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AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON MARCH 4, 1998
REGISTRATION NO. 333-
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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
------------------------
FORM S-1
REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933
GERBER CHILDRENSWEAR, INC.*
(EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)
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DELAWARE 38-2664081 2300
(STATE OR OTHER JURISDICTION OF (I.R.S. EMPLOYER (PRIMARY STANDARD INDUSTRIAL
INCORPORATION OR ORGANIZATION) IDENTIFICATION NO.) CLASSIFICATION CODE NUMBER)
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7005 PELHAM ROAD
SUITE D
GREENVILLE, SC 29615
TELEPHONE: (864) 987-5200
(ADDRESS, INCLUDING ZIP CODE, AND TELEPHONE NUMBER, INCLUDING AREA CODE, OF
REGISTRANT'S PRINCIPAL EXECUTIVE OFFICES)
------------------------
MR. EDWARD KITTREDGE
CHAIRMAN, CHIEF EXECUTIVE OFFICER AND PRESIDENT
GERBER CHILDRENSWEAR, INC.
7005 PELHAM ROAD
SUITE D
GREENVILLE, SC 29615
TELEPHONE: (864) 987-5200
(NAME, ADDRESS, INCLUDING ZIP CODE, AND TELEPHONE NUMBER, INCLUDING AREA CODE,
OF AGENT FOR SERVICE)
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Copies to:
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LANCE C. BALK, ESQ. VALERIE FORD JACOB, ESQ.
KIRKLAND & ELLIS FRIED, FRANK, HARRIS, SHRIVER & JACOBSON
153 EAST 53RD STREET ONE NEW YORK PLAZA
NEW YORK, NEW YORK 10022 NEW YORK, NY 10004
TELEPHONE:(212) 446-4800 TELEPHONE: (212) 859-8000
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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 any of the securities being registered on this Form are to be offered on
a delayed or continuous basis pursuant to Rule 415 under the Securities Act of
1933 (the "Securities Act"), check the following box. [ ]
If this Form is filed to register additional securities for an offering
pursuant to Rule 462(b) under the Securities Act, please check the following box
and list the Securities Act registration statement number of the earlier
effective registration statement for the same offering. [ ]
If this Form is a post-effective amendment filed pursuant to Rule 462(c)
under the Securities Act, check the following box and list the Securities Act
registration statement number of the earlier effective registration statement
for the same offering. [ ]
If delivery of the prospectus is expected to be made pursuant to Rule 434,
please check the following box. [X]
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TITLE OF EACH CLASS PROPOSED MAXIMUM
OF SECURITIES AGGREGATE OFFERING AMOUNT OF
TO BE REGISTERED PRICE(1) REGISTRATION FEE
- -------------------------------------------------------------------------------------------------------
Common Stock, par value $0.01 per
share.......................... $57,500,000 $16,962.50
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(1) Estimated solely for the purpose of calculating the registration fee
pursuant to paragraph (o) of Rule 457 of the Securities Act.
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 OR UNTIL THIS REGISTRATION STATEMENT SHALL BECOME EFFECTIVE
ON SUCH DATE AS THE SECURITIES AND EXCHANGE COMMISSION, ACTING PURSUANT TO SAID
SECTION 8(a), MAY DETERMINE.
*Registrant's name is GCIH, Inc. and will be changed to Gerber Childrenswear,
Inc. in connection with the consummation of the Offering contemplated hereby.
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INFORMATION CONTAINED HEREIN IS SUBJECT TO COMPLETION OR AMENDMENT. A
REGISTRATION STATEMENT RELATING TO THESE SECURITIES HAS BEEN FILED WITH THE
SECURITIES AND EXCHANGE COMMISSION. THESE SECURITIES MAY NOT BE SOLD NOR MAY
OFFERS TO BUY BE ACCEPTED PRIOR TO THE TIME THE REGISTRATION STATEMENT BECOMES
EFFECTIVE. THIS PROSPECTUS SHALL NOT CONSTITUTE AN OFFER TO SELL OR THE
SOLICITATION OF AN OFFER TO BUY NOR SHALL THERE BE ANY SALE OF THESE SECURITIES
IN ANY STATE IN WHICH SUCH OFFER, SOLICITATION OR SALE WOULD BE UNLAWFUL PRIOR
TO THE REGISTRATION OR QUALIFICATION UNDER THE SECURITIES LAWS OF ANY SUCH
STATE.
PROSPECTUS SUBJECT TO COMPLETION
PRELIMINARY PROSPECTUS DATED MARCH 4, 1998
[LOGO]
SHARES
GERBER CHILDRENSWEAR, INC.
COMMON STOCK
------------------------
All of the shares of Common Stock, par value $.01 per share
(the "Common Stock"), offered hereby are being sold by Gerber Childrenswear,
Inc. (the "Company").
The Company also has authorized and outstanding shares of Class B Common
Stock. The two classes of common stock are substantially identical, except that
shares of Class B Common Stock are non-voting and are convertible at any time at
the holder's option into shares of Common Stock on a one-for-one basis. See
"Description of Capital Stock."
Prior to this offering (the "Offering"), there has been no public market
for the Common Stock. It is currently estimated that the initial public offering
price will be between $ and $ per share. For a discussion
relating to the factors considered in determining the initial public offering
price, see "Underwriting." Application has been made for listing of the Common
Stock on the New York Stock Exchange under the symbol "GCW," subject to official
notice of issuance.
SEE "RISK FACTORS" BEGINNING ON PAGE 11 FOR A DISCUSSION OF CERTAIN FACTORS
THAT SHOULD BE CONSIDERED BY PROSPECTIVE PURCHASERS OF THE COMMON STOCK OFFERED
HEREBY.
------------------------
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES
AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION, NOR HAS
THE SECURITIES AND EXCHANGE COMMISSION OR ANY STATE SECURITIES
COMMISSION PASSED UPON THE ACCURACY OR ADEQUACY OF THIS
PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS A CRIMINAL OFFENSE.
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PRICE TO UNDERWRITING PROCEEDS TO
PUBLIC DISCOUNT(1) COMPANY(2)
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Per Share........................ $ $ $
- ---------------------------------------------------------------------------------------------------------------------------
Total(3)......................... $ $ $
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(1) The Company has agreed to indemnify the several Underwriters against certain
liabilities, including certain liabilities under the Securities Act of 1933,
as amended. See "Underwriting."
(2) Before deducting expenses payable by the Company estimated at $ .
(3) The Company has granted the Underwriters an option to purchase up to an
additional shares of Common Stock, exercisable within 30 days
after the date hereof, solely to cover over-allotments, if any. If such
option is exercised in full, the total Price to Public, Underwriting
Discount and Proceeds to Company will be $ , $ and
$ , respectively. See "Underwriting."
------------------------
The shares of Common Stock are offered by the several Underwriters, subject
to prior sale, when, as and if issued to and accepted by them, subject to
approval of certain legal matters by counsel for the Underwriters and certain
other conditions. The Underwriters reserve the right to withdraw, cancel or
modify such offer and to reject orders in whole or in part. It is expected that
delivery of the shares of Common Stock will be made in New York, New York on or
about , 1998.
------------------------
MERRILL LYNCH & CO.
BEAR, STEARNS & CO. INC.
LEHMAN BROTHERS
FURMAN SELZ WASSERSTEIN PERELLA SECURITIES, INC.
------------------------
The date of this Prospectus is , 1998.
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[LOGOS AND PICTURES OF PRODUCTS TO COME. THESE WILL INCLUDE THE FOLLOWING
LOGOS AND PRODUCTS BEARING SUCH LOGOS: GERBER, ALWAYS BABY BY GERBER, CURITY,
BABY LOONEY TUNES, WILSON, CONVERSE, COCA-COLA AND DUNLOP. ALL OF SUCH
PRODUCTS ARE PRODUCED AND DISTRIBUTED BY THE COMPANY.]
Certain persons participating in the Offering may engage in transactions
that stabilize, maintain or otherwise affect the price of the Common Stock. Such
transactions may include stabilizing, the purchase of Common Stock to cover
syndicate short positions and the imposition of penalty bids. For a description
of these activities, see "Underwriting."
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PROSPECTUS SUMMARY
The following summary is qualified in its entirety by reference to the more
detailed information and the financial statements (including the Notes thereto)
appearing elsewhere in this Prospectus. Unless the context otherwise requires,
the information set forth in this Prospectus gives effect to the transactions
described herein under "Certain Relationships and Related Transactions -- The
Reorganization." References in this Prospectus to the "Company" shall, as the
context requires, refer to Gerber Childrenswear, Inc. (and its predecessor),
together with its wholly-owned direct and indirect subsidiaries. References in
this Prospectus to "Gerber" refer to Gerber Childrenswear, Inc. References in
this Prospectus to "Auburn" shall, as the context requires, collectively refer
to Auburn Holdings, Inc., Auburn Hosiery Mills, Inc., GCI Spainco., S.L. (in
process of formation), Sport Socks Co. (UK) Limited and Sport Socks Co.
(Ireland) Limited, each a wholly-owned direct or indirect subsidiary of Gerber
Childrenswear, Inc. Data included in this Prospectus regarding the size, growth
and factors affecting the markets for infant and toddler apparel and for
hosiery, the Company's market position, demographic trends, market share and
other similar matters are approximations based on the Company's estimates and
other industry data which are generally recognized within the industry. Although
the Company believes that such data are generally reflective of the matters
reflected therein, investors are cautioned not to place undue reliance on such
data. Unless otherwise indicated, the information set forth in this Prospectus
does not give effect to the exercise of the Underwriters' overallotment option.
THE COMPANY
Gerber Childrenswear, Inc. is a leading marketer of infant and toddler
apparel and related products, offering products under its flagship brand,
Gerber, as well as the Baby Looney Tunes and Curity brand names and the Onesies
trademark. The Gerber name and baby head logo are among the best recognized in
the infant and toddler industry. The Company believes that Gerber is the leading
provider of infant and toddler apparel and related products to volume retailers,
which constitute the fastest growing segment of the retail industry. The Company
also distributes products to mid-tier department stores and specialty retailers.
Gerber holds a leading market share in its distribution channels in the
underwear, blanket sleeper and cloth diaper categories. The Company believes
that these leading positions in addition to strong consumer recognition of its
brands provide opportunities for Gerber to leverage its brands into other
product categories including sleep 'n play, bed & bath, playwear, bibs, hosiery
and gift sets where Gerber has a growing presence.
In addition, in order to build upon the Company's expertise as a low-cost
supplier of branded merchandise to volume retailers, the Company acquired all of
the capital stock of Auburn in December 1997 (the "Acquisition") for
approximately $40.0 million. Auburn manufactures, markets and sells branded
sport socks for men, women and children under established brand names such as
Wilson, Coca-Cola and Converse in the U.S., Europe and other international
territories and under the Dunlop brand name in Europe. Auburn markets to a
diversified customer base in the U.S. and Europe, including volume retailers,
department stores, wholesale clubs and major sporting good chains. As a result
of the Acquisition, the Company markets products in over 25 countries. The
Company believes that Auburn's expertise in hosiery will position it to
capitalize on growth opportunities and the Acquisition will provide
opportunities to achieve certain economies of scale and efficiencies in the
areas of purchasing, data processing, and selling, general and administrative
expenses. In 1997, pro forma for the Acquisition, the Company's net sales and
income from continuing operations were $270.1 million and $6.6 million,
respectively.
In January 1996, Gerber Childrenswear, Inc. was acquired from Gerber
Products Company ("GPC") by a group of investors led by Edward Kittredge, the
Company's Chairman, President and Chief Executive Officer, who assembled
Gerber's current management team. The new management team, under the direction
of Mr. Kittredge, developed a series of initiatives to strengthen Gerber's
financial results and improve its operations. To achieve cost efficiencies,
Gerber consolidated manufacturing facilities, established a flexible production
strategy including domestic and offshore manufacturing and sourcing components,
centralized finished product purchasing across all product categories and
enhanced its compensation system. As a result, Gerber's operating margin,
excluding royalties accrued to GPC, stock compensation and certain non-recurring
charges, increased to 15.6% in 1997 from 13.3% in 1996 and 8.3% in 1995.
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The U.S. retail market for infant and toddler apparel and related products,
as a whole, is estimated at $7.0 billion in 1997, and has grown at a compound
annual rate of 8.0% since 1991. The Company believes that this market is
well-insulated from major changes in fashion trends and is less sensitive to
general economic cycles due to the consistent level of infant births in the
U.S., at slightly less than 4 million annually, and the high consumption rate
for apparel products as infants experience frequent size changes. Annual apparel
spending per infant increased to $329 in 1996 from $250 in 1993 according to
U.S. Census data, representing compound annual growth of 9.6%. The Company
believes the market offers continued growth prospects due to demographic factors
including (i) more women having children at an older age and returning to work
thereafter, resulting in greater disposable income for expenditures on children;
and (ii) an increasing number of grandparents, who represent a key consumer
segment for infant and toddler products. Within the infant and toddler industry,
greater emphasis on value has shifted consumer purchases away from traditional
department stores and toward more value-conscious retail channels, including
volume retailers and mid-tier department stores. Additionally, the industry is
highly fragmented and services volume retailers who are interested in limiting
their purchases to a smaller number of well-capitalized vendors with a broad
base of branded products. The Company believes that its strong brand names,
leading market positions, broad product offerings and strong customer
relationships with volume retailers and mid-tier department stores position it
to benefit from industry trends.
COMPETITIVE STRENGTHS
The Company's business philosophy is to pursue growth and profitability by
maintaining and enhancing its strong brand name recognition and reputation for
quality while continuing to strengthen its customer relationships. The following
factors serve as the Company's competitive strengths and distinguishing
characteristics:
STRONG BRAND NAME RECOGNITION. The Company believes that Gerber is one of
the most recognized brands in the infant and toddler apparel industry with a
reputation for consistently delivering high quality products with innovative
design features at competitive prices. The Gerber brand name was first
introduced for baby food in 1928 by GPC, which holds an approximately 65% market
share in the baby food industry. The Company markets and sells infant and
toddler's apparel and related products using the well established Gerber brand
name and baby head logo. In addition, the Company believes that its popular Baby
Looney Tunes brand name (used on products at slightly higher price points) is
recognized for its use of characters, bright colors and higher fashion content.
The Company also benefits from the strong recognition of its Onesies trademark
(developed for its line of infant underwear) and the Curity brand name (used on
products which are targeted towards more value-conscious consumers).
Additionally, as a result of the Acquisition, the Company offers sport socks
under the Wilson, Converse, Coca-Cola and Dunlop brand names licensed by Auburn.
LEADING MARKET POSITIONS IN CORE PRODUCT CATEGORIES. The Company is the
leading provider of infant and toddler apparel and related products to volume
retailers, which constitute the fastest growing segment of the retail industry.
The Company also distributes products to mid-tier department stores and
specialty retailers. Gerber holds a leading market share in its distribution
channels in the underwear, blanket sleeper and cloth diaper categories. The
Company believes that its leading market shares provide significant competitive
advantages in serving its customers, through production and purchasing
efficiencies and greater product development and marketing resources.
Management's strategy is to leverage these competitive advantages to further
penetrate other product categories, whether acquired or internally developed.
HIGH QUALITY, INNOVATIVE PRODUCTS. The Company believes that it has
developed a reputation for high quality and innovative products and that this
has played a critical role in its long-standing strong market positions. In
1982, Gerber designed and developed Onesies, an innovative one-piece underwear
garment, which resulted in a new category of infant apparel which Gerber
believes consumers identify with the Onesies trademark. Most recently, Gerber
introduced the Swim-per, a swim diaper, and Nap 'N Go, a portable daycare mat.
LOW-COST SUPPLIER. The Company believes that its reputation for providing
high quality products at attractive prices has established it as one of the top
infant and toddler apparel suppliers among value-conscious
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volume retailers. The Company actively manages the manufacturing and sourcing of
its products to optimize efficiencies. Of the products manufactured and sourced
offshore, the majority were through manufacturing operations that are owned or
dedicated exclusively to the Company's products. The Company believes that such
diversification has enabled it to enhance operating efficiencies through
production flexibility and expanded capacity without significant capital
investment, while at the same time enabling it to control more efficiently the
delivery and quality of its products. All of these factors have helped the
Company to become a low-cost supplier. See "Business -- Gerber -- Manufacturing
and Sourcing -- Product Sourcing." In addition, the Company believes that its
centralized planning, purchasing and distribution systems have enhanced its cost
competitiveness through reduced distribution costs, minimization of product
delays and economies of scale.
LONG-TERM CUSTOMER RELATIONSHIPS AND EMPHASIS ON CUSTOMER SERVICE. Gerber
enjoys well-established, long-term relationships with its customers, many of
which have been maintained at multiple levels from sales to senior management.
In certain cases, members of Gerber's senior management and sales force have
maintained relationships with Gerber's customers for over 30 years. Moreover,
the Company believes its broad product offerings, emphasis on customer service
and proven reliability provide a competitive advantage as retailers consolidate
and seek a smaller number of well-capitalized vendors with a broad base of
branded products. Gerber works closely with its principal customers to assist in
the management of their inventories and has invested in warehousing and
distribution facilities and information systems development, including an
electronic data interchange ("EDI") system and a vendor managed inventory
("VMI") program. In addition, Gerber's information systems enable it to provide
customized merchandising and space allocation recommendations and other category
management services to its retail customers. Gerber currently provides such
customized services for Wal-Mart Stores, Inc. ("Wal-Mart") in certain product
categories. Gerber has been recognized for its accomplishments by many retailers
and in 1997 received the "Supplier Performance Award by Retail Category" from
Discount Store News on behalf of discounters, the highest award a company can
receive from such retailers. In addition, the Company has received a number of
awards from its customers, including Wal-Mart, Sears Roebuck & Co. ("Sears"),
J.C. Penney Co., Inc. ("J.C. Penney") and Toys "R" Us, Inc. ("Toys "R" Us").
DEVELOPMENT OF MANAGEMENT AND OPERATING INFORMATION SYSTEMS. Gerber has
made significant investments in the development of management information
systems ("MIS") and plans to make additional capital expenditures to further
refine such systems. Gerber believes that it will continue to benefit from these
systems through its ability to effectively manage inventory, improve sales and
reduce operating costs. Gerber currently serves all major volume retailers
through its EDI system, which allows customers to send orders to Gerber more
quickly and efficiently.
EXPERIENCED MANAGEMENT TEAM WITH A SIGNIFICANT STAKE IN THE COMPANY. The
Company's Chairman, President and Chief Executive Officer, Edward Kittredge, has
had over 35 years of diverse experience in the textile and apparel industry and
the Company's top five senior managers average more than 25 years of experience
in the apparel industry. The sales and merchandising team has been strengthened
with the recent additions of Robert P. Robertson as Senior Vice President of
Sales and Marketing and Mary-beth Boughton as Vice President of Merchandising
(focused on mid-tier department stores). After giving effect to the
Reorganization and the Offering, management will own approximately % of the
Common Stock of the Company on a diluted basis.
BUSINESS STRATEGY
The key elements of the Company's business strategy to remain a low-cost
supplier of high quality, branded products to volume retailers include:
ENHANCE OFFERING OF HIGH QUALITY, INNOVATIVE PRODUCTS. The Company intends
to continue to enhance its product offerings through new product initiatives and
product extensions. The Company's strategy is to leverage the Gerber, Baby
Looney Tunes and Curity brands into additional products, including product
segments in which the Company is under-represented. For example, the Company is
under-represented in the approximately $1.8 billion playwear market at retail
and in the approximately $600 million fleece/outerwear
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market at retail. In order to grow its market share in these product lines,
Gerber recently enhanced its line of Baby Looney Tunes playwear and introduced a
new line of Gerber fleecewear. The Company believes that these categories
present significant growth opportunities.
EXPAND INTO NEW AND STRENGTHEN EXISTING DISTRIBUTION CHANNELS. The
Company's plan is to continue to leverage its strong brand names to expand into
new distribution channels in the U.S. and abroad. Gerber recently targeted the
mid-tier department store channel with product lines such as Always Baby by
Gerber, which are specially designed, packaged and priced for mid-tier
department store customers. Gerber's strategy is to emphasize marketing efforts
to increase product breadth in existing distribution channels in which it
believes some of its product lines are under-represented. In addition,
management believes that the Gerber, Baby-Looney Tunes and Curity lines of
products have growth opportunities in the food and drug, variety, off-price
apparel, catalog, dollar store, wholesale club and mid-tier department store
distribution channels.
FURTHER PENETRATE INTERNATIONAL MARKETS. Gerber currently has an exclusive
license to use the Gerber brand name on certain infant and toddler apparel and
textile products in the U.S., Canada and the Caribbean and a right of first
refusal to use the Gerber name in Central and South America. Gerber branded
products are currently being shipped in the U.S. and to Canada and the
Caribbean. The Company believes that its offshore manufacturing and sourcing
capabilities give it a competitive advantage to further increase its presence in
the international markets. Gerber plans to increase the distribution of its
Gerber line of products in Canada by offering a broader product mix in such
market. The Company's plan is to leverage the Gerber brand name to expand its
presence in international markets in which the Gerber brand name is established
for baby food, and believes that such markets represent expansion opportunities.
MAXIMIZE OPERATING EFFICIENCIES. The Company's strategy is to continue to
improve operating efficiencies and productivity in order to offer its customers
high quality products at competitive prices. The Company's plan is to continue
to optimize product sourcing to achieve economies of scale and to eliminate
certain duplicative operations in connection with the acquisition of Auburn.
LEVERAGE EXPERTISE THROUGH SELECTIVE ACQUISITIONS. The Company actively
evaluates acquisition candidates and is in discussions from time to time
regarding future acquisitions. Future strategic acquisitions may be undertaken
to broaden the Company's product lines, increase sourcing diversity and
strengthen its presence within various channels of distribution. The Company
believes that numerous acquisition candidates exist within the infant and
toddler apparel industry. In addition, the Company believes that other
acquisition opportunities exist in similar high volume, basic branded apparel
businesses where the Company can leverage its core competencies. The Company
currently has no agreements or understandings with respect to any acquisitions.
RECENT ACQUISITION
The Company acquired all of the capital stock of Auburn in December 1997
for approximately $40.0 million. Auburn manufactures, markets and sells branded
sport socks for men, women and children under established brand names such as
Wilson, Coca-Cola and Converse in the U.S. and internationally and under the
Dunlop brand name in Europe. Auburn has operations in the United States and
Ireland. Auburn markets to a diversified customer base in the U.S. and Europe,
including volume retailers, department stores, wholesale clubs and major
sporting good chains. These strong brand names and Auburn's long-term reputation
for quality facilitate a multi-channel distribution strategy. Auburn competes
effectively in these distribution channels by offering its branded products at
competitive prices, acting as a low-cost producer with the ability to service
customers with quick turnaround, and maintaining strong customer relations. In
addition, with its acquisition by Gerber, Auburn has added to these core
competencies the ability to access capital for future growth and investment in
operations. For the year ended December 31, 1997, Auburn had net sales of
approximately $69.6 million.
Auburn competes in the highly fragmented hosiery industry, which has
significant branded and private label components. Competition within the
industry is generally based on price, quality, service, brand recognition and
style. The Company believes that advances in technology in hosiery manufacturing
will result
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in a smaller number of well-capitalized hosiery manufacturers. The Company
believes that Auburn is well positioned to benefit from such consolidation due
to its strong brands, established channels of distribution, strong customer
service, low-cost manufacturing capabilities and access to capital. The Company
also believes that significant growth opportunities exist through taking market
share from private label producers, which comprise a significant portion of the
hosiery industry. In addition, the Company believes that Auburn's European
manufacturing facility allows it to be more responsive to the European market,
where the Company believes significant opportunity for expansion exists. See
"Business -- Auburn -- Distribution and Inventory Management."
The Company believes that the Acquisition will provide certain economies of
scale and efficiencies in the areas of purchasing, data processing and selling,
general and administrative expenses. In addition, the Company believes that the
acquisition of Auburn will provide Gerber with opportunities to further expand
its business in international markets through Auburn's solid customer
relationships and reputation in Europe.
REORGANIZATION
Gerber Childrenswear, Inc. was acquired by GCIH, Inc. ("GCIH") in January
1996 from GPC for approximately $61.5 million in cash (subject to purchase price
adjustments) and a $12.5 million promissory note (the "Original Acquisition").
In connection with such acquisition and related financing, Citicorp Venture
Capital, Ltd. ("CVC"), management, directors and others purchased the equity of
GCIH.
Immediately prior to or in connection with the consummation of the
Offering, the Company will consummate a series of transactions pursuant to which
the Company will be recapitalized and reorganized (the "Reorganization"). The
principal transactions comprising the Reorganization that will occur prior to or
in connection with the consummation of the Offering are: (i) the conversion of
all of the outstanding shares of preferred stock of GCIH into either common
stock of GCIH or the right to receive cash, (ii) the merger of GCIH into and
with Gerber, with Gerber being the surviving entity of such merger, and (iii) in
connection with such merger, the exchange of all of the outstanding shares of
all classes of common stock and warrants to purchase common stock of GCIH for
shares of Common Stock, Class B Common Stock or warrants to purchase Class B
Common Stock of the Company. In addition, all indebtedness of GCIH will be
assumed by Gerber. See "Certain Relationships and Related Transactions--The
Reorganization." Consummation of the Offering is contingent on the completion of
the above-described transactions.
The Company is a Delaware corporation. The Company's principal offices are
located at 7005 Pelham Road, Suite D, Greenville, SC 29615, and its telephone
number is (864) 987-5200.
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THE OFFERING
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Common Stock Offered by the Company.................. shares
Common Stock to be outstanding after the Offering:
Common Stock....................................... shares(a)
Class B Common Stock............................... shares(b)
Total........................................... shares
Voting Rights........................................ Each share of Common Stock is entitled to one
vote per share. Shares of Class B Common Stock
are not entitled to any votes.
Use of Proceeds...................................... The net proceeds to be received by the Company
from the Offering will be used to repay
certain indebtedness of the Company and to
redeem certain shares of GCIH's preferred
stock in connection with the Reorganization.
See "Use of Proceeds."
Proposed New York Stock Exchange Symbol.............. "GCW"
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(a) Based on the number of shares outstanding as of . Includes
restricted shares of Common Stock issued to the Company's management,
including vested shares and unvested shares. Excludes
shares reserved for issuance under the Company's stock option plan of which
options to purchase shares have been or will be granted in connection with
the Offering. Assumes the Underwriters' over-allotment option is not
exercised.
(b) Excludes shares of Class B Common Stock which may be issued upon the
exercise of a warrant which was issued in connection with the Original
Acquisition. Shares of Class B Common Stock are convertible at any time at
the holder's option into shares of Common Stock on a one-for-one basis.
Shares of Class B Common Stock may not be transferred to anyone other than
an affiliate of the holder, unless such Class B Common Stock is first
converted by such holder into Common Stock. See "Description of Capital
Stock."
RISK FACTORS
Purchasers of the Common Stock in the Offering should carefully consider
the risk factors set forth under the caption "Risk Factors" and the other
information included in this Prospectus prior to making an investment decision.
See "Risk Factors."
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SUMMARY HISTORICAL AND PRO FORMA FINANCIAL INFORMATION
(IN THOUSANDS, EXCEPT PER SHARE DATA)
The following table presents (i) summary historical consolidated financial
information of the Company's Predecessor (the "Predecessor Company") for the
year ended December 31, 1995, (ii) summary historical consolidated financial
information of the Company for the period from January 22, 1996 to December 31,
1996 and for the year ended December 31, 1997 and (iii) summary pro forma as
adjusted information of the Company for the year ended December 31, 1997, after
giving effect to the Acquisition, the Reorganization and the Offering and the
application of the estimated net proceeds therefrom. The historical consolidated
financial information of the Predecessor Company and the Company have been
derived from the financial statements of the Predecessor Company and the
Company, respectively, which have been audited by Ernst & Young LLP. The summary
pro forma as adjusted information does not purport to represent what the
Company's results would have been if such events had occurred at the date
indicated, nor does such information purport to project the results of the
Company for any future period. The summary financial information should be read
in conjunction with "Management's Discussion and Analysis of Financial Condition
and Results of Operations," the financial statements and notes thereto and the
Unaudited Pro Forma Condensed Consolidated Statement of Operations and notes
thereto included elsewhere in this Prospectus.
<TABLE>
<CAPTION>
PREDECESSOR
COMPANY (a) COMPANY
------------ ----------------------------
PERIOD FROM
JANUARY 22,
YEAR ENDED 1996 TO YEAR ENDED
DECEMBER 31, DECEMBER 31, DECEMBER 31,
1995 1996 (b) 1997 (c)
------------ ------------ ------------
<S> <C> <C> <C>
STATEMENT OF OPERATIONS DATA:
Net sales................................................. $197,401 $185,223 $202,037
Cost of sales............................................. 156,434 138,608 146,294
-------- -------- --------
Gross margin.............................................. 40,967 46,615 55,743
Selling, general and administrative expenses.............. 24,633 23,894 27,766
Stock compensation(d)..................................... -- -- 9,465
Other..................................................... -- 689 231
-------- -------- --------
Total operating expenses.................................. 24,633 24,583 37,462
-------- -------- --------
Income before interest and income taxes................... 16,334 22,032 18,281
Interest expense, net..................................... -- 6,308 5,798
-------- -------- --------
Income before income taxes and extraordinary item, net.... 16,334 15,724 12,483
Provision for income taxes................................ 6,270 6,244 4,764
-------- -------- --------
Income before extraordinary item, net..................... 10,064 9,480 7,719
Extraordinary item, net(e)................................ -- -- (708)
Less preferred stock dividends............................ -- (1,328) (1,637)
-------- -------- --------
Net income available to common shareholders............... $ 10,064 $ 8,152 $ 5,374
======== ======== ========
</TABLE>
<TABLE>
<CAPTION>
YEAR ENDED
DECEMBER 31,
1997
------------
<S> <C>
PRO FORMA STATEMENT OF OPERATIONS, AS ADJUSTED(f):
Net sales................................................. $270,100
Income before interest and income taxes................... 19,960
Interest expense, net..................................... 3,921
Income from continuing operations......................... 9,936
Income from continuing operations per basic share......... (g)
Income from continuing operations per diluted share....... (g)
PRO FORMA STATEMENT OF OPERATIONS, AS FURTHER ADJUSTED(h):
Income before interest and income taxes................... $ 29,425
Income from continuing operations......................... 15,785
Income from continuing operations per basic share......... (g)
Income from continuing operations per diluted share....... (g)
</TABLE>
<TABLE>
<CAPTION>
AT DECEMBER 31, 1997
--------------------------
ACTUAL AS ADJUSTED(I)
-------- --------------
<S> <C> <C>
BALANCE SHEET DATA:
Working capital........................................... $ 65,877 $ 65,877
Total assets.............................................. 163,891 163,891
Total debt................................................ 77,010 31,365
Preferred stock including accrued dividends............... 14,610 --
Shareholders' equity...................................... 19,419
</TABLE>
(footnotes on following page)
9
<PAGE> 11
- ---------------
(a) The Predecessor Company operated as a wholly-owned subsidiary of GPC until
being divested by GPC on January 22, 1996. The financial data for the
Predecessor Company is not entirely comparable to that of the Company due to
certain factors including the following:
(i) The Predecessor Company did not incur any royalty expense for the use
of the Gerber name and baby head logo. During the period from January 22,
1996 to December 31, 1996, and for fiscal year ended December 31, 1997, the
royalty expense to GPC was $1.9 million and $3.5 million, respectively.
(ii) The Predecessor Company's net sales in 1995 included approximately
$8.3 million of net sales at cost to GPC that generated no gross margin.
Net sales to GPC in 1996 and 1997 of approximately $6.2 million and
approximately $4.3 million, respectively, generated gross margins in 1996
and 1997 of approximately $950,000 and $598,000, respectively.
(iii) The Predecessor Company was included in various self-insurance
programs provided by GPC, including medical, dental, workers' compensation,
comprehensive general and excess liability and property damage and business
interruption. GPC also provided management information services to the
Predecessor Company and allocated a portion of the expenses incurred to the
Predecessor Company. In addition, the Predecessor Company was allocated a
portion of legal and professional costs for services directly attributable
to the Predecessor Company. Certain services were provided by GPC's
corporate staff, for which no charge was made to the Predecessor Company.
Management believes the aggregate cost of these unallocated services was
insignificant. The Predecessor Company was charged for all outside legal
and professional expenses directly attributable to it.
(iv) In 1995, the Predecessor Company had no long term debt and was not
charged any interest expense as a subsidiary of GPC.
(v) The provision for income taxes of the Predecessor Company essentially
results from applying the Federal and state statutory rates to the
operations of a stand-alone company.
(b) Excludes the Predecessor Company's unaudited operations for the period
January 1, 1996 through January 21, 1996. See Note (b) to Selected
Consolidated Financial Data.
(c) Includes operating results for Auburn Hosiery Mills, Inc. and Sport Socks
Company (Ireland) Limited ("Sport Socks Ireland") for the period December
17, 1997 through December 31, 1997. See Note (c) to Selected Consolidated
Financial Data.
(d) Represents expense related to stock compensation incurred in connection with
the sale of capital stock to executives and management of the Company below
fair market value. See "Certain Relationships and Related Transactions --
Transactions with Management and Directors."
(e) Represents unamortized loan costs and prepayment penalty totaling $708 (net
of an income tax benefit of $452) expensed in connection with the
replacement of the Company's then existing credit facility with the Credit
Agreement (as defined herein).
(f) As adjusted for the Acquisition, the Reorganization, the Offering and the
application of the estimated net proceeds therefrom, assuming completion of
such events as of January 1, 1997.
(g) Weighted average shares outstanding used (i) for the computation of income
from continuing operations per basic share was shares and (ii) for
the computation of income from continuing operations per diluted share was
shares.
(h) As further adjusted to exclude $9.5 million of stock compensation ($5.8
million after-tax). See Note (d) above.
(i) As adjusted for the Reorganization and the Offering and the application of
the estimated net proceeds therefrom, assuming completion of both as of
January 1, 1997.
10
<PAGE> 12
RISK FACTORS
The following risk factors should be considered carefully in addition to
the other information contained in this Prospectus before purchasing the Common
Stock offered hereby. This Prospectus contains forward-looking statements that
involve risks and uncertainties. Actual results could differ materially from
those discussed herein. Factors that could cause or contribute to such
differences include, but are not limited to, those discussed below and in the
section entitled "Management's Discussion and Analysis of Financial Condition
and Results of Operations," as well as those discussed elsewhere in this
Prospectus.
DEPENDENCE ON GERBER LICENSE AND OTHER INTELLECTUAL PROPERTY
The Company is largely dependent on the use of the Gerber name. The Gerber
name and trademark are exclusively licensed to the Company from GPC for use on
certain clothing and textile products in the infant and toddler apparel market
sold in the United States, Canada and the Caribbean. The terms and conditions
for use of the Gerber name for other product categories and geographic areas
must be negotiated by the Company on an individual basis. The Gerber license
extends through 2006, after which there are two five-year renewal periods. See
"Business -- Licensing and Trademarks." The loss or limitation of the right to
use the Gerber name would have a material adverse effect on the Company's
results of operations. GPC retains the rights under the license to produce,
distribute, advertise and sell, and to authorize others to produce, distribute,
advertise and sell, products under the Gerber name other than clothing and
textile products. Negative publicity related to the Gerber name caused by
actions not related to the Company or the Company's products could have a
material adverse effect on the Company's results of operations. The Company is
not required to pay royalty fees to GPC until 2002 (although the Company is
recording royalty expense to reflect such fees). The initiation of such royalty
payments may adversely affect the Company's cash flow. See "Management's
Discussion and Analysis of Financial Condition and Results of
Operations--Liquidity and Capital Resources."
The Company also licenses the Baby Looney Tunes brand name from the Warner
Brothers division of Time-Warner, Inc. ("Warner Brothers") and the Curity brand
name from The Kendall Company. The Company is licensed to use the Baby Looney
Tunes brand name in the U.S. and the Curity brand name in the U.S. and
internationally. The Baby Looney Tunes and Curity licenses are limited to
certain product categories. The Curity license automatically renews for periods
of ten years. The Baby Looney Tunes license expired on September 30, 1997 and
was verbally extended until December 31, 1997. Based on discussions with Warner
Brothers, the Company continues to operate under the Baby Looney Tunes license
consistent with past practice. The Company qualifies for a three-year renewal
option under the license. The royalty terms for the renewal have been set and
the Company is currently negotiating a renewal that will extend until December
31, 2000. The Company owns the Onesies trademark. The loss or limitation of the
right to use these names could have a material adverse effect on the Company's
results of operations.
Auburn also licenses properties from different companies for its products.
The license from Wilson Sporting Goods Co. ("Wilson") expires in 2002 with a
five year renewal period if certain sales targets are exceeded. Auburn has held
this license since 1982. The license from Wilson can be terminated by Wilson if
the employment of either Kevin K. Angliss or Donald J. Murphy with Auburn
terminates. The license from Converse Inc. ("Converse") expires on December 31,
2001 with an obligation to enter into good faith discussions in 2001 with
respect to a new three year contract. This license can be terminated by Converse
if Kevin K. Angliss and Timothy Graham are no longer the principal managers of
Auburn's Converse-brand product line. Messrs. Angliss, Murphy and Graham have
not entered into employment agreements with Auburn. The Coca-Cola Company
("Coca-Cola") license expires on December 31, 1998 (with a three-year renewal
period). The license from Dunlop Slazenger International Ltd. ("Dunlop") expires
in 2001 (with a five year renewal period if certain sales targets are exceeded).
All of these licenses have particular geographic and other limitations, and the
Company negotiates the terms and conditions for the use of such trademarks
outside such limitations on an individual basis. The loss or limitation of the
right to use the Wilson name would have a material adverse effect on Auburn's
results of operations. The loss or limitation of the right to use the Coca-Cola,
Converse or Dunlop names would have an adverse effect on Auburn's results of
operations.
11
<PAGE> 13
There are risks associated with the financial condition of the Company's
licensors which are beyond the control of the Company. In the event that a case
under the Federal bankruptcy laws is commenced by or against any licensor in the
future, the trustee in the bankruptcy case or the licensor, as
debtor-in-possession, may have the right to reject such licensor's license
agreement. While the Company is not aware of any facts which would make such
termination or rejection reasonably likely to occur, in the event of any such
termination or rejection, the Company would lose its right to use the licensed
intellectual property.
The Company believes that its trademarks and other proprietary rights are
material to its success and its competitive position. Accordingly, the Company
and its licensors devote substantial resources to the establishment and
protection of their trademarks on a worldwide basis. There can be no assurance
that the actions taken by the Company and its licensors to establish and protect
their trademarks and other proprietary rights will be adequate to protect the
Company's intellectual property or to prevent imitation of its products by
others. Moreover, no assurance can be given that others will not assert rights
in, or ownership of, trademarks and other proprietary rights of the Company or
that the Company will be able to successfully resolve such conflicts. In
addition, the laws of certain foreign countries may not protect proprietary
rights to the same extent as do the laws of the United States. See
"Business -- Licensing and Trademarks."
DEPENDENCE ON SALES TO A LIMITED NUMBER OF LARGE CUSTOMERS
Certain of the Company's volume retailer and mid-tier department store
customers account for significant portions of the Company's net sales. Gerber
directly services approximately 1,100 retail accounts, with the Company's top 10
customers representing approximately 85% of total 1997 sales. Sales to Wal-Mart,
which accounted for a significant percentage of the net sales of infant and
toddler apparel in the U.S. in 1997, constituted approximately 44% of Gerber's
sales during 1997. Sales to Wal-Mart constituted approximately 48% of Auburn's
sales during 1997. No other customer accounted for more than 10% of the
Company's 1997 sales on a pro forma basis. The Company generally does not enter
into long-term agreements with any of its customers. A decision by any
significant customer or group of stores, whether motivated by competitive
conditions, financial difficulties or otherwise, to decrease the amount of
merchandise purchased from the Company, or to change its manner of doing
business, could have a material adverse effect on the Company's financial
condition and results of operations. See "Business -- Customers."
In recent years, the retail industry has experienced consolidation and
other ownership changes. In addition, some of the Company's customers have
operated and currently operate under the protection of the federal bankruptcy
laws. In the future, retailers in the U.S. and in foreign markets may
consolidate, undergo restructurings or reorganizations, or realign their
affiliations, any of which could decrease the number of stores that carry the
Company's products or increase the ownership concentration within the retail
industry. While such changes in the retail industry to date have not had a
material adverse effect on the Company's business or financial condition, there
can be no assurance as to the future effect of such changes.
COMPETITION
The infant and toddler apparel market is highly competitive. Both branded
and private label manufacturers compete in the infant and toddler apparel
markets. Competition generally is based upon product quality, brand name
recognition, price, selection, service and convenience. Gerber's primary
competitors include Fruit of the Loom, Inc. ("Fruit of the Loom"), the Hanes
subsidiary of the Sara Lee Corporation ("Hanes"), The William Carter Company
("Carter's"), licensed products and firms using character licenses from Walt
Disney Company, Inc. ("Disney") and others. Gerber also competes with certain
retailers, including several which are customers of the Company, which have
significant private label products offerings. Certain of Gerber's competitors
have greater financial resources than the Company. Gerber's ability to compete
depends, in substantial part, on the continued high regard for the Gerber brand
name and the ability of Gerber to continue to offer high-quality garments at
competitive prices.
The hosiery industry is highly fragmented and has significant branded and
private label components. Competition is generally in terms of price, quality,
service, brand recognition and style. Auburn's primary competitors include
Hanes, which has the largest share of the market, Renfro Corporation ("Renfro"),
12
<PAGE> 14
Neuville Industries, Inc. ("Neuville") and the Russell Corporation ("Russell").
Auburn also competes with certain retailers, including several which are
customers of the Company, which have significant private label product
offerings. In addition, Auburn competes with private label manufacturers,
including small, local manufacturers and large, public companies that have
greater financial resources than the Company and larger customer bases. See
"Business -- Competition."
RECENT ACQUISITION
The Company acquired the capital stock of Auburn in December 1997. The
ability of the Company to achieve its objectives in connection with the
Acquisition are, as with any acquisition, subject to certain risks including,
among others, the possible inability to retain certain Auburn personnel,
potential negative effects of diverting management resources and the possible
failure to retain Auburn's customers. None of Auburn's executive officers have
entered or are expected to enter into employment agreements with the Company. In
connection with the Offering, however, these executives shall receive stock
options which shall be subject to vesting and forfeiture provisions. Moreover,
under the terms of Auburn's license with Wilson, Auburn and Gerber are not
permitted to consolidate their top management team, sales force, distributors,
customer service and manufacturing functions and are not permitted to commingle
product lines. As a result, there can be no assurance that the expected benefits
from the Auburn acquisition, including certain economies of scale and
efficiencies, will be achieved on a timely basis or at all.
DEPENDENCE ON KEY PERSONNEL
The Company is dependent to a large extent on its ability to attract,
motivate and retain an adequate labor force, including management, sales,
design, art, manufacturing, merchandising and other personnel. The Company is
also dependent to a significant extent upon the continued efforts of its senior
management team, including its Chairman, President and Chief Executive Officer,
Edward Kittredge, its Senior Vice President, Richard L. Solar and its Vice
President of Finance, Secretary and Treasurer, David E. Uren. The Company has
entered into employment agreements with the above-named executive officers which
expire in 2001. If, for any reason, such executives do not continue to be active
in management, the Company's operations could be materially adversely affected.
The Company does not maintain key-man life insurance policies on any of its
executive officers or key employees. After the consummation of the Offering, the
Company's executive officers and key employees will own shares of
Common Stock, representing on a diluted basis an approximately %
aggregate ownership interest. See "Management" and "Principal Stockholders."
RISKS OF THIRD PARTY MANUFACTURING AND SOURCING
The Company manufactures its products both in the U.S. and abroad and also
purchases certain products manufactured by independent manufacturers. During
1997, pro forma for the Acquisition, approximately 30% of the Company's products
(based on cost) were manufactured by third party independent manufacturers
(including some manufacturers located outside of the United States). The
inability of an independent manufacturer to ship orders of the Company's
products in a timely manner or to meet the Company's quality standards could
cause the Company to miss the delivery date requirements of its customers for
those items, which could result in cancellation of orders, refusal to accept
deliveries or a reduction in purchase prices, any of which could have a material
adverse effect on the Company's financial condition and results of operations.
The Company generally has no long-term contracts with its independent
manufacturing sources and competes with other companies for production
facilities and import quota capacity. No single independent manufacturer engaged
by the Company accounted for more than 5% of the Company's pro forma total
production in 1997. Although the Company believes that it has established close
relationships with its principal manufacturing sources, the Company's future
success will depend in some measure on its ability to maintain such
relationships.
The Company requires its independent manufacturers to operate in compliance
with applicable laws and regulations, including laws and regulations governing
the fire retardancy of certain of the Company's products. The Company monitors
the independent manufacturers' compliance with the Company's quality assurance
13
<PAGE> 15
guidelines and other applicable regulations through both internal and external
quality assurance inspectors. Additionally, all of the Company's licensors have
the right to, and may from time to time, perform independent inspections of
facilities utilized by the Company. While the Company's purchasing guidelines
promote ethical business practices, the Company does not control such
manufacturers or their labor practices. The violation of labor or other laws by
an independent manufacturer of the Company, or the divergence of an independent
manufacturer's labor practices from those generally accepted as ethical in the
United States, could have a material adverse effect on the Company. See
"Business -- Gerber -- Manufacturing and Sourcing -- Quality Control."
COSTS OF RAW MATERIALS AND SUPPLIER RELATIONSHIPS
The Company depends on certain raw materials such as yarn for the
manufacturing of its products. In order to hedge against price increases of
yarn, the Company actively manages its cost through contracts with its yarn
suppliers with terms of up to one year. This practice generally has enabled the
Company to successfully manage the effect of price fluctuations; however, no
assurance can be given that the Company will continue to be successful in
managing such price fluctuations or that future price fluctuations in yarn and
other raw materials will not have a material adverse effect on the Company. To
date, the Company has not experienced any difficulty in obtaining yarn and other
raw materials. However, there can be no assurance that any of such supplier
relationships will not be terminated in the future. Any sustained interruption
in the Company's receipt of adequate supplies could have a material adverse
effect on the Company.
RISKS ASSOCIATED WITH FOREIGN OPERATIONS AND IMPORT RESTRICTIONS
A significant percentage of the Company's products are manufactured outside
of the United States, both by the Company in the Dominican Republic and Ireland
and by independent manufacturers in a number of other foreign countries,
including China, Guatemala, Indonesia, Mexico, the Philippines, Taiwan and
Thailand. The Company is therefore subject to the risks generally associated
with manufacturing or purchasing products in foreign countries, such as foreign
governmental regulations, changes in existing tax laws, social, political or
economic instability, currency and exchange risks, disruptions or delays in
shipments, restrictions on the transfer of funds and changes in economic
conditions in countries in which the Company's manufacturing sources are
located, including any risks associated with the loss of China's most favored
nation status.
In addition, the Company depends on exporters to obtain certain raw
materials and products. Many of these exporters finance their working capital by
obtaining "packing" loans which are backed by letters of credit. As a result of
the recent financial and economic instability in Southeast Asia, some exporters
have experienced difficulty obtaining such loans and, consequently, have been
forced to discontinue operations. None of the Company's exporters have ceased
operations at this time; however, the Company's operations could be disrupted if
one or more of the Company's larger exporters are forced to terminate their
exporting activities.
The Company is subject to United States regulations, and the risk of the
imposition of additional regulations, relating to apparel imports, including
quotas on the amounts and types of merchandise which may be imported into the
United States from other countries, duties or taxes and other charges on
imports. The Company is currently in compliance with these regulations in all
material respects; however, failure to comply in the future with these
regulations could result in a delay in clearing shipments through customs, which
could have an adverse effect on the Company's operations. The Company has
adopted procedures designed to ensure compliance with customs regulations and
has retained an outside consultant to regularly review such procedures and the
Company's customs filings for accuracy and completeness. See
"Business -- Gerber -- Manufacturing and Sourcing -- Quality Control."
The Company's import operations are subject to constraints imposed by
bilateral textile agreements between the United States and a number of foreign
countries. These agreements, which have been negotiated bilaterally either under
the framework established by the Arrangement Regarding International Trade in
Textiles, known as the Multifiber Agreement, or other applicable statutes,
impose quotas on the amounts and
14
<PAGE> 16
types of merchandise which may be imported into the United States from these
countries. These agreements also allow the signatories to adjust the quantity of
imports for categories of merchandise that, under the terms of the agreements,
are not currently subject to specific limits. The Company's imported products
are also subject to United States customs duties which comprise a meaningful
portion of the cost of the merchandise.
RISK OF FLUCTUATION IN FOREIGN CURRENCY EXCHANGE RATES
Gerber generally conducts transactions in U.S. dollars. However, a portion
of Auburn's sales and costs are transacted in foreign currencies. As such, the
sales and costs of these products may be affected by changes in the value of the
relevant foreign currencies. During 1997, on a pro forma basis, approximately 7%
of the Company's revenues and 8% of the Company's expenses were denominated in
currencies other than U.S. dollars. The Company's exposure to changes in foreign
currency exchange rates results from the operations of and investment in
Auburn's Irish subsidiary. With respect to such subsidiary, changes in currency
exchange rates may also affect the relative prices at which the Irish subsidiary
and foreign competitors sell their products in the same market. Following the
Acquisition, the Company adopted a foreign exchange policy which will be
implemented in Auburn's Irish subsidiary for the purpose of managing its day-
to-day exposure. The policy mandates a short-term hedging program for its
existing and potential exposures to changes in foreign currency exchange rates.
There are currently foreign exchange contracts in place covering amounts in
excess of the Company's policy, which the Company expects will be reduced to
current policy levels by the end of the second quarter of 1998. There can be no
assurance that foreign currency fluctuations will not have a material adverse
effect on Auburn's financial condition and results of operations, which, in
turn, could have a material adverse effect on the Company. The Company views its
investment in the Irish subsidiary as long term and, therefore, has not hedged
against either its investment or future earnings. See "Management's Discussion
and Analysis of Financial Condition and Results of Operations -- Fluctuation of
Foreign Currency Exchange Rates."
COST OF ENVIRONMENTAL COMPLIANCE
The Company's manufacturing facilities and operations are subject to
certain federal, state, local and foreign laws and regulations relating to
environmental protection and occupational health and safety, including those
governing wastewater discharges, air emissions, the management and disposal of
solid and hazardous wastes, and the remediation of contamination associated with
the release of hazardous substances. The Company believes that it is in
substantial compliance with such requirements, and does not currently anticipate
any material capital expenditures for environmental control facilities for the
current or succeeding fiscal year. Nonetheless, there can be no assurance that
such requirements will not become more stringent or be interpreted and applied
more stringently. Such future changes or interpretations or the identification
of adverse environmental conditions previously unknown to the Company could
result in additional compliance costs or in remediation costs to the Company.
The Company's older facilities contain asbestos materials and lead-based paint.
It is the Company's policy to manage these materials on an as-needed basis. If,
however, the Company decides to renovate these facilities, special removal or
encapsulation efforts will be required to prevent worker exposure to these
materials. The cost of such efforts could be material. See "Business --
Environmental and Other Regulatory Matters."
CONTROL BY EXECUTIVE OFFICERS AND CURRENT STOCKHOLDERS
Following consummation of the Offering and the Reorganization, management
will hold approximately % and CVC and its affiliates will hold
approximately 19% of the outstanding shares of Common Stock. CVC and its
affiliates will also hold shares of Class B Common Stock, convertible at the
holder's option into shares of Common Stock representing % of the
outstanding Common Stock. As a result, if CVC and its affiliates convert their
shares of Class B Common Stock into shares of Common Stock, CVC and its
affiliates will have sufficient voting power to elect the Company's board of
directors and determine the results of other matters submitted to a vote of
stockholders. In addition, Mr. Kittredge's employment agreement provides that he
will be the Chairman of the Board and Chief Executive Officer of the Company.
The concentration of ownership may have the effect of delaying or preventing a
change of control of the Company.
15
<PAGE> 17
In addition, there can be no assurance that in any transfer of a controlling
interest in the Company any other holders of Common Stock will be allowed to
participate in any such transaction or will realize any premium with respect to
their shares. See "Principal Stockholders."
SHARES ELIGIBLE FOR FUTURE SALE; REGISTRATION RIGHTS
Sales of a substantial number of shares of Common Stock in the public
market or the perception that such sales could occur could adversely affect
prevailing market prices for the Common Stock. Upon completion of the Offering,
the Company will have shares of Common Stock outstanding and
shares of Class B Common Stock outstanding. Of such shares, the
shares of Common Stock being sold in the Offering (together with any
shares sold upon exercise of the Underwriters' over-allotment option) will be
immediately eligible for sale in the public market without restriction, except
for shares purchased by or issued to any affiliate of the Company. CVC and its
affiliates have certain demand registration rights with respect to the Common
Stock and Class B Common Stock of the Company held by them. All stockholders of
the Company immediately prior to the Offering have piggyback rights with respect
to sales of stock by the Company, and in the case of holders other than CVC and
its affiliates, piggyback rights with respect to sales by CVC or its affiliates.
In connection with the Offering, the Company's officers and directors and
all existing stockholders have agreed not to dispose of any shares of Common
Stock for a period of 180 days from the date of this Prospectus, or to make any
demand for or exercise any right with respect to the registration of the shares
for such 180 day period, and the Company has agreed not to dispose of any shares
(other than issuances by the Company of certain employee stock options and
shares covered thereby) for a period of 180 days from the date of this
Prospectus, without the prior written consent of Merrill Lynch, Pierce, Fenner &
Smith Incorporated, on behalf of the Underwriters. All existing stockholders
have also waived all rights to register securities owned by them in connection
with the Offering.
Upon expiration of the 180-day lockup period, shares of
Common Stock will be eligible for sale subject to certain volume and other
limitations imposed by Rule 144 under the Securities Act. In addition,
shares of Class B Common Stock will be outstanding and convertible at the
holder's option into shares of Common Stock. The sale of a substantial number of
shares held by the existing stockholders, whether pursuant to a subsequent
public offering or otherwise, or the perception that such sales could occur,
could adversely affect the market price of the Common Stock and could materially
impair the Company's future ability to raise capital through an offering of
equity securities. See "Shares Eligible for Future Sale," "Description of
Capital Stock" and "Underwriting."
ABSENCE OF DIVIDENDS; RESTRICTION ON PAYMENT OF DIVIDENDS
The Company does not expect to pay dividends for the foreseeable future.
The Company's Credit Agreement restricts the ability of the Company to pay
dividends on the Common Stock. See "Dividend Policy" and "Description of Certain
Indebtedness."
CERTAIN ANTI-TAKEOVER PROVISIONS
The Company's certificate of incorporation and bylaws contain certain
provisions that could make more difficult the acquisition of the Company by
means of tender offer, a proxy contest or otherwise. The Company's charter
establishes an advance notice procedure for stockholder nominations of persons
for election to the board of directors in advance of an annual meeting of
stockholders of the Company. Stockholders at an annual meeting may only consider
nominations specified in the notice of meeting or brought before the meeting by
or at the direction of the board of directors, or by a stockholder who was a
stockholder of record on the record date for the meeting, who is entitled to
vote at the meeting, and who has given to the Company's Secretary timely written
notice, in proper form, of the stockholder's intention to make such nomination
before the annual meeting. An amendment to this provision would require approval
by an affirmative vote of holders of 66 2/3% of the shares of voting stock of
the Company. The Company's charter
16
<PAGE> 18
provides for cumulative voting in the election of directors. See "Description of
Capital Stock -- Certain Provisions of the Company's Amended and Restated
Certificate of Incorporation."
DILUTION
The initial public offering price will be substantially higher than the net
tangible book value per share of Common Stock. Investors purchasing shares of
Common Stock will therefore incur immediate and substantial dilution. See
"Dilution."
NO PRIOR PUBLIC MARKET; POTENTIAL VOLATILITY OF STOCK PRICE
Prior to the Offering, there has been no public market for the Common
Stock. Although application has been made for listing the Common Stock on the
New York Stock Exchange, there can be no assurance that an active trading market
for the Common Stock will develop or be sustained following the Offering or that
the market price of the Common Stock will not decline below the initial public
offering price. The initial public offering price of the Common Stock offered
hereby will be determined by negotiations between the Company and the
Underwriters and may not be indicative of future market prices. The price at
which the Common Stock will trade will depend upon a number of factors,
including, but not limited to, the Company's historical and anticipated
quarterly and annual operating results, variations between such results and
analyst and investor expectations, investor perceptions of the Company and
comparable public companies, changes in the industries in which the Company
operates or in the industries of the Company's significant customers, and
general market and economic conditions, some of which factors are beyond the
Company's control. The stock market has from time to time experienced extreme
price and volume fluctuations. See "Underwriting."
17
<PAGE> 19
USE OF PROCEEDS
The net proceeds to the Company from the Offering are estimated to be $46.0
million, assuming an initial public offering price of $ per share (based on
the midpoint of the price range as set forth on the cover of the Prospectus),
after deducting the estimated underwriting discount and offering expenses
payable by the Company ($53.0 million if the Underwriters' over-allotment option
is exercised in full). The Company intends to use such net proceeds: (i) to
repay a senior subordinated note in the aggregate principal amount of $22.5
million held by Citicorp Mezzanine Partners, L.P. ("CMP") (the "CMP Senior
Note"), (ii) to repay a junior subordinated note (the "GPC Junior Note") in the
aggregate principal amount of $11.0 million held by GPC (the "GPC Junior Note"),
(iii) to repay certain other indebtedness of the Company in the aggregate
principal amount of $12.1 million and (iv) to redeem certain shares of GCIH's
preferred stock in connection with the Reorganization in the aggregate amount of
$355,000. See "Description of Certain Indebtedness" and "Certain Relationships
and Related Transactions -- Merger and Conversion of GCIH Stock." The Company
will use any net proceeds received upon the exercise of the Underwriters'
over-allotment option for general corporate purposes, which may include the
repayment of additional indebtedness.
The CMP Senior Note bears interest at a rate of 12.00% payable
semi-annually on January 15 and July 15, matures in equal installments on
January 22, 2003 and January 22, 2004 and was originally issued in connection
with the Original Acquisition. The GPC Note bears interest at a rate of 12.00%
payable annually in arrears, matures on January 22, 2006 and was originally
issued in connection with the Original Acquisition. Dividends on the Preferred
Stock accrue at a rate of 12.00% per annum of the "Liquidation Value." For such
purposes, "Liquidation Value" is equal to $100 plus any accrued and unpaid
dividends thereon. The preferred stock is redeemable by the Company on January
31, 2007 or any time prior thereto, in whole or in part, at a price per share
equal to the Liquidation Value plus accrued and unpaid dividends thereon. The
term loan portion of the Credit Agreement bears interest at a rate equal to
either (a) the Base Rate plus the Applicable Percentage or (b) the Eurodollar
Rate plus the Applicable Percentage (each such term as defined in the Credit
Agreement). Such rate is determined at the Borrower's option, and was 7.41% as
of February 27, 1998. The term loan portion of the Credit Agreement matures on
September 30, 2002 and was originally incurred in connection with the
Acquisition.
DIVIDEND POLICY
The Company has not paid any dividends with respect to the Common Stock.
The Company presently intends to retain future earnings to finance its growth
and development and therefore does not expect to pay any cash dividends in the
foreseeable future. In addition, the Credit Agreement restricts the payment of
cash dividends by the Company (subject to certain limited exceptions), and the
Company may in the future enter into loan or other agreements or issue debt
securities or preferred stock that restrict the payment of dividends. The
declaration and payment of dividends by the Company are subject to the
discretion of the Board of Directors of the Company (the "Board"). Any future
determination to pay dividends will depend on the Company's results of
operations, financial condition, capital requirements, contractual restrictions
and other factors deemed appropriate by the Board.
18
<PAGE> 20
CAPITALIZATION
The following table sets forth the capitalization of the Company as of
December 31, 1997 (i) as adjusted to give effect to the Reorganization and (ii)
as further adjusted to reflect the Offering and the application of the estimated
net proceeds therefrom, assuming an initial public offering price of $ per
share (based on the midpoint of the price range as set forth on the cover of the
Prospectus), and as described in "Use of Proceeds." This table should be read in
conjunction with the "Selected Financial Information," the Unaudited Pro Forma
Condensed Consolidated Statement of Operations and the audited consolidated
financial statements and related notes thereto included elsewhere in this
Prospectus.
<TABLE>
<CAPTION>
AT DECEMBER 31, 1997
------------------------------------
ADJUSTED FOR PRO FORMA
REORGANIZATION(a) ADJUSTED(b)
--------------------- -----------
(IN THOUSANDS, EXCEPT SHARE DATA)
<S> <C> <C>
Current debt:
Revolving credit loans (c)................................ $ 250 $ 250
Current portion of long-term debt......................... 7,286 7,286
-------- --------
Total current debt................................ 7,536 7,536
======== ========
Long-term debt, net of current portion:
Term loan portion of Credit Agreement..................... 32,000 19,855
Senior subordinated note payable.......................... 22,500 --
Junior subordinated note payable.......................... 11,000 --
Other long-term debt...................................... 3,974 3,974
-------- --------
Total long-term debt.............................. 69,474 23,829
Shareholder's equity:
Common Stock, par value $.01 per share, shares
authorized; shares outstanding, as adjusted for
Reorganization; shares outstanding pro forma
adjusted...............................................
Common Stock, Class B, par value $.01 per share, shares
authorized; shares outstanding, as adjusted for
Reorganization; shares outstanding pro forma
adjusted...............................................
Detachable stock warrants................................... 189 189
Additional paid-in-capital.................................. 20,609
Retained earnings........................................... 13,526 13,217
-------- --------
Less unearned compensation under restricted stock plan...... (767) (767)
-------- --------
Total shareholders' equity................................
-------- --------
Total capitalization.............................. $ $
======== ========
</TABLE>
- ---------------
(a) See "Certain Relationships and Related Transactions -- The Reorganization."
(b) Additionally, $355 of net proceeds of the Offering will be used to redeem
certain shares of GCIH's preferred stock in connection with the
Reorganization. See "Certain Relationships and Related
Transactions -- Transactions with Management and Directors."
(c) The Company had approximately $47,000 of availability under the Credit
Agreement at January 24, 1998.
19
<PAGE> 21
DILUTION
As of December 31, 1997, the Company had a net tangible book value of
approximately $ , or $ per share of Common Stock. "Net
tangible book value" per share of Common Stock represents the difference between
the net tangible assets and the liabilities of the Company, on a consolidated
basis, divided by the total number of shares of Common Stock outstanding.
Without taking into account any changes in the net tangible book value after
December 31, 1997, other than to give effect to (i) the Reorganization and (ii)
the Offering and the application of the estimated net proceeds therefrom,
assuming an initial public offering price of $ (based on the midpoint
of the price range as set forth on the cover of the Prospectus), the pro forma
net tangible book value of the Company at December 31, 1997 would have been
approximately $ , or $ per share. This represents an immediate
increase in net tangible book value of $ per share of Common Stock to
existing stockholders and an immediate dilution of $
per share to new investors. The following table illustrates this per share
dilution:
<TABLE>
<S> <C> <C>
Assumed initial public offering price per share............. $
Actual deficit in net tangible book value per share as of
December 31, 1997...................................... $
Increase in net tangible book value per share attributable
to the issuance of Class B Common Stock................
Increase in net tangible book value per share attributable
to the Offering........................................
------
Pro forma net tangible book value per share as of ...
------
Immediate dilution per share to new investors in the
Offering.................................................. $ (a)
======
</TABLE>
- ---------------
(a) If the Underwriters' over-allotment option is exercised in full, dilution to
new investors will be $ per share.
The following table summarizes, on a pro forma basis as of December 31,
1997, the number of shares of Common Stock purchased from the Company, the
estimated value of the total consideration or value paid or deemed attributable
thereto and the average price per share paid by or attributable to existing
stockholders and the new investors purchasing shares in the Offering.
<TABLE>
<CAPTION>
SHARES OF AVERAGE PRICE
COMMON STOCK TOTAL CONSIDERATION PER SHARE OF
------------------ ------------------- COMMON
NUMBER PERCENT AMOUNT PERCENT STOCK
------- ------- -------- ------- -------------
<S> <C> <C> <C> <C> <C>
Current stockholders............ % $ % $
New investors...................
------- -- -------- --
Total.................
======= == ======== ==
</TABLE>
The foregoing computations assume no exercise of stock options and warrants
after December 31, 1997. As of December 31, 1997, there were outstanding stock
options and warrants to purchase an aggregate of shares of Common
Stock at a weighted average exercise price of approximately $ per share. If
all of the foregoing warrants had been exercised at December 31, 1997, the net
tangible book value per share of Common Stock at such date would have been
$ and the pro forma net tangible book value per share after giving
effect to the Reorganization and the Offering would have been $ ,
representing an immediate dilution to new investors of $ per share and an
immediate increase in net tangible book value of $ per share attributable to
the Reorganization and the Offering.
20
<PAGE> 22
SELECTED CONSOLIDATED FINANCIAL DATA
The following table presents (i) selected historical consolidated financial
data of the Predecessor Company for the year ended and as of December 31, 1995
and (ii) selected historical consolidated financial information of the Company
for the period from January 22, 1996 to December 31, 1996, the year ended
December 31, 1997 and at December 31, 1996 and 1997. The selected consolidated
financial data of the Predecessor and the Company have been derived from the
financial statements of the Predecessor and the Company, respectively, which
have been audited by Ernst & Young LLP and included elsewhere in this
Prospectus. The selected consolidated financial data should be read in
conjunction with "Management's Discussion and Analysis of Financial Condition
and Results of Operations," the financial statements and notes thereto included
elsewhere in this Prospectus.
<TABLE>
<CAPTION>
PREDECESSOR
COMPANY (a) COMPANY
------------ ----------------------------
PERIOD FROM
JANUARY 22,
YEAR ENDED 1996 TO YEAR ENDED
DECEMBER 31, DECEMBER 31, DECEMBER 31,
1995 1996 (b) 1997 (c)
------------ ------------ ------------
<S> <C> <C> <C>
STATEMENT OF OPERATIONS DATA:
Net sales........................................... $197,401 $185,223 $202,037
Cost of sales....................................... 156,434 138,608 146,294
-------- -------- --------
Gross margin........................................ 40,967 46,615 55,743
Selling, general and administrative expenses........ 24,633 23,894 27,766
Stock compensation(d)............................... -- -- 9,465
Other............................................... -- 689 231
-------- -------- --------
Total operating expenses............................ 24,633 24,583 37,462
-------- -------- --------
Income before interest and income taxes............. 16,334 22,032 18,281
Interest expense, net............................... -- 6,308 5,798
-------- -------- --------
Income before income taxes and extraordinary item,
net.............................................. 16,334 15,724 12,483
Provision for income taxes.......................... 6,270 6,244 4,764
-------- -------- --------
Income before extraordinary item, net............... 10,064 9,480 7,719
Extraordinary item, net (e)......................... -- -- (708)
Less preferred stock dividends...................... -- (1,328) (1,637)
-------- -------- --------
Net income available to common shareholders......... $ 10,064 $ 8,152 $ 5,374
======== ======== ========
</TABLE>
<TABLE>
<CAPTION>
AT DECEMBER 31,
------------------------------
1995 1996 1997
-------- -------- --------
(IN THOUSANDS)
<S> <C> <C> <C>
BALANCE SHEET DATA:
Working capital........................................... $ 69,591 $ 56,205 $ 65,877
Total assets.............................................. 103,196 106,060 163,891
Total debt................................................ -- 43,436 77,010
Preferred stock including accrued dividends............... -- 13,068 14,610
Investment by GPC......................................... 79,129 -- --
Shareholders' equity...................................... -- 9,101 19,419
</TABLE>
(footnotes on following page)
21
<PAGE> 23
- ---------------
(a) The Predecessor Company operated as a wholly-owned subsidiary of GPC until
being divested by GPC on January 22, 1996. The financial data for the
Predecessor Company is not entirely comparable to that of the Company due to
certain factors including the following:
(i) The Predecessor Company did not incur any royalty expense for the use
of the Gerber name and baby head logo. During the period from January 22,
1996 to December 31, 1996, and for fiscal year ended December 31, 1997, the
royalty expense to GPC was $1.9 million and $3.5 million, respectively.
(ii) The Predecessor Company's net sales in 1995 included approximately
$8.3 million of net sales at cost to GPC that generated no gross margin.
Net sales to GPC in 1996 and 1997 of approximately $6.2 million and
approximately $4.3 million, respectively, generated gross margins in 1996
and 1997 of approximately $950,000 and $598,000, respectively.
(iii) The Predecessor Company was included in various self-insurance
programs provided by GPC, including medical, dental, workers' compensation,
comprehensive general and excess liability and property damage and business
interruption. GPC also provided management information services to the
Predecessor Company and allocated a portion of the expenses incurred to the
Predecessor Company. In addition, the Predecessor Company was allocated a
portion of legal and professional costs for services directly attributable
to the Predecessor Company. Certain services were provided by GPC's
corporate staff, for which no charge was made to the Predecessor Company.
Management believes the aggregate cost of these unallocated services was
insignificant. The Predecessor Company was charged for all outside legal
and professional expenses directly attributable to it.
(iv) In 1995, the Predecessor Company had no long term debt and was not
charged any interest expense as a subsidiary of GPC.
(v) The provision for income taxes of the Predecessor Company essentially
results from applying the Federal and state statutory rates to the
operations of a stand-alone company.
At August 25, 1994 in connection with the purchase of GPC by Sandoz, Ltd.,
the Predecessor Company transitioned its books and records to be in
conformity with International Accounting Standards. The Predecessor
Company's books and records for 1995 were since reconstructed to be in
conformity with U.S. generally accepted accounting principles.
(b) Excludes the Predecessor Company's unaudited operations summarized below for
the period January 1, 1996 through January 21, 1996.
<TABLE>
<S> <C>
Net sales..................................... $6,657
Gross margin.................................. 1,070
SG&A expenses................................. 1,386
Loss before interest and income taxes......... (316)
Net loss...................................... (196)
</TABLE>
(c) Includes the following operating results for Auburn and Sport Socks Ireland
for the period December 17, 1997 through December 31, 1997.
<TABLE>
<S> <C>
Net sales..................................... $1,511
Gross margin.................................. 184
SG&A expenses................................. 225
Loss before interest and income taxes......... (41)
Net loss...................................... (28)
</TABLE>
(d) Represents expense related to stock compensation incurred in connection with
the sale of capital stock to executives and management of the Company below
fair market value. See "Certain Relationships and Related Transactions --
Transactions with Management and Directors."
(e) Represents unamortized loan costs and prepayment penalty totaling $708,000
(net of an income tax benefit of $452,000) expensed in connection with the
replacement of the Company's then-existing credit facility with the Credit
Agreement.
22
<PAGE> 24
UNAUDITED PRO FORMA CONDENSED CONSOLIDATED STATEMENT OF OPERATIONS
(IN THOUSANDS, EXCEPT PER SHARE DATA)
The Unaudited Pro Forma Condensed Consolidated Statement of Operations for
the year ended December 31, 1997 gives effect to (a) the Acquisition which
occurred as of December 17, 1997 and (b) the Reorganization and the Offering, as
if such events had occurred on January 1, 1997.
The unaudited pro forma consolidated financial information is based upon
the historical consolidated financial statements of each of the Company, Auburn
Hosiery Mills, Inc. and Sport Socks Ireland and should be read in conjunction
with the financial statements and the related notes thereto included elsewhere
in this Prospectus. The historical financial information of Auburn and Sport
Socks Ireland set forth below covers the period from January 1, 1997 through
December 16, 1997. The historical financial information of Sport Socks Ireland
has been adjusted for inclusion in the Unaudited Pro Forma Condensed
Consolidated Financial Information to conform to U.S. generally accepted
accounting principles and has been translated into U.S. dollars based upon the
average exchange rate of U.S. dollars/Irish pounds for the period January 1,
1997 through December 16, 1997. The Company's historical results of operations
for the year ended December 31, 1997 include the results of operations of Auburn
Hosiery Mills, Inc. and Sport Socks Ireland since December 17, 1997, the
effective date of the Acquisition.
The pro forma financial information presented does not purport to be
indicative of the financial position or operating results which would have been
achieved had the transactions described above taken place at the dates indicated
and are not necessarily indicative of the Company's financial position or
results of operations for any future date or period.
