and
(3) if to the Company or any Guarantor, initially at its address
set forth in the Purchase Agreement.
All such notices and communications shall be deemed to have been duly
given when received.
<PAGE>
22
The Purchasers or the Company by notice to the other may designate
additional or different addresses for subsequent notices or communications.
(d) Successors and Assigns. This Agreement shall inure to the
-----------------------
benefit of and be binding upon the successors and assigns of each of the
parties, including, without the need for an express assignment or any
consent by the Company or any Guarantor thereto, subsequent Holders of
Securities and/or New Securities. The Company and the Guarantors each
hereby agrees to extend the benefits of this Agreement to any Holder of
Securities and/or New Securities and any such Holder may specifically
enforce the provisions of this Agreement as if an original party hereto.
(e) Counterparts. This agreement may be executed in any number of
-------------
counterparts and by the parties hereto in separate counterparts, each of
which when so executed shall be deemed to be an original and all of which
taken together shall constitute one and the same agreement.
(f) Headings. The headings in this agreement are for convenience of
---------
reference only and shall not limit or otherwise affect the meaning hereof.
(g) Governing Law. THIS AGREEMENT SHALL BE GOVERNED BY AND CONSTRUED
--------------
IN ACCORDANCE WITH THE INTERNAL LAWS OF THE STATE OF NEW YORK (WITHOUT
REGARD TO THE CONFLICT OF LAW PROVISIONS THEREOF).
(h) Severability. In the event that any one or more of the
-------------
provisions contained herein, or the application thereof in any
circumstances, is held invalid, illegal or unenforceable in any respect for
any reason, the validity, legality and enforceability of any such provision
in every other respect and of the remaining provisions hereof shall not be
in any way impaired or affected thereby, it being intended that all of the
rights and privileges of the parties shall be enforceable to the fullest
extent permitted by law.
(i) Securities Held by the Company, etc. Whenever the consent or
------------------------------------
approval of Holders of a specified percentage of principal amount of
Securities or New Securities is required hereunder, Securities or New
Securities, as applicable, held by the Company or its Affiliates (other
than subsequent Holders of Securities or New Securities if such subsequent
Holders are deemed to be Affiliates solely by reason of their holdings of
such Securities or New Securities) shall not be counted in determining
whether such consent or
<PAGE>
23
approval was given by the Holders of such required percentage.
<PAGE>
24
Please confirm that the foregoing correctly sets forth the agreement
among the Company, the Guarantors and you.
Very truly yours,
GLENOIT CORPORATION,
by
------------------------------------
Name:
Title:
SUBSIDIARY GUARANTORS:
GLENOIT MILLS, INC.,
by
------------------------------------
Name:
Title:
GLENOIT ASSETS CORP.,
by
-------------------------------------
Name:
Title:
TARBORO PROPERTIES, LTD.,
by
-------------------------------------
Name:
Title:
<PAGE>
25
The foregoing Agreement is hereby
confirmed and accepted as of the
date first above written.
SALOMON BROTHERS INC
CIBC WOOD GUNDY SECURITIES CORP.
by SALOMON BROTHERS INC
by
-------------------------
Name:
Title:
<PAGE>
ANNEX A
Each broker-dealer that receives New Securities for its own account
pursuant to the Exchange Offer must acknowledge that it will deliver a
prospectus in connection with any resale of such New Securities. The Letter of
Transmittal states that by so acknowledging and by delivering a prospectus, a
broker-dealer will not be deemed to admit that it is an "underwriter" within the
meaning of the Securities Act. This Prospectus, as it may be amended or
supplemented from time to time, may be used by a broker-dealer in connection
with resales of New Securities received in exchange for Securities where such
New Securities were acquired by such broker-dealer as a result of market-making
activities or other trading activities. The Company has agreed that, starting
on the Expiration Date (as defined herein) and ending on the close of business
on the 180th day following the Expiration Date, it will make this Prospectus
available to any broker-dealer for use in connection with any such resale. See
"Plan of Distribution."
<PAGE>
ANNEX B
Each broker-dealer that receives New Securities for its own account in
exchange for Securities, where such Securities were acquired by such broker-
dealer as a result of market-making activities or other trading activities, must
acknowledge that it will deliver a prospectus in connection with any resale of
such New Securities. See "Plan of Distribution."
<PAGE>
ANNEX C
PLAN OF DISTRIBUTION
Each broker-dealer that receives New Securities for its own account
pursuant to the Exchange Offer must acknowledge that it will deliver a
prospectus in connection with any resale of such New Securities. The
Prospectus, as it may be amended or supplemented from time to time, may be used
by a broker-dealer in connection with resales of New Securities received in
exchange for Securities where such Securities were acquired as a result of
market-making activities or other trading activities. Each of the Company and
the Guarantors has agreed that, starting on the Expiration Date and ending on
the close of business on the 180th day following the Expiration Date, it will
make this Prospectus, as amended or supplemented, available to any broker-dealer
for use in connection with any such resale. In addition, until
, 199 , all dealers effecting transactions in the Exchange Securities may be
required to deliver a prospectus./*/
Neither the Company nor the Guarantors will receive any proceeds from
any sale of New Securities by broker-dealers. New Securities received by
broker-dealers for their own account pursuant to the Exchange Offer may be sold
from time to time in one or more transactions in the over-the-counter market, in
negotiated transactions, through the writing of options on the New Securities or
a combination of such methods of resale, at market prices prevailing at the time
of resale, at prices related to such prevailing market prices or negotiated
prices. Any such resale may be made directly to purchaser or to or through
brokers or dealers who may receive compensation in the form of commissions or
concessions from any such broker-dealer and/or the purchasers of any such New
Securities. Any broker-dealer that resells New Securities that were received by
it for its own account pursuant to the Exchange Offer and any broker or dealer
that participates in a distribution of such New Securities may be deemed to be
an "underwriter" within the meaning of the Securities Act and any profit of any
such resale of New Securities and any commissions or concessions received by any
such persons may be deemed to be underwriting compensation under the Securities
Act. The Letter of Transmittal states that by acknowledging that it will
deliver and by delivering a prospectus, a broker-dealer will not be deemed to
admit that it is an "underwriter" within the meaning of the Securities Act.
- -----------
/*/ In addition, the legend required by Item 502(e) of Regulation S-K will
appear on the back cover page of the Exchange Offer prospectus.
<PAGE>
ii
For a period of 180 days after the Expiration Date, the Company will
promptly send additional copies of this Prospectus and any amendment or
supplement to this Prospectus to any broker-dealer that requests such documents
in the Letter of Transmittal. The Company and the Guarantors have jointly and
severally agreed to pay all expenses incident to the Exchange Offer (including
the expenses of one counsel for the holders of the Securities) other than
commissions or concessions of any brokers or dealers and will indemnify the
holders of the Securities (including any broker-dealers) against certain
liabilities, including liabilities under the Securities Act.
[If applicable, add information required by Regulation S-K Items 507
and/or 508.]
<PAGE>
ANNEX D
Rider A
-------
CHECK HERE IF YOU ARE A BROKER-DEALER AND WISH TO RECEIVE 10
ADDITIONAL COPIES OF THE PROSPECTUS AND 10 COPIES OF ANY
AMENDMENTS OR SUPPLEMENTS THERETO.
Name:
-------------------------------------------------------
Address:
----------------------------------------------------
----------------------------------------------------
Rider B
-------
If the undersigned is not a broker-dealer, the undersigned represents that it is
not engaged in, and does not intend to engage in, a distribution of New
Securities. If the undersigned is a broker-dealer that will receive New
Securities for its own account in exchange for Securities that were acquired as
a result of market-making activities or other trading activities, it
acknowledges that it will deliver a prospectus in connection with any resale of
such New Securities; however, by so acknowledging and by delivering a
prospectus, the undersigned will not be deemed to admit that it is an
"underwriter" within the meaning of the Securities Act.
<PAGE>
[LETTERHEAD OF KIRKLAND & ELLIS]
To Call Writer Direct:
212 446-4800
December 16, 1997
Glenoit Corporation
111 West 40th Street
New York, NY 10018
Re: 11% Senior Subordinated Notes due 2007
--------------------------------------
Ladies and Gentlemen:
We are acting as special counsel to Glenoit Corporation, a Delaware
corporation (the "Company"), in connection with the proposed registration by the
-------
Company of up to $100,000,000 in aggregate principal amount of the Company's 11%
Senior Subordinated Notes due 2007 (the "Exchange Notes"), pursuant to a
--------------
Registration Statement on Form S-4 filed with the Securities and Exchange
Commission (the "Commission") on December 16, 1997 under the Securities Act of
----------
1933, as amended (the "Securities Act") (such Registration Statement, as amended
--------------
or supplemented, is hereinafter referred to as the "Registration Statement"),
----------------------
for the purpose of effecting an exchange offer (the "Exchange Offer") for the
--------------
Company's 11% Senior Subordinated Notes due 2007 (the "Old Notes"). The
---------
Exchange Notes are to be issued pursuant to the Indenture (the "Indenture"),
---------
dated as of April 1, 1997, between the Company and United States Trust Company
of New York, as Trustee, in exchange for and in replacement of the Company's
outstanding Old Notes, of which $100,000,000 in aggregate principal amount is
outstanding.
In that connection, we have examined originals, or copies certified or
otherwise identified to our satisfaction, of such documents, corporate records
and other instruments as we have deemed necessary for the purposes of this
opinion, including (i) the corporate and organizational documents of the
Company, (ii) minutes and records of the corporate proceedings of the Company
with respect to the issuance of the Exchange Notes, (iii) the Registration
Statement and exhibits thereto and (iv) the Registration Agreement, dated as of
March 26, 1997, among the Company, the Subsidiary Guarantor, Salomon Brothers,
Inc. and CIBC Wood Gundy Securities Corp.
For purposes of this opinion, we have assumed the authenticity of all
documents submitted to us as originals, the conformity to the originals of all
documents submitted to us as copies and the authenticity of the originals of all
documents submitted to us as copies. We have also assumed the
<PAGE>
genuineness of the signatures of persons signing all documents in connection
with which this opinion is rendered, the authority of such persons signing on
behalf of the parties thereto other than the Company, and the due authorization,
execution and delivery of all documents by the parties thereto other than the
Company. As to any facts material to the opinions expressed herein which we
have not independently established or verified, we have relied upon statements
and representations of officers and other representatives of the Company and
others.
Based upon and subject to the foregoing qualifications, assumptions
and limitations and the further limitations set forth below, we are of the
opinion that:
(1) The Company is a corporation existing and in good standing under
the General Corporation Law of the State of Delaware.
(2) The sale and issuance of the Exchange Notes has been validly
authorized by the Company.
(3) When, as and if (i) the Registration Statement shall have become
effective pursuant to the provisions of the Securities Act, (ii) the Indenture
shall have been qualified pursuant to the provisions of the Trust Indenture Act
of 1939, as amended, (iii) the Old Notes shall have been validly tendered to the
Company and (iv) the Exchange Notes shall have been issued in the form and
containing the terms described in the Registration Statement, the Indenture, the
resolutions of the Company's Board of Directors (or authorized committee
thereof) authorizing the foregoing and any legally required consents, approvals,
authorizations and other order of the Commission and any other regulatory
authorities to be obtained, the Exchange Notes when issued pursuant to the
Exchange Offer will be legally issued, fully paid and nonassessable and will
constitute valid and binding obligations of the Company.
Our opinions expressed above are subject to the qualifications that we
express no opinion as to the applicability of, compliance with, or effect of (i)
any bankruptcy, insolvency, reorganization, fraudulent transfer, fraudulent
conveyance, moratorium or other similar law affecting the enforcement of
creditors' rights generally, (ii) general principles of equity (regardless of
whether enforcement is considered in a proceeding in equity or at law), (iii)
public policy considerations which may limit the rights of parties to obtain
certain remedies and (iv) any laws except the laws of the State of New York and
the General Corporation Law of the State of Delaware. We advise you
<PAGE>
that issues addressed by this letter may be governed in whole or in part by
other laws, but we express no opinion as to whether any relevant difference
exists between the laws upon which our opinions are based and any other laws
which may actually govern. For purposes of the opinion in paragraph 1, we have
relied exclusively upon recent certificates issued by the Delaware Secretary of
State and such opinion is not intended to provide any conclusion or assurance
beyond that conveyed by such certificates. We have assumed without investigation
that there has been no relevant change or development between the respective
dates of such certificates and the date of this letter.
We hereby consent to the filing of this opinion as Exhibit 5.1 to the
Registration Statement. We also consent to the reference to our firm under the
heading "Legal Matters" in the Registration Statement. In giving this consent,
we do not thereby admit that we are in the category of persons whose consent is
required under Section 7 of the Securities Act of the rules and regulations of
the Commission.
We do not find it necessary for the purposes of this opinion, and
accordingly we do not purport to cover herein, the application of the securities
or "Blue Sky" laws of the various states to the issuance of the Exchange Notes.
This opinion is limited to the specific issues addressed herein, and
no opinion may be inferred or implied beyond that expressly stated herein. We
assume no obligation to revise or supplement this opinion should the present
laws of the States of Delaware or New York be changed by legislative action,
judicial decision or otherwise.
This opinion is furnished to you in connection with the filing of the
Registration Statement, and is not to be used, circulated, quoted or otherwise
relied upon for any other purposes.
Yours very truly,
KIRKLAND & ELLIS
<PAGE>
EXHIBIT 10.1
SECOND AMENDED AND RESTATED CREDIT AGREEMENT
SECOND AMENDED AND RESTATED CREDIT AGREEMENT dated as of April 1, 1997
among Glenoit Corporation, a Delaware corporation (the "Borrower"), the banks,
--------
financial institutions and other institutional lenders listed on the signature
pages hereof as the Restatement Lenders (the "Restatement Lenders"), the bank
-------------------
listed on the signature pages hereof as the Issuing Bank (the "Issuing Bank")
------------
and Banque Nationale de Paris ("BNP"), as agent (together with any successor
---
appointed pursuant to Article VII, the "Agent") for the Lender Parties (as
-----
hereinafter defined).
PRELIMINARY STATEMENTS:
(1) The Borrower (formerly known as Glenoit Intermediate Holdings, Inc.)
and Glenoit Mills, Inc. ("Mills") entered into an Amended and Restated Credit
-----
Agreement dated as of December 31, 1995 with the Initial Lenders and the Initial
Issuing Bank named therein and the Agent, as amended (the "Existing Credit
---------------
Agreement").
- ---------
(2) The Borrower is the sole direct, wholly owned Subsidiary of Glenoit
Universal, Ltd., a Delaware corporation ("Universal"), and Mills is the sole
---------
direct, wholly owned Subsidiary of the Borrower.
(3) The Borrower will issue 11% Senior Subordinated Notes due 2007 (the
"Subordinated Notes") in the aggregate amount of $100,000,000, the proceeds of
- -------------------
which will be used to pay the Earn-Out Note (as defined below), the obligations
of the Borrower under the Alliance Subordinated Debt (as defined below) and the
obligations of the Borrower and Mills under the Existing Credit Agreement.
(4) The Restatement Lenders and the Borrower have agreed to amend and
restate the Existing Credit Agreement in order to allow the Existing Lenders (as
defined below) to assign a portion of their Commitments (as defined in the
Existing Credit Agreement) to the Restatement Lenders hereunder, and to modify
their Commitments (as defined in the Existing Credit Agreement) in order to (i)
pay transaction fees and expenses in connection with the transactions
contemplated hereunder, (ii) finance Related Textile Investments (as defined
below), (iii) finance the working capital of the Borrower and its Subsidiaries
and (iv) provide funds for other general corporate purposes. The Restatement
Lenders have indicated their willingness to agree to amend and restate the
Existing Credit Agreement and to lend such amounts on the terms and conditions
of this Agreement.
(5) Simultaneously with the execution hereof, the Existing Lenders have
entered into an Assignment Agreement in the form of Exhibit L attached hereto
dated as of the date hereof (the "Second Restatement Assignment Agreement"),
---------------------------------------
with the Restatement Lenders pursuant to which such Existing Lenders have agreed
to sell and assign to the
<PAGE>
2
Restatement Lenders, and the Restatement Lenders have agreed to purchase and
assume, as of the Second Restatement Date (as defined below), all of such
Existing Lenders' rights and obligations under the Existing Credit Agreement on
the terms set forth in the Second Restatement Assignment Agreement. After
giving effect to such sale and assignment as of the Second Restatement Date, the
Commitments of and the amount of Advances owing to each of the Restatement
Lenders will be as set forth on Schedule I.
NOW, THEREFORE, in consideration of the premises and of the mutual
covenants and agreements contained herein, the parties hereto hereby agree that,
subject to the satisfaction of the conditions set forth in Section 3.01, the
Existing Credit Agreement is amended and restated in its entirety to read as
follows:
ARTICLE I
DEFINITIONS AND ACCOUNTING TERMS
SECTION 1.01. Certain Defined Terms. As used in this Agreement, the
---------------------
following terms shall have the following meanings (such meanings to be equally
applicable to both the singular and plural forms of the terms defined):
"Accounts Receivable Management Agreement" means the Accounts
----------------------------------------
Receivable Management Agreement dated as of December 14, 1995 by and
between Mills and BNY Financial Corporation, as amended, supplemented or
otherwise modified from time to time in accordance with its terms.
"Acquisition Advance" has the meaning specified in Section 2.01(a).
-------------------
"Acquisition Borrowing" means a borrowing in an aggregate principal
---------------------
amount equal to the simultaneous Acquisition Advances of the same Type made
by the Acquisition Lenders.
"Acquisition Commitment" means, with respect to any Acquisition Lender
----------------------
at any time, the amount set forth opposite such Lender's name on Schedule I
hereto under the caption "Acquisition Commitment" or, if such Lender has
entered into one or more Assignment and Acceptances, set forth for such
Lender in the Register maintained by the Agent pursuant to Section 8.07(e)
as such Lender's "Acquisition Commitment", as such amount may be reduced at
or prior to such time pursuant to Section 2.05.
<PAGE>
3
"Acquisition Facility" means, at any time, the aggregate amount of the
--------------------
Acquisition Lenders' Acquisition Commitments at such time.
"Acquisition Facility Term Loan Date" has the meaning specified in
-----------------------------------
Section 2.01(a).
"Acquisition Lender" means any Lender that has an Acquisition
------------------
Commitment.
"Acquisition Note" means a promissory note of the Borrower payable to
----------------
the order of any Acquisition Lender, in substantially the form of Exhibit
A-2 hereto, evidencing the aggregate indebtedness of the Borrower to such
Lender resulting from the Acquisition Advances made by such Lender.
"Adjusted EBITDA" means, for any Rolling Period, Consolidated EBITDA
---------------
of the Borrower and its Subsidiaries plus with respect to any Related
----
Textile Investment which constitutes an acquisition of a Related Textile
Business, EBITDA of such Related Textile Business for such Rolling Period
or such shorter period, as appropriate, ending on the last day of the
Fiscal Month immediately preceding the date of such Related Textile
Investment if the Lender Parties shall have received financial information
of such Related Textile Business with an audit or a review report or
similar report by a nationally recognized accounting firm acceptable to the
Agent; provided, however, that, with respect to any Related Textile
-------- -------
Investment which constitutes an acquisition of a Related Textile Business
with an aggregate acquisition purchase price (including the amount of any
indebtedness refinanced or assumed and all fees and expenses related
thereto) of $3,000,000 or less, such audit or review report or similar
report shall only be required at the request of the Agent.
"Advance" means a Working Capital Advance, an Acquisition Advance or
--------
a Letter of Credit Advance.
"Affiliate" means, as to any Person, any other Person that, directly
---------
or indirectly, controls, is controlled by or is under common control with
such Person or is a director or officer of such Person. For purposes of
this definition, the term "control" (including the terms "controlling",
"controlled by" and "under common control with") of a Person means the
possession, direct or indirect, of the power to vote 5% or more of the
Voting Stock of such Person or to direct or cause the direction of the
management and policies of such Person, whether through the ownership of
Voting Stock, by contract or otherwise.
"Agent" has the meaning specified in the recital of parties to this
-----
Agreement.
<PAGE>
4
"Agent's Account" means the account of the Agent maintained by the
---------------
Agent at the Federal Reserve Bank of New York, 33 Liberty Street, New York,
New York 10048, ABA No. 026007689, for further credit to Account No.
75042070103 or such other account maintained by the Agent and designated by
the Agent in a written notice to the Lenders, the Issuing Banks and the
Borrower.
"Alliance Subordinated Debt" means the notes issued by the Borrower to
--------------------------
Alliance Corporate Finance Group Incorporated, a Delaware corporation, in a
principal amount of $15,000,000.
"Amended and Restated Intellectual Property Security Agreement" has
-------------------------------------------------------------
the meaning specified in Section 3.01(g)(ix).
"Applicable Lending Office" means, with respect to each Lender Party,
-------------------------
such Lender Party's Domestic Lending Office in the case of a Base Rate
Advance and such Lender Party's Eurodollar Lending Office in the case of a
Eurodollar Rate Advance.
"Applicable Margin" means a percentage per annum determined as set
-----------------
forth below:
FACILITY BASE RATE ADVANCES EURODOLLAR RATE ADVANCES
-------- ------------------- -------------------------
Acquisition Facility 1.00% 2.50%
Working Capital Facility 0.50% 2.00%
"Appropriate Lender" means, at any time, with respect to (a) either of
------------------
the Acquisition Facility or Working Capital Facility, a Lender that has a
Commitment with respect to such Facility at such time and (b) the Letter of
Credit Facility, (i) an Issuing Bank and (ii) if the other Working Capital
Lenders have made Letter of Credit Advances pursuant to Section 2.03(c)
that are outstanding at such time, each such other Working Capital Lender.
"Assignment and Acceptance" means an assignment and acceptance entered
-------------------------
into by a Lender Party and an Eligible Assignee, and accepted by the Agent,
in accordance with Section 8.07 and in substantially the form of Exhibit C
hereto.
"Available Amount" of any Letter of Credit means, at any time, the
----------------
maximum amount available to be drawn under such Letter of Credit at such
time (assuming compliance at such time with all conditions to drawing).
<PAGE>
5
"Base Rate" means a fluctuating interest rate per annum in effect from
---------
time to time, which rate per annum shall at all times be equal to the
higher of:
(a) the rate of interest announced publicly by BNP in New York,
New York, from time to time, as its prime rate (and such term shall
not be construed to be its best or most favorable rate); and
(b) 1/2 of one percent per annum above the Federal Funds Rate.
"Base Rate Advance" means an Advance that bears interest as provided
-----------------
in Section 2.07(a)(i).
"BNP" has the meaning specified in the recital of parties to this
---
Agreement.
"Borrower Information" means any and all of the written information
--------------------
provided by or on behalf of the Borrower to the Agent in connection with
the syndication of this Agreement (including any written materials,
financial statements and financial projections and any amendments,
supplements, schedules and exhibits thereto).
"Borrower" has the meaning specified in the recital of parties to this
--------
Agreement.
"Borrower's Account" means the account of the Borrower maintained by
------------------
the Borrower with BNP at its office at 499 Park Avenue, New York, New York
10022, Account No. 20041000123, or such other account as the Borrower and
the Agent may from time to time designate as the "Borrower's Account".
"Borrowing" means an Acquisition Borrowing or a Working Capital
---------
Borrowing.
"Borrowing Base Certificate" means a certificate in substantially the
--------------------------
form of Exhibit J hereto, duly certified by the chief financial officer of
the Borrower.
"Business Day" means a day of the year on which banks are not required
------------
or authorized by law to close in New York City and, if the applicable
Business Day relates to any Eurodollar Rate Advances, on which dealings are
carried on in the London interbank market.
"Capitalized Leases" means all leases that have been or should be, in
------------------
accordance with GAAP, recorded as capitalized leases.
"Cash Collateral Account" has the meaning specified in Section
-----------------------
2.06(b)(vi).
<PAGE>
6
"Cash Equivalents" means any of the following, to the extent owned by the
----------------
Borrower free and clear of all Liens other than Liens created under the
Collateral Documents and having a maturity of not greater than 180 days
from the date of acquisition thereof: (a) readily marketable direct
obligations of the Government of the United States or any agency or
instrumentality thereof or obligations unconditionally guaranteed by the
full faith and credit of the Government of the United States, (b) insured
certificates of deposit of or time deposits with any commercial bank that
is a Lender Party or a member of the Federal Reserve System, issues (or the
parent of which issues) commercial paper rated as described in clause (c),
is organized under the laws of the United States or any State thereof and
has combined capital and surplus of at least $500,000,000, (c) commercial
paper in an aggregate amount of no more than $250,000 per issuer
outstanding at any time, issued by any corporation organized under the laws
of any State of the United States and rated at least "Prime-1" (or the then
equivalent grade) by Moody's Investors Service, Inc. or "A-1" (or the then
equivalent grade) by Standard & Poor's Ratings Group, a division of the
McGraw-Hill Companies, Inc., (d) repurchase agreements with a term of not
more than seven days for underlying securities of the types described in
clauses (a) and (b) above entered into with any bank meeting the
qualifications specified in clause (b) above or with securities dealers of
recognized national standing, provided that the terms of such agreements
--------
comply with the guidelines set forth in the Federal Financial Institutions
Examination Council Supervisory Policy Repurchase Agreements of Depositary
Institutions With Securities Dealers and Others as adopted by the
comptroller of the Currency on October 31, 1985 (the "Supervisory Policy"),
------------------
and provided further that possession or control of the underlying
-------- -------
securities is established as provided in the Supervisory Policy, or (e)
Investments in money market or mutual funds that invest in Cash Equivalents
of the types described in clauses (a), (b) or (c) above.
"CERCLA" means the Comprehensive Environmental Response, Compensation
------
and Liability Act of 1980, as amended from time to time.
"CERCLIS" means the Comprehensive Environmental Response, Compensation
-------
and Liability Information System maintained by the U.S. Environmental
Protection Agency.
"Collateral" means all "Collateral" and "Intellectual Property
----------
Collateral" referred to in the Collateral Documents and all other property
that is or is intended to be subject to any Lien in favor of the Agent for
the benefit of the Secured Parties.
"Collateral Documents" means the Second Amended and Restated Security
--------------------
Agreement, the Amended and Restated Intellectual Property Security
Agreement, and
<PAGE>
7
any other agreement that creates or purports to create a Lien in favor of
the Agent for the benefit of the Secured Parties.
"Commitment" means an Acquisition Commitment, a Working Capital
----------
Commitment or a Letter of Credit Commitment.
"Confidential Information" means information that the Loan Parties and
------------------------
their Subsidiaries furnish to the Agent or any Lender Party on a
confidential basis, but does not include any such information that is or
becomes generally available to the public or that is or becomes available
to the Agent or such Lender from a source other than any Loan Party or any
of their Subsidiaries.
"Consolidated" refers, with respect to any Person, to the
------------
consolidation of accounts of such Person and its Subsidiaries in accordance
with GAAP.
"Conversion", "Convert" and "Converted" each refer to a conversion
----------- ------- ---------
of Advances of one Type into Advances of the other Type pursuant to Section
2.09 or 2.10.
"CVC" means Citicorp Venture Capital, Ltd., a New York corporation.
---
"Debt" of any Person means, without duplication, (a) all indebtedness
----
of such Person for borrowed money, (b) all Obligations of such Person for
the deferred purchase price of property or services (other than trade
payables not overdue by more than 75 days incurred in the ordinary course
of such Person's business), (c) all Obligations of such Person evidenced by
notes, bonds, debentures or other similar instruments, (d) all Obligations
of such Person created or arising under any conditional sale or other title
retention agreement with respect to property acquired by such Person (even
though the rights and remedies of the seller or lender under such agreement
in the event of default are limited to repossession or sale of such
property), (e) all Obligations of such Person as lessee under Capitalized
Leases, (f) all Obligations, contingent or otherwise, of such Person under
acceptance, letter of credit or similar facilities, (g) all Obligations of
such Person to purchase, redeem, retire, defease or otherwise make any
payment in respect of any capital stock of or other ownership or profit
interest in such Person or any other Person or any warrants, rights or
options to acquire such capital stock, valued, in the case of Redeemable
Preferred Stock, at the greater of its voluntary or involuntary liquidation
preference plus accrued and unpaid dividends, (h) all Obligations of such
Person in respect of Hedge Agreements, (i) all Debt of others referred to
in clauses (a) through (h) above or clause (j) below guaranteed directly or
indirectly in any manner by such Person, or in effect guaranteed directly
or indirectly by such Person through an agreement (i) to pay or purchase
such Debt or to advance or supply funds for the payment or purchase
<PAGE>
8
of such Debt, (ii) to purchase, sell or lease (as lessee or lessor)
property, or to purchase or sell services, primarily for the purpose of
enabling the debtor to make payment of such Debt or to assure the holder of
such Debt against loss, (iii) to supply funds to or in any other manner
invest in the debtor (including any agreement to pay for property or
services irrespective of whether such property is received or such services
are rendered) or (iv) otherwise to assure a creditor against loss, and (j)
all Debt referred to in clauses (a) through (i) above of another Person
secured by (or for which the holder of such Debt has an existing right,
contingent or otherwise, to be secured by) any Lien on property (including,
without limitation, accounts and contract rights) owned by such Person,
even though such Person has not assumed or become liable for the payment of
such Debt.
"Deed of Trust" has the meaning specified in Section 3.01(g)(x).
-------------
"Deed of Trust Policies" has the meaning specified in Section
----------------------
3.01(g)(x)(B).
"Default" means any Event of Default or any event that would
-------
constitute an Event of Default but for the requirement that notice be given
or time elapse or both.
"Deferred Redemption Price Note" means the Deferred Redemption Price
------------------------------
Subordinated Note due December 14, 2004, issued by Universal to Stirling
pursuant to the Redemption Agreement in an aggregate principal amount of
$1,400,000.
"Domestic Lending Office" means, with respect to any Lender Party, the
-----------------------
office of such Lender Party specified as its "Domestic Lending Office"
opposite its name on Schedule I hereto or in the Assignment and Acceptance
pursuant to which it became a Lender Party, as the case may be, or such
other office of such Lender Party as such Lender Party may from time to
time specify to the Borrower and the Agent.
"Earn-Out Note" means the Promissory Note due December 31, 2002 issued
-------------
by the Borrower to Stirling in an aggregate principal amount of
$5,781,262.50.
"EBITA" means, for any Person, for any period, (a) net income (or net
-----
loss) plus (b) the sum of (i) Interest Expense, (ii) income tax expense,
----
(iii) amortization expense and (iv) extraordinary or unusual losses
deducted in calculating net income (or net loss) less (c) the sum of (i)
----
extraordinary or unusual gains added in calculating net income (or net
loss), and (ii) all dividends made pursuant to Section 5.02(g)(iv)(B), in
each case determined in accordance with GAAP for such period.
"EBITDA" means, for any Person, for any period, (a) net income (or net
------
loss), plus (b) the sum of (i) Interest Expense, (ii) income tax expense,
----
(iii) depreciation expense, (iv) amortization expense and (v) extraordinary
or unusual
<PAGE>
9
losses deducted in calculating net income (or net loss) less (c) the sum of
----
extraordinary or unusual gains added in calculating net income (or net
loss) and (ii) all dividends made pursuant to Section 5.02(g)(iv)(B), in
each case determined in accordance with GAAP for such period.
"Eligible Assignee" means with respect to any Facility: (i) a Lender;
-----------------
(ii) an Affiliate of a Lender; (iii) a commercial bank organized under the
laws of the United States, or any State thereof, and having a combined
capital and surplus of at least $500,000,000; (iv) a savings and loan
association or savings bank organized under the laws of the United States,
or any State thereof, and having a combined capital and surplus of at least
$500,000,000; (v) a commercial bank organized under the laws of any other
country that is a member of the OECD or has concluded special lending
arrangements with the International Monetary Fund associated with its
General Arrangements to Borrow or a political subdivision of any such
country, and having a combined capital and surplus of at least
$500,000,000, so long as such bank is acting through a branch or agency
located in the United States; (vi) a finance company, insurance company or
other financial institution or fund (whether a corporation, partnership,
trust or other entity) that is engaged in making, purchasing or otherwise
investing in commercial loans in the ordinary course of its business and
having a combined capital and surplus of at least $250,000,000; and (vii)
any other Person approved by the Agent and the Borrower, such approval not
to be unreasonably withheld or delayed; provided, however, that no Loan
-------- -------
Party nor any Affiliate of any Loan Party shall qualify as an Eligible
Assignee under this definition.
"Eligible Collateral" means, collectively, Eligible Inventory and
-------------------
Eligible Receivables.
"Eligible Inventory" means any Inventory owned by the Borrower and its
------------------
Subsidiaries free and clear of all Liens (other than Permitted Liens and
Liens in favor of the Secured Parties securing the Secured Obligations)
other than the following:
(a) Inventory located on leaseholds as to which the lessor has
not entered into a consent and agreement providing the Agent with the
right to receive notice of default, the right to repossess such
Inventory at any time and such other rights as may be acceptable to
the Agent;
(b) Inventory that is obsolete, unusable or otherwise unavailable
for sale;
(c) Inventory with respect to which the representations and
warranties set forth in Section 10 of the Second Amended and Restated
Security Agreement applicable to Inventory are not true and correct;
<PAGE>
10
(d) Inventory consisting of promotional, marketing, packaging or
shipping materials and supplies;
(e) Inventory that fails to meet all standards imposed by any
governmental agency, or department or division thereof, having
regulatory authority over such Inventory or its use or sale;
(f) Inventory that is subject to any licensing, patent, royalty,
trademark, trade name or copyright agreement with any third party from
whom the Borrower or any of its Subsidiaries has received notice of a
dispute in respect of any such agreement;
(g) Inventory located outside the United States or Canada;
(h) Inventory that is not in the possession of or under the sole
control of the Borrower or any of its Subsidiaries;
(i) Inventory consisting of work in progress; and
(j) Inventory in respect of which the Collateral Documents, after
giving effect to the related filings of financing statements that have
then been made, if any, does not or has ceased to create a valid and
perfected first priority lien or security interest in favor of the
Secured Parties securing the Secured Obligations or as to which other
Liens exist, other than Permitted Liens.
The value of such Eligible Inventory shall be its book value determined in
accordance with the "first-in, first-out" method of accounting for
inventory and in accordance with GAAP unless the Agent determines, in its
reasonable discretion (taking into consideration, among other factors, cost
and liquidation value), that such Eligible Inventory shall be valued at a
lower value.
"Eligible Receivables" means any Receivables owned by the Borrower and
--------------------
its Subsidiaries free and clear of all Liens (other than Permitted Liens
and Liens in favor of the Secured Parties securing the Secured Obligations)
other than the following:
(a) Receivables that do not arise out of sales of goods or
rendering of services in the ordinary course of the Borrower's and its
Subsidiaries' business (other than such Receivables arising out of the
Accounts Receivable Management Agreement);
<PAGE>
11
(b) Receivables on terms other than those in the ordinary course
of the Borrower's and its Subsidiaries' business;
(c) Receivables owing from any Person that is an Affiliate of the
Borrower or its Subsidiaries;
(d) Receivables more than 210 days past original invoice date or
more than 60 days past the date due;
(e) Receivables owing from any Person from which an aggregate
amount of more than 25% of the Receivables owing is more than 60 days
past due;
(f) Receivables owing from any Person (i) that has disputed
liability for any Receivable owing from such Person or (ii) that has
otherwise asserted any claim, demand or liability, whether by action,
suit, counterclaim or otherwise, only to the extent of such
Receivables owing from such Person so long as such Receivables do not
constitute more than 25% of all Receivables owing from such Person;
(g) Receivables owing from any Person that shall take or be the
subject of any action or proceeding of a type described in Section
6.01(g), except for Receivables due from a Person which is a debtor-
in-possession under and as defined in Chapter 11 of the U.S.
Bankruptcy Code that has received post-petition financing pursuant to
a working capital facility which has a maturity date no earlier than
120 days following the invoice date of such Receivable;
(h) Receivables (i) owing from any Person that is also a supplier
to or creditor of the Borrower or its Subsidiaries unless such Person
has waived any right of set-off in a manner acceptable to the Agent or
(ii) representing any manufacturer's or supplier's credits, discounts,
incentive plans or similar arrangements entitling the Borrower or its
Subsidiaries to discounts on future purchase therefrom;
(i) Receivables arising out of sales to account debtors outside
the United States or Canada, unless backed by a letter of credit
issued by (A) a bank organized under the laws of the United States, or
any State thereof, and having a combined capital and surplus of at
least $500,000,000 or (B) an institution which satisfies the criteria
set forth in clause (v) of the definition of "Eligible Assignee";
<PAGE>
12
(j) Receivables arising out of sales on a bill-and-hold,
guaranteed sale, sale-or-return, sale on approval or consignment basis
or subject to any right of return, set-off or charge-back, except for
Receivables, in a maximum amount not to exceed $2,000,000 at any time
outstanding, arising out of sales on a bill and hold basis pursuant to
the terms of agreements and arrangements in existence or on
substantially the same terms as those in existence on the Second
Restatement Date;
(k) Receivables owing from an account debtor that is an agency,
department or instrumentality of the United States or any State
thereof, except for such Receivables in a maximum amount not to exceed
$1,000,000 at any time outstanding; and
(l) Receivables in respect of which the Second Amended and
Restated Security Agreement, after giving effect to the related
filings of financing statements that have then been made, if any, does
not or has ceased to create a valid and perfected first priority lien
or security interest in favor of the Secured Parties securing the
Secured Obligations or as to which other Liens exist, other than
Permitted Liens.
The value of such Eligible Receivables shall be their book value determined
in accordance with GAAP unless the Agent determines, in its reasonable
discretion, that such Eligible Receivables shall be valued at a lower
value.
"Environmental Action" means any action, suit, demand, demand letter,
--------------------
claim, notice of non-compliance or violation, notice of liability or
potential liability, investigation, proceeding, consent order or consent
agreement relating in any way to any Environmental Law, any Environmental
Permit or Hazardous Material or arising from alleged injury or threat to
the environment, including, without limitation, (a) by any governmental or
regulatory authority for enforcement, cleanup, removal, response, remedial
or other actions or damages arising under Environmental Laws and (b) by any
governmental or regulatory authority or third party for damages,
contribution, indemnification, cost recovery, compensation or injunctive
relief arising under Environmental Laws.
"Environmental Law" means any federal, state, local or foreign
-----------------
statute, law, ordinance, rule, regulation, code, order, writ, judgment,
injunction, or decree or any judicial or agency interpretation, policy or
guidance having the force and effect of law, relating to pollution or
protection of the environment, health, safety or natural resources,
including, without limitation, those relating to the use, handling,
transportation, treatment, storage, disposal, release or discharge of
Hazardous Materials.
<PAGE>
13
"Environmental Permit" means any permit, approval, identification number,
--------------------
license or other authorization required under any Environmental Law.
"ERISA" means the Employee Retirement Income Security Act of 1974, as
-----
amended from time to time, and the regulations promulgated and rulings
issued thereunder.
"ERISA Affiliate" means any Person that for purposes of Title IV of
---------------
ERISA is a member of the controlled group of any Loan Party, or under
common control with any Loan Party, within the meaning of Section 414 of
the Internal Revenue Code.
"ERISA Event" means (a) (i) the occurrence of a reportable event,
-----------
within the meaning of Section 4043 of ERISA, with respect to any Plan
unless the 30-day notice requirement with respect to such event has been
waived by the PBGC; or (ii) the requirements of subsection (1) of Section
4043(b) of ERISA (without regard to subsection (2) of such Section) are met
with a contributing sponsor, as defined in Section 4001(a)(13) of ERISA, of
a Plan, and an event described in paragraph (9), (10), (11), (12) or (13)
of Section 4043(c) of ERISA is reasonably expected to occur with respect to
such Plan within the following 30 days; (b) the application for a minimum
funding waiver with respect to a Plan; (c) the provision by the
administrator of any Plan of a notice of intent to terminate such Plan,
pursuant to Section 4041(a)(2) of ERISA (including any such notice with
respect to a plan amendment referred to in Section 4041(e) of ERISA); (d)
the cessation of operations at a facility of any Loan Party or any ERISA
Affiliate in the circumstances described in Section 4062(e) of ERISA; (e)
the withdrawal by any Loan Party or any ERISA Affiliate from a Multiple
Employer Plan during a plan year for which it was a substantial employer,
as defined in Section 4001(a)(2) of ERISA; (f) the conditions for
imposition of a lien under Section 302(f) of ERISA shall have been met with
respect to any Plan; (g) the adoption of an amendment to a Plan requiring
the provision of security to such Plan, pursuant to Section 307 of ERISA;
or (h) the institution by the PBGC of proceedings to terminate a Plan
pursuant to Section 4042 of ERISA, or the occurrence of any event or
condition described in Section 4042 of ERISA that could constitute grounds
for the termination of, or the appointment of a trustee to administer, such
Plan.
"Eurocurrency Liabilities" has the meaning specified in Regulation D
------------------------
of the Board of Governors of the Federal Reserve System, as in effect from
time to time.
"Eurodollar Lending Office" means, with respect to any Lender Party,
-------------------------
the office of such Lender Party specified as its "Eurodollar Lending
Office" opposite its name on Schedule I hereto or in the Assignment and
Acceptance pursuant to which it became a Lender Party (or, if no such
office is specified, its Domestic Lending
<PAGE>
14
Office), or such other office of such Lender Party as such Lender Party may
from time to time specify to the Borrower and the Agent.
"Eurodollar Rate" means, for any Interest Period for all Eurodollar
---------------
Rate Advances comprising part of the same Borrowing, an interest rate per
annum equal to the rate per annum obtained by dividing (a) the average of
the respective rates per annum (rounded upward to the next whole multiple
of 1/16th of 1%) posted by each of the principal London offices of banks
posting rates as displayed on the Telerate screen, page 3750 or such other
page as may replace such page on such service for the purpose of displaying
banks in the London interbank offered rate of major banks for deposits in
U.S. dollars, at approximately 11:00 A.M. (London time) two Business Days
before the first day of such Interest Period in an amount substantially
equal to BNP's Eurodollar Rate Advance comprising part of such Borrowing to
be outstanding during such Interest Period (or, if BNP shall not have such
a Eurodollar Rate Advance, $1,000,000) and for a period equal to such
Interest Period by (b) a percentage equal to 100% minus the Eurodollar Rate
Reserve Percentage for such Interest Period.
"Eurodollar Rate Advance" means an Advance that bears interest as
-----------------------
provided in Section 2.07(a)(ii).
"Eurodollar Rate Reserve Percentage" for any Interest Period for all
----------------------------------
Eurodollar Rate Advances comprising part of the same Borrowing means the
reserve percentage applicable two Business Days before the first day of
such Interest Period under regulations issued from time to time by the
Board of Governors of the Federal Reserve System (or any successor) for
determining the maximum reserve requirement (including, without limitation,
any emergency, supplemental or other marginal reserve requirement) for a
member bank of the Federal Reserve System in New York City with respect to
liabilities or assets consisting of or including Eurocurrency Liabilities
(or with respect to any other category of liabilities that includes
deposits by reference to which the interest rate on Eurodollar Rate
Advances is determined) having a term equal to such Interest Period.
"Events of Default" has the meaning specified in Section 6.01.
-----------------
"Existing Credit Agreement" has the meaning specified in the
-------------------------
Preliminary Statements to this Agreement.
"Existing Debt" means Debt of the Loan Parties outstanding immediately
-------------
before the effectiveness of the Second Amended and Restated Credit
Agreement and identified on Schedule 3.01(f)(i).
"Existing Lender" means lenders party to the Existing Credit
---------------
Agreement.
<PAGE>
15
"Extraordinary Receipt" means any cash received by or paid to or for
---------------------
the account of any Person not in the ordinary course of business,
including, without limitation, tax refunds, pension plan reversions,
proceeds of insurance (other than proceeds of business interruption
insurance to the extent such proceeds constitute compensation for lost
earnings), condemnation awards (and payments in lieu thereof) and indemnity
payments; provided, however, that an Extraordinary Receipt shall not
-------- -------
include (a) cash receipts received from proceeds of insurance to the extent
that such proceeds in respect of loss or damage to equipment, fixed assets
or real property are applied (or in respect of which expenditures were
previously incurred) to replace or repair the equipment, fixed assets or
real property in respect of which such proceeds were received or to
purchase like equipment, fixed assets or real property, as the case may be,
in each case in accordance with the terms of the Loan Documents, so long as
(i) such Person shall have entered into binding commitments for the
acquisition of such equipment, fixed assets or real property on or prior to
the 120th day after receipt of such Extraordinary Receipt and (ii) such
application is made by such Person within twelve or six months after the
occurrence of such damage or loss, in the case of real property and any
other type of property, respectively.
"Facility" means the Acquisition Facility, the Working Capital
--------
Facility or the Letter of Credit Facility.
"Federal Funds Rate" means, for any period, a fluctuating interest
------------------
rate per annum equal for each day during such period (i) to the rate
published by the Telerate service on page five of its daily report as the
"New York Offered Rate" as of 10:00 A.M. (New York City time) for such day
(or, if such day is not a Business Day, for the immediately preceding
Business Day) or (ii) if the Telerate service shall cease to publish or
otherwise shall not publish such rates for any day that is a Business Day,
to the weighted average of the rates on overnight Federal funds
transactions with members of the Federal Reserve System arranged by Federal
funds brokers, as published for such day (or, if such day is not a Business
Day, for the next preceding Business Day) by the Federal Reserve Bank of
New York, or, if such rate is not so published for any day that is a
Business Day, the average of the quotations for such day for such
transactions received by the Agent from three Federal funds brokers of
recognized standing selected by it.
"Fiscal Month" means each of the first four calendar weeks, the next
------------
successive period of four calendar weeks and the last five calendar weeks
in each Fiscal Quarter.
"Fiscal Quarter" means, with respect to any Person, (a) with respect
--------------
to the first Fiscal Quarter of any Fiscal Year, the first 13 calendar weeks
of such Fiscal Year, (b) with respect to the second Fiscal Quarter of any
Fiscal Year, the next
<PAGE>
16
successive period of 13 calendar weeks in such Fiscal Year, (c) with
respect to the third Fiscal Quarter of any Fiscal Year, the next successive
period of 13 calendar weeks in such Fiscal Year, and (d) with respect to
the last Fiscal Quarter of any Fiscal Year, the period of time after the
first three Fiscal Quarters of such Fiscal Year through the last day of
such Fiscal Year.
"Fiscal Year" means, with respect to any Person, a year of 52 or 53
-----------
weeks, as the case may be, ending on the Saturday closest to the first day
of January in any calendar year, and such Fiscal Year, when referred to
from time to time herein by reference to a calendar year shall be the
Fiscal Year which includes January 30th of such calendar year.
"Fixed Charge Coverage Ratio" means, with respect to the Borrower and
---------------------------
its Subsidiaries for any period, the ratio of (a) Consolidated EBITA for
such period to (b) the sum of (i) Consolidated Interest Expense for such
period (other than amortization of original issue discount and paid-in-kind
interest), (ii) regularly scheduled principal payments of Consolidated
Funded Debt made during such period (other than any such payments made of
"Advances" under the Existing Credit Agreement), (iii) the aggregate amount
of cash dividends paid during such period by the Borrower to Universal
pursuant to Sections 5.02(g)(iii) and 5.02(g)(iv)(A) and (iv) Consolidated
income taxes that have been paid in cash during such period.
"Funded Debt" of any Person means Debt of such Person that by its
-----------
terms matures more than one year after the date of creation or matures
within one year from such date but is renewable or extendible, at the
option of such Person, to a date more than one year after such date or
arises under a revolving credit or similar agreement that obligates the
lender or lenders to extend credit during a period of more than one year
after such date, including, without limitation, all amounts of Funded Debt
of such Person required to be paid or prepaid within one year after the
date of determination; provided, however, that the definition of "Funded
-------- -------
Debt" shall not include any Debt arising pursuant to the terms of the
Accounts Receivable Management Agreement.
"GAAP" has the meaning specified in Section 1.03.
----
"Glenoit Assets Corp." means Glenoit Assets Corp., a Delaware
--------------------
corporation and a direct, wholly owned Subsidiary of Mills.
"Guarantees" has the meaning specified in Section 3.01(g)(xi).
----------
"Hazardous Materials" means (a) petroleum or petroleum products, by-
-------------------
products or breakdown products, radioactive materials, asbestos-containing
materials, polychlorinated biphenyls and radon gas and (b) any other
chemicals,
<PAGE>
17
materials or substances designated, classified or regulated as hazardous or
toxic or as a pollutant or contaminant under any Environmental Law.
"Hedge Agreements" means interest rate swap, cap or collar agreements,
----------------
interest rate future or option contracts, currency swap agreements,
currency future or option contracts and similar agreements.
"Indemnified Party" has the meaning specified in Section 8.04(b).
-----------------
"Indemnified Cost" has the meaning specified in Section 7.05.
----------------
"Intercompany Subordination Agreement" has the meaning specified in
------------------------------------
Section 5.02(b)(ii)(B).
"Insufficiency" means, with respect to any Plan, the amount, if any,
-------------
of its unfunded benefit liabilities, as defined in Section 4001(a)(18) of
ERISA.
"Interest Coverage Ratio" means, with respect to the Borrower and its
-----------------------
Subsidiaries for any period, the ratio of (a) Consolidated EBITDA for such
period to (b) the sum of (i) Consolidated Interest Expense for such period
(other than amortization of original issue discount and paid-in-kind
interest) and (ii) the aggregate amount of cash dividends paid during such
period by the Borrower to Universal pursuant to Section 5.02(g)(iii).
"Interest Expense" means, with respect to any Person for any period,
----------------
the amount by which (i) interest expense (including the interest component
on obligations under Capitalized Leases), whether paid or accrued, on all
Debt of such Person and its Subsidiaries for such period, including,
without limitation and without duplication, (a) interest expense in respect
of Debt resulting from Advances, (b) commissions, discounts and other fees
and charges payable in connection with letters of credit (including,
without limitation, any Letters of Credit) and (c) any net payment payable
in connection with Hedge Agreements less any net credits received in
connection with Hedge Agreements exceeds (ii) interest income, whether paid
or accrued, of such Person for such period.
"Interest Period" means, for each Eurodollar Rate Advance comprising
---------------
part of the same Borrowing, the period commencing on the date of such
Eurodollar Rate Advance or the date of the Conversion of any Base Rate
Advance into such Eurodollar Rate Advance, and ending on the last day of
the period selected by the Borrower pursuant to the provisions below and,
thereafter, each subsequent period commencing on the last day of the
immediately preceding Interest Period and ending on the last day of the
period selected by the Borrower pursuant to the provisions below. The
duration of each such Interest Period shall be one, two, three or six
months, as the Borrower may, upon notice received by the Agent not later
than
<PAGE>
18
11:00 A.M. (New York City time) on the third Business Day prior to the
first day of such Interest Period, select; provided, however, that:
-------- -------
(a) The Borrower may not select any Interest Period with respect
to any Eurodollar Rate Advance under a Facility that ends after any
principal repayment installment date for such Facility unless, after
giving effect to such selection, the aggregate principal amount of
Base Rate Advances and of Eurodollar Rate Advances having Interest
Periods that end on or prior to such principal repayment installment
date for such Facility shall be at least equal to the aggregate
principal amount of Advances under such Facility due and payable on or
prior to such date;
(b) Interest Periods commencing on the same date for Eurodollar
Rate Advances comprising part of the same Borrowing shall be of the
same duration;
(c) whenever the last day of any Interest Period would otherwise
occur on a day other than a Business Day, the last day of such
Interest Period shall be extended to occur on the next succeeding
Business Day, provided, however, that, if such extension would cause
-------- -------
the last day of such Interest Period to occur in the next following
calendar month, the last day of such Interest Period shall occur on
the immediately preceding Business Day; and
(d) whenever the first day of any Interest Period occurs on a day
of an initial calendar month for which there is no numerically
corresponding day in the calendar month that succeeds such initial
calendar month by the number of months equal to the number of months
in such Interest Period, such Interest Period shall end on the last
Business Day of such succeeding calendar month.
"Internal Revenue Code" means the Internal Revenue Code of 1986, as
---------------------
amended from time to time, and the regulations promulgated and rulings
issued thereunder.
"Inventory" means all Inventory referred to in Section 1(b) of the
---------
Second Amended and Restated Security Agreement.
"Investment" in any Person means any loan or advance to such Person,
----------
any purchase or other acquisition of any capital stock or other ownership
or profit interest, warrants, rights, options, obligations or other
securities of such Person, any capital contribution to such Person or any
other investment in such Person, including, without limitation, any
arrangement pursuant to which the investor incurs Debt of the types
referred to in clause (i) or (j) of the definition of "Debt" in respect of
such Person.
<PAGE>
19
"Investor Group" means CVC, the employees of CVC, CCT Partners II,
--------------
L.P., a Delaware limited partnership, Mr. John M. O'Mara, an individual
residing in Darien, Connecticut, Soannes and Thomas O'Gorman.
"Iris" means Iris Holdings, Inc., a Delaware corporation.
----
"Issuing Bank" means BNP and each Eligible Assignee to which a Letter
------------
of Credit Commitment hereunder has been assigned pursuant to Section 8.07.
"Junior Notes" means (i) the Junior PIK Subordinated Note due December
------------
14, 2005, issued by Universal to CVC in an aggregate principal amount of
$12,000,000, (ii) the Junior PIK Subordinated Note due December 14, 2005,
issued by Universal to Soannes in an aggregate principal amount of
$800,000, (iii) the Junior PIK Subordinated Note due December 14, 2005,
issued by Universal to Soannes in an aggregate principal amount of $800,000
and (iv) notes evidencing paid-in-kind interest issued pursuant to the
foregoing.
"L/C Cash Collateral Account" has the meaning specified in the Second
---------------------------
Amended and Restated Security Agreement.
"L/C Related Documents" has the meaning specified in Section
---------------------
2.04(c)(ii).
"Lender Party" means any Lender or the Issuing Bank.
------------
"Lenders" means the Restatement Lenders and each Person that shall
-------
become a Lender hereunder pursuant to Section 8.07.
"Letters of Credit" has the meaning specified in Section 2.01(c).
-----------------
"Letter of Credit Advance" means an advance made by the Issuing Bank
------------------------
or any Working Capital Lender pursuant to Section 2.03(c).
"Letter of Credit Agreement" has the meaning specified in Section
--------------------------
2.03(a).
"Letter of Credit Commitment" means, with respect to the Issuing Bank
---------------------------
at any time, the amount set forth opposite the Issuing Bank's name on
Schedule I hereto under the caption "Letter of Credit Commitment" or, if
the Issuing Bank has entered into an Assignment and Acceptance, the amount
set forth for such Issuing Bank in the Register maintained by the Agent
pursuant to Section 8.07(e) as such Issuing Bank's "Letter of Credit
Commitment", as such amount may be reduced at or prior to such time
pursuant to Section 2.05.
"Letter of Credit Facility" means, at any time, the amount of the
-------------------------
Issuing Bank's Letter of Credit Commitment at such time.
<PAGE>
20
"Leverage Ratio" means, with respect to the Borrower and its
--------------
Subsidiaries for any period, the ratio of (a) Consolidated Funded Debt
(other than the aggregate amount of Working Capital Advances) as of the end
of such period to (b) Consolidated Adjusted EBITDA for such period.
"Lien" means any lien, security interest or other charge or
----
encumbrance of any kind, or any other type of preferential arrangement,
including, without limitation, the lien or retained security title of a
conditional vendor and any easement, right of way or other encumbrance on
title to real property.
"Loan Documents" means (a) this Agreement, (b) the Notes, (c) the
--------------
Collateral Documents, (d) each Letter of Credit Agreement and (e) the
Guarantees.
"Loan Parties" means the Borrower and Universal and each Subsidiary
------------
Guarantor.
"Loan Value" means an amount equal to the sum of the percentage of the
----------
value of each item of Eligible Collateral of up to the following amounts,
in each case as determined by reference to the Borrowing Base Certificate
most recently delivered by the Borrower pursuant to Section 5.03(q):
(a) with respect to Eligible Inventory; up to 50% of the value of
such Inventory, and
(b) with respect to Eligible Receivables, up to 85% of the value
of such Receivables;
provided, however, that the Agent may, in its reasonable discretion,
-------- -------
following an audit field examination and based on its analysis of changes
in the Borrower's or any of its Subsidiaries' operations or credit and
collection experience arising after the Second Restatement Date that may
dilute the value of Eligible Collateral, revise from time to time the
percentage of the value of any individual item of Eligible Collateral that
shall be used in determining Loan Value.
"Management Stock Option Plan Agreement" means the Glenoit Universal,
--------------------------------------
Ltd. Stock Option Plan dated as of April 1, 1997.
"Margin Stock" has the meaning specified in Regulation U.
------------
"Material Adverse Change" means any material adverse change in the
-----------------------
business, condition (financial or otherwise), operations, performance,
properties or prospects of the Borrower and its Subsidiaries taken as a
whole or the Loan Parties and their Subsidiaries, taken as a whole.
<PAGE>
21
"Material Adverse Effect" means a material adverse effect on (a) the
-----------------------
business, condition (financial or otherwise), operations, performance,
properties or prospects of the Borrower and its Subsidiaries taken as a
whole or the Loan Parties and their Subsidiaries, taken as a whole, (b) the
rights and remedies of the Agent or any Lender Party under any Loan
Document or Related Document or (c) the ability of any Loan Party to
perform its Obligations under any Loan Document or Related Document to
which it is or is to be a party.
"Mills" has the meaning specified in the Preliminary Statements to
-----
this Agreement.
"Modification and Extension Agreement" has the meaning specified in
------------------------------------
Section 3.01(g)(x).
"Monthly Rolling Period" means, with respect to any Fiscal Month, the
----------------------
consecutive twelve-Fiscal Month period ending on the last day of such
Fiscal Month.
"Multiemployer Plan" means a multiemployer plan, as defined in Section
------------------
4001(a)(3) of ERISA, to which any Loan Party or any ERISA Affiliate is
making or accruing an obligation to make contributions, or has within any
of the preceding five plan years made or accrued an obligation to make
contributions.
"Multiple Employer Plan" means a single employer plan, as defined in
----------------------
Section 4001(a)(15) of ERISA, that (a) is maintained for employees of any
Loan Party or any ERISA Affiliate and at least one Person other than the
Loan Parties and the ERISA Affiliates or (b) was so maintained and in
respect of which any Loan Party or any ERISA Affiliate could have liability
under Section 4064 or 4069 of ERISA in the event such plan has been or were
to be terminated.
"Net Cash Proceeds" means, with respect to any sale, lease, transfer
-----------------
or other disposition of any asset or the sale or issuance of any Debt or
capital stock or other ownership or profit interest, any securities
convertible into or exchangeable for capital stock or other ownership or
profit interest or any warrants, rights, options or other securities to
acquire capital stock or other ownership or profit interest by any Person,
or any Extraordinary Receipt received by or paid to or for the account of
any Person, the aggregate amount of cash received from time to time
(whether as initial consideration or through payment or disposition of
deferred consideration) by or on behalf of such Person in connection with
such transaction after deducting therefrom only (without duplication) (a)
brokerage commissions, underwriting fees and discounts, legal fees,
finder's fees and other similar fees and commissions, (b) the amount of
taxes payable in connection with or as a result of such transaction and (c)
the amount of any Debt secured by a Lien on such asset that, by the terms
of such transaction, is required to be repaid upon such disposition, in
each case to the extent, but only to the extent, that the amounts so
deducted are properly attributable to such transaction or to the asset that
is the subject thereof and are, in the case of clauses (a)
<PAGE>
22
and (c), at the time of receipt of such cash, actually paid to a Person
that is not an Affiliate of such Person or any Loan Party or any Affiliate
of any Loan Party and, in the case of clause (b), on the earlier of the
dates on which the tax return covering such taxes is filed or required to
be filed, or actually paid to a Person that is not an Affiliate of such
Person or any Loan Party or any Affiliate of any Loan Party, provided that
--------
if the amount deducted pursuant to clause (b) above is greater than the
amount actually so paid, the amount of such excess shall constitute "Net
Cash Proceeds" as of the time the applicable tax return is filed or
required to be filed.
"Net Worth" means an amount equal to the sum of (i) $20,000,000 and
---------
(ii) cumulative Consolidated net income of the Borrower and its
Subsidiaries commencing from the Fiscal Month commencing April 6, 1997.
"Nonratable Assignment" means an assignment by a Lender Party pursuant
---------------------
to Section 8.07(a) of a portion of its rights and obligations under this
Agreement, other than an assignment of a uniform, and not a varying,
percentage of all of the rights and obligations of such Lender Party under
and in respect of all of the Facilities (other than the Letter of Credit
Facility).
"Note" means an Acquisition Note or a Working Capital Note.
----
"Notice of Borrowing" has the meaning specified in Section 2.02(a).
-------------------
"Notice of Issuance" has the meaning specified in Section 2.03(a).
------------------
"NPL" means the National Priorities List under CERCLA.
---
"Obligation" means, with respect to any Person, any payment,
----------
performance or other obligation of such Person of any kind, including,
without limitation, any liability of such Person on any claim, whether or
not the right of any creditor to payment in respect of such claim is
reduced to judgment, liquidated, unliquidated, fixed, contingent, matured,
disputed, undisputed, legal, equitable, secured or unsecured, and whether
or not such claim is discharged, stayed or otherwise affected by any
proceeding referred to in Section 6.01(g). Without limiting the generality
of the foregoing, the Obligations of the Loan Parties under the Loan
Documents include (a) the obligation to pay principal, interest, Letter of
Credit commissions, charges, expenses, fees, attorneys' fees and
disbursements, indemnities and other amounts payable by any Loan Party
under any Loan Document and (b) the obligation of any Loan Party to
reimburse any amount in respect of any of the foregoing that any Lender
Party, in its sole discretion, may elect to pay or advance on behalf of
such Loan Party.
"OECD" means the Organization for Economic Cooperation and
----
Development.
<PAGE>
23
"O'Gorman Employment Agreement" means the employment agreement dated
-----------------------------
as of December 14, 1995 between Universal and Thomas O'Gorman as in effect
on the Second Restatement Date and as amended, supplemented or otherwise
modified from time to time in accordance with its terms.
"Open Year" has the meaning specified in Section 4.01(aa).
---------
"Other Taxes" has the meaning specified in Section 2.12(b).
-----------
"PBGC" means the Pension Benefit Guarantee Corporation.
----
"Permitted Encumbrances" has the meaning specified in the Deed of
----------------------
Trust.
"Permitted Liens" means such of the following as to which no
---------------
enforcement, collection, execution, levy or foreclosure proceeding shall
have been commenced: (a) Liens for taxes, assessments and governmental
charges or levies to the extent not required to be paid under Section
5.01(b) hereof; (b) Liens imposed by law, such as materialmen's,
mechanics', carriers', workmen's and repairmen's Liens and other similar
Liens arising in the ordinary course of business securing obligations that
(i) are not overdue for a period of more than 30 days or being contested in
good faith and (ii) either individually or when aggregated with all other
Permitted Liens outstanding on any date of determination, do not materially
affect the use or value of the property to which they relate; (c) pledges
or deposits to secure obligations under workers' compensation laws or
similar legislation or to secure public or statutory obligations; and (d)
zoning restrictions, easements, rights of way and other encumbrances on
title to real property that do not render title to the property encumbered
thereby unmarketable or materially adversely affect the use of such
property for its present purposes.
"Person" means an individual, partnership, corporation (including a
------
business trust), limited liability company, joint stock company, trust,
unincorporated association, joint venture or other entity, or a government
or any political subdivision or agency thereof.
"PIK Note" means the PIK Subordinated Note due December 14, 2004,
--------
issued by Universal to Stirling pursuant to the Redemption Agreement in an
aggregate principal amount of $1,008,884.01.
"PIK Interest Note" means any payment-in-kind subordinated note of
-----------------
Universal (substantially in the form of Exhibit I to Exhibit A-2 of the
Redemption Agreement) issued pursuant to Section 2 of the PIK Note, or any
note which could be issued in substitution for any such PIK Interest Note.
"Plan" means a Single Employer Plan or a Multiple Employer Plan.
----
<PAGE>
24
"Preferred Stock" means, with respect to any corporation, capital
---------------
stock issued by such corporation that is entitled to a preference or
priority over any other capital stock issued by such corporation upon any
distribution of such corporation's assets, whether by dividend or upon
liquidation.
"Pro Rata Share" of any amount means, with respect to any Lender at
--------------
any time, the product of (a) a fraction the numerator of which is the
amount of such Lender's Commitment under the applicable Facility or
Facilities at such time and the denominator of which is the aggregate
amount of such Facility or Facilities at such time and (b) such amount.
"Quarterly Rolling Period" means, with respect to any Fiscal Quarter,
------------------------
such Fiscal Quarter and the three immediately preceding Fiscal Quarters.
"Receivables" means all Receivables referred to in Section 1(c) of the
-----------
Second Amended and Restated Security Agreement.
"Redeemable" means, with respect to any capital stock or other
----------
ownership or profit interest, Debt or other right or Obligation, any such
right or Obligation that (a) the issuer has undertaken to redeem at a fixed
or determinable date or dates, whether by operation of a sinking fund or
otherwise, or upon the occurrence of a condition not solely within the
control of the issuer or (b) is redeemable at the option of the holder.
"Redemption Agreement" means the Redemption Agreement dated October
--------------------
23, 1995, between Universal and Stirling as in effect on the Second
Restatement Date.
"Register" has the meaning specified in Section 8.07(e).
--------
"Regulation U" means Regulation U of the Board of Governors of the
------------
Federal Reserve System, as in effect from time to time.
"Related Documents" means the Subordinated Debt Documents, the
-----------------
Stockholders Agreement, the Tax Sharing Agreement and the Royalty
Agreement.
"Related Textile Business" means any business engaged in the
------------------------
manufacturing of home textiles and specialty textiles and other activities
incidental thereto.
"Related Textile Investment" means any acquisition of or investment in
--------------------------
any Related Textile Business located in the United States or Canada or any
capital expenditure or any other expenditure for any other asset (tangible
or intangible) in connection with any Related Textile Business located in
the United States or Canada, including any such business now or hereafter
owned by the Borrower or any of its Subsidiaries.
<PAGE>
25
"Required Lenders" means at any time Lenders owed or holding at least
----------------
51% of the sum of (a) the aggregate principal amount of the Advances
outstanding at such time, (b) the aggregate Available Amount of all Letters
of Credit outstanding at such time, (c) the aggregate unused Acquisition
Commitments at such time and (d) the aggregate Unused Working Capital
Commitments at such time. For purposes of this definition, the aggregate
principal amount of Letter of Credit Advances owing to the Issuing Bank and
the Available Amount of each Letter of Credit shall be considered to be
owed to the Working Capital Lenders ratably in accordance with their
respective Working Capital Commitments.
"Responsible Officer" means any executive officer of any Loan Party or
-------------------
any of its Subsidiaries.
"Restatement Lenders" has the meaning specified in the recital of the
-------------------
parties to this Agreement.
"Restricted Capex Period" means the consecutive four Fiscal Quarter
-----------------------
period commencing the date immediately following the end of the last day of
the second of two Quarterly Rolling Periods in any single four Fiscal
Quarter period during which the Fixed Charge Coverage Ratio is less than
the level required under Section 5.02(f)(vii)(A). Such Restricted Capex
Period shall end on the date immediately following the end of the last day
of the second of two consecutive Quarterly Rolling Periods the Fixed Charge
Coverage Ratio is equal to or greater than the level required under such
Section. Notwithstanding anything to the contrary contained in this
definition, a new Restricted Capex Period shall commence on the date
immediately following the end of the last day of the most recently ended
Restricted Capex Period if the Fixed Charge Coverage Ratio is less than the
level required under Section 5.02(f)(vii)(A) during either one of the last
two Quarterly Rolling Periods of such recently ended Restricted Capex
Period.
"Rolling Period" means either a Monthly Rolling Period or a Quarterly
--------------
Rolling Period.
"Royalty Agreement" means the License Royalty Agreement dated as of
-----------------
November 21, 1988, as amended as of January 1, 1992, between Mills and
Barth & Dreyfuss of California, Inc., a California corporation, as amended,
supplemented or otherwise modified in accordance with its terms and the
terms hereof.
"Second Amended and Restated Guarantee" has the meaning specified in
-------------------------------------
Section 3.01(g)(xi) of this Agreement.
"Second Amended and Restated Security Agreement" has the meaning
----------------------------------------------
specified in Section 3.01(g)(viii).
<PAGE>
26
"Second Restatement Assignment Agreement" has the meaning specified in
---------------------------------------
the Preliminary Statements to this Agreement.
"Second Restatement Date" has the meaning specified in Section 3.01.
-----------------------
"Secured Obligations" has the meaning specified in the Second Amended
-------------------
and Restated Security Agreement.
"Secured Parties" means the Agent, the Lender Parties and the other
---------------
Persons the Obligations owing to whom are or are purported to be secured by
the Collateral under the terms of the Collateral Documents.
"Shihan" means Shihan Holdings Ltd., a company organized under the
------
laws of the British Virgin Islands.
"Single Employer Plan" means a single employer plan, as defined in
--------------------
Section 4001(a)(15) of ERISA, that (a) is maintained for employees of any
Loan Party or any ERISA Affiliate and no Person other than the Loan Parties
and the ERISA Affiliates or (b) was so maintained and in respect of which
any Loan Party or any ERISA Affiliate could have liability under Section
4069 of ERISA in the event such plan has been or were to be terminated.
"Soannes" means Soannes Investment Corp., a corporation organized
-------
under the laws of the British Virgin Islands.
"Solvent" and "Solvency" mean, with respect to any Person on a
------- --------
particular date, that on such date (a) the fair value of the property of
such Person is greater than the total amount of liabilities, including,
without limitation, contingent liabilities, of such Person, (b) the present
fair salable value of the assets of such Person is not less than the amount
that will be required to pay the probable liability of such Person on its
debts as they become absolute and matured, (c) such Person does not intend
to, and does not believe that it will, incur debts or liabilities beyond
such Person's ability to pay such debts and liabilities as they mature and
(d) such Person is not engaged in business or a transaction, and is not
about to engage in business or a transaction, for which such Person's
property would constitute an unreasonably small capital. The amount of
contingent liabilities at any time shall be computed as the amount that, in
the light of all the facts and circumstances existing at such time,
represents the amount that can reasonably be expected to become an actual
or matured liability.
"Split-Pay Notes" means (i) the Split-Pay Subordinated Note due
---------------
December 14, 2004, issued by Universal to Stirling pursuant to the
Redemption Agreement, in an aggregate principal amount of $2,888,930.82,
and (ii) the Split-Pay Subordinated Note due December 14, 2004, issued by
Holding to Iris pursuant to the Redemption Agreement, in an aggregate
principal amount of $5,682,497.75.
<PAGE>
27
"Standby Letter of Credit" means any Letter of Credit issued under the
------------------------
Letter of Credit Facility, other than a Trade Letter of Credit.
"Stirling" means Stirling Investment Holdings, Inc., a British Virgin
--------
Islands corporation.
"Stirling Notes" means the Split-Pay Notes, the PIK Note, the PIK
--------------
Interest Notes, and the Deferred Redemption Price Note.
"Stockholders Agreement" means the Stockholders Agreement dated as of
----------------------
December 14, 1995 by and among Universal, CVC, Stirling, and the other
parties thereto, as amended, supplemented or otherwise modified from time
to time in accordance with its terms and the terms hereof.
"Subordinated Debt" means the Subordinated Notes, the Junior Notes,
-----------------
the Stirling Notes, the Debt of the Borrower to its Subsidiaries permitted
by Section 5.02(b)(ii)(B) and the redemption obligations set forth in
Section 5.02(g)(ii)(B).
"Subordinated Debt Documents" means the Indenture dated as of April 1,
---------------------------
1997 among the Borrower, certain of its Subsidiaries signatory thereto and
the United States Trust Company of New York, the Subordinated Notes, all
agreements, indentures and instruments pursuant to which the Subordinated
Debt is issued and any agreements, indentures and instruments pursuant to
which Subordinated Debt permitted by Section 5.02(b)(ii)(B) is issued from
time to time.
"Subordinated Notes" has the meaning specified in the Preliminary
------------------
Statements to this Agreement.
"Subsidiary" of any Person means any corporation, partnership, joint
----------
venture, limited liability company, trust or estate of which (or in which)
more than 50% of (a) the issued and outstanding capital stock having
ordinary voting power to elect a majority 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 or might have voting power upon
the occurrence of any contingency), (b) the interest in the capital or
profits of such limited liability company, partnership or joint venture or
(c) the beneficial interest in such trust or estate is at the time directly
or indirectly owned or controlled by such Person, by such Person and one or
more of its other Subsidiaries or by one or more of such Person's other
Subsidiaries.
"Subsidiary Guarantor" means Mills, Glenoit Assets, Tarboro Ltd. and
--------------------
each other Subsidiary that may become a guarantor or a collateral guarantor
pursuant to Section 5.01(m) or Section 5.01(o).
"Surviving Debt" has the meaning specified in Section 3.01(f).
--------------
<PAGE>
28
"Tarboro Ltd." means Tarboro Properties, Ltd., a Delaware corporation.
------------
"Taxes" has the definition specified in Section 2.12(a).
-----
"Tax Sharing Agreement" means the Tax Sharing Agreement dated as of
---------------------
December 14, 1995 by and among Mills, the Borrower, Universal and all of
their Subsidiaries, as amended, supplemented or otherwise modified from
time to time in accordance with its terms and the terms hereof.
"Termination Date" means the earlier of December 31, 2001 and the date
----------------
of termination in whole of the Acquisition Commitments, the Letter of
Credit Commitments and the Working Capital Commitments pursuant to Section
2.05 or 6.01.
"Thomas O'Gorman" means Mr. Thomas O'Gorman, an individual residing in
---------------
New York, New York.
"Trade Letter of Credit" means any Letter of Credit that is issued
----------------------
under the Letter of Credit Facility for the benefit of a supplier of
Inventory to the Borrower or any of its Subsidiaries to effect payment for
such Inventory.
"Type" refers to the distinction between Advances bearing interest at
----
the Base Rate and Advances bearing interest at the Eurodollar Rate.
"Unique" means Unique Assets, Inc., a company incorporated in the
------
British Virgin Islands.
"Universal" has the meaning specified in the Preliminary Statements to
---------
this Agreement.
"Unused Working Capital Commitment" means, with respect to any Working
---------------------------------
Capital Lender at any time, (a) such Lender's Working Capital Commitment at
such time minus (b) the sum of (i) the aggregate principal amount of all
-----
Working Capital Advances and Letter of Credit Advances made by such Lender
(in its capacity as a Lender) and outstanding at such time, plus (ii) such
----
Lender's Pro Rata Share of (A) the aggregate Available Amount of all
Letters of Credit outstanding at such time and (B) the aggregate principal
amount of all Letter of Credit Advances made by the Issuing Bank pursuant
to Section 2.03(c) and outstanding at such time.