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31, 1997
--------------------------------------------------------------------------------------------
HISTORICAL
--------------------------------
AUBURN ACQUISI- REORGANIZATION PRO
HOSIERY SPORT TION PRO AND FORMA
MILLS, SOCKS ADJUST- FORMA OFFERING AS
GERBER INC. IRELAND MENTS COMBINED ADJUSTMENTS ADJUSTED
-------- ------- ------- -------- -------- -------------- --------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Net sales........................ $202,037 $49,033 $19,030 $270,100 $270,100
Cost of sales.................... 146,294 39,019 13,974 (a) (90) (b) 199,197 199,197
-------- ------- ------- ------- -------- ------- --------
Gross margin..................... 55,743 10,014 5,056 90 70,903 70,903
Operating expenses:
Selling, general and
administrative expenses...... 27,997 7,393 4,024 (a) 1,022 (c) 40,436 40,436
Foreign exchange loss (d)...... -- -- 1,042 1,042 1,042
Stock compensation (e)......... 9,465 -- -- 9,465 9,465
-------- ------- ------- ------- -------- ------- --------
Total operating expenses..... 37,462 7,393 5,066 1,022 50,943 50,943
-------- ------- ------- ------- -------- ------- --------
Income (loss) before interest and
income taxes................... 18,281 2,621 (10) (932) 19,960 19,960
Interest expense................. 5,798 151 71 3,022 (f) 9,219 (5,298)(g) 3,921
177 (h) --
-------- ------- ------- ------- -------- ------- --------
Income (loss) before income
taxes.......................... 12,483 2,470 (81) (4,131) 10,741 5,298 16,039
Provision (benefit) for income
taxes (i)...................... 4,764 939 (38) (1,549) 4,116 1,987 6,103
-------- ------- ------- ------- -------- ------- --------
Income (loss) from continuing
operations (j)................. $ 7,719 $ 1,531 $ (43) $(2,582) $ 6,625 $ 3,311 $ 9,936
======== ======= ======= ======= ======== ======= ========
Income from continuing operations
per basic share................ $ (k)
========
Income from continuing operations
per diluted share.............. $ (k)
========
Weighted average shares
outstanding - basic............
========
Weighted average shares
outstanding - diluted..........
========
</TABLE>
See Notes to Unaudited Pro Forma Condensed Consolidated Statement of Operations
23
<PAGE> 25
NOTES TO THE UNAUDITED PRO FORMA CONDENSED CONSOLIDATED STATEMENT OF OPERATIONS
(IN THOUSANDS)
(a) Reflects reclassification of royalty expense from selling, general and
administrative expenses to cost of sales in conformity with the Company's
reporting practices.
(b) Reflects net adjustments to net carrying value of certain fixed assets of
the acquired companies to reflect fair market value.
(c) Reflects amortization of goodwill and acquisition costs of $20.4 million
resulting from the Acquisition based upon a 20 year estimated period of
benefit.
(d) In connection with the acquisition of Sport Socks Ireland, the Company
adopted an accounting policy to mark to market forward foreign exchange
contracts which hedge anticipated transactions. This adoption was required
to conform Irish generally accepted accounting principles ("GAAP") to U.S.
GAAP and resulted in a $46 adjustment to Sport Socks Ireland's statement of
operations. In addition, $996 of such loss was the result of unrealized
losses in respect of forward foreign currency contracts relating to future
transactions. See "Management's Discussion and Analysis of Financial
Condition and Results of Operations" and the Company's consolidated
financial statements and the notes thereto.
(e) Represents expense related to stock compensation incurred in connection
with the sale of capital stock to executives and management of the Company
below fair market value. See "Certain Relationships and Related
Transactions -- Transactions with Management and Directors."
(f) Reflects interest adjustments in connection with the Acquisition detailed
as follows:
<TABLE>
<S> <C>
Interest expense related to deferred financing cost
amortization associated with the new Credit Agreement $ 208
Interest expense resulting from $40.0 million term loan
under the Credit Agreement assuming scheduled quarterly
principal amortization of $1.5 million with a rate of 7.5% 2,814
------
Adjustment $3,022
======
</TABLE>
(g) Reflects adjustments to interest expense as a result of the Offering:
<TABLE>
<S> <C>
Interest on the $22.5 million Senior Subordinated Note
Payable, one-half of the principal due January 2003 and
balance due January 2004 at an interest rate of 12.00%. $2,738
Interest on the $11.0 million Junior Subordinated Note
Payable, due January 2006 at an interest rate of 12.00%. 1,338
Interest on $12.1 million outstanding under the Credit
Agreement at an estimated interest rate of 8.75% 1,077
Amortization of deferred financing costs on the retired debt 113
Amortization of discount on the $22.5 million Senior
Subordinated Note Payable 32
------
Adjustment $5,298
======
</TABLE>
(h) Reflects adjustment to decrease interest income by $177, in connection with
the settlement of certain intercompany receivables with the previous owner.
(i) Reflects adjustment for Federal and state income taxes based on statutory
rates adjusted for permanent differences such as non-deductible expenses.
(j) Excludes extraordinary item related to unamortized loan costs and
prepayment penalty totaling $708 (net of an income tax benefit of $452)
expensed in connection with the prepayment of the Company's then-existing
credit facility with the Credit Agreement.
(k) Calculated using the weighted average number of shares of Common Stock
outstanding during the period assuming that (i) a to 1 stock split
will occur prior to or contemporaneously with the Offering, (ii) the
majority of the preferred stock issued and outstanding will be converted
into Class B
24
<PAGE> 26
NOTES TO THE UNAUDITED PRO FORMA CONDENSED CONSOLIDATED STATEMENT OF OPERATIONS
(CONTINUED)
(IN THOUSANDS)
Common Stock at the per share offering price, minus underwriters' discount
and (iii) the Offering will generate estimated net proceeds of
approximately $ million as a result of the sale of
shares of Common Stock issued upon consummation of the Offering (as if they
were outstanding as of the beginning of the period, which proceeds shall be
used as described above in "Use of Proceeds").
In connection with the Offering, the deferred financing costs associated
with the subordinated debt to be repaid with the Offering proceeds will be
written off along with the unamortized discount associated with such debt
as an extraordinary item in 1998. This extraordinary item is estimated to
be approximately $309 (net of a tax benefit of $185), and is excluded from
the pro forma, as adjusted income from continuing operations.
25
<PAGE> 27
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
The following discussion and analysis should be read in conjunction with
"Selected Consolidated Financial Data" and the Company's consolidated financial
statements and notes thereto included elsewhere in this Prospectus. Except for
the historical information contained herein, the discussion in this Prospectus
contains forward-looking statements that involve risks and uncertainties, such
as statements of the Company's plans, objectives, expectations and intentions.
The cautionary statements made in this Prospectus should be read as being
applicable to all related forward-looking statements wherever they appear in
this Prospectus. The Company's actual results could differ materially from those
discussed here. Factors that could cause or contribute to such differences
include, but are not limited to, those discussed below and in the section
entitled "Risk Factors," as well as those discussed elsewhere in this
Prospectus.
OVERVIEW
In January 1996, Gerber Childrenswear, Inc. was acquired from GPC by a
group of investors led by Edward Kittredge, the Company's Chairman, President
and Chief Executive Officer, who assembled the Company's current management
team. The new management team, under the direction of Mr. Kittredge, developed a
series of initiatives to strengthen the Company's financial operations and
improve its operations. To achieve cost efficiencies, Gerber consolidated
manufacturing facilities, established a flexible production strategy including
domestic and offshore manufacturing and sourcing components, and centralized
finished product purchasing across all categories. Furthermore, Gerber renewed
its emphasis on production quality, reducing the percentage of irregular
products produced in certain of the Company's principal factories to
approximately 3% from approximately 7%. Gerber also encouraged a more
entrepreneurial culture by enhancing its incentive-based compensation program
for executive, managerial and professional employees and by installing an equity
ownership program for employees. As a result, management believes that the
Company is well positioned to implement its strategy to remain a low cost
producer of high quality branded products to volume retailers. Gerber's
operating margin, excluding royalties accrued to GPC, stock compensation and
other non-recurring charges, increased to 15.6% in 1997 from 13.3% in 1996 and
8.3% in 1995.
In addition, in order to build upon the Company's expertise as a low-cost
supplier of branded merchandise to volume retailers, the Company acquired all of
the outstanding capital stock of Auburn in December 1997 for approximately $40.0
million. Auburn manufactures, markets and sells branded sport socks for men,
women and children under established brand names such as Wilson, Coca-Cola and
Converse in the U.S. and internationally and under the Dunlop brand name in
Europe. Auburn markets to a diversified customer base in the U.S. and Europe,
including volume retailers, department stores, wholesale clubs and major
sporting good chains. As a result of the Acquisition, the Company markets
products in over 25 countries. The Company believes that Auburn's expertise in
hosiery will position it to capitalize on growth opportunities and the
Acquisition will provide opportunities to achieve certain economies of scale and
efficiencies in the areas of purchasing, data processing and selling, general
and administrative expenses. In 1997, pro forma for the Auburn acquisition, the
Company's net sales and income from continuing operations were $270.1 million
and $6.6 million, respectively.
RESULTS OF OPERATIONS
The following discussion and analysis compares the operations of the
Predecessor Company for 1995, a shortened period of the Company for 1996
(January 22, 1996 through December 31, 1996), and a full year of the Company for
1997 (including the operations of two acquired companies for the period December
17, 1997 to December 31, 1997). The operations of the Company for 1996 and 1997
reflect the accrual by the Company of a portion of future licensing royalty fees
that will become payable to GPC in years 2002 through 2005. The Company is
recording charges against earnings for the straight line effect of the
anticipated total royalty expense expected to be incurred over the initial ten
year term of the licensing agreement with GPC. No licensing fees are required to
be paid during the first six years of the agreement. The amount of such
licensing royalty fees accrued in 1996 and 1997 were $1.9 million and $3.5
million, respectively.
26
<PAGE> 28
The Predecessor Company operated as a wholly-owned subsidiary of GPC until
being divested by GPC on January 22, 1996. The financial data for the
Predecessor Company is not entirely comparable to that of the Company due to
certain factors including the following:
(i) The Predecessor Company did not incur any royalty expense for the use
of the Gerber name and baby head logo. During the period from January 22,
1996 to December 31, 1996, and for fiscal year ended December 31, 1997, the
royalty expense to GPC was $1.9 million and $3.5 million, respectively.
(ii) The Predecessor Company's net sales in 1995 included approximately
$8.3 million of net sales at cost to GPC that generated no gross margin.
Net sales to GPC in 1996 and 1997 of approximately $6.2 million and
approximately $4.3 million, respectively, generated gross margins in 1996
and 1997 of approximately $950,000 and $598,000, respectively.
(iii) The Predecessor Company was included in various self-insurance
programs provided by GPC, including medical, dental, workers' compensation,
comprehensive general and excess liability and property damage and business
interruption. GPC also provided management information services to the
Predecessor Company and allocated a portion of the expenses incurred to the
Predecessor Company. In addition, the Predecessor Company was allocated a
portion of legal and professional costs for services directly attributable
to the Predecessor Company. Certain services were provided by GPC's
corporate staff, for which no charge was made to the Predecessor Company.
Management believes the aggregate cost of these unallocated services was
insignificant. The Predecessor Company was charged for all outside legal
and professional expenses directly attributable to it.
(iv) In 1995, the Predecessor Company had no long-term debt and was not
charged any interest expense as a subsidiary of GPC.
(v) The provision for income taxes of the Predecessor Company essentially
results from applying the Federal and state statutory rates to the
operations of a stand-alone company.
At August 25, 1994 in connection with the purchase of GPC by Sandoz, Ltd.,
the Predecessor Company transitioned its books and records to be in conformity
with International Accounting Standards. The Predecessor Company's books and
records for 1995 were since reconstructed to be in conformity with U.S.
generally accepted accounting principles.
The following table sets forth, for the periods indicated, income statement
data expressed as a percentage of revenue. Any trends reflected by the following
table may not be indicative of future results.
<TABLE>
<CAPTION>
PERCENTAGE OF NET SALES
-------------------------------------------------------
PREDECESSOR COMPANY COMPANY
------------------- --------------------------------
PERIOD FROM
YEAR ENDED JANUARY 22, 1996 YEAR ENDED
DECEMBER 31, TO DECEMBER 31, DECEMBER 31,
1995 1996 1997
------------------- ---------------- ------------
<S> <C> <C> <C>
Net sales..................................... 100.0% 100.0% 100.0%
Cost of sales................................. 79.3 74.8 72.4
----- ----- -----
Gross margin.................................. 20.7 25.2 27.6
Selling, general & administrative expenses.... 12.4 12.9 13.7
Stock compensation............................ -- -- 4.7
Other......................................... -- 0.4 0.1
----- ----- -----
Income before interest and income taxes....... 8.3 11.9 9.1
Interest expense, net......................... -- 3.4 2.9
----- ----- -----
Income before income taxes and extraordinary
item, net................................... 8.3 8.5 6.2
Provision for income taxes.................... 3.2 3.4 2.4
----- ----- -----
Income before extraordinary item, net......... 5.1 5.1 3.8
Extraordinary item, net....................... -- -- (0.3)
----- ----- -----
Net income.................................... 5.1% 5.1% 3.5%
===== ===== =====
</TABLE>
27
<PAGE> 29
YEAR ENDED DECEMBER 31, 1997 COMPARED TO PERIOD FROM JANUARY 22, 1996 TO
DECEMBER 31, 1996
Net sales. Net sales were $202.0 million in 1997, an increase of $16.8
million, or 9.1%, from net sales of $185.2 million for the period January 22,
1996 to December 31, 1996. The revenue in 1997 included three weeks of
additional results compared to 1996 and also included $1.5 million relating to
Auburn sales following its acquisition on December 17, 1997. Excluding Auburn
results in 1997 and including the Predecessor Company's results for the period
January 1, 1996 through January 21, 1996, the increase in net sales was $9.0
million, primarily resulting from increases in unit sales to existing customers
in core categories. The growth in unit sales was primarily due to a greater
emphasis on developing new product categories and the introduction of new
displays offering promotional buying advantages for the consumer.
Gross margin. Gross margin as a percentage of net sales increased to 27.6%
in 1997 from 25.2% in 1996. Gross margin is determined after accruing royalty
expense under the Gerber license agreement of $3.5 million in 1997 versus $1.9
million in 1996. The principal reasons for the improved gross margin as a
percentage of net sales were lower manufacturing costs resulting from improved
operating efficiency, increased production in owned facilities and a greater
percentage of products made offshore.
Selling, general & administrative expenses, excluding stock
compensation. Selling, general and administrative expenses (excluding stock
compensation) as a percentage of net sales were 13.7% in 1997, versus 12.9% in
1996. The increase was principally due to expanding the Company's merchandising
and selling efforts to support sales growth, plus the cost in 1997 to relocate
central distribution activities into a lower cost facility in another state.
Stock compensation. In 1997, stock compensation of $9.5 million was
incurred in connection with the sale of stock to certain executives and managers
of the Company below its fair market value.
Other. Other represents the cost of closing and realignment of certain
facilities in the amount of $0.2 million in 1997 and $0.7 million in 1996.
Income before interest and income taxes. Income before interest and income
taxes was $18.3 million in 1997, compared to $22.0 million in 1996. Excluding
stock compensation, 1997 income before interest and income taxes would have been
$27.7 million, or 13.7% of net sales compared to 11.9% in 1996. The improvement
resulted from the increased sales and improved gross margin percentage.
Interest expense, net. Interest expense, net, was $5.8 million for 1997
compared to $6.3 million for 1996. This decrease was primarily due to decreased
average debt outstanding and a more favorable rate structure for 1997 as
compared to 1996.
Provision for income taxes. Provision for income taxes was $4.8 million in
1997, compared to $6.2 million in 1996. The effective tax rate was 38.2% for
1997 as compared to 39.7% for 1996. The higher effective tax rate in 1996 was
primarily due to permanent non-deductible items associated with GCIH's
acquisition of the Company.
Extraordinary item. In connection with the Acquisition, the senior credit
facility was replaced. The deferred financing costs associated with this old
facility were written off and charged to operations in 1997. This expense, along
with the associated prepayment penalties, was approximately $0.7 million (net of
a tax benefit of $0.5 million) in 1997.
Net income. As a result of the above, net income was $7.0 million for 1997
and $9.5 million for 1996. Excluding the impact of the stock compensation, net
income for 1997 would have been $12.9 million, a 36% increase over 1996.
PERIOD FROM JANUARY 22, 1996 TO DECEMBER 31, 1996 OF THE COMPANY COMPARED TO
YEAR ENDED DECEMBER 31, 1995 OF THE PREDECESSOR COMPANY
Net sales. Net sales in 1996 were $185.2 million for the period from
January 22, 1996 to December 31, 1996, compared to 1995's net sales of $197.4
million. Including the $6.7 million of net sales of the Predecessor Company for
the period January 1, 1996 to January 21, 1996 in the Company's 1996 period, net
sales declined
28
<PAGE> 30
2.8% or $5.5 million compared to 1995. The Company believes the decline was
primarily due to the Predecessor Company management's focus in 1995 on the sale
of Gerber which resulted in less resources being directed towards developing new
products for sale in 1996.
Gross margin. Gross margin as a percentage of net sales increased to 25.2%
in 1996 from 20.7% in 1995. The increase in gross margin was due to (i) reduced
cost of sales due to greater offshore sourcing and offshore manufacturing by the
Company, (ii) a more favorable product mix, (iii) margin enhancement in 1996 as
compared to 1995 on sales of products to GPC, resulting in an approximately 0.5%
margin increase, offset in part by (iv) an accrual of $1.9 million in 1996 for
Gerber licensing royalty expense (which charge was not borne by the Predecessor
Company).
Selling, general & administrative expenses. Selling, general and
administrative expenses were $23.9 million, or 12.9% of net sales in 1996, a
decrease of $739,000 from $24.6 million, or 12.4% of net sales, in 1995. While
the dollar amount of expense declined, the increase in such expense as a
percentage of net sales was due to (i) a one-time severance charge incurred in
1996, (ii) enhancement of the management incentive program, (iii) an increase in
insurance costs associated with a stand-alone entity, offset in part by (iv)
reductions in distribution expense and employee benefit costs.
Other. Other represents the cost of closing and realignment of facilities
aggregating $0.7 million in 1996.
Income before interest and income taxes. As a result of the foregoing, the
Company had income before interest and income taxes of $22.0 million in 1996
compared to $16.3 million in 1995. The income before interest and income taxes
as a percentage of net sales was 11.9% in 1996 versus 8.3% in 1995.
Interest expense, net. Interest expense, net was $6.3 million for 1996,
resulting from the debt incurred to acquire the Company and to support working
capital needs. In 1995, the Predecessor Company had no long-term debt and was
not charged any interest expense as a subsidiary of GPC.
Provision for income taxes. Provision for income taxes was $6.2 million
for 1996, compared to $6.3 million for 1995. The Company's effective tax rate
was 39.7% for 1996, compared to 38.4% for 1995. The higher effective tax rate in
1996 was primarily due to non-recurring non-deductible items associated with
GCIH's acquisition of the Company. The provision for income taxes of the
Predecessor Company essentially resulted from applying the Federal and state
statutory rates to the operations of a stand-alone company.
Net income. As a result of the above, net income was $9.5 million for 1996
and $10.1 million for 1995.
LIQUIDITY AND CAPITAL RESOURCES
The Company's primary cash needs are working capital, capital expenditures,
and debt service. The Company has financed its working capital, capital
expenditures and debt service requirements primarily through internally
generated cash flow, in addition to funds borrowed under the Company's Credit
Agreement. The Company intends to use the net proceeds from the Offering to
repay subordinated notes payable of $33.5 million, to repay certain other
indebtedness of the Company and to redeem certain shares of GCIH's Preferred
Stock in connection with the Reorganization in the aggregate amount of $355,000.
Upon consummation of the Reorganization and the Offering, the Company's cash
flow requirements for debt service will be substantially reduced. See
"Description of Certain Indebtedness" and "Unaudited Pro Forma Condensed
Consolidated Statement of Operations."
Net cash used in operating activities for the year ended December 31, 1997
was $(5.0) million compared to net cash provided by operating activities of
$32.3 million and $13.4 million for the periods ended December 31, 1996 and
December 31, 1995, respectively. The decrease in net cash provided by operating
activities from 1996 to 1997 is primarily due to (i) an increase in inventory of
$15.0 million, primarily representing higher levels of safety stocks maintained
on hand in 1997 to minimize delivery time and properly service customers in the
first quarter of 1998 as well as to limit disruptions to customers during the
transition to a new warehouse in 1997, (ii) an increase in accounts receivable
of $8.5 million, primarily due to the timing of collections (the Company's days
sales outstanding were 50 in December 1997 versus 37 in December 1996
29
<PAGE> 31
as compared to a typical average of 49), and (iii) a decrease in income tax
payable of $10.2 million, primarily related to differences in the timing of
payments between 1996 and 1997, due in part to the tax impact of stock
compensation late in 1997.
For Gerber, working capital requirements vary throughout the year. Working
capital increases during the first half of the year as inventory, primarily
blanket sleepers, builds to support peak shipping periods. The Auburn business
is less seasonal, and as such, while working capital tends to increase slightly
during the second half of the year, the variation is small. See "Description of
Certain Indebtedness."
Under the terms of a ten-year license agreement between the Company and
GPC, the initial term of which expires in 2006, the Company is not required to
pay royalty fees to GPC until the year 2002. Commencing in 2002, the Company is
required to pay an escalating royalty fee as a percentage of net sales of
Gerber-licensed products throughout the term of the license agreement and in
each year of the two consecutive five-year renewal terms if such renewal terms
are negotiated. The Company is recording charges against earnings in accordance
with generally accepted accounting principles in order to ensure a straight-line
effect of the total royalty expense expected to be incurred over the initial ten
year license term. The charges recorded prior to 2002 represent non-current
liabilities that will begin to be paid to GPC in 2002. The initiation of such
royalty payments in year 2002 may adversely affect the Company's cash flow. See
"Risk Factors -- Dependence on Gerber License and Other Intellectual Property"
and "Business -- Licenses and Trademarks."
In connection with the Offering, the deferred financing costs associated
with the subordinated debt to be repaid with the Offering proceeds will be
written off along with the unamortized discount associated with such debt as an
extraordinary item in 1998. This extraordinary item is estimated to be
approximately $309 (net of a tax benefit of $185).
In connection with the acquisition of Auburn, the Company's then-existing
senior credit facility was refinanced. Indebtedness under the Credit Agreement
consists of a $40.0 million term loan to finance the Acquisition and a $60.0
million revolving facility to fund current working capital requirements. The
term loan portion of the Credit Agreement will mature on September 30, 2002 and
requires quarterly principal payments totaling $1.5 million in 1997, $6.5
million in 1998, $8.1 million in 1999, $8.5 million in 2000, $8.6 million in
2001 and $6.8 million in 2002. The revolving credit portion of the Credit
Agreement will mature on October 31, 2002 and has no scheduled interim
amortization but does require mandatory principal prepayments annually based on
excess cash flow commencing December 31, 1998. The Company also incurred debt
issuance costs of $1.0 million in 1997. The Company had approximately $47.0
million of availability under its Credit Agreement at January 24, 1998. In
connection with the consummation of the Offering, the Company is seeking certain
amendments to its Credit Agreement. Consummation of the Offering is dependent on
obtaining such amendments. The Credit Agreement subjects the Company to standard
covenants and events of default. As of January 24, 1998, the Company was in
compliance with all such covenants and was not in default.
In connection with the Acquisition, the Company assumed approximately $2.6
million of Auburn's indebtedness. Auburn's Irish subsidiary maintains a IRL 3.0
million loan facility (U.S. $4.1 million as of February 27, 1997) with the
National Irish Bank consisting of a combined term loan, overdraft, guarantee and
foreign exchange line. This facility is subject to annual review. The overdraft
facility and foreign exchange line are available at the Company's discretion
with each term loan draw down subject to the National Irish Bank's approval. At
present, the Irish subsidiary has drawn down two term loans under the available
loan facility and has drawn down on the foreign exchange line. The term loans
had an aggregate balance of IRL 517,123 (U.S. $705,000 as of February 27, 1997)
outstanding as of December 31, 1997 and are repayable in quarterly installments
of interest and principal, the final payment for which is due in September 1999.
The Irish subsidiary is not currently using its overdraft facility. In addition,
the Irish subsidiary has received grants from the Industrial Development
Authority which, if certain events occur, could become repayable to the IDA in
the aggregate amount of up to IRL1,815,799. Auburn is a party to two loan
agreements with the County of Logan, Kentucky related to the issuance in 1989 of
two series of industrial revenue bonds of which
30
<PAGE> 32
approximately $2.4 million remained outstanding at December 31, 1997. Auburn's
two principal Kentucky facilities are mortgaged in connection with such
financing.
The Company invested $4.2 million, $1.0 million and $1.5 million in capital
expenditures during 1997, 1996 and 1995, respectively. These expenditures
consisted primarily of normal replacement of manufacturing equipment, purchases
of office equipment and upgrades to information systems. In addition, the
Company relocated its distribution center in 1997 resulting in a one-time
capital expenditure of $2.0 million. The Company is budgeting $5.7 million for
capital expenditures in 1998. Gerber's portion of $3.9 million includes
approximately $1.7 million for MIS systems upgrades which the Company believes,
if fully implemented, could provide efficiencies in the areas of product
development, forecasting and planning. Auburn's portion of $1.8 million may be
increased to accommodate accelerated development of new technology.
The Company believes that cash generated from operations, together with
amounts available under the revolving portion of the Credit Agreement and other
facilities of Auburn or the Irish subsidiary, will be adequate to meet its
working capital, capital expenditures, and debt service requirements for the
foreseeable future.
SELECTED QUARTERLY RESULTS OF OPERATIONS
The following table sets forth certain unaudited quarterly statement of
operations data for the period from January 22, 1996 to December 31, 1996 and
for fiscal year ended December 31, 1997, as well as such data expressed as a
percentage of the Company's net sales for the period indicated. This data has
been derived from unaudited financial statements that, in the opinion of the
Company, include all adjustments necessary for fair presentation of such
information when read in conjunction with the Company's financial statements and
notes thereto. Income before interest and income taxes in 1997 has been adjusted
to exclude the stock compensation charge (dollars in millions).
<TABLE>
<CAPTION>
QUARTER ENDED
-------------------------------------------------------------------------------------------------
MAR. 31 JUNE 30 SEPT. 30 DEC. 31 MAR. 31 JUNE 30 SEPT. 30 DEC. 31
---------- ---------- ---------- --------- --------- --------- ---------- ---------
1996 1997
------------------------------------------------ ----------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Net sales..................... $36.6 $39.0 $58.3 $51.2 $45.3 $40.2 $60.3 $56.2
Gross margin.................. 9.4 10.6 15.5 11.1 12.7 12.1 16.8 14.1
Income before interest and
income taxes................ 3.8 3.4 9.0 5.8 5.7 4.9 9.6 7.6
PERCENTAGE OF NET SALES
Net sales..................... 100.0% 100.0% 100.0% 100.0% 100.0% 100.0% 100.0% 100.0%
Gross margin.................. 25.7 27.2 26.6 21.6 28.0 30.1 27.9 25.1
Income before interest and
income taxes................ 10.4 8.7 15.4 11.3 12.6 12.2 15.8 13.5
</TABLE>
In Gerber's segments of the apparel industry, sales are typically higher in
the third and fourth quarters due to the seasonal nature of some of its
products. With the acquisition of Auburn, the Company will continue to
experience seasonality, with the third quarter expected to represent the highest
volume shipping quarter for the Company. See "Business -- Backlog and
Seasonality."
FLUCTUATION OF FOREIGN CURRENCY EXCHANGE RATES
Inventory purchases from contract manufacturers in the Far East are
primarily denominated in U.S. dollars; however, purchase prices for the
Company's products may be affected by fluctuations in the exchange rate between
the U.S. dollar and the local currencies of the contract manufacturers, which
may have the effect of increasing the Company's cost of goods sold in the
future. During the last two fiscal years, exchange rate fluctuations have not
had a material effect on the Company's inventory cost.
Following the Acquisition, the Company adopted a foreign exchange policy
which has been implemented in Auburn's Irish subsidiary for the purpose of
managing its day-to-day exposure. There are currently foreign exchange contracts
in place covering amounts in excess of the Company's policy, which the Company
expects will be reduced to current policy levels by the end of the second
quarter of 1998. During 1997, Auburn's Irish
31
<PAGE> 33
subsidiary recorded a charge of approximately $1.0 million related to its
foreign currency exposure prior to its acquisition by the Company. See "Risk
Factors -- Risk of Fluctuation in Foreign Currency Exchange Rates."
ACCOUNTING STANDARDS
In October 1995, the Financial Accounting Standards Board issued Statement
of Financial Accounting Standards ("SFAS") No. 123, Accounting for Stock-Based
Compensation. With respect to the Company, this Statement will be effective in
fiscal 1998 upon the establishment of the Company's Long-Term Incentive Plan.
See "Management -- Long-Term Incentive Plan." The Company will adopt only the
disclosure provision of SFAS No. 123 and account for stock based compensation in
accordance with Accounting Principles Board Opinion No. 25, Accounting for Stock
Issued to Employees, which recognizes compensation cost based on the intrinsic
value of the equity instrument awarded.
The Financial Accounting Standards Board has issued SFAS No. 130,
"Reporting Comprehensive Income," which is effective for financial statements
for fiscal years ending after December 31, 1997. This standard establishes
standards for the reporting and display of comprehensive income which is defined
under SFAS No. 130 as "the change in equity (net assets) during a period from
transactions and other events and circumstances from nonowner sources." Under
SFAS No. 130, the Company has several choices in the disclosure of the
components of other comprehensive income. The Company plans to implement SFAS
No. 130 during the first quarter of fiscal year 1998.
In June 1997, the FASB released Statement of Financial Accounting Standards
No. 131, "Disclosures about Segments of an Enterprise and Related Information"
("FAS 131"). FAS 131 will change the way companies report selected segment
information in annual financial statements and also requires those companies to
report selected segment information in interim financial reports to
shareholders. FAS 131 is effective for fiscal years beginning after December 15,
1997. The Company has evaluated the impact of the application of the new rules
on the Company's consolidated financial statements and does not expect the new
rules to change the way it presently presents its segments.
INFLATION
Results of operations have not been significantly affected by inflation.
The Company, in the normal course of business, has been able to offset the
impact of increased costs through operating efficiencies and selected price
increases.
FORWARD LOOKING STATEMENTS
This Prospectus includes forward-looking statements, including statements
regarding, among other items, (i) the Company's anticipated growth strategies
and intention to consider future acquisitions, (ii) the Company's intention to
introduce new products, introduce product line extensions, and enter new
distribution channels, (iii) anticipated trends in the Company's businesses,
(iv) future expenditures for capital projects (including MIS expenditures) and
any benefits expected to be derived therefrom, (v) the Company's ability to
reduce its interest expenses and debt service obligations and (vi) the Company's
ability to continue to control costs and maintain quality. These forward-looking
statements are based largely on the Company's expectations and are subject to a
number of risks and uncertainties, certain of which are beyond the Company's
control. Actual results could differ materially from these forward-looking
statements as a result of the factors described in "Risk Factors" including,
among others, (i) changes in the competitive marketplace, including the
introduction of new products, technologies or pricing changes by the Company's
competitors, and (ii) changes in the trends in the market for infant and toddler
apparel and related products. The Company undertakes no obligation to publicly
update or revise any forward-looking statements, whether as a result of new
information, future events or otherwise. In light of these risks and
uncertainties, there can be no assurance that the forward-looking information
contained in this Prospectus will in fact transpire.
32
<PAGE> 34
BUSINESS
THE COMPANY
Gerber Childrenswear, Inc. is a leading marketer of infant and toddler
apparel and related products, offering products under its flagship brand,
Gerber, as well as the Baby Looney Tunes and Curity brand names and the Onesies
trademark. The Gerber name and baby head logo are among the best recognized in
the infant and toddler industry. The Company believes Gerber is the leading
provider of infant and toddler apparel and related products to volume retailers,
which constitute the fastest growing segment of the retail industry. The Company
also distributes products to mid-tier department stores and specialty retailers.
Gerber holds a leading market share in its distribution channels in the
underwear, blanket sleeper and cloth diaper categories. The Company believes
that these leading positions in addition to strong consumer recognition of its
brands provide opportunities for Gerber to leverage its brands into other
product categories including sleep 'n play, bed & bath, playwear, bibs, hosiery
and gift sets where Gerber has a growing presence.
In addition, in order to build upon the Company's expertise as a low-cost
supplier of branded merchandise to volume retailers, the Company acquired all of
the capital stock of Auburn in December 1997 for approximately $40.0 million.
Auburn manufactures, markets and sells branded sport socks for men, women and
children under established brand names such as Wilson, Coca-Cola and Converse in
the U.S., Europe and other international territories and under the Dunlop brand
name in Europe. Auburn markets to a diversified customer base in the U.S. and
Europe, including volume retailers, department stores, wholesale clubs and major
sporting good chains. As a result of the Acquisition, the Company markets
products in over 25 countries. The Company believes that Auburn's expertise in
hosiery will position it to capitalize on growth opportunities and the
Acquisition will provide opportunities to achieve certain economies of scale and
efficiencies in the areas of purchasing, data processing and selling, general
and administrative expenses. In 1997, pro forma for the Acquisition, the
Company's net sales and income from continuing operations were $270.1 million
and $6.6 million, respectively.
In January 1996, Gerber Childrenswear, Inc. was acquired from GPC by a
group of investors led by Edward Kittredge, the Company's Chairman, President
and Chief Executive Officer, who assembled Gerber's current management team. The
new management team, under the direction of Mr. Kittredge, developed a series of
initiatives to strengthen Gerber's financial results and improve its operations.
To achieve cost efficiencies, Gerber consolidated manufacturing facilities,
established a flexible production strategy including domestic and offshore
manufacturing and sourcing components, centralized finished product purchasing
across all product categories and enhanced its compensation system. As a result,
Gerber's operating margin, excluding royalties accrued to GPC, stock
compensation and certain non-recurring charges, increased to 15.6% in 1997 from
13.3% in 1996 and 8.3% in 1995.
The U.S. retail market for infant and toddler apparel and related products,
as a whole, is estimated at $7.0 billion in 1997, and has grown at a compound
annual rate of 8.0% since 1991. The Company believes that this market is
well-insulated from major changes in fashion trends and is less sensitive to
general economic cycles due to the consistent level of infant births in the
U.S., at slightly less than 4 million annually, and the high consumption rate
for apparel products as infants experience frequent size changes. Annual apparel
spending per infant increased to $329 in 1996 from $250 in 1993 according to
U.S. Census data, representing compound annual growth of 9.6%. The Company
believes the market offers continued growth prospects due to demographic factors
including (i) more women having children at an older age and returning to work
thereafter, resulting in greater disposable income for expenditures on children;
and (ii) an increasing number of grandparents, who represent a key consumer
segment for infant and toddler products. Within the infant and toddler industry,
greater emphasis on value has shifted consumer purchases away from traditional
department stores and toward more value-conscious retail channels, including
volume retailers and mid-tier department stores. Additionally, the industry is
highly fragmented and services volume retailers who are interested in limiting
their purchases to a smaller number of well-capitalized vendors with a broad
base of branded products. The Company believes that its strong brand names,
leading market positions, broad product offerings and strong customer
relationships with volume retailers and mid-tier department stores position it
to benefit from industry trends.
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<PAGE> 35
COMPETITIVE STRENGTHS
The Company's business philosophy is to pursue growth and profitability by
maintaining and enhancing its strong brand name recognition and reputation for
quality while continuing to strengthen its customer relationships. The following
factors serve as the Company's competitive strengths and distinguishing
characteristics:
STRONG BRAND NAME RECOGNITION. The Company believes that Gerber is one of
the most recognized brands in the infant and toddler apparel industry with a
reputation for consistently delivering high quality products with innovative
design features at competitive prices. The Gerber brand name was first
introduced for baby food in 1927 by GPC, which holds an approximately 65% market
share in the baby food industry. The Company markets and sells infant and
toddler's apparel and related products using the well established Gerber brand
name and baby head logo. In addition, the Company believes that its popular Baby
Looney Tunes brand name (used on products at slightly higher price points) is
recognized for its use of characters, bright colors and higher fashion content.
The Company also benefits from the strong recognition of its Onesies trademark
(developed for its line of infant underwear) and the Curity brand name (used on
products which are targeted towards more value-conscious consumers).
Additionally, as a result of the Acquisition, the Company offers sport socks
under the Wilson, Converse, Coca-Cola and Dunlop brand names licensed by Auburn.
LEADING MARKET POSITIONS IN CORE PRODUCT CATEGORIES. The Company is the
leading provider of infant and toddler apparel and related products to volume
retailers, which constitute the fastest growing segment of the retail industry.
The Company also distributes products to mid-tier department stores and
specialty retailers. Gerber holds a leading market share in its distribution
channels in the underwear, blanket sleeper and cloth diaper categories. The
Company believes that its leading market shares provide significant competitive
advantages in serving its customers, through production and purchasing
efficiencies and greater product development and marketing resources.
Management's strategy is to leverage these competitive advantages to further
penetrate other product categories, whether acquired or internally developed.
HIGH QUALITY, INNOVATIVE PRODUCTS. The Company believes that it has
developed a reputation for high quality and innovative products and that this
has played a critical role in its long-standing strong market positions. In
1982, Gerber designed and developed Onesies, an innovative one-piece underwear
garment, which resulted in a new category of infant apparel which Gerber
believes consumers identify with the Onesies trademark. Most recently, Gerber
introduced the Swim-per, a swim diaper, and Nap 'N Go, a portable daycare mat.
LOW-COST SUPPLIER. The Company believes that its reputation for providing
high quality products at attractive prices has established it as one of the top
infant and toddler's apparel suppliers among value-conscious volume retailers.
The Company actively manages the manufacturing and sourcing of its products to
optimize efficiencies. Of the products manufactured and sourced offshore, the
majority were through manufacturing operations that are owned or dedicated
exclusively to the Company's products. The Company believes that such
diversification has enabled it to enhance operating efficiencies through
production flexibility and expanded capacity without significant capital
investment, while at the same time enabling it to control more efficiently the
delivery and quality of its products. All of these factors have helped the
Company to become a low-cost supplier. See "Business -- Gerber -- Manufacturing
and Sourcing -- Product Sourcing." In addition, the Company believes that its
centralized purchasing and distribution systems have enhanced its cost
competitiveness through reduced distribution costs, minimization of product
delays and economies of scale.
LONG-TERM CUSTOMER RELATIONSHIPS AND EMPHASIS ON CUSTOMER SERVICE. Gerber
enjoys well-established, long-term relationships with its customers, many of
which have been maintained at multiple levels from sales to senior management.
In certain cases, members of Gerber's senior management and sales force have
maintained relationships with Gerber's customers for over 30 years. Moreover,
the Company believes its broad product offerings, emphasis on customer service
and proven reliability provide a competitive advantage as retailers consolidate
and seek a smaller number of well-capitalized vendors with a broad base of
branded products. Gerber works closely with its principal customers to assist in
the management of their inventories and has invested in warehousing and
distribution facilities and information systems development, including an
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EDI system and a VMI program. In addition, Gerber's information systems enable
it to provide customized merchandising and space allocation recommendations and
other category management services to its retail customers. Gerber currently
provides such customized services for Wal-Mart in certain product categories.
Gerber has been recognized for its accomplishments by many retailers and in 1997
received the "Supplier Performance Award by Retail Category" from Discount Store
News on behalf of discounters, the highest award a company can receive from such
retailers. In addition, the Company has received a number of awards from its
customers, including Wal-Mart, Sears, J.C. Penney and Toys "R" Us.
DEVELOPMENT OF MANAGEMENT AND OPERATING INFORMATION SYSTEMS. Gerber has
made significant investments in the development of MIS and plans to make
additional capital expenditures to further refine such systems. Gerber believes
that it will continue to benefit from these systems through its ability to
effectively manage inventory, improve sales and reduce operating costs. Gerber
currently serves all major volume retailers through its EDI system, which allows
customers to send orders to Gerber more quickly and efficiently.
EXPERIENCED MANAGEMENT TEAM WITH A SIGNIFICANT STAKE IN THE COMPANY. The
Company's Chairman, President and Chief Executive Officer, Edward Kittredge, has
had over 35 years of diverse experience in the textile and apparel industry and
the Company's top five senior managers average more than 25 years of experience
in the apparel industry. The sales and merchandising team has been strengthened
with the recent additions of Robert P. Robertson as Senior Vice President of
Sales and Marketing and Mary-beth Boughton as Vice President of Merchandising
(focused on mid-tier department stores). After giving effect to the
Reorganization and the Offering, management will own approximately % of
the Common Stock of the Company on a diluted basis.
BUSINESS STRATEGY
The key elements of the Company's business strategy to remain a low-cost
supplier of high quality, branded products to volume retailers include:
ENHANCE OFFERING OF HIGH QUALITY, INNOVATIVE PRODUCTS. The Company intends
to continue to enhance its product offerings through new product initiatives and
product extensions. The Company's strategy is to leverage the Gerber, Baby
Looney Tunes and Curity brands into additional products, including product
segments in which the Company is under-represented. For example, the Company is
under-represented in the approximately $1.8 billion playwear market at retail
and in the approximately $600 million fleece/outerwear market at retail. In
order to grow its market share in these product lines, Gerber recently enhanced
the Baby Looney Tunes playwear offering and introduced a new line of Gerber
fleecewear. The Company believes that these categories present significant
growth opportunities.
EXPAND INTO NEW AND STRENGTHEN EXISTING DISTRIBUTION CHANNELS. The
Company's plan is to continue to leverage its strong brand names to expand into
new distribution channels in the U.S. and abroad. Gerber recently targeted the
midtier department store channel with product lines such as Always Baby by
Gerber, which are specially designed, packaged and priced for mid-tier
department store customers. Gerber's strategy is to emphasize marketing efforts
to increase product breadth in existing distribution channels in which it
believes some of its product lines are under-represented. In addition,
management believes that the Gerber, Baby-Looney Tunes and Curity lines of
products have growth opportunities in the food and drug, variety, off-price
apparel, catalog, dollar store, wholesale club and mid-tier department store
distribution channels.
FURTHER PENETRATE INTERNATIONAL MARKETS. Gerber currently has an exclusive
license to use the Gerber brand name on certain infant and toddler apparel and
textile products in the U.S., Canada and the Caribbean and a right of first
refusal to use the Gerber name in Central and South America. Gerber branded
products are currently being shipped in the U.S. and to Canada and the
Caribbean. The Company believes that its offshore manufacturing and sourcing
capabilities give it a competitive advantage to further increase its presence in
the international markets. Gerber plans to increase the distribution of its
Gerber line of products in Canada by offering a broader product mix in such
market. The Company's plan is to leverage the Gerber brand name to expand its
presence in international markets in which the Gerber brand name is established
for baby food, and believes that such markets represent expansion opportunities.
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MAXIMIZE OPERATING EFFICIENCIES. The Company's strategy is to continue to
improve operating efficiencies and productivity in order to offer its customers
high quality products at competitive prices. The Company's plan is to continue
to optimize product sourcing to achieve economies of scale and to eliminate
certain duplicative operations in connection with the acquisition of Auburn.
LEVERAGE EXPERTISE THROUGH SELECTIVE ACQUISITIONS. The Company actively
evaluates acquisition candidates and is in discussions from time to time
regarding future acquisitions. Future strategic acquisitions may be undertaken
to broaden the Company's product lines, increase sourcing diversity and
strengthen its presence within various channels of distribution. The Company
believes that numerous acquisition candidates exist within the infant and
toddler apparel industry. In addition, the Company believes that other
acquisition opportunities exist in similar high volume, basic branded apparel
businesses where the Company can leverage its core competencies. The Company
currently has no agreements or understandings with respect to any acquisitions.
GERBER
BRANDS
The Company, through Gerber, offers infant and toddler apparel and related
products under the key brands of Gerber, Baby Looney Tunes and Curity and under
its Onesies trademark, as well as under private labels. In 1997, approximately
70% of Gerber's products were sold under the Gerber brand name, and
approximately 16% of Gerber's products were sold under the Baby Looney Tunes
brand name. The Curity brand name and private label sales accounted for
approximately 2% and 12% of Gerber's total sales, respectively. Products sold
under the Gerber and Curity brand names and private labels are produced in both
basic styles and more design oriented styles. Products sold under the Baby
Looney Tunes brand name are primarily design oriented. The Onesies trademark was
created and developed by Gerber, which resulted in a new category of infant
apparel which the Company believes consumers identify with the Onesies
trademark.
GERBER. The Company's primary brand, Gerber, was first introduced in 1928
by GPC, and has been long associated with infant and toddler care products. The
Company believes that many consumers today associate the "Gerber baby" as "every
baby." Gerber infant and toddler apparel was first introduced in 1963 with a
line of cloth diapers, and the Company currently offers products under the
Gerber name in all of its nine principal product categories. Gerber products are
distributed primarily through volume retailers and mid-tier department stores.
BABY LOONEY TUNES. Gerber markets higher-end, more fashion oriented
products such as playwear and bibs under the Baby Looney Tunes brand name. The
Baby Looney Tunes characters include Baby Tweety, Baby Bugs Bunny, Baby
Tasmanian Devil, Baby Daffy Duck, Baby Wile E. Coyote, Baby Road Runner and Baby
Sylvester on infant and toddler bath products, bedding, sleepwear, underwear,
footwear, socks, layettes, and infant and toddler playwear. The adult characters
of Bugs Bunny, Wile E. Coyote, Marvin the Martian, Foghorn Leghorn, Porky Pig,
Elmer Fudd, Tweety and Sylvester Jr. are also applied to infant and toddler
bedding. Baby Looney Tunes products are distributed through volume retailers,
mid-tier department stores, and food and drug stores.
CURITY. The Curity brand was reintroduced by Gerber in 1994 to provide an
opening price point to Gerber's portfolio of brands. Products under this brand
are targeted towards more value oriented consumers. Curity brand products are
currently limited to the categories of underwear, cloth diapers, blanket
sleepers and certain other products and are distributed almost exclusively
through volume retailers.
PRIVATE LABEL. Gerber's private label products are generally for large
volume retailers and mid-tier department stores and include products in the
underwear, cloth diaper and sleep n' play categories.
PRODUCTS
Within Gerber's nine product categories, Gerber offers an extensive number
of SKUs in order to provide large volume retailers with a full product line. Of
its nine product categories, its most well-developed categories are underwear,
blanket sleepers and cloth diapers. The Company expects growth in these
categories
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and the remaining six categories in which it is placing an increasing emphasis.
Apparel product sizes range from newborn through size 4T which are generally for
children up to three years of age. The majority of Gerber's sales are in the
newborn and infant size ranges which are typically for children up to two years
of age.
The following table summarizes Gerber's nine principal product categories:
<TABLE>
<CAPTION>
PRODUCT CATEGORY PRINCIPAL BRANDS RETAIL PRICE RANGE
- ---------------- ---------------- -------------------
<S> <C> <C>
Underwear Gerber, Curity, Baby Looney Tunes, Private $2-11
label
Blanket Sleepers Gerber, Curity, Baby Looney Tunes, Private $4-12
label
Cloth Diapers Gerber, Curity, Private label $5-10/pack
Sleep 'N Play Gerber, Curity, Private label $5-12
Bed & Bath Gerber, Baby Looney Tunes $3-100 (Bed)
$1-8 (Bath)
Playwear Gerber, Baby Looney Tunes $7-15
Bibs Gerber, Baby Looney Tunes $1-3
Hosiery Gerber, Baby Looney Tunes $1-2
Gift Sets Gerber, Baby Looney Tunes $10-30
</TABLE>
UNDERWEAR. Gerber's products in the underwear category are led by the
Company-owned trademark Onesies (an underpant and T-shirt combination garment
for infants) and also include unionsuits, shirts and training pants. Created,
designed and developed by Gerber, the Onesies product line has resulted in a new
category of infant apparel with the distinguishing feature of a seamless garment
body, which Gerber believes makes the product more comfortable for babies. The
Gerber brand is Gerber's main brand in this product category. The Company
believes it has achieved a leading market position in the underwear category,
estimating that Gerber's products constitute over 50% market share of
distribution to volume retailers. Gerber currently is the primary supplier of
infant underwear to many of its customers, including Gerber, Baby Looney Tunes
and Curity products. Management believes that growth in this product category
will occur as a result of further gains in market share, in part due to
consolidation of suppliers to volume retailers.
BLANKET SLEEPERS. Blanket sleepers are one-piece, footed garments in which
infants sleep during the winter months. Gerber's key brand in this product
category is Gerber. The Company believes that Gerber is the market leader in
blanket sleepers with over 50% market share of distribution to volume retailers.
The Company believes that growth in this product category will occur as a result
of further gains in market share, in part due to consolidation of suppliers.
CLOTH DIAPERS. The cloth diaper category includes both traditional cloth
diapers, used as diapers, lap pads and burp cloths, and other products including
vinyl pants and the recently introduced Swim-per, a swim diaper. The Gerber
brand of cloth diaper is marketed to both volume retailers and mid-tier
department stores. Although cloth diaper sales have decreased over the last
several years, management believes that cloth diaper sales have stabilized as
consumers increasingly have come to rely on them for a wide range of uses. The
Company expects growth within the cloth diaper category to come with the
development of new, innovative products such as the Swim-per.
SLEEP 'N PLAY. Sleep 'N Play products include both pajamas and one piece
outfits called "stretchies." The key brands in this product category include the
Gerber brand and private label, which are distributed primarily to volume
retailers. The Company's strategy is to achieve growth in this product category
through (i) increased offerings of new designs, (ii) increased distribution to
mid-tier department stores including products under the Always Baby by Gerber
brand, (iii) the introduction of 100% cotton sleepwear for infants up to 9
months old, products now permitted under amended Federal regulations, and (iv)
the withdrawal of a major competitor.
BED & BATH. Bed products include quilted products (such as comforters and
bumpers), crib skirts, sheets, and waterproof products such as mattress and
changing table protectors. Bath products include washcloths and towels and
products such as Lil' Hoodlums, which are hooded towels in the shape of animals.
The Gerber and Baby Looney Tunes brands are the key brands within this product
category. Gerber distributes
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bed and bath products to volume retailers and mid-tier department stores, and
believes the mid-tier distribution channel represents a strong area for growth.
PLAYWEAR. Gerber is placing a greater emphasis on "Playwear", a category
whose products include coordinated sets, jumpers, overalls and fleece products.
Gerber offers both fall and spring lines of playwear and provides a variety of
styles for each season. The Company believes the playwear category is more
design oriented than underwear or sleepwear. In 1997, Gerber offered its entire
playwear line exclusively under the Baby Looney Tunes brand. In 1998, Gerber
intends to continue its playwear line under the Baby Looney Tunes brand and also
introduce a basic line under the Gerber brand. Management believes that the
playwear market, estimated at $1.8 billion at retail, represents a significant
area of potential growth.
BIBS. Gerber sells bibs under the Gerber and Baby Looney Tunes brands
through volume retailers and food and drug stores. Historically, GPC's Baby Care
Division was responsible for distribution of bibs, among other products, in the
food and drug store distribution channel. As of January 1, 1998, Gerber assumed
the marketing function for bibs to this channel and believes it to be an area
for growth.
HOSIERY. Gerber's hosiery products include crew socks, tights, ankle
socks, booties, bootie sets and bobby socks. The infant and toddler hosiery
market is estimated to be over $500 million at retail and management believes it
can grow the category through offering its hosiery in an expanded number of
distribution channels. Additionally, Gerber expects to gain further expertise in
the hosiery market as a result of its acquisition of Auburn.
GIFT SETS. Gerber recently introduced a line of gift sets, which includes
selected Company products under the Gerber and Baby Looney Tunes brands, as well
as other accessories acquired from other manufacturers (i.e. diaper baskets).
Gift sets are generally comprised of items relating to common themes such as new
baby, nursery products and infant "sports" themes, and are often packaged in
decorative baskets and other unique packaging which can serve additional
purposes. Gift sets represent the most recent example of Gerber's ability to
leverage its strong brand names to develop a presence in new product categories.
SALES
Gerber's sales force is comprised of approximately 15 sales representatives
and four telemarketers. The Company believes that Gerber's sales force
distinguishes itself through its extensive experience in the infant and toddler
apparel industry, long tenure and thorough understanding of its retail accounts.
Gerber's sales strategy is to have highly qualified personnel handling all
product lines for a small number of retail accounts, which it believes
efficiently serves existing customers and attracts new ones. Gerber's sales
representatives work closely with customers to develop marketing plans,
including merchandise space allocation and other merchandising strategies. The
four-person telemarketing sales organization is based at Gerber's headquarters
in Greenville, South Carolina and handles marketing efforts directed towards
smaller stores and in connection with Gerber's sales to diaper services. In
addition, the Company believes that Gerber's senior management team has
established strong relationships with the senior management of its customers
which has resulted in solid customer relationships.
In fiscal 1997, $4.3 million of Gerber's products, or 2.1% of Gerber's net
sales, were sold through GPC's Baby Care Division to food and drug channels in
the U.S. and Canada. Beginning in 1998, Gerber commenced distribution to food
and drug channels in the U.S. directly rather than through GPC. Additionally,
the Company is working with GPC in Canada to broaden the Company's distribution
to Canadian retailers.
DESIGN AND MERCHANDISING
The Company believes that Gerber has developed a reputation for
consistently delivering high-quality, value-priced products, largely due to its
strong merchandising team. Gerber's merchandisers are experienced and have a
proven ability to interpret fashion direction and convert design ideas into both
basic and fashion-oriented products with a value image. Each product category
has its own experienced merchandising group. Merchandisers oversee and manage
the entire design and merchandising process for each product line from the
initial market research to final delivery of the product. The Company believes
that this integrated process
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has allowed Gerber to become a leading producer of high quality, basic products
while also enabling it to market fashion-enriched products at several price
points.
The Company has developed an extensive network of information and design
idea sources, which it believes maintains a healthy flow of ideas to its
merchandising, design and art teams to help keep products fresh. The key
merchandising personnel responsible for line direction routinely travel to
several international markets for design and product innovations. After
analyzing market trends and obtaining input from key buyers in the field
regarding design and fashion movements, the merchandising design and artist
teams develop a coherent merchandising strategy that will unify that season's
individual line components. Samples are then produced for presentations to
select major accounts. This interaction with "barometer accounts" provides the
Company with additional input as to final line content and an initial indication
of demand which is used to adjust earlier production estimates. The Company's
licensors also review each new design and product at various stages of
production pursuant to their licensing arrangements. The sales force uses sample
lines and supporting story boards to make presentations and complete bookings.
Throughout the year, the merchandising, design and art teams create fresh
product designs for basic and fashion lines.
MANUFACTURING AND SOURCING
MANUFACTURING OPERATIONS. Gerber actively manages the manufacturing and
sourcing of its products to optimize efficiencies, and in 1997, manufactured and
sourced approximately 60% of its products offshore (based on cost). Gerber has
seven manufacturing operations, including one in each of South Carolina and
Texas, two locations in North Carolina and three "9802" facilities in the
Dominican Republic. In "9802" facilities, U.S. components are shipped abroad,
assembled, packaged and re-imported with duty charges assessed only on the value
added abroad. Through its manufacturing operations, Gerber is able to control
the knitting, cutting, sewing, embroidering and packaging of its products. Over
the last several years, Gerber has focused its operations on its manufacturing
strengths such as knitting, cutting and sewing, and has discontinued its
inefficient manufacturing operations such as spinning yarn and dyeing fabric. In
addition, Gerber has increased its use of offshore manufacturing sources.
Approximately 40% of Gerber's products were produced domestically (based on
cost), and approximately 60% were produced offshore in 1997. The Company
believes that the combination of domestic and Company-controlled foreign
production helps Gerber maintain competitive pricing by keeping costs low while
fulfilling customer demand for fast turnaround on orders.
The Company believes that Gerber's integrated use of domestic and foreign
production provides tangible competitive advantages and cost benefits by
securing more predictable timing in the production process which facilitates the
achievement of the Company's high standards with respect to product quality,
timely deliveries and customer service. The ability to accurately forecast the
completion of production allows the Company to offer narrow and dependable
delivery windows to retailers. As retail buyers continue to consolidate
suppliers, the Company believes that they favor those resources which offer
quality products along with reliable and timely deliveries. By increasing the
service demands on suppliers, retailers can minimize inventory levels, limit
markdowns and utilize their open-to-buy dollars most efficiently.
PRODUCT SOURCING. Gerber procures both raw and finished products from
China, Eastern Europe, Guatemala, Indonesia, Mexico, the Philippines, Taiwan and
Thailand. Such purchasing is denominated in U.S. dollars. Gerber's most
significant raw material is yarn, which is priced and purchased primarily in
U.S. dollars. Gerber buys yarn from proven, reliable sources with which it has
good relationships and generally enters into contracts with terms up to one year
with its yarn suppliers. To date, Gerber has not experienced any difficulty in
obtaining yarn. See "Risk Factors -- Costs of Raw Materials and Supplier
Relationships." The Company intends to look for opportunities to consolidate
buying between Gerber and Auburn to ensure efficiencies in purchasing (to the
extent permitted under current contractual arrangements).
QUALITY CONTROL. Gerber maintains quality control processes in a variety
of ways. On an internal level, its domestic and offshore production in
Gerber-controlled facilities is under the direction of a senior officer and the
management of each plant is trained and held responsible for the quality of its
own production. Gerber's director of quality control periodically visits each
plant to train management personnel and inspect for quality.
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Representatives of the Company's merchandising and engineering staffs also visit
the facilities from time-to-time to inspect for quality. In addition, in the Far
East, employees and agents of the Company visit contractors' facilities to
ensure compliance with specifications on-line including qualitative tests and an
independent testing service is utilized to ensure compliance of garments with
U.S. government regulations. On an external level, all of Gerber's licensors
have the right to, and may from time to time, perform inspections of facilities
utilized by the company. In addition, Gerber's customers perform third-party
quality inspections either through unscheduled visits to Gerber facilities or
through their own internal inspection of delivered final merchandise. The
Company (and its competitors) are also required to provide the U.S. Consumer
Products Safety Commission a continuing guarantee that products conform to U.S.
flammability standards.
DISTRIBUTION AND INVENTORY MANAGEMENT. Gerber currently distributes the
majority of its products through distribution facilities located in Evergreen,
Alabama. Gerber's Bed & Bath products are warehoused at its Pelzer, South
Carolina facility and its blanket sleeper products are primarily warehoused and
shipped from its Ballinger, Texas facility. In December 1997, Gerber relocated
its distribution operations to the Alabama facility, which is approximately
255,000 square feet and is adequate for Gerber's current needs with
opportunities for expansion in capacity. The Company anticipates that the
relocation will create cost savings during the 1998 fiscal year.
Under the Company's inventory management program, Gerber offers retailers
the ability to reorder certain of its products for immediate shipment. Gerber
keeps an inventory of products covered by the program and accepts replenishment
orders through its EDI system. See "Business -- Management Information Systems."
The Company can typically fill such orders within 72 hours of receipt. While the
program requires an increased investment in inventories, the Company believes
that its ability to offer this service to its customers is a significant
competitive advantage.
AUBURN
Auburn manufactures, markets and sells branded sport socks for men, women
and children under established brand names such as Wilson, Coca-Cola and
Converse in the U.S. and internationally and under the Dunlop brand name in
Europe. Auburn has operations in the United States and Ireland. Auburn markets
to a diversified customer base in the U.S. and Europe, including volume
retailers, department stores, wholesale clubs, major sporting good chains and
food and drug stores. The strong brand name recognition and a long term
reputation for quality facilitate a multi-channel distribution strategy. Auburn
competes effectively in these distribution channels by offering its branded
products at competitive prices, acting as a low-cost producer with the ability
to service customers with quick turnaround, and maintaining strong customer
relations. In addition, with its acquisition by Gerber, Auburn has added to
these core competencies the ability to access capital for future growth and
investment in operations. For the year ended December 31, 1997, Auburn had sales
of approximately $69.6 million.
Auburn competes in the highly fragmented hosiery industry, which has
significant branded, control brand and private label components. Competition
within the industry is generally based on price, quality, service, brand
recognition and style. The Company believes that advances in technology in
hosiery manufacturing will result in a smaller number of well-capitalized
hosiery manufacturers. The Company believes that Auburn is well positioned to
benefit from such consolidation due to its strong brands, established channels
of distribution, strong customer service, low cost manufacturing capabilities
and access to capital. The Company believes that significant growth
opportunities exist through taking market share from private label producers,
which comprise a substantial portion of the hosiery industry. In addition,
management believes that Auburn's European manufacturing facility allows it to
be more responsive to the European market, where management believes significant
opportunity for expansion exists.
BRANDS
The Company believes, based on discussions with Wilson, that Auburn is the
second largest licensee of the Wilson brand name in the U.S. and the third
largest in the world. Sales of Wilson-branded products
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account for approximately 80% of Auburn's business. The Wilson brand name enjoys
strong customer recognition, and a quality reputation with its end consumers.
Auburn also produces sports socks under the Coca-Cola and Converse brands
domestically and internationally and under the Dunlop brand name in Europe.
PRODUCTS
Auburn offers a variety of product features and packaging designed to serve
its varied distribution channels. Although Auburn's primary products are white
sports socks for men, women and children, which represent a substantial portion
of Auburn's net sales, Auburn has tailored its product mix to meet consumer
tastes and demands, such as the European demand for darker colors. Auburn's
products vary based on sole cushion, length of sock, foot size, color, placement
of logo and thread content. Auburn also offers a line of high performance sports
socks featuring performance fibers such as Duraspun and Coolmax. The Company
believes that Auburn, driven by technologically advanced knitting and sewing
machinery, has established itself as a market innovator through design
innovations such as the welted-top.
The European market has shown an interest in sport socks in dark colors,
including heather grey, black and navy. The Company believes that the darker
colors have increased end usage in Europe, because many customers tend to wear
sport socks for dress wear as well as sport uses due to the low price and the
high comfort factor of a sport sock. This trend is beginning in the United
States and the Company is well positioned to take advantage of it.
Auburn has developed a strong reputation for packaging flexibility and can
deliver packaged products to suit and meet its customers' individual needs. The
Company believes that the ability to service its customers' individual packaging
and merchandising needs give Auburn a competitive advantage over many of its
competitors.
MANUFACTURING AND SOURCING
MANUFACTURING OPERATIONS. The hosiery business utilizes a capital
intensive manufacturing process through which the sock is knit in the greige,
the toe is closed, the sock is bleached or dyed and then packaged for
distribution. In the U.S., Auburn conducts knitting and toe closing operations
out of its manufacturing facility in Adairville, Kentucky. From time to time,
Auburn also employs outside contractors to knit socks. The Adairville facility
houses technologically advanced knitting and sewing equipment. The oldest
knitting machines are four years old. Auburn is implementing a computerized
monitoring system of this machinery which increases efficiency, usage rates and
productivity. Auburn's bleaching, dying, packaging and shipping operations are
conducted out of its distribution facility in Auburn, Kentucky. Technological
advances and other control mechanisms at both the Adairville and Auburn
facilities allow Auburn to maximize productivity. The Company intends to invest
in further technological advances as they become available.
Outside the U.S., Auburn operates a facility in Cahirciveen, County Kerry,
Ireland which conducts knitting, sewing, bleaching, packaging and shipping
functions using machinery, processes and technology identical to those of the
U.S. facilities. The Ireland facility primarily supplies the European market
(including Western Europe and Eastern Europe west of Russia) with the same
branded American-style sports socks. In addition, the Company has recently
installed in the Ireland facility a computerized monitoring system similar to
that which Auburn is currently implementing in its Adairville facility. Now
fully operational in Ireland, the system has significantly increased efficiency
and productivity at that facility. The Company believes that Auburn's ability to
offer high quality, branded socks at competitive prices has been recognized by
value-conscious Europeans, and that the low levels of similar product offerings
at this time offer an opportunity to develop brand recognition in these markets.
See "Business -- Auburn -- Distribution and Inventory Management."
QUALITY CONTROL. Auburn maintains quality control processes in a variety
of ways. Internally, quality control inspectors monitor work in progress at each
step of the manufacturing process. A record of each operator's performance is
recorded and updated regularly. On an external level, all of Auburn's licensors
have the right to, and may from time-to-time, perform inspections of Auburn's
facilities. Customers also perform
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third-party quality inspections either through unscheduled visits to the Auburn
facility, or through their own internal inspection of delivered final
merchandise.
DISTRIBUTION AND INVENTORY MANAGEMENT. In the U.S., Auburn distributes its
products through the volume retailers, mid-tier department stores, wholesale
clubs, major sporting good chains and food and drug store distribution channels
from its facility in Auburn, Kentucky. In Europe, Auburn distributes its
products to volume retailers, mid-tier department stores, supermarkets,
wholesale clubs, major sporting goods chains and specialty retailers within the
sporting goods category from its facility in Ireland. Both facilities are able
to ship orders within 72 hours of their receipt. Management believes that this
ability provides a significant competitive advantage over many of Auburn's U.S.
competitors who lack fully-integrated European facilities and, therefore, are
unable to respond quickly to European customers' individual demands. Management
also believes that this ability coupled with Auburn's strong brand names has
made Auburn a leading producer.
MANAGEMENT INFORMATION SYSTEMS
Gerber's MIS system provides, among other things, comprehensive order
processing, production, accounting and management information for the marketing,
manufacturing, importing and distributing functions of Gerber's business. Gerber
has purchased and implemented a software program that enables Gerber to track,
among other things, orders, manufacturing schedules, inventory, sales and
mark-downs of its products. Gerber's MIS staff, based in Greenville, South
Carolina, supports all computer systems and programs used to run Gerber's
business. Gerber believes that its programmers play a critical role at Gerber in
supporting these systems and in developing programs to maximize product flow
through the different manufacturing functions at each facility and correctly
staffing each function. Gerber continuously upgrades its MIS system to attempt
to optimize inventory management and provide management with more timely
information. In addition, Gerber has made expenditures with respect to the
millennium problem and expects to be year 2000 compliant by the end of 1998. In
addition, to support Gerber's replenishment program, Gerber maintains and fully
utilizes its EDI and VMI capabilities. Gerber has made significant investments
in the development of such MIS systems and plans to make additional capital
expenditures to improve such systems, including the development of a fully
integrated production system.
Auburn's MIS system provides a full range of functions. Auburn's domestic
EDI system is available for all customers and is completely integrated with
Auburn's manufacturing, production, order entry, shipping, accounting and
packaging functions. The system links all three of Auburn's domestic facilities
and can interface with Gerber's financial functions. Management expects that
Auburn's domestic EDI system will be year 2000 compliant by the end of 1998. The
MIS system in the Ireland facility, which includes EDI capability, is a
fully-integrated, real-time system and is able to interface with Auburn's New
York sales office. The MIS system in the Ireland facility is currently year 2000
compliant.
CUSTOMERS
Gerber directly services approximately 1,100 retail accounts, with the
Company's top 10 customers representing approximately 85% of total pro forma
1997 net sales. Sales to Wal-Mart, which accounted for a significant percentage
of the net sales of infant and toddler apparel in the U.S. in 1997, constituted
approximately 44% of Gerber's sales during 1997. Sales to Wal-Mart constituted
approximately 48% of Auburn's sales during 1997. No other customer accounted for
more than 10% of the Company's 1997 sales on a pro forma basis.
Gerber enjoys well-established, long-term relationships with its customers,
many of which have been maintained at multiple levels from sales to senior
management. In certain cases, members of Gerber's senior management and sales
force have maintained relationships with Gerber's customers for over 30 years.
Approximately 90% of Gerber's customer orders, including all orders from volume
retailers, currently come through the EDI system. This allows Gerber's customers
to receive the quick order turnaround of approximately 72 hours. Gerber has also
implemented a VMI program. Gerber's information systems enable it to provide
customized merchandising and space allocation recommendations and other category
management services to its retail customers. Gerber currently provides such
customized services for Wal-Mart in certain
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<PAGE> 44
product categories. Gerber has been recognized for its accomplishments by many
retailers and in 1997 received the "Supplier Performance Award by Retail
Category" from Discount Store News on behalf of discounters, the highest award a
company can receive from such retailers. In addition, the Company has received a
number of awards from its customers, including Wal-Mart, Sears, J.C. Penney and
Toys "R" Us.
Auburn maintains EDI systems in both its domestic and Ireland facilities.
In addition, to prepare for the integration of a single European currency (the
"E.M.U.") by European Union member states, Auburn is implementing the systems
necessary to offer its products for sale in both national currencies and the
E.M.U.
BACKLOG AND SEASONALITY
The Company delivers products throughout the year and generally experiences
busy cycles during the first and third quarters. The EDI system and VMI programs
have significantly reduced the average order period, which effectively reduces
backlog. At December 31, 1997, the Company's backlog of orders for its products,
all of which were expected to be shipped during fiscal 1998, was approximately
$20.2 million, as compared to approximately $18.2 million at December 31, 1996
(including Auburn's backlog in 1996). Backlog as of any given date may not be
indicative of backlog at a subsequent date. Therefore, a comparison of backlog
from period to period is not necessarily an accurate indicator of eventual
shipments.
In Gerber's segments of the apparel industry, sales are typically higher in
the third and fourth quarters. The Company believes that there are three main
reasons for this trend in the third quarter: (i) sales of blanket sleepwear
occur mostly during this period, (ii) a portion of the Company's underwear
business is seasonal in that a product line for the fall season incorporates
seasonal designs, prints, colors and fabric weight, and (iii) sales in general
rise as retailers prepare for events such as back-to-school season (as consumers
visit stores to buy clothing for older children) and retailer-initiated
promotions of baby apparel. In the fourth quarter, such trend is primarily due
to greater sales of blanket sleepers in the early fourth quarter and increased
sales of playwear in the late fourth quarter.
Auburn's business is generally non-seasonal but experiences somewhat higher
sales in the second and third quarters as a result of the seasonal use of the
product and back to school sales. Auburn's business is also influenced by
promotions instituted by its customers.
COMPETITION
The infant and toddler apparel market is highly competitive. Both branded
and private label manufacturers compete in the infant and toddler apparel
markets. Competition generally is based upon product quality, brand name
recognition, price, selection, service and convenience. Gerber's primary
competitors include Fruit of the Loom, Hanes, Carter's, licensed products and
firms using character licenses from Disney and others. Gerber also competes with
certain retailers, including several which are customers of the Company, which
have significant private label products offerings. Certain of Gerber's
competitors have greater financial resources than the Company. Gerber's ability
to compete depends, in substantial part, on the continued high regard for the
Gerber brand name and the ability of Gerber to continue to offer high-quality
garments at competitive prices.
The hosiery industry is highly fragmented and has significant branded,
control brand and private label components. Competition is generally in terms of
price, quality, service, brand recognition and style. Auburn's primary
competitors include Hanes, which has the largest share of the market, Renfro,
Neuville and Russell. Auburn also competes with certain retailers, including
several which are customers of the Company, which have significant private label
products offerings. In addition, Auburn competes with private label
manufacturers, including small, local manufacturers and large, public companies
that have greater financial resources than the Company and larger customer
bases.
LICENSING AND TRADEMARKS
GERBER LICENSE. GPC has granted Gerber a ten year license that expires in
January 2006 (with two five year renewal periods) to use the Gerber brand name
in the United States, Canada and the Caribbean. The
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<PAGE> 45
five-year renewal periods are each subject to Gerber's meeting certain minimum
target sales amounts. Royalties are not payable under the license until 2002.
However, the Company accrues for the projected average royalties to be paid
pursuant to the license arrangement. See "Management's Discussion and Analysis
of Financial Conditions and Results of Operations -- Liquidity and Capital
Resources."
The license permits use of the Gerber name for infant and toddler shoes,
underwear, sleepwear (including blanket sleepers, pajamas and sleep 'n play),
playwear, bed and bath products typically used in a nursery to decorate or
coordinate the nursery or bedding or to bathe a child, reusable cloth diapers
and diapering apparel products, bibs, hosiery, swimwear and gift sets and
layettes incorporating the above articles, in each case, targeted to infants and
toddlers of certain specific sizes. In the event that the licensor desires to
license the Gerber name for the sale of licensed articles in any other country
in Central or South America, Gerber has the right of first refusal to obtain
such license on the same terms and conditions as the existing license. The
licensor has granted a third party the right to use the Gerber name for products
which fall into the same general product category as one or more of the licensed
articles and which may be similar to but not the same as one or more of the
licensed articles in terms of use, function or otherwise. Gerber is allowed to
use the Gerber name in its corporate or business name during the term of the
license. Under the terms of the license, Gerber is required to maintain certain
levels of insurance.