"U.S. Subsidiary" means any Subsidiary organized under the laws of any
---------------
State of the United States.
"Voting Stock" means capital stock issued by a corporation, or
------------
equivalent interests in any other Person, the holders of which are
ordinarily, in the absence of contingencies, entitled to vote for the
election of directors (or persons performing
<PAGE>
29
similar functions) of such Person, even if the right so to vote has been
suspended by the happening of such a contingency.
"Welfare Plan" means a welfare plan, as defined in Section 3(1) of
------------
ERISA, that is maintained for employees of any Loan Party or in respect of
which any Loan Party could have a liability.
"Withdrawal Liability" has the meaning specified in Part I of Subtitle
--------------------
E of Title IV of ERISA.
"Working Capital Advance" has the meaning specified in Section
-----------------------
2.01(b).
"Working Capital Borrowing" means a borrowing consisting of
-------------------------
simultaneous Working Capital Advances of the same Type made by the Working
Capital Lenders.
"Working Capital Commitment" means, with respect to any Working
--------------------------
Capital Lender at any time, the amount set forth opposite such Lender's
name on Schedule I hereto under the caption "Working Capital Commitment"
or, if such Lender has entered into one or more Assignments and
Acceptances, set forth for such Lender in the Register maintained by the
Agent pursuant to Section 8.07(e) as such Lender's "Working Capital
Commitment", as such amount may be reduced at or prior to such time
pursuant to Section 2.05.
"Working Capital Facility" means, at any time, the aggregate amount of
------------------------
the Working Capital Lenders' Working Capital Commitments at such time.
"Working Capital Lender" means any Lender that has a Working Capital
----------------------
Commitment.
"Working Capital Note" means a promissory note of the Borrower payable
--------------------
to the order of any Working Capital Lender, in substantially the form of
Exhibit A-1 hereto, evidencing the aggregate indebtedness of the Borrower
to such Lender resulting from the Working Capital Advances made by such
Lender.
SECTION 1.02. Computation of Time Periods. In this Agreement in the
---------------------------
computation of periods of time from a specified date to a later specified date,
the word "from" means "from and including" and the words "to" and "until" each
mean "to but excluding".
SECTION 1.03. Accounting Terms. All accounting terms not
----------------
specifically defined herein shall be construed in accordance with generally
accepted accounting principles consistent with those applied in the preparation
of the financial statements referred to in Section 4.01(f) ("GAAP").
----
<PAGE>
30
ARTICLE II
AMOUNTS AND TERMS OF THE ADVANCES
AND THE LETTERS OF CREDIT
SECTION 2.01. The Advances. (a) The Acquisition Advances. Each
------------ ------------------------
Acquisition Lender severally agrees, on the terms and conditions hereinafter set
forth, to make advances (each an "Acquisition Advance") to the Borrower from
-------------------
time to time on any Business Day during the period from the Second Restatement
Date until December 31, 1999 (the "Acquisition Facility Term Loan Date") in an
-----------------------------------
amount, together with all other Acquisition Advances of such Lender outstanding
on such Business Day, not to exceed such Lender's Acquisition Commitment on such
Business Day. Each Acquisition Borrowing shall be in an aggregate amount of
$3,000,000 or an integral multiple of $500,000 in excess thereof and shall
consist of Acquisition Advances made simultaneously by the Acquisition Lenders
ratably according to their Acquisition Commitments. Within the limits of the
Acquisition Facility, the Borrower may, prior to the Acquisition Facility Term
Loan Date, borrow under this Section 2.01(a), prepay pursuant to Section 2.06(a)
and reborrow under this Section 2.01(a).
(b) The Working Capital Advances. Each Working Capital Lender
----------------------------
severally agrees, on the terms and conditions hereinafter set forth, to make
advances (each a "Working Capital Advance") to the Borrower from time to time on
-----------------------
any Business Day during the period from the Second Restatement Date until the
Termination Date in an amount for each such Advance not to exceed such Lender's
Unused Working Capital Commitment at such time. Each Working Capital Borrowing
shall be in an aggregate amount of $500,000, or an integral multiple of $100,000
in excess thereof (other than a Borrowing the proceeds of which shall be used
solely to repay or prepay in full outstanding Letter of Credit Advances made by
the Issuing Bank) and shall consist of Working Capital Advances made
simultaneously by the Working Capital Lenders ratably according to their Working
Capital Commitments. Within the limits of each Working Capital Lender's Unused
Working Capital Commitment in effect from time to time, the Borrower may borrow
under this Section 2.01(b), prepay pursuant to Section 2.06(a) and reborrow
under this Section 2.01(b).
(c) Letters of Credit. The Issuing Bank agrees, on the terms and
-----------------
conditions hereinafter set forth, to issue letters of credit (the "Letters of
----------
Credit") for the account of the Borrower from time to time on any Business Day
- ------
during the period from the Second Restatement Date until 30 days before the
Termination Date (i) in an aggregate Available Amount for all Letters of Credit
issued by the Issuing Bank not to exceed at any time the Issuing Bank's Letter
of Credit Commitment at such time and (ii) in an Available Amount for each such
Letter of Credit not to exceed the lesser of (x) the Letter of Credit Facility
at such time and (y) the Unused Working Capital Commitments of the Working
Capital Lenders at such time. No Letter of Credit shall have an expiration date
(including all rights of the Borrower or the beneficiary to require renewal)
later than the earlier of 30 days before the Termination Date and (A) in the
case of a Standby Letter of Credit, one year after the date of issuance thereof
and (B) in the case of a Trade Letter of Credit, 180 days after
<PAGE>
31
the date of issuance thereof. Within the limits of the Letter of Credit
Facility, and subject to the limits referred to above, the Borrower may request
the issuance of Letters of Credit under this Section 2.01(c), repay any Letter
of Credit Advances resulting from drawings thereunder pursuant to Section
2.03(c) and request the issuance of additional Letters of Credit under this
Section 2.01(c).
SECTION 2.02. Making the Advances. (a) Except as otherwise provided
-------------------
in Section 2.03, each Borrowing shall be made on notice, given not later than
11:00 A.M. (New York City time) on the third Business Day prior to the date of
the proposed Borrowing in the case of a Borrowing consisting of Eurodollar Rate
Advances or on the first Business Day prior to the date of the proposed
Borrowing in the case of a Borrowing consisting of Base Rate Advances, by the
Borrower to the Agent, which shall give to each Appropriate Lender prompt notice
thereof by telex or telecopier. Each such notice of a Borrowing (a "Notice of
---------
Borrowing") shall be in writing, or telex or telecopier, in substantially the
- ---------
form of Exhibit B hereto, specifying therein the requested (i) date of such
Borrowing (which shall be a Business Day), (ii) Facility under which such
Borrowing is to be made, (iii) Type of Advances comprising such Borrowing, (iv)
aggregate amount of such Borrowing and (v) in the case of a Borrowing consisting
of Eurodollar Rate Advances, initial Interest Period for each such Advance.
Each Appropriate Lender shall, before 11:00 A.M. (New York City time) on the
date of such Borrowing, make available for the account of its Applicable Lending
Office to the Agent at the Agent's Account, in same day funds, such Lender's
ratable portion of such Borrowing in accordance with the respective Commitments
under the applicable Facility of such Lender and the other Appropriate Lenders.
After the Agent's receipt of such funds and upon fulfillment of the applicable
conditions set forth in Article III, the Agent will make such funds available to
the Borrower by crediting the Borrower's Account; provided, however, that, in
-------- -------
the case of any Working Capital Borrowing, the Agent shall first make a portion
of such funds equal to the aggregate principal amount of any Letter of Credit
Advances made by the Issuing Bank and by any other Working Capital Lender and
outstanding on the date of such Working Capital Borrowing, plus interest accrued
and unpaid thereon to and as of such date, available to the Issuing Bank and
such other Working Capital Lenders for repayment of such Letter of Credit
Advances.
(b) Anything in subsection (a) above to the contrary notwithstanding,
(i) the Borrower may not select Eurodollar Rate Advances for any Borrowing on
the Second Restatement Date and for the period from the Second Restatement Date
to the earlier of (x) three months from such date and (y) the completion of
syndication of the Facilities (as shall be specified by the Agent in a written
notice to the Borrower) or for any Borrowing if the aggregate amount of such
Borrowing is less than $1,000,000 or if the obligation of the Appropriate
Lenders to make Eurodollar Rate Advances shall then be suspended pursuant to
Section 2.09 or Section 2.10 and (ii) with respect to Borrowings consisting of
Eurodollar Rate Advances, the Acquisition Advances and the Working Capital
Advances may not be outstanding at any time as part of more than six separate
Borrowings in the aggregate.
(c) Each Notice of Borrowing shall be irrevocable and binding on the
Borrower. In the case of any Borrowing that the related Notice of Borrowing
specifies is to
<PAGE>
32
be comprised of Eurodollar Rate Advances, the Borrower shall indemnify each
Appropriate Lender against any loss, cost or expense incurred by such Lender as
a result of any failure to fulfill on or before the date specified in such
Notice of Borrowing for such Borrowing the applicable conditions set forth in
Article III, including, without limitation, any loss (including loss of
anticipated profits), cost or expense incurred by reason of the liquidation or
reemployment of deposits or other funds acquired by such Lender to fund the
Eurodollar Rate Advance to be made by such Lender as part of such Borrowing when
such Eurodollar Rate Advance, as a result of such failure, is not made on such
date.
(d) Unless the Agent shall have received notice from an Appropriate
Lender prior to the date of any Borrowing under a Facility under which such
Lender has a Commitment that such Lender will not make available to the Agent
such Lender's ratable portion of such Borrowing, the Agent may assume that such
Lender has made such portion available to the Agent on the date of such
Borrowing in accordance with subsection (a) or (b) of this Section 2.02 and the
Agent may, in reliance upon such assumption, make available to the Borrower on
such date a corresponding amount. If and to the extent that such Lender shall
not have so made such ratable portion available to the Agent, such Lender and
the Borrower severally agree to repay or pay to the Agent forthwith on demand
such corresponding amount and to pay interest thereon, for each day from the
date such amount is made available to the Borrower until the date such amount is
repaid or paid to the Agent, at (i) in the case of the Borrower, the interest
rate applicable at such time under Section 2.07 to Advances comprising such
Borrowing and (ii) in the case of such Lender, the Federal Funds Rate. If such
Lender shall pay to the Agent such corresponding amount, such amount so paid in
respect of principal shall constitute such Lender's Advance as part of such
Borrowing for all purposes. If the Borrower shall pay to the Agent such
corresponding amount, such payment shall not relieve such Lender of any
obligation such Lender may have hereunder to the Borrower.
(e) The failure of any Lender to make the Advance to be made by it as
part of any Borrowing shall not relieve any other Lender of its obligation, if
any, hereunder to make its Advance on the date of such Borrowing, but no Lender
shall be responsible for the failure of any other Lender to make the Advance to
be made by such other Lender on the date of any Borrowing.
SECTION 2.03. Issuance of and Drawings and Reimbursement Under
------------------------------------------------
Letters of Credit. (a) Request for Issuance. Each Letter of Credit shall be
- ----------------- --------------------
issued upon notice, given not later than 11:00 A.M. (New York City time) on the
third Business Day prior to the date of the proposed issuance of such Letter of
Credit, by the Borrower to the Issuing Bank, which shall give to the Agent
prompt notice thereof by telex or telecopier. Each such notice of issuance of a
Letter of Credit (a "Notice of Issuance") shall be by telex or telecopier,
------------------
specifying therein the requested (A) date of such issuance (which shall be a
Business Day), (B) Available Amount of such Letter of Credit, (C) expiration
date of such Letter of Credit, (D) name and address of the beneficiary of such
Letter of Credit and (E) form of such Letter of Credit, and shall be accompanied
by such application and agreement for letter of credit as the Issuing Bank may
specify to the Borrower for use in connection with such requested
<PAGE>
33
Letter of Credit (a "Letter of Credit Agreement"). If (x) the requested form of
--------------------------
such Letter of Credit is acceptable to the Issuing Bank in its sole discretion
and (y) it has not received notice of objection to such issuance from Lenders
holding at least 60% of the Working Capital Commitments, the Issuing Bank will,
upon fulfillment of the applicable conditions set forth in Article III, make
such Letter of Credit available to the Borrower on the date of issuance
specified in the Notice of Issuance at its office referred to in Section 8.02 or
as otherwise agreed with the Borrower in connection with such issuance. In the
event and to the extent that the provisions of any Letter of Credit Agreement
shall conflict with this Agreement, the provisions of this Agreement shall
govern.
(b) Letter of Credit Reports. The Issuing Bank shall furnish (A) to
------------------------
the Agent on the first Business Day of each week a written report summarizing
issuance and expiration dates of Letters of Credit issued during the previous
week and drawings during such week under all Letters of Credit, (B) to each
Working Capital Lender on the first Business Day of each calendar quarter a
written report summarizing issuance and expiration dates of Letters of Credit
issued during the preceding calendar quarter and drawings during such quarter
under all Letters of Credit and (C) to the Agent and each Working Capital Lender
on the first Business Day of each calendar quarter a written report setting
forth the average daily aggregate Available Amount during the preceding calendar
quarter of all Letters of Credit.
(c) Drawing and Reimbursement. The payment by the Issuing Bank of a
-------------------------
draft drawn under any Letter of Credit shall constitute for all purposes of this
Agreement the making by the Issuing Bank of a Letter of Credit Advance, which
shall be a Base Rate Advance, in the amount of such draft. In the event of any
drawing under a Letter of Credit, the Issuing Bank shall promptly notify the
Agent, and the Agent shall promptly notify each Working Capital Lender and each
Working Capital Lender shall purchase from the Issuing Bank, and the Issuing
Bank shall sell and assign to each such Working Capital Lender, such Lender's
Pro Rata Share of such outstanding Letter of Credit Advance as of the date of
such purchase, by making available for the account of its Applicable Lending
Office to the Agent for the account of the Issuing Bank, by deposit to the
Agent's Account, in same day funds, an amount equal to the portion of the
outstanding principal amount of such Letter of Credit Advance to be purchased by
such Lender. Promptly after receipt thereof, the Agent shall transfer such
funds to the Issuing Bank. The Borrower hereby agrees to each such sale and
assignment. Each Working Capital Lender agrees to purchase its Pro Rata Share
of an outstanding Letter of Credit Advance on (i) the Business Day on which
notice of the drawing under the related Letter of Credit is given by the Issuing
Bank which made such Advance, provided such notice is given not later than 1:00
P.M. (New York City time) on such Business Day or (ii) the first Business Day
next succeeding such demand if such notice is given after such time. Upon any
such assignment by the Issuing Bank to any other Working Capital Lender of a
portion of a Letter of Credit Advance, the Issuing Bank represents and warrants
to such other Lender that the Issuing Bank is the legal and beneficial owner of
such interest being assigned by it, free and clear of any liens, but makes no
other representation or warranty and assumes no responsibility with respect to
such Letter of Credit Advance, the Loan Documents or any Loan Party. If and to
the extent that any Working Capital Lender
<PAGE>
34
shall not have so made the amount of such Letter of Credit Advance available to
the Agent, such Working Capital Lender agrees to pay to the Agent forthwith on
demand such amount together with interest thereon, for each day from the date of
demand by the Issuing Bank until the date such amount is paid to the Agent, at
the Federal Funds Rate for its account or the account of the Issuing Bank, as
applicable. If such Lender shall pay to the Agent such amount for the account
of the Issuing Bank on any Business Day, such amount so paid in respect of
principal shall constitute a Letter of Credit Advance made by such Lender on
such Business Day for purposes of this Agreement, and the outstanding principal
amount of the Letter of Credit Advance made by the Issuing Bank shall be reduced
by such amount on such Business Day.
(d) Failure to Make Letter of Credit Advances. The failure of any
-----------------------------------------
Lender to make the Letter of Credit Advance to be made by it on the date
specified in Section 2.03(c) shall not relieve any other Lender of its
obligation hereunder to make its Letter of Credit Advance on such date, but no
Lender shall be responsible for the failure of any other Lender to make the
Letter of Credit Advance to be made by such other Lender on such date.
SECTION 2.04. Repayment of Advances. (a) Acquisition Advances. The
--------------------- --------------------
Borrower shall repay to the Agent for the ratable benefit of the Acquisition
Lenders (i) on each March 31, June 30, September 30 and December 31, commencing
on March 31, 2000, an amount equal to 1/20 of the aggregate principal balance of
the Acquisition Advances outstanding on the Acquisition Facility Term Loan Date
and (ii) on the Termination Date the principal amount of the Acquisition
Advances outstanding on such date.
(b) Working Capital Advances. The Borrower shall repay to the Agent
------------------------
for the ratable account of the Working Capital Lenders on the Termination Date
the aggregate outstanding principal amount of the Working Capital Advances then
outstanding.
(c) Letter of Credit Advances. (i) The Borrower shall repay to the
-------------------------
Agent for the account of the Issuing Bank and each other Working Capital Lender
that has made a Letter of Credit Advance on the earlier of demand and the
Termination Date the outstanding principal amount of each Letter of Credit
Advance made by each of them.
(ii) The Obligations of the Borrower under this Agreement, any Letter
of Credit Agreement and any other agreement or instrument relating to any Letter
of Credit shall be unconditional and irrevocable, and shall be paid strictly in
accordance with the terms of this Agreement, such Letter of Credit Agreement and
such other agreement or instrument under all circumstances, including, without
limitation, the following circumstances:
(A) any lack of validity or enforceability of any Loan Document, any
Letter of Credit Agreement, any Letter of Credit or any other agreement or
instrument relating thereto (all of the foregoing being, collectively, the
"L/C Related Documents");
---------------------
<PAGE>
35
(B) any change in the time, manner or place of payment of, or in any
other term of, all or any of the Obligations of the Borrower in respect of
any L/C Related Document or any other amendment or waiver of or any consent
to departure from all or any of the L/C Related Documents;
(C) the existence of any claim, set-off, defense or other right that
the Borrower may have at any time against any beneficiary or any transferee
of a Letter of Credit (or any Persons for whom any such beneficiary or any
such transferee may be acting), the Issuing Bank or any other Person,
whether in connection with the transactions contemplated by the L/C Related
Documents or any unrelated transaction;
(D) any statement or any other document presented under a Letter of
Credit proving to be forged, fraudulent, invalid or insufficient in any
respect or any statement therein being untrue or inaccurate in any respect;
(E) payment by the Issuing Bank under a Letter of Credit against
presentation of a draft or certificate that does not strictly comply with
the terms of such Letter of Credit;
(F) any exchange, release or non-perfection of any Collateral or other
collateral, or any release or amendment or waiver of or consent to
departure from any guarantee, for all or any of the Obligations of the
Borrower in respect of the L/C Related Documents; or
(G) any other circumstance or happening whatsoever, whether or not
similar to any of the foregoing, including, without limitation, any other
circumstance that might otherwise constitute a defense available to, or a
discharge of, the Borrower or a guarantor.
SECTION 2.05. Termination or Reduction of the Commitments. (a)
-------------------------------------------
Optional. The Borrower may, upon at least three Business Days' notice to the
- --------
Agent, terminate in whole or reduce in part the unused portions of the
Acquisition Commitments, the Letter of Credit Facility and the Unused Working
Capital Commitments, as the case may be; provided, however, that each partial
-------- -------
reduction of a Facility (i) shall be in an aggregate amount of $1,000,000 or an
integral multiple of $250,000 in excess thereof and (ii) shall be made ratably
among the Appropriate Lenders in accordance with their Commitments with respect
to such Facility.
(b) Mandatory. (i) Prior to the Acquisition Facility Term Loan Date,
---------
the Acquisition Facility shall be automatically and permanently reduced on the
date on which any Net Cash Proceeds are required to prepay Advances pursuant to
Section 2.06(b)(i) by an amount equal to the lesser of (x) the Acquisition
Facility on such date and (y) such Net Cash Proceeds, provided that each such
reduction of the Acquisition Facility shall be made ratably among the
Acquisition Lenders in accordance with their Acquisition Commitments.
<PAGE>
36
(ii) The Working Capital Facility shall be automatically and
permanently reduced (A) prior to the Acquisition Facility Term Loan Date, on the
date on which any Net Cash Proceeds are required to prepay Advances pursuant to
Section 2.06(b)(i) by an amount equal to such Net Cash Proceeds less the amount
by which the Acquisition Facility is reduced pursuant to Section 2.05(b)(i) and
(B) on or after the Acquisition Facility Term Loan Date, on the date on which
any Net Cash Proceeds are required to prepay Advances pursuant to section
2.06(b)(i) by an amount equal to such Net Cash Proceeds less the amount by which
the Acquisition Advances are prepaid pursuant to Section 2.06(b)(i), provided
that each such reduction of the Working Capital Facility shall be made ratably
among the Working Capital Lenders in accordance with their Working Capital
Commitments.
(iii) The Letter of Credit Facility shall be automatically and
permanently reduced from time to time on the date of each reduction in the
Working Capital Facility by the amount, if any, by which the amount of the
Letter of Credit Facility exceeds the Working Capital Facility after giving
effect to such reduction of the Working Capital Facility.
SECTION 2.06. Prepayments. (a) Optional. The Borrower may, without
----------- --------
any premium or penalty, upon at least one Business Day's notice in the case of
Base Rate Advances and three Business Days' notice in the case of Eurodollar
Rate Advances, in each case to the Agent (received not later than 1:00 P.M. (New
York City time)) stating the proposed date and aggregate principal amount of the
prepayment, and if such notice is given the Borrower shall, prepay the
outstanding aggregate principal amount of the Advances comprising part of the
same Borrowing in whole or ratably in part, together with accrued interest to
the date of such prepayment on the aggregate principal amount prepaid unless
such prepayment is with respect to an Acquisition Advance prior to the
Acquisition Facility Term Loan Date or a Working Capital Advance which is, in
each case a Base Rate Advance; provided, however, that no prepayment with
-------- -------
respect to an Acquisition Advance may be made unless the daily average aggregate
amount outstanding during the preceding 90 days of Working Capital Advances, is
less than $25,000,000; and provided further that (x) each partial prepayment
-------- -------
shall be, in the case of Working Capital Advances, in an aggregate principal
amount of $500,000, or an integral multiple of $100,000 in excess thereof or, in
the case of Acquisition Advances, in an aggregate amount of $1,000,000 or an
integral multiple of $500,000 in excess thereof and (y) if any prepayment of a
Eurodollar Rate Advance is made on a date other than the last day of an Interest
Period for such Advance the Borrower shall also pay any amounts owing pursuant
to Section 8.04(c). Each such prepayment of any Acquisition Advances on or
after the Acquisition Facility Term Loan Date shall be applied ratably to the
remaining principal installments thereof.
(b) Mandatory. (i) The Borrower shall, on the date of receipt of the
---------
Net Cash Proceeds by any Loan Party or any of their Subsidiaries from (A) the
sale, lease, transfer or other disposition of any assets of such Loan Party or
any of its Subsidiaries (other than any sale, lease, transfer or other
disposition of assets pursuant to Section 5.02(e)), (B) the incurrence or
issuance by such Loan Party or any of its Subsidiaries of any Debt (other than
Debt incurred or issued pursuant to Section 5.02(b)), (C) the sale or issuance
by such Loan Party or any of its Subsidiaries of any capital stock or other
ownership or profit
<PAGE>
37
interest, any securities convertible into or exchangeable for capital stock or
other ownership or profit interest or any warrants, rights or options to acquire
capital stock or other ownership or profit interest (other than any issuance by
Universal pursuant to Section 5.02(g)(v)), or (D) any Extraordinary Receipt
received by or paid to or for the account of such Loan Party or any of its
Subsidiaries and not otherwise included in clause (A), (B) or (C) above, prepay
an aggregate principal amount of the Advances comprising part of the same
Borrowings equal to the amount of such Net Cash Proceeds. Each such prepayment
of any Advances shall be applied as follows:
first, (A) prior to the Acquisition Facility Term Loan Date, to prepay
-----
Acquisition Advances comprising part of the same Borrowing until such
Advances are prepaid in full and (B) on or after the Acquisition Facility
Term Loan Date, to prepay Acquisition Advances ratably to the remaining
principal installments thereof, and
second, to the extent that the Acquisition Facility has been fully
------
repaid, to prepay Working Capital Advances comprising part of the same
Borrowing.
(ii) The Borrower shall, on each Business Day, prepay (A) an aggregate
principal amount of the Working Capital Advances comprising part of the same
Borrowings, and the Letter of Credit Advances equal to the amount by which (1)
the sum of the aggregate principal amount of (y) the Working Capital Advances
then outstanding and (z) the Letter of Credit Advances then outstanding plus the
aggregate Available Amount of all Letters of Credit then outstanding exceeds (2)
the lesser of the Working Capital Facility and the Loan Value of Eligible
Collateral on such Business Day (as determined based on the most recent
Borrowing Base Certificate delivered to the Lender Parties hereunder) and (B) an
aggregate principal amount of the Acquisition Advances then outstanding equal to
the amount by which (1) the aggregate principal amount of the Acquisition
Advances exceeds (2) the Acquisition Facility on such Business Day.
(iii) The Borrower shall, on each Business Day, pay to the Agent for
deposit in the L/C Cash Collateral Account an amount sufficient to cause the
aggregate amount on deposit in such Account to equal the amount by which the
aggregate Available Amount of all Letters of Credit then outstanding exceeds the
Letter of Credit Facility on such Business Day.
(iv) Prepayments of the Working Capital Facility made pursuant to
clauses (i) and (ii) of this Section 2.06(b) shall be first applied to prepay
-----
Letter of Credit Advances then outstanding until such Advances are paid in full,
second applied to prepay Working Capital Advances then outstanding comprising
- ------
part of the same Borrowings until such Advances are paid in full and third
-----
deposited in the L/C Cash Collateral Account to cash collateralize 100% of the
Available Amount of the Letters of Credit then outstanding; and, in the case of
prepayments of the Working Capital Facility required pursuant to clause (i)
above, the amount remaining (if any) after the payment in full of the Working
Capital Advances then outstanding and the cash collateralization of the
aggregate Available
<PAGE>
38
Amount of Letters of Credit then outstanding may be retained by the Borrower.
Upon the drawing of any Letter of Credit for which funds are on deposit in the
L/C Cash Collateral Account, such funds shall be applied to reimburse the
Issuing Bank or Working Capital Lenders, as applicable.
(v) Notwithstanding any of the other provisions of this Section
2.06(b), so long as no Default shall have occurred and be continuing, if any
prepayment of Eurodollar Rate Advances is required to be made under clauses (i)
or (ii) of this Section 2.06(b) on any day other than on the last day of the
Interest Period therefor, the Borrower may in its sole discretion (but shall not
be required to), deposit the amount of any such prepayment otherwise required to
be made hereunder in a cash collateral account (the "Cash Collateral Account")
-----------------------
of the Borrower to be opened with the Agent prior to such time, until the last
day of such Interest Period, at which time the Agent shall be authorized
(without any further action by the Borrower) to apply such prepayment as set
forth in such relevant clauses (i) or (ii) of this Section 2.06(b). In the case
of any prepayment of Eurodollar Rate Advances required to be made under this
Section 2.06(b) and not provided for in the immediately preceding sentence, the
Borrower shall also pay any amounts owing in respect of such Eurodollar Rate
Advances pursuant to Section 8.04(c).
(vi) All prepayments under this Section 2.06(b) shall be made together
with accrued interest to the date of such prepayment on the principal amount
prepaid.
SECTION 2.07. Interest. (a) Scheduled Interest. The Borrower shall
-------- ------------------
pay interest on the unpaid principal amount of each Advance made to the Borrower
from the date of such Advance until such principal amount shall be paid in full,
at the following rates per annum:
(i) Base Rate Advances. During such periods as such Advance is a Base
------------------
Rate Advance, a rate per annum equal at all times to the sum of (A) the
Base Rate in effect from time to time plus (B) the Applicable Margin,
----
payable in arrears quarterly on the last day of each March, June, September
and December, commencing June 30, 1997, on the date of any prepayment
thereof to the extent required under Section 2.06 and on the Termination
Date.
(ii) Eurodollar Rate Advances. During such periods as such Advance is
------------------------
a Eurodollar Rate Advance, a rate per annum equal at all times during each
Interest Period for such Advance to the sum of (A) the Eurodollar Rate for
such Interest Period for such Advance plus (B) the Applicable Margin,
----
payable in arrears on the last day of such Interest Period and, if such
Interest Period has a duration of more than three months, on each day that
occurs during such Interest Period every three months from the first day of
such Interest Period and on the date such Eurodollar Rate Advance shall be
Converted or paid in full.
<PAGE>
39
(b) Default Interest. Upon the occurrence and during the continuance
----------------
of an Event of Default under Section 6.01(c) with respect to any covenant
contained in Section 5.04 or under Section 6.01(a), the Agent may, and upon the
request of the Required Lenders shall, require that the Borrower shall pay
interest on (i) the unpaid principal amount of each Advance owing to each
Lender, payable in arrears on the dates referred to in clause (a)(i) or (a)(ii)
above and on demand, at a rate per annum equal at all times to 2% per annum
above the rate per annum required to be paid on such Advance pursuant to clause
(a)(i) or (a)(ii) above and (ii) to the fullest extent permitted by law, the
amount of any interest, fee or other amount payable hereunder that is not paid
when due, from the date such amount shall be due until such amount shall be paid
in full, payable in arrears on the date such amount shall be paid in full and on
demand, at a rate per annum equal at all times to 2% per annum above the rate
per annum required to be paid, on Base Rate Advances pursuant to clause (a)(i)
above.
(c) Notice of Interest Rate. Promptly after receipt of a Notice of
-----------------------
Borrowing pursuant to Section 2.02(a), the Agent shall give notice to the
Borrower and each Appropriate Lender of the applicable interest rate determined
by the Agent for purposes of clause (a)(i) or (ii).
SECTION 2.08. Fees. (a) Commitment Fee. The Borrower shall pay to
---- --------------
the Agent for the account of the Lenders a commitment fee on the average daily
unused portion of each Appropriate Lender's (i) Acquisition Commitment from the
Second Restatement Date in the case of each Restatement Lender and from the
effective date specified in the Assignment and Acceptance pursuant to which it
became an Acquisition Lender in the case of each other Acquisition Lender until
the Termination Date at the rate of 5/8 of 1% per annum and (ii) Working Capital
Commitment from the Second Restatement Date in the case of each Restatement
Lender and from the effective date specified in the Assignment and Acceptance
pursuant to which it became a Working Capital Lender in the case of each other
Working Capital Lender until the Termination Date at the rate of 1/2 of 1% per
annum, in each case, payable in arrears quarterly on the last day of each March,
June, September and December, commencing June 30, 1997, and on the Termination
Date.
(b) Letter of Credit Fees, Etc. (i) The Borrower shall pay to the
--------------------------
Agent for the account of each Working Capital Lender a commission, payable in
arrears quarterly on the last day of each March, June, September and December,
commencing June 30, 1997, and on the Termination Date, on such Lender's Pro Rata
Share of the average daily aggregate Available Amount during such quarter of all
Letters of Credit outstanding from time to time at the rate of 2% per annum.
(ii) The Borrower shall pay to the Issuing Bank, for its own account,
such commissions, issuance fees, fronting fees, transfer fees and other fees and
charges in connection with the issuance or administration of each Letter of
Credit as the Borrower and the Issuing Bank shall agree.
<PAGE>
40
(c) Agent's Fees. The Borrower shall pay to the Agent for its own
------------
account such fees as may from time to time be agreed between the Borrower and
the Agent.
SECTION 2.09. Conversion of Advances. (a) Optional. The Borrower
---------------------- --------
may on any Business Day, upon notice given to the Agent not later than 11:00
A.M. (New York City time) on the third Business Day prior to the date of the
proposed Conversion and subject to the provisions of Sections 2.07 and 2.10,
Convert all or any portion of the Advances made to the Borrower of one Type
comprising the same Borrowing into Advances of the other Type; provided,
--------
however, that if any Conversion of Eurodollar Rate Advances into Base Rate
- -------
Advances is made other than on the last day of an Interest Period for such
Eurodollar Rate Advances the Borrower shall also pay any amounts owing pursuant
to Section 8.04(c), any Conversion of Base Rate Advances into Eurodollar Rate
Advances shall be in an amount not less than the minimum amount specified in
Section 2.02(b), no Conversion of any Advances shall result in more separate
Borrowings than permitted under Section 2.02(b) and each Conversion of Advances
comprising part of the same Borrowing under any Facility shall be made ratably
among the Appropriate Lenders in accordance with their Commitments under such
Facility. Each such notice of Conversion shall, within the restrictions
specified above, specify (i) the date of such Conversion, (ii) the Advances to
be Converted and (iii) if such Conversion is into Eurodollar Rate Advances, the
duration of the initial Interest Period for such Advances. Each notice of
Conversion shall be irrevocable and binding on the Borrower requesting such
Conversion.
(b) Mandatory. (i) On the date on which the aggregate unpaid
---------
principal amount of Eurodollar Rate Advances comprising any Borrowing shall be
reduced, by payment or prepayment or otherwise, to less than $1,000,000, such
Advances shall automatically Convert into Base Rate Advances.
(ii) If the Borrower shall fail to select the duration of any Interest
Period for any Eurodollar Rate Advances in accordance with the provisions
contained in the definition of "Interest Period" in Section 1.01, the Agent will
forthwith so notify the Borrower and the Appropriate Lenders, whereupon each
such Eurodollar Rate Advance will automatically, on the last day of the then
existing Interest Period therefor, Convert into a Base Rate Advance.
(iii) Upon the occurrence and during the continuance of any Event of
Default, (x) each Eurodollar Rate Advance will automatically, on the last day of
the then existing Interest Period therefor, Convert into a Base Rate Advance and
(y) the obligation of the Lenders to make, or to Convert Advances into,
Eurodollar Rate Advances shall be suspended.
SECTION 2.10. Increased Costs, Etc. (a) If, due to either (i) the
--------------------
introduction of or any change in or in the interpretation of any law or
regulation or (ii) the compliance with any guideline or request from any central
bank or other governmental authority (whether or not having the force of law),
there shall be any increase in the cost to
<PAGE>
41
any Lender Party of agreeing to make or of making, funding or maintaining
Eurodollar Rate Advances or of agreeing to issue or of issuing or maintaining
Letters of Credit or of agreeing to make or of making or maintaining Letter of
Credit Advances, then the Borrower shall from time to time, upon demand by such
Lender Party (with a copy of such demand to the Agent), pay to the Agent for the
account of such Lender Party additional amounts sufficient to compensate such
Lender Party for such increased cost. A certificate as to the amount of such
increased cost, submitted to the Borrower by such Lender Party, shall be
conclusive and binding for all purposes, absent manifest error.
(b) If any Lender Party determines that compliance with any law or
regulation or any guideline or request from any central bank or other
governmental authority (whether or not having the force of law) affects or would
affect the amount of capital required or expected to be maintained by such
Lender Party or any corporation controlling such Lender Party and that the
amount of such capital is increased by or based upon the existence of such
Lender Party's commitment to lend or to issue Letters of Credit hereunder and
other commitments of such type or the issuance or maintenance of the Letters of
Credit (or similar contingent obligations), then, upon demand by such Lender
Party (with a copy of such demand to the Agent), the Borrower shall pay to the
Agent for the account of such Lender Party, from time to time as specified by
such Lender Party, additional amounts sufficient to compensate such Lender Party
in the light of such circumstances, to the extent that such Lender Party
reasonably determines such increase in capital to be allocable to the existence
of such Lender Party's commitment to lend or to issue Letters of Credit
hereunder or to the issuance or maintenance of any Letters of Credit. A
certificate as to such amounts submitted to the Borrower by such Lender Party
shall be conclusive and binding for all purposes, absent manifest error.
(c) If, with respect to any Eurodollar Rate Advances under any
Facility, Lenders owed at least 50% of the then aggregate unpaid principal
amount thereof notify the Agent that the Eurodollar Rate for any Interest Period
for such Advances will not adequately reflect the cost to such Lenders of
making, funding or maintaining their Eurodollar Rate Advances for such Interest
Period, the Agent shall forthwith so notify the Borrower and the Appropriate
Lenders, whereupon (i) each such Eurodollar Rate Advance under any Facility will
automatically, on the last day of the then existing Interest Period therefor,
Convert into a Base Rate Advance and (ii) the obligation of the Appropriate
Lenders to make, or to Convert Advances into, Eurodollar Rate Advances shall be
suspended until the Agent shall notify the Borrower that such Lenders have
determined that the circumstances causing such suspension no longer exist.
(d) Notwithstanding any other provision of this Agreement, if the
introduction of or any change in or in the interpretation of any law or
regulation shall make it unlawful, or any central bank or other governmental
authority shall assert that it is unlawful, for any Lender or its Eurodollar
Lending Office to perform its obligations hereunder to make Eurodollar Rate
Advances or to continue to fund or maintain Eurodollar Rate Advances hereunder,
then, on notice thereof and demand therefor by such Lender to the
<PAGE>
42
Borrower through the Agent, (i) each Eurodollar Rate Advance under each Facility
under which such Lender has a Commitment will automatically, upon such demand,
Convert into a Base Rate Advance and (ii) the obligation of the Appropriate
Lenders to make, or to Convert Advances into, Eurodollar Rate Advances shall be
suspended until the Agent shall notify the Borrower that such Lender has
determined that the circumstances causing such suspension no longer exist.
(e) Each Lender Party agrees that, upon the occurrence of any
circumstances entitling such Lender Party to additional compensation (or to
deliver a demand therefor) or to suspend its obligation to make Eurodollar Rate
Advances under any of the foregoing provisions of this Section 2.10, such Lender
Party shall use reasonable efforts (consistent with its internal policy and with
applicable legal and regulatory restrictions) to designate a different
Applicable Lending Office for any Advances affected by such circumstances if the
making of such designation, in the case of Section 2.10(a) or 2.10(b), would
avoid the need for, or reduce the amount of, such additional compensation or, in
the case of Section 2.10(c) or 2.10(d), would allow the Lenders to continue to
perform their obligations to make Eurodollar Rate Advances and, in any such
case, would not, in the reasonable judgment of such Lender Party, be otherwise
disadvantageous to such Lender Party. Nothing in this Section 2.10(f) shall
affect or postpone any of the rights of any Lender Party or any of the
obligations of the Borrower under any of the foregoing provisions of this
Section 2.10 in any manner.
SECTION 2.11. Payments and Computations. (a) The Borrower shall
-------------------------
make each payment hereunder and under the Notes, irrespective of any right of
counterclaim or set-off, not later than 11:00 A.M. (New York City time) on the
day when due in U.S. dollars to the Agent at the Agent's Account in same day
funds. The Agent will promptly thereafter cause like funds to be distributed
(i) if such payment by the Borrower is in respect of principal, interest,
commitment fees or any other Obligation then payable hereunder and under the
Notes to more than one Lender Party, to such Lender Parties for the account of
their respective Applicable Lending Offices ratably in accordance with the
amounts of such respective Obligations then payable to such Lender Parties and
(ii) if such payment by the Borrower is in respect of any Obligation then
payable hereunder to one Lender Party, to such Lender Party for the account of
its Applicable Lending Office, in each case to be applied in accordance with the
terms of this Agreement. Upon its acceptance of an Assignment and Acceptance
and recording of the information contained therein in the Register pursuant to
Section 8.07(e), from and after the effective date of such Assignment and
Acceptance, the Agent shall make all payments hereunder and under the Notes in
respect of the interest assigned thereby to the Lender Party assignee
thereunder, and the parties to such Assignment and Acceptance shall make all
appropriate adjustments in such payments for periods prior to such effective
date directly between themselves.
(b) If the Agent receives funds for application to the Obligations
under the Loan Documents under circumstances for which the Loan Documents do not
specify the Advances or the Facility to which, or the manner in which, such
funds are to be applied, the
<PAGE>
43
Agent may, but shall not be obligated to, elect to distribute such funds to each
Lender Party ratably in accordance with such Lender Party's proportionate share
of the principal amount of all outstanding Advances and the Available Amount of
all Letters of Credit then outstanding, in repayment or prepayment of such of
the outstanding Advances or other Obligations owed to such Lender Party, and for
application to such principal installments, as the Agent shall direct.
(c) The Borrower hereby authorizes each Lender Party, if and to the
extent payment owed to such Lender Party is not made when due hereunder or, in
the case of a Lender, under the Note held by such Lender, to charge from time to
time against any or all of the Borrower's accounts with such Lender Party any
amount so due.
(d) All computations of interest, fees and Letter of Credit
commissions shall be made by the Agent on the basis of a year of 360 days, in
each case for the actual number of days (including the first day but excluding
the last day) occurring in the period for which such interest, fees or
commissions are payable. Each determination by the Agent of an interest rate,
fee or commission hereunder shall be conclusive and binding for all purposes,
absent manifest error.
(e) Whenever any payment hereunder or under the Notes shall be stated
to be due on a day other than a Business Day, such payment shall be made on the
next succeeding Business Day, and such extension of time shall in such case be
included in the computation of payment of interest or commitment fee, as the
case may be; provided, however, that, if such extension would cause payment of
-------- -------
interest on or principal of Eurodollar Rate Advances to be made in the next
following calendar month, such payment shall be made on the next preceding
Business Day.
(f) Unless the Agent shall have received notice from the Borrower
prior to the date on which any payment is due to any Lender Party hereunder that
the Borrower will not make such payment in full, the Agent may assume that the
Borrower has made such payment in full to the Agent on such date and the Agent
may, in reliance upon such assumption, cause to be distributed to each such
Lender Party on such due date an amount equal to the amount then due such Lender
Party. If and to the extent the Borrower shall not have so made such payment in
full to the Agent, each such Lender Party shall repay to the Agent forthwith on
demand such amount distributed to such Lender Party together with interest
thereon, for each day from the date such amount is distributed to such Lender
Party until the date such Lender Party repays such amount to the Agent, at the
Federal Funds Rate.
SECTION 2.12. Taxes. (a) Any and all payments by the Borrower
-----
hereunder or under the Notes shall be made, in accordance with Section 2.11,
free and clear of and without deduction for any and all present or future taxes,
levies, imposts, deductions, charges or withholdings, and all liabilities with
respect thereto, excluding, in the case of each Lender Party and the Agent,
---------
overall net income taxes that are imposed by the United States on such Lender
Party or the Agent and overall net income taxes (or franchise taxes in lieu
<PAGE>
44
thereof) that are imposed on such Lender Party or the Agent by the state or
foreign jurisdiction under the laws of which such Lender Party or the Agent (as
the case may be) is organized or any political subdivision thereof and, in the
case of each Lender Party, overall net income taxes (or franchise taxes in lieu
thereof) that are imposed on such Lender Party by the state or foreign
jurisdiction of such Lender Party's Applicable Lending Office or any political
subdivision thereof (all such non-excluded taxes, levies, imposts, deductions,
charges, withholdings and liabilities being hereinafter referred to as "Taxes").
-----
If the Borrower shall be required by law to deduct any Taxes from or in respect
of any sum payable hereunder or under any Note to any Lender Party and the
Agent, (i) the sum payable shall be increased as may be necessary so that after
making all required deductions (including deductions applicable to additional
sums payable under this Section 2.12) such Lender Party or the Agent (as the
case may be) receives an amount equal to the sum it would have received had no
such deductions been made, (ii) the Borrower shall make such deductions and
(iii) the Borrower shall pay the full amount deducted to the relevant taxation
authority or other governmental authority in accordance with applicable law.
(b) In addition, the Borrower shall pay any present or future stamp,
documentary, excise, property or similar taxes, charges or levies that arise
from any payment made hereunder or under the Notes or from the execution,
delivery or registration of, or otherwise with respect to, this Agreement or the
Notes (hereinafter referred to as "Other Taxes").
-----------
(c) The Borrower shall indemnify each Lender Party and the Agent for
the full amount of Taxes and Other Taxes, and for the full amount of taxes of
any kind imposed by any jurisdiction on amounts payable under this Section 2.12,
paid by such Lender Party or the Agent (as the case may be) and any liability
(including penalties, additions to tax, interest and expenses) arising therefrom
or with respect thereto. This indemnification shall be made within 30 days from
the date such Lender Party or the Agent (as the case may be) makes written
demand therefor.
(d) Within 30 days after the date of any payment of Taxes, the
Borrower shall furnish to the Agent, at its address referred to in Section 8.02,
the original receipt of payment thereof or a certified copy of such receipt. In
the case of any payment hereunder or under the Notes by or on behalf of the
Borrower through an account or branch outside the United States or on behalf of
the Borrower by a payor that is not a United States person, if the Borrower
determines that no Taxes are payable in respect thereof, the Borrower shall
furnish, or shall cause such payor to furnish, to the Agent, at such address, an
opinion of counsel acceptable to the Agent stating that such payment is exempt
from Taxes. For purposes of this subsection (d) and subsection (e), the terms
"United States" and "United States person" shall have the meanings specified in
- -------------- --------------------
Section 7701 of the Internal Revenue Code.
(e) Each Lender Party organized under the laws of a jurisdiction
outside the United States shall, on or prior to the date of its execution and
delivery of this
<PAGE>
45
Agreement in the case of each Restatement Lender or the Issuing Bank, as the
case may be, and on the date of the Assignment and Acceptance pursuant to which
it became a Lender Party in the case of each other Lender Party, and from time
to time thereafter if requested in writing by the Borrower or the Agent (but
only so long thereafter as such Lender Party remains lawfully able to do so),
provide the Agent and the Borrower with Internal Revenue Service form 1001 or
4224, as appropriate, or any successor form prescribed by the Internal Revenue
Service, certifying that such Lender Party is exempt from or is entitled to a
reduced rate of United States withholding tax on payments under this Agreement
or the Notes, or certifying that the income receivable by such Lender Party
under this Agreement or the Notes is effectively connected with the conduct of a
trade or business of such Lender Party in the United States. To the extent a
Lender Party fails to provide to the Borrower at the time such Lender Party
first becomes a party to this Agreement Internal Revenue Service forms that
establish a United States withholding tax rate of zero, withholding tax at the
initially required rate shall be considered excluded from Taxes unless and until
such Lender Party provides the appropriate form certifying that a lesser rate
applies, whereupon withholding tax at such lesser rate only shall be considered
excluded from Taxes for periods governed by such form. If after the date of an
Assignment and Acceptance pursuant to which a Lender Party becomes a party to
this Agreement, the Borrower shall become obligated to gross-up payments to or
to indemnify the assignee pursuant to this Section 2.12, such gross-up or
indemnity obligation to such assignee shall be no greater than the corresponding
obligation the Borrower would have had absent such Assignment and Acceptance.
If any form or document referred to in this subsection (e) requires the
disclosure of information, other than information necessary to compute the tax
payable and information required on the Second Restatement Date by Internal
Revenue Service form 1001 or 4224, that the Lender Party reasonably considers to
be confidential, the Lender Party shall give notice thereof to the Borrower and
shall not be obligated to include in such form or document such confidential
information.
(f) For any period with respect to which a Lender Party has failed to
provide the Borrower with the appropriate form described in subsection (e)
(other than if such failure is due to a change in law occurring after the date
- ------ ----
on which a form originally was required to be provided or if such form otherwise
is not required under subsection (e)), such Lender Party shall not be entitled
to gross-up under subsection (a) or indemnification under subsection (a) or (c)
with respect to Taxes imposed by the United States; provided, however, that
-------- -------
should a Lender Party become subject to Taxes because of its failure to deliver
a form required hereunder, the Borrower shall take such steps as such Lender
Party shall reasonably request to assist such Lender Party to recover such
Taxes.
SECTION 2.13. Sharing of Payments, Etc. If any Lender Party shall
------------------------
obtain at any time any payment (whether voluntary, involuntary, through the
exercise of any right of set-off, or otherwise) (a) on account of Obligations
due and payable to such Lender Party hereunder and under the Notes at such time
in excess of its ratable share (according to the proportion of (i) the amount of
such Obligations due and payable to such Lender Party at such time to (ii) the
aggregate amount of the Obligations due and payable to all Lender
<PAGE>
46
Parties hereunder and under the Notes at such time) of payments on account of
the Obligations due and payable to all Lender Parties hereunder and under the
Notes at such time obtained by all the Lender Parties at such time or (b) on
account of Obligations owing (but not due and payable) to such Lender Party
hereunder and under the Notes at such time in excess of its ratable share
(according to the proportion of (i) the amount of such Obligations owing to such
Lender Party at such time to (ii) the aggregate amount of the Obligations owing
(but not due and payable) to all Lender Parties hereunder and under the Notes at
such time) of payments on account of the Obligations owing (but not due and
payable) to all Lender Parties hereunder and under the Notes at such time
obtained by all of the Lender Parties at such time, such Lender Party shall
forthwith purchase from the other Lender Parties such participations in the
Obligations due and payable or owing to them, as the case may be, as shall be
necessary to cause such purchasing Lender Party to share the excess payment
ratably with each of them; provided, however, that if all or any portion of such
-------- -------
excess payment is thereafter recovered from such purchasing Lender Party, such
purchase from each other Lender Party shall be rescinded and such other Lender
Party shall repay to the purchasing Lender Party the purchase price to the
extent of such Lender Party's ratable share (according to the proportion of (i)
the purchase price paid to such Lender Party to (ii) the aggregate purchase
price paid to all Lender Parties) of such recovery together with an amount equal
to such Lender Party's ratable share (according to the proportion of (i) the
amount of such other Lender Party's required repayment to (ii) the total amount
so recovered from the purchasing Lender Party) of any interest or other amount
paid or payable by the purchasing Lender Party in respect of the total amount so
recovered. The Borrower agrees that any Lender Party so purchasing a
participation from another Lender Party pursuant to this Section 2.13 may, to
the fullest extent permitted by law, exercise all its rights of payment
(including the right of set-off) with respect to such participation as fully as
if such Lender Party were the direct creditor of the Borrower in the amount of
such participation.
SECTION 2.14. Use of Proceeds. (a) The proceeds of the Acquisition
---------------
Advances shall be available (and the Borrower agrees that it shall use such
proceeds) solely (i) to provide all or a portion of the financing in connection
with the acquisition of any Related Textile Business by the Borrower or any of
its direct wholly owned U.S. Subsidiaries and to refinance any Debt of such
Business in connection therewith; provided that any Related Textile Business
--------
that becomes a Subsidiary of the Borrower shall be directly wholly owned by the
Borrower and (ii) to pay transaction fees and expenses in connection therewith.
(b) The proceeds of the Working Capital Advances and issuances of
Letters of Credit shall be available (and the Borrower agrees that it shall use
such proceeds and Letters of Credit) solely, (i) to pay transaction fees and
expenses in connection with the transactions contemplated hereby, (ii) to
provide working capital from time to time for, and for the general corporate
purposes of, the Borrower and its Subsidiaries and (iii) for the uses provided
for in subsection (a) above.
<PAGE>
47
ARTICLE III
CONDITIONS OF LENDING
SECTION 3.01. Conditions Precedent to the Second Restatement Date.
---------------------------------------------------
The amendment and restatement of the Existing Credit Agreement pursuant hereto
shall become effective on and as of the date (the "Second Restatement Date"),
-----------------------
which shall occur on or prior to April 30, 1997, on which each of the following
conditions precedent shall have been satisfied:
(a) The Second Restatement Assignment Agreement shall be in full force
and effect and shall not have been terminated and, pursuant thereto, the
Commitments and Advances (as defined in the Existing Credit Agreement) of
each Existing Lender shall have been sold and assigned to the Restatement
Lenders hereunder on the terms and in the amounts set forth in the Second
Restatement Assignment Agreement or shall have been terminated in
accordance with the terms of the Existing Credit Agreement and all accrued
interest and fees relating to the Existing Credit Agreement shall have been
paid to the Existing Lenders.
(b) No Material Adverse Change shall have occurred since January 4,
1997.
(c) There shall exist no action, suit, investigation, litigation or
proceeding affecting any Loan Party or any of their properties, including
any Environmental Action, pending or to the best of the Borrower's
knowledge, threatened before any court, governmental agency or arbitrator
that (i) could reasonably be expected to have a Material Adverse Effect, or
(ii) purports to affect the legality, validity or enforceability of this
Agreement, any Note, any other Loan Document, any Related Document or the
consummation of the transactions contemplated hereby.
(d) The Borrower shall have paid to the Agent all reasonable accrued
fees of the Agent and the Restatement Lenders (including the upfront fee to
be paid with respect to this Agreement and the accrued fees and expenses of
counsel to the Agent).
(e) All governmental and third party consents and approvals necessary
in connection with this Agreement shall have been obtained (without the
imposition of any conditions other than those that are reasonably
acceptable to the Agent) and shall remain in effect, and all applicable
waiting periods shall have expired without any action being taken by any
competent authority and no law or regulation shall be applicable, in the
reasonable judgment of the Agent, that restrains, prevents or imposes
adverse conditions upon this Agreement or any related transactions.
(f) All Existing Debt, other than the Debt identified on Schedule
3.01(f)(ii) (the "Surviving Debt"), has been prepaid, redeemed or defeased
--------------
in full or otherwise
<PAGE>
48
satisfied and extinguished and all such Surviving Debt is on terms and
conditions satisfactory to the Lender Parties.
(g) The Agent shall have received on or before the Second Restatement
Date the following, each dated the Second Restatement Date (unless
otherwise specified), in form and substance reasonably satisfactory to the
Agent (unless otherwise specified) and (except for the Notes) in sufficient
copies for each Lender:
(i) The Notes payable to the order of the Restatement Lenders.
(ii) Certified copies of the resolutions of the Board of
Directors of the Borrower and of each other Loan Party approving this
Agreement, the Notes, each other Loan Document and each Related
Document to which it is or is to be a party, and of all documents
evidencing other necessary corporate action and governmental
approvals, if any, with respect to this Agreement, the Notes, each
other Loan Document and each Related Document.
(iii) A copy of the charter of the Borrower and of each other
Loan Party and each amendment thereto, certified (as of a date
reasonably near the Second Restatement Date) by the Secretary of State
of the State of their respective states of incorporation or
organization as being a true and correct copy thereof.
(iv) A copy of a certificate of the Secretary of State of the
State of their respective states of incorporation or organization,
dated reasonably near the Second Restatement Date, listing the charter
or other organizational documents of the Borrower and of each other
Loan Party and each amendment thereto on file in his office and
certifying that (A) such amendments are the only amendments to the
Borrower's or such other Loan Party's charter or other organizational
documents on file in his office, (B) the Borrower and each other Loan
Party have paid all franchise taxes to the date of such certificate
and (C) the Borrower and each other Loan Party are duly incorporated
or organized and in good standing under the laws of the State of their
respective states of incorporation or organization.
(v) Copies of certificates of the Secretary of State of each
jurisdiction where each Loan Party is qualified or licensed as a
foreign corporation in the United States, dated reasonably near the
Second Restatement Date, in each case stating that such Person was
duly qualified and in good standing as a foreign corporation in such
jurisdiction and had filed all annual reports required to be filed to
the date of such certificate.
(vi) A certificate of each Loan Party, signed on behalf of such
Loan Party by its President or a Vice President and its Secretary or
an Assistant
<PAGE>
49
Secretary, dated the Second Restatement Date (the statements made in
which certificate shall be true on and as of the Second Restatement
Date), certifying as to:
(A) the absence of any amendments to the charter or articles
(or other similar organizational document) of such Loan Party
since the date of the Secretary of State's certificate referred
to in Section 3.01(g)(iv);
(B) the accuracy and completeness of the bylaws (or other
similar organizational document) of such Loan Party as in effect
on the Second Restatement Date (a copy of which was attached to
such certificate);
(C) the due incorporation and good standing of such Loan
Party as a corporation organized under the laws of the
jurisdiction of its incorporation, and the absence of any
proceeding for the dissolution or liquidation of such Loan Party;
(D) the accuracy of the representations and warranties set
forth in the Loan Documents to which it was or was to be a party
as though made on and as of the Second Restatement Date, before
and after giving effect to the extension of credit on the Second
Restatement Date and to the application of proceeds therefrom;
and
(E) the absence of any event occurring and continuing, or
resulting from the Second Restatement Date, or the application of
proceeds therefrom, that constituted a Default.
(vii) A certificate of the Secretary or an Assistant Secretary
of each Loan Party certifying the names and true signatures of the
officers of such Loan Party authorized to sign this Agreement, the
Notes, each other Loan Document and each Related Document to which it
was or was to be a party and the other agreements, instruments and
documents to be delivered hereunder and thereunder.
(viii) A second amended and restated security agreement in
substantially the form of Exhibit D hereto (together with each other
security agreement delivered pursuant to Section 5.01(m) or 5.01(o),
in each case as amended, supplemented or otherwise modified from time
to time in accordance with its terms, the "Second Amended and Restated
---------------------------
Security Agreement"), duly executed by each of the Loan Parties,
------------------
together with:
<PAGE>
50
(A) certificates representing the Pledged Shares, if any not
previously delivered to the Agent, and accompanied by undated
stock powers executed in blank, and instruments evidencing the
Pledged Debt, if any, not previously delivered to the Agent and
referred to in the Second Amended and Restated Security
Agreement, duly endorsed in blank;
(B) duly executed financing statements (Form UCC-1 or a
comparable form), which are required to be filed as at the Second
Restatement Date under the Uniform Commercial Code of the States
of all jurisdictions that the Agent may have deemed necessary or
desirable in order to maintain the perfection and priority of the
Liens created under the Collateral Documents, covering the
Collateral described in the Second Amended and Restated Security
Agreement;
(C) evidence of the maintenance of the insurance required by
the terms of the Second Amended and Restated Security Agreement;
(D) copies of the Assigned Agreements, if any not previously
delivered to the Agent and referred to in the Second Amended and
Restated Security Agreement, together with any required consent
to such assignment, in substantially the form of Exhibit B to the
Second Amended and Restated Security Agreement, duly executed by
each party to such Assigned Agreements other than the Loan
Parties;
(E) confirmation, to the extent required by the Agent, of
each of the Blocked Account Letters referred to therein, duly
executed by the relevant Loan Party, as the case may be, and the
bank referred to in the Second Amended and Restated Security
Agreement; and
(F) evidence that all other actions (including, without
limitation, the completion of all other recordings and filings of
or with respect to the Second Amended and Restated Security
Agreement) that were deemed necessary or that the Agent deemed
desirable in order to maintain the perfection and to protect the
first priority liens and security interests created and
maintained under the Security Agreement, as amended and restated
by the Second Amended and Restated Security Agreement, had been
taken or would be taken in accordance with the terms of the Loan
Documents.
(ix) An amended and restated intellectual property security
agreement in substantially the form of Exhibit E hereto (together with
each other intellectual property security agreement delivered pursuant
to Section 5.01(m) or Section 5.01(o), in each case as amended,
supplemented or
<PAGE>
51
otherwise modified from time to time in accordance with its terms, the
"Amended and Restated Intellectual Property Security Agreement"), duly
-------------------------------------------------------------
executed by each of the Loan Parties, together with evidence that all
action that the Agent deemed necessary or desirable in order to
maintain the perfection and to protect the first priority liens and
security interests created and maintained under the Intellectual
Property Security Agreement as amended and restated by the Amended and
Restated Intellectual Property Security Agreement has been taken.
(x) A modification and extension agreement in substantially the
form of Exhibit F hereto (the "Modification and Extension Agreement"),
------------------------------------
to the deed of trust, trust deed and mortgage covering the properties
(other than the property located at 1003 Vance Drive, Tarboro, North
Carolina) listed on Schedule 4.01(gg) (as amended, supplemented or
otherwise modified from time to time in accordance with its terms, the
"Deed of Trust"), duly executed by Tarboro Ltd., together with:
-------------
(A) evidence that counterparts of the Modification and
Extension Agreement to the Deed of Trust had been duly delivered
to Stewart Title Guaranty Company on or before the Second
Restatement Date and in all filing or recording offices that the
Agent deemed necessary or desirable in order to maintain a valid
first and subsisting Lien on the property described in the Deed
of Trust in favor of the Agent and the Restatement Lenders and
that all filing and recording taxes and fees had been paid,
(B) confirmation of fully paid Stewart Title Guaranty
Company title insurance policies or commitments to issue such
title insurance policies (in each case, the "Deed of Trust
-------------
Policies") in form and substance, with endorsements and in amount
--------
acceptable to the Agent, issued, coinsured and reinsured by title
insurers acceptable to the Agent, insuring the Deed of Trust to
be a valid first and subsisting Lien on the property described
therein, free and clear of all defects (including, without
limitation, mechanics' and materialmen's Liens) and encumbrances,
excepting only Permitted Encumbrances, and providing for such
other affirmative insurance (including endorsements for future
advances under the Loan Documents and for mechanics' and
materialmen's Liens) and such coinsurance and direct access
reinsurance as the Agent deemed necessary or desirable,
(C) evidence of the insurance required by the terms of the
Deed of Trusts, and
<PAGE>
52
(D) evidence that all other action that the Agent deemed
necessary or desirable in order to maintain the perfection and to
protect the valid first and subsisting Liens on the property
described in the Deed of Trust has been taken.
(xi) A second amended and restated guarantee (the "Second Amended
--------------
and Restated Guarantee") in substantially the form of Exhibit G hereto
----------------------
(together with each other guarantee delivered pursuant to Section
5.01(m) and Section 5.01(o), in each case as amended, supplemented or
otherwise modified from time to time in accordance with its terms, the
"Guarantees"), duly executed by Universal and each Subsidiary
----------
Guarantor.
(xii) Certified copies of each of the Related Documents as in
effect on the Second Restatement Date and the O'Gorman Employment
Agreement, duly executed by the parties thereto and in form and
substance satisfactory to the Restatement Lenders, together with all
agreements, instruments and other documents delivered in connection
therewith.
(xiii) Such financial, business and other information regarding
each Loan Party and its Subsidiaries as the Lender Parties had
requested, including forecasts prepared by management, in form and
substance satisfactory to the Lender Parties, of balance sheets,
income statements and cash flow statements on a monthly basis for
Fiscal Year 1997 and on an annual basis for each Fiscal Year
thereafter until the Termination Date.
(xiv) A certificate, signed by the chief financial officer of
each of the Borrower and Universal, in substantially the form of
Exhibit I hereto, attesting to the Solvency of the Borrower and its
Subsidiaries taken as a whole and Universal and its Subsidiaries taken
as a whole, respectively, after giving effect to the transactions
contemplated hereby.
(xv) Evidence as at the Second Restatement Date of insurance,
naming the Agent as additional insured and loss payee with such
responsible and reputable insurance companies or associations, and in
such amounts and covering such risks, as were deemed satisfactory to
the Lender Parties, including, but not limited to, product liability,
title, business interruption, physical damage to property or equipment
in form and substance satisfactory to the Agent.
(xvi) A Borrowing Base Certificate of the Borrower and its
Subsidiaries, taken as a whole, as of February 28, 1997 in
substantially the form of Exhibit J hereto, duly executed by the
Borrower.
<PAGE>
53
(xvii) A favorable opinion of Kirkland & Ellis, special counsel
for the Loan Parties, in substantially the form of Exhibit K hereto.
(xviii) A favorable opinion of Shearman & Sterling, counsel for
the Agent, in form and substance satisfactory to the Agent.
SECTION 3.02. Conditions Precedent to Each Borrowing and Issuance.
---------------------------------------------------
The obligation of each Appropriate Lender to make an Advance (other than a
Letter of Credit Advance made by the Issuing Bank or a Working Capital Lender
pursuant to Section 2.03(c)) on the occasion of each Borrowing (including on the
Second Restatement Date), and the obligation of the Issuing Bank to issue a
Letter of Credit (including the initial issuance), were and are subject to the
further conditions precedent that on the date of such Borrowing or issuance (a)
the following statements shall be true (and each of the giving of the applicable
Notice of Borrowing, Notice of Issuance and the acceptance by the Borrower of
the proceeds of such Borrowing or of such Letter of Credit shall constitute a
representation and warranty by the Borrower that both on the date of such notice
and on the date of such Borrowing or issuance such statements are true):
(i) the representations and warranties contained in each Loan Document
are correct on and as of such date, before and after giving effect to such
Borrowing or issuance and to the application of the proceeds therefrom, as
though made on and as of such date other than any such representations or
warranties that, by their terms, refer to a specific date other than the
date of such Borrowing or issuance, in which case as of such specific date;
(ii) no event has occurred and is continuing, or would result from
such Borrowing or issuance or from the application of the proceeds
therefrom, that constitutes a Default; and
(iii) for each Working Capital Advance or issuance of any Letter of
Credit, the sum of the Loan Values of the Eligible Collateral (as
determined based on the most recent Borrowing Base Certificate delivered to
the Lender Parties hereunder) exceeds the aggregate principal amount of the
Working Capital Advances plus Letter of Credit Advances to be outstanding
----
plus the aggregate Available Amount of all Letters of Credit then
----
outstanding after giving effect to such Advance or issuance, respectively;
and (b) the Agent shall have received such other approvals, opinions or
documents as any Appropriate Lender through the Agent may reasonably request.
SECTION 3.03. Additional Conditions to Each Acquisition Borrowing.
---------------------------------------------------
The obligation of each Appropriate Lender to make an Acquisition Advance on the
occasion of each Acquisition Borrowing is, in addition to the conditions set
forth in Section 3.02, subject to the satisfaction of the following conditions
precedent that on the date of such Borrowings:
<PAGE>
54
(a) the Agent shall have received a certificate of the Borrower signed
by its chief financial officer dated the date of the Notice of Borrowing
with respect to the proposed Acquisition Borrowing (x) certifying that the
proceeds of the Acquisition Advances comprising such Acquisition Borrowing
shall be used solely (i) to provide all or a portion of the financing in
connection with the acquisition of a Related Textile Business by the
Borrower or any of its direct wholly owned U.S. Subsidiaries and to
refinance any Debt of such Business in connection therewith; provided that
--------
any Related Textile Business that becomes a Subsidiary of the Borrower
shall be directly owned by the Borrower and (ii) to pay transaction fees
and expenses in connection therewith, and (y) setting forth the proposed
use of the proceeds of such Acquisition Borrowing;
(b) after giving effect to such Acquisition Borrowing, the Borrower
shall be in compliance with the provisions of Section 5.02(f)(vii) as of
the end of the most recently ended Monthly Rolling Period prior to the date
of such Borrowing and the Agent shall have received a certificate of the
chief financial officer of the Borrower certifying such compliance,
together with a schedule in form satisfactory to the Agent of the
computations used by the Borrower in determining compliance therewith; and
(c) the Agent shall have received on or before the date of such
Acquisition Borrowing evidence that all action that the Agent may deem
necessary or desirable in order to perfect and protect the Liens created by
the Collateral Documents has been taken.
ARTICLE IV
REPRESENTATIONS AND WARRANTIES
SECTION 4.01. Representations and Warranties of the Loan Parties.
--------------------------------------------------
Each of the Loan Parties represents and warrants as follows:
(a) Each Loan Party (i) is a corporation duly organized, validly
existing and in good standing under the laws of the jurisdiction of its
incorporation, (ii) is duly qualified and in good standing as a foreign
corporation in each other jurisdiction in which it owns or leases property
or in which the conduct of its business requires it to so qualify or be
licensed except where the failure to so qualify or be licensed could not
have a Material Adverse Effect and (iii) has all requisite corporate power
and authority (including, without limitation, all governmental licenses,
permits and other approvals) to own or lease and operate its properties and
to carry on its business as now conducted and as proposed to be conducted.
All of the outstanding capital stock of Glenoit Assets Corp. and Tarboro
Ltd. has been validly issued, is fully paid and non-assessable and is owned
by Mills in the amounts and types specified on Schedule 4.01(a) free and
clear of all Liens. The outstanding capital stock of Mills has been
<PAGE>
55
validly issued, is fully paid and non-assessable and is owned by the
Borrower, in the amounts and types specified on Schedule 4.01(a) free and
clear of all Liens. All of the outstanding capital stock of the Borrower
has been validly issued, is fully paid and non-assessable and is owned by
Universal in the amounts and types specified on Schedule 4.01(a) free and
clear of all Liens. All of the outstanding capital stock of Universal has
been validly issued, is fully paid and non-assessable and is owned by the
Investor Group, in the amounts and types specified on Schedule 4.01(a) free
and clear of all Liens.
(b) Set forth on Schedule 4.01(b) hereto is a complete and accurate
list of all Subsidiaries of each Loan Party, showing as of the Second
Restatement Date (as to each such Subsidiary) the jurisdiction of its
incorporation, the number of shares of each class of capital stock
authorized, and the number outstanding, on the Second Restatement Date and
the percentage of the outstanding shares of each such class owned (directly
or indirectly) by such Loan Party and the number of shares covered by all
outstanding options, warrants, rights of conversion or purchase and similar
rights at the Second Restatement Date. All of the outstanding capital
stock of all of such Subsidiaries has been validly issued, is fully paid
and non-assessable and is owned by such Loan Party or one or more of its
Subsidiaries free and clear of all Liens, except those created under the
Loan Documents. Each such Subsidiary (i) is a corporation duly organized,
validly existing and in good standing under the laws of the jurisdiction of
its incorporation, (ii) is duly qualified and in good standing as a foreign
corporation in each other jurisdiction in which it owns or leases property
or in which the conduct of its business requires it to so qualify or be
licensed except where the failure to so qualify or be licensed could not
have a Material Adverse Effect and (iii) has all requisite corporate power
and authority (including, without limitation, all governmental licenses,
permits and other approvals) to own or lease and operate its properties and
to carry on its business as now conducted and as proposed to be conducted.
(c) The execution, delivery and performance by each Loan Party of this
Agreement, the Notes, each other Loan Document and each of the Related
Documents to which it is or is to be a party, and the consummation of the
transactions contemplated hereby and thereby, are within such Loan Party's
corporate powers, have been duly authorized by all necessary corporate
action, and do not (i) contravene such Loan Party's charter or bylaws, (ii)
violate any law (including, without limitation, the Securities Exchange Act
of 1934 and the Racketeer Influenced and Corrupt Organizations Chapter of
the Organized Crime Control Act of 1970), rule, regulation (including,
without limitation, Regulation X of the Board of Governors of the Federal
Reserve System), order, writ, judgment, injunction, decree, determination
or award, (iii) conflict with or result in the breach of, or constitute a
default under, any material contract, loan agreement, indenture, mortgage,
deed of trust, lease or other instrument binding on or affecting any Loan
Party, any of its Subsidiaries or any of their properties or (iv) except
for the Liens created under the Loan Documents,
<PAGE>
56
result in or require the creation or imposition of any Lien upon or with
respect to any of the properties of any Loan Party or any of its
Subsidiaries. No Loan Party or any of its Subsidiaries is in violation of
any such law, rule, regulation, order, writ, judgment, injunction, decree,
determination or award or in breach of any such contract, loan agreement,
indenture, mortgage, deed of trust, lease or other instrument, the
violation or breach of which could have a Material Adverse Effect.
(d) No authorization or approval or other action by, and no notice to
or filing with, any governmental authority or regulatory body or any other
third party is required for (i) the due execution, delivery, recordation,
filing or performance by any Loan Party of this Agreement, the Notes, any
other Loan Document or any Related Document to which it is or is to be a
party, or for the consummation of the transactions contemplated hereby or
thereby, (ii) the grant by any Loan Party of the Liens granted by it
pursuant to the Collateral Documents, (iii) the perfection or maintenance
of the Liens created by the Collateral Documents (including the first
priority nature thereof) or (iv) the exercise by the Agent or any Lender
Party of its rights under the Loan Documents or the remedies in respect of
the Collateral pursuant to the Collateral Documents, except for the
authorizations, approvals, actions, notices and filings listed on Schedule
4.01(d), all of which have been duly obtained, taken, given or made and are
in full force and effect (other than filings with the patent, trademark and
copyright offices of the United States and the relevant foreign countries).
All applicable waiting periods in connection with the transactions
contemplated hereby and thereby have expired without any action having been
taken by any competent authority restraining, preventing or imposing
materially adverse conditions upon the rights of the Loan Parties or their
Subsidiaries freely to transfer or otherwise dispose of, or to create any
Lien on, any properties now owned or hereafter acquired by any of them.
(e) This Agreement has been, and each of the Notes, each other Loan
Document and each Related Document when delivered hereunder will have been,
duly executed and delivered by each Loan Party thereto. This Agreement is,
and each of the Notes, each other Loan Document and each Related Document
when delivered hereunder will be, the legal, valid and binding obligation
of each Loan Party thereto, enforceable against such Loan Party in
accordance with its terms except as enforceability may be limited by
bankruptcy, insolvency, reorganization, moratorium or other laws relating
to or limiting creditors' rights or by equitable principles generally.
(f) The Consolidated balance sheets of the Borrower and its
Subsidiaries as at January 4, 1997, and the related Consolidated statements
of income and cash flows of the Borrower and its Subsidiaries for the
Fiscal Year then ended, accompanied by an opinion of Coopers & Lybrand,
independent public accountants, and the Consolidated and consolidating
balance sheets of the Borrower and its Subsidiaries as at March 1, 1997,
and the related Consolidated and consolidating statement of income
<PAGE>
57
and Consolidated statement of cash flows of the Borrower and its
Subsidiaries for the two Fiscal Months then ended, duly certified by the
chief financial officer of the Borrower, copies of which have been
furnished to each Lender Party, fairly present, subject, in the case of
said balance sheet as at March 1, 1997, and said statements of income and
cash flows for the two Fiscal Months then ended, to year-end audit
adjustments and the absence of financial statement footnotes, the financial
condition of the Borrower and its Subsidiaries as at such dates and the
results of the operations of the Borrower and its Subsidiaries for the
periods ended on such dates, all in accordance with generally accepted
accounting principles applied on a consistent basis, and since January 4,
1997 there has been no Material Adverse Change.
(g) The Consolidated pro forma balance sheet of the Borrower and its
Subsidiaries, as at March 1, 1997, certified by the chief financial officer
of the Borrower, copies of which have been furnished to each Lender Party,
fairly present the Consolidated pro forma financial condition of the
Borrower and its Subsidiaries as at such date after giving effect to the
transactions contemplated hereby, all in accordance with GAAP.
(h) The Consolidated forecasted balance sheets, income statements and
cash flows statements of the Borrower and its Subsidiaries delivered to the
Lender Parties pursuant to Section 3.01(g)(xiii) or 5.03(e) were prepared
in good faith on the basis of the assumptions stated therein, which
assumptions were fair in the light of conditions existing at the time of
delivery of such forecasts, and represented, at the time of delivery, the
Borrower's best estimate of its future financial performance.