Products which utilize the Gerber name may not deviate from the quality,
design, material, construction, details, fabric, weight, workmanship and finish
of the licensed articles approved by the licensor. Any new or altered products
or advertising which use the Gerber name must be submitted to the licensor prior
to their use. The licensor can disapprove any proposed product or advertising
which, in its sole view, would impair the value or goodwill associated with the
Gerber name. The licensor can terminate the license if Gerber materially
breaches the license agreement, fails to maintain required levels of insurance
or sells products which were not approved by the licensor, or if certain
bankruptcy events occur. The Company believes that it is currently in compliance
with all provisions of the Gerber license in all material respects and has no
reason to believe that any events are likely to occur that would result in the
early termination of such license. The Company may not sell, manufacture or
distribute any item for use in association with licensed articles that compete
in any area with any item, sold or manufactured by the licensor.
BABY LOONEY TUNES LICENSE. Gerber currently holds a license to use the
Baby Looney Tunes name from Warner Brothers. The license expired on September
30, 1997, and was verbally extended until December 31, 1997. Based on
discussions with Warner Brothers, the Company continues to operate under the
Baby Looney Tunes license consistent with past practice. The Company qualifies
for a three-year renewal option under the license. The royalty terms for the
renewal have been set and the Company is currently negotiating a renewal that
will extend until December 31, 2000.
The following is a description of the terms of the Company's prior license
with Warner Brothers. The license permits Gerber to use the characters Baby
Tweety, Baby Bugs Bunny, Baby Tasmanian Devil, Baby Daffy Duck, Baby Wile E.
Coyote, Baby Road Runner and Baby Sylvester on infant bath products, bedding,
sleepwear, underwear, footwear, socks, layettes, and infant and toddler
playwear. The license also permits Gerber to use the adult characters Bugs
Bunny, Wile E. Coyote, Marvin the Martian, Foghorn Leghorn, Porky Pig, Elmer
Fudd, Tweety and Sylvester Jr. for toddler bedding. The license is limited to
the U.S. and its territories and possessions. The licensor is permitted to grant
rights in the characters to (i) other parties for products other than those
covered by the license; (ii) other parties for products covered by the license
for sale through catalogues produced by or on behalf of the licensor, for sale
or distribution in any movie theaters, retail stores operated by the licensor,
or in any theme park operated by the licensor; and (iii) Six Flags Corporation
for sale of similar products as Gerber's in its theme parks. Use of the
characters is subject to review and approval by the licensor. The license may be
terminated by the licensor (i) upon a material default under the license by
Gerber; (ii) if Gerber fails to maintain certain insurance; (iii) if any
government body finds that Gerber's products are harmful or defective in any
way, manner or form, or are being sold or made in violation of the law; (iv) if
Gerber fails to make and sell at least 25 different products; (v) if Gerber
manufactures, sells or distributes licensed products without approval by the
licensor; or (vi) if Gerber sells licensed products outside the U.S. and its
possessions.
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<PAGE> 46
CURITY LICENSE. The Kendall Company granted Gerber a royalty-free license
to use the Curity brand name until July 2006 with automatic renewals for
additional ten year terms. The license permits use of the Curity name for cloth
diapers and diaper liners, underwear, hosiery, sleepwear (including blanket
sleepers and sleep 'n play sets), linens, bedding and certain other products
(such as infant car seat covers), in each case to be worn by or used for infants
and toddlers. The license permits such products to be sold in the U.S. and in
more than 40 countries worldwide (and in more than 70 additional countries if
the licensor verifies that the licensed trademarks may be licensable for the
licensed products therein). The licensor must approve any product and all
advertising which utilizes the Curity name. All products using the Curity name
must be made pursuant to quality standards approved by the licensor. The
licensor can cancel the license if during any five year period only token sales
of products using the Curity name are made. The licensor can terminate the
agreement upon an uncured breach of the license or upon the occurrence of
certain bankruptcy events involving Gerber. In January 1996, Gerber returned to
the licensor the worldwide rights to use the Curity name in outerwear and
playwear and agreed that the licensor could retain the rights to the Curity
trademark in hosiery, linens, bedding and certain other products if Gerber
failed to "use in commerce" the Curity name on any licensed products for a
period of six consecutive months.
WILSON LICENSE. Since 1982, Auburn has held an exclusive license to use
the Wilson brand name for its sport socks in the fifty United States. Since
1988, this license has allowed Auburn to use the Wilson name in Europe, as well.
During this long term relationship, the Company believes that Auburn has become
the second biggest Wilson licensee in the U.S. and the third biggest worldwide.
The current license expires on December 31, 2002 and is renewable for a five
year term if Auburn meets certain sales targets for years 1998 through 2001. In
1997, Auburn's sales greatly exceeded the targets set for each of the four years
comprising such period.
Under the current arrangement, Auburn and Gerber are not permitted to
consolidate their top management team, sales force, distributors, customer
service and manufacturing and are not permitted to commingle product lines.
Auburn is not permitted to sell or distribute products which compete with
Wilson's products, and Wilson can terminate its license if Auburn's operation
under the Wilson license is not wholly separate and distinct from the operations
of any affiliated entity which makes or distributes socks or other sporting
goods under a sports brand name, subject to certain exceptions. Wilson's
distributors in a particular country in Europe may sell Wilson sport socks
manufactured by parties other than Auburn if Auburn has not sold socks in such
country in the prior year. Auburn is required to maintain a certain percentage
of its sales in the sporting goods store trade channel. Wilson must approve
Auburn's use of the Wilson logo on particular products prior to the sale of such
products. Royalty payments to Wilson are calculated as a percentage of net sales
value and minimum royalties are set for each year. Wilson has the option to
terminate the license if: (i) Auburn fails to meet its annual minimum sales goal
(calculated both by volume and geographic area) in any given year or three-year
period; (ii) a material change occurs in the overall management or ownership of
Auburn, or the employment by Auburn of Kevin K. Angliss or Donald J. Murphy
terminates; (iii) Auburn defaults on its obligations under the license; or (iv)
Auburn is insolvent. Wilson consented to the sale of Auburn to the Company.
CONVERSE LICENSE. Converse granted Auburn an exclusive license to use the
Converse brand name for its men's, women's and youth's hosiery in the U.S., its
possessions or territories, and in Europe until December 31, 2001. Converse and
Auburn also agreed to enter into good faith discussions with respect to a new
three-year contract beginning in 2002. Converse may remove Europe from the
coverage of the license if Auburn does not achieve certain net sales minimum
amounts in Europe during any contract year. The licensor must approve Auburn's
use of the licensed trademarks on products or advertising material prior to use
or sale. Royalty payments to the licensor are calculated as a percentage of net
sales and minimum royalties are set for each year. The license may be terminated
by Converse in the event that Kevin Angliss and/or Tim Graham are not, at all
times, the principal managers of the Converse-brand product line at Auburn.
Converse can also terminate the license in the event of one or more of the
following: (i) liquidation or discontinuance of the active operation of the
enterprise of Auburn; (ii) default by Auburn on payments under the Converse
license; (iii) failure by Auburn to make timely periodic or minimum royalty
payments; (iv) failure by Auburn to
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<PAGE> 47
submit a marketing plan in accordance with the Converse license; and (v) default
in the performance of any other obligation continuing for more than 30 days.
Converse consented to the sale of Auburn to the Company.
COCA-COLA LICENSE. Coca-Cola granted Auburn exclusive licenses to use the
Coca-Cola brand name for its sport and casual socks in the U.S. and its
possessions and Europe for a three year term until December 31, 1998. Auburn has
the option to extend the term of the license for three years commencing January
1, 1999. The licensor may revoke Auburn's right in any country and declare the
license to be nonexclusive if Auburn fails to maintain a bona fide commercial
sales presence in any country within the territory for the licensed articles. In
addition, Coca-Cola is permitted to continue standard soft-drink promotional
activities in the territory covered by the license, which may include the sale
of goods identical to or similar to licensed articles, and the licensor's retail
stores may purchase goods from any source regardless of whether they are
identical or similar to Auburn's products. Auburn is not permitted to deal in
any merchandise which is identical or similar to any licensed article and which
bears the trademarks of any non-alcoholic beverage product produced by any of
Coca-Cola's competitors. Royalty payments to Coca-Cola are calculated as a
percentage of net sales and minimum royalties are set for each year. Coca-Cola
may terminate the license at any time: (i) if Auburn fails for a consecutive
period in excess of six months to continue the bona fide distribution and sale
of the licensed articles; (ii) Auburn fails to adequately advertise, promote or
merchandise the licensed articles at a level consistent with accepted standards
in Auburn's industry; (iii) if Auburn fails to make any payments due under the
license agreement for more than 30 days; (iv) if Auburn is unable to pay its
obligations when due or is adjudicated bankrupt or insolvent; (v) if Auburn
intentionally understates any royalty report; or (vi) if the quality of the
licensed articles becomes materially lower on a consistent basis than those
submitted for approval. Coca-Cola consented to the sale of Auburn to the
Company.
DUNLOP LICENSE. Dunlop granted Auburn a license to use the Dunlop brand
name for its sport and casual socks in Europe (including Eastern Europe west of
Russia) for a five year term until December 31, 2001. If the royalty amount in
the year 2000 is in excess of the minimum guaranteed royalty for the year 2000,
the license automatically will be renewed for five years commencing January 1,
2002 and ending December 31, 2006. The licensor must approve Auburn's use of the
licensed trademarks on products or advertising material prior to use or sale.
Royalty payments to the licensor are calculated as a percentage of net sales and
minimum royalties are set for each year. Dunlop or Auburn may terminate this
license if either commits a breach of this license or if either is unable to pay
its debts or enters into voluntary or compulsory liquidation. Dunlop may
terminate this license: (i) if any moneys payable by Auburn remain unpaid for
more than 45 days; (ii) if the ultimate equity share voting control in Auburn
changes; or (iii) if Auburn exercises its rights to seek a declaration or other
order from a court that, by reason of acts or omissions, the registration of
Dunlop registered trademarks is invalid. Dunlop consented to the sale of Auburn
to the Company.
OTHER. Gerber is the owner of the Onesies trademark in the United States.
Gerber also licenses certain patent rights related to its cloth diaper products
from a third party. The Company regards the licenses of trademarks and its other
proprietary rights in and to the trademarks as valuable assets in the marketing
of its products and, on a worldwide basis, seeks to protect them against
infringement.
EMPLOYEES
As of December 31, 1997, the Company had approximately 3,300 employees,
including approximately 2,000 in the United States and approximately 1,300 in
foreign countries. None of the Company's employees are members of unions or are
otherwise party to a collective bargaining agreement. Certain of the Company's
employees in Ireland are subject to the national wage agreement in Ireland. The
Company considers its relations with its employees to be good.
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<PAGE> 48
PROPERTIES
The following table sets forth the principal real property owned or leased
by the Company and used as production, distribution, warehouse, manufacturing or
other facilities as of December 31, 1997:
<TABLE>
<CAPTION>
OWNED
OR APPROXIMATE FLOOR
USE LEASED SPACE (SQ. FT.)
LOCATION --- ------ -----------------
<S> <C> <C> <C>
Ballinger, TX............. Manufacturing Owned 85,000
Ballinger, TX............. Warehouse, Distribution Leased 70,000
Evergreen, AL............. Warehouse, Distribution Leased 255,000
Dominican Republic (3
facilities)............ Production Leased 90,000
Lumberton, NC (2
facilities)............ Manufacturing Owned 183,000
Pelzer, SC (2
facilities)............ Manufacturing, Distribution Owned 804,000
Adairville, KY............ Manufacturing Owned 72,000
Auburn, KY................ Manufacturing, Distribution Owned 160,000
and Administration
Cahirciveen, Ireland...... Manufacturing, Distribution Leased 62,000
</TABLE>
In addition to the facilities described above, the Company leases 48,000
square feet for its headquarters in Greenville, South Carolina and approximately
16,000 square feet for its executive offices and showroom in New York, New York.
From time-to-time, the Company also uses storage space in a warehouse in
Franklin, Kentucky. The Company holds a purchase option for the Evergreen,
Alabama warehouse which is exercisable at any time during its 15 year term at a
price of two dollars.
ENVIRONMENTAL AND OTHER REGULATORY MATTERS
The Company's manufacturing facilities and operations are subject to
certain federal, state, local and foreign laws and regulations relating to
environmental protection and occupational health and safety, including those
governing wastewater discharges, air emissions, the management and disposal of
solid and hazardous wastes, and the remediation of contamination associated with
the release of hazardous substances. The Company believes that it is in
substantial compliance with such laws and regulations. The Company has incurred,
and will continue to incur, capital expenditures and operating expenses to
comply with such requirements. However, the Company does not currently
anticipate any material capital expenditures for environmental control
facilities for the current or succeeding fiscal year. Nonetheless, there can be
no assurance that such laws will not become more stringent or be interpreted and
applied more stringently. Such future changes or interpretations or the
identification of adverse environmental conditions previously unknown to the
Company could result in additional compliance costs or in remediation costs to
the Company.
The Company's older facilities contain asbestos materials and lead-based
paint. It is the Company's policy to manage these materials on an as-needed
basis. If, however, the Company decides to renovate these facilities, special
removal or encapsulation efforts will be required to prevent worker exposure to
these materials. The cost of such efforts could be material.
In connection with both the Original Acquisition and the Acquisition, the
Company obtained from the former owners of the businesses, indemnification for
certain potential environmental liabilities. Most of the indemnities are subject
to limitations, including as to time and dollar amounts. To date, the Company
has not made any claim under these indemnities, and there is no assurance that
the former owners will have the ability to fulfill their indemnification
obligations if called upon to do so by the Company. See "Risk Factors -- Cost of
Environmental Compliance."
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<PAGE> 49
LEGAL PROCEEDINGS
The Company is involved from time to time in various routine legal and
administrative proceedings and threatened legal and administrative proceedings
incidental to the ordinary course of its business. The Company has been active
in pursuing actions against counterfeiters and diverters of its products. In the
opinion of the Company's management, the resolution of such matters will not
have a material adverse effect on the Company's business, financial condition or
results of operations.
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<PAGE> 50
MANAGEMENT
EXECUTIVE OFFICERS, DIRECTORS AND KEY EMPLOYEES
Executive officers, directors and key employees of the Company and their
ages as of February 24, 1998 are as follows:
<TABLE>
<CAPTION>
NAME AGE POSITION
---- --- --------
<S> <C> <C>
Edward Kittredge.................... 59 Chairman of the Board, President, Chief Executive
Officer
Richard L. Solar.................... 58 Senior Vice President and Director
David E. Uren....................... 54 Vice President of Finance, Secretary and Treasurer
Lee M. Schaeffer.................... 51 Senior Vice President of Operations of Gerber
Robert P. Robertson................. 51 Senior Vice President of Sales and Marketing of Gerber
Raymond R. McManus.................. 54 Vice President of Human Resources of Gerber
Kevin K. Angliss.................... 46 President of Auburn
Donald J. Murphy.................... 58 Senior Vice President of International Sales and
Marketing of Auburn
W. Timothy Graham................... 45 Vice President of Sales of Auburn
Richard M. Cashin, Jr............... 45 Director
Joseph Medalie...................... 75 Director
John D. Weber....................... 34 Director
Lawrence R. Glenn................... 59 Director
</TABLE>
EXECUTIVE OFFICERS AND DIRECTORS
EDWARD KITTREDGE led a group of investors in the purchase of Gerber
Childrenswear, Inc. from GPC in January 1996 and has served as Chairman of the
Board, President and Chief Executive Officer of the Company since that time.
Before joining the Company Mr. Kittredge served as Chairman and Chief Executive
Officer of Denton Mills, manufacturer of Dr. Denton children's pajamas from
1984. From 1980 to 1984, he was President of Royal Manufacturing Company, a
privately owned men's underwear and active sportswear company. Prior to that, he
served in a variety of senior sales and marketing management positions at Union
Underwear Company (Fruit of the Loom), including national director of all
Branded and Private Label Sales and as head of its BVD Division.
RICHARD L. SOLAR has been Senior Vice President of the Company and a
director since January 1996. Prior to joining the Company, Mr. Solar held
various positions at Bankers Trust Company, including managing director
positions. From 1971 to 1975, Mr. Solar also served as Treasurer of Val D'Or
Industries Inc., a publicly held apparel company, and Diamondhead Corporation, a
publicly held real estate development company. He is also a director of Concord
Fabrics, Inc.
DAVID E. UREN has been Vice President of Finance of the Company or its
predecessor since 1987. He has been Secretary and Treasurer of the same since
1990. Prior to joining the Company, he was Chief Financial Officer of Borg
Textile Corporation and held various senior financial positions at Buster Brown
Apparel, Inc. between 1972 and 1987. Mr. Uren also served at Ernst & Young from
1967 to 1971, including as a certified public accountant from 1969 to 1971.
LEE M. SCHAEFFER has been Senior Vice President of Operations of Gerber or
its predecessor since September 1997 and was Vice President of Operations from
1993 to 1997. He joined the Company in 1990 as Vice President of Marketing
Services. Prior to joining the Company, he held various management positions
with Milliken and Co., and Williamson-Dickie Manufacturing Co.
ROBERT P. ROBERTSON has been Senior Vice President of Sales and Marketing
of Gerber since August 1997. Prior to joining the Company, he held various
senior management positions with Sara Lee Knit Products (Hanes and Hanes Her
Way), Stedman Corporation and Pannill Knitting Company, Inc.
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<PAGE> 51
RAYMOND R. MCMANUS has been Vice President of Human Resources of Gerber or
its predecessor since April 1995. Prior to joining the Company in 1986, Mr.
McManus held various management positions at Boston Whalers, Inc., Acushnet
Company, and Converse.
RICHARD M. CASHIN, JR. has been a director since January 1996. Mr. Cashin
has been president of CVC since 1994. Prior to being appointed president, Mr.
Cashin served as a Managing Director of CVC for more than four years. Mr. Cashin
is also a director of Levitz Furniture Inc., Delco Remy International, Inc.,
LifeStyle Furnishings International Ltd., Fairchild Semiconductor Corporation,
FFC Holdings, Inc., Cable Systems International, Euramax International, Plc.,
Titan Wheel International, Inc., Hoover Group Inc., Thermal Engineering, JAC
Holding Corporation, GVC Holdings, Ballantrae Corporation and Delta Commodities,
Inc.
JOSEPH MEDALIE has been a director since February 1997. Mr. Medalie is a
director of the Convention Center Corporation, a retired director and vice
chairman of Fruit of the Loom and a retired director of Transfinancial Bank and
Commonwealth Health Corporation.
JOHN D. WEBER has been a director since January 1996. Mr. Weber has been a
Vice President at CVC since 1994. Previously, Mr. Weber worked at Putnam
Investments from 1992 through 1994. Mr. Weber is a director of Advanced Cast
Products, Inc., Anvil Knitwear, Inc., Electrocal Designs, Inc., FFC Holding,
Inc., Graphic Design Technologies, Marine Optical, Inc., Neenah Foundry Company,
Plainwell Paper Company, Sleepmaster, LLC, and Smith Alarm.
LAWRENCE R. GLENN has been a director since January 1996. Mr. Glenn was a
Senior Corporate Officer of Citicorp from 1963 until 1995. Currently Mr. Glenn
is the Chairman of J.W. Goddard & Co., a private investment bank.
KEY EMPLOYEES
KEVIN K. ANGLISS has been President of Auburn since 1997 and the officer
responsible for the day-to-day operations of Auburn (while employed by J.P.
Manning, Inc., an affiliate of Auburn) since 1986. Prior to joining Auburn in
1983, he held a senior sales management position at Champion Products and was
employed in various positions by J.C. Penney in the buying/merchandising
departments.
DONALD J. MURPHY has been Senior Vice President of International Sales and
Marketing at Auburn since 1997. From 1995 to 1997, Mr. Murphy held such position
at J.P. Manning, Inc., an affiliate of Auburn. Prior to joining Auburn in 1990,
he held several merchandising positions with J.C. Penney and a senior sales
position at Pannill Knitting Company.
W. TIMOTHY GRAHAM has been Vice President of Sales of Auburn since 1997.
From 1986 to 1997, Mr. Graham held such position at J.P. Manning, Inc., an
affiliate of Auburn. Prior to joining Auburn in 1983, he held a senior sales
position at The Bibb Company and Judy Bond, Inc.
BOARD COMMITTEES
AUDIT COMMITTEE. In 1996, the Board established an audit committee, whose
members are directors who may also be employees of the Company. The audit
committee makes recommendations concerning the engagement of independent public
accountants, reviews with the independent public accountants the plans and
results of the audit engagement, approves professional services provided by the
independent public accountants, considers the range of audit and non-audit fees
and reviews the adequacy of the Company's internal accounting controls. Messrs.
Weber, Glenn and Solar currently serve on the audit committee.
COMPENSATION COMMITTEE. In 1996, the Board established a compensation
committee, whose members are directors who may also be employees of the Company.
The compensation committee approves the salaries and other benefits of the
executive officers of the Company and administers certain compensation plans of
the Company. In addition, the compensation committee consults with the Company's
management regarding pension and other benefit plans and compensation policies
and practices of the Company. Messrs. Kittredge, Cashin and Medalie currently
serve on the compensation committee.
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<PAGE> 52
BOARD OF DIRECTORS
There are currently six members of the Board. Directors are elected at the
annual meeting of stockholders. The Company's Amended and Restated Certificate
of Incorporation provides for cumulative voting in the election of directors.
See "Description of Capital Stock -- Certain Provisions of the Company's Amended
and Restated Certificate of Incorporation."
DIRECTOR COMPENSATION
Messrs. Medalie and Glenn are the only members of the Board who receive
compensation for their services as directors. Both Messrs. Medalie and Glenn are
entitled to receive $2,500 for each Board meeting attended and reimbursement for
their reasonable out-of-pocket expenses incurred in connection with Board
meetings.
EXECUTIVE COMPENSATION
SUMMARY COMPENSATION TABLE
The following summarizes the principal components of compensation of the
Company's Chairman and Chief Executive Officer and the four most highly
compensated executive officers of the Company other than the Chief Executive
Officer as of December 31, 1997 for services rendered in all capacities to the
Company during fiscal 1997.
<TABLE>
<CAPTION>
ANNUAL COMPENSATION LONG-TERM COMPENSATION
----------------------------------------- -------------------------------
ALL OTHER
OTHER ANNUAL RESTRICTED STOCK COMPENSATION
NAME AND PRINCIPAL POSITION YEAR SALARY ($) BONUS ($) COMPENSATION ($) AWARDS ($) ($)(A)
- --------------------------- ---- ---------- --------- ---------------- ---------------- ------------
<S> <C> <C> <C> <C> <C> <C>
Edward Kittredge, Chairman,
President and CEO........ 1997 225,000 776,100 14,405(b) 0 6,379,468
Richard L. Solar, Senior
Vice President........... 1997 150,000 455,286 4,750(c) 0 2,392,301
David E. Uren, Vice
President of Finance,
Secretary and
Treasurer................ 1997 150,450 158,614 10,750(c) 0 0
Lee M. Schaeffer, Senior
Vice President,
Operations............... 1997 136,335 75,000 2,850(c) 0 73,048
Robert P. Robertson, Senior
Vice President, Sales and
Marketing................ 1997 65,048 25,000 0 0 292,191
</TABLE>
- ---------------
(a) Reflects stock compensation. See "Certain Relationships and Related
Transactions -- Transactions with Management and Directors."
(b) Company-paid 401(k) matching contributions ($4,750) and Company-paid
premiums on a private life insurance contract ($9,655).
(c) Other annual compensation reflects Company-paid 401(k) matching
contributions and, in the case of Mr. Uren a car allowance.
EMPLOYMENT AGREEMENTS
In connection with the Original Acquisition, the Company, GCIH and CVC
entered into employment agreements with each of Edward Kittredge, Richard Solar
and David E. Uren (collectively, the "Executive Agreements") pursuant to which
the Company employs Messrs. Kittredge, Solar and Uren as Chairman/
President/Chief Executive Officer, Senior Vice President, and Vice President of
Finance, respectively, through January 22, 2001. See "Management -- Executive
Officers and Directors" and "Certain Relationships and Related
Transactions -- Transactions with Management and Directors." Mr. Uren is also
party to a severance agreement dated as of March 18, 1995 between Mr. Uren, GPC
and the Company (the "Uren Severance Agreement").
The Executive Agreements currently provide Messrs. Kittredge, Solar and
Uren with annual base salaries of $225,000, $150,000, and $150,450,
respectively, plus annual incentive bonuses based upon the achievement
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<PAGE> 53
of pre-determined objectives tied to the performance of the Company, including
criteria related to growth and profitability. In the event that the Company
terminates the employment of either of Messrs. Kittredge or Solar for cause,
such executive shall not be entitled to any further compensation. In the event
of either of Messrs. Kittredge or Solar's death, disability, or termination
without cause, he shall be entitled to receive his base salary for eighteen
months thereafter (the "Severance Payments"), and a pro rata portion of his
bonus for the number of days employed during the termination year, and shall be
restricted from competing with the Company or soliciting any of its employees
for the eighteen-month period during which the Severance Payments are received.
In the event that the Company terminates the employment of Mr. Uren without
cause on or prior to January 22, 1999, the Uren Severance Agreement provides
that Mr. Uren shall receive his base salary and benefits for eighteen months,
and professional out placement assistance, in addition to a pro rata portion of
his bonus for the number of days employed during the termination year to which
Mr. Uren shall be entitled regardless of the reason for his termination. In the
event that the Company terminates the employment of Mr. Uren after January 22,
1999, Mr. Uren's Executive Agreement contains the same terms and conditions as
those of Messrs. Kittredge and Solar. Upon termination of any of the executives,
the Executive Agreements also provide that the capital stock of GCIH is subject
to repurchase by the Company and CVC. See also "Certain Relationships and
Related Transactions -- Transactions with Management and Directors."
LONG-TERM INCENTIVE PLAN
In connection with the Offering, the Company has adopted the Long-Term
Equity Incentive Plan (the "Incentive Plan"), designed to provide incentives to
present and future executive, managerial, marketing, technical and other key
employees, and consultants and advisors of the Company and its subsidiaries
("Participants") as may be selected in the sole discretion of the Company's
Board of Directors. The Incentive Plan provides for the granting to Participants
of the following types of incentive awards: stock options, stock appreciation
rights ("SARs"), restricted stock, performance units, performance grants and
other types of awards that the Compensation Committee of the Board (the
"Committee") deems to be consistent with the purposes of the Incentive Plan. An
aggregate of shares of Common Stock have been reserved for issuance
under the Incentive Plan. The Incentive Plan affords the Company latitude in
tailoring incentive compensation for the retention of key personnel, to support
corporate and business objectives, and to anticipate and respond to a changing
business environment and competitive compensation practices.
The Committee will have exclusive discretion to select the Participants and
to determine the type, size and terms of each award, to modify the terms of
awards, to determine when awards will be granted and paid, and to make all other
determinations which it deems necessary or desirable in the interpretation and
administration of the Incentive Plan. The Incentive Plan is scheduled to
terminate ten years from the date that the Incentive Plan was initially approved
and adopted by the stockholders of the Company, unless extended for up to an
additional five years by action of the Board of Directors. With limited
exceptions, including termination of employment as a result of death, disability
or retirement, or except as otherwise determined by the Committee, rights to
these forms of contingent compensation are forfeited if a recipient's employment
or performance of services terminates within a specified period following the
award. Generally, a Participant's rights and interest under the Incentive Plan
will not be transferable except by will or by the laws of descent and
distribution or pursuant to a qualified domestic relations order.
Options, which include nonqualified stock options and incentive stock
options, are rights to purchase a specified number of shares of Common Stock at
a price fixed by the Committee. The option price may be less than, equal to or
greater than the fair market value of the underlying shares of Common Stock, but
in no event shall the exercise price of an incentive stock option be less than
the fair market value on the date of grant. Options generally will expire not
later than ten years after the date on which they are granted. Options will
become exercisable at such times and in such installments as the Committee shall
determine. Payment of the option price must be made in full at the time of
exercise in such form (including, but not limited to, cash or Common Stock of
the Company) as the Committee may determine.
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<PAGE> 54
An SAR may be granted alone, or in connection with the grant of an option,
either at the time of grant of the related option or by amendment thereafter to
an outstanding option. SARs granted in connection with options shall be
exercisable only when, to the extent and on the condition that any related
option is exercisable. The exercise of an option shall result in an immediate
forfeiture of any related SAR to the extent the option is exercised, and the
exercise of an SAR shall cause an immediate forfeiture of any related option to
the extent the SAR is exercised.
Upon the exercise of an SAR, the Participant shall be entitled to a
distribution in an amount equal to the difference between the fair market value
of a share of Common Stock on the date of exercise and the exercise price of the
SAR or, in the case of SARs granted in tandem with options, any option to which
the SAR is related, multiplied by the number of shares of Common Stock as to
which the SAR is exercised. The Committee shall decide whether such distribution
shall be in cash, in shares of Common Stock having a fair market value equal to
such amount, in other securities having a fair market value equal to such amount
or in a combination thereof.
A restricted stock award is an award of a given number of shares of Common
Stock which are subject to a restriction against transfer and to a risk of
forfeiture during a period set by the Committee. During the restriction period,
the Participant generally has the right to vote and receive dividends on the
shares. Dividends received while under restriction are treated as compensation.
Performance awards are those whose final value, if any, is determined by
the degree to which specified performance objectives have been achieved during
an award period set by the Committee, subject to such adjustments as the
Committee may approve based on relevant factors. Performance objectives are
based on measures of Company, unit or Participant performance, or any
combination of these and other factors, as the Committee may determine. The
Committee may make such adjustments in the computation of any performance
measure as it deems appropriate. The Committee shall determine the portion of
each performance award that is earned by a participant on the basis of the
Company's performance over the performance cycle in relation to the performance
goals for such cycle. The earned portion of a performance award may be paid out
in shares of Common Stock, cash, other securities of the Company, or any
combination thereof, as the Committee may determine.
Upon the liquidation or dissolution of the Company, all outstanding awards
under the Incentive Plan shall terminate immediately prior to the consummation
of such liquidation or dissolution, unless otherwise provided by the Committee.
In the event of a reorganization, recapitalization, stock split, stock dividend,
combination of shares, merger, consolidation, distribution of assets, or any
other change in the corporate structure or shares of the Company, the Committee
shall make such adjustment as it deems appropriate in the number and kind of
shares or other property reserved for issuance under the Incentive Plan, in the
number and kind of shares or other property covered by grants previously made
under the Incentive Plan, and in the exercise price of outstanding options and
SARs. In the event of any merger, consolidation or other reorganization in which
the Company is not the surviving or continuing entity or in which a change in
control is to occur, all of the Company's obligations regarding options, SARs
performance awards, and restricted stock that were granted hereunder and that
are outstanding on the date of such event shall, on such terms as may be
approved by the Committee prior to such event, be assumed by the surviving or
continuing entity or canceled in exchange for property (including cash).
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<PAGE> 55
PENSION PLAN
The following table represents monthly amounts estimated to be paid to
employees eligible for the Company's pension plan based upon years of service as
set forth below.
PENSION PLAN TABLE
<TABLE>
<CAPTION>
REMUNERATION YEARS OF SERVICE
------------ ---------------------------------------------------------
15 20 25 30 35
--------- --------- --------- --------- ---------
<S> <C> <C> <C> <C> <C>
$125,000.................................. $2,096.70 $2,795.60 $3,494.50 $4,193.40 $4,892.30
150,000.................................. 2,565.45 3,420.60 4,275.75 5,130.90 5,986.05
175,000.................................. 3,034.20 4,045.60 5,057.00 6,068.40 7,079.80
200,000.................................. 3,502.95 4,670.60 5,838.25 7,005.90 8,173.55
225,000.................................. 3,502.95 4,670.60 5,838.25 7,005.90 8,173.55
250,000.................................. 3,502.95 4,670.60 5,838.25 7,005.90 8,173.55
300,000.................................. 3,502.95 4,670.60 5,838.25 7,005.90 8,173.55
400,000.................................. 3,502.95 4,670.60 5,838.25 7,005.90 8,173.55
450,000.................................. 3,502.95 4,670.60 5,838.25 7,005.90 8,173.55
500,000.................................. 3,502.95 4,670.60 5,838.25 7,005.90 8,173.55
</TABLE>
ESTIMATED CREDITED YEARS OF SERVICE
FOR NAMED EXECUTIVE OFFICERS
<TABLE>
<CAPTION>
YEARS OF CREDITED SERVICE
NAME (YEARS OF PARTICIPATION)
---- -------------------------
<S> <C>
Edward Kittredge............................................ 2 years (0 years)
Richard L. Solar............................................ 2 years (0 years)
David E. Uren............................................... 11 years (0 years)
Lee M. Schaeffer............................................ 7 years (0 years)
Robert P. Robertson......................................... 0 years (1 year)
</TABLE>
The Retirement Plan for Salaried Employees of Gerber Childrenswear, Inc.
(the "Retirement Plan") is a defined benefit pension plan qualified pursuant to
Section 401(a) of the Internal Revenue Code. The Retirement Plan is administered
by the Company Benefits Plans Committee (the "Committee"), the members of which
are appointed by the Board of Directors of the Company. All determinations of
the Committee are made in accordance with the provisions of the Retirement Plan
in a uniform and nondiscriminatory manner. The Retirement Plan covers
substantially all salaried employees of the Company. Benefits under the
Retirement Plan are administered through a trust arrangement providing benefits
in the form of monthly payments.
Generally, a participant in the Retirement Plan is eligible to receive
benefits upon such participant's Normal Retirement Age, which is the later of
the Social Security retirement age or the fifth anniversary of the date the
participant commenced participation in the Retirement Plan. A participant may
elect an early retirement benefit when such participant reaches Early Retirement
Age, which is the later of ten years prior to such participant's Social Security
retirement age and the fifth anniversary of the date the participant commenced
participation in the Retirement Plan. Early retirement benefits are reduced for
those participants who retire more than three years prior to their Normal
Retirement Age according to a formula established in the Retirement Plan based
upon each full month that the participant's age is less than the Normal
Retirement Age. If a participant who is vested terminates employment, such
participant is entitled to a deferred, unreduced benefit payable within three
years of such participant's Normal Retirement Age, or a reduced benefit, if
requested earlier.
The amount of a participant's Retirement Plan benefit is based upon such
participant's Final Average Pay (as defined below) and on his/her Years of
Participation (as defined below). The annual amount of the participant's normal
retirement benefit is derived, subject to certain limitations, by multiplying
(i) and (ii), where (i) = 0.9% of Final Average Pay plus 0.6% of Final Average
Pay in excess of Covered Compensation (as defined below); and (ii) = Years of
Participation up to a maximum of 35 years. A participant's benefits
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<PAGE> 56
may be offset by the amount of any workers' compensation or similar benefits
payable because of an employment-related injury or illness. The normal
retirement benefit formula produces an annual benefit which is paid to the
participant in equal monthly installments. The standard form of payment for a
single participant is a monthly benefit payable for the participant's life only.
The standard form of payment for a married participant is a 50% joint and
survivor benefit, which provides a reduced monthly benefit to the participant
during his/her lifetime, and 50% of that benefit to the participant's spouse for
his/her lifetime in the event of the participant's death. Other optional forms
of payment are also provided, including a 100% survivorship annuity, a 50%
survivorship annuity and a life and period certain annuity option, but they
require participant election. In addition, the Committee may elect to pay the
benefit equivalent of a benefit payable at Normal Retirement Age in the form of
a lump sum payment, if the lump sum payment does not exceed $3,500.
"Final Average Pay" is defined as the average of a participant's annual
compensation during the highest-paid five complete consecutive plan years within
the last ten years before such participant's retirement. For purposes of the
Retirement Plan, compensation includes total earnings received for personal
services to the Company. For the 1995 and 1996 calendar years, the total
compensation that can be considered for any purpose under the Retirement Plan is
limited to $150,000, and for 1997, the limit is $160,000, pursuant to
requirements imposed by the Internal Revenue Code. The Internal Revenue Code
also places certain other limitations on the annual benefits that may be paid
under the Plan. "Covered Compensation" is an average of the Social Security
Taxable wage bases for the 35 calendar years ending with the year a participant
reaches the Social Security retirement age. Any participant who is credited with
1,000 or more hours of service in a calendar year receives a "Year of Service",
while any participant who is credited with 1,950 or more hours of service in a
calendar year receives a "Year of Participation". Years of Service determine a
participant's eligibility for benefits under the Retirement Plan, and the
percentage vested in those benefits. Participants in any superseded plan earn
Years of Service and Years of Participation pursuant to slightly different
criteria for plan years beginning prior to January 1, 1989.
The Retirement Plan is funded entirely by Company contributions that are
held by a trustee for the exclusive benefit of the participants. The Company
voluntarily agreed to contribute the amounts necessary to provide the assets
required to meet the future benefits payable to Retirement Plan participants.
Under the Retirement Plan, contributions are not specifically allocated to
individual participants. Although the Company intends to continue the Retirement
Plan indefinitely, it can terminate the plan at any time, upon which event all
participants will become 100% vested in any benefit accrued to the extent funds
are available in trust. In this circumstance, assets will be allocated to
benefit categories in the order specified in the Retirement Plan.
COMPENSATION COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION
In 1997, Edward Kittredge, Richard M. Cashin, Jr. and Joseph Medalie served
as members of the Board's compensation committee. During the same period, Mr.
Kittredge also served as the Company's Chairman, President and Chief Executive
Officer. In addition, pursuant to an Executive Stock Purchase Agreement, dated
January 22, 1996, by and among GCIH, the Company, CVC and Edward Kittredge, Mr.
Kittredge purchased 26,161.9 shares of GCIH Class B Common at a price of $1.00
per share, 50,000 shares of GCIH Class B Common for $.02 per share and 1,188.4
shares of Series A Preferred Stock of GCIH at a price of $100.00 per share. Of
such shares, 20,000 shares of GCIH Class B Common (the "Kittredge Vesting
Stock") are subject to vesting at 20% per year over a five-year period. The
Kittredge Vesting Stock is subject to repurchase by the Company and, if not
repurchased by the Company, CVC, should Mr. Kittredge's employment with the
Company terminate for any reason. The purchase price for unvested shares is
$1.00 per share; the purchase price for vested shares (the "Kittredge Vested
Shares") is book value, unless the executive is terminated for cause in which
case the purchase price for the Kittredge Vested Shares is $1.00 per share.
Further, on November 24, 1997, Mr. Kittredge purchased an additional 20,000
shares of GCIH Class B Common at a price of $1.00 per share, which were fully
vested upon purchase, but which are subject to repurchase on the terms described
above for the Kittredge Vested Shares, should Mr. Kittredge's employment with
the Company terminate for any reason.
Pursuant to a Director Stock Purchase Agreement by and between Joseph
Medalie and GCIH, dated as of February 11, 1997, Mr. Medalie purchased from the
Company 2,500 shares of GCIH Class B Common at a
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<PAGE> 57
purchase price of $1.00 per share. Such stock is subject to repurchase by the
Company at any time at its book value. See "Certain Relationships and Related
Transactions -- Transactions with Management and Directors."
CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
THE REORGANIZATION
Immediately prior to or in connection with the consummation of the
Offering, the Company will consummate a series of transactions pursuant to which
the Company will be reorganized and recapitalized. The principal transactions
comprising the Reorganization are the following:
AMENDMENT AND RESTATEMENT OF CERTIFICATE OF INCORPORATION. Under the
Company's certificate of incorporation there are ten (10) shares of common
stock, par value $100.00 per share (the "Old GCI Stock") authorized, all of
which shares (before giving effect to the Reorganization) are issued and
outstanding and owned beneficially and of record by GCIH. Prior to the
consummation of the Offering, the Company's certificate of incorporation will be
amended and restated to provide for, among other things, the increase of its
authorized share capital and the division of its authorized common stock into
two classes of common stock with different voting rights, with each share of
Common Stock having one vote per share, each share of Class B Common Stock
having no voting rights (the "Recapitalization"). The certificate will further
provide that (a) each share of Class B Common Stock will be convertible at the
option of the holder at any time into one share of Common Stock and (b) each
share of Common Stock held by a holder of Class B Common Stock will be
convertible at the option of the holder at any time into one share of Class B
Common. CVC and its affiliates will be the only holders of the Class B Common
Stock which will be convertible into Common Stock representing approximately %
of the combined voting power of the Company's outstanding Common Stock. Pursuant
to the Reorganization, the ten shares of Old GCI Stock owned by GCIH will be
automatically converted into one share of Common Stock (the "Original GCI
Share"). See "Principal Stockholders" and "Description of Capital Stock."
MERGER AND CONVERSION OF GCIH STOCK. Prior to the consummation of the
Offering and immediately after giving effect to the Recapitalization, GCIH will
be merged, pursuant to a tax-free reorganization, into the Company, with the
Company as the surviving entity (the "Merger"). Upon consummation of the Merger
and in the following sequence, (i) 113,623.6 shares of Series A Preferred Stock,
par value $0.01 per share, of GCIH ("GCIH Series A Preferred") (held by CVC and
its affiliates) will be converted into shares of Class A Common Stock of
GCIH, and 2,828.4 shares of GCIH Series A Preferred (held by members of
management) will be converted into the right to receive cash equal to a
liquidation value per share at the time of the Merger (including accrued and
unpaid dividends) of $125.46 per share, or $355,000, in the aggregate (with
$149,101.68 payable to Mr. Kittredge, $149,101.68 payable to Mr. Solar, and
$56,645.19 payable to Mr. Uren) (ii) all of the outstanding shares of GCIH Class
A Common and Class C Common Stock of GCIH ("GCIH Class C Common"), par value
$0.01 per share (which stock is held by CVC, its affiliates, and a director of
GCIH) will be exchanged for shares of Class B Common Stock of the Company
pursuant to a to 1 stock split, (iii) all of the outstanding shares of Class B
Common Stock of GCIH ("GCIH Class B Common"), having a par value of $0.01 per
share (which stock is held by members of the Company's management) will be
exchanged for shares of Common Stock of the Company at such specified ratio and
(iv) all of the outstanding warrants to purchase shares of Class D Common Stock
of GCIH ("GCIH Class D Common") (which warrants are held by Citicorp Mezzanine
Partners, L.P.) will be exchanged into
warrants to purchase shares of the Class B Common Stock of the Company. In
addition, upon consummation of the Merger, (i) a 12.00% junior subordinated note
of GCIH held by GPC will be assumed by the Company, and (ii) the Original GCI
Share will be canceled.
After giving effect to the foregoing transactions, as part of the
Reorganization in connection with the consummation of the Offering, CVC will
convert shares of Class B Common Stock into shares of Common Stock, representing
19% of the combined voting power of the Company's outstanding capital stock.
After giving effect to the Reorganization and the Offering (i) CVC and its
affiliates will own shares of Common
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<PAGE> 58
Stock representing 19% of the outstanding Common Stock and shares of Class B
Common Stock convertible into shares of Common Stock representing % of the
outstanding Common Stock, (ii) Messrs. Kittredge, Solar and Uren will own shares
of Common Stock representing %, % and % of the outstanding Common Stock,
(iii) Messrs. Glenn, Medalie and other members of the Company's management, as a
whole, will own shares of Common Stock representing %, % and % of the
outstanding Common Stock, and (iv) Citicorp Mezzanine Partners, L.P. will own a
warrant exercisable for shares of Class B Common Stock, convertible into shares
of Common Stock, representing % of the outstanding Common Stock, in each of
cases (i)-(iv) assuming that all Class B Common Stock is converted into Common
Stock pursuant to the terms thereof. See "-- Transactions with Management and
Directors," "-- Transactions with CVC and its Affiliates" and "-- Transactions
with Citicorp Mezzanine Partners, L.P."
TRANSACTIONS WITH MANAGEMENT AND DIRECTORS
Pursuant to an Executive Stock Purchase Agreement, dated January 22, 1996,
by and among GCIH, the Company, CVC and Edward Kittredge, Mr. Kittredge
purchased 26,161.9 shares of GCIH Class B Common at a price of $1.00 per share,
50,000 shares of GCIH Class B Common for $.02 per share and 1,188.4 shares of
Series A Preferred Stock of GCIH at a price of $100.00 per share. Of such
shares, 20,000 shares of GCIH Class B Common (the "Kittredge Vesting Stock") are
subject to vesting at 20% per year over a five-year period. The Kittredge
Vesting Stock is subject to repurchase by the Company and, if not repurchased by
the Company, CVC, should Mr. Kittredge's employment with the Company terminate
for any reason. The purchase price for unvested shares is $1.00 per share; the
purchase price for vested shares (the "Kittredge Vested Shares") is book value,
unless the executive is terminated for cause in which case the purchase price
for the Kittredge Vested Shares is $1.00 per share. In addition, on November 24,
1997, Mr. Kittredge purchased an additional 20,000 shares of GCIH Class B Common
at a price of $1.00 per share, which were fully vested upon purchase but which
are subject to repurchase on the terms described above for the Kittredge Vested
Shares, should Mr. Kittredge's employment with the Company terminate for any
reason.
Pursuant to an Executive Stock Purchase Agreement, dated January 22, 1996
by and among GCIH, the Company, CVC and Richard Solar, Mr. Solar purchased
23,661.9 shares of GCIH Class B Common at a price of $1.00 per share and 1,188.4
shares of Series A Preferred Stock of GCIH at a price of $100.00 per share. Of
such shares, 17,500 shares of GCIH Class B Common (the "Solar Vesting Stock")
are subject to vesting at 20% per year over a five-year period. The Solar
Vesting Stock is subject to repurchase by the Company and, if not repurchased by
the Company, CVC, should Mr. Solar's employment with the Company terminate for
any reason. The purchase price for unvested shares is $1.00 per share; the
purchase price for the vested shares (the "Solar Vested Shares") is book value,
unless the executive is terminated for cause in which case the purchase price
for the Solar Vested Shares is $1.00 per share. In addition, on September 30,
1997, Mr. Solar purchased an additional 7,500 shares of GCIH Class B Common at a
price of $1.00 per share, which were fully vested upon purchase, but which are
subject to repurchase on the terms described above for the Solar Vested Shares,
should Mr. Solar's employment with the Company terminate for any reason.
Pursuant to an Executive Stock Purchase Agreement, dated January 22, 1996
by and among GCIH, the Company, CVC and David Uren, Mr. Uren purchased 14,841.5
shares of GCIH Class B Common at a price of $1.00 per share and 451.6 shares of
Series A Preferred of GCIH at a price of $100.00 per share. Of such shares,
12,500 shares of Class B Common (the "Uren Vesting Stock") are subject to
vesting at 20% per year over a five-year period. The Uren Vesting Stock is
subject to repurchase by the Company and, if not repurchased by the Company,
CVC, should Mr. Uren's employment with the Company terminate for any reason. The
purchase price for unvested shares is $1.00 per share; the purchase price for
vested shares is book value, unless the executive is terminated for cause in
which case the purchase price for vested shares is $1.00 per share.
Pursuant to an Investor Stock Purchase Agreement, dated as of January 22,
1996 by and between GCIH and Lawrence R. Glenn, Mr. Glenn purchased 2,500 shares
of GCIH Class C Common for a purchase price of $1.00 per share. Such stock is
subject to repurchase by the Company at any time at its book value.
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<PAGE> 59
Pursuant to a Director Stock Purchase Agreement by and between Joseph
Medalie and GCIH, dated as of February 11, 1997, Mr. Medalie purchased from the
Company 2,500 shares of GCIH Class B Common at a purchase price of $1.00 per
share. Such stock is subject to repurchase by the Company at any time at its
book value.
Pursuant to certain Manager Securities Purchase Agreements, by and among
GCIH, CVC and certain members of management of the Company (other than Messrs.
Solar, Kittredge, and Uren, described above), dated as of February 28, 1997,
July 25, 1997 and November 25, 1997, certain members of management of the
Company purchased, in the aggregate, 23,250 shares of GCIH Class B Common for a
purchase price of $1.00 per share. Among such members of management are Mr. Lee
M. Schaeffer who purchased 1,500 shares on February 28, 1997, Mr. Raymond R.
McManus, who purchased 750 shares on February 28, 1997, and 250 shares on July
25, 1997 and Mr. Robert P. Robertson, who purchased 1,000 shares on November 26,
1997. In all cases, such stock is subject to vesting at 20% per year over a
five-year period. Such stock is subject to repurchase by the Company (and, if
the Company elects not to purchase, CVC) should any of such employees'
employment with the Company terminate for any reason. The purchase price for
unvested shares is $1.00 per share; the purchase price for vested shares is book
value, unless the executive is terminated for cause in which case the purchase
price for vested shares is $1.00 per share.
During 1997, certain executives and managers of the Company acquired stock
in the Company below its fair market value. The difference between the fair
market value and the purchase consideration for the stock is reported as noncash
compensation to the affected executives and managers. The Company has
"grossed-up" this noncash compensation to provide for the payment by the Company
of a significant portion of the related income and other payroll taxes
associated with the transactions. These taxes ($4,446,000) are included in the
amount identified as stock compensation of $9,465,000 in 1997.
TRANSACTIONS WITH CVC AND ITS AFFILIATES
Pursuant to a CVC Securities Purchase Agreement dated as of January 22,
1996 by and between GCIH and CVC, CVC purchased (a) 86,974.5 shares of Series A
Preferred Stock of GCIH at a purchase price of $100.00 per share, and (b)
523,476.0 shares of GCIH Class A Common at a purchase price of $0.01 per share.
On February 28, 1997 and September 30, 1997, the Company repurchased, in the
aggregate, 74,326.8 shares of GCIH Class A Common at a purchase price of $1.00
for issuance (in the form of GCIH Class B Common) to members of management.
Pursuant to a Securities Purchase Agreement by and between GCIH and the
affiliates of CVC listed as purchasers on the signature pages thereto, dated as
of January 22, 1996, such purchasers acquired, in the aggregate, 26,649.1 shares
of GCIH Series A Preferred for $100 per share and 138,179.1 shares of GCIH Class
A Common for $1.00 per share.
TRANSACTIONS WITH CITICORP MEZZANINE PARTNERS, L.P.
In order to finance the Original Acquisition, the Company obtained $22.5
million in senior subordinated financing from Citicorp Mezzanine Partners, L.P.,
whose general partner is an affiliate of CVC. The agreement governing this
indebtedness was amended and restated in December 1997. A portion of the
proceeds of the Offering will be used to repay such indebtedness to CMP. In
connection therewith, the Company sold a warrant to purchase 191,250 shares of
GCIH Class D Common to CMP for $189,338. CMP may, at its option, exercise such
warrant at any time on or before January 22, 2006 for a nominal exercise price.
Upon consummation of the Reorganization, such warrant will be exercisable for
shares of Class B Common Stock.
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PRINCIPAL STOCKHOLDERS
The table below sets forth certain information regarding ownership of
Common Stock and Class B Common Stock as of , and as adjusted to
reflect the Reorganization, assuming exercise of options or warrants exercisable
within sixty days of such date by (i) each person or entity who owns of record
or beneficially 5% or more of any class of the Company's voting securities, (ii)
each director and named executive officer and (iii) all executive officers and
directors as a group. Except as indicated, each of such stockholders is assumed
to have sole voting and dispositive power as to the shares shown.
<TABLE>
<CAPTION>
PERCENTAGE OF
COMMON STOCK AND
CLASS B
CLASS B COMMON COMMON STOCK
COMMON STOCK STOCK OUTSTANDING(a)
------------ -------------- --------------------
BENEFICIALLY BENEFICIALLY BEFORE AFTER
NAME OWNED(a) OWNED(a) OFFERING OFFERING
---- ------------ -------------- -------- --------
<S> <C> <C> <C> <C>
Citicorp Venture Capital, Ltd.............
399 Park Avenue
New York, NY 10022
CCT III, L.P..............................
399 Park Avenue
New York, NY 10022
Citicorp Mezzanine Partners, L.P..........
399 Park Avenue
New York, NY 10022
Edward Kittredge..........................
c/o 7005 Pelham Rd.
Suite D
Greenville, SC 29615
Richard L. Solar..........................
David E. Uren.............................
Lawrence R. Glenn.........................
7005 Pelham Rd.
Suite D
Greenville, SC 29615
Joseph Medalie............................
Richard Cashin............................
John Weber................................
Lee M. Schaeffer..........................
Robert P. Robertson.......................
Executive officers and directors as a
group (10 persons)......................
</TABLE>
- ---------------
* Represents less than 1%.
(a) Beneficial ownership is determined in accordance with rules of the
Securities and Exchange Commission (the "SEC"). In computing the number of
shares beneficially owned by a person and the percentage ownership of that
person, shares of Common Stock subject to options or warrants held by that
person that are currently exercisable or exercisable within 60 days of
are deemed outstanding. Such shares, however, are not deemed
outstanding for the purposes of computing the percentage ownership of each
other person.
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DESCRIPTION OF CERTAIN INDEBTEDNESS
CREDIT AGREEMENT
In connection with the Acquisition, Gerber and Auburn entered into the
Credit Agreement by and among Gerber, Auburn, their domestic subsidiaries,
Nationsbank, N.A., and certain other lenders, dated as of December 17, 1997 (the
"Credit Agreement") to finance the Acquisition, refinance the existing senior
indebtedness incurred by the Company in connection with the Original Acquisition
and finance capital expenditures and working capital needs of the Borrowers.
The amount available to the Borrowers under the Credit Agreement is
$100,000,000, consisting of (a) the $40,000,000 Term Loan and (b) the
$60,000,000 Revolving Credit Facility. The Term Loan and Revolving Credit
Facility mature and terminate, respectively, on September 30, 2002 and October
31, 2002. The Term Loan is subject to repayment, payable in quarterly
installments, beginning on December 31, 1997, with aggregate principal amounts
of $6.5 million, $8.1 million, $8.5 million, $8.6 million, and $6.8 million due
during years 1998 through 2002, respectively. The amounts available under the
Revolving Credit Facility are available in multiple drawings from time to time,
and amounts borrowed and repaid may be reborrowed until October 31, 2002. The
amount available under the Revolving Credit Facility is subject to (a) a $5.0
million sub-limit for a swing-line facility and (b) a $20.0 million sub-limit
for the issuance of letters of credit. Up to $10.0 million is available under
the Revolving Credit Facility to finance acquisitions of businesses similar to
or which are a logical extension of the business of the Company. A portion of
the Revolving Credit Facility must be prepaid if the amount of revolving loans
outstanding together with swing line loans and letter of credit obligations
exceeds the lesser of $60 million and the borrowing base (which consists or
certain accounts receivable, inventory and documentary letters of credit). Loans
under the Credit Agreement must be prepaid with the net cash proceeds of certain
asset dispositions, debt issuances and equity issuances and with a portion of
Excess Cash Flow (as defined in the Credit Agreement) earned in the preceding
fiscal year. The proceeds of equity issuances of at least $50 million may be
used to prepay existing preferred stock rather than to prepay loans under the
Credit Agreement. As of January 24, 1998, on a pro forma basis giving effect to
the Reorganization and the Offering, the Company had $47.0 million of
availability under the Revolving Credit Facility.
Each of the Term Loan and Revolving Credit Facility may be maintained from
time to time, at the Borrower's option, as (a) Base Rate Loans (as defined in
the Credit Agreement) which bear interest at the Base Rate plus the Applicable
Percentage (each as defined in the Credit Agreement) or (b) Eurodollar Loans (as
defined in the Credit Agreement) bearing interest at the Eurodollar Rate
(adjusted for reserves) as determined by the administrative agent for the
applicable interest period, plus the Applicable Percentage (as defined in the
Credit Agreement). The initial Applicable Percentage for Eurodollar loans is a
per annum rate equal to 1.5%, and the initial Applicable Percentage for Base
Rate Loans is a per annum rate equal to .25%. The Applicable Percentage will be
determined from time to time based on the Leverage Ratio (as defined in the
Credit Agreement) at the end of each fiscal quarter.
The Credit Agreement contains certain affirmative and negative covenants,
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) the declaration of dividends or purchase or redemption
of capital stock; (v) prepayments or repurchase of other indebtedness and
amendments to certain agreements governing indebtedness, including indebtedness
under the CMP Senior Notes and the GPC Junior Notes (each as defined below);
(vi) engaging in transactions with affiliates and formation of subsidiaries;
(vii) the creation or existence of consensual restrictions on the ability of
subsidiaries to pay dividends, make loans or transfer property to other credit
parties under the Credit Agreement; (viii) the use of proceeds of asset sales;
and (ix) changes of lines of business. The Credit Agreement also requires that
the Borrowers maintain compliance with certain specified financial covenants,
including covenants relating to minimum fixed charge coverage, maximum leverage
ratio, maximum capitalization ratio, minimum current ratio, and minimum tangible
net worth. The Company may not amend its license agreements with Gerber, Warner
Brothers, Wilson, Converse and Coca-Cola in any manner that would materially
affect the rights of the lenders under the Credit Agreement or amend its charter
or bylaws in any manner that would reasonably be likely to adversely affect the
rights of the lenders under the Credit Agreement. The Company's foreign
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<PAGE> 62
subsidiaries may not own assets which constitute greater than 15% of the total
assets of the Company at any one time. The Credit Agreement contains standard
events of default, including a Change of Control (as defined in the Credit
Agreement) of the Company. The Credit Agreement is secured by (a) a pledge of
all of the capital stock of the Borrowers and each of the domestic subsidiaries
(direct and indirect) of the Borrowers (the "Guarantors"), and 65% of the
capital stock of each direct foreign subsidiary of the Borrowers and the
Guarantors, and (b) all other assets and properties of the Borrowers and their
domestic subsidiaries.
OTHER
In connection with the Acquisition, the Company assumed approximately $2.6
million of Auburn's indebtedness. Auburn's Irish subsidiary maintains a IRL3.0
million loan facility (U.S. $4.1 million as of February 27, 1997) with the
National Irish Bank consisting of a combined term loan, overdraft, guarantee and
foreign exchange line. This facility is subject to annual review. The overdraft
facility and foreign exchange line are available at the Company's discretion
with each term loan draw down subject to the National Irish Bank's approval. At
present, the Irish subsidiary has drawn down two term loans under the available
loan facility and had drawn down on the foreign exchange line. The term loans
had an aggregate balance of IRL517,123 (U.S. $705,000 as of February 27, 1997)
outstanding as of December 31, 1997 and are repayable in quarterly installments
of interest and principal, the final payment for which is due in September 1999.
The Irish subsidiary is not currently using its overdraft facility. In addition,
the Irish subsidiary has received grants from the Industrial Development
Authority which, if certain events occur, could become repayable to the IDA in
the aggregate amount of up to IRL1,815,799. Auburn is a party to two loan
agreements with the County of Logan, Kentucky related to the issuance in 1989 of
two series of industrial revenue bonds of which approximately $2.4 million
remained outstanding at December 31, 1997. Auburn's two principal Kentucky
facilities are mortgaged in connection with such financing.
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<PAGE> 63
DESCRIPTION OF CAPITAL STOCK
GENERAL
Prior to the consummation of the Offering, the Company will amend its
Certificate of Incorporation to change its authorized capital stock to
shares, including shares of Common Stock, par value $0.01
per share, and shares of Class B Common Stock, par value $0.01 per
share. Upon completion of the Offering, the Company will have outstanding
shares of Common Stock ( if the Underwriters' over-allotment
option is exercised in full) and shares of Class B Common Stock. As of
April , 1998, there would be approximately holders of Common Stock,
and CVC and its affiliates will own of record all of the outstanding shares of
Class B Common Stock. See "Principal Stockholders."
COMMON STOCK
The holders of Common Stock are generally entitled to one vote for each
share held on all matters voted upon by stockholders, including without
limitation, the election of directors and any proposed amendment to the Amended
and Restated Certificate of Incorporation. The holders of the Common Stock are
entitled to such dividends as may be declared at the discretion of the Board of
Directors out of funds legally available therefor. The holders of Common Stock
are entitled to share ratably in the net assets of the Company upon liquidation
after payment or provision for all liabilities. The holders of Common Stock have
no preemptive rights to purchase securities of the Company. Shares of Common
Stock are not subject to any redemption provisions. Each share of Common Stock
held by a holder of Class B Common Stock is convertible into a share of Class B
Common Stock. All outstanding shares of Common Stock are, and the shares of
Common Stock to be issued pursuant to the Offering will be upon payment
therefor, fully paid and non-assessable.
Application has been made for the listing of the Common Stock on the New
York Stock Exchange, subject to official notice of issuance.
CLASS B COMMON STOCK
The rights of the holders of Class B Common Stock are identical and entitle
the holders thereof to the same rights, privileges, benefits and notices as the
holders of Common Stock, except that (a) the holders of such shares are not
entitled to vote on any matter voted upon by the stockholders, including,
without limitation, in the election of directors of the Company and (b) a share
of Class B Common Stock is convertible into a share of Common Stock at any time
at the sole option of the holder. All outstanding shares of Class B Common Stock
are fully paid and non-assessable. Due to certain regulatory limitations
affecting CVC, CVC may not own 20% or more of the voting securities of the
Company without meeting certain regulatory requirements. Accordingly, CVC
believes that it will maintain part of its equity interest in the Company in
Class B Common Stock.
AMENDED AND RESTATED REGISTRATION RIGHTS AGREEMENT
The Company and its stockholders were parties to a registration rights
agreement, dated as of January 22, 1996, which was amended and restated in its
entirety on , 1998 in connection with the Reorganization (the "Amended
and Restated Registration Rights Agreement"). Capitalized terms used but not
defined herein have the meanings ascribed to such terms in the Amended and
Restated Registration Rights Agreement. The following summary description of the
Amended and Restated Registration Rights Agreement does not purport to be
complete and is qualified in its entirety by reference to the text of the
Amended and Restated Registration Rights Agreement, which is filed as an exhibit
to the registration statement of which this Prospectus is a part.
Certain parties to the Amended and Restated Registration Rights Agreement
will have demand registration rights on the following terms: (a) CVC may at any
time after the earlier of (i) January 22, 2001 or (ii) the six month anniversary
of the consummation of a Qualified Public Offering (as defined in the agreement)
make a demand for up to five long-form registrations, unlimited short-form
registrations, and one registration under Section 415 of the Securities Act, in
each case, of CVC Registrable Securities, and
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<PAGE> 64
(b) CMP may at any time after the earlier of (i) January 22, 2001 or (ii) six
months following the consummation of a Qualified Public Offering, make a demand
for one long-form and unlimited short-form registrations of CMP Registrable
Securities (such registrations referred to in clauses (a) and (b) above,
collectively, "Demand Registrations.") Such Demand Registrations are subject to
certain limitations, including: (x) no two demands may be made within any
six-month period and (y) the amount which can be sold pursuant to any demand may
be limited by the managing underwriter selected by the makers of such demand,
and approved by the Company.
In the event that the Company proposes to register its stock under the
Securities Act other than pursuant to a Demand Registration, all holders of
Registrable Securities, subject to CVC's approval in the initial primary public
offering, will have the right to include such securities in such registration
("Piggyback Registration"). The amount of shares which can be sold pursuant to a
Piggyback Registration are subject to limitation by the managing underwriter.
The Amended and Restated Registration Rights Agreement also provides that
certain holders of Registrable Securities and the Company may not effect a sale
or distribution of equity securities of the Company for a 180-day period
beginning on the effective date of any Demand Registration (other than pursuant
to Section 415) or Piggyback Registration. The Company pays all expenses of
Demand Registrations and Piggyback Registrations.
CERTAIN PROVISIONS OF THE COMPANY'S AMENDED AND RESTATED CERTIFICATE OF
INCORPORATION
The Company's charter establishes an advance notice procedure for
stockholder nominations of persons for election to the board of directors in
advance of an annual meeting of stockholders of the Company. Stockholders at an
annual meeting may only consider nominations specified in the notice of meeting
or brought before the meeting by or at the direction of the board of directors,
or by a stockholder who was a stockholder of record on the record date for the
meeting, who is entitled to vote at the meeting, and who has given to the
Company's Secretary timely written notice, in proper form, of the stockholder's
intention to make such nomination before the annual meeting. An amendment to
this provision would require approval by an affirmative vote of holders of
66 2/3% of the shares of voting stock of the Company.
In addition, the Company's charter provides for cumulative voting in the
election of directors. The above two provisions may have the effect of
discouraging or deferring a potential acquiror from conducting a solicitation of
proxies to elect its own slate of directors or otherwise attempting to obtain
control of the Company.
LIMITATION ON OFFICER AND DIRECTOR LIABILITY
The Amended and Restated Certificate of Incorporation limits the liability
of directors to the fullest extent permitted by the Delaware General Corporation
Law. In addition, the Amended and Restated Certificate of Incorporation provides
that the Company shall indemnify directors and officers of the Company to the
fullest extent permitted by such law. The Company agreed with GPC that until
2003 it would not amend its charter or bylaws in any manner regarding
exculpation or indemnification of former officers and directors.
TRANSFER AGENT AND REGISTRAR
The Transfer Agent and Registrar for the Common Stock is the American Stock
Transfer & Trust Company.
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CERTAIN UNITED STATES FEDERAL INCOME TAX CONSEQUENCES TO NON-UNITED STATES
HOLDERS OF COMMON STOCK
The following is a general discussion of certain U.S. federal income and
estate tax consequences of the ownership and disposition of Common Stock by a
beneficial owner thereof that is a "Non-U.S. Holder." A "Non-U.S. Holder" is a
person or entity other than (i) a citizen or resident of the U.S., (ii) a
corporation or partnership created or organized in the U.S. or under the laws of
the U.S. or of any other state (other than any partnership treated as foreign
under U.S. Treasury Regulations), or (iii) an estate or trust whose income is
includable in gross income for U.S. federal income tax purposes regardless of
source.
This discussion is based on the Code and administrative interpretations as
of the date hereof, all of which are subject to change, including changes with
retroactive effect. This discussion does not address all aspects of U.S. federal
income and estate taxation that may be relevant to Non-U.S. Holders in light of
their particular circumstances and does not address any tax consequences arising
under the laws of any state, local or foreign jurisdiction. Prospective holders
should consult their tax advisors with respect to the particular tax
consequences to them of owning and disposing of Common Stock, including the
consequences under the laws of any state, local or foreign jurisdiction.
DIVIDENDS
Subject to the discussion below, dividends, if any, paid to a Non-U.S.
Holder of Common Stock generally will be subject to withholding tax at a rate of
30% of the gross amount of the dividend or such lower rate as may be specified
by an applicable income tax treaty. For purposes of determining whether tax is
to be withheld at a 30% rate or at a reduced rate as specified by an income tax
treaty, in accordance with currently applicable U.S. Treasury regulations, the
Company ordinarily will presume that dividends paid to an address in a foreign
country are paid to a resident of such country absent actual knowledge to the
contrary. Under recently finalized U.S. Treasury regulations generally effective
for payments made after December 31, 1998 (the "Final Regulations"), however, a
Non-U.S. Holder of Common Stock who wishes to claim the benefit of an applicable
treaty rate generally will be required to satisfy applicable certification and
other requirements. In addition, under the Final Regulations, in the case of
Common Stock held by a foreign partnership, (x) the certification requirement
will generally be applied to the partners of the partnership and (y) the
partnership will be required to provide certain information, including a U.S.
taxpayer identification number. The Final Regulations also provide look-through
rules for tiered partnerships.
Generally, there will be no withholding tax on dividends paid to a Non-U.S.
Holder if such dividends are effectively connected with the Non-U.S. Holder's
conduct of a trade or business within the U.S. or, if an income tax treaty
applies, attributable to a permanent establishment in the U.S. ("U.S. trade or
business income"), if the Non-U.S. Holder files the appropriate U.S. Internal
Revenue Service ("IRS") form with the payor (which form, under the Final
Regulations, will require the Non-U.S. Holder to provide a U.S. taxpayer
identification number). Instead, the effectively connected dividends will be
subject to regular U.S. net income tax at graduated rates, in the same manner as
if the Non-U.S. Holder were a U.S. resident. In addition to the graduated tax
described above, a non-U.S. corporation receiving effectively connected
dividends may be subject to a "branch profits tax" which is imposed, under
certain circumstances, at a rate of 30% (or such lower rate as may be specified
by an applicable treaty) of the non-U.S. corporation's effectively connected
earnings and profits, subject to certain adjustments.
A Non-U.S. Holder of Common Stock that is eligible for a reduced rate of
U.S. withholding tax pursuant to an income tax treaty may obtain a refund of any
excess amount withheld by filing an appropriate claim for a refund with the IRS.
GAIN ON DISPOSITION OF COMMON STOCK
A Non-U.S. Holder generally will not be subject to U.S. federal income tax
(and no tax will generally be withheld) with respect to gain realized on a sale
or other disposition of Common Stock unless (i) the gain is U.S. trade or
business income (in which case, the branch profits tax described above may also
apply to a corporate Non-U.S. Holder), (ii) in the case of certain Non-U.S.
Holders who are non-resident alien
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individuals and hold the Common Stock as a capital asset, such individuals are
present in the U.S. for 183 or more days in the taxable year of the disposition
and certain other conditions are met, (iii) the Non-U.S. Holder is subject to
tax pursuant to the provisions of the Code regarding the taxation of U.S.
expatriates, or (iv) the Company is or has been a "U.S. real property holding
corporation" for federal income tax purposes and the Non-U.S. Holder owned
directly or indirectly more than 5% of the Company's Common Stock (assuming the
Common Stock is regularly traded on an established securities market) at any
time within the shorter of the five-year period preceding such disposition or
such holder's holding period. Generally, a corporation is a "U.S. real property
holding corporation" if the fair market value of its "U.S. real property
interest" equals or exceeds 50% of the sum of the fair market value of its
worldwide real property interests plus its other assets used or held for use in
a trade or business. The Company is not, and does not anticipate becoming, a
"U.S. real property holding corporation" for U.S. federal income tax purposes.
INFORMATION REPORTING REQUIREMENTS AND BACKUP WITHHOLDING ON DISPOSITION OF
COMMON STOCK
Generally, the Company must report to the U.S. Internal Revenue Service the
amount of dividends paid, the name and address of the recipient, and the amount,
if any, of tax withheld. A similar report is sent to the holder. Pursuant to tax
treaties or certain other agreements, the U.S. Internal Revenue Service may make
its reports available to tax authorities in the recipient's country of
residence.
Under currently effective U.S. Treasury regulations, dividends paid to a
Non-U.S. Holder at an address within the U.S. may be subject to backup
withholding imposed at a rate of 31% if the Non-U.S. Holder fails to establish
that it is entitled to an exemption or to provide a correct taxpayer
identification number and certain other information to the Company or its paying
agent. Under the Final Regulations, a Non-U.S. Holder of Common Stock that fails
to certify its Non-U.S. Holder status in accordance with the requirements of the
Final Regulations may be subject to U.S. backup withholding at a rate of 31% on
payment of dividends.
Under current U.S. Federal income tax law, information reporting and backup
withholding imposed at a rate of 31% will apply to the proceeds of a disposition
of Common Stock paid to or through a U.S. office of a broker unless the
disposing holder certifies as to its non-U.S. status or otherwise establishes an
exemption. Generally, U.S. information reporting and backup withholding will not
apply to a payment of disposition proceeds if the payment is made outside the
U.S. through a non-U.S. office of a non-U.S. broker. However, U.S. information
reporting requirements (but not backup withholding) will apply to a payment of
disposition proceeds outside the U.S. if the payment is made through an office
outside the U.S. of a broker that is (i) a U.S. Person, (ii) a foreign person
which derives 50% or more of its gross income for certain periods from the
conduct of a trade or business in the U.S. or (iii) a "controlled foreign
corporation" for U.S. federal income tax purposes, unless the broker maintains
documentary evidence that the holder is a Non-U.S. Holder and that certain
conditions are met, or that the holder otherwise is entitled to an exemption.
Backup withholding is not an additional tax. Rather, the tax liability of
persons subject to backup withholding will be reduced by the amount of tax
withheld. If withholding results in an overpayment of taxes, a refund may be
obtained, provided that the required information is furnished to the IRS.
FEDERAL ESTATE TAX
An individual Non-U.S. Holder who is treated as the owner of, or has made
certain lifetime transfers of, an interest in the Common Stock at the time of
death will be required to include the value thereof in his gross estate for U.S.