(i) Neither the Borrower Information nor any other information,
exhibit or report (excluding any financial projections) furnished by any
Loan Party to the Agent or any Lender Party in connection with the
negotiation of the Loan Documents or pursuant to the terms of the Loan
Documents contained any untrue statement of a material fact or omitted to
state a material fact necessary to make the statements made therein not
misleading.
(j) There is no action, suit, investigation, litigation or proceeding
affecting any Loan Party or any of its Subsidiaries, including any
Environmental Action, pending or, to the best of the Loan Parties'
knowledge, threatened before any court, governmental agency or arbitrator
that (i) could have a Material Adverse Effect or (ii) purports to affect
the legality, validity or enforceability of this Agreement, any Note, any
other Loan Document or any Related Document or the consummation of the
transactions contemplated hereby.
(k) No proceeds of any Advance or drawings under any Letter of Credit
will be used to acquire any equity security of a class that is registered
pursuant to Section 12 of the Securities Exchange Act of 1934.
<PAGE>
58
(l) None of the Loan Parties is engaged in the business of extending
credit for the purpose of purchasing or carrying Margin Stock, and no
proceeds of any Advance or drawings under any Letter of Credit will be used
by any of the Loan Parties to purchase or carry any Margin Stock or to
extend credit to others for the purpose of purchasing or carrying any
Margin Stock.
(m) Set forth on Schedule 4.01(m) hereto is a complete and accurate
list of all Plans, Multiemployer Plans and Welfare Plans; provided,
--------
however, that with respect to the Plans, Multiemployer Plans and Welfare
-------
Plans of any ERISA Affiliate which is not a Loan Party, this representation
is made to the best knowledge of the Loan Parties.
(n) No ERISA Event has occurred or is reasonably expected to occur
with respect to any Plan; provided, however, that with respect to any ERISA
-------- -------
Event with respect to any Plan of any ERISA Affiliate which is not a Loan
Party, this representation is made to the best knowledge of the Loan
Parties.
(o) As of the last annual actuarial valuation date, there is no
material unfunded current liability, as defined in Section 302(d)(8) of
ERISA, of any Plan and there has been no material adverse change in the
funding status of any such Plan since such date; provided, however, that
-------- -------
with respect to any Plan of any ERISA Affiliate which is not a Loan Party,
this representation is made to the best knowledge of the Loan Parties.
(p) Schedule B (Actuarial Information) to the most recent annual
report (Form 5500 Series) for each Plan maintained by any Loan Party,
copies of which have been filed with the Internal Revenue Service and
furnished to the Lender Parties, is complete and accurate and fairly
presents the funding status of such Plan, and since the date of such
Schedule B there has been no material adverse change in such funding
status.
(q) Neither any Loan Party nor any ERISA Affiliate has incurred or is
reasonably expected to incur any Withdrawal Liability to any Multiemployer
Plan; provided, however, that with respect to any Multiemployer Plan of any
-------- -------
ERISA Affiliate which is not a Loan Party, this representation is made to
the best knowledge of the Loan Parties.
(r) Neither any Loan Party nor any ERISA Affiliate has been notified
by the sponsor of a Multiemployer Plan that such Multiemployer Plan is in
reorganization or has been terminated, within the meaning of Title IV of
ERISA, and no such Multiemployer Plan is reasonably expected to be in
reorganization or to be terminated, within the meaning of Title IV of
ERISA; provided, however, that with respect to any Multiemployer Plan of
-------- -------
any ERISA Affiliate which is not a Loan Party, this representation is made
to the best knowledge of the Loan Parties.
<PAGE>
59
(s) Except as set forth in the financial statements referred to in
this Section 4.01 and in Section 5.03, the Loan Parties and their
respective Subsidiaries have no material liability with respect to
"expected post retirement benefit obligations" within the meaning of
Statement of Financial Accounting Standards No. 106.
(t) Neither the business nor the properties of any Loan Party or any
of its Subsidiaries are affected by any fire, explosion, accident, strike,
lockout or other labor dispute, drought, storm, hail, earthquake, embargo,
act of God or of the public enemy or other casualty (whether or not covered
by insurance) that could have a Material Adverse Effect.
(u) Except as set forth in Schedule 4.01(u) hereto, the operations and
properties of each Loan Party and each of its Subsidiaries comply in all
material respects with all applicable Environmental Laws and Environmental
Permits, all past claims of non-compliance with such Environmental Laws and
Environmental Permits have been resolved without ongoing material
obligations or costs; and no circumstances exist that could reasonably be
expected to (i) form the basis of an Environmental Action against any Loan
Party or any of its Subsidiaries or any of its properties that could have a
Material Adverse Effect or (ii) cause any such property to be subject to
any material restrictions on ownership, occupancy, use or transferability
under any Environmental Law.
(v) Except as set forth in Schedule 4.01(u) hereto, none of the
material properties currently or formerly owned or operated by any Loan
Party or any of its Subsidiaries is listed, or, to the best knowledge of
the Loan Parties or any of their Subsidiaries, proposed for listing on the
NPL or on the CERCLIS or any analogous foreign, state or local list or is
adjacent to any such property.
(w) Except as set forth in Schedule 4.01(u) hereto, neither any Loan
Party nor any of its Subsidiaries is undertaking, and has not completed,
either individually or together with other potentially responsible parties,
any investigation or assessment or remedial or response action relating to
any actual or threatened release, discharge or disposal of Hazardous
Materials at any site, location or operation, either voluntarily or
pursuant to the order of any governmental or regulatory authority or the
requirements of any Environmental Law.
(x) Neither any Loan Party nor any of its Subsidiaries is a party to
any indenture, loan or credit agreement or any lease or other agreement or
instrument or subject to any charter or corporate restriction the
compliance with which could have a Material Adverse Effect.
(y) The Collateral Documents create a valid and perfected first
priority security interest in the Collateral securing the payment of the
Secured Obligations,
<PAGE>
60
and all filings and other actions necessary or desirable to perfect and
protect such security interest have been duly taken. The Loan Parties are
the legal and beneficial owners of the Collateral free and clear of any
Lien, except for the Liens created or permitted under the Loan Documents.
(z) Each Loan Party and each of its Subsidiaries and Affiliates has
filed, has caused to be filed or has been included in all tax returns
(Federal, state, local and foreign) required to be filed and has paid all
taxes shown thereon to be due, together with applicable interest and
penalties.
(aa) Set forth on Schedule 4.01(aa) hereto is a complete and accurate
list, as of the Second Restatement Date, of each taxable year of each Loan
Party and each of its Subsidiaries and Affiliates (other than CVC and any
of its Affiliates which is not a Loan Party) for which Federal income tax
returns have been filed and for which the expiration of the applicable
statute of limitations for assessment or collection has not occurred by
reason of extension or otherwise (an "Open Year").
---------
(bb) There is no unpaid amount, as of the Second Restatement Date, of
adjustments to the Federal income tax liability of each Loan Party and each
of its Subsidiaries and Affiliates (other than CVC and any of its
Affiliates which is not a Loan Party) proposed by the Internal Revenue
Service with respect to Open Years. No issues other than those set forth
on Schedule 4.01(bb) have been raised by the Internal Revenue Service in
respect of Open Years that, in the aggregate, could have a Material Adverse
Effect.
(cc) There is no unpaid amount, as of the Second Restatement Date, of
adjustments to the state, local and foreign tax liability of each Loan
Party and each of its Subsidiaries and Affiliates (other than CVC and any
of its Affiliates which is not a Loan Party) proposed by all state, local
and foreign taxing authorities (other than amounts arising from adjustments
to Federal income tax returns, if any). No issues have been raised by such
taxing authorities that, in the aggregate, could have a Material Adverse
Effect.
(dd) Neither any Loan Party nor any of its Subsidiaries is an
"investment company," or an "affiliated person" of, or "promoter" or
"principal underwriter" for, an "investment company," as such terms are
defined in the Investment Company Act of 1940, as amended. Neither the
making of any Advances, nor the issuance of any Letters of Credit, nor the
application of the proceeds or repayment thereof by the Borrower, nor the
consummation of the other transactions contemplated hereby, will violate
any provision of such Act or any rule, regulation or order of the
Securities and Exchange Commission thereunder.
(ee) Each Loan Party is, individually and together with its
Subsidiaries, Solvent.
<PAGE>
61
(ff) Set forth on Schedule 3.01(f)(ii) hereto is a complete and accurate
list of all Surviving Debt, showing as of the Second Restatement Date the
principal amount outstanding thereunder, the maturity date thereof and the
amortization schedule therefor.
(gg) Set forth on Schedule 4.01(gg) hereto is a complete and accurate
list of all real property owned by any Loan Party or any of its
Subsidiaries, showing as of the Second Restatement Date the street address,
county or other relevant jurisdiction, state, record owner and book and
fair value thereof. Each Loan Party or such Subsidiary has good,
marketable and insurable fee simple title to such real property, free and
clear of all Liens, other than Liens created or permitted by the Loan
Documents.
(hh) Set forth on Schedule 4.01(hh) hereto is a complete and accurate
list of all leases of real property under which any Loan Party or any of
its Subsidiaries is the lessee, showing as of the Second Restatement Date
the street address, county or other relevant jurisdiction, state, lessor,
lessee, expiration date and annual rental cost thereof. Each such lease is
the legal, valid and binding obligation of the lessor thereof, enforceable
in accordance with its terms.
(ii) Set forth on Schedule 4.01(ii) hereto is a complete and accurate
list of all Investments held by any Loan Party or any of its Subsidiaries,
showing as of the Second Restatement Date the amount, obligor or issuer and
maturity, if any, thereof.
(jj) Set forth on Schedule 4.01(jj) hereto is a complete and accurate
list of all patents, trademarks, trade names, service marks and copyrights,
and all applications therefor and licenses thereof, of each Loan Party or
any of its Subsidiaries, showing as of the Second Restatement Date the
jurisdiction in which registered, the registration or application number,
as the case may be, and the date of registration or filing, as the case may
be.
(kk) The proceeds of the Advances and the Letters of Credit will be
used by the Loan Parties solely in accordance with the terms of Section
2.14.
<PAGE>
62
ARTICLE V
COVENANTS OF THE BORROWER
SECTION 5.01. Affirmative Covenants. So long as any Advance shall
---------------------
remain unpaid, any Letter of Credit shall be outstanding or any Lender Party
shall have any Commitment hereunder:
(a) Compliance with Laws, Etc. Each Loan Party shall comply, and
-------------------------
cause each of its Subsidiaries to comply, in all material respects, with
all applicable laws, rules, regulations and orders material to the business
and operations of such Loan Party, such compliance to include, without
limitation, compliance with ERISA and the Racketeer Influenced and Corrupt
Organizations Chapter of the Organized Crime Control Act of 1970.
(b) Payment of Taxes, Etc. Each Loan Party shall pay and discharge,
---------------------
and cause each of its Subsidiaries to pay and discharge, before the same
shall become delinquent, (i) all taxes, assessments and governmental
charges or levies imposed upon it or upon its property and (ii) all lawful
claims that, if unpaid, might by law become a Lien upon its property;
provided, however, that no Loan Party nor any of its Subsidiaries shall be
-------- -------
required to pay or discharge any such tax, assessment, charge or claim that
is being contested in good faith and by proper proceedings and as to which
appropriate reserves are being maintained, unless and until any Lien
resulting therefrom attaches to its property and becomes enforceable
against its other creditors.
(c) Compliance with Environmental Laws. Each Loan Party shall comply,
----------------------------------
and cause each of its Subsidiaries and all lessees and other Persons
operating or occupying its properties to comply, in all material respects,
with all applicable Environmental Laws and Environmental Permits; obtain
and renew and cause each of its Subsidiaries to obtain and renew all
Environmental Permits necessary for its operations and properties; and
conduct, and cause each of its Subsidiaries to conduct, any investigation,
study, sampling and testing, and undertake any cleanup, removal, remedial
or other action necessary to remove and clean up all Hazardous Materials
from any of its properties, in accordance with and as required by all
applicable requirements of all Environmental Laws; provided, however, that
-------- -------
no Loan Party nor any of its Subsidiaries shall be required to undertake
any such cleanup, removal, remedial or other action to the extent that its
obligation to do so is being contested in good faith and by proper
proceedings and appropriate reserves are being maintained with respect to
such circumstances.
(d) Maintenance of Insurance. Each Loan Party shall maintain, and
------------------------
cause each of its Subsidiaries to maintain, insurance with responsible and
reputable insurance companies or associations in such amounts and covering
such risks as is usually carried by companies engaged in similar businesses
and owning similar
<PAGE>
63
properties in the same general areas in which such Loan Party or such
Subsidiary operates.
(e) Preservation of Corporate Existence, Etc. Each Loan Party shall
----------------------------------------
preserve and maintain, and cause each of its Subsidiaries to preserve and
maintain, its corporate existence, rights (charter and statutory), permits,
licenses, approvals, privileges and franchises; provided, however, that the
-------- -------
Subsidiaries of the Borrower may consummate any merger or consolidation
permitted under Section 5.02(d).
(f) Visitation Rights. Each Loan Party shall, at any reasonable time
-----------------
and from time to time upon reasonable prior notice, permit the Agent or any
of the Lender Parties or any agents or representatives thereof, to examine
and make copies of and abstracts from the records and books of account of,
and visit the properties of, such Loan Party and any of its Subsidiaries,
and to discuss the affairs, finances and accounts of such Loan Party and
any of its Subsidiaries with any of their officers or directors and with
their independent certified public accountants.
(g) Preparation of Environmental Reports. The Loan Parties shall, at
------------------------------------
the request of the Agent at the following times, (i) upon the occurrence
and continuance of an Event of Default, (ii) upon the acquisition of real
property by any Loan Party or any of its Subsidiaries, (iii) upon the
Agent's reasonable belief that any of the representations or warranties
contained in Sections 4.01(u), 4.01(v) or 4.01(w) is false in a material
respect or that any of the covenants contained in Section 5.01(c) has been
breached in a recent material respect or, (iv) two other times (determined
in the discretion of the Required Lenders) during the term of this
Agreement, provide to the Lender Parties within 60 days after such request,
at the expense of the Loan Parties, a Phase I environmental site assessment
report for any of their or their Subsidiaries' properties described in such
request, prepared by an environmental consulting firm acceptable to the
Agent indicating, as appropriate, the presence or absence of Hazardous
Materials and the estimated cost of any compliance, removal or remedial
action in connection with any Hazardous Materials on such properties;
without limiting the generality of the foregoing, if the Agent determines
at any time that a material risk exists that any such report will not be
provided within the time referred to above, the Agent may retain an
environmental consulting firm to prepare such report at the expense of the
Loan Parties, and the Loan Parties hereby grant and agree to cause any
Subsidiary that owns any property described in such request to grant at the
time of such request, to the Agent, the Lender Parties, such firm and any
agents or representatives thereof an irrevocable non-exclusive license,
subject to the rights of tenants, to enter onto their respective properties
to undertake such an assessment.
(h) Keeping of Books. Each Loan Party shall keep, and cause each of
----------------
its Subsidiaries to keep, proper books of record and account, in which full
and correct entries shall be made of all financial transactions and the
assets and business of such
<PAGE>
64
Loan Party and each such Subsidiary in accordance with generally accepted
accounting principles.
(i) Maintenance of Properties, Etc. Each Loan Party shall maintain
------------------------------
and preserve, and cause each of its Subsidiaries to maintain and preserve,
all of its properties that are reasonably required in the conduct of its
business in good working order and condition, ordinary wear and tear
excepted.
(j) Compliance with Terms of Leaseholds. Each Loan Party shall make
-----------------------------------
all payments and otherwise perform all obligations in respect of all leases
of real property to which such Loan Party or any of its Subsidiaries is a
party, keep such leases in full force and effect and not allow such leases
to lapse or be terminated or any rights to renew such leases to be
forfeited or cancelled, notify the Agent of any material default by any
party with respect to such leases and cooperate with the Agent in all
respects to cure any such default, and cause each of its Subsidiaries to do
so, unless the failure to so comply with the foregoing could have a
Material Adverse Effect.
(k) Performance of Related Documents and Other Agreements. Each Loan
-----------------------------------------------------
Party shall perform and observe all of the terms and provisions of the
Related Documents (other than the Stockholders Agreement) to be performed
or observed by it, maintain each such Related Document (other than the
Stockholders Agreement) in full force and effect, enforce such Related
Document (other than the Stockholders Agreement) in accordance with its
terms, take all such action to such end as may be from time to time
requested by the Agent and, upon request of the Agent, make to each other
party to each such Related Document (other than the Stockholders Agreement)
such demands and requests for information and reports or for action as such
Loan Party is entitled to make under such Related Document (other than the
Stockholders Agreement), unless the failure to so comply with the foregoing
could have a Material Adverse Effect.
(l) Transactions with Affiliates. Each Loan Party shall conduct, and
----------------------------
cause each of its Subsidiaries to conduct, all transactions otherwise
permitted under the Loan Documents with any of their Affiliates on terms
that are fair and reasonable and no less favorable to such Loan Party or
such Subsidiary than it would obtain in a comparable arm's-length
transaction with a Person not an Affiliate; provided that the Lender
--------
Parties hereby agree that the terms of all employment-related arrangements
and contracts between any Loan Party and any member of the senior
management of such Loan Party shall be deemed to be fair and reasonable if
approved by the board of directors of such Loan Party.
(m) Covenant to Give Security. In addition to the requirements of
-------------------------
Section 5.01(o), each Loan Party shall, upon the request of the Agent
following the occurrence and during the continuance of an Event of Default,
and at the expense of
<PAGE>
65
such Loan Party, (i) within 10 days after such request, furnish to the
Agent a description of the real and personal properties of such Loan Party
and its Subsidiaries in detail satisfactory to the Agent, (ii) within 15
days after such request, duly execute and deliver to the Agent mortgages,
pledges, assignments and other security agreements, as specified by and in
form and substance satisfactory to the Agent, securing payment of all the
Obligations of such Loan Party under the Loan Documents and constituting
Liens on all such properties, (iii) within 30 days after such request, take
whatever action (including, without limitation, the recording of mortgages,
the filing of Uniform Commercial Code financing statements, the giving of
notices and the endorsement of notices on title documents) may be necessary
or advisable in the opinion of the Agent to vest in the Agent (or in any
representative of the Agent designated by it) valid and subsisting Liens on
the properties purported to be subject to the security agreements delivered
pursuant to this Section 5.01(m), enforceable against all third parties in
accordance with their terms, (iv) within 60 days after such request,
deliver to the Agent a signed copy of a favorable opinion, addressed to the
Agent, of counsel for such Loan Party acceptable to the Agent as to the
matters contained in clauses (i), (ii) and (iii) above, as to such security
agreements being legal, valid and binding obligations of such Loan Party
and its Subsidiaries enforceable in accordance with their terms and as to
such other matters as the Agent may reasonably request and (v) at any time
and from time to time, promptly execute and deliver any and all further
instruments and documents and take all such other action as the Agent may
deem desirable in obtaining the full benefits of, or in preserving the
Liens of, such security agreements.
(n) Syndication. Take all actions which the Agent may reasonably
-----------
request to assist it in forming a syndicate acceptable to it in accordance
with Section 8.07, including, but not be limited to, (i) making senior
management of the Borrower and representatives of the Borrower and the
Investor Group available to participate in informational meetings with
potential lenders at such times and places as the Agent may reasonably
request and (ii) timely providing the Agent with all information reasonably
deemed necessary by it to successfully complete the syndication, including,
without limitation, a summary of the operating prospects (including
financial projections) of the Borrower and its Subsidiaries.
(o) Additional Loan Parties. Each Loan Party shall cause any newly
-----------------------
organized or acquired Subsidiary of such Loan Party to execute and deliver
to the Agent as promptly as practicable and in any event within 10 days
after the organization or acquisition of such Subsidiary (i) a security
agreement supplement in the form of Exhibit C to the Security Agreement,
(ii) a guaranty supplement in the form of Exhibit A to the Guarantee and
(iii) such other documents, agreements, certificates or instruments as the
Agent may reasonably request, in each case in form and substance reasonably
satisfactory to the Agent, and to take all such other actions that may be
necessary or that the Agent may deem reasonably desirable in order to
perfect and protect any pledge, assignment or security interest granted by
such
<PAGE>
66
security agreement (granting a security interest in the receivables,
inventory, deposit accounts, equipment, intellectual property and other
assets of such Subsidiary) of such Subsidiary to the Agent for the benefit
of the Lender Parties or to enable the Agent to exercise and enforce its
rights and remedies thereunder.
SECTION 5.02. Negative Covenants. So long as any Advance shall
------------------
remain unpaid, any Letter of Credit shall be outstanding or any Lender Party
shall have any Commitment hereunder:
(a) Liens, Etc. None of the Loan Parties shall at any time create,
----------
incur, assume or suffer to exist, or permit any of its Subsidiaries to
create, incur, assume or suffer to exist, any Lien on or with respect to
any of its properties of any character (including, without limitation,
accounts) whether now owned or hereafter acquired, or sign or file or
suffer to exist, or permit any of its Subsidiaries to sign or file or
suffer to exist, under the Uniform Commercial Code of any jurisdiction, a
financing statement that names the Borrower or any of its Subsidiaries as
debtor, or sign or suffer to exist, or permit any of its Subsidiaries to
sign or suffer to exist, any security agreement authorizing any secured
party thereunder to file such financing statement, or assign, or permit any
of its Subsidiaries to assign, any accounts or other right to receive
income, excluding, however, from the operation of the foregoing
--------- -------
restrictions the following:
(i) Liens created under the Loan Documents;
(ii) Permitted Liens and Permitted Encumbrances;
(iii) solely in the case of the Borrower and its Subsidiaries,
Liens described on Schedule 5.02(a)(iii) hereto;
(iv) solely in the case of the Borrower and its Subsidiaries,
Liens arising in connection with Capitalized Leases permitted under
Section 5.02(b)(iii)(A); provided that no such Lien shall extend to or
--------
cover any Collateral or assets other than the assets subject to such
Capitalized Leases;
(v) solely in the case of the Borrower and its Subsidiaries,
purchase money Liens upon or in real property or equipment acquired or
held by the Borrower or any of its Subsidiaries in the ordinary course
of business to secure the purchase price of such property or equipment
or to secure Debt incurred solely for the purpose of financing the
acquisition of any such property or equipment to be subject to such
Liens, or Liens existing on any such property or equipment at the time
of acquisition (other than any such Liens created in contemplation of
such acquisition that do not secure the purchase price), or
extensions, renewals or replacements of any of the foregoing for the
same or a lesser amount; provided, however, that no such Lien shall
-------- -------
extend to or cover
<PAGE>
67
any property other than the property or equipment being acquired, and
no such extension, renewal or replacement shall extend to or cover any
property not theretofore subject to the Lien being extended, renewed
or replaced; and provided further that the aggregate principal amount
-------- -------
of the Debt secured by Liens permitted by this clause (v) shall not
exceed the amount permitted under Section 5.02(b)(iii)(A) at any time
outstanding and that any such Debt shall not otherwise be prohibited
by the terms of the Loan Documents;
(vi) solely in the case of the Borrower and its Subsidiaries, the
filing of financing statements solely as a precautionary measure in
connection with operating leases;
(vii) solely in the case of the Borrower and its Subsidiaries,
Liens not otherwise permitted under this Section 5.02(a) securing Debt
or other liabilities or obligations of the Borrower and its
Subsidiaries in an aggregate principal amount not to exceed $100,000
at any time outstanding; and
(viii) solely in the case of the Borrower and its Subsidiaries,
the replacement, extension or renewal of any Lien permitted by clause
(iii) above upon or in the same property theretofore subject thereto
or the replacement, extension or renewal (without increase in the
amount or change in any direct or contingent obligor) of the Debt
secured thereby.
(b) Debt. None of the Loan Parties shall at any time create, incur,
----
assume or suffer to exist, or permit any of its Subsidiaries to create,
incur, assume or suffer to exist, any Debt other than:
(i) in the case of Universal,
(A) the Junior Notes,
(B) the Stirling Notes,
(C) the redemption obligations set forth in Section
5.02(g)(ii)(B), and
(D) Debt under the Loan Documents.
(ii) in the case of the Borrower,
(A) the Subordinated Notes; and
(B) Debt owed to any Subsidiary of the Borrower; provided,
--------
however, that such obligation (1) is subject to an intercompany
-------
<PAGE>
68
subordination agreement in substantially the form of Exhibit H
hereto (an "Intercompany Subordination Agreement") executed by
------------------------------------
the Borrower and each such Subsidiary and (2) is evidenced by a
promissory note in form and substance reasonably satisfactory to
the Agent, which shall be pledged under the terms of the
Collateral Documents to the Agent, on behalf of the Secured
Parties, immediately upon its creation.
(iii) in the case of the Borrower and its Subsidiaries,
(A) Capitalized Leases and Debt secured by Liens permitted
by Section 5.02(a)(v) not to exceed in the aggregate $8,000,000
at any time outstanding and the amortization of which shall not
exceed $1,600,000 in any 12-Fiscal Month period,
(B) Debt under the Loan Documents;
(C) Debt owed to Glenoit Assets Corp. by Mills provided,
--------
however, that any such Debt (1) shall be incurred in the ordinary
-------
course of Mills' business and (2) shall be evidenced by a
promissory note in form and substance reasonably satisfactory to
the Agent, which shall be pledged under the terms of the
Collateral Documents to the Agent, on behalf of the Secured
Parties, immediately upon its creation;
(D) Debt owed to the Borrower by any wholly owned U.S.
Subsidiary; provided, however, that such Debt shall be evidenced
-------- -------
by a promissory note in form and substance reasonably
satisfactory to the Agent, which shall be pledged under the terms
of the Collateral Documents to the Agent, on behalf of the
Secured Parties, immediately upon its creation;
(E) Surviving Debt of the Borrower and its Subsidiaries;
(F) indorsement of negotiable instruments for deposit or
collection or similar transactions in the ordinary course of
business; and
(G) other unsecured Debt not otherwise permitted under this
Section 5.02(b) aggregating not more than $1,000,000 at any one
time outstanding;
(c) Lease Obligations. None of the Loan Parties shall at any time
-----------------
create, incur, assume or suffer to exist, or permit any of its Subsidiaries
to create, incur, assume or suffer to exist, any obligations as lessee for
the rental or hire of real or personal property in connection with any sale
and leaseback transaction.
<PAGE>
69
(d) Mergers, Etc. None of the Loan Parties shall at any time merge into or
------------
consolidate with any Person or permit any Person to merge into it, or
permit any of its Subsidiaries to do so, except that (i) any Subsidiary of
the Borrower may merge into or consolidate with any other Subsidiary of the
Borrower provided that, in the case of any such merger or consolidation,
the Person formed by such merger or consolidation shall be a wholly owned
U.S. Subsidiary of the Borrower and (ii) any wholly owned U.S. Subsidiary
of the Borrower may merge into or consolidate with the Borrower provided
that, in the case of any such merger or consolidation, the Borrower shall
be the surviving Person.
(e) Sales, Etc. of Assets. None of the Loan Parties shall at any time
---------------------
sell, lease, transfer or otherwise dispose of, or permit any of its
Subsidiaries to sell, lease, transfer or otherwise dispose of, any assets,
or grant any option or other right to purchase, lease or otherwise acquire
any assets, except:
(i) sales of Inventory (including, without limitation, sales of
obsolete or slow-moving Inventory) in the ordinary course of its
business;
(ii) sales of assets for cash and for fair value in an aggregate
amount not to exceed $500,000 in any Fiscal Year;
(iii) dispositions of condemned or damaged property;
(iv) licenses of patents, trademarks, trade names, service marks
and copyrights in the ordinary course of business; and
(v) in a transaction otherwise permitted by Section 5.02(d).
(f) Investments in Other Persons. None of the Loan Parties shall at
----------------------------
any time make or hold, or permit any of its Subsidiaries to make or hold,
any Investment in any Person other than:
(i) loans and advances by the Borrower and its Subsidiaries to
its employees in the ordinary course of business in an aggregate
principal amount not to exceed $1,000,000 at any time outstanding;
(ii) Investments by the Borrower and its Subsidiaries in Cash
Equivalents, provided that, to the extent such Investments in Cash
--------
Equivalents exceed $750,000 in aggregate principal amount at any time
outstanding, the Agent shall have, for the benefit of the Secured
Parties, a valid perfected first priority security interest in such
Cash Equivalents, and the Borrower shall take all such action as the
Agent may deem necessary or desirable to perfect and protect such
security interest;
<PAGE>
70
(iii) Investments existing on the Second Restatement Date and
described on Schedule 4.01(ii) hereto;
(iv) refundable advances and deposits required to be made by the
Borrower and its Subsidiaries in connection with Capitalized Leases
permitted by Section 5.02(b)(iii)(A) in an aggregate amount not to
exceed $1,000,000 at any time;
(v) Investments (A) by the Borrower in wholly owned U.S.
Subsidiaries of the Borrower, including intercompany Debt permitted
under Section 5.02(b)(iii)(D), which are or, within ten days after the
date of such Investment, become Loan Parties pursuant to Section
5.01(o); provided, that no Default shall have occurred and be
--------
continuing at the time such Investment is made or would result
therefrom or (B) consisting of other intercompany Debt otherwise
expressly permitted under and in accordance with Sections
5.02(b)(ii)(B) and 5.02(b)(iii)(C);
(vi) in the case of the Borrower or any of its Subsidiaries,
Investments consisting of equity or debt in any obligor of a
receivable owing to the Borrower or any of its Subsidiaries in a
bankruptcy action involving such obligor and which were received by
the Borrower or any of its Subsidiaries in satisfaction of such
obligor's obligations to the Borrower and its Subsidiaries;
(vii) in the case of the Borrower and its wholly owned U.S.
Subsidiaries, Investments constituting Related Textile Investments;
provided that: (A) with respect to any Related Textile Investment
--------
constituting an acquisition of a Related Textile Business (1) such
Related Textile Investment shall be made solely by the Borrower or any
of its direct wholly owned U.S. Subsidiaries; provided that any
Related Textile Business that becomes a Subsidiary of the Borrower
shall be directly wholly owned by the Borrower, (2) the Fixed Charge
Coverage Ratio as of the end of the most recently ended Monthly
Rolling Period, prior to the date of such acquisition, shall not be
less than the ratio set forth below for such Monthly Rolling Period
and the Agent shall have received a certificate of the chief financial
officer of the Borrower certifying such compliance together with a
schedule in form satisfactory to the Agent of the computations used by
the Borrower in determining compliance therewith:
<PAGE>
71
Monthly Rolling Period
Ending in the Fiscal Year Fixed Charge Coverage Ratio
------------------------- ---------------------------
Fiscal Year 1997 1.20
Fiscal Year 1998 1.20
Fiscal Year 1999 1.30
Fiscal Year 2000 1.30
Fiscal Year 2001 1.30, and
(3) such Related Textile Business shall have maintained a positive
EBITDA during the most recent period of 12 consecutive months ended
immediately prior to the date of such Investment (such EBITDA may
include pro forma adjustments if accompanied by an audit or a review
report or similar report by a nationally recognized accounting firm
acceptable to the Agent) and (4) no Default shall have occurred and be
continuing at the time such Investment is made or would result
therefrom;
(B) the aggregate purchase price or cost, as the case may be,
with respect to any Related Textile Investment (including the amount
of any indebtedness refinanced or assumed and all fees and expenses
related thereto, in each case, if any) shall not exceed, for any
single transaction or a series of related transactions, $15,000,000,
unless such Related Textile Investment shall have been approved in
writing by the Required Lenders; and
(C) with respect to Related Textile Investments during any
Restricted Capex Period, the aggregate amount of Related Textile
Investments during such period shall not exceed an amount equal to
$3,000,000, provided, that for any Restricted Capex Period which
--------
begins after January 1, 2001, the aggregate amount of Related Textile
Investments during such Restricted Capex Period shall be reduced to an
amount equal to the product of (x) $3,000,000, multiplied by (y) a
quotient equal to the number of days from the first day of such
Restricted Capex Period until the Termination Date divided by 360; and
(viii) Investments not otherwise permitted under this Section
5.02(f) in an aggregate amount not to exceed $250,000 at any time.
(g) Dividends, Etc. None of the Loan Parties shall at any time
--------------
declare or pay any dividends, purchase, redeem, retire, defease or
otherwise acquire for value any of its capital stock or any warrants,
rights or options to acquire such capital stock, now or hereafter
outstanding, return any capital to its stockholders as such, make any
distribution of assets, capital stock, warrants, rights, options,
obligations or securities to its stockholders as such or issue or sell any
capital stock or any warrants, rights or options to acquire such capital
stock, or permit any of its Subsidiaries to do any of the foregoing or
permit any of its Subsidiaries to purchase, redeem, retire, defease or
otherwise acquire for value any capital stock of the Borrower or any
<PAGE>
72
warrants, rights or options to acquire such capital stock or to issue or
sell any capital stock or any warrants, rights or options to acquire such
capital stock, except that:
(i) any Subsidiary of the Borrower may declare and pay cash
dividends to the Borrower or any of its U.S. wholly owned
Subsidiaries;
(ii) (A) the Borrower may declare and pay cash dividends, in a
maximum aggregate amount not to exceed $1,600,000, to Universal for
the sole purpose of enabling Universal to (1) pay amounts outstanding
in respect of principal under the Deferred Redemption Price Note in an
aggregate amount not to exceed $1,400,000 and (2) purchase 3,651.15
shares of its common stock held by Stirling, and
(B) with the proceeds of the dividends referred to in
clause (A)(2) above, Universal may redeem 3,651.15 shares of its
common stock held by Stirling for an aggregate purchase price not
to exceed $200,000,
provided, however, that, no Default shall have occurred and be
-------- -------
continuing at the time such cash dividends are paid or would result
therefrom.
(iii) in any month in which the semiannual interest obligations
of Universal under the Split-Pay Note become due and payable, the
Borrower may declare and pay cash dividends to Universal for the sole
purpose of enabling Universal to pay its interest obligations under
the Split-Pay Note which become due and payable in such month;
provided, however, that (A) Universal shall not have the right to pay
-------- -------
such interest in-kind (including, without limitation, in the form of
additional notes) or otherwise defer the payment of such interest in
cash; (B) the aggregate amount of such cash dividends paid in any six-
month period by the Borrower to Universal for such purposes shall not
exceed $300,000 and (C) no Default shall have occurred and be
continuing at the time such cash dividends are paid or would result
therefrom;
(iv) the Borrower may declare and pay cash dividends to
Universal for the sole purpose of enabling Universal (A) to pay taxes,
(B) to pay expenses incurred in the ordinary course of business in an
aggregate amount not to exceed $150,000 in any Fiscal Year and (C) to
satisfy Universal's obligations under the Management Stock Option Plan
Agreement to purchase, and Universal may purchase or redeem, shares of
its stock held by any of its employees upon the death or termination
of such employee in exchange for cash and other consideration in an
aggregate amount not to exceed $300,000; provided, however, that in
-------- -------
the case of clause (C) no Default shall have
<PAGE>
73
occurred and be continuing at the time such cash dividends are paid or
would result therefrom;
(v) Universal may issue shares of, or options to purchase, its
capital stock to members of its senior management pursuant to the
terms of the Management Stock Option Plan Agreement; provided,
--------
however, that the number of shares of capital stock of Universal which
-------
may be issued in connection with the Management Stock Option Plan
Agreement shall not exceed 5% of the total number of shares of capital
stock of Universal issued and outstanding at any time on a fully
diluted basis.
(vi) Universal may issue or sell capital stock to any Person for
not less than fair market value, provided that Universal may issue or
--------
sell capital stock (A) to any of its senior management for less than
fair market value pursuant to clause (v) above and (B) pursuant to
options granted to Soannes pursuant to the Redemption Agreement to
purchase up to 3651.15 shares of Class A Common Stock of Universal,
and provided further that the Net Cash Proceeds of all such issuances
-------- -------
or sales (other than such Net Cash Proceeds received pursuant to
clause (v) above) is contributed by Universal to the Borrower and the
Borrower applies such Net Cash Proceeds to the prepayments of Advances
pursuant to Section 2.06(b)(i);
(vii) Universal may issue stock for all or a portion of the
consideration paid in connection with the acquisition of a Related
Textile Business in accordance with Section 5.02(f)(vii) to the seller
or sellers of such Business; and
(viii) Universal may declare and make stock dividends payable in
shares of its common stock.
(h) Change in Nature of Business. None of the Loan Parties shall at
----------------------------
any time engage, or permit any of its Subsidiaries to engage, in any
business other than the manufacturing of home textiles and specialty
textiles and other activities incidental thereto, including, without
limitation, the ownership of properties incidental to such businesses.
(i) Charter Amendments. None of the Loan Parties shall at any time
------------------
amend, or permit any of its Subsidiaries to amend, its certificate of
incorporation or bylaws.
(j) Accounting Changes. None of the Loan Parties shall at any time
------------------
make or permit, or permit any of its Subsidiaries to make or permit, any
change in (i) accounting policies or reporting practices, except as
required by generally accepted accounting principles or (ii) Fiscal Year.
<PAGE>
74
(k) Prepayments, Etc., of Debt. None of the Loan Parties shall at any
--------------------------
time (i) prepay, redeem, purchase, defease or otherwise satisfy prior to
the scheduled maturity thereof in any manner, or make any payment in
violation of any subordination terms of, any Debt, other than (x) the
prepayment of the Advances in accordance with the terms of this Agreement,
(y) regularly scheduled or required repayments or redemptions of Surviving
Debt of the Borrower and its Subsidiaries (other than the Subordinated
Notes) and (z) the prepayment of Debt under the Accounts Receivable
Management Agreement, or (ii) amend, modify or change in any manner any
term or condition of any Surviving Debt, or permit any of its Subsidiaries
to do any of the foregoing other than to prepay any Debt payable to the
Borrower.
(l) Amendment, Etc., of Related Documents. None of the Loan Parties
-------------------------------------
shall at any time cancel or terminate any Related Document or consent to or
accept any cancellation or termination thereof, amend, modify or change in
any manner any term or condition of any Related Document or give any
consent, waiver or approval thereunder, waive any default under or any
breach of any term or condition of any Related Document, agree in any
manner to any other amendment, modification or change of any term or
condition of any Related Document or take any other action in connection
with any Related Document that would impair the value of the interest or
rights of such Loan Party thereunder or that would impair the rights or
interests of the Agent or any Lender Party, or permit any of its
Subsidiaries to do any of the foregoing.
(m) Negative Pledge. None of the Loan Parties shall at any time enter
---------------
into or suffer to exist, or permit any of its Subsidiaries to enter into or
suffer to exist, any agreement prohibiting or conditioning the creation or
assumption of any Lien upon any of its property or assets other than (i) in
favor of the Secured Parties, (ii) in connection with any Debt secured by
Capitalized Leases and purchase money Liens, in each case, to the extent
permitted under Section 5.02(b)(iii)(A) only with respect to the specific
assets referred to in such Section 5.02(b)(iii)(A) and (iii) in connection
with the Subordinated Notes.
(n) Partnerships. None of the Loan Parties shall at any time become a
------------
general partner in any general or limited partnership or joint venture, or
permit any of its Subsidiaries to do so.
(o) Other Transactions. None of the Loan Parties shall at any time
------------------
engage, or permit any of its Subsidiaries to engage, in any transaction
involving commodity options or futures contracts or any similar speculative
transactions (including, without limitation, take-or-pay contracts).
<PAGE>
75
SECTION 5.03. Reporting Requirements. So long as any Advance shall
----------------------
remain unpaid, any Letter of Credit shall be outstanding or any Lender Party
shall have any Commitment hereunder, the Loan Parties will furnish to the Lender
Parties:
(a) Default Notice. As soon as possible and in any event within two
--------------
days after the occurrence of each Default or any event, development or
occurrence reasonably likely to have a Material Adverse Effect continuing
on the date of such statement, a statement of the chief financial officer
of the Borrower setting forth details of such Default and the action that
such Borrower has taken and proposes to take with respect thereto.
(b) Monthly Financials. As soon as available and in any event no
------------------
later than 30 days after the end of each Fiscal Month thereafter, a
Consolidated and consolidating balance sheet of each Loan Party and its
Subsidiaries as of the end of such Fiscal Month and Consolidated and
consolidating statements of income and cash flows of such Loan Party and
its Subsidiaries for the period commencing at the end of the previous
Fiscal Month and ending with the end of such Fiscal Month and Consolidated
and consolidating statements of income and cash flows of such Loan Party
and its Subsidiaries for the period commencing at the end of the previous
Fiscal Year and ending with the end of such Fiscal Month, setting forth in
each case in comparative form the corresponding figures for the
corresponding Fiscal Month of the preceding Fiscal Year, all in reasonable
detail and duly certified (subject to year end audited adjustments) by the
chief financial officer of such Loan Party as having been prepared in
accordance with generally accepted accounting principles consistent with
those applied in the most recent annual audit, together with (i) a
certificate of said officer stating that no Default has occurred and is
continuing or, if a Default has occurred and is continuing, a statement as
to the nature thereof and the action that such Loan Party has taken and
proposes to take with respect thereto, (ii) a schedule in form satisfactory
to the Agent of the computations used by such Loan Party in determining
compliance with the covenants contained in Section 5.04 and, during a
Restricted Capex Period, Section 5.02(f)(vii)(C), (iii) in the event of any
change from GAAP in the generally accepted accounting principles used in
the preparation of such financial statements, a statement of reconciliation
conforming such financial statements to GAAP and (iv) copies of any
management discussions distributed to any member of the Investor Group
other than Thomas O'Gorman.
(c) Quarterly Financials. As soon as available and in any event
--------------------
within 45 days after the end of each of the first three Fiscal Quarters of
each Fiscal Year, Consolidated and consolidating balance sheets of each
Loan Party and its Subsidiaries as of the end of such Fiscal Quarter and
Consolidated and consolidating statements of income and cash flows of such
Loan Party and its Subsidiaries for the period commencing at the end of the
previous Fiscal Quarter and ending with the end of such
<PAGE>
76
Fiscal Quarter and Consolidated and consolidating statements of income and
cash flows of such Loan Party and its Subsidiaries for the period
commencing at the end of the previous Fiscal Year and ending with the end
of such Fiscal Quarter, setting forth in each case in comparative form the
corresponding figures for the corresponding period of the preceding Fiscal
Year, all in reasonable detail and duly certified (subject to year-end
audit adjustments) by the chief financial officer of such Loan Party as
having been prepared in accordance with generally accepted accounting
principles consistent with those applied in the most recent annual audit,
together with (i) a certificate of said officer stating that no Default has
occurred and is continuing or, if a Default has occurred and is continuing,
a statement as to the nature thereof and the action that such Loan Party
has taken and proposes to take with respect thereto, (ii) a schedule in
form satisfactory to the Agent of the computations used by such Loan Party
in determining compliance with the covenants contained in Section 5.04, the
Fixed Charge Coverage Ratio contained in Section 5.02(f)(vii)(A) and,
during a Restricted Capex Period, Section 5.02(f)(vii)(C), (iii) in the
event of any change from GAAP in the generally accepted accounting
principles used in the preparation of such financial statements, a
statement of reconciliation conforming such financial statements to GAAP
and (iv) copies of any management discussions distributed to any member of
the Investor Group other than Thomas O'Gorman.
(d) Annual Financials. As soon as available and in any event no later
-----------------
than 90 days after the end of each Fiscal Year, a copy of the annual audit
report for such year for such Loan Party and its Subsidiaries, including
therein Consolidated and consolidating balance sheets of such Loan Party
and its Subsidiaries as of the end of such Fiscal Year and Consolidated and
consolidating statements of income and cash flows of such Loan Party and
its Subsidiaries for such Fiscal Year, in each case accompanied by an
opinion acceptable to the Required Lenders of Coopers & Lybrand LLP or
other independent public accountants of recognized standing acceptable to
the Required Lenders, together with (i) a certificate of such accounting
firm to the Lender Parties stating that in the course of the regular audit
of the business of such Loan Party and its Subsidiaries, which audit was
conducted by such accounting firm in accordance with generally accepted
auditing standards, such accounting firm has obtained no knowledge that a
Default has occurred and is continuing, or if, in the opinion of such
accounting firm, a Default has occurred and is continuing, a statement as
to the nature thereof, (ii) a schedule in form satisfactory to the Agent of
the computations used by such accountants in determining, as of the end of
such Fiscal Year, compliance with the covenants contained in Section 5.04,
the Fixed Charge Coverage Ratio contained in Section 5.02(f)(vii)(A) and,
during a Restricted Capex Period, Section 5.02(f)(vii)(C), (iii) a
certificate of the chief financial officer of such Loan Party stating that
no Default has occurred and is continuing or, if a Default has occurred and
is continuing, a statement as to the nature thereof and the action that
such Loan Party has taken and proposes to take with respect thereto, (iv)
in the event
<PAGE>
77
of any change from GAAP in the generally accepted accounting principles
used in the preparation of such financial statements, a statement of
reconciliation conforming such financial statements to GAAP and (v) copies
of management discussions distributed to any member of the Investor Group
other than Thomas O'Gorman.
(e) Annual Forecasts. As soon as available and in any event no later
----------------
than 15 days before the end of each Fiscal Year, forecasts prepared by
management of such Loan Party, in form satisfactory to the Agent, of
balance sheets, income statements and cash flow statements on a monthly
basis for the Fiscal Year following such Fiscal Year then ended and on an
annual basis for each Fiscal Year thereafter until the Termination Date.
(f) ERISA Events and ERISA Reports. Promptly and in any event within
------------------------------
15 days after any Loan Party or any ERISA Affiliate knows or has reason to
know that any ERISA Event has occurred, a statement of the chief financial
officer of the Borrower describing such ERISA Event and the action, if any,
that such Loan Party or such ERISA Affiliate has taken and proposes to take
with respect thereto.
(g) Plan Terminations. Promptly and in any event within three
-----------------
Business Days after receipt thereof by any Loan Party or any ERISA
Affiliate, copies of each notice from the PBGC stating its intention to
terminate any Plan or to have a trustee appointed to administer any Plan.
(h) Plan Annual Reports. Promptly and in any event within 30 days
-------------------
after the filing thereof with the Internal Revenue Service, copies of each
Schedule B (Actuarial Information) to the annual report (Form 5500 Series)
with respect to each Plan (as defined in Section 3.02(d)(8) of ERISA).
(i) Multiemployer Plan Notices. Promptly and in any event within five
--------------------------
Business Days after receipt thereof by any Loan Party or any ERISA
Affiliate from the sponsor of a Multiemployer Plan, copies of each notice
concerning (i) the imposition of Withdrawal Liability by any such
Multiemployer Plan, (ii) the reorganization or termination, within the
meaning of Title IV of ERISA, of any such Multiemployer Plan or (iii) the
amount of liability incurred, or that may be incurred, by such Loan Party
or any ERISA Affiliate in connection with any event described in clause (i)
or (ii).
(j) Litigation. Promptly after the commencement thereof, notice of
----------
all actions, suits, investigations, litigation and proceedings before any
court or governmental department, commission, board, bureau, agency or
instrumentality, domestic or foreign, affecting any Loan Party or any of
its Subsidiaries of the type described in Section 4.01(j).
<PAGE>
78
(k) Securities Reports. Promptly after the sending or filing thereof,
------------------
copies of all proxy statements, financial statements and reports that any
Loan Party or any of its Subsidiaries sends to its stockholders, and copies
of all regular, periodic and special reports, and all registration
statements, that any Loan Party or any of its Subsidiaries files with the
Securities and Exchange Commission or any governmental authority that may
be substituted therefor, or with any national securities exchange.
(l) Creditor Reports. Promptly after the furnishing thereof, copies
----------------
of any statement or report furnished to any other holder of the securities
of any Loan Party or of any of its Subsidiaries pursuant to the terms of
any indenture, loan or credit or similar agreement and not otherwise
required to be furnished to the Lender Parties pursuant to any other clause
of this Section 5.03.
(m) Agreement Notices. Promptly upon receipt thereof, copies of all
-----------------
notices, requests and other documents received by any Loan Party or any of
its Subsidiaries under or pursuant to any Related Document or indenture,
loan or credit or similar agreement regarding or related to any breach or
default by any party thereto or any other event that could materially
impair the value of the interests or the rights of any Loan Party or any of
its Subsidiaries or otherwise have a Material Adverse Effect and copies of
any amendment, modification or waiver of any provision of any Related
Agreement or indenture, loan or credit or similar agreement and, from time
to time upon request by the Agent, such information and reports regarding
the Related Documents as the Agent may reasonably request.
(n) Revenue Agent Reports. Within 10 days after receipt, copies of
---------------------
all Revenue Agent Reports (Internal Revenue Service Form 886), or other
written statements of the Internal Revenue Service, that propose, determine
or otherwise set forth positive adjustments to the Federal income tax
liability of the affiliated group (within the meaning of Section 1504(a)(1)
of the Internal Revenue Code) of which a Loan Party is a member aggregating
$250,000 or more.
(o) Environmental Conditions. Promptly after the assertion or
------------------------
occurrence thereof, notice of any Environmental Action against or of any
condition or occurrence on any property of any Loan Party or any of its
Subsidiaries that results in a material noncompliance by any Loan Party or
any of its Subsidiaries with any Environmental Law or Environmental Permit
that could be reasonably expected to have a Material Adverse Effect.
(p) Real Property. As soon as available and in any event within 30
-------------
days after the end of each Fiscal Year, a report supplementing Schedules
4.01(gg) and 4.01(hh) hereto, including an identification of all real and
leased property disposed of by the Borrower or any of its Subsidiaries
during such Fiscal Year, a list and
<PAGE>
79
description (including the street address, county or other relevant
jurisdiction, state, record owner, book value thereof, and in the case of
leases of property, lessor, lessee, expiration date and annual rental cost
thereof) of all real property acquired or leased during such Fiscal Year
and a description of such other changes in the information included in such
Schedules as may be necessary for such Schedules to be accurate and
complete.
(q) Borrowing Base Certificate. As soon as available and in any event
--------------------------
within 15 Business Days after the end of each Fiscal Month, a Borrowing
Base Certificate of the Borrower and its Subsidiaries, taken as a whole, as
at the end of such Fiscal Month, certified by the chief financial officer
of the Borrower.
(r) Other Information. Such other information respecting the
-----------------
business, condition (financial or otherwise), operations, performance,
properties or prospects of any Loan Party or any of its Subsidiaries as any
Lender Party (through the Agent) may from time to time reasonably request.
SECTION 5.04. Financial Covenants. So long as any Advance shall
-------------------
remain unpaid, any Letter of Credit shall be outstanding or any Lender Party
shall have any Commitment hereunder, the Borrower and its Subsidiaries will:
(a) Leverage Ratio. Maintain a Leverage Ratio as of the end of each
--------------
Monthly Rolling Period ended during each Fiscal Year set forth below of not
more than the amount set forth below during each such Fiscal Year:
=========================
Fiscal Year Ratio
-------------------------
Fiscal Year 1997 5.00
-------------------------
Fiscal Year 1998 4.75
-------------------------
Fiscal Year 1999 4.50
-------------------------
Fiscal Year 2000 4.25
-------------------------
Fiscal Year 2001 4.00
=========================
(b) Fixed Charge Coverage Ratio. Maintain a Fixed Charge Coverage
---------------------------
Ratio of not less than 1.10:1 as of the end of each Monthly Rolling Period.
<PAGE>
80
(c) Interest Coverage Ratio. Maintain an Interest Coverage Ratio as
-----------------------
of the end of each Monthly Rolling Period ended during each Fiscal Year set
forth below of not less than the amount set forth below during each such
Fiscal Year:
=========================
Fiscal Year Ratio
-------------------------
Fiscal Year 1997 1.75
-------------------------
Fiscal Year 1998 1.75
-------------------------
Fiscal Year 1999 2.00
-------------------------
Fiscal Year 2000 2.00
-------------------------
Fiscal Year 2001 2.25
=========================
(d) Minimum Net Worth. Maintain a minimum Net Worth at all times of
-----------------
not less than the amount set forth below during each Fiscal Year set forth
below:
===============================
US Dollar
Fiscal Year Amount
-------------------------------
Fiscal Year 1997 $20,000,000
-------------------------------
Fiscal Year 1998 $21,000,000
-------------------------------
Fiscal Year 1999 $24,000,000
-------------------------------
Fiscal Year 2000 $28,000,000
-------------------------------
Fiscal Year 2001 $33,000,000
===============================
<PAGE>
81
ARTICLE VI
EVENTS OF DEFAULT
SECTION 6.01. Events of Default. If any of the following events ("Events
----------------- ------
of Default") shall occur and be continuing:
- ----------
(a) the Borrower shall fail to pay any principal of, or interest on,
any Advance, or any Loan Party shall fail to make any other payment under
any Loan Document, in each case when the same becomes due and payable; or
(b) any representation or warranty made by any Loan Party (or any of
its officers) under or in connection with any Loan Document shall prove to
have been incorrect in any material respect when made; or
(c) any Loan Party or, if applicable, any of its Subsidiaries shall
fail to perform or observe any term, covenant or agreement contained in
Section 2.14, 5.01(e), (f), (g), (l), (m) or (o), 5.02, 5.03 or 5.04; or
(d) any Loan Party or, if applicable, any of its Subsidiaries shall
fail to perform any other term, covenant or agreement contained in any Loan
Document on its part to be performed or observed if such failure shall
remain unremedied for 10 Business Days after the earlier of the date on
which (A) a Responsible Officer of any Loan Party becomes aware of such
failure or (B) written notice thereof shall have been given to any Loan
Party by the Agent or any Lender Party; or
(e) any Loan Party or any of its Subsidiaries shall fail to pay any
principal of, premium or interest on or any other amount payable in respect
of any Debt that is outstanding in a principal or notional amount of at
least $250,000 either individually or in the aggregate (but excluding Debt
outstanding hereunder) of such Loan Party or such Subsidiary (as the case
may be), when the same becomes due and payable (whether by scheduled
maturity, required prepayment, acceleration, demand or otherwise), and such
failure shall continue after the applicable grace period, if any, specified
in the agreement or instrument relating to such Debt; or any other event
shall occur or condition shall exist under any agreement or instrument
relating to any such Debt and shall continue after the applicable grace
period, if any, specified in such agreement or instrument, if the effect of
such event or condition is to accelerate, or to permit the acceleration of,
the maturity of such Debt or otherwise to cause, or to permit the holder
thereof to cause, such Debt to mature; or any such Debt shall be declared
to be due and payable or required to be prepaid or redeemed (other than by
a regularly scheduled required prepayment or redemption), purchased or
defeased, or an
<PAGE>
82
offer to prepay, redeem, purchase or defease such Debt shall be required to
be made, in each case prior to the stated maturity thereof;
(f) there shall occur any Material Adverse Change; or
(g) any Loan Party or any of its Subsidiaries shall generally not pay
its debts as such debts become due, or shall admit in writing its inability
to pay its debts generally, or shall make a general assignment for the
benefit of creditors; or any proceeding shall be instituted by or against
any Loan Party or any of its Subsidiaries seeking to adjudicate it a
bankrupt or insolvent, or seeking liquidation, winding up, reorganization,
arrangement, adjustment, protection, relief, or composition of it or its
debts under any law relating to bankruptcy, insolvency or reorganization or
relief of debtors, or seeking the entry of an order for relief or the
appointment of a receiver, trustee, or other similar official for it or for
any substantial part of its property and, in the case of any such
proceeding instituted against it (but not instituted by it) that is being
diligently contested by it in good faith, either such proceeding shall
remain undismissed or unstayed for a period of 30 days or any of the
actions sought in such proceeding (including, without limitation, the entry
of an order for relief against, or the appointment of a receiver, trustee,
custodian or other similar official for, it or any substantial part of its
property) shall occur; or any Loan Party or any of its Subsidiaries shall
take any corporate action to authorize any of the actions set forth above
in this subsection (g); or
(h) any judgment or order for the payment of money in excess of
$250,000 (to the extent not fully paid or discharged) shall be rendered
against any Loan Party or any of its Subsidiaries and either (i)
enforcement proceedings shall have been commenced by any creditor upon such
judgment or order or (ii) there shall be any period of 10 consecutive days
during which a stay of enforcement of such judgment or order, by reason of
a pending appeal or otherwise, shall not be in effect; or
(i) any non-monetary judgment or order shall be rendered against any
Loan Party or any of its Subsidiaries that could have a Material Adverse
Effect, and there shall be any period of 10 consecutive days during which a
stay of enforcement of such judgment or order, by reason of a pending
appeal or otherwise, shall not be in effect; or
(j) any provision of any Loan Document after delivery thereof pursuant
to Sections 3.01, 5.01(m) or 5.01(o) shall for any reason cease to be valid
and binding on or enforceable against any Loan Party to it, or any such
Loan Party shall so state in writing; or
<PAGE>
83
(k) any Collateral Document after delivery thereof pursuant to
Sections 3.01, 5.01(m) or 5.01(o) shall for any reason (other than pursuant
to the terms thereof) cease to create a valid and perfected first priority
lien on and security interest in a material portion of Collateral purported
to be covered thereby; or
(l) (i) the Investor Group or any member thereof shall sell or
otherwise transfer 10% or more of its shares of capital stock of Universal
(other than, solely in the case of CVC, any sale or transfer to 399 Venture
Partners, Inc., Court Square Capital, Ltd., or Citicorp Capital Investors,
Ltd., each of which is a Delaware corporation and a wholly owned Subsidiary
of Citibank, N.A.), (ii) at any time prior to an initial public offering of
Universal, the Investor Group shall cease to be the record and beneficial
owner of at least 57% of the fully diluted Voting Stock of Universal, (iii)
at any time from and after an initial public offering of Universal, the
Investor Group shall cease to be the record and beneficial owner of at
least 40% of the fully diluted Voting Stock of Universal, (iv) any Person
or "group" (within the meaning of Section 13(d)(3) of the Securities
Exchange Act of 1934, as amended) (other than the Investor Group) shall own
or control more than 30% of the fully diluted Voting Stock of Universal, or
(v) any Person or two or more Persons acting in concert (other than the
Investor Group) shall have acquired by contract or otherwise, or shall have
entered into a contract or arrangement that, upon consummation, will result
in its or their acquisition of the power to exercise, directly or
indirectly, a controlling influence over the management or policies of
Universal; or
(m) (i) Universal shall cease to own 100% of the capital stock of the
Borrower, (ii) any Person other than the Borrower shall own any of the
capital stock of Mills or (iii) any Person other than the Borrower or Mills
shall own any of the capital stock of Glenoit Assets Corp.; or
(n) Any Loan Party or any ERISA Affiliate shall incur or could be
reasonably expected to incur liability in excess of $500,000 in the
aggregate as a result of one or more of the following and any Loan Party
could be reasonably expected to be required to make a payment in respect of
such amount: (i) the occurrence of any ERISA Event; (ii) the partial or
complete withdrawal of any Loan Party or any of its ERISA Affiliates from a
Multiemployer Plan; or (iii) the reorganization or termination of a
Multiemployer Plan;
then, and in any such event, the Agent (i) shall at the request, or may with the
consent, of the Required Lenders, by notice to the Borrower, declare the
obligation of each Appropriate Lender to make Advances (other than Letter of
Credit Advances by the Issuing Bank or a Working Capital Lender pursuant to
Section 2.03(c)) and of the Issuing Bank to issue Letters of Credit to be
terminated, whereupon the same shall forthwith terminate, and (ii) shall at the
request, or may with the consent, of the Required Lenders, by notice to the
Borrower,
<PAGE>
84
declare the Notes, all interest thereon and all other amounts payable under this
Agreement and the other Loan Documents to be forthwith due and payable,
whereupon the Notes, all such interest and all such amounts shall become and be
forthwith due and payable, without presentment, demand, protest or further
notice of any kind, all of which are hereby expressly waived by the Borrower;
provided, however, that in the event of an actual or deemed entry of an order
- -------- -------
for relief with respect to any Loan Party or any of its Subsidiaries under the
Federal Bankruptcy Code, (x) the obligation of each Lender to make Advances
(other than Letter of Credit Advances by the Issuing Bank or a Working Capital
Lender pursuant to Section 2.03(c)) and of the Issuing Bank to issue Letters of
Credit shall automatically be terminated and (y) the Notes, all such interest
and all such amounts shall automatically become and be due and payable, without
presentment, demand, protest or any notice of any kind, all of which are hereby
expressly waived by the Borrower.
SECTION 6.02. Actions in Respect of the Letters of Credit upon Default.
--------------------------------------------------------
If any Event of Default shall have occurred and be continuing, the Agent may,
irrespective of whether it is taking any of the actions described in Section
6.01 or otherwise, make demand upon the Borrower to, and forthwith upon such
demand the Borrower will, pay to the Agent on behalf of the Lender Parties in
same day funds at the Agent's office designated in such demand, for deposit in
the L/C Cash Collateral Account, an amount equal to the aggregate Available
Amount of all Letters of Credit then outstanding. If at any time the Agent
determines that any funds held in the L/C Cash Collateral Account are subject to
any right or claim of any Person other than the Agent and the Lender Parties or
that the total amount of such funds is less than the aggregate Available Amount
of all Letters of Credit, the Borrower will, forthwith upon demand by the Agent,
pay to the Agent, as additional funds to be deposited and held in the L/C Cash
Collateral Account, an amount equal to the excess of (a) such aggregate
Available Amount over (b) the total amount of funds, if any, then held in the
L/C Cash Collateral Account that the Agent determines to be free and clear of
any such right and claim.
ARTICLE VII
THE AGENT
SECTION 7.01. Authorization and Action. Each Lender Party (in its
------------------------
capacities as a Lender, the Issuing Bank (if applicable)) hereby appoints and
authorizes the Agent to take such action as agent on its behalf and to exercise
such powers and discretion under this Agreement and the other Loan Documents as
are delegated to the Agent by the terms hereof and thereof, together with such
powers and discretion as are reasonably incidental thereto. As to any matters
not expressly provided for by the Loan Documents (including, without limitation,
enforcement or collection of the Notes), the Agent shall not be required to
exercise any discretion or take any action, but shall be required to act or to
<PAGE>
85
refrain from acting (and shall be fully protected in so acting or refraining
from acting) upon the instructions of the Required Lenders, and such
instructions shall be binding upon all Lender Parties and all holders of Notes;
provided, however, that the Agent shall not be required to take any action that
- -------- -------
exposes the Agent to personal liability or that is contrary to this Agreement or
applicable law. The Agent agrees to give to each Lender Party prompt notice of
each notice given to it by the Borrower pursuant to the terms of this Agreement.
SECTION 7.02. Agent's Reliance, Etc. Neither the Agent nor any of its
---------------------
directors, officers, agents or employees shall be liable for any action taken or
omitted to be taken by it or them under or in connection with the Loan
Documents, except for its or their own gross negligence or willful misconduct.
Without limitation of the generality of the foregoing, the Agent: (a) may treat
the payee of any Note as the holder thereof until the Agent receives and accepts
an Assignment and Acceptance entered into by the Lender that is the payee of
such Note, as assignor, and an Eligible Assignee, as assignee, as provided in
Section 8.07; (b) may consult with legal counsel (including counsel for any Loan
Party), independent public accountants and other experts selected by it and
shall not be liable for any action taken or omitted to be taken in good faith by
it in accordance with the advice of such counsel, accountants or experts; (c)
makes no warranty or representation to any Lender Party and shall not be
responsible to any Lender Party for any statements, warranties or
representations (whether written or oral) made in, or in connection with, the
Loan Documents; (d) shall not have any duty to ascertain or to inquire as to the
performance or observance of any of the terms, covenants or conditions of any
Loan Document on the part of any Loan Party or to inspect the property
(including the books and records) of any Loan Party; (e) shall not be
responsible to any Lender Party for the due execution, legality, validity,
enforceability, genuineness, sufficiency or value of, or the perfection or
priority of any lien or security interest created or purported to be created
under or in connection with, any Loan Document or any other instrument or
document furnished pursuant thereto; and (f) shall incur no liability under or
in respect of any Loan Document by acting upon any notice, consent, certificate
or other instrument or writing (which may be by telegram, telecopy or telex)
believed by it to be genuine and signed or sent by the proper party or parties.
SECTION 7.03. BNP and Affiliates. With respect to its Commitments, the
------------------
Advances made by it and the Notes issued to it, BNP shall have the same rights
and powers under the Loan Documents as any other Lender Party and may exercise
the same as though it were not the Agent; and the term "Lender Party" or "Lender
Parties" shall, unless otherwise expressly indicated, include BNP in its
individual capacity. BNP and its affiliates may accept deposits from, lend
money to, act as trustee under indentures of, accept investment banking
engagements from and generally engage in any kind of business with, any Loan
Party, any of its Subsidiaries and any Person who may do business with or own
securities of any Loan Party or any such Subsidiary, all as if BNP were not the
Agent and without any duty to account therefor to the Lender Parties.
<PAGE>
86
SECTION 7.04. Lender Party Credit Decision. Each Lender Party
----------------------------
acknowledges that it has, independently and without reliance upon the Agent or
any other Lender Party and, based on the financial statements referred to in
Section 4.01 and such other documents and information as it has deemed
appropriate, made its own credit analysis and decision to enter into this
Agreement. Each Lender Party also acknowledges that it will, independently and
without reliance upon the Agent or any other Lender Party and based on such
documents and information as it shall deem appropriate at the time, continue to
make its own credit decisions in taking or not taking action under this
Agreement.
SECTION 7.05. Indemnification. (a) Each Lender Party severally agrees to
---------------
indemnify the Agent (to the extent not promptly reimbursed by the Borrower) from
and against such Lender Party's ratable share (determined as provided below) of
any and all liabilities, obligations, losses, damages, penalties, actions,
judgments, suits, costs, expenses or disbursements of any kind or nature
whatsoever (including without limitation reasonable fees and expense of counsel)
that may be imposed on, incurred by, or asserted against the Agent in any way
relating to or arising out of the Loan Documents or any action taken or omitted
by the Agent under the Loan Document (collectively, the "Indemnified Costs");
-----------------
provided, however, that no Lender Party shall be liable for any portion of such
- -------- -------
Indemnified Costs resulting from the Agent's gross negligence or willful
misconduct. Without limitation of the foregoing, each Lender Party agrees to
reimburse the Agent promptly upon demand for its ratable share of any costs and
expenses (including, without limitation, fees and expenses of counsel) payable
by the Borrower under Section 8.04, to the extent that the Agent is not promptly
reimbursed for such costs and expenses by the Borrower. For purposes of this
Section 7.05, the Lender Parties' respective ratable shares of any amount shall
be determined, at any time, according to the sum of (a) the aggregate principal
amount of the Advances outstanding at such time and owing to the respective
Lender Parties, (b) their respective Pro Rata Shares of the aggregate Available
Amount of all Letters of Credit outstanding at such time, (c) the aggregate
unused portions of their respective Acquisition Commitments at such time and (d)
their respective Unused Working Capital Commitments at such time. In the case
of any investigation, litigation or proceeding giving rise to any Indemnified
Costs, this Section 7.05 applies whether any such investigation, litigation, or
proceeding is brought by the Agent, any Lender, any other Lender Party or a
third party. The failure of any Lender Party to reimburse the Agent promptly
upon demand for its ratable share of any amount required to be paid by the
Lender Party to the Agent as provided herein shall not relieve any other Lender
Party of its obligation hereunder to reimburse the Agent for its ratable share
of such amount, but no Lender Party shall be responsible for the failure of any
other Lender Party to reimburse the Agent for such other Lender Party's ratable
share of such amount. Without prejudice to the survival of any other agreement
of any Lender Party hereunder, the agreement and obligations of each Lender
Party contained in this Section 7.05(a) shall survive the payment in full of
principal, interest and all other amounts payable hereunder and under the other
Loan Documents.
<PAGE>
87
(b) Each Lender Party severally agrees to indemnify the Issuing Bank (to the
extent not promptly reimbursed by the Borrower) from and against such Lender
Party's ratable share (determined as provided below) of any and all liabilities,
obligations, losses, damages, penalties, actions, judgments, suits, costs,
expenses or disbursements of any kind or nature whatsoever that may be imposed
on, incurred by, or asserted against the Issuing Bank in any way relating to or
arising out of the Loan Documents or any action taken or omitted by the Issuing
Bank under the Loan Documents; provided, however, that no Lender Party shall be
-------- -------
liable for any portion of such liabilities, obligations, losses, damages,
penalties, actions, judgments, suits, costs, expenses or disbursements resulting
from the Issuing Bank's gross negligence or willful misconduct. Without
limitation of the foregoing, each Lender Party agrees to reimburse the Issuing
Bank promptly upon demand for its ratable share of any costs and expenses
(including, without limitation, fees and expenses of counsel) payable by the
Borrower under Section 8.04, to the extent that the Issuing Bank is not promptly
reimbursed for such costs and expenses by the Borrower. For purposes of this
Section 7.05(b), the Lender Parties' respective ratable shares of any amount
shall be determined, at any time, according to the sum of (a) the aggregate
principal amount of the Advances outstanding at such time and owing to the
respective Lender Parties, (b) their respective Pro Rata Shares of the aggregate
Available Amount of all Letters of Credit outstanding at such time, (c) their
respective unused portions of their Acquisition Commitments at such time plus
----
(d) their respective Unused Working Capital Commitments at such time. The
failure of any Lender Party to reimburse the Issuing Bank promptly upon demand
for its ratable share of any amount required to be paid by the Lender Parties to
the Issuing Bank as provided herein shall not relieve any other Lender Party of
its obligation hereunder to reimburse the Issuing Bank for its ratable share of
such amount, but no Lender Party shall be responsible for the failure of any
other Lender Party to reimburse the Issuing Bank for such other Lender Party's
ratable share of such amount. Without prejudice to the survival of any other
agreement of any Lender Party hereunder, the agreement and obligations of each
Lender Party contained in this Section 7.05(b) shall survive the payment in full
of principal, interest and all other amounts payable hereunder and under the
other Loan Documents.
SECTION 7.06. Successor Agents. The Agent may resign at any time by
----------------
giving written notice thereof to the Lender Parties and the Borrower and may be
removed at any time with or without cause by the Required Lenders. Upon any
such resignation or removal, the Required Lenders shall have the right to
appoint a successor Agent provided that, so long as the consent of the Borrower
--------
is not unreasonably withheld, the Borrower shall have the right to consent to
any such successor Agent (other than a successor Agent that is a Lender at such
time with a commitment of at least $5,000,000 and a combined capital and surplus
of at least $500,000,000). If no successor Agent shall have been so appointed
by the Required Lenders, and shall have accepted such appointment, within 30
days after the retiring Agent's giving of notice of resignation or the Required
Lenders' removal of the retiring Agent, then the retiring Agent may, on behalf
of the Lender Parties, appoint a
<PAGE>
88
successor Agent provided that, so long as the consent of the Borrower is not
--------
unreasonably withheld, the Borrower shall have the right to consent to any such
successor Agent (other than a successor Agent that is a Lender at such time with
a commitment of at least $5,000,000 and a combined capital and surplus of at
least $500,000,000). Upon the acceptance of any appointment as Agent hereunder
by a successor Agent and upon the execution and filing or recording of such
financing statements, or amendments thereto, and such other instruments or
notices, as may be necessary or desirable, or as the Required Lenders may
request, in order to continue the perfection of the Liens granted or purported
to be granted by the Collateral Documents, such successor Agent shall succeed to
and become vested with all the rights, powers, discretion, privileges and duties
of the retiring Agent, and the retiring Agent shall be discharged from its
duties and obligations under the Loan Documents. After any retiring Agent's
resignation or removal hereunder as Agent, the provisions of this Article VII
shall inure to its benefit as to any actions taken or omitted to be taken by it
while it was Agent under this Agreement.
ARTICLE VIII
MISCELLANEOUS
SECTION 8.01. Amendments, Etc. No amendment or waiver of any provision of
---------------
this Agreement or the Notes or any other Loan Document, nor consent to any
departure by the Loan Parties therefrom, shall in any event be effective unless
the same shall be in writing and signed (or, in the case of the Collateral
Documents, consented to) by the Required Lenders, and then such waiver or
consent shall be effective only in the specific instance and for the specific
purpose for which given; provided, however, that (a) no amendment, waiver or
-------- -------
consent shall, unless in writing and signed by all of the Lenders, do any of the
following at any time: (i) waive any of the conditions specified in Section
3.01, (ii) change the number of Lenders or the percentage of (x) the
Commitments, (y) the aggregate unpaid principal amount of the Advances or (z)
the aggregate Available Amount of outstanding Letters of Credit that, in each
case, shall be required for the Lenders or any of them to take any action
hereunder, (iii) release all or substantially all of the Collateral in any
transaction or series of related transactions or permit the creation,
incurrence, assumption or existence of any Lien on all or substantially all of
the Collateral in any transaction or series of related transactions to secure
any Obligations other than Obligations owing to the Secured Parties under the
Loan Documents or (iv) amend this Section 8.01 and (b) no amendment, waiver or
consent shall, unless in writing and signed by the Required Lenders and each
Lender that has a Commitment under the Acquisition Facility or Working Capital
Facility if affected by such amendment, waiver or consent, (i) increase the
Commitments of such Lender or subject such Lender to any additional obligations,
(ii) reduce the principal of, or interest on, the Notes held by such Lender or
any fees or other amounts payable hereunder to such Lender, (iii) postpone any
date fixed for any payment of principal of, or interest on, the
<PAGE>
89
Notes held by such Lender or any fees or other amounts payable hereunder to such
Lender or (iv) change the order of application of any prepayment set forth in
Section 2.06 in any manner that materially affects such Lender; provided further
-------- -------
that no amendment, waiver or consent shall, unless in writing and signed by the
Issuing Bank, as the case may be, in addition to the Lenders required above to
take such action, affect the rights or obligations of the Issuing Bank, as the
case may be, under this Agreement; and provided further that no amendment,
-------- -------
waiver or consent shall, unless in writing and signed by the Agent in addition
to the Lenders required above to take such action, affect the rights or duties
of the Agent under this Agreement.
SECTION 8.02. Notices, Etc. All notices and other communications provided
------------
for hereunder shall be in writing (including telegraphic, telecopy or telex
communication) and mailed, telegraphed, telecopied, telexed or delivered to the
Borrower, at 111 West 40th Street, New York, NY 10018, Attention: Chief
Executive Officer, telecopier no. (212) 391-2341; if to any Restatement Lender
or the Issuing Bank, at its Domestic Lending Office specified opposite its name
on Schedule I hereto; if to any other Lender Party, at its Domestic Lending
Office specified in the Assignment and Acceptance pursuant to which it became a
Lender Party; and if to the Agent, at its address at 499 Park Avenue, New York,
New York 10022, Attention: Structured Finance Group, telecopier number (212)
418-8269; or, as to each party, at such other address as shall be designated by
such party in a written notice to the other parties. All such notices and
communications shall, when mailed, telegraphed, telecopied or telexed, be
effective when deposited in the mails, delivered to the telegraph company,
transmitted by telecopier or confirmed by telex answerback, respectively, except
that notices and communications to the Agent pursuant to Article II, III or VII
shall not be effective until received by the Agent. Delivery by telecopier of
an executed counterpart of any amendment or waiver of any provision of this
Agreement or the Notes or of any Exhibit hereto to be executed and delivered
hereunder shall be effective as delivery of a manually executed counterpart
thereof.