Federal estate tax purposes, unless an applicable estate tax treaty provides
otherwise. Such individual's estate may be subject to U.S. Federal estate tax on
the property includable in the gross estate for U.S. Federal estate tax
purposes. Estates of non-resident aliens are generally allowed a statutory
credit which has the effect of offsetting the U.S. Federal estate tax imposed on
the first $60,000 of the taxable estate.
SHARES ELIGIBLE FOR FUTURE SALE
Prior to the Offering, there has been no market for the Common Stock of the
Company. Future sales of substantial amounts of Common Stock in the public
market could adversely affect market prices prevailing
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from time to time. Furthermore, since only a limited number of shares will be
available for sale shortly after the Offering because of certain contractual and
legal restrictions on resale described below, sales of substantial amounts of
Common Stock of the Company in the public market after the restrictions lapse
could adversely affect the prevailing market price and the ability of the
Company to raise equity capital in the future.
Upon completion of the Offering and the Reorganization, there will be
shares of Common Stock outstanding ( shares assuming the
conversion of all outstanding shares of Class B Common Stock), assuming no
exercise of the Underwriters' over-allotment option and no exercise of
outstanding options and based upon the number of shares outstanding as of
. Of these shares, all of the shares sold in the Offering
will be freely tradable without restriction or further registration under the
Securities Act, unless such shares are purchased by "affiliates" of the Company,
as that term is defined in Rule 144 under the Securities Act ("Affiliates"). The
remaining shares of Common Stock (including any Common Stock issued
upon conversion of Class B Common Stock) will be deemed "restricted securities"
as that term is defined in Rule 144 under the Securities Act (the "Restricted
Shares") and will be eligible for resale upon expiration of the lock-up
described below. Restricted Shares may be sold in the public market only if
registered or if they qualify for an exemption from registration under Rules 144
or 701 promulgated under the Securities Act, which rules are summarized below.
Except for the issuance by the Company of Common Stock to effectuate the
Reorganization, the Company, its executive officers, directors and stockholders
have agreed not to directly or indirectly (i) offer, pledge, sell, contract to
sell, sell any option or contract to purchase, purchase any option or contract
to sell, grant any option, right or warrant for the sale of or otherwise dispose
of or transfer any shares of Common Stock or securities convertible into or
exchangeable or exercisable for Common Stock, whether now owned or thereafter
acquired by the person executing the agreement or with respect to which the
person executing the agreement thereafter acquires the power of disposition, or
file a registration statement under the Securities Act with respect to the
foregoing or (ii) enter into any swap or other agreement that transfers, in
whole or in part, the economic consequence of ownership of the Common Stock
whether any such swap or transaction is to be settled by delivery of Common
Stock or other securities, in cash or otherwise, without the prior written
consent of Merrill Lynch on behalf of the Underwriters for a period of 180 days
after the date of this Prospectus.
The shares of the Company's Class B Common Stock are convertible into
shares of Common Stock and, in the event of conversion of such shares and
expiration of the 180 day lock-up period described above, of the
aggregate shares of Common Stock issuable upon conversion of the Class B Common
Stock would be immediately eligible for sale pursuant to shares of Common Stock
held by existing stockholders will be eligible for sale without restriction
pursuant to Rule 144. No assurance can be given that holders of the Class B
Common Stock will not decide, based upon then prevailing market and other
conditions, to convert their Class B Common Stock to Common Stock and to dispose
of all or a portion of such stock pursuant to the provisions of Rule 144 under
the Securities Act or pursuant to the demand registration rights contained in
the Registration Rights Agreement. See "Description of Capital Stock -- Amended
and Restated Registration Rights Agreement." In addition, as of ,
shares of Common Stock were subject to outstanding options and
warrants, including shares of Common Stock issuable upon the conversion of the
Class B Common Stock. All of those shares are subject to these lock-up
agreements. Upon expiration of these lock-up agreements, shares
subject to such options and warrants will be vested, and could be exercised and
sold.
In general, under Rule 144, an Affiliate of the Company, or any person (or
persons whose shares are aggregated) who has beneficially owned Restricted
Shares for at least one year, will be entitled to sell in any three-month period
a number of shares that does not exceed the greater of (i) one percent of the
then outstanding shares of the Company's Common Stock or (ii) the average weekly
trading volume of the Company's Common Stock in the New York Stock Exchange
during the four calendar weeks immediately preceding the date on which notice of
the sale is filed with the SEC. Sales pursuant to Rule 144 are subject to
certain requirements relating to manner of sale, notice and availability of
current public information about the Company. A person (or person whose shares
are aggregated) who is not deemed to have been an Affiliate of the Company at
any time during the 90 days immediately preceding the sale and who has
beneficially owned
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Restricted Shares for at least 2 years is entitled to sell such shares pursuant
to Rule 144(k) without regard to the limitations described above. The Commission
is currently considering amendments to Rule 144 which could modify among other
things the volume and manner of sale requirements described above.
Any employee, officer or director of or consultant to the Company who
purchased or was awarded shares or options to purchase shares pursuant to a
written compensatory plan or contract is entitled to rely on the resale
provisions of Rule 701 under the Securities Act, which permits Affiliates and
non-Affiliates to sell their Rule 701 shares without having to comply with Rule
144's holding period restrictions, in each case commencing 90 days after the
date of this Prospectus. In addition, non-Affiliates may sell Rule 701 shares
without complying with the public information, volume and notice provisions of
Rule 144.
The Company intends to file a registration statement under the Securities
Act covering shares of Common Stock reserved for issuance under the Option Plan.
Based on the number of options outstanding and shares reserved for issuance
under the Option Plan at , such registration statement would cover
approximately shares. Such registration statement is expected to be
filed and to become effective as soon as practicable after the date of this
Prospectus. Shares registered under such registration statement will, subject to
Rule 144 volume limitations applicable to Affiliates, be available for sale in
the open market, unless such shares are subject to vesting restrictions with the
Company or the lock-up agreements described above. See "Management."
The holders of all shares outstanding prior to the Offering are entitled to
certain registration rights with respect to their shares. See "Description of
Capital Stock -- Amended and Restated Registration Rights Agreement."
67
<PAGE> 69
UNDERWRITING
Merrill Lynch, Pierce, Fenner & Smith Incorporated ("Merrill Lynch"), Bear,
Stearns & Co. Inc., Lehman Brothers Inc., Furman Selz LLC and Wasserstein
Perella Securities, Inc. are acting as representatives (the "Representatives")
of each of the Underwriters named below (the "Underwriters"). Subject to the
terms and conditions set forth in a purchase agreement (the "Purchase
Agreement") among the Company and the Underwriters, the Company has agreed to
sell to the Underwriters, and each of the Underwriters severally and not jointly
has agreed to purchase from the Company, the number of shares of Common Stock
set forth opposite its name below.
<TABLE>
<CAPTION>
NUMBER OF
UNDERWRITER SHARES
----------- ---------
<S> <C>
Merrill Lynch, Pierce, Fenner & Smith
Incorporated...................................
Bear, Stearns & Co. Inc.....................................
Lehman Brothers Inc.........................................
Furman Selz LLC.............................................
Wasserstein Perella Securities, Inc.........................
--------
Total..........................................
========
</TABLE>
In the Purchase Agreement the several Underwriters have agreed, subject to
the terms and conditions set forth therein, to purchase all of the shares of
Common Stock being sold pursuant to such agreement if any of the shares of
Common Stock being sold pursuant to such agreement are purchased. Under certain
circumstances, under the Purchase Agreement, the commitments of non-defaulting
Underwriters may be increased.
The Representatives have advised the Company that the Underwriters propose
initially to offer the shares of Common Stock to the public at the initial
public offering price set forth on the cover page of this Prospectus, and to
certain dealers at such price less a concession not in excess of $ per
share of Common Stock. The Underwriters may allow, and such dealers may reallow,
a discount not in excess of $ per share of Common Stock on sales to
certain other dealers. After the initial public offering, the public offering
price, concession and discount may be changed.
The Company has granted options to the Underwriters, exercisable for 30
days after the date of this Prospectus, to purchase up to an aggregate of
additional shares of Common Stock at the initial public offering price
set forth on the cover page of this Prospectus, less the underwriting discount.
The Underwriters may exercise these options solely to cover over-allotments, if
any, made on the sale of the Common Stock offered hereby. To the extent that the
Underwriters exercise these options, each Underwriter will be obligated, subject
to certain conditions, to purchase a number of additional shares of Common Stock
proportionate to such Underwriter's initial amount reflected in the foregoing
table.
At the request of the Company, the Underwriters have reserved for sale, at
the initial public offering price, up to of the shares offered to be
sold to certain employees of the Company and other persons. The number of shares
of Common Stock available for sale to the general public will be reduced to the
extent such persons purchase such reserved shares. Any reserved shares which are
not orally confirmed for purchase
68
<PAGE> 70
within one day of the pricing of the Offering will be offered by the
Underwriters to the general public on the same terms as the other shares offered
hereby.
The Company, the Company's executive officers and directors and all
existing stockholders have agreed, subject to certain exceptions, not to
directly or indirectly (i) offer, pledge, sell, contract to sell, sell any
option or contract to purchase, purchase any option or contract to sell, grant
any option, right or warrant for the sale of or otherwise dispose of or transfer
any shares of Common Stock or securities convertible into or exchangeable or
exercisable for Common Stock, whether now owned or thereafter acquired by the
person executing the agreement or with respect to which the person executing the
agreement thereafter acquires the power of disposition, or file a registration
statement under the Securities Act with respect to the foregoing or (ii) enter
into any swap or other agreement that transfers, in whole or in part, the
economic consequence of ownership of the Common Stock whether any such swap or
transaction is to be settled by delivery of Common Stock or other securities, in
cash or otherwise, without the prior written consent of Merrill Lynch on behalf
of the Underwriters for a period of 180 days after the date of this Prospectus.
See "Shares Eligible for Future Sale."
Prior to the Offering, there has been no public market for the Common Stock
of the Company. The initial public offering price will be determined through
negotiations between the Company and the Representatives. The factors considered
in determining the initial public offering price, in addition to prevailing
market conditions, are price-earnings ratios of publicly traded companies that
the Representatives believe to be comparable to the Company, certain financial
information of the Company, the history of, and the prospects for, the Company
and the industry in which it competes, and an assessment of the Company's
management, its past and present operations, the prospects for, and timing of,
future revenues of the Company, the present state of the Company's development,
and the above factors in relation to market values and various valuation
measures of other companies engaged in activities similar to the Company. There
can be no assurance that an active trading market will develop for the Common
Stock or that the Common Stock will trade in the public market subsequent to the
Offering at or above the initial public offering price.
The Common Stock has been approved for listing on the New York Stock
Exchange, subject to notice of issuance, under the symbol "GCW". In order to
meet the requirements for listing of the Common Stock on that exchange, the
Underwriters have undertaken to sell lots of 100 or more shares to a minimum of
2,000 beneficial owners.
The Underwriters do not expect sales of the Common Stock to any accounts
over which they exercise discretionary authority to exceed 5% of the number of
shares being offered hereby.
The Company has agreed to indemnify the Underwriters against certain
liabilities, including certain liabilities under the Securities Act, or to
contribute to payments the Underwriters may be required to make in respect
thereof.
Until the distribution of the Common Stock is completed, rules of the
Securities and Exchange Commission may limit the ability of the Underwriters and
certain selling group members to bid for and purchase the Common Stock. As an
exception to these rules, the Representatives are permitted to engage in certain
transactions that stabilize the price of the Common Stock. Such transactions
consist of bids or purchases for the purpose of pegging, fixing or maintaining
the price of the Common Stock.
If the Underwriters create a short position in the Common Stock in
connection with the Offering, i.e., if they sell more shares of Common Stock
than are set forth on the cover page of this Prospectus, the Representatives may
reduce that short position by purchasing Common Stock in the open market. The
Representatives may also elect to reduce any short position by exercising all or
part of the over-allotment option described above.
The Representatives may also impose a penalty bid on certain Underwriters
and selling group members. This means that if the Representatives purchase
shares of Common Stock in the open market to reduce the Underwriters' short
position or to stabilize the price of the Common Stock, they may reclaim the
amount of the selling concession from the Underwriters and selling group members
who sold those shares as part of the Offering.
69
<PAGE> 71
In general, purchases of a security for the purpose of stabilization or to
reduce a short position could cause the price of the security to be higher than
it might be in the absence of such purchases. The imposition of a penalty bid
might also have an effect on the price of the Common Stock to the extent that it
discourages resales of the Common Stock.
Neither the Company nor any of the Underwriters make any representation or
prediction as to the direction or magnitude of any effect that the transactions
described above may have on the price of the Common Stock. In addition, neither
the Company nor any of the Underwriters makes any representation that the
Representatives will engage in such transactions or that such transactions, once
commenced, will not be discontinued without notice.
Certain of the Representatives have provided investment banking and related
services for the Company and CVC from time to time for which they have received
customary fees.
LEGAL MATTERS
Certain legal matters with respect to the validity of the Common Stock
being offered hereby will be passed upon for the Company by Kirkland & Ellis (a
partnership which includes professional corporations), New York, New York.
Certain legal matters relating to the Offering will be passed upon for the
Underwriters by Fried, Frank, Harris, Shriver & Jacobson (a partnership which
includes professional corporations), New York, New York.
EXPERTS
The consolidated financial statements and schedule of GCIH, Inc. at
December 31, 1997 and 1996, and for the year ended December 31, 1997, and for
the period from January 22, 1996 to December 31, 1996, and the consolidated
statements of operations and cash flows and schedule for the year ended December
31, 1995 of Gerber Childrenswear, Inc. ("Predecessor Company") appearing in this
Prospectus and Registration Statement, have been audited by Ernst & Young LLP,
independent auditors, as set forth in their reports thereon appearing elsewhere
herein, and are included in reliance upon such reports given upon the authority
of such firm as experts in accounting and auditing.
The consolidated statements of income and cash flows for the period January
1, 1997 through December 16, 1997 of Auburn Hosiery Mills, Inc. appearing in
this Prospectus and Registration Statement, have been audited by J.C. Holland &
Co., PSC, independent auditors, as set forth in their report thereon appearing
elsewhere herein, and are included in reliance on such report given upon the
authority of such firm as experts in accounting and auditing.
The profit and loss account and cash flow statement of Sport Socks Co.
(Ireland) Limited for the fifty weeks ended December 16, 1997 appearing in this
Prospectus and Registration Statement, have been audited by Price Waterhouse,
independent accountants, as set forth in their report thereon appearing
elsewhere herein, and are included in reliance on such report given upon the
authority of such firm as experts in accounting and auditing.
ADDITIONAL INFORMATION
The Company has filed with the Commission a Registration Statement on Form
S-1 under the Securities Act with respect to the Common Stock offered hereby.
This Prospectus does not contain all of the information set forth in the
Registration Statement, certain portions of which are omitted as permitted by
the rules and regulations of the Commission. For further information pertaining
to the Company and the Common Stock offered hereby, reference is made to the
Registration Statement, including the exhibits thereto and the financial
statements, notes and schedules filed as a part thereof. Statements contained in
this Prospectus regarding the contents of any contract or other document
referred to herein or therein are not necessarily complete, and in each instance
reference is made to the copy of such contract or other document filed as an
70
<PAGE> 72
exhibit to the Registration Statement or such other document, each such
statement being qualified in all respects by such reference.
Upon completion of the Offering, the Company will be subject to the
informational requirements of the Securities Exchange Act of 1934, as amended,
and, in accordance therewith, will file reports, proxy statements and other
information with the Commission. Such reports, proxy statements and other
information, as well as the Registration Statement and the exhibits and
schedules thereto, may be inspected, without charge, at the public reference
facility maintained by the Commission at Room 1024, Judiciary Plaza, 450 Fifth
Street, N.W., Washington, D.C. 20549, and at the Commission's regional offices
located at Seven World Trade Center, New York, New York 10048 and Northwestern
Atrium Center, 500 West Madison Street, Suite 1400, Chicago, Illinois
60661-2511. Copies of such material may also be obtained from the Public
Reference Section of the Commission at 450 Fifth Street, N.W., Washington, D.C.
20549, at prescribed rates. Such materials can also be inspected at the offices
of the New York Stock Exchange, Inc., 20 Broad Street, New York, New York 10005
or on the Commission's site on the Internet at http://www.sec.gov.
71
<PAGE> 73
INDEX TO CONSOLIDATED FINANCIAL STATEMENTS
GCIH, INC. AND SUBSIDIARIES
<TABLE>
<CAPTION>
PAGE
NUMBER
------
<S> <C>
Report of Independent Auditors.............................. F-2
Consolidated Balance Sheets at December 31, 1997 and 1996... F-3
Consolidated Statements of Income, Changes in Shareholders'
Equity and Cash Flows for the year ended December 31, 1997
and the period from January 22, 1996 to December 31,
1996...................................................... F-4
Notes to Consolidated Financial Statements.................. F-7
GERBER CHILDRENSWEAR, INC. ("PREDECESSOR COMPANY")
Report of Independent Auditors.............................. F-20
Consolidated Statements of Income and Cash Flows for the
year ended December 31, 1995.............................. F-21
Notes to Consolidated Financial Statements.................. F-23
AUBURN HOSIERY MILLS, INC. AND SUBSIDIARY
Independent Auditors' Report................................ F-27
Consolidated Statements of Income and Cash Flows for the
Period January 1, 1997 through December 16, 1997.......... F-28
Notes to Consolidated Financial Statements.................. F-30
SPORT SOCKS CO. (IRELAND) LIMITED
Independent Accountant's Report............................. F-34
Profit and Loss Account and Cash Flow Statement for the
fifty weeks ended December 16, 1997....................... F-35
Notes to Consolidated Financial Statements.................. F-37
</TABLE>
F-1
<PAGE> 74
REPORT OF INDEPENDENT AUDITORS
Board of Directors
GCIH, Inc.
We have audited the accompanying consolidated balance sheets of GCIH, Inc.
as of December 31, 1997 and 1996, and the related consolidated statements of
income, changes in shareholders' equity and cash flows for the year ended
December 31, 1997 and the period from January 22, 1996 to December 31, 1996.
These financial statements are the responsibility of the Company's management.
Our responsibility is to express an opinion on these financial statements based
on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the consolidated financial statements referred to above
present fairly, in all material respects, the consolidated financial position of
GCIH, Inc. at December 31, 1997 and 1996, and the consolidated results of its
operations and its cash flows for the year ended December 31, 1997 and the
period from January 22, 1996 to December 31, 1996 in conformity with generally
accepted accounting principles.
/s/ ERNST & YOUNG LLP
January 30, 1998
F-2
<PAGE> 75
GCIH, INC.
CONSOLIDATED BALANCE SHEETS
<TABLE>
<CAPTION>
DECEMBER 31
--------------------
1997 1996
-------- --------
(IN THOUSANDS)
<S> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents................................. $ 536 $ 17,592
Accounts receivable, net of allowances for doubtful
accounts of $2,510,000 (1997) and $1,798,000 (1996)
(Note 8)................................................ 34,506 17,979
Income taxes receivable................................... 4,635 --
Inventories (Notes 3 and 8)............................... 71,041 47,504
Deferred income taxes (Note 5)............................ 399 4,353
Other..................................................... 1,273 3,083
-------- --------
Total current assets.................................... 112,390 90,511
Property, plant and equipment, net (Notes 4 and 8).......... 24,648 9,938
Deferred income taxes (Note 5).............................. 2,281 2,075
Excess of cost over fair value of net assets acquired,
net....................................................... 22,257 1,606
Debt issuance costs, net.................................... 1,381 1,775
Other....................................................... 934 155
-------- --------
$163,891 $106,060
======== ========
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities:
Accounts payable.......................................... $ 14,759 $ 10,078
Accrued expenses (Note 6)................................. 24,099 16,503
Income taxes payable...................................... -- 6,000
Current portion of obligations under capital leases (Note
9)...................................................... 119 --
Revolver (Note 8)......................................... 250 --
Current portion of long-term debt (Note 8)................ 7,286 1,725
-------- --------
Total current liabilities............................... 46,513 34,306
Accrued pension and postretirement benefit cost (Note 10)... 5,058 4,021
Other accrued liabilities (Note 7).......................... 8,713 3,853
Obligations under capital leases, less current portion (Note
9)........................................................ 104 --
Long-term debt, less current portion (Note 8)............... 69,474 41,711
Redeemable preferred stock, 12% non-voting, cumulative, par
value $.01 per share, 117,402.7 shares authorized, 116,452
outstanding (1997); 117,402.7 shares outstanding (1996)
(liquidation and redemption value of $100 per share)
including accrued dividends of $2,965,000 (1997) and
$1,328,000 (1996) (Note 11)............................... 14,610 13,068
Shareholders' equity (Note 12):
Common Stock, Class A, par value $.01 per share, 750,000.0
shares authorized, 587,328.3 shares outstanding (1997);
661,655.1 shares outstanding (1996)..................... 7 7
Common Stock, Class B, par value $.01 per share, 250,000
shares authorized, 166,915.3 shares outstanding (1997);
144,594.9 shares outstanding (1996)..................... 2 1
Common Stock, Class C with 225 votes per share, par value
$.01 per share, 2,500 shares authorized and
outstanding............................................. -- --
Common Stock, non-voting Class D, par value $.01 per
share, 191,250 shares authorized, none issued........... -- --
Treasury stock.............................................. (75) --
Detachable stock warrants................................... 189 189
Additional paid-in capital.................................. 6,537 752
Retained earnings........................................... 13,526 8,152
-------- --------
20,186 9,101
Less unearned compensation under restricted stock plan.... 767 --
-------- --------
Total shareholders' equity.............................. 19,419 9,101
-------- --------
$163,891 $106,060
======== ========
</TABLE>
See accompanying notes.
F-3
<PAGE> 76
GCIH, INC.
CONSOLIDATED STATEMENTS OF INCOME
<TABLE>
<CAPTION>
PERIOD FROM
JANUARY 22,
YEAR ENDED 1996 TO
DECEMBER 31, DECEMBER 31,
1997 1996
------------ ------------
(IN THOUSANDS, EXCEPT
PER SHARE DATA)
<S> <C> <C>
Net sales................................................... $202,037 $185,223
Cost of sales............................................... 146,294 138,608
-------- --------
Gross margin................................................ 55,743 46,615
Expenses:
Selling, general and administrative expenses, including
$9,465,000 of compensation in 1997 for restricted
stock.................................................. 37,231 23,894
Other..................................................... 231 689
-------- --------
37,462 24,583
-------- --------
Income before interest and income taxes..................... 18,281 22,032
Interest expense, net of interest income.................... 5,798 6,308
-------- --------
Income before income taxes.................................. 12,483 15,724
Federal and state income taxes (Note 5):
Current................................................... 1,303 11,635
Deferred.................................................. 3,461 (5,391)
-------- --------
4,764 6,244
-------- --------
Income before extraordinary item............................ 7,719 9,480
Extraordinary item -- loss on early extinguishment of debt
(net of income tax benefit of $452,000)................... (708) --
-------- --------
Net income.................................................. 7,011 9,480
Less preferred stock dividends.............................. (1,637) (1,328)
-------- --------
Net income available to common shareholders................. $ 5,374 $ 8,152
======== ========
Per share amounts:
Earnings per common share:
Income before extraordinary item....................... $ 8.47 $ 11.11
Extraordinary item..................................... (.99) --
-------- --------
Net income................................................ $ 7.48 $ 11.11
======== ========
Earnings per common share -- assuming dilution:
Income before extraordinary item....................... $ 6.39 $ 8.15
Extraordinary item..................................... (.74) --
-------- --------
Net income................................................ $ 5.65 $ 8.15
======== ========
</TABLE>
See accompanying notes.
F-4
<PAGE> 77
GCIH, INC.
CONSOLIDATED STATEMENT OF CHANGES IN SHAREHOLDERS' EQUITY
YEAR ENDED DECEMBER 31, 1997 AND PERIOD FROM
JANUARY 22, 1996 TO DECEMBER 31, 1996
(IN THOUSANDS, EXCEPT SHARE DATA)
<TABLE>
<CAPTION>
CLASS A CLASS A CLASS B CLASS B CLASS C CLASS C CLASS D CLASS D
COMMON COMMON COMMON COMMON COMMON COMMON COMMON COMMON TREASURY
SHARES STOCK SHARES STOCK SHARES STOCK SHARES STOCK SHARES
--------- ------- --------- ------- ------- ------- ------- ------- ---------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Balance at January 22, 1996... 661,655.1 $ 7 144,594.9 $ 1 2,500 $-- -- $-- --
Net income................... -- -- -- -- -- -- -- -- --
Dividend on redeemable
preferred stock............ -- -- -- -- -- -- -- -- --
--------- --- --------- --- ----- --- -- --- ---------
Balance at December 31,
1996......................... 661,655.1 7 144,594.9 1 2,500 -- -- -- --
Repurchase of shares for
treasury................... (74,326.8) -- (30,929.6) -- -- -- -- -- 105,256.4
Pursuant to restricted stock
plan:
Shares issued.............. -- -- 53,250.0 1 -- -- -- -- (53,250.0)
Amortization............... -- -- -- -- -- -- -- -- --
Forfeitures................ -- -- -- -- -- -- -- -- --
Net income................... -- -- -- -- -- -- -- -- --
Dividend on redeemable
preferred stock............ -- -- -- -- -- -- -- -- --
--------- --- --------- --- ----- --- -- --- ---------
Balance at December 31,
1997......................... 587,328.3 $ 7 166,915.3 $ 2 2,500 $-- -- $-- 52,006.4
========= === ========= === ===== === == === =========
<CAPTION>
DETACHABLE ADDITIONAL
TREASURY STOCK PAID-IN RETAINED UNEARNED
STOCK WARRANTS CAPITAL EARNINGS COMPENSATION TOTAL
-------- ---------- ---------- -------- ------------ -------
<S> <C> <C> <C> <C> <C> <C>
Balance at January 22, 1996... $ -- $189 $ 752 $ -- $ -- $ 949
Net income................... -- -- -- 9,480 -- 9,480
Dividend on redeemable
preferred stock............ -- -- -- (1,328) -- (1,328)
----- ---- ------ ------- ------- -------
Balance at December 31,
1996......................... -- 189 752 8,152 -- 9,101
Repurchase of shares for
treasury................... (128) -- -- -- -- (128)
Pursuant to restricted stock
plan:
Shares issued.............. 53 -- 5,857 -- (1,000) 4,911
Amortization............... -- -- -- -- 161 161
Forfeitures................ -- -- (72) -- 72 --
Net income................... -- -- -- 7,011 -- 7,011
Dividend on redeemable
preferred stock............ -- -- -- (1,637) -- (1,637)
----- ---- ------ ------- ------- -------
Balance at December 31,
1997......................... $ (75) $189 $6,537 $13,526 $ (767) $19,419
===== ==== ====== ======= ======= =======
</TABLE>
See accompanying notes.
F-5
<PAGE> 78
GCIH, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
PERIOD FROM
JANUARY 22,
YEAR ENDED 1996 TO
DECEMBER 31, DECEMBER 31,
1997 1996
------------ ------------
(IN THOUSANDS)
<S> <C> <C>
OPERATING ACTIVITIES
Net income.................................................. $ 7,011 $ 9,480
Adjustments to reconcile net income to net cash (used in)
provided by operating activities:
Depreciation.............................................. 1,976 1,339
Amortization of goodwill.................................. 84 83
Amortization of debt issuance costs....................... 478 412
Provision for allowance for doubtful accounts............. 712 1,798
Provision for deferred income taxes....................... 3,461 (5,391)
Compensation expense pursuant to restricted stock plan
(noncash)............................................... 4,858 --
Amortization pursuant to restricted stock plan............ 161 --
(Gain) on disposal of assets.............................. (2) --
Extraordinary item........................................ 708 --
Changes in operating assets and liabilities:
Inventories............................................. (15,048) 10,487
Accounts receivable..................................... (8,511) (3,296)
Other assets............................................ 538 (500)
Accounts payable........................................ 253 3,668
Accrued expenses........................................ 3,824 6,627
Income taxes payable.................................... (10,204) 6,000
Other accrued liabilities............................... 3,628 510
Accrued pension and postretirement benefit cost......... 1,037 1,034
-------- ---------
Net cash (used in) provided by operating activities......... (5,036) 32,251
INVESTING ACTIVITIES
Collections on notes receivable............................. 207 3,226
Purchases of property, plant and equipment.................. (4,180) (1,047)
Proceeds from sale of property, plant and equipment......... 445 --
Purchase of Auburn Holdings, Inc., net of cash acquired and
seller receivables........................................ (38,840) --
-------- ---------
Net cash (used in) provided by investing activities......... (42,368) 2,179
FINANCING ACTIVITIES
Borrowings under revolving credit agreement................. $ 88,824 $ 162,903
Repayments under revolving credit agreement................. (88,574) (177,755)
Proceeds from long-term borrowings.......................... 41,600 --
Principal payments on long-term borrowings.................. (10,205) (2,875)
Principal payments on capital leases........................ (88) --
Repurchase of common stock.................................. (128) --
Repurchase of preferred stock............................... (95) --
Proceeds from sale of restricted stock...................... 53 --
Debt issuance costs......................................... (1,039) --
-------- ---------
Net cash provided by (used in) financing activities......... 30,348 (17,727)
-------- ---------
Net (decrease) increase in cash and cash equivalents........ (17,056) 16,703
Cash and cash equivalents at beginning of period............ 17,592 889
-------- ---------
Cash and cash equivalents at end of period.................. $ 536 $ 17,592
======== =========
Supplemental Disclosure of Cash Flow Information:
Noncash items:
Reduction of notes payable, offset by reduction of notes
receivable............................................ $ 1,500 --
</TABLE>
See accompanying notes.
F-6
<PAGE> 79
GCIH, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 1997
1. ORGANIZATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Organization
GCIH, Inc. ("the Company") was formed to acquire 100% of the outstanding
stock of Gerber Childrenswear, Inc. from Gerber Products Company. The
acquisition was effective as of the start of business on January 22, 1996 and
was accounted for as a purchase. The purchase price was allocated to the net
assets acquired based on their respective fair values and the balance was
treated as excess of cost over fair value of net assets acquired. The total cost
of the acquisition was approximately $74 million. The excess of the cost over
fair value of net assets acquired is being amortized over twenty years on a
straight-line basis.
The acquisition was funded in part by long-term borrowings and a note
payable to the seller. The stock purchase agreement provided for the adjustment
of the $74 million purchase price based on net working capital, as defined, at
January 22, 1996. Calculated net working capital as defined resulted in a
reduction of the purchase price by $4.7 million. This was collected through cash
receipt of $3.2 million in 1996 and a $1.5 million reduction in the junior
subordinated note payable to Gerber Products Company in 1997.
Principles of Consolidation
The consolidated financial statements include the accounts of the Company
and its wholly-owned subsidiaries which are Gerber Childrenswear, Inc. and
Auburn Holdings, Inc. All material intercompany balances and transactions have
been eliminated in consolidation.
Earnings Per Common Share
Earnings per common share are calculated by dividing net income by the
weighted average shares outstanding in accordance with Statement of Financial
Accounting Standards No. 128, "Earnings Per Share."
Revenue Recognition
Substantially all revenue is recognized when products are shipped to
customers.
Concentration of Credit Risk
The Company manufactures infant apparel and products that are primarily
sold to retail entities throughout the United States. The Company's primary
customers are mass merchants and discount stores. Sales to three customers
represented approximately 65% of 1997 net sales and 60% of 1996 net sales with
sales to one customer representing approximately 44% of 1997 and 1996 sales,
respectively. The Company performs periodic credit evaluations of their
customers and generally does not require collateral for credit sales.
Cash Equivalents
The Company considers all highly liquid investments with an original
maturity of three months or less when purchased to be cash equivalents. At
certain times, the amount of cash deposited at a bank may exceed the limit on
insured deposits.
Undesignated cash is invested each night through participation in a bank
investment plan and bears interest at a variable rate. Under this agreement, the
bank sells securities that are direct obligations of or are fully guaranteed by
the United States government to the Company each night and repurchases the
investments the next business day.
F-7
<PAGE> 80
GCIH, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
Inventories
Inventories are stated at the lower of cost or market. Cost is determined
by the first-in, first-out (FIFO) method.
Debt Issuance Costs
Debt issuance costs are being amortized over the lives of the related debt.
Accumulated amortization amounted to $224,000 and $412,000 at December 31, 1997
and 1996, respectively. Amortization expense is included in interest expense in
the accompanying statements of income.
Advertising
Advertising costs of approximately $5,071,000 and $3,250,000 for fiscal
years 1997 and 1996, respectively, were expensed as incurred.
Property, Plant and Equipment
Property, plant and equipment are stated at cost. Depreciation of property,
plant and equipment is computed by the straight-line method over the estimated
useful lives of the assets for financial reporting purposes and computed based
upon "Modified Accelerated Cost Recovery System" guidelines for income tax
reporting purposes.
Income Taxes
The Company accounts for its income taxes under Statement of Financial
Accounting Standards No. 109, "Accounting for Income Taxes". Deferred income
taxes are recognized for the tax consequences of "temporary differences" by
applying enacted statutory tax rates applicable to future years to differences
between the financial statement carrying amounts and the tax bases of existing
assets and liabilities.
Fair Value of Financial Instruments
Statement of Financial Accounting Standards No. 107, "Disclosure about Fair
Value of Financial Instruments", requires disclosure of fair value information
about financial instruments for which it is practicable to estimate that value.
The carrying amounts reported in the balance sheet for cash and long-term debt
approximate their fair value. The carrying amounts of variable-rate debt
approximate fair value due to interest rates adjusting to market rates.
New Accounting Standards
The Financial Accounting Standards Board has issued SFAS No. 130,
"Reporting Comprehensive Income," which is effective for financial statements
for fiscal years ending after December 31, 1997. This standard establishes
standards for the reporting and display of comprehensive income which is defined
under SFAS No. 130 as "the change in equity (net assets) during a period from
transactions and other events and circumstances from nonowner sources." Under
SFAS No. 130, the Company has several choices in the disclosure of the
components of other comprehensive income. The Company plans to implement SFAS
No. 130 during the first quarter of fiscal year 1998.
In June 1997, the Financial Accounting Standards Board issued Statement of
Financial Accounting Standards Number 131 (SFAS 131) "Disclosures about Segments
of an Enterprise and Related Information" which is effective for years beginning
after December 15, 1997. SFAS 131 establishes standards for the way that
business enterprises report information about operating segments in annual
financial statements and requires that those enterprises report selected
information about operating segments in interim financial
F-8
<PAGE> 81
GCIH, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
reports. It also establishes standards for related disclosures about products
and services, geographic areas, and major customers. The Company will adopt the
new requirements retroactively in 1998. Management has not completed its review
of SFAS 131, but does not anticipate that the adoption of this statement will
have a significant effect on the Company's reported segments.
Excess of Cost Over Net Assets of Businesses Acquired
The excess of investments in consolidated subsidiaries over the net asset
value at acquisition ("goodwill") is being amortized on a straight-line basis
over periods not exceeding twenty years. On an annual basis the Company reviews
the recoverability of goodwill based primarily upon an analysis of undiscounted
cash flows from the acquired businesses. Accumulated amortization amounted to
$167,000 and $83,000 at December 31, 1997 and 1996, respectively.
Forward Exchange Contracts
The Company uses forward foreign currency exchange contracts to minimize
currency exchange risk. Unrealized gains or losses resulting from changes in
currency exchange rates are recognized currently.
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 amounts reported in the financial statements and
accompanying notes. Actual results could differ from those estimates.
2. ACQUISITIONS
On December 17, 1997, the Company acquired Auburn Hosiery Mills, Inc.
("Auburn") and Sport Socks Co. (Ireland) Limited ("Sport Socks") for $28 million
and $12 million in cash, respectively. Both companies are engaged in the
production and sale of various styles of socks to retail chain stores. The
acquisitions were financed through a term loan of $40 million. The acquisitions
have been recorded using the purchase method of accounting. Accordingly, the
purchase price has been allocated to assets and liabilities of the acquired
companies based on their estimated fair values as of the effective date of
acquisition. The purchase price exceeded the fair value of net assets acquired
by approximately $20 million, which is being amortized on a straight-line basis
over twenty years. The results of operations of Auburn and Sport Socks are
included in the accompanying consolidated financial statements from the date of
acquisition.
The following summarized unaudited pro forma financial information assumes
the acquisitions had occurred on January 1 of each year:
<TABLE>
<CAPTION>
1997 1996
--------- ---------
(IN THOUSANDS, EXCEPT
PER SHARE DATA)
<S> <C> <C>
Net sales.............................................. $270,100 $246,921
Income before extraordinary item....................... 6,625 10,856
Net earnings........................................... 5,917 10,856
Basic earnings per share............................... 5.96 12.99
Diluted earnings per share............................. 4.50 9.53
</TABLE>
The amounts are based upon certain assumptions and estimates, and do not
reflect any benefit from economies which might be achieved from combined
operations. The pro forma results do not necessarily represent results which
would have occurred if the acquisition had taken place on the basis assumed
above, nor are they indicative of the results of future combined operations.
F-9
<PAGE> 82
GCIH, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
3. INVENTORIES
Inventories consist of the following (in thousands):
<TABLE>
<CAPTION>
DECEMBER 31
-------------------
1997 1996
------- -------
<S> <C> <C>
Raw materials............................................ $18,482 $14,481
Work in process.......................................... 15,857 10,073
Finished goods........................................... 48,732 35,799
------- -------
83,071 60,353
Less reserves............................................ 12,030 12,849
------- -------
$71,041 $47,504
======= =======
</TABLE>
4. PROPERTY, PLANT AND EQUIPMENT
Property, plant and equipment consists of the following (in thousands):
<TABLE>
<CAPTION>
DECEMBER 31
-------------------
1997 1996
------- -------
<S> <C> <C>
Land..................................................... $ 742 $ 538
Buildings and leasehold improvements..................... 9,060 4,451
Machinery and equipment.................................. 14,997 5,164
Furniture and other equipment............................ 1,750 733
Vehicles................................................. 291 176
Construction in progress................................. 1,027 215
------- -------
27,867 11,277
Less accumulated depreciation............................ 3,219 1,339
------- -------
$24,648 $ 9,938
======= =======
</TABLE>
5. INCOME TAXES
The components of the Company's net deferred tax assets are as follows (in
thousands):
<TABLE>
<CAPTION>
DECEMBER 31
-----------------
1997 1996
------ ------
<S> <C> <C>
Deferred tax assets:
Inventory reserves....................................... $ 647 $1,019
Postretirement benefits.................................. 1,729 1,509
Accrued royalty.......................................... 2,025 716
Restructuring reserves................................... 463 802
Other.................................................... 3,452 3,577
------ ------
Total deferred tax assets.................................. 8,316 7,623
Deferred tax liabilities:
Depreciation............................................. 2,404 828
Inventory methods........................................ 1,926 --
Other.................................................... 1,306 367
------ ------
Total deferred tax liabilities............................. 5,636 1,195
------ ------
Net deferred tax assets.................................... $2,680 $6,428
====== ======
</TABLE>
F-10
<PAGE> 83
GCIH, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
Income tax expense is different from the amount that would result from
applying the Federal statutory rate to income before income taxes as follows (in
thousands):
<TABLE>
<CAPTION>
DECEMBER 31
-----------------
1997 1996
------ ------
<S> <C> <C>
Federal tax at statutory rate.............................. $4,244 $5,346
State income tax, net of Federal tax benefit............... 412 519
Other...................................................... 108 379
------ ------
Income tax expense......................................... $4,764 $6,244
====== ======
</TABLE>
Current and deferred income tax expense are as follows (in thousands):
<TABLE>
<CAPTION>
DECEMBER 31
------------------
1997 1996
------ -------
<S> <C> <C>
Current:
Federal................................................. $1,168 $10,379
State................................................... 135 1,256
------ -------
Total current............................................. 1,303 11,635
Deferred:
Inventory reserves...................................... 372 (1,019)
Postretirement benefits................................. (220) (232)
Accrued royalty......................................... (1,309) (716)
Inventory methods....................................... 2,676 (750)
Restructuring reserves.................................. 339 198
Other................................................... 1,603 (2,872)
------ -------
Total deferred............................................ 3,461 (5,391)
------ -------
Income tax expense........................................ $4,764 $ 6,244
====== =======
</TABLE>
Income taxes paid were approximately $11,734,000 and $5,638,000 in 1997 and
1996, respectively.
6. ACCRUED EXPENSES
Accrued expenses consist of the following (in thousands):
<TABLE>
<CAPTION>
DECEMBER 31
-------------------
1997 1996
------- -------
<S> <C> <C>
Interest................................................. $ 2,914 $ 2,869
Salaries, wages and payroll taxes........................ 7,618 1,801
Incentives............................................... 3,610 1,980
Advertising.............................................. 1,684 1,217
Self-insurance reserves.................................. 1,828 1,505
Royalties................................................ 1,194 358
Restructuring............................................ 335 1,541
Other.................................................... 4,916 5,232
------- -------
$24,099 $16,503
======= =======
</TABLE>
F-11
<PAGE> 84
GCIH, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
7. OTHER ACCRUED LIABILITIES
Other accrued liabilities consist of the following (in thousands):
<TABLE>
<CAPTION>
DECEMBER 31
-----------------
1997 1996
------ ------
<S> <C> <C>
Royalties.................................................. $5,400 $1,909
Incentives................................................. -- 520
Other...................................................... 3,313 1,424
------ ------
$8,713 $3,853
====== ======
</TABLE>
8. LONG-TERM DEBT
Long-term debt consists of (in thousands):
<TABLE>
<CAPTION>
DECEMBER 31
-------------------
1997 1996
------- -------
<S> <C> <C>
NationsBank term loan with interest accruing at the rate equal to
the greater of 1) the Federal Funds Rate plus 1/2 of 1%, or 2)
the prime rate; plus an applicable percentage based on the
current Leverage Ratio (7.4% at December 31, 1997); principal
due on a quarterly payment schedule through September 30,
2002........................................................... $38,500 $ --
Senior subordinated note payable with interest accruing at 12%;
one-half of the principal is due in January 2003 and the
remaining balance in January 2004.............................. 22,500 22,500
Junior subordinated note payable to Gerber Products Company with
interest accruing at 12%; principal is due January 2006........ 11,000 12,500
Note payable to a bank with interest accruing at 8.75%; principal
and interest payable in monthly installments of $15,992........ 1,583 --
Industrial Revenue Bond, payable in annual principal installments
of $100,000 through March 1, 1999, then annual principal
installments of $200,000 through March 1, 2004, plus interest
at a floating rate not to exceed 14% (3.3% -- 4.9% in 1997).... 1,200 --
Industrial Revenue Bond, payable in annual principal installments
of $100,000 through October 1, 1999, then annual principal
installments of $200,000 through October 1, 2004, plus interest
at a floating interest rate not to exceed 14% (3.3% -- 4.9% in
1997).......................................................... 1,200 --
Other............................................................ 921 --
Term note payable with interest accruing at 1) the prime rate or
the Federal Funds effective rate, whichever is higher; plus
1.25%, or 2) the LIBOR rate plus 3............................. -- 8,625
------- -------
76,904 43,625
Less current portion............................................. 7,286 1,725
Less unamortized discount........................................ 144 189
------- -------
$69,474 $41,711
======= =======
</TABLE>
Substantially all of the Company's property, plant and equipment, accounts
receivable, and inventory have been pledged as collateral for the above debt.
The loan agreements require the Company to maintain certain financial ratios and
restricts the payment of dividends
F-12
<PAGE> 85
GCIH, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
The Company has available a revolving credit facility which had $250,000
outstanding at December 31, 1997. The revolving credit loan permits the Company
to borrow up to a maximum of $60,000,000 subject to specified levels of eligible
inventory, eligible inventory on order under letters of credit, and accounts
receivable with the total amount reduced by outstanding letters of credit. At
December 31, 1997, the Company had available borrowings up to approximately
$50,000,000. The Company also had outstanding letters of credit in conjunction
with purchases from foreign vendors of approximately $5,747,000 and $5,753,000
at December 31, 1997 and 1996, respectively.
Beginning in 1999, the revolving credit facility and term loan agreement
require mandatory principal prepayments annually based on excess cash flow, as
defined.
The Company has available a foreign credit facility which had $735,000
outstanding at December 31, 1997. This credit facility permits the Company to
borrow up to a maximum of $3,400,000 on a long-term basis and $850,000 as a bank
overdraft. All amounts outstanding at December 31, 1997 relate to the long-term
portion.
Total interest paid was approximately $6,000,000 and $3,142,000 in fiscal
years 1997 and 1996, respectively.
The aggregate annual maturities of long-term debt at December 31, 1997 are
as follows (in thousands):
<TABLE>
<S> <C>
1998........................................... $ 7,286
1999........................................... 8,782
2000........................................... 8,966
2001........................................... 9,097
2002........................................... 7,229
Thereafter..................................... 35,544
-------
$76,904
=======
</TABLE>
9. LEASES
The Company leases buildings and machinery under both capital and operating
leases with various renewal terms and expiring in various years through 2012.
Two of these leases contain renewal options totaling 10 years.
Future minimum lease payments as of December 31, 1997 under leases
classified as capital leases and operating leases, are as follows (in
thousands):
<TABLE>
<CAPTION>
CAPITAL OPERATING
FISCAL YEAR ENDING IN LEASES LEASES
---------------------------------------------------------- ------- ---------
<S> <C> <C>
1998................................................. $ 127 $ 1,469
1999................................................. 109 1,018
2000................................................. 6 646
2001................................................. -- 579
2002................................................. -- 567
Thereafter.............................................. -- 708
---- ------
Total minimum lease payments.............................. 242 $ 4,987
======
Less amounts representing interest........................ 19
----
Present value of net minimum lease payments............... 223
Less current portion...................................... 119
----
$ 104
====
</TABLE>
F-13
<PAGE> 86
GCIH, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
Rent expense totaled approximately $2,292,000 for the year ended December
31, 1997 and $2,318,000 for the period from January 22, 1996 to December 31,
1996.
Assets recorded under capital leases, net of accumulated amortization, were
approximately $1,700,000 at December 31, 1997. The assets recorded under capital
leases are pledged as collateral for the capital lease obligations. Amortization
of assets recorded under capital lease obligations is included with depreciation
expense.
10. EMPLOYEE BENEFIT PLANS
Previously, Gerber Childrenswear, Inc. had two non-contributory defined
benefit pension plans that covered substantially all full-time domestic
employees. These two plans were merged together effective May 31, 1996. Benefits
are based on the employee's years of service and, for salaried employees, each
employee's compensation during the last five years of employment. The Company's
funding policy is to make the minimum annual contributions required by
applicable regulations.
Accumulated plan benefits and projected benefit obligations, as estimated
by consulting actuaries, and plan net assets and funded status as of December
31, 1997 and 1996 are as follows (in thousands):
<TABLE>
<CAPTION>
1997 1996
-------- --------
<S> <C> <C>
Actuarial present value of benefit obligations:
Vested benefit obligations........................... $(22,280) $(21,792)
Non-vested benefit obligations....................... (422) (525)
-------- --------
Accumulated benefit obligation......................... $(22,702) $(22,317)
======== ========
Projected benefit obligation........................... $(25,418) $(25,169)
Plan assets at fair value.............................. 25,155 24,630
-------- --------
Funded status -- projected benefit obligation greater
than plan assets..................................... (263) (539)
Unrecognized net (gain) loss........................... (183) 542
-------- --------
(Accrued) prepaid pension cost......................... $ (446) $ 3
======== ========
</TABLE>
Net pension cost included the following components at December 31, 1997 and
1996 (in thousands):
<TABLE>
<CAPTION>
1997 1996
-------- --------
<S> <C> <C>
Service cost -- benefits earned during the period...... $ 850 $ 845
Interest cost on projected benefit obligation.......... 1,709 1,541
Actual return on plan assets........................... (2,115) (1,917)
-------- --------
Net periodic pension cost.............................. $ 444 $ 469
======== ========
</TABLE>
The weighted-average discount rate used in determining the actuarial
present value of projected benefit obligations was 7.25% at December 31, 1997
and 1996. The weighted-average rate of increase in future compensation levels
used was 5.5% for December 31, 1997 and 1996. The expected long-term rate of
return on plan assets was 9% at December 31, 1997 and 1996.
The plan assets are invested primarily in mutual funds via the Gerber
Childrenswear, Inc. Retirement Plans Master Trust and in a group annuity
contract with an insurance company.
Gerber Childrenswear, Inc. also has an investment retirement plan for
salaried employees which provides for salaried employees and Company
contributions. The Company will match 50% of the employee's contributions up to
a maximum company match of 3% of the employee's compensation. In addition, the
Company has a defined contribution plan for the benefit of its full-time hourly
employees. The Company contributes one and one-half percent of each
participant's annual compensation to the plan. Employees are not allowed to
contribute to this plan. Effective January 1, 1997, these two plans were merged
together. Total expense under these plans was approximately $439,000 and
$230,000 for 1997 and 1996, respectively.
F-14
<PAGE> 87
GCIH, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
Sport Socks has a defined contribution pension plan. The assets of the plan
are held in an independently administered fund. No contributions were made
between December 17, 1997 and December 31, 1997.
Auburn has a defined contribution plan covering all employees who have 2
years of service of at least 1,000 hours each year. The contribution is
determined by its Board of Directors annually. No contributions were made
between December 17, 1997 and December 31, 1997.
Gerber Childrenswear, Inc. also sponsors two defined benefit postretirement
health care plans covering all full-time domestic employees. The plans are
contributory, with retiree contributions adjusted annually, and contain other
cost-sharing features such as deductibles and coinsurance. The accounting for
the plans anticipates future cost-sharing changes to the written plan that are
consistent with the Company's expressed intent to increase the retiree
contribution rate annually for the expected general inflation rate for that
year. The Company's policy is to fund the cost of medical benefits in amounts
determined at the discretion of management. In conjunction with the acquisition
(Note 1), Gerber Products Company assumed the accumulated benefit obligation for
retirees.
The following table presents the plans' funded status at December 31, 1997
(in thousands):
<TABLE>
<CAPTION>
SALARIED NON-SALARIED TOTAL
-------- ------------ -------
<S> <C> <C> <C>
Accumulated postretirement benefit obligation:
Retirees.......................................... $ (21) $ (17) $ (38)
Fully eligible active plan participants........... (490) (230) (720)
Other active plan participants.................... (1,468) (1,464) (2,932)
------- ------- -------
Funded status....................................... (1,979) (1,711) (3,690)
Unrecognized net (gain)............................. (185) (737) (922)
------- ------- -------
Accrued postretirement benefit cost................. $ (2,164) $ (2,448) $(4,612)
======= ======= =======
Net periodic postretirement benefit cost includes
the following components:
Service cost...................................... $ 218 $ 205 $ 423
Interest cost..................................... 104 89 193
------- ------- -------
Net periodic postretirement benefit cost............ $ 322 $ 294 $ 616
======= ======= =======
</TABLE>
The following table presents the plans' funded status at December 31, 1996
(in thousands):
<TABLE>
<CAPTION>
SALARIED NON-SALARIED TOTAL
-------- ------------ -------
<S> <C> <C> <C>
Accumulated postretirement benefit obligation:
Retirees.......................................... $ -- $ -- $ --
Fully eligible active plan participants........... (452) (276) (728)
Other active plan participants.................... (1,495) (1,584) (3,079)
------- ------- -------
Funded status....................................... (1,947) (1,860) (3,807)
Unrecognized net loss (gain)........................ 86 (303) (217)
------- ------- -------
Accrued postretirement benefit cost................. $ (1,861) $ (2,163) $(4,024)
======= ======= =======
Net periodic postretirement benefit cost includes
the following components:
Service cost...................................... $ 217 $ 201 $ 418
Interest cost..................................... 108 104 212
------- ------- -------
Net periodic postretirement benefit cost............ $ 325 $ 305 $ 630
======= ======= =======
</TABLE>
F-15
<PAGE> 88
GCIH, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
The weighted-average discount rate used in determining the actuarial
present value of projected benefit obligations was 7.25% at December 31, 1997
and 1996. The weighted-average rate of increase in future compensation levels
used was 5.5% for December 31, 1997 and 1996. The weighted-average annual
assumed rate of increase in the per capita cost of covered medical benefits is
8.25 percent to 10 percent and is assumed to decrease gradually to 5.5 percent
by 2003 and remain at that level thereafter. The health care cost trend rate
assumption has a significant effect on the amounts reported. For example,
increasing the assumed health care cost trend rate by one percentage point in
each year would increase the accumulated postretirement benefit obligation as of
December 31, 1997 by approximately $689,000 and the aggregate of the service and
interest cost components of net periodic postretirement benefit cost for 1997 by
approximately $131,000.
11. REDEEMABLE PREFERRED STOCK
The outstanding redeemable preferred stock has a scheduled redemption date
of January 31, 2007 at $100 per share plus all accrued and unpaid dividends
thereon. The Company may, at any time prior to this date, redeem all or a
portion of the preferred stock at the same price.
12. SHAREHOLDERS' EQUITY
During 1997, the Company sold shares of its Class B common stock to certain
employees for $1 per share. Some of these shares were immediately vested while
others vest over a five-year period. At the time of issuance of the unvested
shares, the difference between the amount paid by the employees and the fair
market value was credited to additional paid-in capital with a corresponding
charge to unearned compensation. The unearned compensation is amortized to
earnings over five years on a straight-line basis. 1997 amortization expense was
$161,000. Previously amortized amounts for shares forfeited is credited to
compensation expense in the year of forfeiture. At the time of issuance of the
shares which were vested, the difference between the amount paid by the
employees and the fair market value was credited to additional paid-in capital
with a corresponding charge to expense for $4,858,000.
Certain shareholders have demand registration rights with respect to shares
of common stock owned by them.
In connection with obtaining the $22,500,000 note payable for the
acquisition of Gerber Childrenswear, Inc., the Company issued a warrant to the
lender to purchase 191,250 shares of non-voting Class D common stock at a
nominal price. The warrant, in whole or in part, may be exercised at anytime
through January 22, 2006. The recorded value of the warrant at the date of
issuance was $189,338 and reduced the face amount of the note payable.
13. DISCLOSURES ABOUT FAIR VALUE OF FINANCIAL INSTRUMENTS
The following methods and assumptions were used by the Company in
estimating its fair value disclosures for financial instruments:
Cash and cash equivalents: The carrying amounts reported in the
balance sheet for cash and cash equivalents approximate fair value due to
the short-maturity of these instruments.
Receivables: The carrying amounts reported in the balance sheet for
receivables approximate their fair value.
Long and short-term liabilities: The carrying amounts of the
Company's short-term borrowings approximate their fair value.
Forward exchange contracts: The fair value of the Company's forward
foreign currency exchange contracts is estimated by reference to quoted
prices. The estimated fair value of outstanding contracts at
F-16
<PAGE> 89
GCIH, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
December 31, 1997 was approximately $9,600,000 which results in a loss of
approximately $1,042,000 which was recorded at fair value in connection
with the Company's acquisitions on December 17, 1997.
14. EARNINGS PER SHARE
The following table sets forth the computation of basic and diluted
earnings per share:
<TABLE>
<CAPTION>
1997 1996
----------- -----------
<S> <C> <C>
Numerator:
Income before extraordinary item................................ $ 7,719,000 $ 9,480,000
Preferred stock dividends....................................... (1,637,000) (1,328,000)
----------- -----------
Income available to common stockholders......................... 6,082,000 8,152,000
Extraordinary item.............................................. (708,000) --
----------- -----------
Numerator for basic and diluted earnings per share -- net income
available to common stockholders................................ $ 5,374,000 $ 8,152,000
=========== ===========
Denominator:
Denominator for basic earnings per share -- weighted-average
shares....................................................... 717,925 733,750
Effect of dilutive securities:
Warrants..................................................... 191,239 191,186
Nonvested stock.............................................. 42,303 75,000
----------- -----------
Denominator for diluted earnings per share -- adjusted
weighted-average shares......................................... 951,467 999,936
=========== ===========
Basic earnings per share.......................................... $ 7.48 $ 11.11
=========== ===========
Diluted earnings per share........................................ $ 5.65 $ 8.15
=========== ===========
</TABLE>
15. EXTRAORDINARY ITEM
In December 1997, the Company repaid its term note payable in the principal
amount of $6,500,000. The Company was required to pay a prepayment penalty of
$160,000 in connection with this transaction. The write-off of unamortized loan
costs and prepayment penalty totaling $708,000 (net of the income tax benefit of
$452,000) is included as an extraordinary item in the accompanying statement of
income for the year ended December 31, 1997.
16. BUSINESS SEGMENTS AND GEOGRAPHIC AREAS
The Company operates in two business segments: apparel and hosiery. The
apparel segment consists of the production and sale of infant and toddler's
sleepwear, playwear, underwear, bedding and cloth diapers to mass merchandise
outlets in the United States under the Gerber trademark and private labels. The
hosiery segment which was acquired on December 17, 1997 consists of the
production and sale of sport socks under the Wilson, Coca Cola, and Dunlop names
to major retailers in the United States and Europe.
Sales, earnings before interest and income taxes, depreciation and
amortization, and capital expenditures are reported based on the operations of
each business segment or geographic region. Identifiable assets are those used
exclusively in the operations of each business segment or geographic region, or
which are allocated when used jointly.
F-17
<PAGE> 90
GCIH, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
The following tables present sales and other financial information by
business segment and geographic region for the years 1997 and 1996:
<TABLE>
<CAPTION>
DECEMBER 31
---------------------
1997 1996
-------- --------
(IN THOUSANDS)
<S> <C> <C>
BUSINESS SEGMENTS
Net trade sales:
Apparel.............................................. $200,526 $185,223
Hosiery.............................................. 1,511 --
-------- --------
Total net sales........................................ $202,037 $185,223
======== ========
Earnings (loss) before interest and taxes:
Apparel.............................................. $ 18,322 $ 22,032
Hosiery.............................................. (41) --
-------- --------
Total operating income................................. $ 18,281 $ 22,032
======== ========
Depreciation and amortization:
Apparel.............................................. $ 2,472 $ 1,834
Hosiery.............................................. 66 --
-------- --------
Total depreciation and amortization.................... $ 2,538 $ 1,834
======== ========
Capital additions:
Apparel.............................................. $ 4,180 $ 1,047
Hosiery.............................................. -- --
-------- --------
Total capital additions................................ $ 4,180 $ 1,047
======== ========
Identifiable assets:
Apparel.............................................. $113,200 $106,060
Hosiery.............................................. 50,691 --
-------- --------
Total assets........................................... $163,891 $106,060
======== ========
GEOGRAPHIC AREAS
Net trade sales:
United States........................................ $202,037 $185,223
Europe............................................... -- --
-------- --------
Total net sales........................................ $202,037 $185,223
======== ========
Earnings (loss) before interest and taxes:
United States........................................ $ 18,281 $ 22,032
Europe............................................... -- --
-------- --------
Total operating income................................. $ 18,281 $ 22,032
======== ========
Identifiable assets:
United States........................................ $153,944 $106,060
Europe............................................... 9,947 --
-------- --------
Total assets........................................... $163,891 $106,060
======== ========
</TABLE>
F-18
<PAGE> 91
GCIH, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
17. SELECTED QUARTERLY FINANCIAL DATA (UNAUDITED)
The following is a summary of unaudited financial data regarding the
Company's quarterly results of operations.
<TABLE>
<CAPTION>
1ST 2ND 3RD 4TH
QUARTER QUARTER QUARTER QUARTER TOTAL
------- ------- ------- ------- --------
(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
<S> <C> <C> <C> <C> <C>
1997
Net sales............................... $45,350 $40,162 $60,323 $56,202 $202,037
Gross margin............................ 12,696 12,122 16,837 14,088 55,743
Income(loss) before extraordinary
item.................................. 2,524 2,104 4,834 (1,743) 7,719
Extraordinary item -- loss on early
extinguishment of debt................ -- -- -- (708) (708)
Net income(loss)........................ 2,524 2,104 4,834 (2,451) 7,011
Basic earnings per share:
Income(loss) before extraordinary
item............................... 2.93 2.39 6.21 (3.06) 8.47
Extraordinary item.................... -- -- -- (0.99) (0.99)
Net income(loss)........................ 2.93 2.39 6.21 (4.05) 7.48
Diluted earnings per share:
Income(loss) before extraordinary
item............................... 2.20 1.81 4.71 (3.06)* 6.39
Extraordinary item.................... -- -- -- (.99)* (0.74)
Net income (loss)....................... 2.20 1.81 4.71 (4.05)* 5.65
* Same as basic -- no incremental shares are included due to loss in the quarter.
1996
Net sales............................... $36,606 $39,042 $58,336 $51,239 $185,223
Gross margin............................ 9,429 10,556 15,522 11,108 46,615
Net income.............................. 1,486 1,064 4,419 2,511 9,480
Basic earnings per share................ 1.57 1.00 5.57 2.97 11.11
Diluted earnings per share.............. 1.15 0.73 4.09 2.18 8.15
</TABLE>
18. OTHER MATTERS
The Company has employment contracts in the normal course of business with
three of its officers with remaining terms of approximately three years.
F-19
<PAGE> 92
REPORT OF INDEPENDENT AUDITORS
Board of Directors
Gerber Childrenswear, Inc.
We have audited the accompanying consolidated statements of income and cash
flows of Gerber Childrenswear, Inc. ("Predecessor Company") for the year ended
December 31, 1995. These financial statements are the responsibility of the
Predecessor 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 financial statements referred to above present fairly,
in all material respects, the consolidated results of operations and cash flows
of the Predecessor Company for the year ended December 31, 1995 in conformity
with generally accepted accounting principles.
/s/ ERNST & YOUNG LLP
September 12, 1997
F-20
<PAGE> 93
GERBER CHILDRENSWEAR, INC.
("PREDECESSOR COMPANY")
CONSOLIDATED STATEMENT OF INCOME
YEAR ENDED DECEMBER 31, 1995
(IN THOUSANDS)
<TABLE>
<S> <C> <C>
Net sales................................................................ $197,401
Cost of sales............................................................ 156,434
--------
Gross margin............................................................. 40,967
Selling, general and administrative expenses............................. 24,633
--------
Income before income taxes............................................... 16,334
Federal and state income taxes (Note 2):
Current................................................................ $6,716
Deferred............................................................... (446) 6,270
------ --------
Net income............................................................... $ 10,064
========
</TABLE>
See accompanying notes.
F-21
<PAGE> 94
GERBER CHILDRENSWEAR, INC.
("PREDECESSOR COMPANY")
CONSOLIDATED STATEMENT OF CASH FLOWS
YEAR ENDED DECEMBER 31, 1995
(IN THOUSANDS)
<TABLE>
<S> <C>
OPERATING ACTIVITIES
Net income........................................................................ $ 10,064
Adjustments to reconcile net income to net cash provided by operating activities:
Depreciation.................................................................... 1,959
Provision for allowance for doubtful accounts................................... (1,155)
Provision for deferred income taxes............................................. (446)
Loss on disposal of fixed assets................................................ (10)
Changes in operating assets and liabilities:
Inventories.................................................................. 4,931
Accounts receivable.......................................................... (1,213)
Prepaid expenses............................................................. (47)
Accounts payable............................................................. (3,371)
Accrued expenses............................................................. 1,362
Income taxes payable......................................................... 2,107
Other accrued liabilities.................................................... (1,564)
Accrued pension and postretirement benefit cost.............................. 755
-------
Net cash provided by operating activities......................................... 13,372
INVESTING ACTIVITIES
Purchases of property, plant and equipment........................................ (1,483)
FINANCING ACTIVITIES
Advances to parent................................................................ (11,728)
-------
Net increase in cash and cash equivalents......................................... 161
Cash and cash equivalents at December 31, 1994.................................... 319
-------
Cash and cash equivalents at December 31, 1995.................................... $ 480
=======
SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION
Non-cash investing and financing activities:
Fixed assets transferred to parent as a dividend................................ $ 1,248
</TABLE>
See accompanying notes.
F-22
<PAGE> 95
GERBER CHILDRENSWEAR, INC.
("PREDECESSOR COMPANY")
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 1995
1. BASIS OF PRESENTATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Basis of Presentation
Gerber Childrenswear, Inc. ("the Company") is a wholly-owned subsidiary of
Gerber Products Company. In August 1994, Sandoz, Ltd. ("Sandoz"), a company
headquartered in Switzerland, acquired Gerber Products Company. The financial
statements of the Company as of December 31, 1995 are based on historical costs
incurred and recorded by the Company which in the opinion of management include
all material expenses on a stand-alone basis.
Principles of Consolidation
The consolidated financial statements include the accounts of the Company
and its wholly-owned subsidiary. All material intercompany transactions have
been eliminated in consolidation.
Revenue Recognition
Substantially all revenue is recognized when products are shipped to
customers.
Concentration of Credit Risk
The Company manufactures infant apparel and products that are primarily
sold to retail entities throughout the United States. The Company's primary
customers are mass merchants and discount stores. Sales to three customers
represented approximately 58% of net sales for 1995. The Company performs
periodic credit evaluations of their customers and generally does not require
collateral for credit sales.
Cash Equivalents
The Company considers all highly liquid investments with an original
maturity of three months or less when purchased to be cash equivalents.
Inventories
Inventories are stated at the lower of cost or market. Cost is determined
by the first-in, first-out (FIFO) method.
Advertising
Advertising costs of approximately $3,108,000 were expensed as incurred.
Property, Plant and Equipment
Depreciation of property, plant and equipment is computed by the
straight-line method over the estimated useful lives of the assets. Depreciation
for income tax reporting is computed based upon "Modified Accelerated Cost
Recovery System" guidelines.
Income Taxes
The Company accounts for its income taxes under Statement of Financial
Accounting Standards No. 109, "Accounting for Income Taxes". Deferred income
taxes are recognized for the tax consequences of "temporary differences" by
applying enacted statutory tax rates applicable to future years to differences
between the financial statement carrying amounts and the tax bases of existing
assets and liabilities.
F-23
<PAGE> 96
GERBER CHILDRENSWEAR, INC.
("PREDECESSOR COMPANY")
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
The Company was included in a consolidated Federal income tax return filed
by its parent company, Gerber Products Company. The Company provides for income
taxes on a stand-alone separate taxpayer basis, and reflects current income
taxes as a part of its accounts with its parent company. In conjunction with the
sale of the Company in January 1996 to a third party, Gerber Products Company
assumed all current income tax liabilities at December 31, 1995 and up to the
date of the sale.
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 amounts reported in the financial statements and
accompanying notes. Actual results could differ from those estimates.
2. INCOME TAXES
Income tax expense is different from the amount that would result from
applying the Federal statutory rate to income before income taxes as follows (in
thousands):
<TABLE>
<S> <C>
Federal tax at statutory rate....................................... $5,717
State income tax, net of Federal tax benefit........................ 531
Other............................................................... 22
------
Income tax expense.................................................. $6,270
======
</TABLE>
Current and deferred income tax expense are as follows:
<TABLE>
<S> <C>
Current:
Federal........................................................... $5,917
State............................................................. 799
------
Total current....................................................... 6,716
Deferred:
Inventory reserves................................................ (704)
Postretirement benefits........................................... (452)
Restructuring reserves............................................ 436
Depreciation...................................................... (308)
Other............................................................. 582
------
Total deferred...................................................... (446)
------
Income tax expense.................................................. $6,270
======
</TABLE>
Income taxes paid were approximately $400,000 in 1995.
3. EMPLOYEE BENEFIT PLANS
The Company has two non-contributory defined benefit pension plans that
cover substantially all full-time domestic employees. Benefits are based on the
employee's years of service and, for salaried employees, each employee's
compensation during the last five years of employment. The company's funding
policy is to make the minimum annual contributions required by applicable
regulations.
F-24
<PAGE> 97
GERBER CHILDRENSWEAR, INC.
("PREDECESSOR COMPANY")
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
Net periodic pension cost included the following components at December 31,
1995 (in thousands):
<TABLE>
<CAPTION>
SALARIED NON-SALARIED TOTAL
-------- ------------- -------
<S> <C> <C> <C>
Service cost............................... $ 640 $ 174 $ 814
Interest cost.............................. 1,016 575 1,591
Expected return of assets.................. (1,316) (556) (1,872)
------- ----- -------
Net periodic pension cost.................. $ 340 $ 193 $ 533
======= ===== =======
</TABLE>
A weighted-average discount rate of 8.0% and a rate of increase in future
compensation levels of 5.5% were used in determining the actuarial present value
of projected benefit obligations. The expected long-term rate of return on
plans' assets was 9.0%.
The plans' assets are invested primarily in mutual funds via the Gerber
Childrenswear, Inc. Retirement Plans Master Trust and in a group annuity
contract with an insurance company.
The Company also has an investment retirement plan for salaried employees
which provides for salaried employees and Company contributions. The Company
will match 50% of the employee's contributions up to a maximum of 3% of the
employee's compensation. In addition, the Company has a defined contribution
plan for the benefit of its full-time hourly employees. The Company contributes
one and one-half percent of each participant's annual compensation to the plan.
Employees are not allowed to contribute to this plan. Total expense under these
salaried and hourly employees defined contribution plans was approximately
$536,000 for 1995.
The Company also sponsors two defined benefit postretirement health care
plans covering all full-time domestic employees. The plans are contributory,
with retiree contributions adjusted annually, and contain other cost-sharing
features such as deductibles and coinsurance. The accounting for the plans
anticipates future cost-sharing changes to the written plan that are consistent
with the Company's expressed intent to increase the retiree contribution rate
annually for the expected general inflation rate for that year. The Company's
policy is to fund the cost of medical benefits in amounts determined at the
discretion of management.
Net periodic post retirement benefit cost for 1995 included the following
components (in thousands):
<TABLE>
<CAPTION>
SALARIED NON-SALARIED TOTAL
-------- ------------ -----
<S> <C> <C> <C>
Service cost................................... $235 $260 $ 495
Interest cost.................................. 137 171 308
---- ---- ----
Net periodic postretirement benefit cost....... $372 $431 $ 803
==== ==== ====
</TABLE>
The weighted-average discount rate used in determining the accumulated
postretirement benefit obligation was 7.25 percent. The weighted-average annual
assumed rate of increase in the per capita cost of covered medical benefits is 9
percent to 11 percent and is assumed to decrease gradually to 5.5 percent by
2003 and remain at that level thereafter. The health care cost trend rate
assumption has a significant effect on the amounts reported. For example,
increasing the assumed health care cost trend rate by one percentage point in
each year would increase the aggregate of the service and interest cost
components of net periodic postretirement benefit cost for 1995 by approximately
$170,000.
4. LEASES
The Company leases buildings and machinery under operating leases with
various renewal terms and expiring in various years through 2000. Rent expense
for 1995 was approximately $2,840,000. Future
F-25
<PAGE> 98
GERBER CHILDRENSWEAR, INC.
("PREDECESSOR COMPANY")
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
minimum lease payments under noncancelable operating leases at December 31, 1995
are as follows (in thousands):
<TABLE>
<S> <C>
1996................................................ $1,549
1997................................................ 984
1998................................................ 503
1999................................................ 496
2000................................................ 20
------
$3,552
======
</TABLE>
5. LETTERS OF CREDIT
The Company has letters of credit outstanding totaling approximately
$4,600,000. These are used in conjunction with purchases from foreign vendors.
6. BUSINESS SEGMENTS
The Company operates in the apparel line of business, which encompasses the
manufacture, distribution, and sale of infant and toddler's sleepwear, playwear,
underwear, bedding and cloth diapers to mass merchandise outlets under Gerber
trademark and private labels. The Company's principal operations and markets are
located in the United States.
Net sales, earnings before interest and income taxes, depreciation and
amortization, capital expenditures and identifiable assets of businesses outside
of the United States were not significant. Historically, transfers of product
between geographic areas have not been significant.
F-26
<PAGE> 99
INDEPENDENT AUDITORS' REPORT
Board of Directors
Auburn Hosiery Mills, Inc. and Subsidiary
Auburn, Kentucky
We have audited the accompanying consolidated statements of income and cash
flow of Auburn Hosiery Mills, Inc. and Subsidiary for the period January 1, 1997
through December 16, 1997. These consolidated financial statements are the
responsibility of the Company's management. Our responsibility is to express an
opinion on these consolidated financial statements based on our 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 consolidated statements of income and
cash flows are free of material misstatement. An audit includes examining, on a
test basis, evidence supporting the amounts and disclosures in the consolidated
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 of the
statements of income and cash flows 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 the operations of
Auburn Hosiery Mills, Inc. and Subsidiary and cash flows for the period January
1, 1997 through December 16, 1997, in conformity with generally accepted
accounting principles.
J. C. HOLLAND & CO., PSC
Bowling Green, Kentucky
January 16, 1998
F-27
<PAGE> 100
AUBURN HOSIERY MILLS, INC. AND SUBSIDIARY
CONSOLIDATED STATEMENT OF INCOME
FOR THE PERIOD JANUARY 1, 1997 THROUGH DECEMBER 16, 1997
<TABLE>
<CAPTION>
DOLLARS IN
THOUSANDS
(EXCEPT EARNINGS
PER SHARE)
----------------
<S> <C>
Net sales................................................... $49,033
Cost of goods sold.......................................... 39,019
-------
Gross profit................................................ 10,014
-------
Operating expenses
Sales and distribution expenses -- Note 4................. 5,941
General and administrative expenses....................... 2,269
-------
8,210
-------
Income from operations...................................... 1,804
Other income (expense)
Commission income -- Note 4............................... 443
Interest expense.......................................... (333)
Loss on disposal of equipment............................. (6)
Interest income........................................... 182
Other..................................................... 380
-------
666
-------
Income before income taxes.................................. 2,470
Income taxes -- Note 2...................................... 939
-------
Net income.................................................. $ 1,531
=======
Basic and diluted earnings per share........................ $ 1,143
=======
</TABLE>
The accompanying notes are an integral part of the consolidated financial
statements.
F-28
<PAGE> 101
AUBURN HOSIERY MILLS, INC. AND SUBSIDIARY
CONSOLIDATED STATEMENT OF CASH FLOWS
FOR THE PERIOD JANUARY 1, 1997 THROUGH DECEMBER 16, 1997
<TABLE>
<CAPTION>
DOLLARS
IN
THOUSANDS
---------
<S> <C>
INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS:
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income...................................................................... $ 1,531
Adjustments to reconcile net income to net cash provided by operating
activities:
Depreciation................................................................. 1,413
Amortization................................................................. 13
Loss on sale of assets....................................................... 6
Change in assets and liabilities:
Increase in accounts receivable............................................ (1,658)
Decrease in inventories.................................................... 407
Decrease in other receivables.............................................. 7
Increase in refundable income taxes........................................ (432)
Increase in other current assets........................................... (116)
Increase in accounts payable............................................... 276
Increase in accrued royalties and commissions.............................. 54
Increase in accrued labor.................................................. 66
Increase in accrued vacation............................................... 91
Increase in bank overdraft................................................. 427
Increase in other accrued expenses and payables............................ 304
Decrease in deferred income taxes.......................................... (2)
-------
NET CASH PROVIDED BY OPERATING ACTIVITIES............................... 2,387
-------
CASH FLOWS FROM INVESTING ACTIVITIES:
Capital expenditures............................................................ (1,136)
Net decrease in restricted cash................................................. 8
Appreciation in cash surrender value of life insurance.......................... (97)
Payments received on receivables from affiliates................................ 71
Loans to stockholder............................................................ (1,512)
-------
NET CASH USED IN INVESTING ACTIVITIES................................... (2,666)
-------
CASH FLOWS FROM FINANCING ACTIVITIES:
Net borrowings under revolving loan agreement................................... 1,271
Principal payments on long-term debt............................................ (1,038)
-------
NET CASH PROVIDED BY FINANCING ACTIVITIES............................... 233
-------
EFFECT OF EXCHANGE RATE CHANGES ON CASH........................................... 1
-------
NET DECREASE IN CASH AND CASH EQUIVALENTS......................................... (45)
CASH AND CASH EQUIVALENTS AT JANUARY 1, 1997...................................... 98
-------
CASH AND CASH EQUIVALENTS AT DECEMBER 16, 1997.......................... $ 53
=======
SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION:
CASH PAID DURING THE PERIOD JANUARY 1, 1997 THROUGH DECEMBER 16, 1997 FOR:
Interest........................................................................ $ 338
Income taxes.................................................................... 1,584
</TABLE>
The accompanying notes are an integral part of the consolidated financial
statements.
F-29
<PAGE> 102
AUBURN HOSIERY MILLS, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 16, 1997
NOTE 1: NATURE OF OPERATIONS AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Nature of Operations
Auburn Hosiery Mills, Inc. and Subsidiary (the "Company") is engaged in the
production and sale of various styles of socks to retail chain stores primarily
in the United States of America.
Basis of Consolidation
These consolidated financial statements include the accounts of the Company
and its wholly-owned foreign subsidiary after elimination of significant
intercompany balances and transactions.
Foreign Currency Translation
Assets and liabilities of the Company's wholly-owned subsidiary are
translated into U.S. dollars at the current rate of exchange, while revenues and
expenses are translated at the average exchange rate during the year.
Translation adjustments are excluded from the results of operations and are
reported as a separate component of stockholders' equity.
Cash and Cash Equivalents
Cash and cash equivalents include demand deposits, certificates of deposit
and highly liquid investments with original maturities of three months or less.
Inventories
Inventories are stated at the lower of cost or market. Cost is computed
using currently adjusted standards that approximate actual cost on first-in,
first-out basis. Market is based on estimated net realizable value.
Property, Plant and Equipment
Property, plant and equipment are stated at cost. Improvements and
replacements are capitalized, while expenditures for maintenance and repairs are
charged to expense as incurred. The cost is depreciated over the estimated
useful lives of the related assets. Leased equipment is amortized over the term
of the related lease. Depreciation and amortization are computed on the
straight-line method for financial reporting purposes and on an accelerated
method for income tax purposes.
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.
Intangibles
Loan closing costs and other deferred charges are amortized over the life
of the related charges on the straight-line method.
F-30
<PAGE> 103
AUBURN HOSIERY MILLS, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
S Corporation -- Income Tax Status
During 1987, the Company elected to be taxed under the provisions of
subchapter S of the Internal Revenue Code effective July 1, 1987. Under those
provisions, the Company did not pay federal or state corporate income taxes on
its taxable income. Instead, the stockholders were liable for individual federal
and state income taxes on their respective shares of the Company's taxable
income. Effective November 1, 1989, the Company terminated its S corporation
status when it purchased the wholly-owned subsidiary. A provision for federal
and state income taxes has been included in these financial statements for the
period January 1, 1997 through December 16, 1997.
Deferred Income Taxes
The Company accounts for its income taxes using Statement of Financial
Accounting Standards No. 109, Accounting for Income Taxes, which requires
recognition of deferred tax liabilities and assets for the expected future tax
consequences of events that have been included in the financial statements or
tax returns. Under this method, deferred tax liabilities and assets are
determined based on the difference between the financial statement and tax bases
of assets and liabilities, using enacted tax rates in effect for the year in
which the differences are expected to reverse. Differences are primarily
inventory cost, vacation payable and depreciation.
Earnings Per Share
Earnings per share amounts are based on the number of shares outstanding
during the period January 1, 1997 through December 16, 1997, which remained
unchanged.
New Accounting Standards
The Financial Accounting Standards Board has issued SFAS No. 130, Reporting
Comprehensive Income, which is effective for financial statements for fiscal
years ending after December 31, 1997. This standard establishes standards for
the reporting and display of comprehensive income which is defined under SFAS
No. 130 as "the change in equity (net assets) during a period from transactions
and other events and circumstances from nonowner sources." Under SFAS No. 130,
the Company has several choices in the disclosure of the components of other
comprehensive income. The Company plans to implement SFAS No. 130 during the
first quarter of fiscal year 1998, and management anticipates that such adoption
will have no material effect on the Company's financial condition or results of
operations.
NOTE 2: INCOME TAXES
Income tax expense is different from the amount that would result from
applying the federal statutory rate of 34% to income before income taxes as
follows:
<TABLE>
<CAPTION>
DOLLARS
IN
THOUSANDS
---------
<S> <C>
Federal tax at statutory rate............................. $ 777
State income tax, net of federal tax benefit.............. 193
Other..................................................... (31)
----
Income Tax Expense.............................. $ 939
====
</TABLE>
F-31
<PAGE> 104
AUBURN HOSIERY MILLS, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
Current and deferred income tax expense for the period January 1, 1997
through December 16, 1997 are as follows:
<TABLE>
<CAPTION>
DOLLARS
IN
THOUSANDS
---------
<S> <C>
Current:
Federal.............................................. $ 755
State................................................ 185
----
Total Current................................... 940
----
Deferred:
Inventory............................................ 39
Accrued vacations.................................... (39)
Reserve for bad debts................................ (96)
Depreciation......................................... 95
----
Total Deferred.................................. (1)
----
Income Tax Expense.............................. $ 939
====
</TABLE>
Income taxes paid were approximately $1,401,000 for the period January 1,
1997 through December 16, 1997.
NOTE 3: OPERATING LEASES -- LESSEE
The Company leases various equipment under non-cancellable operating
leases.
Rent expense was approximately $101,000, net of subleases of approximately
$91,000, for the period January 1, 1997 through December 16, 1997.
NOTE 4: RELATED PARTY TRANSACTIONS
One of the Company's stockholders owns certain companies that AUBURN
HOSIERY MILLS, INC. uses as its sales representatives and pays those companies
sales commissions. Also, the Company remits royalties through its affiliates to
pay license grantors. The following is a summary of transactions with affiliates
for December 16, 1997 and the period January 1, 1997 through December 16, 1997.
<TABLE>
<CAPTION>
DOLLARS
IN
THOUSANDS
---------
<S> <C>
Sales commissions paid to affiliates (included in sales and
distribution expense in the accompanying consolidated statements
of income)...................................................... $ 2,732
======
Royalties paid through affiliates (included in sales and
distribution expense in the accompanying consolidated statements
of income)...................................................... $ 2,157
======
</TABLE>
The Company sold greige goods inventory at market price to a foreign
affiliate, which amounted to approximately $149,000 for the period January 1,
1997 through December 16, 1997.
The Company's subsidiary received approximately $443,000 in commission
income from a foreign affiliate for the period January 1, 1997 through December
16, 1997.
F-32
<PAGE> 105
AUBURN HOSIERY MILLS, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
NOTE 5: CONCENTRATIONS
The Company sells a substantial portion of its product to certain
customers. Customers with ten percent or more of the Company's sales during the
period January 1, 1997 through December 16, 1997 aggregated to approximately
$32,239,000.
The Company manufactures and sells a substantial portion of its product
under a single licensing agreement. This agreement was renewed January 1, 1998
and expires December 31, 2002 and is renewable for an additional 5 years at that
time.
NOTE 6: PROFIT SHARING PLAN
The Company has a defined contribution plan covering all employees of the
Company who have two years of service of at least 1,000 hours each year. The
Company's contribution is determined by its Board of Directors annually. The
contributions charged to operations for the period January 1, 1997 through
December 16, 1997 was $100,000.
NOTE 7: CONTINGENCIES
The Company is self-insured for their group medical plan. Any person who is
actively working for the employer on a full-time basis (at least 30 hours per
week) and has been with the Company at least 90 days is eligible to participate
in the plan. Dependent coverage is also offered to qualified dependents of an
eligible employee. The Company has contracted with an administrator to process
claims and has purchased stop-loss insurance to limit its losses on individual
and aggregate claims. The Company's loss limit per person is $40,000 and the
individual lifetime maximum stop loss coverage is $1,000,000; the Company's
annual aggregate loss limit is based on a monthly limit per the average number
of employees in the plan. The Company's minimum annual aggregate loss is equal
to the greater of the average number of employees in the plan times a $330
allowance times 90% or $1,842,588. Stop-loss insurance will pay any claims in
excess of these calculated annual limits.
The Company elected to become self-insured for their worker's compensation
insurance. The Company has contracted with an administrator to process claims
and provide stop-loss insurance to limit its losses on individual and aggregate
claims. The Company's loss limit per event has a range from $150,000 to
$300,000; the Company's aggregate loss limit is $1,000,000. Stop-loss insurance
will pay any claims in excess of these limits.
The Company has obtained a letter of credit from Nations Bank for $150,000
for the purpose of supporting the worker's compensation self-insurance.
NOTE 8: SUBSEQUENT EVENT
The stockholders of Auburn Hosiery Mills, Inc. and Subsidiary sold 100% of
their stock to GCIH, Inc., a Delaware corporation, effective as of the close of
business December 16, 1997.
NOTE 9: SEGMENT INFORMATION
The Company operates in a single hosiery line of business, encompassing the
manufacture, distribution and sale of sport socks under the Wilson, Converse and
Coca-Cola names to major retailers. The Company's principal operations and
markets are located in the United States.
Net sales, earnings before interest and income taxes, depreciation and
amortization, capital expenditures and identifiable assets of businesses outside
of the United States were not significant. Historically, transfers of product
between geographic areas have not been significant. During the period January 1,
1997 through December 16, 1997, sales to a single customer amounted to
approximately 66% of total net sales.
F-33
<PAGE> 106
SPORT SOCKS CO. (IRELAND) LIMITED
Report of Independent Accountants
To the Board of Directors of Sport Socks Co. (Ireland) Limited
We have audited the accompanying statements of profit and loss account and
of cash flows of Sport Socks Co. (Ireland) Limited ("the company") for the fifty
weeks ended 16 December 1997 (the "financial statements") all expressed in Irish
pounds as set out on pages F-35 to F-45 inclusive. These financial statements
are the responsibility of the company's directors and management. Our
responsibility is to express an opinion on these financial statements based on
our audit.
We conducted our audit in accordance with auditing standards generally
accepted in the United States. 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 financial statements audited by us present fairly, in
all material respects the results of its operations and its cash flows for the
fifty weeks ended 16 December 1997 in conformity with accounting principles
generally accepted in Ireland.
Accounting principles generally accepted in Ireland vary in certain
significant respects from accounting principles generally accepted in the United
States. The application of the latter would have affected the determination of
net loss expressed in Irish pounds for the fifty weeks ended 16 December 1997 to
the extent summarised in Note 16 to the financial statements.
PRICE WATERHOUSE
CORK, IRELAND
Date: 23 February 1998
F-34
<PAGE> 107
SPORT SOCKS CO. (IRELAND) LIMITED
PROFIT AND LOSS ACCOUNT
FIFTY WEEKS ENDED 16 DECEMBER 1997
<TABLE>
<CAPTION>
IRL
----------
<S> <C>
TURNOVER.................................................... 12,519,930
Cost of sales............................................... (8,514,277)
----------
GROSS PROFIT................................................ 4,005,653
Selling and distribution costs.............................. (2,434,199)
Administrative expenses..................................... (919,353)
Exceptional item -- loss on foreign exchange commitments
(note 10)................................................. (716,000)
----------
OPERATING LOSS.............................................. (63,899)
Interest receivable......................................... 9,913
Interest payable (note 3)................................... (56,835)
----------
LOSS ON ORDINARY ACTIVITIES BEFORE TAXATION (note 4)........ (110,821)
Taxation credit (note 5).................................... 25,275
----------
LOSS FOR THE FINANCIAL PERIOD............................... (85,546)
Transfer to other reserves (note 6)......................... (109,703)
Allotment of equity share capital (note 6).................. (100,000)
----------
Decrease in balance during the period....................... (295,249)
Balance at beginning of period.............................. 1,886,096
----------
BALANCE AT END OF PERIOD (note 7)........................... 1,590,847
==========
</TABLE>
Turnover and operating loss arose solely from continuing operations. There
were no recognised gains and losses other than those dealt with in the profit
and loss account.
The accompanying footnotes on pages F-37 to F-45 are an integral part of
these financial statements.
ON BEHALF OF THE BOARD
R L Solar
K K Angliss
F-35
<PAGE> 108
SPORT SOCKS CO. (IRELAND) LIMITED
CASH FLOW STATEMENT
FIFTY WEEKS ENDED 16 DECEMBER 1997
<TABLE>
<CAPTION>
IRL
----------
<S> <C>
NET CASH INFLOW FROM OPERATING ACTIVITIES (note 8).......... 1,731,068
----------
RETURNS ON INVESTMENTS AND SERVICING OF FINANCE
Interest paid............................................... (58,741)
Interest element of finance lease rentals................... (1,281)
Interest received........................................... 9,372
----------
Net cash outflow from returns on investments and servicing
of finance................................................ (50,650)
----------
TAXATION
Corporation tax paid........................................ (113,882)
----------
CAPITAL EXPENDITURE
Purchase of tangible assets................................. (1,341,164)
----------
EQUITY DIVIDENDS PAID....................................... --
----------
Net cash inflow before management of liquid resources and
financing................................................. 225,372
----------
MANAGEMENT OF LIQUID RESOURCES.............................. --
----------
FINANCING
Bank loan advances (note 8)................................. 298,645
Bank loans repaid (note 8).................................. (393,832)
Repayment of loan from director (note 8).................... (100,000)
Capital element of finance lease rentals (note 8)........... (36,409)
Capital grants received..................................... 132,715
----------
Net cash outflow from financing............................. (98,881)
----------
INCREASE IN CASH (note 8)................................... 126,491
==========
</TABLE>
The accompanying footnotes on pages F-37 to F-45 are an integral part of
these financial statements.
ON BEHALF OF THE BOARD
R L Solar
K K Angliss
F-36
<PAGE> 109
SPORT SOCKS CO. (IRELAND) LIMITED
NOTES TO THE FINANCIAL STATEMENTS
1 ACCOUNTING POLICIES
BASIS OF ACCOUNTING
The financial statements are prepared under the historical cost convention,
in Irish pounds, and in accordance with accounting standards generally accepted
in Ireland. The preparation of financial accounts in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported amount of assets and liabilities and
disclosures 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.
TURNOVER
Turnover represents the invoiced value of goods to third parties, exclusive
of value added tax.
TANGIBLE ASSETS
Tangible assets are stated at cost less accumulated depreciation.
Depreciation is calculated in order to write off the cost of tangible
assets other than land over their estimated useful lives by equal annual
instalments. The estimated useful lives of tangible assets by reference to which
depreciation has been calculated are as follows:
<TABLE>
<S> <C>
Leasehold buildings....................................... 25 years
Plant and machinery....................................... 7 years
Office equipment.......................................... 10 years
Motor vehicles............................................ 3 years
</TABLE>
LEASES
Where tangible assets are financed by leasing agreements which give rights
approximating to ownership ("finance leases") they are treated as if they had
been purchased outright at the present values of the minimum lease payments and
the corresponding leasing liabilities are shown in the balance sheet as finance
leases.
Depreciation is calculated in order to write off the amounts capitalised
over the estimated useful lives of the assets by equal annual instalments.
Interest arising on finance leases is charged to the profit and loss account in
proportion to the amounts outstanding under the leases.
All operating lease rentals are charged to the profit and loss account on a
straight line basis.
STOCKS
Stocks are stated at the lower of cost and net realisable value.
Cost is based on normal levels of cost and activity and comprises cost of
purchase and, where applicable, cost of conversion to current condition. Cost of
purchase includes charges such as freight or duty where appropriate. Cost of
conversion includes direct labour, direct expenses and fixed and variable
production overhead expenditure.
Net realisable value comprises the actual or estimated selling price (net
of trade but before settlement discounts), less all further costs to completion,
and less all costs to be incurred in marketing, selling and distribution.
F-37
<PAGE> 110
SPORT SOCKS CO. (IRELAND) LIMITED
NOTES TO THE FINANCIAL STATEMENTS -- (CONTINUED)
DEFERRED TAXATION
Deferred taxation is provided on timing differences to the extent that it
is expected to become payable in the foreseeable future and any amount not
provided is disclosed as a contingent liability.
Timing differences are temporary differences between profits as computed
for taxation purposes and profits as stated in the financial statements which
arise because certain items of income and expenditure in the financial
statements are dealt with in different periods for taxation purposes.
FOREIGN CURRENCIES
Monetary assets and liabilities denominated in foreign currencies are
translated at the exchange rates ruling at the balance sheet date and revenues,
costs and non-monetary assets at the exchange rates ruling at the dates of the
transactions. However, where a transaction is covered by way of forward
contract, the contracted exchange rate is used to translate the asset,
liability, revenue or cost.
Profits and losses arising from foreign currency translations and on
settlement of amounts receivable and payable in foreign currency are dealt with
through the profit and loss account.
Monetary assets are money held and amounts to be received in money; all
other assets are non-monetary assets.
Where the company enters into forward currency contracts to hedge foreign
exchange exposures on anticipated foreign currency trading receipts, unrealised
gains and losses on all contracts yet to mature are calculated and reflected in
the profit and loss account for the period.
GRANTS
Capital grants are treated as deferred income, which is credited to the
profit and loss account on the same basis as the related tangible assets are
depreciated.
Employment grants receivable on creation of new jobs are treated as
deferred income, which is credited to the profit and loss account over the
minimum period for which each job must be maintained. The period by reference to
which employment grants are amortised is five years being the minimum period for
which each job must be maintained.
PENSION COSTS
Contributions to the defined contribution pension scheme are charged to the
profit and loss account as incurred.
2 BACKGROUND OF THE COMPANY AND BASIS OF PREPARATION
Sport Socks Co. (Ireland) Limited was incorporated on 19 December 1989 and
is registered in the Republic of Ireland. The company manufactures and sells
branded sport socks in Europe under established brand names such as Wilson, Coca
Cola and Dunlop through volume retailers and major sporting goods chains. The
company was wholly owned and controlled in the period by Mr. J. P. Manning,
shareholder and director. With effect from 17 December 1997, the company is a
wholly owned subsidiary of Gerber Childrenswear Inc. incorporated in the state
of Delaware, USA.
These financial statements, prepared for the fifty weeks ended 16 December
1997, do not constitute "statutory accounts" within the meaning of the Companies
Acts 1963 to 1990 of Ireland for the period presented. Statutory accounts were
prepared for the year ended 31 December 1997.
F-38
<PAGE> 111
SPORT SOCKS CO. (IRELAND) LIMITED
NOTES TO THE FINANCIAL STATEMENTS -- (CONTINUED)
These financial statements exclude a balance sheet, related balance sheet
notes, comparatives for the prior year, a Directors' Report and certain other
information (such as names and addresses of the Company's auditors, bankers and
solicitors) which are required of "statutory accounts" by the Companies Acts
1963 to 1990. However, they include all material disclosures required by
generally accepted accounting principles in Ireland including those Companies
Acts disclosures relating to profit and loss and cash flow statements.
3 INTEREST PAYABLE
<TABLE>
<CAPTION>
IRL (Pounds)
------
<S> <C>
This interest was in respect of:
Borrowings wholly repayable within five years:
- bank overdrafts...................................... 1,788
- bank loans........................................... 40,117
- finance leases....................................... 1,281
- creditors............................................ 13,649
------
56,835
======
</TABLE>
4 LOSS ON ORDINARY ACTIVITIES BEFORE TAXATION
<TABLE>
<CAPTION>
IRL (Pounds)
---------
<S> <C>
Loss on ordinary activities before taxation has been arrived
at after charging:
Staff costs
- wages and salaries................................... 3,375,602
- social welfare costs................................. 313,801
- pension costs........................................ 75,217
---------
3,764,620
Depreciation................................................ 805,181
Royalties................................................... 679,351
Currency translation loss................................... 170,199
Loss on foreign exchange commitments........................ 716,000
Auditors' remuneration...................................... 19,795
Directors' emoluments....................................... --
=========
and after crediting:
Amortisation of capital grants.............................. 59,804
Amortisation of employments grants.......................... 172,998
Training grants............................................. 23,508
=========
</TABLE>
The estimated useful economic lives and recoverable values of tangible
assets are subject to regular review by management. Where management has
committed to a plan to dispose of or replace the assets, whether by sale or
abandonment, the assets are reduced to their estimated fair values and a charge
is reflected in the profit and loss account. As a result of the company's
ongoing capital expenditure investment programme in 1997, management abandoned
or were committed to a plan to dispose of certain assets resulting in a charge
to the profit and loss of IRL192,419 and which is included in the depreciation
charge.
F-39
<PAGE> 112
SPORT SOCKS CO. (IRELAND) LIMITED
NOTES TO THE FINANCIAL STATEMENTS -- (CONTINUED)
5 TAXATION CREDIT
<TABLE>
<CAPTION>
IR (Pounds)
-----------
<S> <C>
Based on profit for the period at 10%
Corporation tax............................................. --
Deferred tax................................................ 20,000
------
20,000
Overprovision in respect of prior years
Corporation tax............................................. 5,275
------
25,275
======
</TABLE>
There is no corporation tax charge for the period due to losses incurred.
6 CHANGES IN SHAREHOLDERS' EQUITY
The changes in shareholders' equity balances are comprised of the
following:
<TABLE>
<CAPTION>
CALLED UP
EQUITY SHARE PROFIT AND LOSS OTHER
CAPITAL ACCOUNT RESERVES
IR (Pounds) IR (Pounds) IR (Pounds)
------------ --------------- ----------
<S> <C> <C> <C>
Balance at 1 January 1997................................ 1,623,800 1,886,096 78,212
Transfers................................................ 100,000 (209,703) 109,703
Loss for the financial period............................ -- (85,546) --
--------- --------- -------
Balance at 16 December 1997.............................. 1,723,800 1,590,847 187,915
========= ========= =======
</TABLE>
Other reserves represent a non distributable reserve maintained in
compliance with the company's existing grant agreements.
During the period ended 16 December 1997 100,000 ordinary IRL1 shares were
allotted in consideration for the reduction by an equivalent amount of the
company's revenue reserves.
7 PROFIT AND LOSS ACCOUNT
Profit and loss account includes IRL810,037 which is not available for
distribution until the contingencies referred to in note 11 have expired.
F-40
<PAGE> 113
SPORT SOCKS CO. (IRELAND) LIMITED
NOTES TO THE FINANCIAL STATEMENTS -- (CONTINUED)
8 NOTES ON THE CASH FLOW STATEMENT
<TABLE>
<CAPTION>
IRL
(POUNDS)
----------
<S> <C>
NET CASH INFLOW FROM OPERATING ACTIVITIES:
Operating loss............................................ (63,899)
Depreciation.............................................. 805,181
Amortisation of capital grants............................ (59,804)
Amortisation of employment grants......................... (172,998)
Currency translation loss on director's loan.............. 83,697
Currency translation loss on bank loans................... 9,713
Exceptional item -- loss on foreign exchange
commitments............................................ 716,000
Increase in stocks........................................ (205,477)
Decrease in debtors....................................... 31,004
Increase in creditors..................................... 587,651
----------
1,731,068
==========
IRL
(POUNDS)
----------
RECONCILIATION OF NET CASHFLOW TO MOVEMENT IN NET DEBT:
Increase in cash in the year.............................. 126,491
Cash outflow from decrease in debt and finance leases..... 131,596
Cash outflow from decrease in loan from director.......... 100,000
----------
Reduction in net debt resulting from cash flows........... 358,087
Effects of changes in foreign exchange rates.............. (93,410)
----------
Movement in net debt in the period........................ 264,677
Net debt at 1 January 1997................................ (1,021,195)
----------
Net debt at 16 December 1997.............................. (756,518)
==========
</TABLE>
F-41
<PAGE> 114
SPORT SOCKS CO. (IRELAND) LIMITED
NOTES TO THE FINANCIAL STATEMENTS -- (CONTINUED)
<TABLE>
<CAPTION>
EFFECTS OF
AT FOREIGN AT
1 JANUARY EXCHANGE RATE OTHER 16 DECEMBER
1997 CASH FLOWS CHANGES CHANGES 1997
IRL IRL IRL IRL IRL
ANALYSIS OF CHANGES IN NET DEBT (POUND) (POUNDS) (POUNDS) (POUNDS) (POUNDS)
- ------------------------------- ---------- ---------- ------------- -------- -----------
<S> <C> <C> <C> <C> <C>
Cash at bank and in hand............... 455,059 (18,454) -- -- 436,605
Bank overdrafts........................ (144,945) 144,945 -- -- --
---------- -------- ------- -------- --------
Cash................................... 310,114 126,491 -- -- 436,605
---------- -------- ------- -------- --------
Bank loans
Due within one year.................... (217,593) (298,645) (9,713) 214,951 (311,000)
Due after one year..................... (413,424) 393,832 -- (214,951) (234,543)
---------- -------- ------- -------- --------
(631,017) 95,187 (9,713) -- (545,543)
---------- -------- ------- -------- --------
Finance leases
Due within one year.................... (28,239) 27,697 -- (19,266) (19,808)
Due after one year..................... (34,126) 8,712 -- 19,266 (6,148)
---------- -------- ------- -------- --------
(62,365) 36,409 -- -- (25,956)
---------- -------- ------- -------- --------
Loan from director..................... (637,927) 100,000 (83,697) -- (621,624)
---------- -------- ------- -------- --------
Net debt............................... (1,021,195) 358,087 (93,410) -- (756,518)
========== ======== ======= ======== ========
</TABLE>
Tangible assets purchases of IRL300,000 were made on extended credit terms.
This liability is repayable on an instalment basis over five years commencing
subsequent to 16 December 1997.
9 RELATED PARTY TRANSACTIONS
Details of the company's transactions with related parties are as follows:
(i) Cost of sales include purchases of stocks of IRL126,070 from
Auburn Hosiery Mills Inc, a company owned and controlled by Mr. J.P.
Manning during the period.
(ii) Selling and distribution costs include sales commission payable
of IRL286,573 to Sport Socks Co. (UK) Limited, a company owned and
controlled by Mr. J.P. Manning during the period.
(iii) Selling and distribution costs include Wilson licence royalties
of IRL372,683 and IRL80,016 respectively payable to Sales and Marketing
Hosiery Corporation and Auburn Hosiery Mills Inc., companies controlled and
owned by Mr. J.P. Manning, company shareholder and director during the
period.
(iv) Selling and distribution costs include sales and marketing costs
amounting to IRL214,376 representing the salary and related expenses of
sales and marketing personnel, recharged to the company by JP Manning Inc.,
a company controlled by Mr. J.P. Manning.
(iv) Included in administrative expenses are amounts of IRL5,597,
IRL8,500 and IRL7,350 respectively, paid to White and Case, and Anthony
Carroll & Co. and T. Collins relating to legal and engineering consultancy
services provided by firms in which J. Reiner, B. Carroll and T. Collins,
company directors, have respective interests.
10 FOREIGN EXCHANGE COMMITMENTS
The company's revenues are primarily received in currency other than Irish
pounds and accordingly the company is subject to currency exposure. The company
seeks to limit this risk by entering into forward
F-42
<PAGE> 115
SPORT SOCKS CO. (IRELAND) LIMITED
NOTES TO THE FINANCIAL STATEMENTS -- (CONTINUED)
currency contracts at varying maturity dates. Unrealised gains or losses on all
of those contracts yet to mature are calculated at the balance sheet date and
reflected in the profit and loss account for the period.
At the balance sheet date, the company has contracted to sell forward
foreign currencies equivalent to IRL8,032,000 at various rates and maturity
dates. Unrealised losses of IRL716,000 in respect of all of those contracts
relating to future transactions, excluding those contracts in respect of sales
which have arisen or were committed prior to the balance sheet date, are
reflected in the profit and loss account. This represents a change in accounting
policy for the company and is considered by the directors to be more appropriate
to the company's circumstances and give a fairer presentation of the results and
financial position of the business. The comparatives have not been restated as
in the opinion of the directors the financial effects of the change in
accounting policy are not material to the company's comparative results and
financial position.
If the forward currency contracts were considered separately from
underlying future revenues the company would be subject to market risk from
fluctuations in currency exchange rates. The company only enters these forward
contracts to hedge the related currency risks. Therefore there is a market risk
only to the extent that the actual foreign currency cashflows differ from
anticipated amounts and the only credit risk arises from potential non
performance by counter parties which is restricted to the hedging differential
and not the principal amount hedged. The company does not anticipate non
performance as the counterparties are all licensed banks.
11 CONTINGENT LIABILITIES
CAPITAL GRANTS
If certain circumstances occur, these grants could be repayable up to a
maximum of IRL950,808. Such circumstances would arise if the company ceased to
use the assets to which the grants relate.
EMPLOYMENT GRANTS
If certain circumstances occur, these grants could be repayable up to a
maximum of IRL864,991. Such circumstances would arise at any time within five
years from the date of receipt of the first moiety of the employment grant in
respect of any job if the job should become vacant and remain vacant for a
period in excess of six calendar months.
12 EMPLOYEES
The average number of persons employed by the company during the period was
270, 266 of whom are based in the Republic of Ireland, and 4 in Belgium.
13 PENSIONS
The company operates a defined contribution pension scheme. The assets of
the scheme are held separately from those of the company in an independently
administered fund. The pension cost charge represents contributions payable by
the company to the fund and amounted to IRL75,217.
F-43
<PAGE> 116
SPORT SOCKS CO. (IRELAND) LIMITED
NOTES TO THE FINANCIAL STATEMENTS -- (CONTINUED)
14 DIRECTORS' RESPONSIBILITIES
The directors are required to prepare financial statements for each
financial year which give a true and fair view of the state of affairs of the
company and of the profit or loss of the company for that period. In preparing
those financial statements, the directors are required to:
- Select suitable accounting policies and then apply them consistently
- Make judgements and estimates that are reasonable and prudent
- Prepare the financial statements on the going concern basis unless it is
inappropriate to presume that the company will continue in business
The directors are responsible for keeping proper books of account which
disclose with reasonable accuracy at any time the financial position of the
company. They are also responsible for safeguarding the assets of the company
and hence for taking reasonable steps for the prevention and detection of fraud
and other irregularities.
15 APPROVAL OF THE FINANCIAL STATEMENTS
The directors approved the financial statements on 23 February 1998.
16 DIFFERENCES BETWEEN IRISH AND US ACCOUNTING PRINCIPLES
The financial statements of the company are prepared in accordance with
Irish GAAP, which differ in certain significant respects from US GAAP. The
following is a reconciliation to US GAAP pursuant to Item 17 of Form 20-F.
<TABLE>
<CAPTION>
IR(POUNDS)
----------
<S> <C>
Net loss for the period (Irish GAAP)........................ (85,546)
Amortisation of interest capitalised(1)..................... (1,750)
Restructuring costs(2)...................................... 36,000
Loss on foreign exchange contracts(3)....................... 30,000
Income taxes(4)............................................. (7,000)
-------
NET LOSS FOR THE PERIOD (US GAAP)........................... (28,296)
=======
</TABLE>
- ---------------
(1) CAPITALISATION OF INTEREST EXPENSES AND RELATED AMORTISATION. Under Irish
GAAP, interest incurred during the period for which assets are under
construction is not required to be capitalised. Under US GAAP, such interest
incurred during the period is eligible for capitalisation. The amount
capitalised is to be an allocation of the interest cost incurred during the
period required to complete the asset. The Company had no assets under
construction during the period. The adjustment reflected above relates to
amortisation of past interest capitalised in accordance with US GAAP.
(2) RESTRUCTURING COSTS. Under Irish GAAP, the company has accrued over the
past three years, a provision to cover the potential costs associated with
possible employee redundancies at its manufacturing facility. The related
amount charged to profit and loss in the period ended 16 December 1997
totalled IRL36,000. These provisions, which do not conform with the more
prescriptive requirements of US GAAP, have been reversed.
(3) LOSS ON FORWARD EXCHANGE CONTRACTS. Under Irish GAAP, the Company adopted
during the period an accounting policy to mark to market forward foreign
exchange contracts which hedge anticipated transactions (eg. Future sales).
Under US GAAP, such a policy is required for both 1996 and for the
F-44
<PAGE> 117
SPORT SOCKS CO. (IRELAND) LIMITED
NOTES TO THE FINANCIAL STATEMENTS -- (CONTINUED)
period, and results in an adjustment of IRL30,000 related to a reduction in
mark to market losses during the period which would have been reflected in
the prior year.
Additionally, the Company classified this loss on foreign exchange
commitments as an exceptional item in the Irish GAAP financial statements.
Under US GAAP, such an item is not considered to be an extraordinary item as
such as classification is limited to those items that are both unusual in
nature and infrequent in occurrence.
(4) INCOME TAXES. Under Irish GAAP, deferred taxes are provided for temporary
differences and tax loss carryforwards using the liability method, when it
is probable that an asset or liability will crystallise. Under US GAAP,
deferred taxes are provided for temporary differences and for tax loss
carryforwards. A valuation allowance is established when it is more likely
than not that the deferred tax asset will not be realised. Additionally, for
US GAAP purposes, deferred taxes are provided in respect of US GAAP
adjustments to the book basis of assets and liabilities.
F-45
<PAGE> 118
SPORT SOCKS CO. (IRELAND) LIMITED
NOTES TO THE FINANCIAL STATEMENTS -- (CONTINUED)
STATEMENT OF CASHFLOWS
The company's cashflow statement prepared in accordance with Irish GAAP is
different from that which is required under SFAS 95. A statement of cash flows
provided under SFAS 95 is as follows:
<TABLE>
<CAPTION>
IR(POUNDS)
----------
<S> <C>
NET LOSS FOR THE PERIOD (US GAAP)........................... (28,296)
ADJUSTMENTS TO RECONCILE NET LOSS TO CASH PROVIDED FROM
OPERATING ACTIVITIES
Depreciation................................................ 806,931
Amortisation of capital grants.............................. (59,804)
Amortisation of employment grants........................... (172,998)
Currency translation loss on directors' loan................ 83,697
Currency translation loss on bank loans..................... 9,713
Exceptional item -- loss on foreign exchange commitments.... 686,000
Increase in stocks.......................................... (205,477)
Decrease in debtors......................................... 31,004
Increase in creditors and other liabilities................. 415,766
----------
Net cash provided by operating activities................... 1,566,536
----------
CASH UTILISED IN INVESTING ACTIVITIES
Payments for tangible assets................................ (1,341,164)
----------
CASHFLOWS FROM FINANCING ACTIVITIES
Proceeds from bank loan advances............................ 298,645
Payments to settle bank debt................................ (538,777)
Repayments of loan from director............................ (100,000)
Capital element of finance lease rentals.................... (36,409)
Capital grants received..................................... 132,715
----------
Net cash outflow from financing activities.................. (243,826)
----------
Net decrease in cash and cash equivalents for the year...... (18,454)
CASH AND CASH EQUIVALENTS AT BEGINNING OF PERIOD............ 455,059
----------
CASH AND CASH EQUIVALENTS AT END OF PERIOD.................. 436,605
==========
Supplemental disclosures of cash flow information:
Cash paid during the period for:
Interest......... IRL60,022
Income tax....... IRL113,882
</TABLE>
F-46
<PAGE> 119
======================================================
NO DEALER, SALESPERSON OR OTHER INDIVIDUAL HAS BEEN AUTHORIZED TO GIVE ANY
INFORMATION OR TO MAKE ANY REPRESENTATIONS NOT CONTAINED IN THIS PROSPECTUS IN
CONNECTION WITH THE OFFERING COVERED BY THIS PROSPECTUS. IF GIVEN OR MADE, SUCH
INFORMATION OR REPRESENTATIONS MUST NOT BE RELIED UPON AS HAVING BEEN AUTHORIZED
BY THE COMPANY OR THE UNDERWRITERS. THIS PROSPECTUS DOES NOT CONSTITUTE AN OFFER
TO SELL OR THE SOLICITATION OF AN OFFER TO BUY THE COMMON STOCK IN ANY
JURISDICTION WHERE, OR TO ANY PERSON TO WHOM, IT IS UNLAWFUL TO MAKE SUCH OFFER
OR SOLICITATION. NEITHER THE DELIVERY OF THIS PROSPECTUS NOR ANY SALE MADE
HEREUNDER SHALL, UNDER ANY CIRCUMSTANCES, CREATE ANY IMPLICATION THAT THERE HAS
NOT BEEN ANY CHANGE IN THE FACTS SET FORTH IN THIS PROSPECTUS OR IN THE AFFAIRS
OF THE COMPANY SINCE THE DATE HEREOF.
------------------------
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
Prospectus Summary.................... 3
Risk Factors.......................... 11
Use of Proceeds....................... 18
Dividend Policy....................... 18
Capitalization........................ 19
Dilution.............................. 20
Selected Consolidated Financial
Data................................ 21
Unaudited Pro Forma Condensed
Consolidated Statement of
Operations.......................... 23
Management's Discussion and Analysis
of Financial Condition and Results
of Operations....................... 26
Business.............................. 33
Management............................ 49
Certain Relationships and Related
Transactions........................ 56
Principal Stockholders................ 59
Description of Certain Indebtedness... 60
Description of Capital Stock.......... 62
Certain United States Federal Income
Tax Consequences to Non-United
States Holders of Common Stock...... 64
Shares Eligible for Future Sale....... 65
Underwriting.......................... 68
Legal Matters......................... 70
Experts............................... 70
Additional Information................ 70
Index to Consolidated Financial
Statements.......................... F-1
UNTIL , 1998 (25 DAYS AFTER
THE DATE OF THIS PROSPECTUS), ALL DEALERS
EFFECTING TRANSACTIONS IN COMMON STOCK,
WHETHER OR NOT PARTICIPATING IN THIS
DISTRIBUTION, MAY BE REQUIRED TO DELIVER A
PROSPECTUS. THIS DELIVERY REQUIREMENT IS IN
ADDITION TO THE OBLIGATION OF DEALERS TO
DELIVER A PROSPECTUS WHEN ACTING AS
UNDERWRITERS AND WITH RESPECT TO THEIR
UNSOLD ALLOTMENTS OR SUBSCRIPTIONS.
============================================
</TABLE>
======================================================
SHARES
[LOGO]
GERBER CHILDRENSWEAR, INC.
COMMON STOCK
--------------------
PROSPECTUS
--------------------
MERRILL LYNCH & CO.
BEAR, STEARNS & CO. INC.
LEHMAN BROTHERS
FURMAN SELZ
WASSERSTEIN PERELLA
SECURITIES, INC.
, 1998
======================================================
<PAGE> 120
PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
ITEM 13. OTHER EXPENSES OF ISSUANCE AND DISTRIBUTION.
The following is a statement of estimated expenses of the issuance and
distribution of the securities being registered other than underwriting
compensation:
<TABLE>
<S> <C>
SEC registration fee........................................ $ 16,962.50
NASD filing fee............................................. 6,250.00
New York Stock Exchange original listing fee................ *
Blue sky fees and expenses (including attorneys' fees and
expenses)................................................. *
Printing and engraving expenses............................. *
Transfer agent's fees and expenses.......................... *
Accounting fees and expenses................................ *
Legal fees and expenses..................................... *
Miscellaneous expenses...................................... *
-----------
Total.................................................. $ *
===========
</TABLE>
- ------------------------
* To be provided by amendment.
All amounts are estimated except for the SEC registration fee and the NASD
filing fee.
ITEM 14. 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 ("Section
145") provides that a Delaware corporation may indemnify any person who is, or
is threatened to be made, a party 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 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 person who is, or is 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 except that no indemnification is
permitted without judicial approval if the officer or director is adjudged to be
liable to the corporation. Where an officer or director 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
Section 145.
In that regard, the Certificate of Incorporation provides that the Company
shall indemnify any person who was or is a party or is threatened to be made a
party to any threatened, pending or completed action, suit or proceeding,
whether civil, criminal, administrative or investigative (other than an action
by or in the right of the corporation) by reason of the fact that he is or was a
director or officer of such corporation, or is or was
II-1
<PAGE> 121
serving at the request of such corporation as a director, officer or member of
another corporation, partnership, joint venture, trust or other enterprise,
against expenses (including attorneys' fees), judgments, fines and amounts paid
in settlement actually and reasonably incurred by him in connection with such
action, suit or proceeding if he acted in good faith and in a manner he
reasonably believed to be in or not opposed to the best interests of such
corporation, and, with respect to any criminal action or proceeding, had no
reasonable cause to believe his conduct was unlawful. Indemnification in
connection with an action or suit by or in the right of such corporation to
procure a judgment in its favor is limited to payment of settlement of such an
action or suit except that no such indemnification may be made in respect of any
claim, issue or matter as to which such person shall have been adjudged to be
liable for negligence or misconduct in the performance of his duty to the
indemnifying corporation unless and only to the extent that the Court of
Chancery of Delaware or the court in which such action or suit was brought shall
determine that, despite the adjudication of liability but in consideration of
all the circumstances of the case, such person is fairly and reasonably entitled
to indemnity for such expenses which the court shall deem proper.
ITEM 15. RECENT SALES OF UNREGISTERED SECURITIES.
Over the past three years, the Company sold shares of its capital stock as
follows in reliance upon the exemption from registration provided by Section
4(2) of the Securities Act of 1933, as amended, or Rule 701 pursuant to Section
3(b) of the Securities Act.
SERIES A PREFERRED STOCK, PAR VALUE $0.01 PER SHARE.
Shares of Series A Preferred Stock of GCIH were sold to the following
persons on the following dates. Such shares were converted immediately prior to
the Offering into either (a) shares of Common Stock or (b) the right to receive
cash, in each case pursuant to the Merger described herein. See "Certain
Relationships and Related Transactions--The Reorganization."
<TABLE>
<CAPTION>
NUMBER AGGREGATE
DATE NAME OF SHARES PURCHASE PRICE
---- ---- --------- --------------
<S> <C> <C> <C>
January 22, 1996 Citicorp Venture Capital, Ltd. 86,974.5 $8,697,446.50
January 22, 1996 CCT III, L.P. 15,348.4 $1,534,843.50
January 22, 1996 Richard M. Cashin 3,327.5 $ 332,746.50
January 22, 1996 Natasha Partnership 2,774.4 $ 277,439.30
January 22, 1996 David Thomas 2,774.4 $ 277,439.30
January 22, 1996 Thomas McWilliams 950.7 $ 95,070.50
January 22, 1996 John Weber 475.4 $ 47,535.30
January 22, 1996 Byron L. Knief 237.7 $ 23,767.60
January 22, 1996 Michael A. Delaney 237.7 $ 23,767.60
January 22, 1996 David Y. Howe 237.7 $ 23,767.60
January 22, 1996 M. Saleem Muqaddam 190.1 $ 19,014.20
January 22, 1996 Charles E. Corpening 95.1 $ 9,507.00
January 22, 1996 Richard Solar 1,188.4 $ 118,838.10
January 22, 1996 Edward Kittredge 1,188.4 $ 118,838.10
January 22, 1996 David Jones 950.7(1) $ 95,070.40
January 22, 1996 David Uren 451.6 $ 45,158.50
</TABLE>
- ---------------
(1) Repurchased by the Company on February 11, 1997.
II-2
<PAGE> 122
CLASS A COMMON STOCK, PAR VALUE $0.01 PER SHARE.
Shares of Class A Common Stock of GCIH were sold to the following persons
on the following dates. Such shares were converted into Common Stock immediately
prior to the Offering pursuant to the Merger described herein. See "Certain
Relationships and Related Transactions--Reorganization."
<TABLE>
<CAPTION>
AGGREGATE
NUMBER PURCHASE
DATE NAME OF SHARES PRICE
---- ---- --------- -----------
<S> <C> <C> <C>
January 22, 1996 Citicorp Venture Capital, Ltd. 523,476.0(2) $523,476.00
January 22, 1996 CCT III, L.P. 79,584.0 $ 79,584.00
January 22, 1996 Richard M. Cashin 17,253.5 $ 14,253.50
January 22, 1996 63 BR Partnership 14,385.7 $ 14,385.70
January 22, 1996 David Thomas 14,385.7 $ 14,385.70
January 22, 1996 Alchemy, L.P. 4,929.5 $ 4,929.50
January 22, 1996 John Weber 2,464.7 $ 2,464.70
January 22, 1996 Byron L. Knief 1,232.4 $ 1,232.40
January 22, 1996 Michael A. Delaney 1,232.4 $ 1,232.40
January 22, 1996 David Y. Howe 1,232.4 $ 1,232.40
January 22, 1996 M. Saleem Muqaddam 985.8 $ 985.80
January 22, 1996 Charles E. Corpening 493.0 $ 493.00
</TABLE>
- ---------------
(2) The Company repurchased (a) 23,500 of such shares on February 11, 1997 for
$1.00 per share, or an aggregate consideration of $23,500 and (b)50,826.8
of such shares on September 30, 1997 at a price of $1.00 for an aggregate
consideration of $50,826.80. Such repurchased shares were canceled but
reissued in the form of Class B Common Stock of GCIH.
CLASS B COMMON STOCK, PAR VALUE $0.01 PER SHARE.
Shares of Class B Common of GCIH were sold to the following persons on the
following dates. Such shares were converted into shares of Common Stock
immediately prior to the Offering, pursuant to the Merger described herein. See
"Certain Relationships and Related Transactions--Reorganization."
<TABLE>
<CAPTION>
NUMBER AGGREGATE
DATE NAME OF SHARES PURCHASE PRICE
---- ---- --------- --------------
<S> <C> <C> <C>
January 22, 1996 Richard Solar 23,661.9 $ 23,661.90
January 22, 1996 Edward Kittredge 76,161.9 $ 76,161.90
January 22, 1996 David Jones 29,929.6(3) $ 29,929.60
January 22, 1996 David Uren 14,841.5 $ 14,841.50
February 11, 1997 Joseph Medalie 2,500 $ 2,500.00
February 28, 1997 Gerardo M. Arce 250 $ 250.00
February 28, 1997 Larry L. Bateman 500 $ 500.00
February 28, 1997 Charles W. Berry 500 $ 500.00
February 28, 1997 Ronald C. Boone 500 $ 500.00
February 28, 1997 Harvey Burak 1,000 $ 1,000.00
February 28, 1997 Ray Jefferson Caplenor 1,500(4) $ 1,500.00
February 28, 1997 LeeAnn Carroll 500 $ 500.00
February 28, 1997 Jay R. Cope 250 $ 250.00
February 28, 1997 Robert L. Gall 1,000 $ 1,000.00
February 28, 1997 George J. Boltz 250 $ 250.00
February 28, 1997 Bobbie C. Greene 250 $ 250.00
February 28, 1997 David R. Hamilton 250 $ 250.00
</TABLE>
II-3
<PAGE> 123
<TABLE>
<CAPTION>
NUMBER AGGREGATE
DATE NAME OF SHARES PURCHASE PRICE
---- ---- --------- --------------
<S> <C> <C> <C>
February 28, 1997 Kenneth R. Heatter 250 $ 250.00
February 28, 1997 Earle R. Keaton, Jr. 500 $ 500.00
February 28, 1997 Douglas E. Klein 250 $ 250.00
February 28, 1997 Christine R. Lanigan 1,000 $ 1,000.00
February 28, 1997 Angela C. Lombardi 1,000 $ 1,000.00
February 28, 1997 Raymond R. McManus 750 $ 750.00
February 28, 1997 Jacqueline D. McNulty 750 $ 750.00
February 28, 1997 Jeffrey Mintz 500 $ 500.00
February 28, 1997 Deanna L. Parris 250 $ 250.00
February 28, 1997 John Larry Pelt 250 $ 250.00
February 28, 1997 David C. Pittman 250 $ 250.00
February 28, 1997 James B. Robertson 250 $ 250.00
February 28, 1997 Marvin E. Roberts 250 $ 250.00
February 28, 1997 Jeanne E. Scannell 1,000 $ 1,000.00
February 28, 1997 Eugene L. Scarpa 500 $ 500.00
February 28, 1997 Lee M. Schaeffer 1,500 $ 1,500.00
February 28, 1997 Dwight Smith 500 $ 500.00
February 28, 1997 Dale F. Tarlow 1,000 $ 1,000.00
February 28, 1997 John M. Temple 1,000(5) $ 1,000.00
February 28, 1997 Philip V. Todaro 1,000 $ 1,000.00
February 28, 1997 Holly H. Waddell 250 $ 250.00
February 28, 1997 Deidre A. Wahlberg 500 $ 500.00
February 28, 1997 Ralph L. Wheeler 250 $ 250.00
February 28, 1997 Philip R. Whitaker 500 $ 500.00
July 25, 1997 Raymond McManus 250 $ 250.00
July 25, 1997 Robert L. Gall 250 $ 250.00
July 25, 1997 David G. Phillips 250 $ 250.00
September 30, 1997 Susan M. Vander Molen 250 $ 250.00
September 30, 1997 Richard Solar 7,500 $ 7,500.00
November 24, 1997 Edward Kittredge 20,000 $ 20,000.00
November 26, 1997 Robert P. Robertson 1,000 $ 1,000.00
November 26, 1997 David Hamilton 250 $ 250.00
</TABLE>
- ---------------
(3) Such shares were repurchased by the Company on February 11, 1997.
(4) Such shares were repurchased by the Company on January 15, 1998.
(5) Such shares were repurchased by the Company on September 20, 1997.
CLASS C COMMON STOCK, PAR VALUE $0.01 PER SHARE.
Shares of Class C Common of GCIH were sold to the following person on the
following date. Such shares were converted into shares of Common Stock
immediately prior to the Offering, pursuant to the Merger described herein. See
"Certain Relationships and Related Transactions -- Reorganization."
<TABLE>
<CAPTION>
NUMBER AGGREGATE
DATE NAME OF SHARES PURCHASE PRICE
---- ---- --------- --------------
<S> <C> <C> <C>
January 22, 1996 Lawrence R. Glenn 2,500 $ 2,500.00
</TABLE>
II-4
<PAGE> 124
CLASS D COMMON STOCK, PAR VALUE $0.01 PER SHARE.
No shares of such class have been issued. Warrants to purchase 191,250
shares of Class D Common Stock were issued to CMP on January 22, 1996 in
connection with the issuance of senior subordinated indebtedness of the Company
to CMP, for an aggregate consideration of $189,337.50. Such warrants were
converted into warrants to purchase Class B Common Stock of the Company,
immediately prior to the Offering, pursuant to the Merger described herein. See
"Certain Relationships and Related Transactions--Reorganization."
ITEM 16. EXHIBITS AND FINANCIAL STATEMENT SCHEDULES.
(a) Exhibits:
<TABLE>
<CAPTION>
NUMBER DESCRIPTION
- ------- -----------
<S> <C>
1.1* Form of Purchase Agreement.
3.1* Form of Amended and Restated Certificate of Incorporation of
the registrant.
3.2* Form of Amended and Restated Bylaws of the registrant.
4.1* Form of certificate representing shares of Common Stock,
$0.01 par value per share.
4.2 Credit Agreement by and among GCIH, Auburn, GCI, the
domestic subsidiaries of same and various lending
institutions dated as of December 17, 1997.
5.1* Opinion and consent of Kirkland & Ellis.
10.1 Stock Purchase Agreement by and between GPC and GCIH dated
as of December 14, 1995.
10.2 Form of Executive Stock Purchase Agreement between GCIH and
certain of its Executives, each dated January 22, 1996.
10.3 Form of Manager Securities Purchase Agreement between GCIH
and certain of its Managers.
10.4 Securities Purchase Agreement by and between GCIH and CVC,
dated as of January 22, 1996.
10.5 Form of Director Stock Purchase Agreement between GCIH and
certain of its directors.
10.6* Amended and Restated Registration Rights Agreement by and
between GCIH, Citicorp Venture Capital, Ltd., and other
stockholders of GCIH, dated as of , 1998.
10.7 Stock Purchase Agreement by and among GCIH, James P.
Manning, Eileen Manning and Certain Charitable Remainder
Trusts dated as of November 12, 1997.
10.8 Share Purchase Agreement by and among GCIH, James P. Manning
and Eileen Manning dated as of December 16, 1997.
10.9 Amended and Restated Senior Subordinated Credit Agreement
dated as of December 17, 1997 by and among GCIH, GCI, CMP
and others.
10.10 Subordination and Intercreditor Agreement by and among
Nationsbank, CMP, GCI and others dated as of December 17,
1997.
10.11 12% Junior Subordinated Note in the face amount of
$11,000,000, issued by GCIH to GPC as of December 29, 1997.
10.12 License Agreement by and between Warner Bros. Division of
Time Warner Entertainment Company, L.P. and GCI dated as of
January 19, 1996.
10.13** License Agreement by and between GPC and GCI dated as of
January 22, 1996.
10.14 License Agreement among The Kendall Company, GPC, and Soft
Care Apparel, Inc. (n/k/a GCI), dated as of July 31, 1986,
as amended pursuant to that certain Letter Agreement dated
January 19, 1996 by and among The Kendall Company, GPC, GCI
and GCIH.
10.15 Trademark License Agreement between Auburn and Wilson
Sporting Goods Co. dated April 29, 1997; as sublicensed to
Sport Socks Ireland as of October 1, 1997, effective as of
January 1, 1998; as amended as of December 5, 1997.
10.16 Lease Agreement by and between GCI and Operadora Zona Franca
De La Romana, S.A. for property located at Zona Franca
Industrial La Romana (Sewing, Packaging).
</TABLE>
II-5
<PAGE> 125
<TABLE>
<CAPTION>
NUMBER DESCRIPTION
- ------- -----------
<S> <C>
10.17 Lease Agreement by and between GCI and Operadora Zona Franca
De La Romana, S.A. for property located at Altos
Buvillaverde.
10.18 Lease Agreement by and between GCI and Operadora Zona Franca
De La Romana, S.A. for property located at Altos
Buvillaverde.
10.19 Lease Amendment by and between GCI and the Industrial
Development Board of the City of Evergreen, Alabama, dated
as of August 28, 1997, and assignment and assumption
agreement and resolution of the Industrial Development Board
dated as of the same date.
10.20 Lease Agreement between GCI and Highland Properties, LLC
dated as of November 25, 1996, and amendments thereto, for
the lease of the Greenville facility.
10.21 Severance Agreement by and between GPC, GCI and David E.
Uren, dated as of March 18, 1995.
21.1 Subsidiaries of the registrant.
23.1 Consent of Ernst & Young LLP
23.2 Consent of J.C. Holland & Co., PSC
23.3 Consent of Price Waterhouse
23.4* Consent of Kirkland & Ellis (included in Exhibit 5.1).
24.1 Powers of Attorney (included in signature page).
27.1 Financial Data Schedule.
</TABLE>
- ---------------
* To be filed by amendment.
** The Company has requested confidential treatment with respect to certain
provisions of this Exhibit from the Commission.
(b) Financial Statement Schedules:
The following financial statement schedule for GCIH, Inc. is included in
this Registration Statement:
Schedule II -- Supplemental Schedule of Valuation and Qualifying Accounts
The following financial statement schedule for Gerber Childrenswear, Inc.
is included in this Registration Statement:
Schedule II -- Supplemental Schedule of Valuation and Qualifying Accounts
All other schedules for which provision is made in the applicable
accounting regulations of the Commission are not required under the related
instructions, are inapplicable or not material, or the information called for
thereby is otherwise included in the financial statements and therefore have
been omitted.
ITEM 17. UNDERTAKINGS.
The undersigned registrant hereby undertakes:
(1) To file, during any period in which offers or sales are being made
of the securities registered hereby, a posteffective 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
II-6
<PAGE> 126
in the aggregate, represent a fundamental change in the information set
forth in this registration statement;
(iii) To include any material information with respect to the plan
of distribution not previously disclosed in this registration statement
or any material change to such information in this registration
statement;
provided, however, that the undertakings set forth in paragraph (i) and
(ii) above do not apply if the information required to be included in a
post-effective amendment by those paragraphs is contained in periodic
reports filed by the registrant pursuant to Section 13 or Section 15(d) of
the Securities Exchange Act of 1934 that are incorporated by reference in
this registration statement.
(2) That, for the purpose of determining any liability under the
Securities Act of 1933, each such post-effective amendment shall be deemed
to be a new registration statement relating to the securities offered
therein, and the Offering of such securities at that time shall be deemed
to be the initial bona fide Offering thereof.
(3) To remove from registration by means of a post-effective amendment
any of the securities being registered which remain unsold at the
termination of the Offering.
In addition, the undersigned registrant hereby undertakes that, for
purposes of determining any liability under the Securities Act of 1933, each
filing of the registrant's annual report pursuant to section 13(a) or section
15(d) of the Securities Exchange Act of 1934 (and, where applicable, each filing
of an employee benefit plan's annual report pursuant to section 15(d) of the
Securities Exchange Act of 1934) that is incorporated by reference in the
registration statement 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.
The undersigned registrant hereby undertakes to provide to the underwriter
at the closing specified in the underwriting agreement certificates in such
denominations and registered in such names as required by the underwriter to
permit prompt delivery to each purchaser.
Insofar as indemnification for liabilities arising under the Securities Act
of 1933 may be permitted to directors, officers and controlling persons of the
registrant pursuant to the foregoing provisions, or otherwise, the registrant
has been advised that in the opinion of the Commission such indemnification is
against public policy as expressed in the Act and is, therefore, unenforceable.
In the event that a claim for indemnification against such liabilities (other
than the payment by the registrant of expenses incurred or paid by a director,
officer or controlling person of the registrant in the successful defense of any
action, suit or proceeding) is asserted by such director, officer or controlling
person in connection with the securities being registered, the registrant will,
unless in the opinion of its counsel the matter has been settled by controlling
precedent, submit to a court of appropriate jurisdiction the question whether
such indemnification by it is against public policy as expressed in the Act and
will be governed by the final adjudication of such issue.
The undersigned registrant hereby undertakes that:
(1) For purposes of determining any liability under the Securities Act
of 1933, the information omitted from the form of prospectus filed as part
of this registration statement in reliance upon Rule 430A and contained in
a form of prospectus filed by the registrant pursuant to Rule 424(b)(1) or
(4) or 497(h) under the Securities Act shall be deemed to be part of this
registration statement as of the time it was declared effective.
(2) For the purpose of determining any liability under the Securities
Act of 1933, each post-effective amendment that contains a form of
prospectus shall be deemed to be a new registration statement relating to
the securities offered therein, and the Offering of such securities at that
time shall be deemed to be the initial bona fide Offering thereof.
II-7
<PAGE> 127
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, 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 March 3, 1998.
GERBER CHILDRENSWEAR, INC.
By: /s/ RICHARD L. SOLAR
------------------------------------
Name: Richard L. Solar
Title: Senior Vice President
POWER OF ATTORNEY
KNOW ALL MEN BY THESE PRESENTS, that each person whose signature appears
below constitutes and appoints any of Edward Kittredge or Richard L. Solar 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 Gerber
Childrenswear, Inc.), to sign any or 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 agent full power and authority to do and perform each and
every act and thing requisite and necessary to be done in and about the
premises, as fully to all intents and purposes as he might or could do in
person, hereby ratifying and 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 on March 3, 1998,
by, or on behalf of, the following persons in the capacities indicated with
respect to Gerber Childrenswear, Inc.:
<TABLE>
<CAPTION>
SIGNATURE CAPACITY
--------- --------
<C> <S>
/s/ EDWARD KITTREDGE Chairman of the Board, President and Chief
- -------------------------------------------------------- Executive Officer (Principal Executive
Edward Kittredge Officer)
/s/ RICHARD L. SOLAR Senior Vice President, Assistant Secretary
- -------------------------------------------------------- and Director (Principal Financial Officer
Richard L. Solar and Principal Accounting Officer)
/s/ RICHARD CASHIN Director
- --------------------------------------------------------
Richard Cashin
/s/ LAWRENCE R. GLENN Director
- --------------------------------------------------------
Lawrence R. Glenn
/s/ JOSEPH MEDALIE Director
- --------------------------------------------------------
Joseph Medalie
/s/ JOHN D. WEBER Director
- --------------------------------------------------------
John D. Weber
</TABLE>
II-8
<PAGE> 128
SCHEDULE II
GCIH, INC.
SUPPLEMENTAL SCHEDULE OF VALUATION AND QUALIFYING ACCOUNTS
(IN THOUSANDS)
<TABLE>
<CAPTION>
BALANCE AT CHARGED TO BALANCE AT
BEGINNING COST AND END OF
DESCRIPTION OF PERIOD EXPENSES DEDUCTIONS PERIOD
----------- ---------- ---------- ---------- ----------
<S> <C> <C> <C> <C>
Year ended December 31, 1997:
Allowance for doubtful accounts............... $ 1,798 $ 5,113 $4,401(1) $ 2,510
Inventory reserves............................ 12,849 (819) -- 12,030
Period ended December 31, 1996:
Allowance for doubtful accounts............... -- 3,683 1,885(1) 1,798
Inventory reserves............................ -- 12,849 -- 12,849
</TABLE>
- ---------------
(1) Allowances, uncollected amounts and credit balances written off against
reserve, net of recoveries.
II-9
<PAGE> 129
SCHEDULE II
GERBER CHILDRENSWEAR, INC.
("PREDECESSOR COMPANY")
SUPPLEMENTAL SCHEDULE OF VALUATION AND QUALIFYING ACCOUNTS
(IN THOUSANDS)
<TABLE>
<CAPTION>
CHARGED
BALANCE AT TO COST BALANCE AT
BEGINNING AND END OF
DESCRIPTION OF PERIOD EXPENSES DEDUCTIONS PERIOD
----------- ----------- -------- ---------- ----------
<S> <C> <C> <C> <C>
Year ended December 31, 1995:
Allowance for doubtful accounts................ $ 3,755 $ 2,203 $ 3,358(1) $ 2,600
Inventory reserves............................. 6,965 262 -- 7,227
</TABLE>
- ---------------
(1) Allowances, uncollected amounts and credit balances written off against
reserve, net of recoveries.
<PAGE> 130
EXHIBIT INDEX
ITEM 16. EXHIBITS AND FINANCIAL STATEMENT SCHEDULES.
(a) Exhibits:
<TABLE>
<CAPTION>
SEQUENTIALLY
NUMBERED
NUMBER DESCRIPTION PAGE
- ------- ----------- ------------
<C> <S> <C>
1.1* Form of Purchase Agreement.
3.1* Form of Amended and Restated Certificate of Incorporation of
the registrant.
3.2* Form of Amended and Restated Bylaws of the registrant.
4.1* Form of certificate representing shares of Common Stock,
$0.01 par value per share.
4.2 Credit Agreement by and among GCIH, Auburn, GCI, the
domestic subsidiaries of same and various lending
institutions dated as of December 17, 1997.
5.1* Opinion and consent of Kirkland & Ellis.
10.1 Stock Purchase Agreement by and between GPC and GCIH dated
as of December 14, 1995.
10.2 Form of Executive Stock Purchase Agreement between GCIH and
certain of its Executives, each dated January 22, 1996.
10.3 Form of Manager Securities Purchase Agreement between GCIH
and certain of its Managers.
10.4 Securities Purchase Agreement by and between GCIH and CVC,
dated as of January 22, 1996.
10.5 Form of Director Stock Purchase Agreement between GCIH and
certain of its directors.
10.6* Amended and Restated Registration Rights Agreement by and
between GCIH, Citicorp Venture Capital, Ltd., and other
stockholders of GCIH, dated as of , 1998.
10.7 Stock Purchase Agreement by and among GCIH, James P.
Manning, Eileen Manning and Certain Charitable Remainder
Trusts dated as of November 12, 1997.
10.8 Share Purchase Agreement by and among GCIH, James P. Manning
and Eileen Manning dated as of December 16, 1997.
10.9 Amended and Restated Senior Subordinated Credit Agreement
dated as of December 17, 1997 by and among GCIH, GCI, CMP
and others.
10.10 Subordination and Intercreditor Agreement by and among
Nationsbank, CMP, GCI and others dated as of December 17,
1997.
10.11 12% Junior Subordinated Note in the face amount of
$11,000,000, issued by GCIH to GPC as of December 29, 1997.
10.12* License Agreement by and between Warner Bros. Division of
Time Warner Entertainment Company, L.P. and GCI dated as of
January 19, 1996.
10.13** License Agreement by and between GPC and GCI dated as of
January 22, 1996.
10.14 License Agreement among The Kendall Company, GPC, and Soft
Care Apparel, Inc. (n/k/a GCI), dated as of July 31, 1986,
as amended pursuant to that certain Letter Agreement dated
January 19, 1996 by and among The Kendall Company, GPC, GCI
and GCIH.
</TABLE>
<PAGE> 131
<TABLE>
<CAPTION>
SEQUENTIALLY
NUMBERED
NUMBER DESCRIPTION PAGE
- ------- ----------- ------------
<C> <S> <C>
10.15 Trademark License Agreement between Auburn and Wilson
Sporting Goods Co. dated April 29, 1997; as sublicensed to
Sport Socks Ireland as of October 1, 1997, effective as of
January 1, 1998; as amended as of December 5, 1997.
10.16 Lease Agreement by and between GCI and Operadora Zona Franca
De La Romana, S.A. for property located at Zona Franca
Industrial La Romana (Sewing, Packaging).
10.17 Lease Agreement by and between GCI and Operadora Zona Franca
De La Romana, S.A. for property located at Altos
Buvillaverde.
10.18 Lease Agreement by and between GCI and Operadora Zona Franca
De La Romana, S.A. for property located at Altos
Buvillaverde.
10.19 Lease Amendment by and between GCI and the Industrial
Development Board of the City of Evergreen, Alabama, dated
as of August 28, 1997, and assignment and assumption
agreement and resolution of the Industrial Development Board
dated as of the same date.
10.20 Lease Agreement between GCI and Highland Properties, LLC
dated as of November 25, 1996, and amendments thereto, for
the lease of the Greenville facility.
10.21 Severance Agreement by and between GPC, GCI and David E.
Uren, dated as of March 18, 1995.
21.1 Subsidiaries of the registrant.
23.1 Consent of Ernst & Young LLP
23.2 Consent of J.C. Holland & Co., PSC
23.3 Consent of Price Waterhouse
23.4* Consent of Kirkland & Ellis (included in Exhibit 5.1).
24.1 Powers of Attorney (included in signature page).
27.1 Financial Data Schedule.
</TABLE>
- ---------------
* To be filed by amendment.
** The Company has requested confidential treatment with respect to certain
provisions of this Exhibit from the Commission.
<PAGE> 1
Exhibit 4.2
CREDIT AGREEMENT
among
GERBER CHILDRENSWEAR, INC.
and
AUBURN HOSIERY MILLS, INC.
as Borrowers,
AND
GCIH, INC.