SECTION 8.03. No Waiver; Remedies. No failure on the part of any Lender
-------------------
Party or the Agent to exercise, and no delay in exercising, any right hereunder
or under any Note shall operate as a waiver thereof; nor shall any single or
partial exercise of any such right preclude any other or further exercise
thereof or the exercise of any other right. The remedies herein provided are
cumulative and not exclusive of any remedies provided by law.
SECTION 8.04. Costs and Expenses. (a) The Borrower agrees to pay on
------------------
demand (i) all reasonable costs and expenses of the Agent in connection with the
preparation, execution, delivery, administration, modification and amendment of
the Loan Documents (including, without limitation, (A) all due diligence,
collateral review, syndication, transportation, computer, duplication,
appraisal, audit, insurance, consultant, search, filing and recording fees and
expenses and (B) the reasonable fees and expenses of outside counsel for the
Agent with respect thereto, with respect to advising the Agent as to its rights
and
<PAGE>
90
responsibilities, or the perfection, protection or preservation of rights or
interests, under the Loan Documents, with respect to negotiations with any Loan
Party or with other creditors of any Loan Party or any of its Subsidiaries
arising out of any Default or any events or circumstances that may give rise to
a Default and with respect to presenting claims in or otherwise participating in
or monitoring any bankruptcy, insolvency or other similar proceeding involving
creditors' rights generally and any proceeding ancillary thereto) and (ii) all
costs and expenses of the Agent and the Lender Parties in connection with the
enforcement of the Loan Documents, whether in any action, suit or litigation,
any bankruptcy, insolvency or other similar proceeding affecting creditors'
rights generally (including, without limitation, the reasonable fees and
expenses of counsel for the Agent and each Lender Party with respect thereto).
(b) The Borrower agrees to indemnify and hold harmless the Agent, each
Lender Party and each of their Affiliates and their officers, directors,
employees, agents and advisors (each, an "Indemnified Party") from and against
-----------------
any and all claims, damages, losses, liabilities and expenses (including,
without limitation, reasonable fees and expenses of counsel) that may be
incurred by or asserted or awarded against any Indemnified Party, in each case
arising out of or in connection with or by reason of, or in connection with the
preparation for a defense of, any investigation, litigation or proceeding
arising out of, related to or in connection with (i) the Facilities, the actual
or proposed use of the proceeds of the Advances or the Letters of Credit, the
Loan Documents or any of the transactions contemplated thereby, including,
without limitation, any acquisition or proposed acquisition (including, without
limitation and any of the transactions contemplated hereby) by the Borrower or
any of its Subsidiaries or Affiliates or (ii) the actual or alleged presence of
Hazardous Materials on any property of any Loan Party or any of its Subsidiaries
or any Environmental Action relating in any way to any Loan Party or any of its
Subsidiaries, in each case whether or not such investigation, litigation or
proceeding is brought by any Loan Party, its directors, shareholders or
creditors or an Indemnified Party or any Indemnified Party is otherwise a party
thereto and whether or not the transactions contemplated hereby are consummated,
except to the extent such claim, damage, loss, liability or expense is found in
a final, non-appealable judgment by a court of competent jurisdiction to have
resulted from such Indemnified Party's gross negligence or willful misconduct.
The Borrower also agrees not to assert any claim against the Agent, any Lender
Party or any of their Affiliates, or any of their respective officers,
directors, employees, attorneys and agents, on any theory of liability, for
special, indirect, consequential or punitive damages arising out of or otherwise
relating to the Facilities, the actual or proposed use of the proceeds of the
Advances or the Letters of Credit, the Loan Documents or any of the transactions
contemplated thereby.
(c) If any payment of principal of, or Conversion of, any Eurodollar Rate
Advance is made by the Borrower to or for the account of a Lender Party other
than on the last day of the Interest Period for such Advance, as a result of a
payment or Conversion
<PAGE>
91
pursuant to Section 2.09(b)(i) or 2.10(d), acceleration of the maturity of the
Notes pursuant to Section 6.01 or for any other reason or by an Eligible
Assignee to a Lender Party, the Borrower shall, upon demand by such Lender Party
(with a copy of such demand to the Agent), pay to the Agent for the account of
such Lender Party any amounts required to compensate such Lender Party for any
additional losses, costs or expenses that it may reasonably incur as a result of
such payment, including, without limitation, any loss (including loss of
anticipated profits), cost or expense incurred by reason of the liquidation or
reemployment of deposits or other funds acquired by any Lender Party to fund or
maintain such Advance.
(d) If any Loan Party fails to pay when due any costs, expenses or other
amounts payable by it under any Loan Document, including, without limitation,
fees and expenses of counsel and indemnities, such amount may be paid on behalf
of such Loan Party by the Agent or any Lender Party, in its sole discretion.
(e) Without prejudice to the survival of any other agreement of any Loan
Party hereunder or under any other Loan Document, the agreements and obligations
of the Borrower contained in Sections 2.10 and 2.12 and this Section 8.04 shall
survive the payment in full of principal, interest and all other amounts payable
hereunder and under any of the other Loan Documents.
SECTION 8.05. Right of Set-off. Upon (a) the occurrence and during the
----------------
continuance of any Event of Default and (b) the making of the request or the
granting of the consent specified by Section 6.01 to authorize the Agent to
declare the Notes due and payable pursuant to the provisions of Section 6.01,
each Lender Party and each of its respective Affiliates is hereby authorized at
any time and from time to time, to the fullest extent permitted by law, to set
off and otherwise apply any and all deposits (general or special, time or
demand, provisional or final) at any time held and other indebtedness at any
time owing by such Lender Party or such Affiliate to or for the credit or the
account of the Borrower against any and all of the Obligations of the Borrower
now or hereafter existing under this Agreement and the Note or Notes (if any)
held by such Lender Party, irrespective of whether such Lender Party shall have
made any demand under this Agreement or such Note or Notes and although such
obligations may be unmatured. Each Lender Party agrees promptly to notify the
Borrower after any such set-off and application; provided, however, that the
-------- -------
failure to give such notice shall not affect the validity of such set-off and
application. The rights of each Lender Party and its respective Affiliates
under this Section are in addition to other rights and remedies (including,
without limitation, other rights of set-off) that such Lender Party and its
respective Affiliates may have.
SECTION 8.06. Binding Effect. This Agreement shall become effective when
--------------
it shall have been executed by the Borrower and the Agent and when the Agent
shall have been notified by each Restatement Lender and the Issuing Bank that
such Restatement
<PAGE>
92
Lender and the Issuing Bank has executed it and thereafter shall be binding upon
and inure to the benefit of the Borrower, the Agent and each Lender Party and
their respective successors and assigns, except that the Borrower shall not have
the right to assign its rights hereunder or any interest herein without the
prior written consent of the Lender Parties.
SECTION 8.07. Assignments and Participations. (a) Each Lender may, upon
------------------------------
at least five Business Days' notice to the Agent, assign to one or more Eligible
Assignees all or a portion of its rights and obligations under this Agreement
(including, without limitation, all or a portion of its Commitment or
Commitments, the Advances owing to it and the Note or Notes held by it);
provided, however, that (i) each such assignment shall be of a uniform, and not
- -------- -------
a varying, percentage of all rights and obligations under and in respect of one
or more Facilities, (ii) except in the case of an assignment to a Person that,
immediately prior to such assignment, was a Lender or an assignment of all of a
Lender's rights and obligations under this Agreement, the amount of the
Commitment of the assigning Lender being assigned pursuant to each such
assignment (determined as of the date of the Assignment and Acceptance with
respect to such assignment) shall in no event be less than $5,000,000 and shall
be in an integral multiple of $500,000, (iii) each such assignment shall be to
an Eligible Assignee, (iv) no such assignments shall be permitted without the
consent of the Agent until the Agent shall have notified the Lender Parties that
syndication of the Commitments hereunder has been completed, and (v) the parties
to each such assignment shall execute and deliver to the Agent, for its
acceptance and recording in the Register, an Assignment and Acceptance, together
with any Note or Notes subject to such assignment and a processing and
recordation fee of $2,000.
(b) The Issuing Bank may assign to an Eligible Assignee all of its rights
and obligations under the undrawn portion of its Letter of Credit Commitment at
any time; provided, however, that (i) each such assignment shall be to an
-------- -------
Eligible Assignee and (ii) the parties to each such assignment shall execute and
deliver to the Agent, for its acceptance and recording in the Register, an
Assignment and Acceptance, together with a processing and recordation fee of
$2,000.
(c) Upon such execution, delivery, acceptance and recording, from and after
the effective date specified in such Assignment and Acceptance, (x) the assignee
thereunder shall be a party hereto and, to the extent that rights and
obligations hereunder have been assigned to it pursuant to such Assignment and
Acceptance, have the rights and obligations of a Lender or Issuing Bank, as the
case may be, hereunder and (y) the Lender or Issuing Bank assignor thereunder
shall, to the extent that rights and obligations hereunder have been assigned by
it pursuant to such Assignment and Acceptance, relinquish its rights and be
released from its obligations under this Agreement (and, in the case of an
Assignment and Acceptance covering all or the remaining portion of an assigning
Lender's or Issuing Bank's rights and obligations under this Agreement, such
Lender or Issuing Bank shall cease to be a party hereto).
<PAGE>
93
(d) By executing and delivering an Assignment and Acceptance, the
Lender Party assignor thereunder and the assignee thereunder confirm to and
agree with each other and the other parties hereto as follows: (i) other than as
provided in such Assignment and Acceptance, such assigning Lender Party makes no
representation or warranty and assumes no responsibility with respect to any
statements, warranties or representations made in or in connection with this
Agreement or any other Loan Document or the execution, legality, validity,
enforceability, genuineness, sufficiency or value of, or the perfection or
priority of any lien or security interest created or purported to be created
under or in connection with, this Agreement or any other Loan Document or any
other instrument or document furnished pursuant hereto or thereto; (ii) such
assigning Lender Party makes no representation or warranty and assumes no
responsibility with respect to the financial condition of the Borrower or any
other Loan Party or the performance or observance by any Loan Party of any of
its obligations under any Loan Document or any other instrument or document
furnished pursuant thereto; (iii) such assignee confirms that it has received a
copy of this Agreement, together with copies of the financial statements
referred to in Section 4.01 and such other documents and information as it has
deemed appropriate to make its own credit analysis and decision to enter into
such Assignment and Acceptance; (iv) such assignee will, independently and
without reliance upon the Agent, such assigning Lender Party or any other Lender
Party and based on such documents and information as it shall deem appropriate
at the time, continue to make its own credit decisions in taking or not taking
action under this Agreement; (v) such assignee confirms that it is an Eligible
Assignee; (vi) such assignee appoints and authorizes the Agent to take such
action as agent on its behalf and to exercise such powers and discretion under
the Loan Documents as are delegated to the Agent by the terms hereof, together
with such powers and discretion as are reasonably incidental thereto; and (vii)
such assignee agrees that it will perform in accordance with their terms all of
the obligations which by the terms of this Agreement are required to be
performed by it as a Lender or Issuing Bank, as the case may be.
(e) The Agent shall maintain at its address referred to in Section 8.02 a
copy of each Assignment and Acceptance delivered to and accepted by it and a
register for the recordation of the names and addresses of the Lender Parties
and the Commitment under each Facility of, and principal amount of the Advances
owing under each Facility to, each Lender Party from time to time (the
"Register"). The entries in the Register shall be conclusive and binding for
--------
all purposes, absent manifest error, and the Borrower, the Agent and the Lender
Parties may treat each Person whose name is recorded in the Register as a Lender
Party hereunder for all purposes of this Agreement. The Register shall be
available for inspection by the Borrower or any Lender Party at any reasonable
time and from time to time upon reasonable prior notice.
(f) Upon its receipt of an Assignment and Acceptance executed by an
assigning Lender Party and an assignee, together with any Note or Notes subject
to such assignment, the Agent shall, if such Assignment and Acceptance has been
completed and is
<PAGE>
94
in substantially the form of Exhibit C hereto, (i) accept such Assignment and
Acceptance, (ii) record the information contained therein in the Register and
(iii) give prompt notice thereof to the Borrower. In the case of any assignment
by a Lender, within five Business Days after its receipt of such notice, the
Borrower shall, at its own expense, execute and deliver to the Agent in exchange
for the surrendered Note or Notes a new Note to the order of such Eligible
Assignee in an amount equal to the Commitment assumed by it under a Facility
pursuant to such Assignment and Acceptance and, if the assigning Lender has
retained a Commitment hereunder under such Facility, a new Note to the order of
the assigning Lender in an amount equal to the Commitment retained by it
hereunder. Such new Note or Notes shall be in an aggregate principal amount
equal to the aggregate principal amount of such surrendered Note or Notes, shall
be dated the effective date of such Assignment and Acceptance, and shall
otherwise be in substantially the form of Exhibit A-1 or A-2 hereto, as the case
may be.
(g) Each Lender Party may sell participations in or to all or a portion of
its rights and obligations under this Agreement (including, without limitation,
all or a portion of its Commitments, the Advances owing to it and the Note or
Notes (if any) held by it) to any Person other than any Loan Party or any of its
Subsidiaries or Affiliates; provided, however, that (i) such Lender Party's
-------- -------
obligations under this Agreement (including, without limitation, its
Commitments) shall remain unchanged, (ii) such Lender Party shall remain solely
responsible to the other parties hereto for the performance of such obligations,
(iii) such Lender Party shall remain the holder of any such Note for all
purposes of this Agreement, (iv) the Borrower, the Agent and the other Lender
Parties shall continue to deal solely and directly with such Lender Party in
connection with such Lender Party's rights and obligations under this Agreement
and (v) no participant under any such participation shall have any right to
approve any amendment or waiver of any provision of any Loan Document, or any
consent to any departure by any Loan Party therefrom, except to the extent that
such amendment, waiver or consent would reduce the principal of, or interest on,
the Notes or any fees or other amounts payable hereunder, in each case to the
extent subject to such participation, postpone any date fixed for any payment of
principal of, or interest on, the Notes or any fees or other amounts payable
hereunder, in each case to the extent subject to such participation, or release
all or substantially all of the Collateral.
(h) Any Lender Party may, in connection with any assignment or
participation or proposed assignment or participation pursuant to this Section
8.07, disclose to the assignee or participant or proposed assignee or
participant, any information relating to the Borrower furnished to such Lender
Party by or on behalf of the Borrower; provided, however, that, prior to any
-------- -------
such disclosure, the assignee or participant or proposed assignee or participant
shall agree to preserve the confidentiality of any Confidential Information
received by it from such Lender Party.
<PAGE>
95
(i) Notwithstanding any other provision set forth in this Agreement, any
Lender Party may at any time create a security interest in all or any portion of
its rights under this Agreement (including, without limitation, the Advances
owing to it and the Note or Notes held by it) in favor of any Federal Reserve
Bank in accordance with Regulation A of the Board of Governors of the Federal
Reserve System.
SECTION 8.08. Execution in Counterparts. This Agreement may be executed
-------------------------
in any number of counterparts and by different parties hereto in separate
counterparts, each of which when so executed shall be deemed to be an original
and all of which taken together shall constitute one and the same agreement.
Delivery of an executed counterpart of a signature page to this Agreement by
telecopier shall be effective as delivery of a manually executed counterpart of
this Agreement.
SECTION 8.09. No Liability of the Issuing Bank. The Borrower assumes all
--------------------------------
risks of the acts or omissions of any beneficiary or transferee of any Letter of
Credit with respect to its use of such Letter of Credit. Neither the Issuing
Bank nor any of its officers or directors shall be liable or responsible for:
(a) the use that may be made of any Letter of Credit or any acts or omissions of
any beneficiary or transferee in connection therewith; (b) the validity,
sufficiency or genuineness of documents, or of any endorsement thereon, even if
such documents should prove to be in any or all respects invalid, insufficient,
fraudulent or forged; (c) payment by the Issuing Bank against presentation of
documents that do not comply with the terms of a Letter of Credit, including
failure of any documents to bear any reference or adequate reference to the
Letter of Credit; or (d) any other circumstances whatsoever in making or failing
to make payment under any Letter of Credit, except that the Borrower shall have
------
a claim against the Issuing Bank, and the Issuing Bank shall be liable to the
Borrower, to the extent of any direct, but not consequential, damages suffered
by the Borrower that the Borrower proves were caused by (i) the Issuing Bank's
willful misconduct or gross negligence in determining whether documents
presented under any Letter of Credit comply with the terms of the Letter of
Credit or (ii) the Issuing Bank's willful failure to make lawful payment under a
Letter of Credit after the presentation to it of a draft and certificates
strictly complying with the terms and conditions of the Letter of Credit. In
furtherance and not in limitation of the foregoing, the Issuing Bank may accept
documents that appear on their face to be in order, without responsibility for
further investigation, regardless of any notice or information to the contrary.
SECTION 8.10. Confidentiality. Neither the Agent nor any Lender Party
---------------
shall disclose any Confidential Information to any Person without the consent of
the Borrower, other than (a) to the Agent's or such Lender Party's Affiliates
and their officers, directors, employees, agents and advisors and to actual or
prospective Eligible Assignees and participants, and then only on a confidential
basis, (b) as required by any law, rule or regulation or judicial process and
(c) as requested or required by any state, federal or foreign authority or
examiner regulating banks or banking.
<PAGE>
96
SECTION 8.11. Jurisdiction, Etc. (a) Each of the parties hereto
-----------------
hereby irrevocably and unconditionally submits, for itself and its property, to
the nonexclusive jurisdiction of any New York State court or federal court of
the United States of America sitting in New York City, and any appellate court
from any thereof, in any action or proceeding arising out of or relating to this
Agreement or any of the other Loan Documents to which it is a party, or for
recognition or enforcement of any judgment, and each of the parties hereto
hereby irrevocably and unconditionally agrees that all claims in respect of any
such action or proceeding may be heard and determined in any such New York State
court or, to the extent permitted by law, in such federal court. Each of the
parties hereto agrees that a final judgment in any such action or proceeding
shall be conclusive and may be enforced in other jurisdictions by suit on the
judgment or in any other manner provided by law. Nothing in this Agreement
shall affect any right that any party may otherwise have to bring any action or
proceeding relating to this Agreement or any of the other Loan Documents in the
courts of any jurisdiction.
(b) Each of the parties hereto irrevocably and unconditionally waives, to
the fullest extent it may legally and effectively do so, any objection that it
may now or hereafter have to the laying of venue of any suit, action or
proceeding arising out of or relating to this Agreement or any of the other Loan
Documents to which it is a party in any New York State or federal court. Each
of the parties hereto hereby irrevocably waives, to the fullest extent permitted
by law, the defense of an inconvenient forum to the maintenance of such action
or proceeding in any such court.
SECTION 8.12. Final Agreement. This written agreement and the other Loan
---------------
Documents represent the final agreement between the parties hereto and may not
be contradicted by evidence of prior, contemporaneous or subsequent oral
agreements of the parties. There are no unwritten oral agreements between the
parties hereto.
<PAGE>
97
SECTION 8.13. Governing Law. This Agreement and the Notes shall be
-------------
governed by, and construed in accordance with, the laws of the State of New
York.
SECTION 8.14. Waiver of Jury Trial. Each of the Borrower, the Agent and
--------------------
the Lender Parties irrevocably waives all right to trial by jury in any action,
proceeding or counterclaim (whether based on contract, tort or otherwise)
arising out of or relating to any of the Loan Documents, the Advances or the
actions of the Agent or any Lender Party in the negotiation, administration,
performance or enforcement thereof.
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be
executed by their respective officers thereunto duly authorized, as of the date
first above written.
THE BORROWER
GLENOIT CORPORATION
By
----------------------------------
Name:
Title:
THE AGENT
BANQUE NATIONALE DE PARIS,
as Agent
By
----------------------------------
Name:
Title:
By
----------------------------------
Name:
Title:
<PAGE>
98
THE RESTATEMENT LENDERS
BANQUE NATIONALE DE PARIS
By
----------------------------------
Name:
Title:
By
----------------------------------
Name:
Title:
THE ISSUING BANK
BANQUE NATIONALE DE PARIS
By
----------------------------------
Name:
Title:
By
----------------------------------
Name:
<PAGE>
99
EXECUTION COPY
$70,000,000
SECOND AMENDED AND RESTATED CREDIT AGREEMENT
Dated as of April 1, 1997
Among
GLENOIT CORPORATION
as Borrower,
-- --------
and
THE RESTATEMENT LENDERS
AND THE
ISSUING BANK NAMED HEREIN
and
BANQUE NATIONALE DE PARIS,
as Agent
-- -----
<PAGE>
T A B L E O F C O N T E N T S
SECTION PAGE
ARTICLE I
DEFINITIONS AND ACCOUNTING TERMS
1.01. Certain Defined Terms............................................... 2
1.02. Computation of Time Periods......................................... 29
1.03. Accounting Terms.................................................... 29
ARTICLE II
AMOUNTS AND TERMS OF THE ADVANCES
AND THE LETTERS OF CREDIT
2.01. The Advances........................................................ 30
2.02. Making the Advances................................................. 31
2.03. Issuance of and Drawings and Reimbursement Under Letters of Credit.. 32
2.04. Repayment of Advances............................................... 34
2.05. Termination or Reduction of the Commitments......................... 35
2.06. Prepayments......................................................... 36
2.07. Interest............................................................ 38
2.08. Fees................................................................ 39
2.09. Conversion of Advances.............................................. 40
2.10. Increased Costs, Etc................................................ 40
2.11. Payments and Computations........................................... 42
2.12. Taxes............................................................... 43
2.13. Sharing of Payments, Etc............................................ 45
2.14. Use of Proceeds..................................................... 46
ARTICLE III
CONDITIONS OF LENDING
3.01. Conditions Precedent to the Second Restatement Date................. 47
3.02. Conditions Precedent to Each Borrowing and Issuance................. 53
3.03. Additional Conditions to Each Acquisition Borrowing................. 53
ARTICLE IV
REPRESENTATIONS AND WARRANTIES
4.01. Representations and Warranties of the Loan Parties.................. 54
ARTICLE V
COVENANTS OF THE BORROWER
5.01. Affirmative Covenants............................................... 62
5.02. Negative Covenants.................................................. 66
<PAGE>
ii
SECTION PAGE
5.03. Reporting Requirements.............................................. 75
5.04. Financial Covenants................................................. 79
ARTICLE VI
EVENTS OF DEFAULT
6.01. Events of Default................................................... 81
6.02. Actions in Respect of the Letters of Credit upon Default............ 84
ARTICLE VII
THE AGENT
7.01. Authorization and Action............................................ 84
7.02. Agent's Reliance, Etc............................................... 85
7.03. BNP and Affiliates.................................................. 85
7.04. Lender Party Credit Decision........................................ 86
7.05. Indemnification..................................................... 86
7.06. Successor Agents.................................................... 87
ARTICLE VIII
MISCELLANEOUS
8.01. Amendments, Etc..................................................... 88
8.02. Notices, Etc........................................................ 89
8.03. No Waiver; Remedies................................................. 89
8.04. Costs and Expenses.................................................. 89
8.05. Right of Set-off.................................................... 91
8.06. Binding Effect...................................................... 91
8.07. Assignments and Participations...................................... 92
8.08. Execution in Counterparts........................................... 95
8.09. No Liability of the Issuing Bank.................................... 95
8.10. Confidentiality..................................................... 95
8.11. Jurisdiction, Etc................................................... 96
8.12. Final Agreement..................................................... 96
8.13. Governing Law....................................................... 97
8.14. Waiver of Jury Trial................................................ 97
<PAGE>
iii
Schedule I - Commitments and Applicable Lending Offices
Schedule 3.01(f)(i) - Existing Debt
Schedule 3.01(f)(ii) - Surviving Debt
Schedule 4.01(a) - Share Ownership and Investor Group
Schedule 4.01(b) - Subsidiaries
Schedule 4.01(d) - Authorizations, Approvals, Actions, Notices and
Filings
Schedule 4.01(m) - Plans, Multiemployer Plans and Welfare Plans
Schedule 4.01(u) - Environmental Items
Schedule 4.01(aa) - Open Years
Schedule 4.01(bb) - Tax Liabilities
Schedule 4.01(gg) - Owned Real Property
Schedule 4.01(hh) - Leased Real Property
Schedule 4.01(ii) - Investments
Schedule 4.01(jj) - Intellectual Property
Schedule 5.02(a)(iii) - Existing Liens
<PAGE>
iv
EXHIBITS
Exhibit A-1 - Form of Working Capital Note
Exhibit A-2 - Form of Acquisition Note
Exhibit B - Form of Notice of Borrowing
Exhibit C - Form of Assignment and Acceptance
Exhibit D - Form of Second Amended and Restated Security
Agreement
Exhibit E - Form of Amended and Restated Intellectual Property
Agreement
Exhibit F - Form of Modification and Extension Agreement
Exhibit G - Form of Second Amended and Restated Guarantee
Exhibit H - Form of Intercompany Subordination Agreement
Exhibit I - Form of Solvency Certificate
Exhibit J - Form of Borrowing Base Certificate
Exhibit K - Form of Opinion of Special Counsel to the Loan
Parties
Exhibit L - Form of Second Restatement Assignment Agreement of
Working Capital Note
<PAGE>
Glenoit Corporation
Subsidiaries
Parent Company
- --------------
Glenoit Corporation
Subsidiaries
- ------------
Glenoit Asset Corporation
Glenoit Corporation of Canada
<PAGE>
CONSENT OF INDEPENDENT ACCOUNTANTS
We consent to the inclusion in this prospectus and registration statement on
Form S-4 (File No. xxxxxx) of our report dated February 5, 1997, except for the
information presented in Note 8, for which the date is March 5, 1997, on our
audits of the financial statements of Glenoit Corporation. We also consent to
the references to our firm under the captions "Experts", "Summary Consolidated
Histocial and Pro Forma Financial Data", and "Selected Historical Consolidated
Financial Data."
/s/ Coopers & Lybrand L.L.P.
Raleigh, North Carolina
December 15, 1997
<PAGE>
BDO Seidman,LLP
Accountants and Consultants
510 First Citizen Bank Building
100 South Elm Street
Greenboro, North Carolina 27401-2643
Telephone: (910) 275-0931
Fax: (910) 379-8397
Consent of Independent Certified Public Accountants
Glenoit Mills, Inc.
New York, New York
We hereby consent to the use in the Prospectus constituting a part of this
Registration Statement of our report dated February 8, 1995, relating to the
consolidated statements of income, capital deficit and cash flows of Glenoit
Mills, Inc. and subsidiary, which is contained in that Prospectus.
We also consent to the reference to us under the caption "Independent
Accountants" in the Prospectus.
/s/ BDO Seidman, LLP
Greensboro, North Carolina
December 15, 1997
<PAGE>
FORM T-1
==============================================
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
__________________
STATEMENT OF ELIGIBILITY
UNDER THE TRUST INDENTURE ACT OF 1939 OF
A CORPORATION DESIGNATED TO ACT AS TRUSTEE
__________________
CHECK IF AN APPLICATION TO DETERMINE
ELIGIBILITY OF A TRUSTEE PURSUANT TO
SECTION 305(B)(2) _______
__________________
UNITED STATES TRUST COMPANY OF NEW YORK
(Exact name of trustee as specified in its charter)
New York 13-3818954
(Jurisdiction of incorporation (I.R.S. employer
if not a U.S. national bank) identification No.)
114 West 47th Street 10036-1532
New York, NY (Zip Code)
(Address of principal
executive offices)
__________________
Glenoit Corporation
(Exact name of obligor as specified in its charter)
Delaware 13-3862561
(State or other jurisdiction of (I.R.S. employer
incorporation or organization) identification No.)
111 West 40th Street
New York, NY 10018
(Address of principal executive offices) (Zip Code)
__________________
11% Senior Subordinated Notes due 2007
(Title of the indenture securities)
==============================================
<PAGE>
-2-
GENERAL
1. GENERAL INFORMATION
-------------------
Furnish the following information as to the trustee:
(a) Name and address of each examining or supervising authority to which it
is subject.
Federal Reserve Bank of New York (2nd District), New York, New York
(Board of Governors of the Federal Reserve System)
Federal Deposit Insurance Corporation, Washington, D.C.
New York State Banking Department, Albany, New York
(b) Whether it is authorized to exercise corporate trust powers.
The trustee is authorized to exercise corporate trust powers.
2. AFFILIATIONS WITH THE OBLIGOR
-----------------------------
If the obligor is an affiliate of the trustee, describe each such affiliation.
None
3, 4, 5, 6, 7, 8, 9, 10, 11, 12, 13, 14 and 15:
Glenoit Corporation currently is not in default under any of its outstanding
securities for which United States Trust Company of New York is Trustee.
Accordingly, responses to Items 3, 4, 5, 6, 7, 8, 9, 10, 11, 12, 13, 14 and 15
of Form T-1 are not required under General Instruction B.
16. LIST OF EXHIBITS
----------------
T-1.1 -- Organization Certificate, as amended, issued by the State of
New York Banking Department to transact business as a Trust
Company, is incorporated by reference to Exhibit T-1.1 to Form T-
1 filed on September 15, 1995 with the Commission pursuant to the
Trust Indenture Act of 1939, as amended by the Trust Indenture
Reform Act of 1990 (Registration No. 33-97056).
T-1.2 -- Included in Exhibit T-1.1.
T-1.3 -- Included in Exhibit T-1.1.
<PAGE>
-3-
16. LIST OF EXHIBITS
----------------
(cont'd)
T-1.4 -- The By-Laws of United States Trust Company of New York, as
amended, is incorporated by reference to Exhibit T-1.4 to Form T-
1 filed on September 15, 1995 with the Commission pursuant to the
Trust Indenture Act of 1939, as amended by the Trust Indenture
Reform Act of 1990 (Registration No.
33-97056).
T-1.6 -- The consent of the trustee required by Section 321(b) of the
Trust Indenture Act of 1939, as amended by the Trust Indenture
Reform Act of 1990.
T-1.7 -- A copy of the latest report of condition of the trustee
pursuant to law or the requirements of its supervising or
examining authority.
NOTE
====
As of December 12, 1997, the trustee had 2,999,020 shares of Common Stock
outstanding, all of which are owned by its parent company, U.S. Trust
Corporation. The term "trustee" in Item 2, refers to each of United States
Trust Company of New York and its parent company, U. S. Trust Corporation.
In answering Item 2 in this statement of eligibility as to matters peculiarly
within the knowledge of the obligor or its directors, the trustee has relied
upon information furnished to it by the obligor and will rely on information to
be furnished by the obligor and the trustee disclaims responsibility for the
accuracy or completeness of such information.
__________________
Pursuant to the requirements of the Trust Indenture Act of 1939, the trustee,
United States Trust Company of New York, a corporation organized and existing
under the laws of the State of New York, has duly caused this statement of
eligibility to be signed on its behalf by the undersigned, thereunto duly
authorized, all in the City of New York, and State of New York, on the 12th day
of December, 1997.
UNITED STATES TRUST COMPANY
OF NEW YORK, Trustee
By:/s/ Christine C. Collins
------------------------
Christine C. Collins
Assistant Vice President
<PAGE>
Exhibit T-1.6
-------------
The consent of the trustee required by Section 321(b) of the Act.
United States Trust Company of New York
114 West 47th Street
New York, NY 10036
September 1, 1995
Securities and Exchange Commission
450 5th Street, N.W.
Washington, DC 20549
Gentlemen:
Pursuant to the provisions of Section 321(b) of the Trust Indenture Act of 1939,
as amended by the Trust Indenture Reform Act of 1990, and subject to the
limitations set forth therein, United States Trust Company of New York ("U.S.
Trust") hereby consents that reports of examinations of U.S. Trust by Federal,
State, Territorial or District authorities may be furnished by such authorities
to the Securities and Exchange Commission upon request therefor.
Very truly yours,
UNITED STATES TRUST COMPANY
OF NEW YORK
------------------
By: /S/Gerard F. Ganey
Senior Vice President
<PAGE>
EXHIBIT T-1.7
UNITED STATES TRUST COMPANY OF NEW YORK
CONSOLIDATED STATEMENT OF CONDITION
SEPTEMBER 30, 1997
------------------
($ IN THOUSANDS)
<TABLE>
<CAPTION>
ASSETS
- ------
<S> <C>
Cash and Due from Banks $ 116,582
Short-Term Investments 183,652
Securities, Available for Sale 691,965
Loans 1,669,611
Less: Allowance for Credit Losses 16,067
----------
Net Loans 1,653,544
Premises and Equipment 61,796
Other Assets 125,121
----------
Total Assets $2,832,660
==========
LIABILITIES
- -----------
Deposits:
Non-Interest Bearing $ 541,619
Interest Bearing 1,617,028
----------
Total Deposits 2,158,647
Short-Term Credit Facilities 365,235
Accounts Payable and Accrued Liabilities 141,793
----------
Total Liabilities $2,665,675
==========
STOCKHOLDER'S EQUITY
- --------------------
Common Stock 14,995
Capital Surplus 49,542
Retained Earnings 99,601
Unrealized Gains (Losses) on Securities
Available for Sale, Net of Taxes 2,847
----------
TOTAL STOCKHOLDER'S EQUITY 166,985
----------
Total Liabilities and
STOCKHOLDER'S EQUITY $2,832,660
==========
</TABLE>
I, Richard E. Brinkmann, Senior Vice President & Comptroller of the named bank
do hereby declare that this Statement of Condition has been prepared in
conformance with the instructions issued by the appropriate regulatory authority
and is true to the best of my knowledge and belief.
Richard E. Brinkmann, SVP & Controller
November 13, 1997
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<CIK> 0001051260
<NAME> GLENOIT ASSET CORPORATION
<MULTIPLIER> 1,000
<PERIOD-TYPE> YEAR 9-MOS
<FISCAL-YEAR-END> JAN-04-1997 JAN-03-1998
<PERIOD-START> DEC-31-1995 JAN-05-1997
<PERIOD-END> JAN-04-1997 OCT-04-1997
<CASH> 49 887
<SECURITIES> 0 0
<RECEIVABLES> 19085 39966
<ALLOWANCES> 470 449
<INVENTORY> 7536 9424
<CURRENT-ASSETS> 27601 50842
<PP&E> 32117 49721
<DEPRECIATION> 17688 19617
<TOTAL-ASSETS> 49497 90306
<CURRENT-LIABILITIES> 14261 24369
<BONDS> 83385 108076
0 0
0 0
<COMMON> 0 0
<OTHER-SE> (42798) (43104)
<TOTAL-LIABILITY-AND-EQUITY> 49497 90306
<SALES> 121751 120822
<TOTAL-REVENUES> 121751 120822
<CGS> 86525 77959
<TOTAL-COSTS> 104570 95818
<OTHER-EXPENSES> 553 586
<LOSS-PROVISION> 139 196
<INTEREST-EXPENSE> 9161 8094
<INCOME-PRETAX> 7467 16324
<INCOME-TAX> 3354 5302
<INCOME-CONTINUING> 4113 6542
<DISCONTINUED> 0 0
<EXTRAORDINARY> 0 2857
<CHANGES> 0 0
<NET-INCOME> 4113 6925
<EPS-PRIMARY> 4.113 6.925
<EPS-DILUTED> 4.113 6.925
</TABLE>
<PAGE>
EXHIBIT 99.1
LETTER OF TRANSMITTAL
TO TENDER FOR EXCHANGE
11% SENIOR SUBORDINATED NOTES DUE 2007
OF
GLENOIT CORPORATION
PURSUANT TO THE PROSPECTUS DATED , 1998
THE EXCHANGE OFFER AND WITHDRAWAL RIGHTS WILL EXPIRE AT 5:00 P.M., NEW
YORK CITY TIME, ON , 1998 UNLESS EXTENDED (THE "EXPIRATION DATE").
PLEASE READ CAREFULLY THE ATTACHED INSTRUCTIONS
If you desire to accept the Exchange Offer, this Letter of Transmittal
should be completed, signed, and submitted to the Exchange Agent:
By Overnight Courier: By Hand: By Registered or
Certified Mail:
United States Trust United States Trust
Company of New York 770 Company of New York 111 United States Trust
Broadway, 13th Floor New Broadway Lower Level New Company of New York P.O.
York, New York 10003 York, New York 10006 Attn: Box 844 New York, New
Attn: Corporate Trust Corporate Trust Services York 10276-0844 Attn:
Services Corporate Trust Services
Cooper Station
DELIVERY OF THIS LETTER OF TRANSMITTAL TO AN ADDRESS OTHER THAN AS SET FORTH
ABOVE WILL NOT CONSTITUTE A VALID DELIVERY.
FOR ANY QUESTIONS REGARDING THIS LETTER OF TRANSMITTAL OR FOR ANY ADDITIONAL
INFORMATION, YOU MAY CONTACT THE EXCHANGE AGENT BY TELEPHONE AT 800-548-6565,
OR BY FACSIMILE AT 212-420-6152.