AND
THE DOMESTIC SUBSIDIARIES OF GCIH, INC. AND THE BORROWERS
as Guarantors,
AND
THE LENDERS IDENTIFIED HEREIN,
AND
NATIONSBANK, N.A.,
as Administrative Agent
DATED AS OF DECEMBER 17, 1997
<PAGE> 2
TABLE OF CONTENTS
-----------------
SECTION 1 ............................................................... -1-
1.1 Definitions ....................................................... -1-
1.2 Computation of Time Periods and Other Definitional Provisions ..... -27-
1.3 Accounting Terms .................................................. -27-
SECTION 2 ............................................................... -27-
2.1 Revolving Loans ................................................... -28-
2.2 Letter of Credit Subfacility ...................................... -29-
2.3 Swing Line Loans Subfacility ...................................... -36-
2.4 Term Loans ........................................................ -37-
2.5 Continuations and Conversions ..................................... -38-
2.6 Minimum Amounts ................................................... -39-
2.7 Notes ............................................................. -39-
2.8 Joint and Several Liability of the Borrowers ...................... -40-
SECTION 3 ............................................................... -41-
3.1 Interest .......................................................... -41-
3.2 Place and Manner of Payments ...................................... -42-
3.3 Prepayments ....................................................... -42-
3.4 Fees .............................................................. -45-
3.5 Payment in full at Maturity ....................................... -46-
3.6 Computations of Interest and Fees ................................. -46-
3.7 Pro Rata Treatment ................................................ -47-
3.8 Sharing of Payments ............................................... -48-
3.9 Capital Adequacy .................................................. -49-
3.10 Inability To Determine Interest Rate .............................. -49-
3.11 Illegality ........................................................ -50-
3.12 Requirements of Law ............................................... -50-
3.13 Taxes ............................................................. -51-
3.14 Compensation ...................................................... -54-
3.15 Substitution of Lender ............................................ -54-
SECTION 4 ............................................................... -55-
4.1 Guaranty of Payment ............................................... -55-
4.2 Obligations Unconditional ......................................... -55-
4.3 Modifications ..................................................... -56-
4.4 Waiver of Rights .................................................. -57-
4.5 Reinstatement ..................................................... -57-
4.6 Remedies .......................................................... -57-
4.7 Limitation of Guaranty ............................................ -58-
4.8 Rights of Contribution ............................................ -58-
SECTION 5 ............................................................... -58-
5.1 Closing Conditions ................................................ -58-
-i-
<PAGE> 3
5.2 Conditions to All Extensions of Credit ............................ -64-
SECTION 6 ............................................................... -65-
6.1 Financial Condition ............................................... -65-
6.2 No Material Change ................................................ -65-
6.3 Organization and Good Standing .................................... -65-
6.4 Due Authorization ................................................. -66-
6.5 No Conflicts ...................................................... -66-
6.6 Consents .......................................................... -66-
6.7 Enforceable Obligations ........................................... -66-
6.8 No Default ........................................................ -67-
6.9 Ownership ......................................................... -67-
6.10 Indebtedness ...................................................... -67-
6.11 Litigation ........................................................ -67-
6.12 Taxes ............................................................. -67-
6.13 Compliance with Law ............................................... -67-
6.14 ERISA ............................................................. -68-
6.15 Subsidiaries ...................................................... -69-
6.16 Use of Proceeds; Margin Stock ..................................... -69-
6.17 Government Regulation ............................................. -70-
6.18 Environmental Matters ............................................. -70-
6.19 Intellectual Property ............................................. -71-
6.20 Solvency .......................................................... -72-
6.21 Investments ....................................................... -72-
6.22 Location of Collateral ............................................ -72-
6.23 Disclosure ........................................................ -72-
6.24 Licenses, etc ..................................................... -72-
6.25 Collateral Documents .............................................. -73-
SECTION 7 ............................................................... -73-
7.1 Information Covenants ............................................. -73-
7.2 Financial Covenants ............................................... -77-
7.3 Preservation of Existence and Franchises .......................... -78-
7.4 Books and Records ................................................. -78-
7.5 Compliance with Law ............................................... -78-
7.6 Payment of Taxes and Other Indebtedness ........................... -78-
7.7 Insurance ......................................................... -78-
7.8 Maintenance of Property ........................................... -79-
7.9 Performance of Obligations ........................................ -80-
7.10 Collateral ........................................................ -80-
7.11 Use of Proceeds ................................................... -80-
7.12 Audits/Inspections ................................................ -80-
7.13 Additional Credit Parties ......................................... -81-
7.14 Material License Agreements ....................................... -81-
7.15 Purchase Agreements ............................................... -82-
7.16 Foreign Shares .................................................... -82-
-ii-
<PAGE> 4
SECTION 8 ............................................................... -82-
8.1 Indebtedness ..................................................... -82-
8.2 Liens ............................................................ -84-
8.3 Nature of Business ............................................... -84-
8.4 Consolidation and Merger ......................................... -84-
8.5 Sale or Lease of Assets .......................................... -85-
8.6 Sale Leasebacks .................................................. -85-
8.7 Advances, Investments and Loans .................................. -85-
8.8 Restricted Payments .............................................. -85-
8.9 Transactions with Affiliates ..................................... -86-
8.10 Fiscal Year; Organizational Documents ............................ -86-
8.11 Ownership of Borrowers ........................................... -86-
8.12 No Limitations ................................................... -86-
8.13 No Other Negative Pledges ........................................ -87-
8.14 Limitation on Foreign Operations ................................. -87-
8.15 Subordinated Debt ................................................ -87-
SECTION 9 ............................................................... -87-
9.1 Events of Default ................................................ -87-
9.2 Acceleration; Remedies ........................................... -91-
9.3 Allocation of Payments After Event of Default .................... -92-
SECTION 10 .............................................................. -93-
10.1 Appointment ...................................................... -93-
10.2 Delegation of Duties ............................................. -93-
10.3 Exculpatory Provisions ........................................... -93-
10.4 Reliance on Communications ....................................... -94-
10.5 Notice of Default ................................................ -95-
10.6 Non-Reliance on Agents and Other Lenders ......................... -95-
10.7 Indemnification .................................................. -95-
10.8 Agents in Their Individual Capacity .............................. -96-
10.9 Successor Agent .................................................. -96-
SECTION 11 .............................................................. -96-
11.1 Notices .......................................................... -97-
11.2 Right of Set-Off ................................................. -97-
11.3 Benefit of Agreement ............................................. -97-
11.4 No Waiver; Remedies Cumulative ................................... -100-
11.5 Payment of Expenses; Indemnification ............................. -100-
11.6 Amendments, Waivers and Consents ................................. -101-
11.7 Counterparts ..................................................... -102-
11.8 Headings ......................................................... -102-
11.9 Defaulting Lender ................................................ -102-
11.10 Survival of Indemnification and Representations and Warranties ... -102-
11.11 Governing Law; Jurisdiction ...................................... -102-
11.12 Waiver of Jury Trial ............................................. -103-
11.13 Time ............................................................. -103-
-iii-
<PAGE> 5
11.14 Severability ...................................................... -104-
11.15 Further Assurances ................................................ -104-
11.16 Confidentiality ................................................... -104-
11.17 Entirety .......................................................... -104-
11.18 Binding Effect; Continuing Agreement .............................. -104-
-iv-
<PAGE> 6
SCHEDULES
Schedule 1.1(a) Commitment Percentages
Schedule 1.1(b) License Agreements
Schedule 2.2(c) Existing Letters of Credit
Schedule 5.1(g) Mortgaged Properties
Schedule 5.1(j) Consents
Schedule 6.10 Indebtedness
Schedule 6.15 Subsidiaries
Schedule 6.18 Environmental
Schedule 6.19 Intellectual Property
Schedule 6.21 Investments
Schedule 6.22(a) Real Property Locations
Schedule 6.22(b) Personal Property Locations
Schedule 6.22(c) Chief Executive Offices
Schedule 6.24 Material License Agreements
Schedule 7.7 Insurance
Schedule 8.2 Liens
Schedule 8.9 Affiliate Transactions
Schedule 11.1 Notices
EXHIBITS
Exhibit 2.1(b) Form of Notice of Borrowing
Exhibit 2.3(b) Form of Swing Line Loan Request
Exhibit 2.5 Form of Notice of Continuation/Conversion
Exhibit 2.7(a) Form of Revolving Note
Exhibit 2.7(b) Form of Term Note
Exhibit 2.7(c) Form of Swing Line Note
Exhibit 7.1(c) Form of Borrowing Base Certificate
Exhibit 7.1(d) Form of Officer's Certificate
Exhibit 7.13 Form of Joinder Agreement
Exhibit 11.3 Form of Assignment Agreement
-v-
<PAGE> 7
CREDIT AGREEMENT
THIS CREDIT AGREEMENT (this "Credit Agreement"), is entered into as of
December 17, 1997 among GERBER CHILDRENSWEAR, INC., a Delaware corporation and
AUBURN HOSIERY MILLS, INC. a Kentucky corporation (individually a "Borrower" and
collectively the "Borrowers"), GCIH, Inc., a Delaware corporation (the "Parent")
and each of the Domestic Subsidiaries of the Parent (other than the Borrowers)
and the Borrowers (individually a "Guarantor" and collectively the
"Guarantors"), the Lenders (as defined herein), NATIONSBANK, N.A., as
Administrative Agent for the Lenders and the Issuing Lenders (as defined
herein).
RECITALS
WHEREAS, the Borrowers and the Guarantors have requested the Lenders to
provide a senior secured credit facility in an amount up to $100 million; and
WHEREAS, the Lenders party hereto have agreed to make the requested senior
secured credit facility available to the Borrowers on the terms and conditions
hereinafter set forth.
NOW, THEREFORE, IN CONSIDERATION of the premises and other good and
valuable consideration, the receipt and sufficiency of which is hereby
acknowledged, the parties hereto agree as follows:
SECTION 1
DEFINITIONS AND ACCOUNTING TERMS
1.1 Definitions.
As used herein, the following terms shall have the meanings herein
specified unless the context otherwise requires. Defined terms herein shall
include in the singular number the plural and in the plural the singular:
"Additional Credit Party" means each Person that becomes a Guarantor
after the Closing Date, as provided in Section 7.13.
"Adjusted Base Rate" means the Base Rate plus the Applicable
Percentage.
"Adjusted Eurodollar Rate" means the Eurodollar Rate plus the
Applicable Percentage.
"Administrative Agent" means NationsBank, N.A. (or any successor
thereto) or any successor administrative agent appointed pursuant to
Section 10.9.
"Agency Services Address" means NationsBank, N.A., NC1-001-15-04,
101 North Tryon Street, Charlotte, North Carolina 28255, Attn: Agency
Services, or such other address as may be identified by written notice
from the Administrative Agent to the Borrowers.
<PAGE> 8
"Agents" mean the Administrative Agent and the Collateral Agent and
any successors and assigns in such capacity.
"Affiliate" means, with respect to any Person, any other Person
directly or indirectly controlling (including but not limited to all
directors and officers of such Person), controlled by or under direct or
indirect common control with such Person (it being understood for purposes
of clarification, that Gerber Products Company is not an Affiliate of any
Credit Party or any of their Subsidiaries. A Person shall be deemed to
control a corporation if such Person possesses, directly or indirectly,
the power (i) to vote 10% or more of the securities having ordinary voting
power for the election of directors of such corporation or (ii) to direct
or cause direction of the management and policies of such corporation,
whether through the ownership of voting securities, by contract or
otherwise.
"Applicable Percentage" means the appropriate applicable percentages
corresponding to the Leverage Ratio in effect as of the most recent
Calculation Date as shown below:
<TABLE>
<CAPTION>
================================================================================================================
Applicable Applicable Applicable Percentage
Pricing Percentage For Percentage For Base for Standby Letter of Applicable Percentage
Level Leverage Ratio Eurodollar Loans Rate Loans Credit Fees For Commitment Fees
- ----------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
I < 1.5 to 1.0 .625% 0% .625% .200%
- ----------------------------------------------------------------------------------------------------------------
II < 2.0 to 1.0 but .750% 0% .750% .250%
>= 1.5 to 1.0
- ----------------------------------------------------------------------------------------------------------------
III < 2.5 to 1.0 but 1.00% 0% 1.00% .250%
>= 2.0 to 1.0
- ----------------------------------------------------------------------------------------------------------------
IV < 3.0 to 1.0 but 1.25% 0% 1.25% .250%
>= 2.5 to 1.0
- ----------------------------------------------------------------------------------------------------------------
V >= 3.0 to 1.0 1.50% 0% 1.50% .375%
================================================================================================================
</TABLE>
The Applicable Percentage for Loans, the Letter of Credit Fees and
the Commitment Fees shall, in each case, be determined and adjusted
quarterly on the date (each a "Calculation Date") five Business Days after
the date by which the Borrowers are required to provide the officer's
certificate in accordance with the provisions of Section 7.1(d); provided
that the initial Applicable Percentage for Loans, the Letter of Credit
Fees and the Commitment Fees shall be based on Pricing Level V (as shown
above) and shall remain at Pricing Level V until the first Calculation
Date subsequent to December 31, 1997 and, thereafter, the Pricing Level
shall be determined by the Leverage Ratio calculated as of the most recent
Calculation Date; and provided further that if the Borrowers fail to
provide the officer's certificate required by Section 7.1(d) on or before
the most recent Calculation Date, the Applicable Percentage for Revolving
Loans, the Letter of Credit Fees and the Commitment Fees from such
Calculation Date shall be based on Pricing Level V until such time that an
appropriate officer's certificate is provided whereupon the Pricing Level
shall be determined by the then current Leverage Ratio. Each Applicable
Percentage shall be effective from one Calculation Date until the next
Calculation Date. Any adjustment in the Applicable Percentage shall be
applicable to all existing Loans and Letters of Credit as well as any new
Loans made or Letters of Credit issued.
The Borrowers shall promptly deliver to the Administrative Agent, at
the address set forth on Schedule 11.1 and at the Agency Services Address,
at the time the officer's certificate
-2-
<PAGE> 9
is required to be delivered by Section 7.1(d), information regarding any
change in the Leverage Ratio that would change the existing Pricing Level
pursuant to the preceding paragraph.
"Asset Disposition" means the disposition of any or all of the
assets of a Credit Party or any of its Subsidiaries whether by sale,
lease, transfer or otherwise, other than (a) transfers of assets permitted
by Section 8.5 and (b) losses of assets or destroyed assets permitted by
clauses (a) and (b) of Section 7.7.
"Bankruptcy Code" means the Bankruptcy Code in Title 11 of the
United States Code, as amended, modified, succeeded or replaced from time
to time.
"Base Rate" means, for any day, the rate per annum (rounded upwards,
if necessary, to the nearest whole multiple of 1/100 of 1%) equal to the
greater of (a) the Federal Funds Rate in effect on such day plus 1/2 of 1%
or (b) the Prime Rate in effect on such day. If for any reason the
Administrative Agent shall have determined (which determination shall be
conclusive absent manifest error) that it is unable after due inquiry to
ascertain the Federal Funds Rate for any reason, including the inability
or failure of the Administrative Agent to obtain sufficient quotations in
accordance with the terms hereof, the Base Rate shall be determined
without regard to clause (a) of the first sentence of this definition
until the circumstances giving rise to such inability no longer exist. Any
change in the Base Rate due to a change in the Prime Rate or the Federal
Funds Rate shall be effective on the effective date of such change in the
Prime Rate or the Federal Funds Rate, respectively.
"Base Rate Loan" means any Swing Line Loan and any other Loan
bearing interest at a rate determined by reference to the Base Rate.
"Borrowers" means Gerber Childrenswear, Inc., a Delaware corporation
and Auburn Hosiery Mills, Inc., a Kentucky corporation, in each case,
together with any successors and permitted assigns.
"Borrowing Base Assets" means, at any date of determination, the sum
of (a) 85% of Eligible Accounts Receivable plus (b) 50% of Eligible
Inventory plus (c) 50% of Eligible Documentary Letters of Credit, in each
case as set forth in the most recently delivered Borrowing Base Report.
"Business Day" means any day other than a Saturday, a Sunday, a
legal holiday or a day on which banking institutions are authorized or
required by law or other governmental action to close in Charlotte, North
Carolina or New York, New York; provided that in the case of Eurodollar
Loans, such day is also a day on which dealings between banks are carried
on in U.S. dollar deposits in the London interbank market.
"Calculation Date" has the meaning set forth in the definition of
Applicable Percentage.
"Capital Expenditures" means all expenditures of the Credit Parties
and their Subsidiaries which, in accordance with GAAP, would be classified
as capital expenditures, including, without limitation, Capital Leases.
-3-
<PAGE> 10
"Capital Lease" means, as applied to any Person, any lease of any
property (whether real, personal or mixed) by that Person as lessee which,
in accordance with GAAP, is or should be accounted for as a capital lease
on the balance sheet of that Person and the amount of such obligation
shall be the capitalized amount thereof determined in accordance with
GAAP.
"Capitalization Ratio" means the ratio of (a) Funded Debt to (b)
Total Capitalization.
"Caribbean Basin" means Antigua and Barbuda, Aruba, Bahamas,
Barbados, Belize, Costa Rica, Dominica, Dominican Republic, El Savador,
Grenada, Guatemala, Guyana, Haiti, Honduras, Jamaica, Montserrat,
Netherlands, Antilles, Nicaragua, Panama, St. Kitts and Nevis, Saint
Lucia, Saint Vincent and the Grenadines, Trinidad and Tobago, and the
British Virgin Islands.
"Cash Equivalents" means (a) securities issued or directly and fully
guaranteed or insured by the United States of America or any agency or
instrumentality thereof (provided that the full faith and credit of the
United States of America is pledged in support thereof) having maturities
of not more than twelve months from the date of acquisition, (b) U.S.
dollar denominated time and demand deposits and certificates of deposit of
(i) any Lender, (ii) any domestic commercial bank having capital and
surplus in excess of $500,000,000 or (iii) any bank whose short-term
commercial paper rating from S&P is at least A-1 or the equivalent thereof
or from Moody's is at least P-1 or the equivalent thereof (any such bank
being an "Approved Bank"), in each case with maturities of not more than
270 days from the date of acquisition, (c) commercial paper and variable
or fixed rate notes issued by any Approved Bank (or by the parent company
thereof) or any variable rate notes issued by, or guaranteed by, any
domestic corporation rated A-1 (or the equivalent thereof) or better by
S&P or P-1 (or the equivalent thereof) or better by Moody's and maturing
within six months of the date of acquisition, (d) repurchase agreements
with a bank or trust company (including any of the Lenders) or recognized
securities dealer having capital and surplus in excess of $500,000,000 for
direct obligations issued by or fully guaranteed by the United States of
America in which a Borrower shall have a perfected first priority security
interest (subject to no other Liens) and having, on the date of purchase
thereof, a fair market value of at least 100% of the amount of the
repurchase obligations and (e) Investments, classified in accordance with
GAAP as current assets, in money market investment programs registered
under the Investment Company Act of 1940, as amended, which are
administered by reputable financial institutions having capital of at
least $500,000,000 and the portfolios of which consist substantially of
Investments of the character described in the foregoing subdivisions (a)
through (d).
"Change of Control" means (a) prior to an initial public offering of
Parent's common stock under the Securities Act, Citicorp Venture Capital
Group shall own (on a fully diluted, as if converted, basis) less than 51%
of the Voting Stock of the Parent, (b) subsequent to an initial public
offering by the Parent, any "person" or "group" (within the meaning of
Section 13(d) or 14(d) of the Exchange Act), other than the Citicorp
Venture Capital Group, has become, directly or indirectly, the "beneficial
owner" (as defined in Rules 13d-3 and 13d-5 under the Exchange Act, except
that a 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), by way of
merger, consolidation or otherwise, of 20% or more of the Voting Stock of
the Parent on a fully-diluted basis, after giving effect to the conversion
and
-4-
<PAGE> 11
exercise of all outstanding warrants, options and other securities of the
Parent (whether or not such securities are then currently convertible or
exercisable) or (c) a change in control (as defined in the documentation
evidencing the Subordinated Debt) occurs.
"Citicorp Venture Capital Group" means CVC, its Affiliates
(including CMP), officers and directors of CVC and independent directors
of the Parent appointed by CVC.
"Closing Date" means the date hereof.
"CMP" means Citicorp Mezzanine Partners, L.P.
"Code" means the Internal Revenue Code of 1986 and the rules and
regulations promulgated thereunder, as amended, modified, succeeded or
replaced from time to time.
"Collateral" means all assets of the Credit Parties in which,
pursuant to the Collateral Documents a Lien has been granted in favor of
the Lenders.
"Collateral Agent" means NationsBank, N.A. (or any successor
thereto) or any successor collateral agent appointed pursuant to Section
10.9.
"Collateral Documents" means the Security Agreements, the Pledge
Agreements, the Mortgage Documents, and such other documents executed and
delivered in connection with the attachment and perfection of the Lenders'
security interests in the assets of the Credit Parties, including without
limitation, the Mortgage Policies, UCC financing statements and collateral
assignments of intellectual property.
"Commitment Fees" means the fees payable to the Lenders pursuant to
Section 3.4(a).
"Commitments" means the sum of the commitments of each Lender with
respect to the Revolving Committed Amount and the Term Loan Committed
Amount.
"Credit Documents" means this Credit Agreement, the Notes, any
Joinder Agreement, the Collateral Documents, the LOC Documents, and all
other related agreements and documents issued or delivered hereunder or
thereunder or pursuant hereto or thereto.
"Credit Parties" means the Borrowers and the Guarantors and "Credit
Party" means any one of them.
"Credit Party Obligations" means, without duplication, (a) all of
the obligations of the Credit Parties to the Lenders (including the
Issuing Lender) and the Agents, whenever arising, under this Credit
Agreement, the Notes, the Collateral Documents or any of the other Credit
Documents to which any Credit Party is a party and (b) all liabilities and
obligations owing from such Credit Party to any Lender, or any Affiliate
of a Lender, arising under Hedging Agreements.
"Current Assets" means all current assets of the Parent and its
Subsidiaries, as determined in accordance with GAAP.
-5-
<PAGE> 12
"Current Liabilities" means all current liabilities of the Parent
and its Subsidiaries, other than liabilities constituting Revolving Loans
and Swing Line Loans, as determined in accordance with GAAP.
"Current Maturities of Long Term Debt" means all scheduled principal
payments required to be paid within one year from the date of
determination with respect to any Funded Debt (other than Revolving Loans
or Swing Line Loans).
"Current Ratio" means the ratio of (a) Current Assets to (b) Current
Liabilities.
"CVC" means Citicorp Venture Capital, Ltd., a New York corporation.
"Debt Issuance" means the issuance of any Indebtedness for borrowed
money by a Credit Party or any of its Subsidiaries, other than
Indebtedness permitted by Section 8.1.
"Default" means any event, act or condition which with notice or
lapse of time, or both, would constitute an Event of Default.
"Defaulting Lender" means, at any time, any Lender that, (a) has
failed to make a Loan or purchase a Participation Interest required
pursuant to the terms of this Credit Agreement (but only for so long as
such Loan is not made or such Participation Interest is not purchased),
(b) has failed to pay to the Agents or any Lender an amount owed by such
Lender pursuant to the terms of this Credit Agreement (but only for so
long as such amount has not been repaid) or (c) has been deemed insolvent
or has become subject to a bankruptcy or insolvency proceeding or to a
receiver, trustee or similar official.
"Documentary Letter of Credit" has the meaning set forth in Section
2.2(a).
"Dollars" and "$" means dollars in lawful currency of the United
States of America.
"Domestic Subsidiary" means all direct and indirect Subsidiaries of
the Parent or a Borrower that are domiciled, incorporated or organized
under the laws of any state of the United States or the District of
Columbia whether existing as of the date hereof or hereafter created or
acquired. As of the Closing Date, the Domestic Subsidiaries are as set
forth on Schedule 6.15.
"EBITDA" means, for any period, with respect to the Credit Parties
and their Subsidiaries on a consolidated basis, the sum of (a) Net Income
for such period (excluding the effect of any extraordinary or other
non-recurring gains (including any gain from the sale of property) or
non-cash losses) plus (b) an amount which, in the determination of Net
Income for such period has been deducted for (i) Interest Expense for such
period, (ii) total Federal, state, foreign or other income or franchise
taxes for such period, (iii) all depreciation and amortization for such
period and (iv) all other non-cash charges, including, without limitation,
royalty payments under existing License Agreements, all as determined in
accordance with GAAP.
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"EBITDAR" means, for any period, the sum of EBITDA for such period
plus an amount which in the determination of Net Income for such period
has been deducted for cash Rent Expense for such period, all as determined
in accordance with GAAP.
"Effective Date" means the date on which the conditions set forth in
Section 5.1 shall have been fulfilled (or waived in the sole discretion of
the Lenders) and on which the initial Loans shall have been made and/or
the initial Letters of Credit shall have been issued.
"Eligible Assignee" means (a) any Lender or Affiliate or subsidiary
of a Lender and (b) any other commercial bank, financial institution,
institutional lender or "accredited investor" (as defined in Regulation D
of the Securities and Exchange Commission) with a net worth of at least
$2,000,000,000.
"Eligible Accounts Receivable" means, as of any date of
determination, and without duplication, the amount of all accounts
receivable, receivables, and obligations for payment created or arising
from the sale or shipment of inventory or the rendering of services in the
ordinary course of business (collectively, the "Receivables"), owned by or
owing to the Credit Parties and in which the Lenders have a first priority
perfected security interest, net of any allowances and reserves for
doubtful or uncollectable accounts included in such aggregate value and
sales adjustments consistent with a Credit Party's internal policies and
in any event in accordance with GAAP, but excluding in any event (a)
Receivables subject to any Lien other than Permitted Liens, (b)
Receivables which, at the date of issuance of the invoice with respect
thereto, are payable more than 90 days after the date of issuance of such
invoice, (c) Receivables which are more than 90 days past due or
outstanding more than 90 days after the invoice date if no due date is
specified, (d) Receivables evidenced by notes, chattel paper or other
instruments, unless such notes, chattel paper or instruments have been
delivered to and are in the possession of the Collateral Agent, (e)
Receivables owing by an account debtor which is subject to any bankruptcy
or insolvency proceeding of any kind, unless such account debtor is
classified as a debtor in possession, (f) except as set forth in clause
(g) below, Receivables owing by an account debtor located outside of the
United States (unless (i) payment for the goods shipped is secured by an
irrevocable letter of credit or (ii) export insurance is obtained, in each
case in a form and from an institution reasonably acceptable to the
Collateral Agent), (g) in addition to Receivables permitted by clause (f)
above, (i) Receivables in excess of an aggregate amount of $2,000,000 from
account debtors located in Canada, (ii) Receivables in excess of $200,000
per account debtor or in excess of $750,000 in the aggregate from account
debtors located in Puerto Rico and (iii) Receivables in excess of $100,000
per account debtor or in excess of $500,000 in the aggregate from account
debtors located in Mexico, Argentina or countries in the Caribbean Basin,
(h) Receivables which are contingent or subject to offset, deduction,
counterclaim, dispute or other defense to payment, in each case to the
extent of such offset, deduction, counterclaim, dispute or other defense,
(i) Receivables for which any direct or indirect Subsidiary of the Parent
or any Affiliate of the Parent is the account debtor, (j) Receivables (i)
representing a sale to the government of the United States of America or
any subdivision thereof, or any state, county or municipal government or
(ii) in excess of $400,000 in the aggregate, owing from Navy/Marine and
Army/Air Force Exchanges, (k) all Receivables from an account debtor who
has more than 35% of its Receivables owing to the Credit Parties that are
more than 90 days past due or outstanding more than 90 days after the
invoice date if no due date is specified and (l) Receivables from an
account debtor to the extent such
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<PAGE> 14
Receivables exceed, in the aggregate, (i) if the account debtor is
Wal-Mart, sixty percent (60%) of all Eligible Account Receivables as of
such date, (ii) if the account debtor is Toys R Us or Target (but not
both), thirty percent (30%) of all Eligible Account Receivables as of such
date (it being understood that if over 20% of Eligible Accounts Receivable
is owed by Toys R Us then Eligible Receivables owed by Target is subject
to clause (iii) below (and vice versa)) or (iii) with respect to any
account debtor other than Wal-Mart, Toys R Us or Target, twenty percent
(20%) of all Eligible Account Receivable as of such date.
"Eligible Documentary Letters of Credit" means Documentary Letters
of Credit to be used for payment of inventory which has been ordered but
not received.
"Eligible Inventory" means, as of any date of determination and
without duplication, the lower of the aggregate book value (based on a
FIFO or a moving average cost valuation, consistently applied) or fair
market value (provided that the value of any inventory sold between Credit
Parties shall be calculated using the value of the inventory prior to any
such sale between Credit Parties) of all raw materials and finished goods
inventory owned by any Credit Party and in which the Lenders have a first
priority perfected security interest less appropriate reserves determined
in accordance with GAAP, but excluding in any event (a) inventory subject
to any Lien other than Permitted Liens, (b) work in process other than
unpackaged finished goods located in the United States (net of reserves to
be established by the Administrative Agent from time to time), (c)
inventory which is not in usable condition or fails to meet standards for
sale or use imposed by governmental agencies, departments or divisions
having regulatory authority over such goods, (d) inventory which is
discontinued or not useable or saleable at prices approximating their cost
in the ordinary course of the applicable Credit Party's business
(including without duplication the amount of any reserves for
obsolescence, unsalability or decline in value), (e) inventory located
outside of the United States other than inventory owned by a Credit Party
that is being shipped from an overseas manufacturing facility owned or
controlled by a Credit Party to a warehouse in the United States owned or
controlled by a Credit Party, if such inventory is insured for its full
value against loss, damage, hazards and risks from a reputable insurance
company, (f) inventory located at a location not owned or leased by the
applicable Credit Party unless the Collateral Agent has received a waiver
and estoppel agreement, reasonably satisfactory to the Agents, from the
owner/operator of such location, and, if deemed appropriate by the
Collateral Agent, a UCC financing statement has been filed with respect to
such location, (g) inventory located at a location leased by the
applicable Credit Party with respect to which the Collateral Agent shall
not have received a landlord's waiver and estoppel agreement (where
required by the terms of the applicable lease) in a form reasonably
satisfactory to the Collateral Agent; provided that prior to December 31,
1997, inventory located at a leased location in Charlotte, North Carolina
shall constitute Eligible Inventory without such an agreement, (h)
inventory which is leased or on consignment, and (i) inventory which is
subject to a Material License Agreement unless (A) such Material License
Agreement is in full force and effect and (B) the Collateral Agent has
received a consent, if necessary, allowing it (after an Event of Default)
to sell off inventory subject to such Material License Agreement from all
parties to such Material License Agreement, in a form reasonably
satisfactory to the Collateral Agent; provided that with respect to
inventory subject to a Material License Agreement in which Wilson Sporting
Goods Co. is the licensor, the requirement in clause (B) shall not apply
to such inventory, up to an maximum aggregate value of $4,000,000.
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<PAGE> 15
"Environmental Claim" means any investigation, written notice,
violation, written demand, written allegation, action, suit, injunction,
judgment, order, consent decree, penalty, fine, lien, proceeding, or
written claim whether administrative, judicial, or private in nature
arising (a) pursuant to, or in connection with, an actual or alleged
violation of, any Environmental Law, (b) in connection with any Hazardous
Material, (c) from any assessment, abatement, removal, remedial,
corrective, or other response action in connection with an Environmental
Law or other order of a Governmental Authority or (d) from any actual or
alleged damage, injury, threat, or harm to human health, employee safety,
natural resources, or the environment.
"Environmental Laws" means any current or future legal requirement
of any Governmental Authority pertaining to (a) the protection of human
health, employee safety, and the indoor or outdoor environment, (b) the
conservation, management, or use of natural resources and wildlife, (c)
the protection or use of surface water and groundwater or (d) the
management, manufacture, possession, presence, use, generation,
transportation, treatment, storage, disposal, release, threatened release,
abatement, removal, remediation or handling of, or exposure to, any
hazardous or toxic substance or material or (e) pollution (including any
release to land surface water and groundwater) and includes, without
limitation, the Comprehensive Environmental Response, Compensation, and
Liability Act of 1980, as amended by the Superfund Amendments and
Reauthorization Act of 1986, 42 USC 9601 et seq., Solid Waste Disposal
Act, as amended by the Resource Conservation and Recovery Act of 1976 and
Hazardous and Solid Waste Amendments of 1984, 42 USC 6901 et seq., Federal
Water Pollution Control Act, as amended by the Clean Water Act of 1977, 33
USC 1251 et seq., Clean Air Act of 1966, as amended, 42 USC 7401 et seq.,
Toxic Substances Control Act of 1976, 15 USC 2601 et seq., Hazardous
Materials Transportation Act, 49 USC App. 1801 et seq., Occupational
Safety and Health Act of 1970, as amended, 29 USC 651 et seq., Oil
Pollution Act of 1990, 33 USC 2701 et seq., Emergency Planning and
Community Right-to-Know Act of 1986, 42 USC 11001 et seq., National
Environmental Policy Act of 1969, 42 USC 4321 et seq., Safe Drinking Water
Act of 1974, as amended, 42 USC 300(f) et seq., any analogous implementing
or successor law, and any amendment, rule, regulation, order, or directive
issued thereunder.
"Equity Issuance" means any issuance by a Credit Party to any Person
of (a) shares of its capital stock or other equity interests, (b) any
shares of its capital stock or other equity interests pursuant to the
exercise of options or warrants or (c) any shares of its capital stock or
other equity interests pursuant to the conversion of any debt securities
to equity.
"ERISA" means the Employee Retirement Income Security Act of 1974,
as amended, and any successor statute thereto, as interpreted by the rules
and regulations thereunder, all as the same may be in effect from time to
time. References to sections of ERISA shall be construed also to refer to
any successor sections.
"ERISA Affiliate" means an entity, whether or not incorporated,
which is under common control with any Credit Party or any of its
Subsidiaries within the meaning of Section 4001(a)(14) of ERISA, or is a
member of a group which includes any Credit Party or any of its
Subsidiaries and which is treated as a single employer under Sections
414(b), (c), (m), or (o) of the Code.
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"Eurodollar Loan" means a Loan bearing interest based at a rate
determined by reference to the Eurodollar Rate.
"Eurodollar Rate" means, for the Interest Period for each Eurodollar
Loan comprising part of the same borrowing (including conversions,
extensions and renewals), a per annum interest rate determined pursuant to
the following formula:
Eurodollar Rate = London Interbank Offered Rate
---------------------------------------
1 - Eurodollar Reserve Percentage
"Eurodollar Reserve Percentage" means for any day, that percentage
(expressed as a decimal) which is in effect from time to time under
Regulation D of the Board of Governors of the Federal Reserve System (or
any successor), as such regulation may be amended from time to time or any
successor regulation, as the maximum reserve requirement (including,
without limitation, any basic, supplemental, emergency, special, or
marginal reserves) applicable with respect to Eurocurrency liabilities as
that term is defined in Regulation D (or against any other category of
liabilities that includes deposits by reference to which the interest rate
of Eurodollar Loans is determined), whether or not a Lender has any
Eurocurrency liabilities subject to such reserve requirement at that time.
Eurodollar Loans shall be deemed to constitute Eurocurrency liabilities
and as such shall be deemed subject to reserve requirements without
benefits of credits for proration, exceptions or offsets that may be
available from time to time to a Lender. The Eurodollar Rate shall be
adjusted automatically on and as of the effective date of any change in
the Eurodollar Reserve Percentage.
"Event of Default" means any of the events or circumstances
specified in Section 9.1.
"Excess Cash Flow" means , with respect to the Parent and its
Subsidiaries on a consolidated basis, an amount equal to (a) EBITDA minus
(b) Capital Expenditures minus (c) cash Interest Expense minus (d)
Federal, state and other income or franchise taxes actually paid minus (e)
Principal Amortization Payments minus (f) voluntary prepayments made with
respect to the Term Loans minus (g) cash payments by the Parent to former
employees of the Parent and its Subsidiaries to repurchase stock if such
payment constitutes a Permitted Investment.
"Exchange Act" means the Securities Exchange Act of 1934, as
amended, and the rules and regulations promulgated thereunder, as amended,
modified, succeeded or replaced from time to time.
"Existing Letters of Credit" means the letters of credit described
on Schedule 2.2(c).
"Extension of Credit" means, as to any Lender, the making of a Loan
by such Lender (or a participation therein by a Lender) or the issuance
of, or participation in, a Letter of Credit by such Lender.
"Federal Funds Rate" means for any day the rate per annum (rounded
upward, if necessary, to the nearest 1/100th of 1%) equal to the weighted
average of the rates on overnight Federal funds transactions with members
of the Federal Reserve System arranged by Federal
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<PAGE> 17
funds brokers on such day, as published by the Federal Reserve Bank of New
York on the Business Day next succeeding such day; provided that (a) if
such day is not a Business Day, the Federal Funds Rate for such day shall
be such rate on such transactions on the next preceding Business Day and
(b) if no such rate is so published on such next preceding Business Day,
the Federal Funds Rate for such day shall be the average rate quoted to
the Administrative Agent on such day on such transactions from three
Federal Funds brokers of recognized standing selected by the
Administrative Agent.
"Fee Letter" means that certain letter agreement between Gerber
Childrenswear, Inc., NMSI and the Administrative Agent dated as of
September 22, 1997.
"First Tier Foreign Subsidiary" means each Foreign Subsidiary which
is owned directly by a Credit Party.
"Fixed Charge Coverage Ratio" means the ratio of (a) EBITDAR less
Capital Expenditures made in cash to (b) cash Interest Expense plus
Current Maturities of Long Term Debt plus cash income taxes plus cash Rent
Expense.
"Foreign Subsidiary" means all Subsidiaries of the Parent or a
Borrower that are not Domestic Subsidiaries.
"Funded Debt" means, without duplication, the sum of (a) all
Indebtedness of the Credit Parties and their Subsidiaries for borrowed
money, (b) all purchase money Indebtedness of the Credit Parties and their
Subsidiaries, (c) the principal portion of all obligations of the Credit
Parties and their Subsidiaries under Capital Leases, (d) all obligations,
contingent or otherwise, relative to the face amount of all letters of
credit (other than letters of credit supporting inventory purchases in the
ordinary course of business), whether or not drawn, and banker's
acceptances issued for the account of a Credit Party or its Subsidiaries
(it being understood that, to the extent an undrawn letter of credit
supports another obligation consisting of Indebtedness, in calculating
aggregated Indebtedness only such other obligation shall be included), (e)
all Guaranty Obligations of the Credit Parties and their Subsidiaries with
respect to Funded Debt of another Person, (f) all Funded Debt of another
entity secured by a Lien on any property of the Credit Parties and their
Subsidiaries whether or not such Funded Debt has been assumed by a Credit
Party or any of its Subsidiaries, (g) all Funded Debt of any partnership
or unincorporated joint venture to the extent a Credit Party or one of its
Subsidiaries is legally obligated or has a reasonable expectation of being
liable with respect thereto, net of any assets of such partnership or
joint venture and (h) the principal balance outstanding under any
synthetic lease, tax retention operating lease, off-balance sheet loan or
similar off-balance sheet financing product where such transaction is
considered borrowed money indebtedness for tax purposes but is classified
as an operating lease in accordance with GAAP.
"GAAP" means generally accepted accounting principles in the United
States applied on a consistent basis and subject to Section 1.3.
"Governmental Authority" means any Federal, state, local, provincial
or foreign court or governmental agency, authority, instrumentality or
regulatory body.
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<PAGE> 18
"Guarantor" means the Parent, each of the Domestic Subsidiaries of
the Parent and the Borrowers and each Additional Credit Party which has
executed a Joinder Agreement, together with their successors and assigns.
"Guaranty Obligations" means, with respect to any Person, without
duplication, any obligations (other than endorsements in the ordinary
course of business of negotiable instruments for deposit or collection)
guaranteeing any Indebtedness of any other Person in any manner, whether
direct or indirect, and including without limitation any obligation,
whether or not contingent, (a) to purchase any such Indebtedness or other
monetary obligation or any property constituting security therefor, (b) to
advance or provide funds or other support for the payment or purchase of
such Indebtedness or monetary obligation or to maintain working capital,
solvency or other balance sheet condition of such other Person (including,
without limitation, maintenance agreements, comfort letters, take or pay
arrangements, put agreements or similar agreements or arrangements) for
the benefit of the holder of Indebtedness of such other Person, (c) to
lease or purchase property, securities or services primarily for the
purpose of assuring the owner of such Indebtedness or (d) to otherwise
assure or hold harmless the owner of such Indebtedness or monetary
obligation against loss in respect thereof. The amount of any Guaranty
Obligation hereunder shall (subject to any limitations set forth therein)
be deemed to be an amount equal to the outstanding principal amount (or
maximum principal amount, if larger) of the Indebtedness in respect of
which such Guaranty Obligation is made.
"Hazardous Materials" means any substance, material or waste defined
in or regulated under any Environmental Laws as hazardous, toxic,
corrosive, ignitable, reactive or radioactive or otherwise defined or
regulated because of its harmful or deleterious qualities.
"Hedging Agreements" means, collectively, interest rate protection
agreements, foreign currency exchange agreements, commodity purchase or
option agreements or other interest or exchange rate or commodity price
hedging agreements, in each case, entered into or purchased by a Credit
Party.
"Indebtedness" of any Person means, without duplication, (a) all
obligations of such Person for borrowed money, (b) all obligations of such
Person evidenced by bonds, debentures, notes or similar instruments, or
upon which interest payments are customarily made (c) all obligations of
such Person under conditional sale or other title retention agreements
relating to property purchased by such Person to the extent of the value
of such property (other than customary reservations or retentions of title
under agreements with suppliers entered into in the ordinary course of
business), (d) all obligations, other than intercompany items, of such
Person issued or assumed as the deferred purchase price of property or
services purchased by such Person which would appear as liabilities on a
balance sheet of such Person, (e) all Indebtedness of others secured by
(or for which the holder of such Indebtedness has an existing right,
contingent or otherwise, to be secured by) any Lien on, or payable out of
the proceeds of production from, property owned or acquired by such
Person, whether or not the obligations secured thereby have been assumed,
(f) all Guaranty Obligations of such Person, (g) the principal portion of
all obligations of such Person under (i) Capital Leases and (ii) any
synthetic lease, tax retention operating lease, off-balance sheet loan or
similar off-balance sheet financing product of such Person where such
transaction is considered borrowed money indebtedness for tax purposes but
is classified as an operating lease in accordance with GAAP, (h) all net
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<PAGE> 19
obligations of such Person in respect of Hedging Agreements, (i) the
maximum amount of all performance and standby letters of credit issued or
bankers' acceptances facilities created for the account of such Person
and, without duplication, all drafts drawn thereunder (to the extent
unreimbursed), and (j) the aggregate amount of uncollected accounts
receivable of such Person subject at such time to a sale of receivables
(or similar transaction) regardless of whether such transaction is
effected without recourse to such Person or in a manner that would not be
reflected on the balance sheet of such Person in accordance with GAAP. The
Indebtedness of any Person shall include the Indebtedness of any
partnership or unincorporated joint venture in which such Person is
legally obligated.
"Intercreditor Agreement" means that certain Subordination and
Intercreditor Agreement, dated as of the Closing Date, among Gerber
Childrenswear, Inc., the Parent, Citicorp Mezzanine Partners, L.P. and the
Administrative Agent.
"Interest Expense" means, for any period, with respect to the Credit
Parties and their Subsidiaries on a consolidated basis, all cash interest
expense (paid or accrued to be paid), including the interest component
under Capital Leases, as determined in accordance with GAAP.
"Interest Payment Date" means (a) as to Base Rate Loans, the last
day of each calendar quarter and the Maturity Date and (b) as to
Eurodollar Loans, the last day of each applicable Interest Period and the
Maturity Date and in addition where the applicable Interest Period for a
Eurodollar Loan is greater than three months, then also the date three
months from the beginning of the Interest Period and each three months
thereafter.
"Interest Period" means, as to Eurodollar Loans, a period of one,
two, three or six months' duration, as the Borrowers may elect,
commencing, in each case, on the date of the borrowing (including
continuations and conversions thereof); provided, however, (a) if any
Interest Period would end on a day which is not a Business Day, such
Interest Period shall be extended to the next succeeding Business Day
(except that where the next succeeding Business Day falls in the next
succeeding calendar month, then on the next preceding Business Day), (b)
no Interest Period shall extend beyond the Maturity Date, (c) with regard
to Term Loans, no Interest Period shall extend beyond any Principal
Amortization Payment Date unless the portion of Term Loans comprised of
Base Rate Loans, together with the portion of Term Loans comprised of
Eurodollar Loans with Interest Periods expiring prior to such Principal
Amortization Payment Date is greater than or equal to the Principal
Amortization Payment due on such Principal Amortization Payment Date and
(d) where an Interest Period begins on a day for which there is no
numerically corresponding day in the calendar month in which the Interest
Period is to end, such Interest Period shall end on the last Business Day
of such calendar month.
"Investment" in any Person means (a) the acquisition (whether for
cash, property, services, assumption of Indebtedness, securities or
otherwise) of assets, shares of capital stock, bonds, notes, debentures,
partnership, joint ventures or other ownership interests or other
securities of such other Person or (b) any deposit with, or advance, loan
or other extension of credit to, such Person (other than deposits made in
connection with the purchase of equipment or other assets in the ordinary
course of business) or (c) any other capital contribution to or
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<PAGE> 20
investment in such Person, including, without limitation, any Guaranty
Obligation (including any support for a Letter of Credit issued on behalf
of such Person) incurred for the benefit of such Person.
"Issuing Lender" means NationsBank, N.A. or any successor
Administrative Agent, other than with respect to (a) those specific
Existing Letters of Credit set forth on Schedule 2.2(c) in which Bank of
America, FSB or its Affiliate ("BOA") is identified as the Issuing Lender
or (b) those specific Existing Letters of Credit set forth on Schedule
2.2(c) in which NationsBank of Tennessee, N.A. ("NationsBank Tennessee")
is identified as the Issuing Lender. As used herein, the term Issuing
Lender shall mean any of NationsBank, N.A., BOA or NationsBank Tennessee
until the expiry date of such specified Existing Letters of Credit after
which time only NationsBank, N.A. shall be the Issuing Lender. BOA and
NationsBank Tennessee shall have no obligation to issue any Letter of
Credit hereunder other than the Existing Letters of Credit.
"Issuing Lender Fees" has the meaning set forth in Section 3.4(b).
"Joinder Agreement" means a Joinder Agreement substantially in the
form of Exhibit 7.13.
"Junior Subordinated Note" means that certain 12% Junior
Subordinated Note issued by GCIH, Inc. to Gerber Products Company on
January 22, 1996 in the original face amount of $12,500,000.
"Knowledge" means, with respect to the Credit Parties, the actual
knowledge of the Chief Executive Officer, Chief Financial Officer,
Treasurer, Controller or any senior officer of a Credit Party with the
same or substantially the same authority and responsibility as the above
named officers.
"Lender" means any of the Persons identified as a "Lender" on the
signature pages hereto, and any Eligible Assignee which may become a
Lender by way of assignment in accordance with the terms hereof, together
with their successors and permitted assigns.
"Letter of Credit" means a letter of credit issued for the account
of a Credit Party by the Issuing Lender pursuant to Section 2.2 or any
Existing Letter of Credit, as such letter of credit may be amended,
modified, extended, renewed or replaced.
"Leverage Ratio" means, as of the end of each fiscal quarter, the
ratio of (a) total Funded Debt on such date to (b) EBITDA for the twelve
month period ending on such date.
"License Agreements" means those license agreements set forth on
Schedule 1.1(b).
"Lien" means any mortgage, pledge, hypothecation, assignment,
deposit arrangement, security interest, encumbrance, lien (statutory or
otherwise), preference, priority or charge of any kind, including, without
limitation, any agreement to give any of the foregoing, any conditional
sale or other title retention agreement, and any lease in the nature
thereof.
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<PAGE> 21
"Loan" or "Loans" means the Revolving Loans, the Term Loans and the
Swing Line Loans (or a portion of any Revolving Loan, Term Loan or Swing
Line Loan), individually or collectively, as appropriate.
"LOC Documents" means, with respect to any Letter of Credit, such
Letter of Credit, any amendments thereto, any documents delivered in
connection therewith, any application therefor, and any agreements,
instruments, guarantees or other documents (whether general in application
or applicable only to such Letter of Credit) governing or providing for
(a) the rights and obligations of the parties concerned or at risk or (b)
any collateral security for such obligations.
"LOC Obligations" means, at any time, the sum of (a) the maximum
amount which is, or at any time thereafter may become, available to be
drawn under Letters of Credit (including the Existing Letters of Credit)
then outstanding, assuming compliance with all requirements for drawings
referred to in such Letters of Credit plus (b) the aggregate amount of all
drawings under Letters of Credit honored by an Issuing Lender but not
theretofore reimbursed.
"LOC Participants" means the Lenders.
"London Interbank Offered Rate" means, with respect to any
Eurodollar Loan for the Interest Period applicable thereto, the rate of
interest per annum (rounded upwards, if necessary, to the nearest 1/100 of
1%) appearing on Telerate Page 3750 (or any successor page) as the London
interbank offered rate for deposits in Dollars at approximately 11:00 A.M.
(London time) two Business Days prior to the first day of such Interest
Period for a term comparable to such Interest Period; provided, however,
if more than one rate is specified on Telerate Page 3750, the applicable
rate shall be the arithmetic mean of all such rates. If, for any reason,
such rate is not available, the term "London Interbank Offered Rate" shall
mean, with respect to any Eurodollar Loan for the Interest Period
applicable thereto, the rate of interest per annum (rounded upwards, if
necessary, to the nearest 1/100 of 1%) appearing on Reuters Screen LIBO
Page as the London interbank offered rate for deposits in Dollars at
approximately 11:00 A.M. (London time) two Business Days prior to the
first day of such Interest Period for a term comparable to such Interest
Period; provided, however, if more than one rate is specified on Reuters
Screen LIBO Page, the applicable rate shall be the arithmetic mean of all
such rates.
"Mandatory Borrowing" has the meaning set forth in Section 2.2(e).
"Material Adverse Effect" means a material adverse effect after
taking into account applicable insurance and indemnities, if any (provided
that (i) the provider of the insurance or indemnification is credit worthy
and has affirmatively given assurances reasonably acceptable to the
Lenders regarding its obligations with respect to such insurance or
indemnification and (ii) if such provider does not meet its full
obligations and it is finally determined that such provider will not meet
its full obligations, then the amount not paid by such provider will be
taken into account for purposes of this definition) and after taking into
account any tax benefits resulting therefrom on (a) the operations,
financial condition, business or prospects of the Credit Parties and their
Subsidiaries taken as a whole, (b) the ability of the Credit Parties taken
as a whole to perform their obligations under this Credit Agreement or any
of the other Credit Documents, or (c) the validity or enforceability of
this Credit Agreement, any of the other
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Credit Documents, or the rights and remedies of the Lenders hereunder or
thereunder taken as a whole.
"Material License Agreements" means (a) all license agreements set
forth on Schedule 6.24 and (b) each other license agreement entered into
by a Credit Party in which the annual revenues derived from the sale of
inventory subject to such license agreement exceeds five percent (5%) of
the total annual revenues of the Credit Parties and their Subsidiaries.
"Maturity Date" means October 31, 2002.
"Moody's" means Moody's Investors Service, Inc., or any successor or
assignee of the business of such company in the business of rating
securities.
"Mortgage Documents" means the Mortgages, the Mortgage Policies and
such other documents and agreements executed or delivered in connection
with the Real Properties.
"Mortgage Policies" has the meaning set forth in Section 5.1(g).
"Mortgages" has the meaning set forth in Section 5.1(g).
"Mortgaged Properties" has the meaning set forth in Section 5.1(g).
"Multiemployer Plan" means a Plan covered by Title IV of ERISA which
is a multiemployer plan as defined in Section 3(37) or 4001(a)(3) of
ERISA.
"Multiple Employer Plan" means a Plan covered by Title IV of ERISA,
other than a Multiemployer Plan, which any Credit Party or any of its
Subsidiaries or any ERISA Affiliate and at least one employer other than a
Credit Party or any of its Subsidiaries or any ERISA Affiliate are
contributing sponsors.
"NationsBank" means NationsBank, N.A. or any successor thereto.
"Net Cash Proceeds" means the aggregate cash proceeds received from
an Asset Disposition, an Equity Issuance or a Debt Issuance net of (a)
transaction costs related thereto (including, without limitation, legal,
accounting and investment banking fees and sales commissions) and any
relocation expenses incurred as a result thereof, (b) taxes paid or a good
faith estimate of the taxes payable with respect to such proceeds, (c)
Indebtedness (other than Indebtedness of the Lenders pursuant to the
Credit Documents) which is secured (prior to the date of such event) by
the assets which are the subject of such event to the extent such
Indebtedness is paid with a portion of the cash proceeds therefrom; and
(d) with respect to any Asset Disposition, any reserve required in
connection with a future purchase price adjustment, as established in
accordance with GAAP.
"Net Income" means, for any period, the net income after taxes for
such period of the Credit Parties and their Subsidiaries on a consolidated
basis, as determined in accordance with GAAP.
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"NMSI" means NationsBanc Montgomery Securities, Inc., f/k/a
NationsBanc Capital Markets, Inc.
"Non-Excluded Taxes" has the meaning set forth in Section 3.13.
"Note" or "Notes" means the Revolving Loan Notes, the Term Loan
Notes and the Swing Line Loan Note, individually or collectively, as
appropriate.
"Notice of Borrowing" means a request by the Borrowers for a
Revolving Loan, in the form of Exhibit 2.1(b).
"Notice of Continuation/Conversion" means a request by the Borrowers
to continue an existing Eurodollar Loan to a new Interest Period or to
convert a Eurodollar Loan to a Base Rate Loan (other than a Swing Line
Loan) or a Base Rate Loan (other than a Swing Line Loan) to a Eurodollar
Loan, in the form of Exhibit 2.5.
"Parent" means GCIH, Inc., a Delaware corporation.
"Participation Interest" means the Extension of Credit by a Lender
by way of a purchase of a participation in Letters of Credit or LOC
Obligations as provided in Section 2.2 or in any Loans as provided in
Section 3.8.
"PBGC" means the Pension Benefit Guaranty Corporation established
pursuant to Subtitle A of Title IV of ERISA and any successor thereto.
"Permitted Acquisitions" means an acquisition of all or
substantially all of the assets or stock of another Person by a Credit
Party or its Subsidiaries; provided that (a) such acquisition does not
cause or would not be reasonably expected to cause a Default or Event of
Default, (b) after giving effect to such acquisition, the Credit Parties
would be in compliance on a pro forma basis (as such pro forma compliance
is computed in accordance with Regulation S-X of the Securities Act) with
all of the financial covenants set forth in Section 7.2, (c) such Person
must in all material respects engage in a business similar to or a logical
extension of the business of the Credit Parties and their Subsidiaries and
(d) the aggregate amount of all such acquisitions shall not exceed $10
million during the term of this Credit Agreement.
"Permitted Investments" means Investments which are (a) cash or Cash
Equivalents, (b) accounts receivable created, acquired or made in the
ordinary course of business and payable or dischargeable in accordance
with customary trade terms, (c) inventory, raw materials and general
intangibles acquired in the ordinary course of business, (d) Investments
by a Credit Party in another Credit Party, (e) Investments by a Foreign
Subsidiary in a Credit Party or another Foreign Subsidiary, (f) a one time
Investment (excluding the purchase price paid by the Parent to acquire
Sport Socks Co. (Ireland) Limited) by a Credit Party in Sport Socks Co.
(Ireland) Limited not to exceed $3,000,000 and additional Investments by
Credit Parties in Foreign Subsidiaries, not to exceed $1,000,000, in the
aggregate, at any one time, (g) loans to directors, officers or employees
in the ordinary course of business for reasonable business expenses, not
to exceed, in the aggregate, $500,000 at any one time; (h) Investments in
Capital Expenditures; (i) Investments by the Parent in capital stock of
the Parent resulting from the
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repurchase of such stock from employees who voluntarily or involuntarily
terminate their employment from the Parent and its Subsidiaries not to
exceed $500,000 (net of any proceeds from the reissuance of any such
shares to other employees of the Parent), in the aggregate, during the
term of this Credit Agreement; (j) Investments in Permitted Acquisitions;
(k) Investments received in connection with the reorganization or
bankruptcy of a customer or supplier of a Credit Party or one of its
Subsidiaries as consideration for prior Indebtedness owed by such supplier
or customer; (l) Investments consisting of Guaranty Obligations otherwise
permitted by Section 8.1; (m) non-cash proceeds received in connection
with an Asset Disposition as long as such non-cash proceeds are pledged to
the Lenders in accordance with the terms of the Collateral Documents and
the value of such non-cash proceeds does not exceed, at any one time,
$1,000,000; and (n) other Investments (in addition to those set forth
above) not to exceed, in the aggregate, $500,000 at any one time.
"Permitted Liens" means (a) Liens securing Credit Party Obligations,
(b) Liens for taxes not yet due or Liens for taxes being contested in good
faith by appropriate proceedings for which adequate reserves determined in
accordance with GAAP have been established (and as to which the property
subject to any such Lien is not yet subject to foreclosure, sale,
collection, levy or loss on account thereof), (c) Liens in respect of
property imposed by law arising in the ordinary course of business such as
materialmen's, mechanics', warehousemen's, carrier's, landlords' and other
nonconsensual statutory Liens which are not yet due and payable or which
are being contested in good faith by appropriate proceedings for which
adequate reserves determined in accordance with GAAP have been established
(and as to which the property subject to any such Lien is not yet subject
to foreclosure, sale or loss on account thereof), (d) pledges or deposits
made in the ordinary course of business to secure payment of worker's
compensation insurance, unemployment insurance, pensions or social
security programs, (e) Liens arising from good faith deposits in
connection with or to secure performance of tenders, bids, leases,
government contracts, performance and return-of-money bonds and other
similar obligations incurred in the ordinary course of business (other
than obligations in respect of the payment of borrowed money), (f) Liens
arising from good faith deposits in connection with or to secure
performance of statutory obligations and surety and appeal bonds, (g)
easements, rights-of-way, restrictions (including zoning restrictions),
matters of plat, minor defects or irregularities in title and other
similar charges or encumbrances not, in any material respect, impairing
the use of the encumbered property for its intended purposes, (h) judgment
Liens that would not constitute an Event of Default, (i) Liens in
connection with Indebtedness permitted by Sections 8.1(e), 8.1(f) and
8.1(k), (j) Liens arising by virtue of any statutory or common law
provision relating to banker's liens, rights of setoff or similar rights
as to deposit accounts or other funds maintained with a creditor
depository institution, (k) Liens existing on the date hereof and
identified on Schedule 8.2; provided that no such Lien shall extend to any
property other than the property subject thereto on the Closing Date, (l)
Permitted Encumbrances (as defined in any Mortgage Document), (m) Liens
with respect to existing IRB financings set forth on Schedule 6.10 and (n)
Liens on leasehold improvements with respect to a leased facility to be
established in Evergreen, Alabama.
"Person" means any individual, partnership, joint venture, firm,
corporation, limited liability company, association, trust or other
enterprise (whether or not incorporated), or any Governmental Authority.
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<PAGE> 25
"Plan" means any employee benefit plan (as defined in Section 3(3)
of ERISA) which is covered by ERISA and with respect to which any Credit
Party or any of its Subsidiaries or any ERISA Affiliate is (or, if such
plan were terminated at such time, would under Section 4069 of ERISA be
deemed to be) an "employer" within the meaning of Section 3(5) of ERISA.
"Pledge Agreements" means any Pledge Agreement executed and
delivered by a Credit Party in favor of the Collateral Agent, for the
benefit of the Lenders, to secure its obligations under the Credit
Documents, as amended, modified, extended, renewed or replaced from time
to time.
"Preferred Stock" means 116,452 shares of Series A Preferred Stock,
par value $.01 per share, of the Parent currently issued and outstanding
and up to 950.7 additional shares of such stock which are held in treasury
as of the Closing Date.
"Prime Rate" means the per annum rate of interest established from
time to time by the Administrative Agent at its principal office in
Charlotte, North Carolina (or such other principal office of the
Administrative Agent as communicated in writing to the Borrowers and the
Lenders) as its Prime Rate. Any change in the interest rate resulting from
a change in the Prime Rate shall become effective as of 12:01 a.m. of the
Business Day on which each change in the Prime Rate is announced by the
Administrative Agent. The Prime Rate is a reference rate used by the
Administrative Agent in determining interest rates on certain loans and is
not intended to be the lowest rate of interest charged on any extension of
credit to any debtor.
"Principal Amortization Payment" means a principal payment on the
Term Loans as set forth in Section 2.4(c).
"Principal Amortization Payment Date" means the date a Principal
Amortization payment is due.
"Purchase Agreements" has the meaning set forth in Section 8.1(i).
"Real Properties" means the Mortgaged Properties and such other real
properties as the Credit Parties may lease (as lessee or sublessee) from
third parties from time to time.
"Regulation D, G, U, or X" means Regulation D, G, U or X,
respectively, of the Board of Governors of the Federal Reserve System as
from time to time in effect and any successor to all or a portion thereof.
"Rent Expense" means, for any period, with respect to the Credit
Parties and their Subsidiaries on a consolidated basis, all rent payable
under an operating lease (whether a lease of real property, personal
property or mixed), as determined in accordance with GAAP.
"Reportable Event" means a "reportable event" as defined in Section
4043 of ERISA with respect to which the notice requirements to the PBGC
have not been waived.
"Required Lenders" means Lenders whose aggregate Credit Exposure (as
hereinafter defined) constitutes at least 51% of the Credit Exposure of
all Lenders at such time; provided,
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however, that if any Lender shall be a Defaulting Lender at such time then
there shall be excluded from the determination of Required Lenders the
aggregate principal amount of Credit Exposure of such Lender at such time.
For purposes of the preceding sentence, the term "Credit Exposure" as
applied to each Lender shall mean (a) at any time prior to the termination
of the Commitments, the sum of the Revolving Loan Commitment Percentage of
such Lender multiplied by the Revolving Committed Amount plus the sum of
the Term Loan Commitment Percentage multiplied by the Term Loan Committed
Amount and (b) at any time after the termination of the Commitments, the
sum of (i) the principal balance of the outstanding Loans of such Lender
plus (ii) such Lender's Participation Interests in the face amount of the
outstanding Letters of Credit and Swing Line Loans.
"Requirement of Law" means, as to any Person, the articles or
certificate of incorporation and by-laws or other organizational or
governing documents of such Person, and any law, treaty, rule or
regulation or final, non-appealable determination of an arbitrator or a
court or other Governmental Authority, in each case applicable to or
binding upon such Person or to which any of its material property is
subject.
"Revolving Loan Commitment Percentage" means, for each Lender, the
percentage identified as its Revolving Loan Commitment Percentage on
Schedule 1.1(a), as such percentage may be modified in connection with any
assignment made in accordance with the provisions of Section 11.3.
"Revolving Committed Amount" means SIXTY MILLION DOLLARS
($60,000,000) or such lesser amount as the Revolving Committed Amount may
be reduced pursuant to Section 2.1(d) or 3.3(c).
"Revolving Loans" means the Revolving Loans made to the Borrowers
pursuant to Section 2.1.
"Revolving Note" or "Revolving Notes" means the promissory notes of
the Borrowers in favor of each of the Lenders evidencing the Revolving
Loans provided pursuant to Section 2.1, individually or collectively, as
appropriate, as such promissory notes may be amended, modified,
supplemented, extended, renewed or replaced from time to time and as
evidenced in the form of Exhibit 2.7(a)
"S&P" means Standard & Poor's Ratings Services, a division of The
McGraw-Hill Companies, Inc. or any successor or assignee of the business
of such division in the business of rating securities.
"Securities Act" means the Securities Act of 1933, as amended, and
the rules and regulations promulgated thereunder.
"Security Agreements" means any security agreement executed and
delivered by a Credit Party in favor of the Collateral Agent for the
benefit of the Lenders to secure its obligations under the Credit
Documents, as such may be amended, modified, extended, renewed, restated
or replaced from time to time.
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"Senior Subordinated Credit Agreement" means that certain Amended
and Restated Senior Subordinated Credit Agreement, dated as of the Closing
Date, among the Borrowers as borrowers, GCIH, Inc. and the Domestic
Subsidiaries, as guarantors and Citicorp Mezzanine Partners, L.P. as
lender.
"Single Employer Plan" means any Plan which is covered by Title IV
of ERISA, but which is not a Multiemployer Plan.
"Solvent" means, with respect to any Person as of a particular date,
that on such date (a) such Person is able to pay its debts and other
liabilities, contingent obligations and other commitments as they mature
in the normal course of business, (b) such Person does not intend to, and
does not believe that it will, incur debts or liabilities beyond such
Person's ability to pay as such debts and liabilities mature in their
ordinary course, (c) such Person is not engaged in a business or a
transaction, and is not about to engage in a business or a transaction,
for which such Person's assets would constitute insufficient capital after
giving due consideration to the prevailing practice in the industry in
which such Person is engaged or is to engage, (d) the fair value of the
assets of such Person is greater than the total amount of liabilities,
including, without limitation, contingent liabilities, of such Person and
(e) the present fair saleable 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. In
computing the amount of contingent liabilities at any time, it is intended
that such liabilities will be computed at the amount which, in 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.
"Standby Letter of Credit" has the meaning set forth in Section
2.2(a).
"Subordinated Debt" means, collectively, the Indebtedness incurred
pursuant to (a) the Senior Subordinated Credit Agreement and (b) the
Junior Subordinated Note.
"Subsidiary" means, as to any Person, (a) any corporation more than
50% of whose stock of any class or classes having by the terms thereof
ordinary voting power to elect a majority of the directors of such
corporation (irrespective of whether or not at the time, any class or
classes of such corporation shall have or might have voting power by
reason of the happening of any contingency) is at the time owned by such
Person directly or indirectly through Subsidiaries, and (b) any
partnership, association, joint venture or other entity in which such
person directly or indirectly through Subsidiaries has more than a 50%
equity interest at any time.
"Swing Line Loans" means the loans made by NationsBank pursuant to
Section 2.3.
"Swing Line Committed Amount" means FIVE MILLION DOLLARS
($5,000,000).
"Swing Line Loan Request" means a request by the Borrowers for a
Swing Line Loan in substantially the form of Exhibit 2.3(b).
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"Swing Line Note" means the promissory note of the Borrowers in
favor of NationsBank evidencing the Swing Line Loans provided pursuant to
Section 2.3, as such promissory note may be amended, modified,
supplemented, extended, renewed or replaced from time to time in and as
evidenced by the form of Exhibit 2.7(c).
"Tangible Net Worth" means, as of any date, shareholders' equity
(including Preferred Stock and accrued but unpaid dividends thereon) or
net worth of the Credit Parties and their Subsidiaries on a consolidated
basis, as determined in accordance with GAAP less the GAAP amount of all
organizational expenses, patents, copyrights, trademarks, licenses,
goodwill, covenants not to compete, research and development costs,
training costs and all unamortized debt discount plus, without
duplication, non-cash dividends accrued on Preferred Stock.
"Term Loans" means the Term Loans made to the Borrowers pursuant to
Section 2.4.
"Term Loan Commitment Percentage" means, for each Lender, the
percentage identified as its Term Loan Commitment Percentage on Schedule
1.1(a), as such percentage may be modified in connection with any
assignment made in accordance with the provisions of Section 11.3(b).
"Term Loan Committed Amount" means FORTY MILLION DOLLARS
($40,000,000).
"Term Note" or "Term Notes" means the promissory notes of the
Borrowers in favor of each of the Lenders evidencing the Term Loans
provided pursuant to Section 2.4, individually or collectively, as
appropriate, as such promissory notes may be amended, modified,
supplemented, extended, renewed or replaced from time to time as evidenced
in the form of Exhibit 2.7(b).
"Termination Event" means (a) with respect to any Single Employer
Plan, the occurrence of a Reportable Event or the substantial cessation of
operations (within the meaning of Section 4062(e) of ERISA); (b) the
withdrawal of any Credit Party or any of its Subsidiaries or any ERISA
Affiliate from a Multiple Employer Plan during a plan year in which it was
a substantial employer (as such term is defined in Section 4001(a)(2) of
ERISA), or the termination of a Multiple Employer Plan; (c) the
distribution of a notice of intent to terminate or the actual termination
of a Plan pursuant to Section 4041(a)(2) or 4041A of ERISA; (d) the
institution of proceedings to terminate or the actual termination of a
Plan by the PBGC under Section 4042 of ERISA; (e) any event or condition
which might reasonably constitute grounds under Section 4042 of ERISA for
the termination of, or the appointment of a trustee to administer, any
Plan; or (f) the complete or partial withdrawal of any Credit Party or any
of its Subsidiaries or any ERISA Affiliate from a Multiemployer Plan.
"Title Insurance Company" means Chicago Title Company.
"Total Assets" means all items which in accordance with GAAP would
be classified as assets of the Parent and its Subsidiaries on a
consolidated basis.
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<PAGE> 29
"Total Capitalization" means the sum of (a) all stockholder's equity
(including Preferred Stock and accrued but unpaid dividends thereon) of
the Parent and its Subsidiaries on a consolidated basis, as determined in
accordance with GAAP, plus (b) all Funded Debt of the Parent and its
Subsidiaries on a consolidated basis.
"Unused Commitment" means, for any period, the amount by which (a)
the then applicable aggregate Revolving Committed Amount exceeds (b) the
daily average sum for such period of the outstanding aggregate principal
amount of all Revolving Loans plus the aggregate amount of LOC Obligations
outstanding with respect to Standby Letters of Credit.
"Voting Stock" of a corporation means all classes of the capital
stock of such corporation then outstanding and normally entitled to vote
in the election of directors.
1.2 Computation of Time Periods and Other Definitional Provisions.
For purposes of computation of periods of time hereunder, the word "from"
means "from and including" and the words "to" and "until" each mean "to but
excluding." References in this Agreement to "Articles", "Sections", "Schedules"
or "Exhibits" shall be to Articles, Sections, Schedules or Exhibits of or to
this Agreement unless otherwise specifically provided.
1.3 Accounting Terms.
Except as otherwise expressly provided herein, all accounting terms used
herein shall be interpreted, and all financial statements and certificates and
reports as to financial matters required to be delivered to the Lenders
hereunder shall be prepared, in accordance with GAAP. All calculations made for
the purposes of determining compliance with this Credit Agreement shall (except
as otherwise expressly provided herein) (a) be made by application of GAAP as of
the Closing Date, (b) eliminate all transaction costs, not to exceed $1,500,000,
in the aggregate, incurred by the Credit Parties and their Subsidiaries in (i)
acquiring all of the shares of Auburn Hosiery Mills, Inc. and Sport Socks Co.
(Ireland) Limited, (ii) entering into the Credit Documents and (iii) repaying
the Indebtedness owing under the Existing Credit Agreement and (c) be made net
of the effect of any purchase price accounting adjustment as set forth in
Accounting Principles Board Opinion Nos. 16 and 17.
SECTION 2
CREDIT FACILITIES
2.1 Revolving Loans.
(a) Revolving Loan Commitment. Subject to the terms and conditions
set forth herein, each Lender severally agrees to make revolving loans
(each a "Revolving Loan" and collectively the "Revolving Loans") to the
Borrowers, in Dollars, at any time and from time to time, during the
period from and including the Effective Date to but not including the
Maturity Date (or such earlier date if the Revolving Committed Amount has
been terminated as provided herein); provided, however, that (i) the sum
of the aggregate amount of Revolving Loans outstanding plus the aggregate
amount of LOC Obligations outstanding plus the aggregate amount of Swing
Line Loans outstanding shall not exceed the lesser of (A) the Revolving
Committed Amount and (B) the Borrowing Base Assets and (ii) with respect
to each individual Lender, the Lender's pro rata share of outstanding
Revolving Loans plus such Lender's pro rata share of outstanding LOC
Obligations plus such Lender's (other than NationsBank) pro rata share of
outstanding Swing Line Loans shall not exceed such Lender's Revolving Loan
Commitment Percentage of the Revolving
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Committed Amount. Subject to the terms of this Credit Agreement (including
Section 3.3), the Borrowers may borrow, repay and reborrow Revolving
Loans.
(b) Method of Borrowing for Revolving Loans. By no later than 12:00
noon (i) on the date of the requested borrowing of Revolving Loans that
will be Base Rate Loans or (ii) three Business Days prior to the date of
the requested borrowing of Revolving Loans that will be Eurodollar Loans,
the Borrowers shall submit a written Notice of Borrowing in the form of
Exhibit 2.1(b) to the Administrative Agent setting forth (A) the amount
requested, (B) whether such Revolving Loans shall accrue interest at the
Adjusted Base Rate or the Adjusted Eurodollar Rate, (C) with respect to
Revolving Loans that will be Eurodollar Loans, the Interest Period
applicable thereto and (D) certification that the Borrowers have complied
in all respects with Section 5.2. All Revolving Loans made on the
Effective Date shall be Base Rate Loans. Thereafter, all or any portion of
such Revolving Loans may be converted into Eurodollar Loans in accordance
with the terms of Section 2.5.
(c) Funding of Revolving Loans. Upon receipt of a Notice of
Borrowing, the Administrative Agent shall promptly inform the Lenders as
to the terms thereof. Each Lender shall make its Revolving Loan Commitment
Percentage of the requested Revolving Loans available to the
Administrative Agent by 2:00 p.m. on the date specified in the Notice of
Borrowing by deposit, in Dollars, of immediately available funds at the
offices of the Administrative Agent at its principal office in Charlotte,
North Carolina or at such other address as the Administrative Agent may
designate in writing. The amount of the requested Revolving Loans will
then be made available to the Borrowers by the Administrative Agent by
crediting the account of the Borrowers on the books of such office of the
Administrative Agent, to the extent the amount of such Revolving Loans are
made available to the Administrative Agent.
No Lender shall be responsible for the failure or delay by any other
Lender in its obligation to make Revolving Loans hereunder; provided,
however, that the failure of any Lender to fulfill its obligations
hereunder shall not relieve any other Lender of its obligations hereunder.
Unless the Administrative Agent shall have been notified by any Lender
prior to the date of any such Revolving Loan that such Lender does not
intend to make available to the Administrative Agent its portion of the
Revolving Loans to be made on such date, the Administrative Agent may
assume that such Lender has made such amount available to the
Administrative Agent on the date of such Revolving Loans, and the
Administrative Agent in reliance upon such assumption, may (in its sole
discretion but without any obligation to do so) make available to the
Borrowers a corresponding amount. If such corresponding amount is not in
fact made available to the Administrative Agent, the Administrative Agent
shall be able to recover such corresponding amount from such Lender. If
such Lender does not pay such corresponding amount forthwith upon the
Administrative Agent's demand therefor, the Administrative Agent will
promptly notify the Borrowers, and the Borrowers shall immediately pay
such corresponding amount to the Administrative Agent. The Administrative
Agent shall also be entitled to recover from the Lender or the Borrowers,
as the case may be, interest on such corresponding amount in respect of
each day from the date such corresponding amount was made available by
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the Administrative Agent to the Borrowers to the date such corresponding
amount is recovered by the Administrative Agent at a per annum rate equal
to (i) from the Borrowers at the applicable rate for such Revolving Loan
pursuant to the Notice of Borrowing and (ii) from a Lender at the Federal
Funds Rate.
(d) Reductions of Revolving Committed Amount. Upon at least three
Business Days' notice, the Borrowers shall have the right to permanently
reduce, without premium or penalty, all or part of the aggregate unused
amount of the Revolving Committed Amount at any time or from time to time;
provided that (i) each partial reduction shall be in an aggregate amount
at least equal to $5,000,000 and in integral multiples of $1,000,000 above
such amount and (ii) no reduction shall be made which would reduce the
Revolving Committed Amount to an amount less than the aggregate amount of
outstanding Revolving Loans plus the aggregate amount of outstanding LOC
Obligations plus the aggregate amount of Swing Line Loans outstanding. Any
reduction in (or termination of) the Revolving Committed Amount shall be
permanent and may not be reinstated. The Administrative Agent shall
immediately notify the Lenders of any reduction in the Revolving Committed
Amount.
2.2 Letter of Credit Subfacility.
(a) Issuance. Subject to the terms and conditions hereof and of the
LOC Documents, if any, and any other terms and conditions which the
Issuing Lender may reasonably require (so long as such terms and
conditions do not impose any financial obligation on or require any Lien
(not otherwise contemplated by this Agreement) to be given by any Credit
Party or conflict with any obligation of, or detract from any action which
may be taken by, any Credit Party or their Subsidiaries under this
Agreement), the Issuing Lender shall from time to time upon request issue
(from the Effective Date to the Maturity Date and in a form reasonably
acceptable to the Issuing Lender), in Dollars, and the LOC Participants
shall participate in, Letters of Credit for the account of the Borrowers;
provided, however, that (i) the aggregate amount of LOC Obligations shall
not at any time exceed TWENTY MILLION DOLLARS ($20,000,000), (ii) the sum
of the aggregate amount of LOC Obligations outstanding plus Revolving
Loans outstanding plus Swing Line Loans outstanding shall not exceed the
Revolving Committed Amount and (iii) with respect to each individual LOC
Participant, the LOC Participant's pro rata share of outstanding Revolving
Loans plus its pro rata share of outstanding LOC Obligations plus (other
than NationsBank) its pro rata share of Swing Line Loans outstanding shall
not exceed such LOC Participant's Revolving Loan Commitment Percentage of
the Revolving Committed Amount. The Issuing Lender may require the
issuance and expiry date of each Letter of Credit to be a Business Day.
Each Letter of Credit shall be either (A) a standby letter of credit
issued to support the obligations (including pension or insurance
obligations), contingent or otherwise, of a Credit Party or any of its
Subsidiaries (a "Standby Letter of Credit"), or (B) a commercial letter of
credit in respect of the purchase of goods or services by a Credit Party
or any of its Subsidiaries in the ordinary course of business (a
"Documentary Letter of Credit". Except as otherwise expressly agreed upon
by all the LOC Participants, (x) no Standby Letter of Credit shall have an
original expiry date more than one year from the date of issuance;
provided that the Borrowers may request up to $500,000 of Standby Letters
of Credit with an expiry date of two years, (y)
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no Documentary Letter of Credit shall have an original expiry date more
than 270 days from the date of issuance and (z) no Letter of Credit shall
have an expiry date beyond the Maturity Date. Each Letter of Credit shall
comply with the related LOC Documents.
(b) Notice and Reports. The request for the issuance of a Letter of
Credit shall be submitted to the Issuing Lender at least three Business
Days prior to the requested date of issuance; provided that the Issuing
Lender agrees to issue up to $10 million of Letters of Credit, in the
aggregate at any one time, on the same Business Day as requested. The
Issuing Lender will, at least quarterly and more frequently upon request,
provide to the Administrative Agent for dissemination to the Lenders a
detailed report specifying the Letters of Credit which are then issued and
outstanding and any activity with respect thereto which may have occurred
since the date of the prior report, and including therein, among other
things, the account party, the beneficiary, the face amount, and the
expiry date as well as any payments or expirations which may have
occurred. The Issuing Lender will further provide to the Administrative
Agent, promptly upon request, copies of the Letters of Credit and the
other LOC Documents.
(c) Participations.
(i) Each LOC Participant acknowledges and confirms that it has
a Participation Interest in the liability of the Issuing Lender
under each Existing Letter of Credit in an amount equal to its
Revolving Loan Commitment Percentage of such Existing Letter of
Credit. The Borrowers' reimbursement obligations in respect of each
Existing Letter of Credit, and each LOC Participant's obligations in
connection therewith, shall be governed by the terms of this Credit
Agreement.
(ii) Each LOC Participant, upon issuance of a Letter of
Credit, shall be deemed to have purchased without recourse a risk
participation from the Issuing Lender in such Letter of Credit and
each LOC Document related thereto and the rights and obligations
arising thereunder and any collateral relating thereto, in each case
in an amount equal to its Revolving Loan Commitment Percentage of
the obligations under such Letter of Credit, and shall absolutely,
unconditionally and irrevocably assume, as primary obligor and not
as surety, and be obligated to pay to the Issuing Lender therefor
and discharge when due, its Revolving Loan Commitment Percentage of
the obligations arising under such Letter of Credit. Without
limiting the scope and nature of each LOC Participant's
participation in any Letter of Credit, to the extent that the
Issuing Lender has not been reimbursed as required hereunder or
under any such Letter of Credit, each such LOC Participant shall pay
to the Issuing Lender its Revolving Loan Commitment Percentage of
such unreimbursed drawing in same day funds on the day of
notification by the Issuing Lender of an unreimbursed drawing
pursuant to the provisions of subsection (d) or (e) hereof. The
obligation of each LOC Participant to so reimburse the Issuing
Lender shall be absolute and unconditional and shall not be affected
by the occurrence of a Default, an Event of Default or any other
occurrence or event. Any such reimbursement shall not relieve or
otherwise
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impair the obligation of the Borrowers or any other Credit Party to
reimburse the Issuing Lender under any Letter of Credit, together
with interest as hereinafter provided.
(d) Reimbursement. In the event of any drawing under any
Letter of Credit, the Issuing Lender will promptly notify the
Borrowers. Unless the Borrowers shall immediately notify the Issuing
Lender of its intent to otherwise reimburse the Issuing Lender, the
Borrowers shall be deemed to have requested a Swing Line Loan to the
extent a Swing Line Loan in such amount is available (including the
ability of the Borrowers to meet the conditions of Section 5.2) or
if a Swing Line Loan is not available then a Revolving Loan, in each
case at the Adjusted Base Rate in the amount of the drawing, in
either case, the proceeds of which will be used to satisfy the
reimbursement obligations. The Borrowers shall reimburse the Issuing
Lender on the day of drawing under any Letter of Credit either with
the proceeds of such Swing Line Loan or Revolving Loan obtained
hereunder or otherwise in same day funds as provided herein or in
the LOC Documents. If the Borrowers shall fail to reimburse the
Issuing Lender as provided hereinabove, the unreimbursed amount of
such drawing shall bear interest at a per annum rate equal to the
Base Rate plus the Applicable Percentage for the Base Rate Loans
that are Revolving Loans plus two percent (2%). The Borrowers'
reimbursement obligations hereunder shall be absolute and
unconditional under all circumstances irrespective of (but without
waiver of) any rights of set-off, counterclaim or defense to payment
the applicable account party or the Borrowers may claim or have
against an Issuing Lender, an Agent, the Lenders, the beneficiary of
the Letter of Credit drawn upon or any other Person, including
without limitation, any defense based on any failure of the
applicable account party, the Borrowers or any other Credit Party to
receive consideration or the legality, validity, regularity or
unenforceability of the Letter of Credit. The Issuing Lender will
promptly notify the LOC Participants of the amount of any
unreimbursed drawing and each LOC Participant shall promptly pay to
the Issuing Lender, in Dollars and in immediately available funds,
the amount of such LOC Participant's Revolving Loan Commitment
Percentage of such unreimbursed drawing. Such payment shall be made
on the day such notice is received by such Lender from the Issuing
Lender if such notice is received at or before 12:00 Noon, otherwise
such payment shall be made at or before 12:00 Noon on the Business
Day next succeeding the day such notice is received. If such LOC
Participant does not pay such amount to the Issuing Lender in full
upon such request, such LOC Participant shall, on demand, pay to the
Issuing Lender interest on the unpaid amount during the period from
the date the LOC Participant received the notice regarding the
unreimbursed drawing until such LOC Participant pays such amount to
the Issuing Lender in full at a rate per annum equal to, if paid
within two Business Days of the date of drawing, the Federal Funds
Rate and thereafter at a rate equal to the Base Rate. Each LOC
Participant's obligation to make such payment to the Issuing Lender,
and the right of the Issuing Lender to receive the same, shall be
absolute and unconditional, shall not be affected by any
circumstance whatsoever and without regard to the termination of
this Credit Agreement or the Commitments hereunder, the existence of
a Default or Event of Default or the acceleration of the obligations
hereunder and shall be made without any offset, abatement,
withholding or reduction whatsoever. Simultaneously with the making
of each
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such payment by a LOC Participant to the Issuing Lender, such LOC
Participant shall, automatically and without any further action on
the part of the Issuing Lender or such LOC Participant, acquire a
participation in an amount equal to such payment (excluding the
portion of such payment constituting interest owing to the Issuing
Lender) in the related unreimbursed drawing portion of the LOC
Obligation and in the interest thereon and in the related LOC
Documents, and shall have a claim against the Borrowers and the
other Credit Parties with respect thereto.
(e) Repayment with Revolving Loans. On any day on which the
Borrowers shall have requested, or been deemed to have requested, a
Revolving Loan borrowing to reimburse a drawing under a Letter of
Credit (as set forth in clause (d) above), the Administrative Agent
shall give notice to the applicable Lenders that a Revolving Loan
has been requested or deemed requested in connection with a drawing
under a Letter of Credit, in which case a Revolving Loan borrowing
comprised solely of Base Rate Loans (each such borrowing, a
"Mandatory Borrowing") shall be immediately made from all applicable
Lenders (without giving effect to any termination of the Commitments
pursuant to Section 9.2) pro rata based on each Lender's respective
Revolving Loan Commitment Percentage and the proceeds thereof shall
be paid directly to the Issuing Lender for application to the
respective LOC Obligations. Each such Lender hereby irrevocably
agrees to make such Revolving Loans immediately upon any such
request or deemed request on account of each such Mandatory
Borrowing in the amount and in the manner specified in the preceding
sentence and on the same such date notwithstanding (i) the amount of
Mandatory Borrowing may not comply with the minimum amount for
borrowings of Revolving Loans otherwise required hereunder, (ii)
whether any conditions specified in Section 5.2 are then satisfied,
(iii) whether a Default or Event of Default then exists, (iv)
failure of any such request or deemed request for Revolving Loans to
be made by the time otherwise required hereunder, (v) the date of
such Mandatory Borrowing, or (vi) any reduction in the Revolving
Committed Amount or any termination of the Commitments. In the event
that any Mandatory Borrowing cannot for any reason be made on the
date otherwise required above (including, without limitation, as a
result of the commencement of a proceeding under the Bankruptcy Code
with respect to the Borrowers or any other Credit Party), then each
such Lender hereby agrees that it shall forthwith fund (as of the
date the Mandatory Borrowing would otherwise have occurred, but
adjusted for any payments received from the Borrowers on or after
such date and prior to such purchase) its Participation Interest in
the outstanding LOC Obligations; provided, further, that in the
event any Lender shall fail to fund its Participation Interest on
the day the Mandatory Borrowing would otherwise have occurred, then
the amount of such Lender's unfunded Participation Interest therein
shall bear interest payable to the Issuing Lender upon demand, at
the rate equal to, if paid within two Business Days of such date,
the Federal Funds Rate, and thereafter at a rate equal to the Base
Rate.
(f) Modification and Extension. The issuance of any
supplement, modification, amendment, renewal, or extensions to any
Letter of Credit shall, for purposes hereof, be treated in all
respects the same as the issuance of a new Letter of Credit
hereunder.
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(g) Uniform Customs and Practices. The Issuing Lender may have
the Letters of Credit be subject to The Uniform Customs and Practice
for Documentary Credits, as published as of the date of issue by the
International Chamber of Commerce (Publication No. 500 or the most
recent publication, the "UCP"), in which case the UCP may be
incorporated therein and deemed in all respects to be a part
thereof.
(h) Responsibility of Issuing Lender. It is expressly
understood and agreed as between the Lenders that the obligations of
the Issuing Lender hereunder to the LOC Participants are only those
expressly set forth in this Credit Agreement and that the Issuing
Lender shall be entitled to assume that the conditions precedent set
forth in Section 5.2 have been satisfied unless it shall have
acquired actual knowledge that any such condition precedent has not
been satisfied; provided, however, that nothing set forth in this
Section 2.2 shall be deemed to prejudice the right of any LOC
Participant to recover from the Issuing Lender any amounts made
available by such LOC Participant to the Issuing Lender pursuant to
this Section 2.2 in the event that it is determined by a court of
competent jurisdiction that the payment with respect to a Letter of
Credit constituted gross negligence or willful misconduct on the
part of the Issuing Lender.
(i) Conflict with LOC Documents. In the event of any conflict
between this Credit Agreement and any LOC Document, this Credit
Agreement shall govern.
(j) Indemnification of Issuing Lender.
(i) In addition to its other obligations under this
Credit Agreement, the Borrowers hereby agree to protect,
indemnify, pay and save the Issuing Lender harmless from and
against any and all claims, demands, liabilities, damages,
losses, costs, charges and expenses (including reasonable
attorneys' fees) that the Issuing Lender may incur or be
subject to as a consequence, direct or indirect, of (A) the
issuance of any Letter of Credit or (B) the failure of the
Issuing Lender to honor a drawing under a Letter of Credit as
a result of any act or omission, whether rightful or wrongful,
of any present or future de jure or de facto Governmental
Authority (all such acts or omissions, herein called
"Government Acts").
(ii) As between the Borrowers and the Issuing Lender,
the Borrowers shall assume all risks of the acts, omissions or
misuse of any Letter of Credit by the beneficiary thereof. The
Issuing Lender shall not be responsible for (except in the
case of (A), (B) and (C) below if the Issuing Lender has
actual knowledge to the contrary): (A) the form, validity,
sufficiency, accuracy, genuineness or legal effect of any
document submitted by any party in connection with the
application for and issuance of any Letter of Credit, even if
it should in fact prove to be in any or all respects invalid,
insufficient, inaccurate, fraudulent or forged; (B) the
validity or sufficiency of any instrument transferring or
assigning or purporting to transfer or assign any Letter of
Credit or the rights or benefits thereunder or proceeds
thereof, in whole or in part, that may prove to be invalid or
ineffective for any reason; (C) failure of the beneficiary of
a Letter of Credit to comply fully with conditions required in
order to draw upon a Letter of Credit; (D) errors,
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omissions, interruptions or delays in transmission or delivery
of any messages, by mail, cable, telegraph, telex or
otherwise, whether or not they be in cipher; (E) errors in
interpretation of technical terms; (F) any loss or delay in
the transmission or otherwise of any document required in
order to make a drawing under a Letter of Credit or of the
proceeds thereof; and (G) any consequences arising from causes
beyond the control of the Issuing Lender, including, without
limitation, any Government Acts. None of the above shall
affect, impair, or prevent the vesting of the Issuing Lender's
rights or powers hereunder.
(iii) In furtherance and extension and not in limitation
of the specific provisions hereinabove set forth, any action
taken or omitted by the Issuing Lender, under or in connection
with any Letter of Credit or the related certificates, if
taken or omitted in good faith, shall not put the Issuing
Lender under any resulting liability to the Borrowers or any
other Credit Party. It is the intention of the parties that
this Credit Agreement shall be construed and applied to
protect and indemnify the Issuing Lender against any and all
risks involved in the issuance of the Letters of Credit, all
of which risks are hereby assumed by the Borrowers, including,
without limitation, any and all risks of the acts or
omissions, whether rightful or wrongful, of any present or
future Government Acts. The Issuing Lender shall not, in any
way, be liable for any failure by the Issuing Lender or anyone
else to pay any drawing under any Letter of Credit as a result
of any Government Acts or any other cause beyond the control
of the Issuing Lender.
(iv) Nothing in this subsection (j) is intended to limit
the reimbursement obligation of the Borrowers contained in
this Section 2.2. The obligations of the Borrowers under this
subsection (j) shall survive the termination of this Credit
Agreement. No act or omission of any current or prior
beneficiary of a Letter of Credit shall in any way affect or
impair the rights of the Issuing Lender to enforce any right,
power or benefit under this Credit Agreement.
(v) Notwithstanding anything to the contrary contained
in this subsection (j), the Borrowers shall have no obligation
to indemnify the Issuing Lender in respect of any liability
incurred by the Issuing Lender arising solely out of the gross
negligence or willful misconduct of the Issuing Lender.
Nothing in this Agreement shall relieve the Issuing Lender of
any liability to the Borrowers in respect of any action taken
by the Issuing Lender which action constitutes gross
negligence or willful misconduct of the Issuing Lender or a
violation of the UCP or Uniform Commercial Code (as
applicable).
2.3 Swing Line Loans Subfacility.
(a) Swing Line Loans. NationsBank hereby agrees, on the terms and
subject to the conditions set forth herein and in the other Credit
Documents, to make loans to the Borrowers, in Dollars, at any time and
from time to time during the period from and including the Effective Date
to but not including the Maturity Date (each such loan, a "Swing Line
Loan" and collectively, the "Swing Line Loans"); provided that (i) the
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aggregate principal amount of the Swing Line Loans outstanding at any one
time shall not exceed the Swing Line Committed Amount and (ii) the
aggregate amount of Swing Line Loans outstanding plus the aggregate amount
of Revolving Loans outstanding plus the aggregate amount of LOC
Obligations outstanding shall not exceed the Revolving Committed Amount.
Prior to the Maturity Date, Swing Line Loans may be repaid and reborrowed
by the Borrowers in accordance with the provisions hereof.
(b) Method of Borrowing and Funding Swing Line Loans. By no later
than 1:00 p.m., on the date of the requested borrowing of Swing Line
Loans, the Borrowers shall provide telephonic notice to NationsBank,
followed promptly by a written Swing Line Loan Request in the form of
Exhibit 2.3(b) (which may be submitted via telecopy), each of such
telephonic notice and such written Swing Line Loan Request setting forth
(i) the amount of the requested Swing Line Loan and (ii) the date of the
requested Swing Line Loan and complying in all respects with Section 5.2.
NationsBank shall initiate the transfer of funds representing the Swing
Line Loan advance to the Borrowers by 3:00 p.m. on the Business Day of the
requested borrowing.
(c) Repayment and Participations of Swing Line Loans. The Borrowers
agree to repay all Swing Line Loans within one Business Day of demand
therefor by NationsBank. Each repayment of a Swing Line Loan may be
accomplished by requesting Revolving Loans which request is not subject to
the conditions set forth in Section 5.2. In the event that the Borrowers
shall fail to timely repay any Swing Line Loan, and in any event upon (i)
a request by NationsBank, (ii) the occurrence of an Event of Default
described in Section 9.1(f) or (iii) the acceleration of any Loan or
termination of any Commitment pursuant to Section 9.2, each other Lender
shall irrevocably and unconditionally purchase from NationsBank, without
recourse or warranty, an undivided interest and participation in such
Swing Line Loan in an amount equal to such other Lender's Revolving Loan
Commitment Percentage thereof, by directly purchasing a participation in
such Swing Line Loan in such amount (regardless of whether the conditions
precedent thereto set forth in Section 5.2 hereof are then satisfied,
whether or not the Borrowers have submitted a Notice of Borrowing and
whether or not the Commitments are then in effect, any Event of Default
exists or all the Loans have been accelerated) and paying the proceeds
thereof to NationsBank at the address provided on Schedule 11.1, or at
such other address as NationsBank may designate, in Dollars and in
immediately available funds. If such amount is not in fact made available
to NationsBank by any Lender, NationsBank shall be entitled to recover
such amount on demand from such Lender, together with accrued interest
thereon for each day from the date of demand thereof, at the Federal Funds
Rate. If such Lender does not pay such amount forthwith upon NationsBank's
demand therefor, and until such time as such Lender makes the required
payment, NationsBank shall be deemed to continue to have outstanding Swing
Line Loans in the amount of such unpaid participation obligation for all
purposes of the Credit Documents other than those provisions requiring the
other Lenders to purchase a participation therein. Further, such Lender
shall be deemed to have assigned any and all payments made of principal
and interest on its Loans, and any other amounts due to it hereunder to
NationsBank to fund Swing Line Loans in the amount of the participation in
Swing Line Loans that
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such Lender failed to purchase pursuant to this Section 2.3(c) until such
amount has been purchased (as a result of such assignment or otherwise).
2.4 Term Loans.
(a) Term Loan. Subject to the terms and conditions set forth herein,
each Lender severally agrees, on the Effective Date, to make a term loan
(collectively, the "Term Loans") to the Borrowers, in Dollars, in an
amount equal to such Lender's Term Loan Commitment Percentage of the Term
Loan Committed Amount; provided that the aggregate amount of such Term
Loans made on the Effective Date shall not exceed the Term Loan Committed
Amount. Once repaid, Term Loans cannot be reborrowed.
(b) Funding of Term Loans. On the Effective Date, each applicable
Lender will make its Term Loan Commitment Percentage of the Term Loan
Committed Amount available to the Administrative Agent by deposit, in
Dollars and in immediately available funds, at the offices of the
Administrative Agent at its principal office in Charlotte, North Carolina
or at such other address as the Administrative Agent may designate in
writing. The amount of the Term Loans will then be made available to the
Borrowers by the Administrative Agent by crediting the account of the
Borrowers on the books of such office of the Administrative Agent, to the
extent the amount of such Term Loans are made available to the
Administrative Agent. All Term Loans on the Effective Date shall be Base
Rate Loans. Thereafter, all or any portion of the Term Loans may be
converted into Eurodollar Loans in accordance with the terms of Section
2.5.
No Lender shall be responsible for the failure or delay by any other
Lender in its obligation to make a Term Loan hereunder; provided, however,
that the failure of any Lender to fulfill its obligations hereunder shall
not relieve any other Lender of its obligations hereunder. If the
Administrative Agent shall have received an executed signature page to
this Credit Agreement (whether an original or via telecopy) from a Lender,
the Administrative Agent may assume that such Lender has or will make the
amount of its Term Loans available to the Administrative Agent on the
Effective Date, and the Administrative Agent in reliance upon such
assumption, may (in its sole discretion but without any obligation to do
so) make available to the Borrowers a corresponding amount. If such
corresponding amount is not in fact made available to the Administrative
Agent, the Administrative Agent shall be able to recover such
corresponding amount from such Lender. If such Lender does not pay such
corresponding amount forthwith upon the Administrative Agent's demand
therefor, the Administrative Agent will promptly notify the Borrowers, and
the Borrowers shall immediately pay such corresponding amount to the
Administrative Agent. The Administrative Agent shall also be entitled to
recover from the Lender or the Borrowers, as the case may be, interest on
such corresponding amount in respect of each day from the date such
corresponding amount was made available by the Administrative Agent to the
Borrowers to the date such corresponding amount is recovered by the
Administrative Agent at a per annum rate equal to (i) from the Borrowers
at the applicable rate for such Term Loan and (ii) from a Lender at the
Federal Funds Rate.
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(c) Amortization. The principal amount of the Term Loans shall be
repaid in quarterly payments on the dates set forth below:
Principal Amortization Term Loan Principal
Payment Dates Amortization Payment
---------------------- --------------------
December 31, 1997 $1,500,000
March 31, 1998 $1,500,000
June 30, 1998 $1,500,000
September 30, 1998 $1,500,000
December 31, 1998 $2,000,000
March 31, 1999 $2,000,000
June 30, 1999 $2,000,000
September 30, 1999 $2,000,000
December 31, 1999 $2,125,000
March 31, 2000 $2,125,000
June 30, 2000 $2,125,000
September 30, 2000 $2,125,000
December 31, 2000 $2,125,000
March 31, 2001 $2,125,000
June 30, 2001 $2,125,000
September 30, 2001 $2,125,000
December 31,2001 $2,250,000
March 31, 2002 $2,250,000
June 30, 2002 $2,250,000
September 30, 2002 $2,250,000
Total $40,000,000
2.5 Continuations and Conversions.
The Borrowers shall have the option, on any Business Day, to continue
existing Eurodollar Loans for a subsequent Interest Period, to convert Base Rate
Loans (other than Swing Line Loans) into Eurodollar Loans or to convert
Eurodollar Loans into Base Rate Loans (other than Swing Line Loans); provided,
however, that (i) each such continuation or conversion must be requested by the
Borrowers pursuant to a written Notice of Continuation/Conversion, in the form
of Exhibit 2.5, in compliance with the terms set forth below, (ii) except as
provided in Section 3.11, Eurodollar Loans may only be continued or converted
into Base Rate Loans on the last day of the Interest Period applicable thereto,
(iii) Eurodollar Loans may not be continued nor may Base Rate Loans be converted
into Eurodollar Loans during the existence and continuation of a Default or an
Event of Default and (iv) any request to continue a Eurodollar Loan that fails
to comply with the terms hereof or any failure to request a continuation of a
Eurodollar Loan at the end of an Interest Period shall constitute a conversion
to a Base Rate Loan on the last day of the applicable Interest Period. Each
continuation or conversion must be requested by the Borrowers no later than
11:00 a.m. (A) on the date for a requested conversion of a Eurodollar Loan to a
Base Rate Loan or (B) three Business Days prior to the date for a requested
continuation of a Eurodollar Loan or conversion of a Base Rate Loan to a
Eurodollar Loan, in each case pursuant to a written Notice of
Continuation/Conversion submitted to the Administrative Agent which shall set
forth (x) whether the Borrowers wish to continue or convert such Loans and (y)
if the request is to continue a Eurodollar Loan or convert a Base Rate Loan to a
Eurodollar Loan, the Interest Period applicable thereto.
2.6 Minimum Amounts.
Each request for a borrowing, conversion or continuation shall be subject
to the requirements that (a) each Eurodollar Loan for an Interest Period of one
month shall be in a minimum amount of $3,750,000 and in integral multiples of
$500,000 in excess thereof, (b) each
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Eurodollar Loan for an Interest Period of two, three or six months shall be in a
minimum amount of $3,000,000 and in integral multiples of $500,000 in excess
thereof, (c) each Base Rate Loan shall be in a minimum amount of the lesser of
$1,000,000 (and integral multiples of $100,000 in excess thereof) or the
remaining amount available under the Revolving Committed Amount, (d) each Swing
Line Loan shall be in a minimum amount of $100,000 and in integral multiples of
$50,000 in excess thereof or the remaining amount of the Swing Line Committed
Amount (provided that this limitation in clause (d) shall not apply for amounts
requested to repay a drawn Letter of Credit pursuant to Section 2.2(d)) and (e)
no more than eight Eurodollar Loans shall be outstanding hereunder at any one
time. For the purposes of this Section, all Eurodollar Loans with the same
Interest Periods that begin and end on the same date shall be considered as one
Eurodollar Loan, but Eurodollar Loans with different Interest Periods, even if
they begin on the same date, shall be considered as separate Eurodollar Loans.
2.7 Notes.
(a) Revolving Notes. The Revolving Loans made by each Lender shall
be evidenced by a duly executed promissory note of the Borrowers to each
applicable Lender in the face amount of its Revolving Loan Commitment
Percentage of the Revolving Committed Amount and in substantially the form
of Exhibit 2.7(a).
(b) Term Notes. The Term Loans made by each Lender shall be
evidenced by a duly executed promissory note of the Borrowers to each
applicable Lender in the face amount of its Term Loan Commitment
Percentage of the Term Loan Committed Amount and in substantially the form
of Exhibit 2.7(b).
(c) Swing Line Note. The Swing Line Loans made by NationsBank shall
be evidenced by a duly executed promissory note of the Borrowers to
NationsBank in the face amount of the Swing Line Committed Amount and in
substantially the form of Exhibit 2.7(c).
2.8 Joint and Several Liability of the Borrowers.
(a) Each of the Borrowers is accepting joint and several liability
hereunder in consideration of the financial accommodation to be provided
by the Lenders under this Credit Agreement, for the mutual benefit,
directly and indirectly, of each of the Borrowers and in consideration of
the undertakings of each of the Borrowers to accept joint and several
liability for the obligations of each of them.
(b) Each of the Borrowers jointly and severally hereby irrevocably
and unconditionally accepts, not merely as a surety but also as a
co-debtor, joint and several liability with the other Borrower with
respect to the payment and performance of all of the Credit Party
Obligations arising under this Credit Agreement and the other Credit
Documents, it being the intention of the parties hereto that all the
Credit Party Obligations shall be the joint and several obligations of
each of the Borrowers without preferences or distinction among them.
(c) If and to the extent that either of the Borrowers shall fail to
make any payment with respect to any of the obligations hereunder as and
when due or to perform any of such obligations in accordance with the
terms thereof, then in each such
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event, the other Borrower will make such payment with respect to, or
perform, such obligation.
(d) The obligations of each Borrower under the provisions of this
Section 2.8 constitute full recourse obligations of such Borrower,
enforceable against it to the full extent of its properties and assets,
irrespective of the validity, regularity or enforceability of this Credit
Agreement or any other circumstances whatsoever. The joint and several
liability of the Borrowers hereunder shall continue in full force and
effect notwithstanding any absorption, merger, amalgamation or any other
change whatsoever in the name, membership, constitution or place of
formation of either Borrower or any of the Lenders.
(e) The provisions of this Section 2.8 are made for the benefit of
the Lenders and their successors and assigns, and may be enforced by them
from time to time against either of the Borrowers as often as occasion
therefor may arise and without requirement on the part of the Lenders
first to marshall any of its claims or to exercise any of its rights
against the other Borrower or to exhaust any remedies available to it
against the other Borrower or to resort to any other source or means of
obtaining payment of any of the Credit Party Obligations hereunder or to
elect any other remedy. The provisions of this Section 2.8 shall remain in
effect until all the Credit Party Obligations hereunder shall have been
paid in full or otherwise fully satisfied. If at any time, any payment, or
any part thereof, made in respect of any of the Credit Party Obligations,
is rescinded or must otherwise be restored or returned by the Lenders upon
the insolvency, bankruptcy or reorganization of either of the Borrowers,
or otherwise, the provisions of this Section 2.8 will forthwith be
reinstated and in effect as though such payment had not been made.
(f) Notwithstanding any provision to the contrary contained herein
or in any of the other Credit Documents, to the extent the obligations of
any Borrower shall be adjudicated to be invalid or unenforceable for any
reason (including, without limitation, because of any applicable state or
federal law relating to fraudulent conveyances or transfers) then the
obligations of such Borrower hereunder shall be limited to the maximum
amount that is permissible under applicable law (whether federal or state
and including, without limitation, the Bankruptcy Code).
SECTION 3
GENERAL PROVISIONS APPLICABLE TO LOANS AND LETTERS OF CREDIT
3.1 Interest.
(a) Interest Rate. All Base Rate Loans (including Swing Line Loans)
shall accrue interest at the Adjusted Base Rate and all Eurodollar Loans
shall accrue interest at the Adjusted Eurodollar Rate.
(b) Default Rate of Interest. Upon the occurrence, and during the
continuance, of an Event of Default, the principal of and, to the extent
permitted by law,
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interest on the Loans and any other amounts owing hereunder or under the
other Credit Documents (including without limitation fees and expenses)
shall bear interest, payable on demand, at a per annum rate equal to 2%
plus the rate which would otherwise be applicable (or if no rate is
applicable, then the rate for Revolving Loans that are Base Rate Loans
plus two percent (2%) per annum).
(c) Interest Payments. Interest on Loans shall be due and payable in
arrears on each Interest Payment Date. If an Interest Payment Date falls
on a date which is not a Business Day, such Interest Payment Date shall be
deemed to be the next succeeding Business Day, except that in the case of
Eurodollar Loans where the next succeeding Business Day falls in the next
succeeding calendar month, then on the next preceding day.
3.2 Place and Manner of Payments.
All payments of principal, interest, fees, expenses and other amounts to
be made by a Credit Party under this Agreement shall be received not later than
2:00 p.m. on the date when due, in Dollars and in immediately available funds,
by the Administrative Agent at its offices in Charlotte, North Carolina.
Payments received after such time shall be deemed to have been received on the
next Business Day. A Borrower shall, at the time it makes any payment under this
Agreement, specify to the Administrative Agent, the Loans, Letters of Credit,
fees or other amounts payable by the Borrowers hereunder to which such payment
is to be applied (and in the event that it fails to specify, or if such
application would be inconsistent with the terms hereof, the Administrative
Agent shall, subject to Section 3.7, distribute such payment to the Lenders in
such manner as the Administrative Agent may deem appropriate). The
Administrative Agent will distribute such payments to the applicable Lenders on
the same Business Day if any such payment is received prior to 2:00 p.m.;
otherwise the Administrative Agent will distribute such payment to the
applicable Lenders on the next succeeding Business Day. Whenever any payment
hereunder shall be stated to be due on a day which is not a Business Day, the
due date thereof shall be extended to the next succeeding Business Day (subject
to accrual of interest and fees for the period of such extension), except that
in the case of Eurodollar Loans, if the extension would cause the payment to be
made in the next following calendar month, then such payment shall instead be
made on the next preceding Business Day.
3.3 Prepayments.
(a) Voluntary Prepayments. The Borrowers shall have the right to
prepay Loans in whole or in part from time to time without premium or
penalty; provided, however, that (i) Eurodollar Loans may only be prepaid
on three Business Days' prior written notice to the Administrative Agent
and any prepayment of Eurodollar Loans will be subject to Section 3.14,
(ii) each such partial prepayment of Loans shall be in the minimum
principal amount of (A) $1,000,000 and integral multiples of $100,000 in
excess thereof for Revolving Loans and Term Loans and (B) $100,000 and
integral multiples of $50,000 for Swing Line Loans and (iii) voluntary
prepayments with respect to the Term Loans shall be applied first to the
next four scheduled Principal Amortization Payments and then pro rata
among the remaining Principal Amortization Payments.
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(b) Mandatory Prepayments.
(i) Revolving Committed Amount. If at any time the sum of the
aggregate amount of Revolving Loans outstanding plus LOC Obligations
outstanding plus Swing Line Loans outstanding exceeds the lesser of
(A) the Revolving Committed Amount and (B) the Borrowing Base
Assets, the Borrowers shall immediately make a principal payment to
the Administrative Agent in the manner and in an amount such that
the sum of the aggregate amount of Revolving Loans outstanding plus
LOC Obligations outstanding plus Swing Line Loans outstanding is
less than or equal to (x) the Revolving Committed Amount and (y) the
Borrowing Base Assets.
(ii) Excess Cash Flow. Within 10 days after the date the
audited financial statements are required to be delivered pursuant
to Section 7.1(a) for each fiscal year, commencing with the fiscal
year ending December 31, 1998, the Borrowers shall, if there is any
principal amount outstanding with respect to the Term Loans, make a
prepayment of the Loans in an amount equal to 33% of the Excess Cash
Flow earned during the preceding fiscal year (to be applied as set
forth in Section 3.3(c) below).
(iii) Asset Sales. Immediately upon receipt by a Credit Party
or any of its Subsidiaries of proceeds from any Asset Disposition,
the Borrowers shall forward an amount equal to 100% of the Net Cash
Proceeds of such Asset Disposition to the Lenders as a prepayment of
the Loans (to be applied as set forth in Section 3.3(c) below).
(iv) Issuances of Equity. Immediately upon receipt by a Credit
Party or any of its Subsidiaries of proceeds from any Equity
Issuance (other than (A) an Equity Issuance consisting of the
issuance of shares of the Parent to employees of the Credit Parties
substantially contemporaneous with the repurchase of shares of the
Parent from other employees of the Parent and (B) Equity Issuances
consisting of the issuance of shares of the Parent to management of
the Credit Parties not to exceed a value of $25,000, in the
aggregate, during any calendar year), the Borrowers shall forward
100% of the Net Cash Proceeds of such Equity Issuance to the Lenders
as a prepayment of the Loans (to be applied as set forth in Section
3.3(c) below); provided that if the Net Cash Proceeds from an Equity
Issuance is at least $50 million, then the Borrowers may first use
such Net Cash Proceeds to prepay existing Preferred Stock plus
accrued dividends thereon, with any remaining Net Cash Proceeds to
be forwarded to the Lenders as a prepayment of the Loans.
(v) Issuance of Debt. Immediately upon receipt by a Credit
Party or any of its Subsidiaries of proceeds from any Debt Issuance,
the Borrowers shall forward 100% of the Net Cash Proceeds of such
Debt Issuance to the Lenders as a prepayment of the Loans (to be
applied as set forth in Section 3.3(c) below).
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(c) Application of Prepayments. All amounts required to be paid
pursuant to Section 3.3(b)(i) shall be applied first to Revolving Loans,
second to Swing Line Loans and third to a cash collateral account in
respect of LOC Obligations. All amounts required to be paid pursuant to
Section 3.3(b)(ii) above shall be applied to the outstanding Term Loans
(pro rata among the remaining Principal Amortization Payments) until the
Term Loans have been paid in full and once the Terms Loans are paid in
full any additional amounts returned to the Borrowers. All amounts
required to be paid pursuant to Section 3.3(b), (iii), (iv) and (v) above
shall be applied first to the outstanding Term Loans (pro rata among the
remaining Principal Amortization Payments) until the Term Loans have been
paid in full, second, to the Revolving Loans (with a corresponding
reduction in the Revolving Committed Amount), third to Swing Line Loans
and fourth, to a cash collateral account in respect of LOC Obligations.
Within the parameters of the applications set forth above, prepayments
shall be applied first to Base Rate Loans and then to Eurodollar Loans in
direct order of Interest Period maturities. All prepayments hereunder
shall be subject to Section 3.14.
(d) Escrow Account.
(i) If the Borrowers are required to make a mandatory
prepayment under Section 3.3(b) that would result in a payment by
the Borrowers under Section 3.14(c), the Borrowers may, at their
option, elect to place such mandatory prepayment in an escrow
account with the Administrative Agent, in the name of the
Administrative Agent (the "Escrow Account"). Either (A) at the
request of the Borrowers, (B) on the last day of an Interest Period,
(C) during the existence and continuation of an Event of Default or
(D) on the Maturity Date, the Administrative Agent shall apply all
amounts in the Escrow Account (including any income or gains earned
on amounts in the Escrow Account) to the Credit Party Obligations in
accordance with the terms of Section 3.3(c). The Borrowers may not
receive any amounts from the Escrow Account, but may only apply such
amounts to the Credit Party Obligations.
(ii) The Borrowers shall direct the investment of the amounts
in the Escrow Account; provided that the amounts in the Escrow
Account shall be invested only in cash and Cash Equivalents with a
remaining maturity that does not extend beyond the next Interest
Payment Date. All income and gains from such investments shall be
retained in the Escrow Account and the Borrowers shall treat all
income, gains and losses from investment of amounts in the Escrow
Account as their income or loss for federal income tax purposes.
3.4 Fees.
(a) Commitment Fees. In consideration of the Revolving Committed
Amount being made available by the Lenders hereunder, the Borrowers agree
to pay to the Administrative Agent, for the pro rata benefit of each
applicable Lender (based on each
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Lender's Revolving Loan Commitment Percentage of the Revolving Committed
Amount), a per annum fee equal to the Applicable Percentage for Commitment
Fees multiplied by the Unused Commitment (the "Commitment Fees"). The
Commitment Fees shall commence to accrue on the Effective Date and shall
be due and payable in arrears on the last day of each fiscal quarter of
the Parent (as well as on the Maturity Date and on any date that the
Revolving Committed Amount is reduced) for the immediately preceding
fiscal quarter (or portion thereof), beginning with the first of such
dates to occur after the Closing Date.
(b) Letter of Credit Fees.
(i) Standby Letter of Credit Fees. In consideration of the
issuance of Standby Letters of Credit hereunder, the Borrowers agree
to pay to the Issuing Lender for the pro rata benefit of the
applicable Lenders (based on each Lender's Revolving Loan Commitment
Percentage of the Revolving Committed Amount), a per annum fee (the
"Standby Letter of Credit Fees") equal to the Applicable Percentage
for the Standby Letter of Credit Fees on the average daily maximum
amount available to be drawn under each such Letter of Credit from
the date of issuance to the date of expiration. The Standby Letter
of Credit Fees will be payable in arrears on the last day of each
fiscal quarter of the Parent (as well as on the Maturity Date) for
the immediately preceding fiscal quarter (or portion thereof),
beginning with the first of such dates to occur after the Closing
Date.
(ii) Issuing Lender Fees. In addition to the Standby Letter of
Credit Fees payable pursuant to subsection (i) above, the Borrowers
shall pay to the Issuing Lender for its own account, without sharing
by the other Lenders, the customary charges from time to time to the
Issuing Lender for its services in connection with the issuance,
amendment, payment, transfer, administration, cancellation and
conversion of, and drawings under, Letters of Credit, including but
not limited to, the Issuing Lender's standard rates for operating,
amending, renewing and transferring any Documentary Letters of
Credit (collectively, the "Issuing Lender Fees").
(c) Administrative Fees. The Borrowers agree to pay to the
Administrative Agent, for its own account, an annual fee in accordance
with the terms of the Fee Letter.
3.5 Payment in full at Maturity.
On the Maturity Date, the entire outstanding principal balance of all
Loans and all LOC Obligations, together with accrued but unpaid interest and all
other sums owing with respect thereto, shall be due and payable in full, unless
accelerated sooner pursuant to Section 9.
3.6 Computations of Interest and Fees.
(a) Except for Base Rate Loans, in which case interest shall be
computed on the basis of a 365 or 366 day year as the case may be, all
computations of interest and fees hereunder shall be made on the basis of
the actual number of days elapsed over a
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year of 360 days. Interest shall accrue from and include the date of
borrowing (or continuation or conversion) but exclude the date of payment.
(b) It is the intent of the Lenders and the Credit Parties to
conform to and contract in strict compliance with applicable usury law
from time to time in effect. All agreements between the Lenders and the
Borrowers are hereby limited by the provisions of this paragraph which
shall override and control all such agreements, whether now existing or
hereafter arising and whether written or oral. In no way, nor in any event
or contingency (including but not limited to prepayment or acceleration of
the maturity of any obligation), shall the interest taken, reserved,
contracted for, charged, or received under this Credit Agreement, under
the Notes or otherwise, exceed the maximum nonusurious amount permissible
under applicable law. If, from any possible construction of any of the
Credit Documents or any other document, interest would otherwise be
payable in excess of the maximum nonusurious amount, any such construction
shall be subject to the provisions of this paragraph and such documents
shall be automatically reduced to the maximum nonusurious amount permitted
under applicable law, without the necessity of execution of any amendment
or new document. If any Lender shall ever receive anything of value which
is characterized as interest on the Loans under applicable law and which
would, apart from this provision, be in excess of the maximum lawful
amount, an amount equal to the amount which would have been excessive
interest shall, without penalty, be applied to the reduction of the
principal amount owing on the Loans and not to the payment of interest, or
refunded to the Borrowers or the other payor thereof if and to the extent
such amount which would have been excessive exceeds such unpaid principal
amount of the Loans. The right to demand payment of the Loans or any other
indebtedness evidenced by any of the Credit Documents does not include the
right to accelerate the payment of any interest which has not otherwise
accrued on the date of such demand, and the Lenders do not intend to
charge or receive any unearned interest in the event of such demand. All
interest paid or agreed to be paid to the Lenders with respect to the
Loans shall, to the extent permitted by applicable law, be amortized,
prorated, allocated, and spread throughout the full stated term (including
any renewal or extension) of the Loans so that the amount of interest on
account of such indebtedness does not exceed the maximum nonusurious
amount permitted by applicable law.
3.7 Pro Rata Treatment.
Except to the extent otherwise provided herein:
(a) Loans. Each Revolving Loan borrowing (including, without
limitation, each Mandatory Borrowing), each payment or prepayment of
principal of any Loan, each payment of fees (other than the Issuing Lender
Fees retained by the Issuing Lender for its own account and the
Administrative Fees retained by the Administrative Agent for its own
account), each reduction of the Revolving Committed Amount, and each
conversion or continuation of any Loan, shall (except as otherwise
provided in Section 3.11) be allocated pro rata among the relevant Lenders
in accordance with the respective Revolving Loan Commitment Percentages or
Term Loan Commitment Percentages of such Lenders (or, if the Commitments
of such Lenders have expired or been terminated, in accordance with the
respective principal amounts of the outstanding Loans and
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Participation Interests of such Lenders); provided that, if any Lender
shall have failed to pay its applicable pro rata share of any Revolving
Loan, then any amount to which such Lender would otherwise be entitled
pursuant to this subsection (a) shall instead be payable to the
Administrative Agent until the share of such Loan not funded by such
Lender has been repaid; provided further, that in the event any amount
paid to any Lender pursuant to this subsection (a) is rescinded or must
otherwise be returned by the Administrative Agent, each Lender shall, upon
the request of the Administrative Agent, repay to the Administrative Agent
the amount so paid to such Lender, with interest for the period commencing
on the date such payment is returned by the Administrative Agent until the
date the Administrative Agent receives such repayment at a rate per annum
equal to, during the period to but excluding the date two Business Days
after such request, the Federal Funds Rate, and thereafter, the Base Rate
plus two percent (2%) per annum; and
(b) Letters of Credit. Each payment of unreimbursed drawings in
respect of LOC Obligations shall be allocated to each LOC Participant pro
rata in accordance with its Revolving Loan Commitment Percentage; provided
that, if any LOC Participant shall have failed to pay its applicable pro
rata share of any drawing under any Letter of Credit, then any amount to
which such LOC Participant would otherwise be entitled pursuant to this
subsection (b) shall instead be payable to the Issuing Lender until the
share of such unreimbursed drawing not funded by such Lender has been
repaid; provided further, that in the event any amount paid to any LOC
Participant pursuant to this subsection (b) is rescinded or must otherwise
be returned by the Issuing Lender, each LOC Participant shall, upon the
request of the Issuing Lender, repay to the Administrative Agent for the
account of the Issuing Lender the amount so paid to such LOC Participant,
with interest for the period commencing on the date such payment is
returned by the Issuing Lender until the date the Issuing Lender receives
such repayment at a rate per annum equal to, during the period to but
excluding the date two Business Days after such request, the Federal Funds
Rate, and thereafter, the Base Rate plus two percent (2%) per annum.
3.8 Sharing of Payments.
The Lenders agree among themselves that, except to the extent otherwise
provided herein, in the event that any Lender shall obtain payment in respect of
any Loan, unreimbursed drawing with respect to any LOC Obligations or any other
obligation owing to such Lender under this Credit Agreement through the exercise
of a right of setoff, banker's lien or counterclaim, or pursuant to a secured
claim under Section 506 of the Bankruptcy Code or other security or interest
arising from, or in lieu of, such secured claim, received by such Lender under
any applicable bankruptcy, insolvency or other similar law or otherwise, or by
any other means, in excess of its pro rata share of such payment as provided for
in this Credit Agreement, such Lender shall promptly pay in cash or purchase
from the other Lenders a participation in such Loans, LOC Obligations, and other
obligations in such amounts, and make such other adjustments from time to time,
as shall be equitable to the end that all Lenders share such payment in
accordance with their respective ratable shares as provided for in this Credit
Agreement. The Lenders further agree among themselves that if payment to a
Lender obtained by such Lender through the exercise of a right of setoff,
banker's lien, counterclaim or other event as aforesaid shall be rescinded or
must otherwise be restored, each Lender which shall
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have shared the benefit of such payment shall, by payment in cash or a
repurchase of a participation theretofore sold, return its share of that benefit
(together with its share of any accrued interest payable with respect thereto)
to each Lender whose payment shall have been rescinded or otherwise restored.
The Borrowers agree that any Lender so purchasing such a participation may, to
the fullest extent permitted by law, exercise all rights of payment, including
setoff, banker's lien or counterclaim, with respect to such participation as
fully as if such Lender were a holder of such Loan, LOC Obligation or other
obligation in the amount of such participation. Except as otherwise expressly
provided in this Credit Agreement, if any Lender or an Agent shall fail to remit
to an Agent or any other Lender an amount payable by such Lender or such Agent
to such Agent or such other Lender pursuant to this Credit Agreement on the date
when such amount is due, such payments shall be made together with interest
thereon for each date from the date such amount is due until the date such
amount is paid to such Agent or such other Lender at a rate per annum equal to
the Federal Funds Rate. If under any applicable bankruptcy, insolvency or other
similar law, any Lender receives a secured claim in lieu of a setoff to which
this Section 3.8 applies, such Lender shall, to the extent practicable, exercise
its rights in respect of such secured claim in a manner consistent with the
rights of the Lenders under this Section 3.8 to share in the benefits of any
recovery on such secured claim.
3.9 Capital Adequacy.
If, after the date hereof, any Lender has determined that the adoption or
the becoming effective of, or any change in, or any change by any Governmental
Authority, central bank or comparable agency charged with the interpretation or
administration thereof in the interpretation or administration of, any
applicable law, rule or regulation regarding capital adequacy, or compliance by
such Lender, or its parent corporation, with any request or directive regarding
capital adequacy (whether or not having the force of law) of any such authority,
central bank or comparable agency, has or would have the effect of reducing the
rate of return on such Lender's (or parent corporation's) capital or assets as a
consequence of its commitments or obligations hereunder to a level below that
which such Lender, or its parent corporation, could have achieved but for such
adoption, effectiveness, change or compliance (taking into consideration such
Lender's (or parent corporation's) policies with respect to capital adequacy),
then, upon notice from such Lender to the Borrowers, the Borrowers shall (only
to the extent that the amount of such reduction in the rate of return is not
reflected in the Base Rate) be obligated to pay to such Lender such additional
amount or amounts as will compensate such Lender on an after-tax basis (after
taking into account applicable deductions and credits in respect of the amount
indemnified) for such reduction. Each reasonable determination by any such
Lender of amounts owing under this Section shall, absent manifest error, be
conclusive and binding on the parties hereto; provided, however, that each
Lender agrees to allocate such cost increases among its customers in good faith
and on an equitable basis. This covenant shall survive the termination of this
Credit Agreement and the payment of the Loans and all other amounts payable
hereunder.
3.10 Inability To Determine Interest Rate.
If prior to the first day of any Interest Period, the Administrative Agent
shall have determined in good faith (which determination shall be conclusive and
binding upon the Borrowers) that, by reason of circumstances affecting the
relevant market, adequate and reasonable means do not exist for ascertaining the
Eurodollar Rate for such Interest Period, the
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Administrative Agent shall give telecopy or telephonic notice thereof to the
Borrowers and the Lenders as soon as practicable thereafter, and will also give
prompt written notice to the Borrowers when such conditions no longer exist. If
such notice is given (a) any Eurodollar Loans requested to be made on the first
day of such Interest Period shall be made as Base Rate Loans, (b) any Loans that
were to have been converted on the first day of such Interest Period to or
continued as Eurodollar Loans shall be converted to or continued as Base Rate
Loans and (c) any outstanding Eurodollar Loans shall be converted, on the first
day of such Interest Period, to Base Rate Loans. Until the Administrative Agent
(after good faith efforts) is able to ascertain the Eurodollar Rate, no further
Eurodollar Loans shall be made or continued as such, nor shall the Borrowers
have the right to convert Base Rate Loans to Eurodollar Loans.
3.11 Illegality.
Notwithstanding any other provision herein, if the adoption of or any
change in any Requirement of Law or in the interpretation or application thereof
occurring after the Closing Date shall make it unlawful for any Lender to make
or maintain Eurodollar Loans as contemplated by this Credit Agreement, (a) such
Lender shall promptly give written notice of such circumstances to the Borrowers
and the Administrative Agent (which notice shall be withdrawn whenever such
circumstances no longer exist), (b) the commitment of such Lender hereunder to
make Eurodollar Loans, continue Eurodollar Loans as such and convert a Base Rate
Loan to Eurodollar Loans shall forthwith be canceled and, until such time as it
shall no longer be unlawful for such Lender to make or maintain Eurodollar
Loans, such Lender shall then have a commitment only to make a Base Rate Loan
when a Eurodollar Loan is requested and (c) such Lender's Loans then outstanding
as Eurodollar Loans, if any, shall be converted automatically to Base Rate Loans
on the respective last days or the then current Interest Periods with respect to
such Loans or within such earlier period as required by law. If any such
conversion of a Eurodollar Loan occurs on a day which is not the last day of the
then current Interest Period with respect thereto, the Borrowers shall pay to
such Lender such amounts, if any, as may be required pursuant to Section 3.14.
3.12 Requirements of Law.
If the adoption of or any change in any Requirement of Law or in the
interpretation or application thereof applicable to any Lender, or compliance by
any Lender with any request or directive (whether or not having the force of
law) from any central bank or other Governmental Authority, in each case made
subsequent to the Closing Date (or, if later, the date on which such Lender
becomes a Lender):
(a) shall subject such Lender to any tax of any kind whatsoever with
respect to any Letter of Credit, any Eurodollar Loans made by it or its
obligation to make Eurodollar Loans, or change the basis of taxation of
payments to such Lender in respect thereof (except for Non-Excluded Taxes
covered by Section 3.13 (including Non-Excluded Taxes imposed solely by
reason of any failure of such Lender to comply with its obligations under
Section 3.13(b)) and changes in taxes measured by or imposed upon the
overall net income, or franchise tax (imposed in lieu of such net income
tax), of such Lender or its applicable lending office, branch, or any
affiliate thereof);
(b) shall impose, modify or hold applicable any reserve, special
deposit, compulsory loan or similar requirement against assets held by,
deposits or other
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liabilities in or for the account of, advances, loans or other extensions
of credit by, or any other acquisition of funds by, any office of such
Lender which is not otherwise included in the determination of the
Eurodollar Rate hereunder; or
(c) shall impose on such Lender any other condition (excluding any
tax of any kind whatsoever);
and the result of any of the foregoing is to increase the cost to such Lender,
by an amount which such Lender deems to be material, of making, converting into,
continuing or maintaining Eurodollar Loans or issuing or participating in
Letters of Credit or to reduce any amount receivable hereunder in respect
thereof, then, in any such case, upon notice to the Borrowers from such Lender,
through the Administrative Agent, in accordance herewith, the Borrowers shall be
obligated to promptly pay such Lender, upon its demand, any additional amounts
necessary to compensate such Lender on an after-tax basis (after taking into
account applicable deductions and credits in respect of the amount indemnified)
for such increased cost or reduced amount receivable, provided that, in any such
case, the Borrowers may elect to convert the Eurodollar Loans made by such
Lender hereunder to Base Rate Loans by giving the Administrative Agent at least
one Business Day's notice of such election, in which case the Borrowers shall
promptly pay to such Lender, upon demand, without duplication, such amounts, if
any, as may be required pursuant to Section 3.14. If any Lender becomes entitled
to claim any additional amounts pursuant to this Section 3.12, it shall provide
prompt notice thereof to the Borrowers, through the Administrative Agent,
certifying (x) that one of the events described in this Section 3.12 has
occurred and describing in reasonable detail the nature of such event, (y) as to
the increased cost or reduced amount resulting from such event and (z) as to the
additional amount demanded by such Lender and a reasonably detailed explanation
of the calculation thereof. Such a certificate as to any additional amounts
payable pursuant to this Section 3.12 submitted by such Lender, through the
Administrative Agent, to the Borrowers shall be conclusive and binding on the
parties hereto in the absence of manifest error. This covenant shall survive the
termination of this Credit Agreement and the payment of the Loans and all other
amounts payable hereunder. Notwithstanding the foregoing, if a Lender can
reasonably avoid such increased cost by changing its lending office or taking
such other action and such change or other action does not cause a material risk
or cost to such Lender, it shall use best efforts to do so.
3.13 Taxes.
(a) Except as provided below in this Section 3.13, all payments made
by the Borrowers under this Credit Agreement and any Notes shall be made
free and clear of, and without deduction or withholding for or on account
of, any present or future income, stamp or other taxes, levies, imposts,
duties, charges, fees, deductions or withholdings, now or hereafter
imposed, levied, collected, withheld or assessed by any court, or
governmental body, agency or other official, excluding taxes measured by
or imposed upon the net income of any Lender or its applicable lending
office, or any branch or affiliate thereof, and all franchise taxes,
branch taxes, taxes on doing business or taxes on the capital or net worth
of any Lender or its applicable lending office, or any branch or affiliate
thereof, in each case imposed in lieu of net income taxes: (i) by the
jurisdiction under the laws of which such Lender, applicable lending
office, branch or affiliate is organized or is located, or in which its
principal executive office is located, or
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any nation within which such jurisdiction is located or any political
subdivision thereof; or (ii) by reason of any connection between the
jurisdiction imposing such tax and such Lender, applicable lending office,
branch or affiliate other than a connection arising solely from such
Lender having executed, delivered or performed its obligations, or
received payment under or enforced, this Credit Agreement or any Notes. If
any such non-excluded taxes, levies, imposts, duties, charges, fees,
deductions or withholdings ("Non-Excluded Taxes") are required to be
withheld from any amounts payable to an Agent or any Lender hereunder or
under any Notes, (A) the amounts so payable to an Agent or such Lender
shall be increased to the extent necessary to yield to an Agent or such
Lender (after payment of all Non-Excluded Taxes) interest or any such
other amounts payable hereunder at the rates or in the amounts specified
in this Credit Agreement and any Notes, provided, however, that the
Borrowers shall be entitled to deduct and withhold any Non-Excluded Taxes
and shall not be required to increase any such amounts payable to any
Lender that is not organized under the laws of the United States of
America or a state thereof if such Lender fails to comply with the
requirements of paragraph (b) of this Section 3.13 whenever any
Non-Excluded Taxes are payable by the Borrowers, and (B) as promptly as
possible after requested the Borrowers shall send to such Agent for its
own account or for the account of such Lender, as the case may be, a
certified copy of an original official receipt received by the Borrowers
showing payment thereof. If the Borrowers fail to pay any Non-Excluded
Taxes when due to the appropriate taxing authority or fails to remit to
the Administrative Agent the required receipts or other required
documentary evidence, the Borrowers shall indemnify the Agents and any
Lender for any incremental Non-Excluded Taxes, interest or penalties that
may become payable by an Agent or any Lender as a result of any such
failure. The Agent or any Lender (as the case may be) claiming any
additional amounts payable pursuant to this Section 3.13 shall use its
best efforts (consistent with its internal policy and legal and regulatory
restrictions) to change the jurisdiction of its lending office if the
making of such a change would avoid the need for, or reduce the amount of,
any such additional amounts which may thereafter accrue and would not, in
the reasonable judgment of the Agent, or such Lender (as the case may be),
be otherwise disadvantageous to the Agent, or such Lender (as the case may
be). The agreements in this subsection shall survive the termination of
this Credit Agreement and the payment of the Loans and all other amounts
payable hereunder.
(b) Each Lender that is not incorporated under the laws of the
United States of America or a state thereof shall:
(i) (A) on or before the date of any payment by the
Borrowers under this Credit Agreement or Notes to such Lender,
deliver to the Borrowers and the Administrative Agent (x) two duly
completed copies of United States Internal Revenue Service Form 1001
or 4224, or successor applicable form, as the case may be,
certifying that it is entitled to receive payments under this Credit
Agreement and any Notes without deduction or withholding of any
United States federal income taxes and (y) an Internal Revenue
Service Form W-8 or W-9, or successor applicable form, as the case
may be, certifying that it is entitled to an exemption from United
States backup withholding tax;
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(B) deliver to the Borrowers and the Administrative
Agent two further copies of any such form or certification on or
before the date that any such form or certification expires or
becomes obsolete and after the occurrence of any event requiring a
change in the most recent form previously delivered by it to the
Borrowers; and
(C) obtain such extensions of time for filing and
complete such forms or certifications as may reasonably be requested
by the Borrowers or the Administrative Agent; or
(ii) in the case of any such Lender that is not a "bank"
within the meaning of Section 881(c)(3)(A) of the Internal Revenue
Code, (A) represent to the Borrowers (for the benefit of the
Borrowers and the Agents) that it is not a bank within the meaning
of Section 881(c)(3)(A) of the Internal Revenue Code, (B) agree to
furnish to the Borrowers, on or before the date of any payment by
the Borrowers, with a copy to the Administrative Agent, two accurate
and complete original signed copies of Internal Revenue Service Form
W-8, or successor applicable form certifying to such Lender's legal
entitlement at the date of such certificate to an exemption from
U.S. withholding tax under the provisions of Section 881(c) of the
Internal Revenue Code with respect to payments to be made under this
Credit Agreement and any Notes (and to deliver to the Borrowers and
the Administrative Agent two further copies of such form on or
before the date it expires or becomes obsolete and after the
occurrence of any event requiring a change in the most recently
provided form and, if necessary, obtain any extensions of time
reasonably requested by the Borrowers or the Administrative Agent
for filing and completing such forms), and (C) agree, to the extent
legally entitled to do so, upon reasonable request by the Borrowers,
to provide to the Borrowers (for the benefit of the Borrowers and
the Agents) such other forms as may be reasonably required in order
to establish the legal entitlement of such Lender to an exemption
from withholding with respect to payments under this Credit
Agreement and any Notes.
Notwithstanding the above, if any change in treaty, law or regulation has
occurred after the date such Person becomes a Lender hereunder which
renders all such forms inapplicable or which would prevent such Lender
from duly completing and delivering any such form with respect to it and
such Lender so advises the Borrowers and the Administrative Agent, then
such Lender shall be exempt from such requirements. Each Person that shall
become a Lender or a participant of a Lender pursuant to Section 11.3
shall, upon the effectiveness of the related transfer, be required to
provide all of the forms, certifications and statements required pursuant
to this subsection (b); provided that in the case of a participant of a
Lender, the obligations of such participant of a Lender pursuant to this
subsection (b) shall be determined as if the participant of a Lender were
a Lender except that such participant of a Lender shall furnish all such
required forms, certifications and statements to the Lender from which the
related participation shall have been purchased.
3.14 Compensation.
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The Borrowers promise to indemnify each Lender and to hold each Lender
harmless from any loss or expense which such Lender may sustain or incur as a
consequence of (a) default by the Borrowers in making a borrowing of, conversion
into or continuation of Eurodollar Loans after the Borrowers have given a notice
requesting the same in accordance with the provisions of this Credit Agreement,
(b) default by the Borrowers in making any prepayment of a Eurodollar Loan after
the Borrowers have given a notice thereof in accordance with the provisions of
this Credit Agreement and (c) the making of a prepayment of Eurodollar Loans on
a day which is not the last day of an Interest Period with respect thereto (as
long as such action does not result from the gross negligence or willful
misconduct of the Administrative Agent or a Lender). Such indemnification may
include an amount equal to (i) the amount of interest which would have accrued
on the amount so prepaid, or not so borrowed, converted or continued, for the
period from the date of such prepayment or of such failure to borrow, convert or
continue to the last day of the applicable Interest Period (or, in the case of a
failure to borrow, convert or continue, the Interest Period that would have
commenced on the date of such failure) in each case at the applicable rate of
interest for such Eurodollar Loans provided for herein (excluding, however, the
Applicable Percentage included therein, if any) minus (ii) the amount of
interest (as reasonably determined by such Lender) which would have accrued to
such Lender on such amount by placing such amount on deposit for a comparable
period with leading banks in the interbank Eurodollar market. The agreements in
this Section shall survive the termination of this Credit Agreement and the
payment of the Loans and all other amounts payable hereunder.
3.15 Substitution of Lender.
If (a) the obligation of any Lender to make Eurodollar Loans has been
suspended pursuant to Section 3.11 or (b) any Lender has demanded compensation
under Section 3.9, 3.11, 3.12, 3.13 or 3.14, the Borrowers shall have the right,
with the assistance of the Administrative Agent, to seek a mutually satisfactory
substitute lender or lenders. Any substitution under this Section 3.15 may be
accomplished, at the Borrowers' option, either (i) by the replaced Lender
assigning its rights and obligations hereunder to a replacement lender or
lenders pursuant to Section 11.3(b) at a mutually agreeable price or (ii) by the
Borrowers prepaying all outstanding Loans and LOC Obligations from the replaced
Lender and terminating such Lender's Commitment on a date specified in a notice
delivered to the Administrative Agent and the replaced Lender at least three
Business Days before the date so specified (and compensating such Lender for any
resulting funding losses as provided in Section 3.14 but otherwise without
premium or penalty) and concurrently a replacement Lender or Lenders assuming a
Commitment in an amount equal to the Commitment being terminated and making
Loans in the same aggregate amount and having the same maturity date or dates,
respectively, as the Loans being prepaid, all pursuant to documents reasonably
satisfactory to the Administrative Agent (and in the case of any document to be
signed by the replaced Lender, reasonably satisfactory to such Lender). No such
substitution shall relieve the Borrowers of their obligations to compensate
and/or indemnify the replaced Lender as required by Section 3.9, 3.11, 3.12,
3.13 or 3.14 with respect to the period before it is replaced and to pay all
accrued interest, accrued fees and other amounts owing to the replaced Lender
hereunder.
SECTION 4
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GUARANTY
4.1 Guaranty of Payment.
Subject to Section 4.7 below, each of the Guarantors hereby, jointly and
severally, unconditionally guarantees to each Lender, each Affiliate of Lender
that enters into a Hedging Agreement and the Agents the prompt payment of the
Credit Party Obligations in full when due (whether at stated maturity, as a
mandatory prepayment, by acceleration or otherwise). This Guaranty is a guaranty
of payment and not of collection and is a continuing guaranty and shall apply to
all Credit Party Obligations whenever arising.
4.2 Obligations Unconditional.
The obligations of the Guarantors hereunder are absolute and
unconditional, irrespective of the value, genuineness, validity, regularity or
enforceability of any of the Credit Documents or the Hedging Agreements, or any
other agreement or instrument referred to therein, to the fullest extent
permitted by applicable law, irrespective of any other circumstance whatsoever
which might otherwise constitute a legal or equitable discharge or defense of a
surety or guarantor. Each Guarantor agrees that this Guaranty may be enforced by
the Lenders without the necessity at any time of resorting to or exhausting any
other security or collateral and without the necessity at any time of having
recourse to the Notes or any other of the Credit Documents or any collateral, if
any, hereafter securing the Credit Party Obligations or otherwise and each
Guarantor hereby waives the right to require the Lenders to proceed against the
Borrowers or any other Person (including a co-guarantor) or to require the
Lenders to pursue any other remedy or enforce any other right. Each Guarantor
further agrees that it shall have no right of subrogation, indemnity,
reimbursement or contribution against the Borrowers or any other Guarantor of
the Credit Party Obligations for amounts paid under this Guaranty until such
time as the Lenders (and any Affiliates of Lenders entering into Hedging
Agreements) have been paid in full, all Commitments under the Credit Agreement
have been terminated and no Person or Governmental Authority shall have any
right to request any return or reimbursement of funds from the Lenders in
connection with monies received under the Credit Documents. Each Guarantor
further agrees that nothing contained herein shall prevent the Lenders from
suing on the Notes or any of the other Credit Documents or any of the Hedging
Agreements or foreclosing its security interest in or Lien on any collateral, if
any, securing the Credit Party Obligations or from exercising any other rights
available to it under this Credit Agreement, the Notes, any other of the Credit
Documents, or any other instrument of security, if any, and the exercise of any
of the aforesaid rights and the completion of any foreclosure proceedings shall
not constitute a discharge of any of any Guarantor's obligations hereunder; it
being the purpose and intent of each Guarantor that its obligations hereunder
shall be absolute, independent and unconditional under any and all
circumstances. Neither any Guarantor's obligations under this Guaranty nor any
remedy for the enforcement thereof shall be impaired, modified, changed or
released in any manner whatsoever by an impairment, modification, change,
release or limitation of the liability of the Borrowers or by reason of the
bankruptcy or insolvency of the Borrowers. Each Guarantor waives any and all
notice of the creation, renewal, extension or accrual of any of the Credit Party
Obligations and notice of or proof of reliance of by any Agent or any Lender
upon this Guarantee or acceptance of this Guarantee. The Credit Party
Obligations, and any of them, shall conclusively be deemed to have been created,
contracted or incurred, or renewed, extended, amended or waived, in reliance
upon this Guarantee. All dealings between the Borrowers and any of the
Guarantors, on the one hand, and the Agents and the Lenders, on the other hand,
likewise shall be conclusively presumed to have been had
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or consummated in reliance upon this Guarantee. The Guarantors further agree to
all rights of set-off as set forth in Section 11.2.
4.3 Modifications.
Each Guarantor agrees that (a) all or any part of the Collateral now or
hereafter held for the Credit Party Obligations, if any, may be exchanged,
compromised or surrendered from time to time; (b) the Lenders shall not have any
obligation to protect, perfect, secure or insure any such security interests,
liens or encumbrances now or hereafter held, if any, for the Credit Party
Obligations or the properties subject thereto; (c) the time or place of payment
of the Credit Party Obligations may be changed or extended, in whole or in part,
to a time certain or otherwise, and may be renewed or accelerated, in whole or
in part; (d) the Borrowers and any other party liable for payment under the
Credit Documents may be granted indulgences generally; (e) any of the provisions
of the Notes or any of the other Credit Documents may be modified, amended or
waived; (f) any party (including any co-guarantor) liable for the payment
thereof may be granted indulgences or be released; and (g) any deposit balance
for the credit of the Borrowers or any other party liable for the payment of the
Credit Party Obligations or liable upon any security therefor may be released,
in whole or in part, at, before or after the stated, extended or accelerated
maturity of the Credit Party Obligations, all without notice to or further
assent by such Guarantor, which shall remain bound thereon, notwithstanding any
such exchange, compromise, surrender, extension, renewal, acceleration,
modification, indulgence or release.
4.4 Waiver of Rights.
Each Guarantor expressly waives to the fullest extent permitted by
applicable law: (a) notice of acceptance of this Guaranty by the Lenders and of
all extensions of credit to the Borrowers by the Lenders; (b) presentment and
demand for payment or performance of any of the Credit Party Obligations; (c)
protest and notice of dishonor or of default (except as specifically required in
the Credit Agreement) with respect to the Credit Party Obligations or with
respect to any security therefor; (d) notice of the Lenders obtaining, amending,
substituting for, releasing, waiving or modifying any security interest, lien or
encumbrance, if any, hereafter securing the Credit Party Obligations, or the
Lenders' subordinating, compromising, discharging or releasing such security
interests, liens or encumbrances, if any; and (e) all other notices to which
such Guarantor might otherwise be entitled.
4.5 Reinstatement.
The obligations of the Guarantors under this Section 4 shall be
automatically reinstated if and to the extent that for any reason any payment by
or on behalf of any Person in respect of the Credit Party Obligations is
rescinded or must be otherwise restored by any holder of any of the Credit Party
Obligations, whether as a result of any proceedings in bankruptcy or
reorganization or otherwise, and each Guarantor agrees that it will indemnify
the Agents and each Lender on demand for all reasonable costs and expenses
(including, without limitation, reasonable fees of counsel) incurred by an Agent
or such Lender in connection with such rescission or restoration, including any
such costs and expenses incurred in defending against any claim alleging that
such payment constituted a preference, fraudulent transfer or similar payment
under any bankruptcy, insolvency or similar law.
4.6 Remedies.
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The Guarantors agree that, as between the Guarantors, on the one hand, and
the Agents and the Lenders, on the other hand, the Credit Party Obligations may
be declared to be forthwith due and payable as provided in Section 9 (and shall
be deemed to have become automatically due and payable in the circumstances
provided in Section 9) notwithstanding any stay, injunction or other prohibition
preventing such declaration (or preventing such Credit Party Obligations from
becoming automatically due and payable) as against any other Person and that, in
the event of such declaration (or such Credit Party Obligations being deemed to
have become automatically due and payable), such Credit Party Obligations
(whether or not due and payable by any other Person) shall forthwith become due
and payable by the Guarantors. The Guarantors acknowledge and agree that their
obligations hereunder are secured in accordance with the terms of the Security
Agreements and the other Collateral Documents and that the Lenders may exercise
their remedies thereunder in accordance with the terms thereof.
4.7 Limitation of Guaranty.
Notwithstanding any provision to the contrary contained herein or in any
of the other Credit Documents, to the extent the obligations of any Guarantor
shall be adjudicated to be invalid or unenforceable for any reason (including,
without limitation, because of any applicable state or federal law relating to
fraudulent conveyances or transfers) then the obligations of such Guarantor
hereunder shall be limited to the maximum amount that is permissible under
applicable law (whether federal or state and including, without limitation, the
Bankruptcy Code).