The undersigned hereby acknowledges receipt of the Prospectus dated ,
1998 (the "Prospectus") of Glenoit Corporation, a Delaware corporation (the
"Issuer"), and this Letter of Transmittal (the "Letter of Transmittal"), that
together constitute the Issuer's offer (the "Exchange Offer") to exchange
$1,000 in principal amount of its 11% Senior Subordinated Notes due 2007 (the
"Exchange Notes"), which have been registered under the Securities Act of
1933, as amended (the "Securities Act"), pursuant to a Registration Statement,
for each $1,000 in principal amount of its outstanding 11% Senior Subordinated
Notes due 2007 (the "Notes"), of which $100,000,000 aggregate principal amount
is outstanding. Capitalized terms used but not defined herein have the
meanings ascribed to them in the Prospectus.
The undersigned hereby tenders the Notes described in Box 1 below (the
"Tendered Notes") pursuant to the terms and conditions described in the
Prospectus and this Letter of Transmittal. The undersigned is the registered
owner of all the Tendered Notes and the undersigned represents that it has
received from each beneficial owner of the Tendered Notes ("Beneficial
Owners") a duly completed and executed form of "Instruction to Registered
Holder and/or Book-Entry Transfer Facility Participant from Beneficial Owner"
accompanying this Letter of Transmittal, instructing the undersigned to take
the action described in this Letter of Transmittal.
Subject to, and effective upon, the acceptance for exchange of the Tendered
Notes, the undersigned hereby exchanges, assigns, and transfers to, or upon
the order of, the Issuer, all right, title, and interest in, to, and under the
Tendered Notes.
<PAGE>
Please issue the Exchange Notes exchanged for Tendered Notes in the name(s)
of the undersigned. Similarly, unless otherwise indicated under "Special
Delivery Instructions" below (Box 3), please send or cause to be sent the
certificates for the Exchange Notes (and accompanying documents, as
appropriate) to the undersigned at the address shown below in Box 1.
The undersigned hereby irrevocably constitutes and appoints the Exchange
Agent as the true and lawful agent and attorney in fact of the undersigned
with respect to the Tendered Notes, with full power of substitution (such
power of attorney being deemed to be an irrevocable power coupled with an
interest), to (i) deliver the Tendered Notes to the Issuer or cause ownership
of the Tendered Notes to be transferred to, or upon the order of, the Issuer,
on the books of the registrar for the Notes and deliver all accompanying
evidences of transfer and authenticity to, or upon the order of, the Issuer
upon receipt by the Exchange Agent, as the undersigned's agent, of the
Exchange Notes to which the undersigned is entitled upon acceptance by the
Issuer of the Tendered Notes pursuant to the Exchange Offer, and (ii) receive
all benefits and otherwise exercise all rights of beneficial ownership of the
Tendered Notes, all in accordance with the terms of the Exchange Offer.
The undersigned understands that tenders of Notes pursuant to the procedures
described under the caption "The Exchange Offer" in the Prospectus and in the
instructions hereto will constitute a binding agreement between the
undersigned and the Issuer upon the terms and subject to the conditions of the
Exchange Offer, subject only to withdrawal of such tenders on the terms set
forth in the Prospectus under the caption "The Exchange Offer--Withdrawal of
Tenders." All authority herein conferred or agreed to be conferred shall
survive the death or incapacity of the undersigned and any Beneficial
Owner(s), and every obligation of the undersigned or any Beneficial Owners
hereunder shall be binding upon the heirs, representatives, successors, and
assigns of the undersigned and such Beneficial Owner(s).
The undersigned hereby represents and warrants that the undersigned has full
power and authority to tender, exchange, assign, and transfer the Tendered
Notes and that the Issuer will acquire good and unencumbered title thereto,
free and clear of all liens, restrictions, charges, encumbrances, and adverse
claims when the Tendered Notes are acquired by the Issuer as contemplated
herein. The undersigned and each Beneficial Owner will, upon request, execute
and deliver any additional documents reasonably requested by the Issuer or the
Exchange Agent as necessary or desirable to complete and give effect to the
transactions contemplated hereby.
The undersigned hereby represents and warrants that the information set
forth in Box 2 is true and correct.
By accepting the Exchange Offer, the undersigned hereby represents and
warrants that (i) the Exchange Notes to be acquired by the undersigned and any
Beneficial Owner(s) in connection with the Exchange Offer are being acquired
by the undersigned and any Beneficial Owner(s) in the ordinary course of
business of the undersigned and any Beneficial Owner(s), (ii) the undersigned
and each Beneficial Owner are not participating, do not intend to participate,
and have no arrangement or understanding with any person to participate, in
the distribution of the Exchange Notes, (iii) except as otherwise disclosed in
writing herewith, neither the undersigned nor any Beneficial Owner is an
"affiliate," as defined in Rule 405 under the Securities Act, of the Issuer,
and (iv) the undersigned and each Beneficial Owner acknowledge and agree that
any person participating in the Exchange Offer with the intention or for the
purpose of distributing the Exchange Notes must comply with the registration
and prospectus delivery requirements of the Securities Act of 1933, as amended
(together with the rules and regulations promulgated thereunder, the
"Securities Act"), in connection with a secondary resale of the Exchange Notes
acquired by such person and cannot rely on the position of the Staff of the
Securities and Exchange Commission (the "Commission") set forth in the no-
action letters that are discussed in the section of the Prospectus entitled
"The Exchange Offer." In addition, by accepting the Exchange Offer, the
undersigned hereby (i) represents and warrants that, if the undersigned or any
Beneficial Owner of the Notes is a Participating Broker-Dealer, such
Participating Broker-Dealer acquired the Notes for its own account as a result
of market-making activities or other trading activities and has not entered
into any arrangement or understanding with the Company or any affiliate of the
Company (within the meaning of Rule 405 under the Securities Act) to
distribute the New Notes to be received in the Exchange Offer, and (ii)
acknowledges that, by receiving New
2
<PAGE>
Notes for its own account in exchange for Notes, where such Notes were
acquired as a result of market-making activities or other trading activities,
such Participating Broker-Dealer will deliver a prospectus meeting the
requirements of the Securities Act in connection with any resale of such New
Notes.
[_]CHECK HERE IF TENDERED NOTES ARE BEING DELIVERED HEREWITH.
[_]CHECK HERE IF TENDERED NOTES ARE BEING DELIVERED PURSUANT TO A NOTICE OF
GUARANTEED DELIVERY PREVIOUSLY DELIVERED TO THE EXCHANGE AGENT AND
COMPLETE "Use of Guaranteed Delivery" BELOW (Box 4).
[_]CHECK HERE IF TENDERED NOTES ARE BEING DELIVERED BY BOOK-ENTRY TRANSFER
MADE TO THE ACCOUNT MAINTAINED BY THE EXCHANGE AGENT WITH THE BOOK-ENTRY
TRANSFER FACILITY AND COMPLETE "Use of Book-Entry Transfer" BELOW
(Box 5).
PLEASE READ THIS ENTIRE LETTER OF TRANSMITTAL
CAREFULLY BEFORE COMPLETING THE BOXES
BOX 1
DESCRIPTION OF NOTES TENDERED
(ATTACH ADDITIONAL SIGNED PAGES, IF NECESSARY)
- -------------------------------------------------------------------------------
<TABLE>
<CAPTION>
AGGREGATE
NAME(S) AND ADDRESS(ES) OF REGISTERED NOTE HOLDER(S), CERTIFICATE PRINCIPAL AMOUNT AGGREGATE
EXACTLY AS NAME(S) APPEAR(S) ON NOTE CERTIFICATE(S) NUMBER(S) OF REPRESENTED BY PRINCIPAL AMOUNT
(PLEASE FILL IN, IF BLANK) NOTES* CERTIFICATE(S) TENDERED**
- -----------------------------------------------------------------------------------------------------------
- -----------------------------------------------------------------------------------------------------------
- -----------------------------------------------------------------------------------------------------------
- -----------------------------------------------------------------------------------------------------------
- -----------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
TOTAL
</TABLE>
- -------------------------------------------------------------------------------
* Need not be completed by persons tendering by book-entry transfer.
** The minimum permitted tender is $1,000 in principal amount of Notes.
All other tenders must be in integral multiples of $1,000 of principal
amount. Unless otherwise indicated in this column, the principal amount
of all Note Certificates identified in this Box 1 or delivered to the
Exchange Agent herewith shall be deemed tendered. See Instruction 4.
3
<PAGE>
BOX 2
BENEFICIAL OWNER(S)
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
STATE OF PRINCIPAL RESIDENCE OF EACH PRINCIPAL AMOUNT OF TENDERED NOTES
BENEFICIAL OWNER OF TENDERED NOTES HELD FOR ACCOUNT OF BENEFICIAL OWNER
- ---------------------------------------------------------------------------------
<S> <C>
- ---------------------------------------------------------------------------------
- ---------------------------------------------------------------------------------
- ---------------------------------------------------------------------------------
- ---------------------------------------------------------------------------------
- ---------------------------------------------------------------------------------
</TABLE>
BOX 3
SPECIAL DELIVERY INSTRUCTIONS
(SEE INSTRUCTIONS 5, 6 AND 7)
TO BE COMPLETED ONLY IF EXCHANGE NOTES EXCHANGED FOR NOTES AND UNTENDERED
NOTES ARE TO BE SENT TO SOMEONE OTHER THAN THE UNDERSIGNED, OR TO THE
UNDERSIGNED AT AN ADDRESS OTHER THAN THAT SHOWN ABOVE.
Mail Exchange Note(s) and any untendered Notes to:
Name(s):
---------------------------------------------------------------------------
(PLEASE PRINT)
Address:
---------------------------------------------------------------------------
---------------------------------------------------------------------------
---------------------------------------------------------------------------
(INCLUDE ZIP CODE)
Tax Identification or
Social Security No.:
---------------------------------------------------------------------------
4
<PAGE>
BOX 4
USE OF GUARANTEED DELIVERY
(SEE INSTRUCTION 2)
T0 BE COMPLETED ONLY IF NOTES ARE BEING TENDERED BY MEANS OF A NOTICE OF
GUARANTEED DELIVERY.
Name(s) of Registered Holder(s):
___________________________________________________________________________
Date of Execution of Notice of Guaranteed Delivery: _______________________
Name of Institution which Guaranteed Delivery: ____________________________
BOX 5
USE OF BOOK-ENTRY TRANSFER
(SEE INSTRUCTION 1)
TO BE COMPLETED ONLY IF DELIVERY OF TENDERED NOTES IS TO BE MADE BY BOOK-
ENTRY TRANSFER.
Name of Tendering Institution: ____________________________________________
Account Number: ___________________________________________________________
Transaction Code Number: __________________________________________________
5
<PAGE>
BOX 6
TENDERING HOLDER SIGNATURE
(SEE INSTRUCTIONS 1 AND 5)
IN ADDITION, COMPLETE SUBSTITUTE FORM W-9
- --------------------------------------------------------------------------------
Signature Guarantee
(If required by Instruction 5)
X _________________________________
Authorized Signature
X _________________________________
(Signature of Registered X _________________________________
Holder(s) or Authorized
Signatory)
Name: _____________________________
(please print)
Note: The above lines must be
signed by the registered holder(s)
of Notes as their name(s)
appear(s) on the Notes or by
person(s) authorized to become
registered holder(s) (evidence of
which authorization must be
transmitted with this Letter of
Transmittal). If signature is by a
trustee, executor, administrator,
guardian, attorney-in-fact,
officer, or other person acting in
a fiduciary or representative
capacity, such person must set
forth his or her full title below.
See Instruction 5.
Title: ____________________________
Name of Firm: _____________________
(Must be an Eligible
Institution as defined in
Instruction 2)
Address: __________________________
___________________________________
___________________________________
(include Zip Code)
Area Code and Telephone Number:
___________________________________
Dated: ____________________________
Name(s): __________________________
___________________________________
Capacity: _________________________
___________________________________
Street Address: ___________________
___________________________________
___________________________________
(include Zip Code)
Area Code and Telephone Number:
___________________________________
Tax Identification or Social
Security Number:
___________________________________
BOX 7
BROKER-DEALER STATUS
- --------------------------------------------------------------------------------
[_]Check this box if the Beneficial Owner of the Notes is a Participating
Broker-Dealer and such Participating Broker-Dealer acquired the Notes
for its own account as a result of market-making activities or other
trading activities.
6
<PAGE>
PAYOR'S NAME: GLENOIT CORPORATION
Name (if joint names, list first and circle the name of
SUBSTITUTE the person or entity whose number you enter in Part 1
FORM W-9 below. See instructions if your name has changed.)
--------------------------------------------------------------
DEPARTMENT OF Address
THE TREASURY
INTERNAL
REVENUE SERVICE
--------------------------------------------------------------
City, State and ZIP Code
List account number(s) here (optional)
--------------------------------------------------------------
--------------------------------------------------------------
Social Security
PART 1--PLEASE PROVIDE YOUR TAXPAYER Number or TIN
IDENTIFICATION NUMBER ("TIN") IN THE
BOX AT RIGHT AND CERTIFY BY SIGNING
AND DATING BELOW
--------------------------------------------------------------
PART 2--Check the box if you are NOT subject to backup
withholding under the provisions of section 3406(a)(1)(C)
of the Internal Revenue Code because (1) you have not been
notified that you are subject to backup withholding as a
result of failure to report all interest or dividends or
(2) the Internal Revenue Service has notified you that you
are no longer subject to backup withholding. [_]
--------------------------------------------------------------
CERTIFICATION--UNDER THE PENALTIES OF PART 3--
PERJURY, I CERTIFY THAT THE INFORMATION Awaiting
PROVIDED ON THIS FORM IS TRUE, CORRECT TIN [_]
AND COMPLETE.
SIGNATURE: __________________ DATE: _________
NOTE:
FAILURE TO COMPLETE AND RETURN THIS FORM MAY RESULT IN BACKUP WITHHOLDING
OF 31% OF ANY PAYMENTS MADE TO YOU PURSUANT TO THE EXCHANGE OFFER. PLEASE
REVIEW THE ENCLOSED GUIDELINES FOR CERTIFICATION OF TAXPAYER
IDENTIFICATION NUMBER ON SUBSTITUTE FORM W-9 FOR ADDITIONAL DETAILS.
7
<PAGE>
INSTRUCTIONS TO LETTER OF TRANSMITTAL
FORMING PART OF THE TERMS AND CONDITIONS
OF THE EXCHANGE OFFER
1. DELIVERY OF THIS LETTER OF TRANSMITTAL AND NOTES. A properly completed
and duly executed copy of this Letter of Transmittal, including Substitute
Form W-9, and any other documents required by this Letter of Transmittal must
be received by the Exchange Agent at its address set forth herein, and either
certificates for Tendered Notes must be received by the Exchange Agent at its
address set forth herein or such Tendered Notes must be transferred pursuant
to the procedures for book-entry transfer described in the Prospectus under
the caption "Exchange Offer--Book-Entry Transfer" (and a confirmation of such
transfer received by the Exchange Agent), in each case prior to 5:00 p.m., New
York City time, on the Expiration Date. The method of delivery of certificates
for Tendered Notes, this Letter of Transmittal and all other required
documents to the Exchange Agent is at the election and risk of the tendering
holder and the delivery will be deemed made only when actually received by the
Exchange Agent. If delivery is by mail, registered mail with return receipt
requested, properly insured, is recommended. Instead of delivery by mail, it
is recommended that the Holder use an overnight or hand delivery service. In
all cases, sufficient time should be allowed to assure timely delivery. No
Letter of Transmittal or Notes should be sent to the Company. Neither the
Issuer nor the registrar is under any obligation to notify any tendering
holder of the Issuer's acceptance of Tendered Notes prior to the closing of
the Exchange Offer.
2. GUARANTEED DELIVERY PROCEDURES. Holders who wish to tender their Notes
but whose Notes are not immediately available, and who cannot deliver their
Notes, this Letter of Transmittal or any other documents required hereby to
the Exchange Agent prior to the Expiration Date must tender their Notes
according to the guaranteed delivery procedures set forth below, including
completion of Box 4. Pursuant to such procedures: (i) such tender must be made
by or through a firm which is a member of a recognized Medallion Program
approved by the Securities Transfer Association Inc. (an "Eligible
Institution") and the Notice of Guaranteed Delivery must be signed by the
holder; (ii) prior to the Expiration Date, the Exchange Agent must have
received from the holder and the Eligible Institution a properly completed and
duly executed Notice of Guaranteed Delivery (by mail or hand delivery) setting
forth the name and address of the holder, the certificate number(s) of the
Tendered Notes and the principal amount of Tendered Notes, stating that the
tender is being made thereby and guaranteeing that, within five New York Stock
Exchange trading days after the Expiration Date, this Letter of Transmittal
together with the certificate(s) representing the Notes and any other required
documents will be deposited by the Eligible Institution with the Exchange
Agent; and (iii) such properly completed and executed Letter of Transmittal,
as well as all other documents required by this Letter of Transmittal and the
certificate(s) representing all Tendered Notes in proper form for transfer,
must be received by the Exchange Agent within five New York Stock Exchange
trading days after the Expiration Date. Any holder who wishes to tender Notes
pursuant to the guaranteed delivery procedures described above must ensure
that the Exchange Agent receives the Notice of Guaranteed Delivery relating to
such Notes prior to 5:00 p.m., New York City time, on the Expiration Date.
Failure to complete the guaranteed delivery procedures outlined above will
not, of itself, affect the validity or effect a revocation of any Letter of
Transmittal form properly completed and executed by an Eligible Holder who
attempted to use the guaranteed delivery process.
3. BENEFICIAL OWNER INSTRUCTIONS TO REGISTERED HOLDERS. Only a holder in
whose name Tendered Notes are registered on the books of the registrar (or the
legal representative or attorney-in-fact of such registered holder) may
execute and deliver this Letter of Transmittal. Any Beneficial Owner of
Tendered Notes who is not the registered holder must arrange promptly with the
registered holder to execute and deliver this Letter of Transmittal on his or
her behalf through the execution and delivery to the registered holder of the
Instructions to Registered Holder and/or Book-Entry Transfer Facility
Participant from Beneficial Owner form accompanying this Letter of
Transmittal.
4. PARTIAL TENDERS. Tenders of Notes will be accepted only in integral
multiples of $1,000 in principal amount. If less than the entire principal
amount of Notes held by the holder is tendered, the tendering holder
8
<PAGE>
should fill in the principal amount tendered in the column labeled "Aggregate
Principal Amount Tendered" of the box entitled "Description of Notes Tendered"
(Box 1) above. The entire principal amount of Notes delivered to the Exchange
Agent will be deemed to have been tendered unless otherwise indicated. If the
entire principal amount of all Notes held by the holder is not tendered, then
Notes for the principal amount of Notes not tendered and Exchange Notes issued
in exchange for any Notes tendered and accepted will be sent to the Holder at
his or her registered address, unless a different address is provided in the
appropriate box on this Letter of Transmittal, as soon as practicable
following the Expiration Date.
5. SIGNATURES ON THE LETTER OF TRANSMITTAL; BOND POWERS AND ENDORSEMENTS;
GUARANTEE OF SIGNATURES. If this Letter of Transmittal is signed by the
registered holder(s) of the Tendered Notes, the signature must correspond with
the name(s) as written on the face of the Tendered Notes without alteration,
enlargement or any change whatsoever.
If any of the Tendered Notes are owned of record by two or more joint
owners, all such owners must sign this Letter of Transmittal. If any Tendered
Notes are held in different names, it will be necessary to complete, sign and
submit as many separate copies of the Letter of Transmittal as there are
different names in which Tendered Notes are held.
If this Letter of Transmittal is signed by the registered holder(s) of
Tendered Notes, and Exchange Notes issued in exchange therefor are to be
issued (and any untendered principal amount of Notes is to be reissued) in the
name of the registered holder(s), then such registered holder(s) need not and
should not endorse any Tendered Notes, nor provide a separate bond power. In
any other case, such registered holder(s) must either properly endorse the
Tendered Notes or transmit a properly completed separate bond power with this
Letter of Transmittal, with the signature(s) on the endorsement or bond power
guaranteed by an Eligible Institution.
If this Letter of Transmittal is signed by a person other than the
registered holder(s) of any Tendered Notes, such Tendered Notes must be
endorsed or accompanied by appropriate bond powers, in each case, signed as
the name(s) of the registered holder(s) appear(s) on the Tendered Notes, with
the signature(s) on the endorsement or bond power guaranteed by an Eligible
Institution.
If this Letter of Transmittal or any Tendered Notes or bond powers are
signed by trustees, executors, administrators, guardians, attorneys-in-fact,
officers of corporations, or others acting in a fiduciary or representative
capacity, such persons should so indicate when signing and, unless waived by
the Issuer, evidence satisfactory to the Issuer of their authority to so act
must be submitted with this Letter of Transmittal.
Endorsements on Tendered Notes or signatures on bond powers required by this
Instruction 5 must be guaranteed by an Eligible Institution.
Signatures on this Letter of Transmittal must be guaranteed by an Eligible
Institution unless the Tendered Notes are tendered (i) by a registered holder
who has not completed the box set forth herein entitled "Special Delivery
Instructions" (Box 3) or (ii) by an Eligible Institution.
6. SPECIAL DELIVERY INSTRUCTIONS. Tendering holders should indicate, in the
applicable box (Box 3), the name and address to which the Exchange Notes
and/or substitute Notes for principal amounts not tendered or not accepted for
exchange are to be sent, if different from the name and address of the person
signing this Letter of Transmittal. In the case of issuance in a different
name, the taxpayer identification or social security number of the person
named must also be indicated.
7. TRANSFER TAXES. The Issuer will pay all transfer taxes, if any,
applicable to the exchange of Tendered Notes pursuant to the Exchange Offer.
If, however, a transfer tax is imposed for any reason other than the transfer
and exchange of Tendered Notes pursuant to the Exchange Offer, then the amount
of any such transfer taxes (whether imposed on the registered holder or on any
other person) will be payable by the tendering holder. If satisfactory
evidence of payment of such taxes or exemption therefrom is not submitted with
this Letter of Transmittal, the amount of such transfer taxes will be billed
directly to such tendering holder.
9
<PAGE>
Except as provided in this Instruction7, it will not be necessary for
transfer tax stamps to be affixed to the Tendered Notes listed in this Letter
of Transmittal.
8. TAX IDENTIFICATION NUMBER. Federal income tax law requires that the
holder(s) of any Tendered Notes which are accepted for exchange must provide
the Issuer (as payor) with its correct taxpayer identification number ("TIN"),
which, in the case of a holder who is an individual, is his or her social
security number. If the Issuer is not provided with the correct TIN, the
Holder may be subject to backup withholding and a $50 penalty imposed by the
Internal Revenue Service. (If withholding results in an over-payment of taxes,
a refund may be obtained.) Certain holders (including, among others, all
corporations and certain foreign individuals) are not subject to these backup
withholding and reporting requirements. See the enclosed "Guidelines for
Certification of Taxpayer Identification Number on Substitute Form W-9" for
additional instructions.
To prevent backup withholding, each holder of Tendered Notes must provide
such holder's correct TIN by completing the Substitute Form W-9 set forth
herein, certifying that the TIN provided is correct (or that such holder is
awaiting a TIN), and that (i)the holder has not been notified by the Internal
Revenue Service that such holder is subject to backup withholding as a result
of failure to report all interest or dividends or (ii)the Internal Revenue
Service has notified the holder that such holder is no longer subject to
backup withholding. If the Tendered Notes are registered in more than one name
or are not in the name of the actual owner, consult the "Guidelines for
Certification of Taxpayer Identification Number on Substitute Form W-9" for
information on which TIN to report.
The Issuer reserves the right in its sole discretion to take whatever steps
are necessary to comply with the Issuer's obligation regarding backup
withholding.
9. VALIDITY OF TENDERS. All questions as to the validity, form, eligibility
(including time of receipt), acceptance and withdrawal of Tendered Notes will
be determined by the Issuer in its sole discretion, which determination will
be final and binding. The Issuer reserves the right to reject any and all
Notes not validly tendered or any Notes the Issuer's acceptance of which
would, in the opinion of the Issuer or their counsel, be unlawful. The Issuer
also reserves the right to waive any conditions of the Exchange Offer or
defects or irregularities in tenders of Notes as to any ineligibility of any
holder who seeks to tender Notes in the Exchange Offer. The interpretation of
the terms and conditions of the Exchange Offer (including this Letter of
Transmittal and the instructions hereto) by the Issuer shall be final and
binding on all parties. Unless waived, any defects or irregularities in
connection with tenders of Notes must be cured within such time as the Issuer
shall determine. Neither the Issuer, the Exchange Agent nor any other person
shall be under any duty to give notification of defects or irregularities with
respect to tenders of Notes, nor shall any of them incur any liability for
failure to give such notification. Tenders of Notes will not be deemed to have
been made until such defects or irregularities have been cured or waived. Any
Notes received by the Exchange Agent that are not properly tendered and as to
which the defects or irregularities have not been cured or waived will be
returned by the Exchange Agent to the tendering holders, unless otherwise
provided in this Letter of Transmittal, as soon as practicable following the
Expiration Date.
10. WAIVER OF CONDITIONS. The Company reserves the absolute right to amend,
waive or modify any of the conditions in the Exchange Offer in the case of any
Tendered Notes.
11. NO CONDITIONAL TENDER. No alternative, conditional, irregular, or
contingent tender of Notes or transmittal of this Letter of Transmittal will
be accepted.
12. MUTILATED, LOST, STOLEN OR DESTROYED NOTES. Any tendering Holder whose
Notes have been mutilated, lost, stolen or destroyed should contact the
Exchange Agent at the address indicated herein for further instructions.
13. REQUESTS FOR ASSISTANCE OR ADDITIONAL COPIES. Questions and requests for
assistance and requests for additional copies of the Prospectus or this Letter
of Transmittal may be directed to the Exchange Agent at
10
<PAGE>
the address indicated herein. Holders may also contact their broker, dealer,
commercial bank, trust company or other nominee for assistance concerning the
Exchange Offer.
14. ACCEPTANCE OF TENDERED NOTES AND ISSUANCE OF NOTES; RETURN OF
NOTES. Subject to the terms and conditions of the Exchange Offer, the Issuer
will accept for exchange all validly tendered Notes as soon as practicable
after the Expiration Date and will issue Exchange Notes therefor as soon as
practicable thereafter. For purposes of the Exchange Offer, the Issuer shall
be deemed to have accepted tendered Notes when, as and if the Issuer has given
written or oral notice (immediately followed in writing) thereof to the
Exchange Agent. If any Tendered Notes are not exchanged pursuant to the
Exchange Offer for any reason, such unexchanged Notes will be returned,
without expense, to the undersigned at the address shown in Box1 or at a
different address as may be indicated herein under "Special Delivery
Instructions" (Box3).
15. WITHDRAWAL. Tenders may be withdrawn only pursuant to the procedures set
forth in the Prospectus under the caption "The Exchange Offer."
11
<PAGE>
EXHIBIT 99.2
NOTICE OF GUARANTEED DELIVERY
WITH RESPECT TO
11% SENIOR SUBORDINATED NOTES DUE 2007
OF
GLENOIT CORPORATION
PURSUANT TO THE PROSPECTUS DATED , 1998
This form must be used by a holder of 11% Senior Subordinated Notes due 2007
(the "Notes") of Glenoit Corporation, a Delaware corporation (the "Company"),
who wishes to tender Notes to the Exchange Agent pursuant to the guaranteed
delivery procedures described in "The Exchange Offer--Guaranteed Delivery
Procedures" of the Company's Prospectus, dated , 1998 (the "Prospectus")
and in Instruction 2 to the related Letter of Transmittal. Any holder who
wishes to tender Notes pursuant to such guaranteed delivery procedures must
ensure that the Exchange Agent receives this Notice of Guaranteed Delivery
prior to the Expiration Date of the Exchange Offer. Capitalized terms used but
not defined herein have the meanings ascribed to them in the Prospectus or the
Letter of Transmittal.
THE EXCHANGE OFFER AND WITHDRAWAL RIGHTS WILL EXPIRE AT 5:00 P.M., NEW
YORK CITY TIME, ON , 1998 UNLESS EXTENDED (THE "EXPIRATION DATE").
UNITED STATES TRUST COMPANY
(THE "EXCHANGE AGENT")
By Hand: By Registered or
By Overnight Courier: Certified Mail:
United States Trust
United States Trust Company of New York United States Trust
Company of New York 111 Broadway Company of New York
770 Broadway, 13th Floor Lower Level P.O. Box 844
New York, New York 10003 Attn: Corporate Trust Attn: Corporate Trust
Attn: Corporate Trust Services Services
Services New York, New York 10006 Cooper Station
New York, New York
10276-0844
DELIVERY OF THIS INSTRUMENT TO AN ADDRESS OTHER THAN AS SET FORTH ABOVE WILL
NOT CONSTITUTE A VALID DELIVERY.
This form is not to be used to guarantee signatures. If a signature on a
Letter of Transmittal is required to be guaranteed by an "Eligible
Institution" under the instructions thereto, such signature guarantee must
appear in the applicable space provided in the signature box on the Letter of
Transmittal.
Ladies and Gentlemen:
The undersigned hereby tenders to the Company, upon the terms and subject to
the conditions set forth in the Prospectus and the related Letter of
Transmittal, receipt of which is hereby acknowledged, the principal amount of
Notes set forth below pursuant to the guaranteed delivery procedures set forth
in the Prospectus and in Instruction 2 of the Letter of Transmittal.
The undersigned hereby tenders the Notes listed below:
<TABLE>
<CAPTION>
CERTIFICATE NUMBER(S) (IF KNOWN) OF NOTES OR AGGREGATE PRINCIPAL AGGREGATE PRINCIPAL
ACCOUNT NUMBER AT THE BOOK-ENTRY FACILITY AMOUNT REPRESENTED AMOUNT TENDERED
<S> <C> <C>
</TABLE>
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
<PAGE>
PLEASE SIGN AND COMPLETE
- --------------------------------------------------------------------------------
Signatures of Registered Holder(s)
or Authorized Signatory: __________
Date: , 1998
___________________________________ Address: __________________________
___________________________________ ___________________________________
Name(s) of Registered Holder(s): __ Area Code and Telephone No. _______
___________________________________
___________________________________
This Notice of Guaranteed Delivery must be signed by the Holder(s)
exactly as their name(s) appear on certificates for Notes or on a security
position listing as the owner of Notes, or by person(s) authorized to
become Holder(s) by endorsements and documents transmitted with this
Notice of Guaranteed Delivery. If signature is by a trustee, executor,
administrator, guardian, attorney-in-fact, officer or other person acting
in a fiduciary or representative capacity, such person must provide the
following information.
Please print name(s) and address(es)
Name(s): __________________________________________________________________
___________________________________________________________________________
Capacity: _________________________________________________________________
Address(es): ______________________________________________________________
___________________________________________________________________________
2
<PAGE>
GUARANTEE
(NOT TO BE USED FOR SIGNATURE GUARANTEE)
The undersigned, a firm which is a member of a registered national
securities exchange or of the National Association of Securities Dealers,
Inc., or is a commercial bank or trust company having an office or
correspondent in the United States, or is otherwise an "eligible guarantor
institution" within the meaning of Rule 17Ad-15 under the Securities
Exchange Act of 1934, as amended, guarantees deposit with the Exchange
Agent of the Letter of Transmittal (or facsimile thereof), together with
the Notes tendered hereby in proper form for transfer (or confirmation of
the book-entry transfer of such Notes into the Exchange Agent's account at
the Book-Entry Transfer Facility described in the prospectus under the
caption "The Exchange Offer--Guaranteed Delivery Procedures" and in the
Letter of Transmittal) and any other required documents, all by 5:00 p.m.,
New York City time, on the fifth New York Stock Exchange trading day
following the Expiration Date.
Name of firm ______________________ ___________________________________
(AUTHORIZED SIGNATURE)
Address ___________________________
Name ______________________________
___________________________________ (PLEASE PRINT)
(INCLUDE ZIP CODE)
Area Code and Tel. No. ____________
Title _____________________________
Dated , 1998
DO NOT SEND SECURITIES WITH THIS FORM. ACTUAL SURRENDER OF SECURITIES MUST
BE MADE PURSUANT TO, AND BE ACCOMPANIED BY, AN EXECUTED LETTER OF TRANSMITTAL.
3
<PAGE>
INSTRUCTIONS FOR NOTICE OF GUARANTEED DELIVERY
1. Delivery of this Notice of Guaranteed Delivery. A properly completed and
duly executed copy of this Notice of Guaranteed Delivery and any other
documents required by this Notice of Guaranteed Delivery must be received by
the Exchange Agent at its address set forth herein prior to the Expiration
Date. The method of delivery of this Notice of Guaranteed Delivery and any
other required documents to the Exchange Agent is at the election and sole
risk of the holder, and the delivery will be deemed made only when actually
received by the Exchange Agent. If delivery is by mail, registered mail with
return receipt requested, properly insured, is recommended. As an alternative
to delivery by mail, the holders may wish to consider using an overnight or
hand delivery service. In all cases, sufficient time should be allowed to
assure timely delivery. For a description of the guaranteed delivery
procedures, see Instruction 2 of the Letter of Transmittal.
2. Signatures on this Notice of Guaranteed Delivery. If this Notice of
Guaranteed Delivery is signed by the registered holder(s) of the Notes
referred to herein, the signature must correspond with the name(s) written on
the face of the Notes without alteration, enlargement, or any change
whatsoever. If this Notice of Guaranteed Delivery is signed by a participant
of the Book-Entry Transfer Facility whose name appears on a security position
listing as the owner of the Notes, the signature must correspond with the name
shown on the security position listing as the owner of the Notes.
If this Notice of Guaranteed Delivery is signed by a person other than the
registered holder(s) of any Notes listed or a participant of the Book-Entry
Transfer Facility, this Notice of Guaranteed Delivery must be accompanied by
appropriate bond powers, signed as the name of the registered holder(s)
appears on the Notes or signed as the name of the participant shown on the
Book-Entry Transfer Facility's security position listing.
If this Notice of Guaranteed Delivery is signed by a trustee, executor,
administrator, guardian, attorney-in-fact, officer of a corporation, or other
person acting in a fiduciary or representative capacity, such person should so
indicate when signing and submit with the Letter of Transmittal evidence
satisfactory to the Company of such person's authority to so act.
3. Requests for Assistance or Additional Copies. Questions and requests for
assistance and requests for additional copies of the Prospectus may be
directed to the Exchange Agent at the address specified in the Prospectus.
Holders may also contact their broker, dealer, commercial bank, trust company,
or other nominee for assistance concerning the Exchange Offer.
4
<PAGE>
EXHIBIT 99.3
INSTRUCTIONS TO REGISTERED HOLDER AND/OR
BOOK-ENTRY TRANSFER FACILITY PARTICIPANT FROM BENEFICIAL OWNER
OF
GLENOIT CORPORATION
11% SENIOR SUBORDINATED NOTES DUE 2007
To Registered Holder and/or Participant of the Book-Entry Transfer Facility:
The undersigned hereby acknowledges receipt of the Prospectus, dated ,
1998 (the "Prospectus") of Glenoit Corporation, a Delaware corporation (the
"Company"), and the accompanying Letter of Transmittal (the "Letter of
Transmittal"), that together constitute the Company's offer (the "Exchange
Offer"). Capitalized terms used but not defined herein have the meanings
ascribed to them in the Prospectus.
This will instruct you, the registered holder and/or book-entry transfer
facility participant, as to action to be taken by you relating to the Exchange
Offer with respect to the 11% Senior Subordinated Notes due 2007 (the "Notes")
held by you for the account of the undersigned.
The aggregate face amount of the Notes held by you for the account of the
undersigned is (FILL IN AMOUNT):
$ of the 11% Senior Subordinated Notes due 2007
With respect to the Exchange Offer, the undersigned hereby instructs you
(CHECK APPROPRIATE BOX):
[_]TO TENDER the following Notes held by you for the account of the
undersigned (INSERT PRINCIPAL AMOUNT OF NOTES TO BE TENDERED, IF ANY):
$
[_]NOT TO TENDER any Notes held by you for the account of the
undersigned.
If the undersigned instruct you to tender the Notes held by you for the
account of the undersigned, it is understood that you are authorized (a) to
make, on behalf of the undersigned (and the undersigned, by its signature
below, hereby makes to you), the representation and warranties contained in
the Letter of Transmittal that are to be made with respect to the undersigned
as a beneficial owner, including but not limited to the representations that
(i) the undersigned's principal residence is in the state of (FILL IN STATE)
, (ii) the undersigned is acquiring the Exchange Notes in the ordinary
course of business of the undersigned, (iii) the undersigned is not
participating, does not participate, and has no arrangement or understanding
with any person to participate in the distribution of the Exchange Notes, (iv)
the undersigned acknowledges that any person participating in the Exchange
Offer for the purpose of distributing the Exchange Notes must comply with the
registration and prospectus delivery requirements of the Securities Act of
1933, as amended (the "Act"), in connection with a secondary resale
transaction of the Exchange Notes acquired by such person and cannot rely on
the position of the Staff of the Securities and Exchange Commission set forth
in no-action letters that are discussed in the section of the Prospectus
entitled "The Exchange Offer--Resales of the Exchange Notes," and (v) the
undersigned is not an "affiliate," as defined in Rule 405 under the Act, of
the Company; (b) to agree, on behalf of the undersigned, as set forth in the
Letter of Transmittal; and (c) to take such other action as necessary under
the Prospectus or the Letter of Transmittal to effect the valid tender of such
Notes.
SIGN HERE
Name of beneficial owner(s): ______________________________________________
Signature(s): _____________________________________________________________
Name (please print): ______________________________________________________
Address: __________________________________________________________________
____________________________________________________________________
____________________________________________________________________
Telephone number: _________________________________________________________
Taxpayer Identification or Social Security Number: ________________________
Date: _____________________________________________________________________