4.8 Rights of Contribution.
The Credit Parties agree among themselves that, in connection with
payments made hereunder, each Credit Party shall have contribution rights
against the other Credit Parties as permitted under applicable law. Such
contribution rights shall be subordinate and subject in right of payment to the
obligations of the Credit Parties under the Credit Documents and no Credit Party
shall exercise such rights of contribution until all Credit Party Obligations
have been paid in full and the Commitments terminated.
SECTION 5
CONDITIONS PRECEDENT
5.1 Closing Conditions.
The obligation of the Lenders to enter into this Credit Agreement and make
the initial Extension of Credit is subject to satisfaction (or waiver) of the
following conditions:
(a) Executed Credit Documents. Receipt by the Administrative Agent
of duly executed copies of: (i) this Credit Agreement; (ii) the Notes;
(iii) the Collateral Documents; (iv) the Intercreditor Agreement; and (v)
all other Credit Documents, each in form and substance reasonably
acceptable to the Administrative Agent.
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(b) Corporate Documents. Receipt by the Administrative Agent of the
following:
(i) Charter Documents. Copies of the articles or certificates
of incorporation or other charter documents of each Credit Party
certified to be true and complete as of a recent date by the
appropriate Governmental Authority of the state or other
jurisdiction of its incorporation and certified by a secretary or
assistant secretary of such Credit Party to be true and correct as
of the Effective Date.
(ii) Bylaws. A copy of the bylaws of each Credit Party
certified by a secretary or assistant secretary of such Credit Party
to be true and correct as of the Effective Date.
(iii) Resolutions. Copies of resolutions of the Board of
Directors of each Credit Party approving and adopting the Credit
Documents to which it is a party, the transactions contemplated
therein and authorizing execution and delivery thereof, certified by
a secretary or assistant secretary of such Credit Party to be true
and correct and in force and effect as of the Effective Date.
(iv) Good Standing. Copies of (A) certificates of good
standing, existence or its equivalent with respect to each Credit
Party certified as of a recent date by the appropriate Governmental
Authorities of the state or other jurisdiction of incorporation and
each other jurisdiction in which the failure to so qualify and be in
good standing would have a Material Adverse Effect on the business
or operations of a Credit Party in such jurisdiction and (B) to the
extent available, a certificate indicating payment of all corporate
franchise taxes certified as of a recent date by the appropriate
governmental taxing authorities.
(v) Incumbency. An incumbency certificate of each Credit Party
certified by a secretary or assistant secretary to be true and
correct as of the Effective Date.
(c) Opinion of Counsel. Receipt by the Administrative Agent of an
opinion, or opinions (which shall cover, among other things, authority,
legality, validity, binding effect, enforceability and attachment and
perfection of liens), reasonably satisfactory to the Administrative Agent,
addressed to the Administrative Agent on behalf of the Lenders and dated
as of the Effective Date, from legal counsel to the Credit Parties.
(d) Financial Statements. Receipt by the Lenders of such financial
information regarding the Parent, the Borrowers and their Subsidiaries as
they may request, including, but not limited to, (i) the consolidated
financial statements of the Parent and the consolidated financial
statements of Auburn Hosiery Mills, Inc. for the three most recent fiscal
years, including balance sheets, income statements and cash flow
statements audited by independent public accountants of recognized
national standing and prepared in accordance with GAAP, (ii) interim
unaudited quarterly financial statements for the Parent and its
Subsidiaries and for Auburn Hosiery Mills, Inc. and
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its Subsidiaries, prepared in accordance with GAAP, (iii) monthly working
capital detail for the trailing twelve months and first projected year for
the Parent, the Borrowers and their Subsidiaries and (iv) a pro forma
balance sheet for the Parent, the Borrowers and their Subsidiaries giving
effect to the acquisition of Auburn Hosiery Mills, Inc. and Sport Socks
Co. (Ireland) Limited by the Parent and reflecting estimated purchase
price accounting adjustments, prepared by the Credit Parties.
(e) Acquisition. Receipt by the Administrative Agent of evidence
that the Parent has acquired, on terms acceptable to the Administrative
Agent, all of the shares of Auburn Hosiery Mills, Inc., and Sport Socks
Co. (Ireland) Limited for a cash price not to exceed $40 million plus an
assumption of debt not to exceed $7.5 million.
(f) Personal Property Collateral. The Collateral Agent shall have
received, in form and substance reasonably satisfactory to the Collateral
Agent:
(i) searches of Uniform Commercial Code ("UCC") filings in the
jurisdiction of the chief executive office of each Credit Party and
each jurisdiction where any Collateral is located or where a filing
would need to be made in order to perfect the Lenders' security
interest in the Collateral, copies of the financing statements on
file in such jurisdictions and evidence that no Liens exist other
than Permitted Liens;
(ii) duly executed UCC financing statements for each
appropriate jurisdiction as is necessary, in the Collateral Agent's
sole discretion, to perfect the Lenders' security interest in the
Collateral;
(iii) searches of ownership of intellectual property in the
appropriate governmental offices as requested by the Collateral
Agent and such patent, trademark and copyright filings as requested
by the Collateral Agent;
(iv) except as set forth in Section 7.16, all stock
certificates evidencing the stock pledged to the Collateral Agent
pursuant to the Pledge Agreements, together with duly executed in
blank undated stock powers attached thereto;
(v) all instruments and chattel paper in the possession of a
Credit Party, as required by the Security Agreements, together with
allonges or assignments as may be necessary to perfect the Lenders'
security interest in such Collateral;
(vi) asset appraisal reports on the personal property of the
Parent, the Borrowers and their Subsidiaries, the terms of which are
reasonably acceptable to the Administrative Agent; and
(vii) certified copies of all Material License Agreements.
(g) Real Property Collateral. The Collateral Agent shall have
received, in form and substance reasonably satisfactory to the Collateral
Agent:
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(i) fully executed and notarized mortgages, deeds of trust or
deeds to secure debt (each a "Mortgage" and collectively the
"Mortgages") encumbering the fee interest of the Credit Parties in
each real property asset owned by a Credit Party set forth on
Schedule 5.1(g) (each a "Mortgaged Property" and collectively the
"Mortgaged Properties"), together with such UCC-1 financing
statements as are necessary with respect to each such Mortgaged
Property; and
(ii) an opinion of counsel in the state in which each
Mortgaged Property is located with respect to the enforceability of
the form of Mortgage, standard remedies with respect thereto and
sufficiency of the form of UCC-1 financing statements to be recorded
or filed in such state and such other matters as the Collateral
Agent may request, in form and substance reasonably satisfactory to
the Collateral Agent.
(iii) ALTA or other appropriate form mortgagee title insurance
policies (the "Mortgage Policies") issued by the Title Insurance
Company, in an amount reasonably satisfactory to the Collateral
Agent with respect to each Mortgaged Property, assuring the
Collateral Agent that the applicable Mortgages create valid and
enforceable mortgage liens on the respective Mortgaged Properties,
free and clear of all defects and encumbrances except Permitted
Liens which Mortgage Policies shall be in form and substance
reasonably satisfactory to the Collateral Agent and containing such
endorsements as shall be reasonably satisfactory to the Collateral
Agent and providing affirmative insurance and such reinsurance as
the Collateral Agent may request, all of the foregoing in form and
substance reasonably satisfactory to the Agents;
(iv) Surveys. Maps or plats of an as-built survey of the sites
of the Mortgaged Properties certified to the Collateral Agent and
the Title Insurance Company in a manner reasonably satisfactory to
them, dated a date satisfactory to the Collateral Agent and the
Title Insurance Company by an independent professional licensed land
surveyor reasonably satisfactory to the Collateral Agent and the
Title Insurance Company, which maps or plats and the surveys on
which they are based shall be sufficient to delete any standard
printed survey exception contained in the applicable title policy
and be made in accordance with the Minimum Standard Detail
Requirements for Land Title Surveys jointly established and adopted
by the American Land Title Association and the American Congress on
Surveying and Mapping in 1992, and, without limiting the generality
of the foregoing, there shall be surveyed and shown on such maps,
plats or surveys the following: (A) the locations on such sites of
all the buildings, structures and other improvements and the
established building setback lines; (B) the lines of streets
abutting the sites and width thereof; (C) all access and other
easements appurtenant to the sites necessary to use the sites; (D)
all roadways, paths, driveways, easements, encroachments and
overhanging projections and similar encumbrances affecting the site,
whether recorded, apparent from a physical inspection of the sites
or otherwise known to the surveyor; (E) any encroachments on any
adjoining property by the building structures and
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improvements on the sites; and (F) if the site is described as being
on a filed map, a legend relating the survey to said map;
(v) Flood Certificates. Certification from a registered
engineer or land surveyor or other evidence reasonably acceptable to
the Collateral Agent that none of the improvements on the Mortgaged
Properties are located within any area designated by the Director of
the Federal Emergency Management Agency as a "special flood hazard"
area or if any improvements on the Mortgaged Properties are located
within a "special flood hazard" area, evidence of a flood insurance
policy from a company and in an amount reasonably satisfactory to
the Collateral Agent for the applicable portion of the premises,
naming the Collateral Agent, for the benefit of the Lenders, as
mortgagee;
(vi) Environmental Reports. Environmental assessment reports
and related documents with respect to all Mortgaged Properties
reasonably acceptable to the Collateral Agent; and
(vii) Valuations. A real estate valuation for each of the
Mortgaged Properties reasonably acceptable to the Administrative
Agent.
(h) Evidence of Insurance. Receipt by the Collateral Agent of copies
of insurance policies or certificates of insurance of the Credit Parties
evidencing liability and casualty insurance meeting the requirements set
forth in the Credit Documents, including, but not limited to, naming the
Collateral Agent as additional insured or loss payee on behalf of the
Lenders.
(i) Examination. Receipt by the Administrative Agent of an
independent examination by the Lenders, in form and substance acceptable
to the Administrative Agent, of the accounts receivable, inventory,
payables, controls and systems of the Parent, the Borrowers and their
Subsidiaries.
(j) Consents. Receipt by the Administrative Agent of evidence that
all governmental, shareholder and third party consents and approvals
listed on Schedule 5.1(j) have been received and no condition or
Requirement of Law exists which could reasonably be likely to restrain,
prevent or impose any material adverse conditions on the acquisition or
ownership of Auburn Hosiery Mills, Inc. or Sport Socks Co. (Ireland)
Limited by the Parent or the financings or other transactions contemplated
hereby.
(k) Litigation. There shall not exist any pending or, to the
Knowledge of any Credit Party, threatened action, suit, investigation or
proceeding against a Credit Party or any of their Subsidiaries that would
have or would reasonably be expected to have a Material Adverse Effect.
(l) Subordinated Debt. Receipt by the Administrative Agent of a
certified copy of the documentation evidencing the Subordinated Debt.
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(m) Officer's Certificates. The Administrative Agent shall have
received a certificate or certificates executed by the chief financial
officer of the Parent as of the Effective Date stating that (i) the Parent
and each of its Subsidiaries are in compliance with all existing material
financial obligations, (ii) no action, suit, investigation or proceeding
is pending or, to the Knowledge of any Credit Party, threatened in any
court or before any arbitrator or governmental instrumentality that
purports to effect the Parent, any of the its Subsidiaries or any
transaction contemplated by the Credit Documents, if such action, suit,
investigation or proceeding would have or might reasonably be expected to
have a Material Adverse Effect, (iii) the financial statements and
information delivered to the Administrative Agent on or before the
Effective Date were prepared in good faith and in accordance with GAAP and
(iv) immediately after giving effect to this Credit Agreement, the other
Credit Documents and all the transactions contemplated therein to occur on
such date, (A) the Parent and each of its Subsidiaries is Solvent, (B) no
Default or Event of Default exists, (C) all representations and warranties
contained herein and in the other Credit Documents are true and correct in
all material respects, and (D) the Credit Parties are in compliance with
each of the financial covenants set forth in Section 7.2.
(n) Prior Credit Agreement. Receipt by the Administrative Agent of
evidence that: (i) that certain Loan and Security Agreement, dated as of
January 22, 1996, among GCIH Merger Sub, Inc. as Borrower, GCIH, Inc., as
Corporate Guarantor and Heller Financial, Inc. as Agent and Lender (the
"Prior Credit Agreement") and all documents executed or delivered in
connection therewith has been terminated, (it being understood that this
does not include the Subordinated Debt) and (ii) all amounts owing in
connection with the Prior Credit Agreement are paid in full and all liens
granted in connection therewith have been or are agreed to be released.
(o) Management Contracts. Review and satisfaction by the
Administrative Agent of all management contracts for senior management of
the Parent and the Borrowers.
(p) Availability. Evidence satisfactory to the Lenders that the
committed financings of the Borrowers are sufficient to meet the ongoing
financial needs of the Borrowers and their Subsidiaries after giving
effect to the acquisition of Auburn Hosiery Mills, Inc. by the Parent and
that there is at least $15 million of availability under the Revolving
Committed Amount after giving effect to such acquisition and the other
transactions contemplated hereunder.
(q) Fees and Expenses. Payment by the Credit Parties of (i) an
upfront fee to each Lender in the amount of .05% of each Lender's share of
the total Commitments and (ii) the fees and expenses owed by them to the
Administrative Agent, as set forth in the Fee Letter.
(r) Borrowing Base Report. A Borrowing Base Report, in the form of
Exhibit 7.1(c), as of October 25, 1997.
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(s) Other. Receipt by the Lenders of such other documents,
instruments, agreements or information as reasonably and timely requested
by any Lender, including, but not limited to, information regarding
litigation, tax, accounting, labor, insurance, pension liabilities (actual
or contingent), real estate leases, material contracts, debt agreements,
property ownership and contingent liabilities of the Parent and its
Subsidiaries.
5.2 Conditions to All Extensions of Credit.
In addition to the conditions precedent stated elsewhere herein, the
Lenders shall not be obligated to make Loans nor shall an Issuing Lender be
required to issue or extend a Letter of Credit unless:
(a) Notice. The Borrowers shall have delivered (i) in the case of
any new Revolving Loan, a Notice of Borrowing, duly executed and
completed, by the time specified in Section 2.1, (ii) in the case of any
Letter of Credit, the Issuing Lender shall have received an appropriate
request for issuance in accordance with the provisions of Section 2.2 and
(iii) in the case of a Swing Line Loan, a Swing Line Loan Request, duly
executed and completed, by the time specified in Section 2.3;
(b) Representations and Warranties. The representations and
warranties made by the Credit Parties in any Credit Document are true and
correct in all material respects at and as if made as of such date except
to the extent they expressly relate to an earlier date;
(c) No Default. No Default or Event of Default shall exist or be
continuing either prior to or after giving effect thereto; and
(d) Availability. Immediately after giving effect to the making of a
Loan (and the application of the proceeds thereof) or to the issuance of a
Letter of Credit, as the case may be, the sum of the Revolving Loans
outstanding plus LOC Obligations outstanding plus Swing Line Loans
outstanding shall not exceed the lesser of (i) the Revolving Commitment
Amount or (ii) Borrowing Base Assets.
The delivery of each Notice of Borrowing, each Swing Line Request and each
request for a Letter of Credit shall constitute a representation and warranty by
the Borrowers of the correctness of the matters specified in subsections (b),
(c), and (d) above.
SECTION 6
REPRESENTATIONS AND WARRANTIES
The Credit Parties hereby represent to the Administrative Agent and each
Lender that:
6.1 Financial Condition.
(a) The financial statements delivered to the Lenders prior to the
Effective Date and pursuant to Section 7.1(a) and (b): (i) have been
prepared in accordance with GAAP and (ii) present fairly the consolidated
and consolidating (as applicable) financial
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condition, results of operations and cash flows of the Credit Parties and
their Subsidiaries as of such date and for such periods.
(b) Since December 31, 1996, there has been no sale, transfer or
other disposition by any Credit Party or any of their Subsidiaries of any
material part of the business or property of the Credit Parties, taken as
a whole, and no purchase or other acquisition by any of them of any
business or property (including any capital stock of any other Person)
material in relation to the consolidated financial condition of the Credit
Parties, taken as a whole, in each case, which, is not (i) reflected in
the most recent financial statements delivered to the Lenders pursuant to
Section 7.1 or in the notes thereto or (ii) otherwise permitted by the
terms of this Credit Agreement and communicated to the Administrative
Agent.
6.2 No Material Change.
Since the Effective Date, there has been no development or event relating
to or affecting a Credit Party or any of their Subsidiaries which has had or
would be reasonably expected to have a Material Adverse Effect. To the Knowledge
of any Credit Party, since September 30, 1997, there has been no development or
event relating to or affecting a Credit Party or any of their Subsidiaries which
has had or would be reasonably expected to have a Material Adverse Effect.
6.3 Organization and Good Standing.
Each Credit Party (a) is a corporation duly incorporated, validly existing
and in good standing under the laws of the State (or other jurisdiction) of its
incorporation, (b) is duly qualified and in good standing as a foreign
corporation and authorized to do business in every jurisdiction unless the
failure to be so qualified, in good standing or authorized would have a Material
Adverse Effect and (c) has the requisite corporate power and authority to own
its properties and to carry on its business as now conducted and as proposed to
be conducted.
6.4 Due Authorization.
Each Credit Party (a) has the requisite corporate power and authority to
execute, deliver and perform this Credit Agreement and the other Credit
Documents to which it is a party and to incur the obligations herein and therein
provided for and (b) is duly authorized to, and has been authorized by all
necessary corporate action, to execute, deliver and perform this Credit
Agreement and the other Credit Documents to which it is a party.
6.5 No Conflicts.
Neither the execution and delivery of the Credit Documents, nor the
consummation of the transactions contemplated therein, nor performance of and
compliance with the terms and provisions thereof by such Credit Party will (a)
violate or conflict with any provision of its articles or certificate of
incorporation or bylaws, (b) violate, contravene or materially conflict with any
Requirement of Law or any other law, regulation (including, without limitation,
Regulation U or Regulation X), order, writ, judgment, injunction, decree or
permit applicable to it, (c) violate, contravene or conflict with contractual
provisions of, or cause an event of default under, any indenture, loan
agreement, mortgage, deed of trust, contract or other agreement or instrument to
which it is a party or by which it may be bound, the violation of which could
have or might be reasonably expected to have a Material Adverse Effect, or (d)
to
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the Knowledge of any Credit Party, result in or require the creation of any Lien
(other than those contemplated in or created in connection with the Credit
Documents) upon or with respect to its properties.
6.6 Consents.
Except for consents, approvals and authorizations which are listed on
Schedule 5.1(k), no consent, approval, authorization or order of, or filing,
registration or qualification with, any court or Governmental Authority or third
party in respect of any Credit Party is required in connection with the
execution, delivery or performance of this Credit Agreement or any of the other
Credit Documents by such Credit Party.
6.7 Enforceable Obligations.
This Credit Agreement and the other Credit Documents have been duly
executed and delivered and constitute legal, valid and binding obligations of
each Credit Party enforceable against such Credit Party in accordance with their
respective terms, except as may be limited by bankruptcy, insolvency,
reorganization or moratorium laws or similar laws relating to or affecting
creditors' rights generally or by general equitable principles.
6.8 No Default.
No Credit Party, nor any of their Subsidiaries, is in default in any
respect under any contract, lease, loan agreement, indenture, mortgage, security
agreement or other agreement or obligation to which it is a party or by which
any of its properties is bound which default would have or would be reasonably
expected to have a Material Adverse Effect. No Default or Event of Default has
occurred or exists except as previously disclosed in writing to the Lenders.
6.9 Ownership.
Each Credit Party, and each of its Subsidiaries, is the owner of, and has
good and marketable title to, or has a valid license to use all of its
respective assets and none of such assets is subject to any Lien other than
Permitted Liens.
6.10 Indebtedness.
The Credit Parties and their Subsidiaries have no Indebtedness except (a)
as disclosed in the financial statements referenced in Section 6.1, (b) as set
forth on Schedule 6.10 and (c) as otherwise permitted by this Credit Agreement.
There are no mandatory principal payments due with respect to the Subordinated
Debt prior to the Maturity Date.
6.11 Litigation.
There are no actions, suits or legal, equitable, arbitration or
administrative proceedings, pending or, to the Knowledge of any Credit Party,
threatened against, the Parent or any of its Subsidiaries which would have or
might be reasonably expected to have a Material Adverse Effect.
6.12 Taxes.
Each Credit Party, and each of its Subsidiaries, has filed, or caused to
be filed, all material tax returns (federal, state, local and foreign) required
to be filed and paid (a) all material amounts of taxes shown thereon to be due
and payable (including interest and penalties) and (b) all material other taxes,
fees, assessments and other governmental charges
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(including mortgage recording taxes, documentary stamp taxes and intangibles
taxes) that are due and payable, except for such taxes (i) which are not yet
delinquent or (ii) that are being contested in good faith and by proper
proceedings, and against which adequate reserves are being maintained in
accordance with GAAP. To the Knowledge of the Credit Parties, there are no
material amounts claimed to be due against any of them by any Governmental
Authority.
6.13 Compliance with Law.
Each Credit Party, and each of its Subsidiaries, is in compliance with all
Requirements of Law and all other laws, rules, regulations, orders and decrees
(including without limitation Environmental Laws) applicable to it, or to its
properties, unless such failure to comply would not have or would not be
reasonably expected to have a Material Adverse Effect.
6.14 ERISA.
Except as would not result or be reasonably expected to result in a
Material Adverse Effect:
(a) During the five-year period prior to the date on which this
representation is made or deemed made: (i) no Termination Event has
occurred, and, to the Knowledge of the Credit Parties, no event or
condition has occurred or exists as a result of which any Termination
Event could reasonably be expected to occur, with respect to any Plan;
(ii) no "accumulated funding deficiency," as such term is defined in
Section 302 of ERISA and Section 412 of the Code, whether or not waived,
has occurred with respect to any Plan; (iii) each Plan has been
maintained, operated, and funded in compliance with its own terms and in
material compliance with the provisions of ERISA, the Code, and any other
applicable federal or state laws; and (iv) no lien in favor or the PBGC or
a Plan has arisen or is reasonably likely to arise on account of any Plan.
(b) The actuarial present value of all "benefit liabilities" under
each Single Employer Plan (determined within the meaning of Section
401(a)(2) of the Code, utilizing the actuarial assumptions used to fund
such Plans), whether or not vested, did not, as of the last annual
valuation date prior to the date on which this representation is made or
deemed made, exceed the current value of the assets of such Plan allocable
to such accrued liabilities.
(c) Neither the Parent, nor any of its Subsidiaries nor any ERISA
Affiliate has incurred, or, to the Knowledge of the Credit Parties, are
reasonably expected to incur, any withdrawal liability under ERISA to any
Multiemployer Plan or Multiple Employer Plan. Neither the Parent, any of
its Subsidiaries nor any ERISA Affiliate has received any notification
that any Multiemployer Plan is in reorganization (within the meaning of
Section 4241 of ERISA), is insolvent (within the meaning of Section 4245
of ERISA), or has been terminated (within the meaning of Title IV of
ERISA), and no Multiemployer Plan is, to the best knowledge of the Credit
Parties, reasonably expected to be in reorganization, insolvent, or
terminated.
(d) No prohibited transaction (within the meaning of Section 406 of
ERISA or Section 4975 of the Code) or breach of fiduciary responsibility
has occurred with respect to a Plan which has subjected or is reasonably
likely to subject the Parent or any
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of its Subsidiaries or any ERISA Affiliate to any liability under Sections
406, 409, 502(i), or 502(l) of ERISA or Section 4975 of the Code, or under
any agreement or other instrument pursuant to which the Parent or any of
its Subsidiaries or any ERISA Affiliate has agreed or is required to
indemnify any person against any such liability.
(e) The present value (determined using actuarial and other
assumptions which are reasonable with respect to the benefits provided and
the employees participating) of the liability of the Parent and its
Subsidiaries and each ERISA Affiliate for post-retirement welfare benefits
to be provided to their current and former employees under Plans which are
welfare benefit plans (as defined in Section 3(1) of ERISA), net of all
assets under all such Plans allocable to such benefits, are reflected on
the Financial Statements in accordance with FASB 106.
(f) Each Plan which is a welfare plan (as defined in Section 3(1) of
ERISA) to which Sections 601-609 of ERISA and Section 4980B of the Code
apply has been administered in material compliance with such sections.
6.15 Subsidiaries.
Set forth on Schedule 6.15 is a complete and accurate list of all
Subsidiaries of each Credit Party. Information on Schedule 6.15 includes
jurisdiction of incorporation, the number of shares of each class of capital
stock or other equity interests outstanding, the number and percentage of
outstanding shares of each class owned (directly or indirectly) by such Credit
Party; and the number and effect, if exercised, of all outstanding options,
warrants, rights of conversion or purchase and all other similar rights with
respect thereto. The outstanding capital stock and other equity interests of all
such Subsidiaries is validly issued, fully paid and non-assessable and is owned
by each such Credit Party, directly or indirectly, free and clear of all Liens
(other than Permitted Liens). Other than as set forth in Schedule 6.15, neither
any Credit Party nor any Subsidiary thereof has outstanding any securities
convertible into or exchangeable for its capital stock nor does any such Person
have outstanding any rights to subscribe for or to purchase or any options for
the purchase of, or any agreements providing for the issuance (contingent or
otherwise) of, or any calls, commitments or claims of any character relating to
its capital stock. Schedule 6.15 may be updated from time to time by the
Borrowers by giving written notice thereof to the Administrative Agent.
6.16 Use of Proceeds; Margin Stock.
The proceeds of the Loans hereunder will be used solely for the purposes
specified in Section 7.11. None of the proceeds of the Loans will be used for
the purpose of purchasing or carrying any "margin stock" as defined in
Regulation U, Regulation X or Regulation G, or for the purpose of reducing or
retiring any Indebtedness which was originally incurred to purchase or carry
"margin stock" or any "margin security" or for any other purpose which might
constitute this transaction a "purpose credit" within the meaning of Regulation
U, Regulation X, Regulation G or Regulation T. No proceeds of the Loans
hereunder have been or will be used to acquire, directly or indirectly, any
security in any transaction which is subject to Sections 13 or 14 of the
Securities Exchange Act of 1934, as amended, (including, without limitation,
Sections 13(d) and 14(d) thereof) or to refinance any Indebtedness used to
acquire any such securities.
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6.17 Government Regulation.
No Credit Party, nor any of its Subsidiaries, is subject to regulation
under the Public Utility Holding Company Act of 1935, the Federal Power Act, the
Investment Company Act of 1940 or the Interstate Commerce Act, each as amended.
In addition, no Credit Party is an "investment company" registered or required
to be registered under the Investment Company Act of 1940, as amended, or
controlled by such a company, or a "holding company," or a "Subsidiary company"
of a "holding company," or an "affiliate" of a "holding company" or of a
"Subsidiary" or a "holding company," within the meaning of the Public Utility
Holding Company Act of 1935, as amended. No director, executive officer or
principal shareholder of a Credit Party or any of its Subsidiaries is a
director, executive officer or principal shareholder of any Lender. For the
purposes hereof the terms "director", "executive officer" and "principal
shareholder" (when used with reference to any Lender) have the respective
meanings assigned thereto in Regulation O issued by the Board of Governors of
the Federal Reserve System.
6.18 Environmental Matters.
(a) Except as set forth on Schedule 6.18 or except as would not
cause or reasonably be expected to cause a Material Adverse Effect:
(i) Each of the Real Properties and all operations at the Real
Properties are in compliance with all applicable Environmental Laws,
and there is no violation of any Environmental Law with respect to
the Real Properties or the businesses operated by the Credit Parties
or any of their Subsidiaries (the "Businesses"), and there are no
conditions relating to the Businesses or Real Properties that would
reasonably be expected to give rise to liability under any
applicable Environmental Laws.
(ii) No Credit Party has received any written notice of any
violation, alleged violation, non-compliance, liability or potential
liability regarding Hazardous Materials or compliance with
Environmental Laws with regard to any of the Real Properties or the
Businesses, nor, to the Knowledge of a Credit Party or any of its
Subsidiaries, is any such notice being threatened.
(iii) Hazardous Materials have not been transported or
disposed of from the Real Properties, or generated, treated, stored
or disposed of at, on or under any of the Real Properties or any
other location, in each case by, or on behalf or with the permission
of, a Credit Party or any of its Subsidiaries in a manner that would
give rise to liability under any applicable Environmental Laws.
(iv) No judicial proceeding or governmental or administrative
action is pending or, to the Knowledge of a Credit Party or any of
its Subsidiaries, threatened, under any Environmental Law to which a
Credit Party or any of its Subsidiaries is or will be named as a
party, nor are there any consent decrees or other decrees, consent
orders, administrative orders or other orders, or other
administrative or judicial requirements outstanding under any
Environmental
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Law with respect to a Credit Party or any of its Subsidiaries, the
Real Properties or the Businesses.
(v) There has been no release (including, without limitation,
disposal) or threat of release of Hazardous Materials at or from the
Real Properties, or arising from or related to the operations of a
Credit Party or any of its Subsidiaries in connection with the Real
Properties or otherwise in connection with the Businesses where such
release constituted a violation of, or would give rise to liability
under, any applicable Environmental Laws.
(vi) None of the Real Properties contains, or has previously
contained, any Hazardous Materials at, on or under the Real
Properties in amounts or concentrations that, if released,
constitute or constituted a violation of, or could give rise to
liability under, Environmental Laws.
(vii) No Credit Party, nor any of its Subsidiaries, has
assumed any liability of any Person (other than another Credit
Party, or one of its Subsidiaries) under any Environmental Law.
(b) The Credit Parties have adopted procedures that are designed to
(i) ensure that each Credit Party, any of its operations and each of the
properties owned or leased by each Credit Party complies with applicable
Environmental Laws and (ii) minimize any liabilities or potential
liabilities that each Credit Party, any of its operations and each of the
properties owned or leased by each Credit Party may have under applicable
Environmental Laws.
6.19 Intellectual Property.
Each Credit Party owns, or has the legal right to use, all patents,
trademarks, tradenames, copyrights, technology, know-how and processes (the
"Intellectual Property") necessary for each of them to conduct its business as
currently conducted except for those the failure to own or have such legal right
to use would not have or be reasonably expected to have a Material Adverse
Effect. Set forth on Schedule 6.19 is a list of all patents, registered and
material unregistered trademarks, tradenames and registered copyrights owned by
each Credit Party or that any Credit Party has the right to use. Except as
provided on Schedule 6.19, no claim has been asserted against any Credit Party
or their Subsidiaries in writing and is pending by any Person challenging or
questioning the use of any Intellectual Property owned by a Credit Party or that
any Credit Party has a right to use or the validity or effectiveness of any such
Intellectual Property, nor does any Credit Party have Knowledge of any such
claim, and to the Credit Parties' Knowledge the use of any Intellectual Property
by the Credit Parties or any of their Subsidiaries does not infringe on the
rights of any Person, except for such claims and infringements that in the
aggregate, would not have or be reasonably expected to have a Material Adverse
Effect. Schedule 6.19 may be updated from time to time by the Borrowers by
giving written notice thereof to the Administrative Agent.
6.20 Solvency.
Each Credit Party is and, after consummation of the transactions
contemplated by this Credit Agreement, will be Solvent.
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6.21 Investments.
All Investments of each Credit Party and its Subsidiaries are (a) as set
forth on Schedule 6.21 or (b) Permitted Investments.
6.22 Location of Collateral.
Set forth on Schedule 6.22(a) is a list of all Real Properties with street
address, county and state where located. Set forth on Schedule 6.22(b) is a list
of all locations where any personal property of a Credit Party is located,
including county and state where located; provided that in addition to those
locations set forth on Schedule 6.22(b), the Credit Parties may, at any one
time, have (i) work in process at subcontractor locations that does not exceed
$100,000 in value at any one subcontractor location or $2,500,000 in value, in
the aggregate, at such subcontractor locations and (ii) machinery and equipment
at subcontractor locations that does not exceed $10,000 in value at any one
subcontractor location or $250,000 in value, in the aggregate, at such
subcontractor locations. Set forth on Schedule 6.22(c) is the chief executive
office and principal place of business of each Credit Party. Schedule 6.22(a),
6.22(b) and 6.22(c) may be updated from time to time by the Borrowers by giving
written notice thereof to the Administrative Agent.
6.23 Disclosure.
Neither this Agreement nor any financial statements delivered to the
Lenders nor any other document, certificate or statement furnished to the
Lenders by or on behalf of any Credit Party in connection with the transactions
contemplated hereby contains any untrue statement of a material fact or omits to
state a material fact necessary in order to make the statements contained
therein or herein, taken as a whole, not misleading.
6.24 Licenses, etc.
The Credit Parties have obtained and hold in full force and effect, all
franchises, licenses, permits, certificates, authorizations, qualifications,
accreditations, easements, rights of way and other rights, consents and
approvals which are necessary for the operation of their respective businesses
as presently conducted, except where the failure to obtain same would not have a
Material Adverse Effect. Set forth on Schedule 6.24 is a list of all Material
License Agreements to which a Credit Party is a party, as such schedule may be
updated from time to time by the Borrowers giving written notice thereof to the
Administrative Agent.
6.25 Collateral Documents.
The Collateral Documents create valid security interests in, and Liens on,
the Collateral purported to be covered thereby, which security interests and
Liens are currently perfected security interests and Liens, prior to all other
Liens other than Permitted Liens.
SECTION 7
AFFIRMATIVE COVENANTS
Each Credit Party hereby covenants and agrees that so long as this Credit
Agreement is in effect and until the Loans and LOC Obligations, together with
interest and fees and other obligations then due and payable hereunder, have
been paid in full and the Commitments and Letters of Credit hereunder shall have
terminated:
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7.1 Information Covenants.
The Credit Parties will furnish, or cause to be furnished, to the
Administrative Agent and each of the Lenders:
(a) Annual Financial Statements. As soon as available, and in any
event within 105 days after the close of the fiscal year ending December
31, 1997 and 90 days after the close of each subsequent fiscal year of the
Parent, a consolidated and consolidating balance sheet and income
statement of the Parent and its Subsidiaries, as of the end of such fiscal
year, together with related consolidated and consolidating statements of
operations and consolidated statements of retained earnings and of cash
flows for such fiscal year, setting forth in comparative form consolidated
and consolidating figures for the preceding fiscal year, all such
consolidated financial information described above to be in reasonable
form and detail and audited by independent certified public accountants of
recognized national standing reasonably acceptable to the Administrative
Agent and whose opinion shall be to the effect that such financial
statements have been prepared in accordance with GAAP (except for changes
with which such accountants concur) and shall not be limited as to the
scope of the audit or qualified in any manner.
(b) Quarterly Financial Statements. As soon as available, and in any
event within 45 days after the close of each of the first three fiscal
quarters of the Parent, (i) a consolidated and consolidating balance sheet
and income statement of the Parent and its Subsidiaries, as of the end of
such fiscal quarter, together with related consolidated and consolidating
statements of operations and consolidated statements of retained earnings
and of cash flows for such fiscal quarter in each case setting forth in
comparative form consolidated and consolidating figures for (A) the
corresponding period of the preceding fiscal year and (B) management's
proposed budget for such period, all such financial information described
above to be in reasonable form and detail and reasonably acceptable to the
Administrative Agent, and accompanied by a certificate of the chief
financial officer of the Parent to the effect that such quarterly
financial statements fairly present in all material respects the financial
condition of the Parent and its Subsidiaries and have been prepared in
accordance with GAAP, subject to changes resulting from audit and normal
year-end audit adjustments and (ii) a management discussion and analysis
of operating results for such fiscal quarter.
(c) Borrowing Base Report. On or before the 30th day of each month,
a Borrowing Base Report, as of the end of the immediately preceding month,
in each case in substantially the form of Exhibit 7.1(c) and certified by
the chief financial officer of the Parent to be true and correct as of the
date thereof.
(d) Officer's Certificate. At the time of delivery of the financial
statements provided for in Sections 7.1(a) and 7.1(b) above, a certificate
of the chief financial officer of the Parent substantially in the form of
Exhibit 7.1(d), (i) demonstrating compliance with the financial covenants
contained in Section 7.2 by calculation thereof as of the end of each such
fiscal period, (ii) demonstrating compliance with any other terms of this
Credit Agreement as requested by the Administrative Agent and (iii)
stating that no Default or Event of Default exists, or if any Default or
Event of Default does exist,
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specifying the nature and extent thereof and what action the Borrowers
propose to take with respect thereto. If necessary, the Parent shall
deliver financial statements prepared in accordance with GAAP as of the
Closing Date, to the extent GAAP has changed since the Closing Date, in
order to show compliance with the terms of this Credit Agreement,
including Section 7.2.
(e) Annual Business Plan and Budgets. Prior to the end of each
fiscal year of the Parent, an annual business plan and budget of the
Parent and its Subsidiaries on a consolidated basis containing, among
other things, pro forma financial projections for the next fiscal year.
(f) Accountant's Certificate. Within the period for delivery of the
annual financial statements provided in Section 7.1(a), a certificate of
the accountants conducting the annual audit stating that they have
reviewed this Credit Agreement and stating further whether, in the course
of their audit, they have become aware of any Default or Event of Default
and, if any such Default or Event of Default exists, specifying the nature
and extent thereof.
(g) Auditor's Reports. Promptly upon receipt thereof, a copy of any
"management letter" submitted by independent accountants to the Parent or
any of its Subsidiaries in connection with any annual, interim or special
audit of the books of the Parent or any of its Subsidiaries.
(h) Reports. Promptly upon transmission or receipt thereof, (a)
copies of any public filings and registrations with, and reports to or
from, the Securities and Exchange Commission, or any successor agency, and
copies of all financial statements, proxy statements, notices and reports
as the Parent or any of its Subsidiaries shall send to its shareholders
generally and (b) upon the reasonable written request of the
Administrative Agent, all material reports and written information to and
from the United States Environmental Protection Agency, or any state or
local agency responsible for environmental matters, the United States
Occupational Health and Safety Administration, or any state or local
agency responsible for health and safety matters, or any successor
agencies or authorities concerning environmental, health or safety
matters.
(i) Notices. Upon an officer of a Credit Party obtaining Knowledge
thereof, the Borrowers will give written notice to the Administrative
Agent promptly (and in any event within five Business Days) of (a) the
occurrence of an event or condition consisting of a Default or Event of
Default, specifying the nature and existence thereof and what action the
Borrowers propose to take with respect thereto, and (b) the occurrence of
any of the following with respect to the Parent or any of its Subsidiaries
(i) the pendency or commencement of any litigation, arbitral or
governmental proceeding against a Credit Party or any of its Subsidiaries
which if adversely determined would have or would be reasonably expected
to have a Material Adverse Effect, or (ii) the institution of any
proceedings against a Credit Party or any of its Subsidiaries with respect
to, or the receipt of written notice by such Person of potential liability
or responsibility for violation, or alleged violation of any federal,
state or local law, rule or regulation,
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(including but not limited to, Environmental Laws) the violation of which
would have or would be reasonably expected to have a Material Adverse
Effect.
(j) ERISA. Upon any of the Credit Parties obtaining Knowledge
thereof, the Borrowers will give written notice to the Administrative
Agent promptly (and in any event within five Business Days) of: (i) any
event or condition, including, but not limited to, any Reportable Event,
that constitutes, or might reasonably lead to, a Termination Event; (ii)
with respect to any Multiemployer Plan, the receipt of notice as
prescribed in ERISA or otherwise of any withdrawal liability assessed
against the Credit Parties or any of their ERISA Affiliates, or of a
determination that any Multiemployer Plan is in reorganization or
insolvent (both within the meaning of Title IV of ERISA); (iii) the
failure to make full payment on or before the due date (including
extensions) thereof of all amounts which a Credit Party or any of its
Subsidiaries or ERISA Affiliates is required to contribute to each Plan
pursuant to its terms and as required to meet the minimum funding standard
set forth in ERISA and the Code with respect thereto; or (iv) any change
in the funding status of any Plan that could have a Material Adverse
Effect; together, with a description of any such event or condition or a
copy of any such notice and a statement by the principal financial officer
of the Borrowers briefly setting forth the details regarding such event,
condition, or notice, and the action, if any, which has been or is being
taken or is proposed to be taken by the Credit Parties with respect
thereto. Promptly upon request, a Credit Party shall furnish the
Administrative Agent and each of the Lenders with such additional
information concerning any Plan as may be reasonably requested, including,
but not limited to, copies of each annual report/return (Form 5500
series), as well as all schedules and attachments thereto required to be
filed with the Department of Labor and/or the Internal Revenue Service
pursuant to ERISA and the Code, respectively, for each "plan year" (within
the meaning of Section 3(39) of ERISA).
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(k) Environmental.
(i) Subsequent to a notice from any Governmental Authority
where the subject matter of such notice would reasonably be expected
to have a Material Adverse Effect, or during the existence of an
Event of Default, and upon the written request of Administrative
Agent, the Credit Parties will furnish or cause to be furnished to
the Administrative Agent, at the Credit Parties' expense, a report
of an environmental assessment of reasonable scope, form and depth,
including, where appropriate, invasive soil or groundwater sampling,
by a consultant reasonably acceptable to the Administrative Agent
addressing the subject of such notice or, if during the existence of
an Event of Default, regarding any release or threat of release of
Hazardous Materials on any property owned, leased or operated by a
Credit Party and the compliance by the Credit Parties with
Environmental Laws. If Credit Parties fail to deliver such an
environmental report within seventy-five (75) days after receipt of
such written request, then the Administrative Agent may arrange for
same, and the Credit Parties hereby grant to the Administrative
Agent and its representatives access to the Real Properties and a
license of a scope reasonably necessary to undertake such an
assessment (including, where appropriate, invasive soil or
groundwater sampling). The reasonable cost of any assessment
arranged for by the Administrative Agent pursuant to this provision
will be payable by the Credit Parties on demand and added to the
obligations secured by the Collateral Documents.
(ii) Each Credit Party will conduct and complete all
investigations, studies, sampling, and testing and all remedial,
removal, and other actions necessary to address all Hazardous
Materials on, from, or affecting any real property owned or leased
by a Credit Party to the extent necessary to be in compliance with
all Environmental Laws and all other applicable federal, state, and
local laws, regulations, rules and policies and with the orders and
directives of all Governmental Authorities exercising jurisdiction
over such real property to the extent any failure would have or be
reasonably expected to have a Material Adverse Effect.
(l) Other Information. With reasonable promptness upon any such
request, such other information regarding the business, properties or
financial condition of the Credit Parties and their Subsidiaries as the
Administrative Agent may reasonably request.
7.2 Financial Covenants.
(a) Leverage Ratio. The Leverage Ratio shall be less than or equal
to the ratios set forth below as of the last day of each fiscal quarter
within the period set forth below:
(i) From the Effective Date to December 30, 1998, 3.25 to
1.0;
(ii) From December 31, 1998 to December 30, 1999, 3.00 to
1.0;
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(iii) From December 31, 1999 to December 30, 2000, 2.75 to
1.0; and
(iv) From December 31, 2000 and thereafter, 2.50 to 1.0.
(b) Capitalization Ratio. The Capitalization Ratio shall be less
than or equal to the ratios set forth below as of the last day of each
fiscal quarter within the period set forth below:
(i) From the Effective Date to December 30, 1998, .85 to
1.0;
(ii) From December 31, 1998 to December 30, 1999, .75 to 1.0;
(iii) From December 31, 1999 to December 30, 2000, .65 to 1.0;
and
(iv) From December 1, 2000 thereafter, .60 to 1.0.
(c) Tangible Net Worth. As of the last day of each fiscal quarter of
the Parent, the Tangible Net Worth shall be greater than or equal to the
sum of (i) $5.5 million plus (ii) 50% of the cumulative Net Income
(without deduction for losses) earned for each completed fiscal quarter
from September 30, 1997 to the date of determination.
(d) Fixed Charge Coverage Ratio. The Fixed Charge Coverage Ratio,
for the twelve month period ending on the last day of each fiscal quarter
of the Parent, shall be greater than or equal to 1.20 to 1.0.
(e) Current Ratio. As of the last day of each fiscal quarter of the
Parent, the Current Ratio shall be greater than or equal to 2.0 to 1.0.
7.3 Preservation of Existence and Franchises.
Each of the Credit Parties will do all things necessary to preserve and
keep in full force and effect its existence, rights, franchises and authority
except as permitted by Section 8.4.
7.4 Books and Records.
Each of the Credit Parties will keep complete and accurate books and
records of its transactions in accordance with GAAP (including the establishment
and maintenance of appropriate reserves).
7.5 Compliance with Law.
Each of the Credit Parties will comply with all material laws, rules,
regulations and orders, and all applicable material restrictions imposed by all
Governmental Authorities, applicable to it and its property (including, without
limitation, Environmental Laws) if such noncompliance would have or be
reasonably expected to have a Material Adverse Effect.
7.6 Payment of Taxes and Other Indebtedness.
Each of the Credit Parties will pay, settle or discharge (a) all material
taxes, assessments and governmental charges or levies imposed upon it, or upon
its income or profits, or upon any of its properties, before they shall become
delinquent, (b) all lawful claims (including claims for
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labor, materials and supplies) which, if unpaid, might give rise to a Lien upon
any of its properties, and (c) all of its other Indebtedness as it shall become
due, including, without limitation, the Subordinated Debt (to the extent such
repayment is not otherwise prohibited by this Agreement); provided, however,
that a Credit Party shall not be required to pay any such tax, assessment,
charge, levy, claim or Indebtedness which is being contested in good faith by
appropriate proceedings and as to which adequate reserves therefor have been
established in accordance with GAAP, unless the failure to make any such payment
(i) would give rise to an immediate right to foreclose or collect on a Lien
securing such amounts or (ii) would have or reasonably be expected to have a
Material Adverse Effect.
7.7 Insurance.
Each of the Credit Parties will at all times maintain in full force and
effect insurance (including worker's compensation insurance, liability
insurance, casualty insurance and business interruption insurance) in such
amounts, covering such risks and liabilities and with such deductibles or
self-insurance retentions as are in accordance with normal industry practice.
All policies shall have the Collateral Agent, on behalf of the Lenders, as an
additional insured.
In the event there occurs any material loss, damage to or destruction of the
Collateral of any Credit Party or any part thereof, such Credit Party shall
promptly give written notice thereof to the Administrative Agent generally
describing the nature and extent of such damage or destruction. Subsequent to
any loss, damage to or destruction of the Collateral of any Credit Party or any
part thereof, such Credit Party, whether or not the insurance proceeds, if any,
received on account of such damage or destruction shall be sufficient for that
purpose, at such Credit Party's cost and expense, will promptly repair or
replace the Collateral of such Credit Party so lost, damaged or destroyed;
provided, however, that such Credit Party need not repair or replace the
Collateral of such Credit Party so lost, damaged or destroyed to the extent the
failure to make such repair or replacement (a) is desirable to the proper
conduct of the business of such Credit Party in the ordinary course and
otherwise is in the best interest of such Credit Party and (b) would not
materially impair the rights and benefits of the Agents or the Lenders under
this Credit Agreement or any other Credit Document. In the event a Credit Party
shall receive any insurance proceeds, as a result of any loss, damage or
destruction of Collateral, in a net amount in excess of $1,000,000, such Credit
Party will immediately pay over such proceeds to the Administrative Agent as
cash collateral for the Credit Party Obligations. The Administrative Agent
agrees to release such insurance proceeds to such Credit Party for replacement
or restoration of the portion of the Collateral of such Credit Party lost,
damaged or destroyed if (A) within 30 days from the date the Administrative
Agent receives such insurance proceeds, the Administrative Agent has received
written application for such release from such Credit Party together with
evidence reasonably satisfactory to it that the Collateral lost, damaged or
destroyed has been or will be replaced or restored to its condition (or by
Collateral having a value at least equal to the condition of the asset subject
to the loss, damage or destruction) immediately prior to the loss, destruction
or other event giving rise to the payment of such insurance proceeds and (B) on
the date of such release no Default or Event of Default exists. If the
conditions in the preceding sentence are not met, the Administrative Agent may
or, upon the request of the Required Lenders, shall at any time after the first
Business Day subsequent to the date 30 days after it received such insurance
proceeds, apply such insurance proceeds as a mandatory prepayment of the Credit
Party Obligations for application in
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accordance with the terms of Section 3.3(b)(ii). All insurance proceeds shall be
subject to the security interest of the Lenders under the Collateral Documents.
The present insurance coverage of the Credit Parties and their Subsidiaries is
outlined as to carrier, policy number, expiration date, type and amount on
Schedule 7.7. Schedule 7.7 shall only be required to be amended by the Credit
Parties on an annual basis or upon the reasonable request of the Administrative
Agent.
7.8 Maintenance of Property.
Each of the Credit Parties will maintain and preserve its properties and
equipment in good repair, working order and condition, normal wear and tear
excepted, and will make, or cause to be made, in such properties and equipment
from time to time all repairs, renewals, replacements, extensions, additions,
betterments and improvements thereto as may be needed or proper, to the extent
and in the manner customary for companies in similar businesses.
7.9 Performance of Obligations.
Each of the Credit Parties will perform in all material respects all of
its obligations under the terms of all material agreements, indentures,
mortgages, security agreements or other debt instruments to which it is a party
or by which it is bound.
7.10 Collateral.
If, subsequent to the Closing Date, a Credit Party shall (a) acquire any
real property, any patented, registered or applied for intellectual property or
any securities or (b) acquire any other personal property required to be
delivered to the Collateral Agent as Collateral hereunder or under any of the
Collateral Documents, or (c) enter into any Material License Agreement, the
Borrowers shall immediately notify the Collateral Agent of same. Each Credit
Party shall take such action (including, but not limited to, the actions set
forth in Sections 5.1(e) and (f)), as reasonably requested by the Collateral
Agent and at its own expense, to ensure that (i) the Lenders have a perfected
Lien in all owned real property and such personal property of the Credit Parties
as set forth in the Security Agreements (whether now owned or hereafter
acquired), subject only to Permitted Liens and (ii) the Lenders have an accurate
complete copy of all Material License Agreements. Each Credit Party shall adhere
to the covenants regarding the location of personal property as set forth in the
Security Agreements.
7.11 Use of Proceeds.
The Credit Parties will use the proceeds of the Loans solely (a) to
refinance or repay existing Indebtedness owing under the Prior Credit Agreement,
(b) to assist in repaying obligations incurred in the acquisition of Auburn
Hosiery Mills, Inc. and Sport Socks Co. (Ireland) Limited by, directly or
indirectly, the Parent, (c) to pay related fees and expenses in connection with
the foregoing, (d) to make Permitted Acquisitions, (e) to provide working
capital and (f) for general corporate purposes. The Credit Parties will use the
Letters of Credit solely for the purposes set forth in Section 2.2(a).
7.12 Audits/Inspections.
Upon reasonable notice and during normal business hours, each Credit Party
will permit representatives appointed by Administrative Agent, including,
without limitation, independent accountants, agents, attorneys and appraisers to
visit and inspect such Credit Party's property,
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including its books and records, its accounts receivable and inventory, its
facilities and its other business assets, and to make photocopies or photographs
thereof and to write down and record any information such representative obtains
and shall permit the Administrative Agent or its representatives to investigate
and verify the accuracy of information provided to the Lenders, including,
without limitation, the performance of collateral valuation reviews from time to
time to assess the composition of the Borrowing Base Assets, and to discuss all
such matters with the officers, employees and representatives of the Credit
Parties; provided that, absent an Event of Default, the Administrative Agent and
its agents shall not contact any customers, account debtors or licensors of the
Credit Parties. The Credit Parties agree that the Collateral Agent may conduct
such collateral reviews, at the Credit Parties' expense, as it reasonably deems
appropriate; provided that, absent an Event of Default, such reviews shall not
occur more frequently than once a year.
7.13 Additional Credit Parties.
At the time any Person becomes a Subsidiary of a Credit Party, the
Borrowers shall so notify the Administrative Agent and promptly thereafter (but
in any event within 30 days after the date thereof) shall cause such Person to
(a) if it is a Domestic Subsidiary, execute a Joinder Agreement in substantially
the same form as Exhibit 7.13, (b) cause all of the capital stock of such Person
(if it is a Domestic Subsidiary) or 65% of the capital stock of such Person (if
it is a First Tier Foreign Subsidiary) to be delivered to the Collateral Agent
(together with undated stock powers signed in blank) and pledged to the
Collateral Agent pursuant to an appropriate pledge agreement in substantially
the form of the Pledge Agreement (or a joinder to the existing Pledge Agreement)
and otherwise in a form reasonably acceptable to the Collateral Agent, (c) if
such Person is a Domestic Subsidiary, pledge all of its assets to the Collateral
Agent pursuant to a security agreement in substantially the form of the Security
Agreement (or a joinder to the existing Security Agreement) and otherwise in a
form reasonably acceptable to the Collateral Agent, and (d) if such Person is a
Domestic Subsidiary and has any Subsidiaries, (A) deliver all of the capital
stock of such Domestic Subsidiaries owned by it and 65% of the stock of the
First Tier Foreign Subsidiaries owned by it (together with undated stock powers
signed in blank) to the Collateral Agent and (B) execute a pledge agreement in
substantially the form of the Pledge Agreement (or a joinder to the existing
Pledge Agreement) and otherwise in a form acceptable to the Collateral Agent,
(e) if such Person is a Domestic Subsidiary and owns or leases any real
property, execute any and all necessary mortgages, deeds of trust, deeds to
secure debt or other appropriate real estate collateral documentation in a form
acceptable to the Collateral Agent (or cause to be delivered in a commercially
reasonable manner a landlord waiver or estoppel letter with respect thereto in a
form acceptable to the Collateral Agent) and (f) deliver such other
documentation as the Collateral Agent may reasonably request in connection with
the foregoing, including, without limitation, appropriate UCC-1 financing
statements, real estate title insurance policies, environmental reports,
landlord's waivers, certified resolutions and other organizational and
authorizing documents of such Person and favorable opinions of counsel to such
Person (which shall cover, among other things, the legality, validity, binding
effect and enforceability of the documentation referred to above), all in form,
content and scope reasonably satisfactory to the Collateral Agent.
7.14 Material License Agreements.
The Credit Parties will (a) comply with the material terms of any Material
License Agreement, (b) keep each Material License Agreement in full force and
effect during the term
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of such Material License Agreement unless such Material License Agreement has
been replaced by a license agreement that the Borrower reasonably believes will
provide revenues and profitability to the Credit Parties at least equal to that
of the Material License Agreement to be terminated and (c) not make any
modification or amendment to any Material License Agreement that would
materially affect the rights of the Lenders under the Credit Documents.
7.15 Purchase Agreements.
The Credit Parties agree, upon the request of the Administrative Agent, to
promptly enforce their rights with respect to the indemnification provisions set
forth in the Purchase Agreements.
7.16 Foreign Shares.
Within 60 days after the Closing Date, the Credit Parties agree to provide
to the Collateral Agent (a) 65% of the stock of all First Tier Foreign
Subsidiaries and (b) an opinion, in a form and from legal counsel reasonably
acceptable to the Collateral Agent, which shall cover the enforceability, the
perfection and the priority of the Lenders' security interest in the shares of
First Tier Foreign Subsidiaries pledged pursuant to the Collateral Documents.
SECTION 8
NEGATIVE COVENANTS
Each Credit Party hereby covenants and agrees that so long as this Credit
Agreement is in effect and until the Loans and LOC Obligations, together with
interest, fees and other obligations then due and payable hereunder, have been
paid in full and the Commitments and Letters of Credit hereunder shall have
terminated:
8.1 Indebtedness.
No Credit Party will, nor will it permit any of its Subsidiaries to,
contract, create, incur, assume or permit to exist any Indebtedness, except:
(a) Indebtedness arising under this Credit Agreement and the other
Credit Documents;
(b) Indebtedness existing as of the Closing Date as referenced in
Section 6.10 (and renewals, refinancings, replacements or extensions
thereof on terms and conditions no more favorable, in the aggregate, to
such Person than such existing Indebtedness and in a principal amount not
in excess of that outstanding as of the date of such renewal, refinancing,
replacement or extension);
(c) Indebtedness in respect of current accounts payable and accrued
expenses incurred in the ordinary course of business and to the extent not
current, accounts payable and accrued expenses that are subject to bona
fide dispute;
(d) Indebtedness owing by (i) a Credit Party to another Credit
Party, (ii) a Credit Party to a Foreign Subsidiary, (iii) a Foreign
Subsidiary to another Foreign
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Subsidiary or (iv) a Foreign Subsidiary to a Credit Party if it
constitutes a Permitted Investment.
(e) purchase money Indebtedness (including Capital Leases) to
finance the purchase of fixed assets (including equipment); provided that
(i) the total of all such Indebtedness for all such Persons taken together
shall not exceed an aggregate principal amount of $1,000,000 at any one
time outstanding (in addition to any such Indebtedness referred to in
subsection (b) above); (ii) such Indebtedness when incurred shall not
exceed the purchase price of the asset(s) financed; and (iii) no such
Indebtedness shall be refinanced for a principal amount in excess of the
principal balance outstanding thereon at the time of such refinancing;
(f) Indebtedness of Foreign Subsidiaries up to $5,000,000, in the
aggregate, at any one time;
(g) Indebtedness arising from Hedging Agreements entered into in the
ordinary course and not for speculative purposes;
(h) Indebtedness arising from judgments that do not cause an Event
of Default;
(i) Indebtedness arising from indemnification obligations incurred
in connection with (i) the Stock Purchase Agreement for the purchase of
Auburn Hosiery Mills, Inc., by and among the Parent and certain other
parties, dated as of the date hereof, (ii) the Stock Purchase Agreement
for the purchase of Sport Socks (Ireland) Limited by and between the
Parent and Manning, dated as of the date hereof, (the Stock Purchase
Agreements referred to in clause (i) and (ii) of this Section 8.1(i)
collectively referred to as the "Purchase Agreements") and (iii) the Stock
Purchase Agreement by and between the Parent, Gerber Products Company and
others, dated as of January 22, 1996;
(j) the guaranty by the Parent of the obligations of Sport Socks Co.
(Ireland) Limited to the Industrial Development Agency of Ireland;
(k) other unsecured Indebtedness up to $500,000, in the aggregate,
at any one time outstanding; and
(l) other secured Indebtedness up to $100,000, in the aggregate, at
any one time outstanding.
8.2 Liens.
No Credit Party will, nor will it permit its Subsidiaries to, contract,
create, incur, assume or permit to exist any Lien with respect to any of its
property or assets of any kind (whether real or personal, tangible or
intangible), whether now owned or after acquired, except for Permitted Liens.
8.3 Nature of Business.
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No Credit Party will, nor will it permit its Subsidiaries to, alter the
character of its business from that conducted as of the Effective Date or engage
in any business other than the business conducted as of the Effective Date and
activities which are substantially similar or related thereto or logical
extensions thereof or immaterial businesses which are acquired as part of a
Permitted Acquisition.
8.4 Consolidation and Merger.
No Credit Party will, nor will it permit any Subsidiary to, enter into any
transaction of merger or consolidation or liquidate, wind up or dissolve itself;
provided that a Credit Party or a Subsidiary of a Credit Party may merge or
consolidate with or into another Person if the following conditions are
satisfied:
(a) the Administrative Agent is given prior written notice of such
action;
(b) if the merger or consolidation involves a Credit Party, the
Person formed by such consolidation or into which a Credit Party is merged
shall either (i) be such Credit Party or (ii) be a Domestic Subsidiary and
expressly assume in writing all of the obligations of such Credit Party
under the Credit Documents; provided that if the transaction is between
the Parent or a Borrower and another Person, the Parent or such Borrower
must be the surviving entity;
(c) if the merger or consolidation involves the merger of a First
Tier Foreign Subsidiary with any other Foreign Subsidiary, the Lenders
receive 65% of the Voting Stock of the surviving First Tier Foreign
Subsidiary, if any;
(d) the Credit Parties execute and deliver such documents,
instruments and certificates as the Administrative Agent may request
(including, if necessary, to maintain its perfection and priority in the
Collateral pledged pursuant to the Collateral Documents);
(e) immediately after giving effect to such transaction, no Default
or Event of Default shall have occurred and be continuing; and
(f) the Borrowers deliver to the Administrative Agent an officer's
certificate demonstrating compliance with clause (b) or (c) above, as
applicable, and an opinion of counsel stating that such consolidation or
merger and any written agreement entered into in connection therewith,
comply with this Section 8.4.
8.5 Sale or Lease of Assets.
No Credit Party will, nor will it permit its Subsidiaries to, convey,
sell, lease, transfer or otherwise voluntarily dispose of, in one transaction or
a series of transactions, all or any part of its business or assets whether now
owned or hereafter acquired, including, without limitation, inventory,
receivables, equipment, real property interests (whether owned or leasehold),
and securities, other than (a) any inventory sold or otherwise disposed of in
the ordinary course of business; (b) the sale, lease, transfer or other disposal
by (i) a Credit Party (other than a Borrower) of any or all of its assets to a
Borrower or to another Credit Party or (ii) by a Borrower of any or all of its
assets to the other Borrower; (c) obsolete, slow-moving, idle or worn-out assets
no longer used or useful in its business or the trade in of equipment for
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equipment in better condition or of better quality; (d) the transfer of assets
which constitute a Permitted Investment; (e) the issuance of capital stock by
the Parent, subject to Section 3.3; (f) the lease of assets to contractors not
to exceed $425,000, in the aggregate, at any one time; (g) the lease or sublease
of real property interests in the ordinary course of business; (h) the license
of intellectual property in the ordinary course and (i) other sales of assets
not to exceed $500,000, in the aggregate, during the term of this Agreement.
Upon a sale of assets permitted by this Section 8.5, the Collateral Agent
shall promptly deliver to the Borrowers, upon the Borrowers' request and at the
Borrowers' expense, such documentation as is reasonably necessary to evidence
the release of the Lenders' security interest in such assets, including, without
limitation, amendments or terminations of UCC financing statements.
8.6 Sale Leasebacks.
No Credit Party will, nor will it permit its Subsidiaries to, directly or
indirectly become or remain liable as lessee or as guarantor or other surety
with respect to any lease of any property (whether real or personal or mixed),
whether now owned or hereafter acquired, (a) which such Credit Party or its
Subsidiary has sold or transferred or is to sell or transfer to any other Person
other than a Credit Party or (b) which such Credit Party or its Subsidiary
intends to use for substantially the same purpose as any other property which
has been sold or is to be sold or transferred by such Credit Party to any Person
in connection with such lease.
8.7 Advances, Investments and Loans.
No Credit Party will, nor will it permit its Subsidiaries to, make any
Investments except for Permitted Investments.
8.8 Restricted Payments.
No Credit Party will, nor will it permit its Subsidiaries to, directly or
indirectly, (a) declare or pay any dividends or make any other distribution upon
any shares of its capital stock of any class or (b) purchase, redeem or
otherwise acquire or retire or make any provisions for redemption, acquisition
or retirement of any shares of its capital stock of any class or any warrants or
options to purchase any such shares; provided that (i) any Subsidiary of a
Borrower may pay dividends to its parent, (ii) a Borrower may pay dividends to
the Parent (A) to pay off debt incurred to purchase Auburn Hosiery Mills, Inc.,
(B) for administrative expenses not to exceed $500,000 per fiscal year and (C)
to allow for the payment of taxes, (iii) the Parent may repurchase its stock to
the extent it constitutes a Permitted Investment and (iv) any Credit Party may,
and may permit its Subsidiaries to, pay a dividend solely in shares of the class
of stock on which such dividend is declared as long as no Change in Control
occurs.
8.9 Transactions with Affiliates.
Other than (a) transactions between Credit Parties, (b) non-material
transactions between Credit Parties and their Subsidiaries otherwise permitted
by 8.7 or (c) transactions with respect to agreements existing as of the date
hereof as set forth on Schedule 8.9, no Credit Party will, nor will it permit
its Subsidiaries to, enter into any transaction or series of transactions,
whether or not in the ordinary course of business, with any officer, director,
shareholder, Subsidiary or Affiliate other than (i) on terms and conditions
substantially as favorable as would be obtainable in a comparable arm's-length
transaction with a Person other than an officer,
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director, shareholder, Subsidiary or Affiliate or (i) as approved by a majority
disinterested directors of the applicable Credit Party.
8.10 Fiscal Year; Organizational Documents.
No Credit Party will, nor will it permit its Subsidiaries to, (a) change
its fiscal year or (b) in any manner that would reasonably be likely to
adversely affect the rights of the Lenders, change its articles or certificate
of incorporation or its bylaws.
8.11 Ownership of Borrowers.
The Parent will not sell, transfer or otherwise dispose of any shares of
capital stock of a Borrower. Furthermore, the Parent will not hold any assets
other than (a) the stock of the Borrowers, and (b) such amounts allowed to be
transferred to the Parent pursuant to Section 8.8. The Parent may not have any
liabilities other than the liabilities under the Credit Documents, tax
liabilities and other liabilities in the ordinary course of business (which
shall include liabilities under certain agreements with members of management
and indemnification obligations).
8.12 No Limitations.
No Credit Party will, nor will it permit its Subsidiaries to, directly or
indirectly, create or otherwise cause, incur, assume, suffer or permit to exist
or become effective any consensual encumbrance or restriction of any kind on the
ability of any such Person to (a) pay dividends or make any other distribution
on any of such Person's capital stock, (b) pay any Indebtedness owed to any
other Credit Party, (c) make loans or advances to any other Credit Party or (d)
transfer any of its property to any other Credit Party, except for encumbrances
or restrictions existing under or by reason of (i) customary non-assignment or
net worth provisions in any lease governing a leasehold interest, (ii) any
agreement or other instrument of a Person existing at the time it becomes a
Subsidiary of a Credit Party; provided that such encumbrance or restriction is
not applicable to any other Person, or any property of any other Person, other
than such Person becoming a Subsidiary of a Credit Party and was not entered
into in contemplation of such Person becoming a Subsidiary of a Credit Party,
and (iii) this Credit Agreement and the other Credit Documents.
8.13 No Other Negative Pledges.
No Credit Party will, nor will it permit its Subsidiaries to, enter into,
assume or become subject to any agreement prohibiting or otherwise restricting
the creation or assumption of any Lien upon its properties or assets, whether
now owned or hereafter acquired, or requiring the grant of any security for such
obligation if security is given for some other obligation except as set forth in
the Credit Documents or as set forth in the Senior Subordinated Credit Agreement
or the Junior Subordinated Note.
8.14 Limitation on Foreign Operations.
The Credit Parties will not, nor will they permit any of their
Subsidiaries to, allow the Foreign Subsidiaries to have assets which in the
aggregate constitute more than 15% of Total Assets at any time.
8.15 Subordinated Debt.
No Credit Party will, nor will it permit its Subsidiaries to, (a) make or
offer to make any voluntary or optional principal payments with respect to the
Subordinated Debt, (b) redeem or offer to redeem any of the Subordinated Debt,
or (c) deposit any funds intended to discharge
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or defease any or all of the Subordinated Debt except, with respect to (b) and
(c), as permitted in accordance with the terms and conditions of the Senior
Subordinated Credit Agreement and the Intercreditor Agreement; provided that,
notwithstanding the foregoing, the Parent may repay up to $1,500,000 of
principal owing under the Junior Subordinated Note in exchange for amounts owed
from Gerber Products Company to the Parent. Neither the Senior Subordinated
Credit Agreement nor the Junior Subordinated Note shall be amended or modified
in any manner without the prior written consent of the Required Lenders.
SECTION 9
EVENTS OF DEFAULT
9.1 Events of Default.
An Event of Default shall exist upon the occurrence, and during the
continuance, of any of the following specified events (each an "Event of
Default"):
(a) Payment. Any Credit Party shall default in the payment (i) when
due of any principal of any of the Loans or any reimbursement obligation
arising from drawings under Letters of Credit or (ii) within three
Business Days of when due of any interest on the Loans or any fees or
other amounts owing hereunder, under any of the other Credit Documents or
in connection herewith.
(b) Representations. Any representation, warranty or statement made
or deemed to be made by any Credit Party herein, in any of the other
Credit Documents, or in any statement or certificate delivered or required
to be delivered pursuant hereto or thereto shall prove untrue in any
material respect on the date as of which it was made or deemed to have
been made.
(c) Covenants. Any Credit Party shall:
(i) default in the due performance or observance of any term,
covenant or agreement contained in Sections 7.2, 7.3, 7.5, 7.11,
7.12, or 8.1 through 8.15 inclusive;
(ii) default in the due performance or observance by it of any
term, covenant or agreement contained in Sections 7.1 (other than
Section 7.1(c)) and such default shall continue unremedied for a
period of five Business Days;
(iii) default in the due performance or observance by it of
any term, covenant or agreement contained in Section 7.1(c) and such
default shall continue unremedied for a period of two Business Days;
or
(iv) default in the due performance or observance by it of any
term, covenant or agreement (other than those referred to in
subsections (a), (b) or (c)(i), (ii) or (iii) of this Section 9.1)
contained in this Credit Agreement and such default shall continue
unremedied for a period of at least 30 days after the
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earlier of an officer of a Credit Party becoming aware of such
default or notice thereof given by the Administrative Agent.
(d) Other Credit Documents. (i) Any Credit Party shall default in
the due performance or observance of any term, covenant or agreement in
any of the other Credit Documents and such default shall continue
unremedied for a period of at least 30 days after the earlier of an
officer of a Credit Party becoming aware of such default or notice thereof
given by the Administrative Agent, or (ii) any Credit Document shall fail
to be in full force and effect or any Credit Party shall so assert or any
Credit Document shall fail to give the Collateral Agent and/or the Lenders
the security interests, liens, rights, powers and privileges purported to
be created thereby.
(e) Guaranties. The guaranty given by the Credit Parties hereunder
or by any Additional Credit Party hereafter or any provision thereof shall
cease to be in full force and effect, or any guarantor thereunder or any
Person acting by or on behalf of such guarantor shall deny or disaffirm
such Guarantor's obligations under such guaranty.
(f) Bankruptcy, etc. The occurrence of any of the following with
respect to the Parent or any of its Subsidiaries (i) a court or
governmental agency having jurisdiction in the premises shall enter a
decree or order for relief in respect of the Parent or any of its
Subsidiaries in an involuntary case under any applicable bankruptcy,
insolvency or other similar law now or hereafter in effect, or appoint a
receiver, liquidator, assignee, custodian, trustee, sequestrator or
similar official of the Parent or any of its Subsidiaries or for any
substantial part of its property or ordering the winding up or liquidation
of its affairs; or (ii) an involuntary case under any applicable
bankruptcy, insolvency or other similar law now or hereafter in effect is
commenced against the Parent or any of its Subsidiaries and such petition
remains unstayed and in effect for a period of 60 consecutive days; or
(iii) the Parent or any of its Subsidiaries shall commence a voluntary
case under any applicable bankruptcy, insolvency or other similar law now
or hereafter in effect, or consent to the entry of an order for relief in
an involuntary case under any such law, or consent to the appointment or
taking possession by a receiver, liquidator, assignee, custodian, trustee,
sequestrator or similar official of such Person or any substantial part of
its property or make any general assignment for the benefit of creditors;
or (iv) the Parent or any of its Subsidiaries shall admit in writing its
inability to pay its debts generally as they become due or any action
shall be taken by such Person in furtherance of any of the aforesaid
purposes.
(g) Defaults under Other Agreements. With respect to any Funded Debt
in excess of $500,000 (other than Funded Debt outstanding under this
Credit Agreement) of the Parent or any of its Subsidiaries (i) such Person
shall (A) default in any payment (beyond the applicable grace period with
respect thereto, if any) with respect to any such Funded Debt, or (B)
default (after giving effect to any applicable grace period) in the
observance or performance relating to such Funded Debt or contained in any
instrument or agreement evidencing, securing or relating thereto, or any
other event or condition shall occur or condition exist, the effect of
which default or other event or
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condition is to cause, or permit, the holder or holders of such Funded
Debt (or trustee or agent on behalf of such holders) to cause (determined
without regard to whether any notice or lapse of time is required) any
such Funded Debt to become due prior to its stated maturity; or (ii) any
such Funded Debt shall be declared due and payable, or required to be
prepaid other than by a regularly scheduled required prepayment prior to
the stated maturity thereof; or (iii) any such Funded Debt shall mature
and remain unpaid.
(h) Judgments. One or more judgments, orders, or decrees shall be
entered against any one or more of the Credit Parties and its Subsidiaries
involving a liability of $1,000,000 or more, in the aggregate, (to the
extent not paid or covered by insurance provided by a carrier who has
acknowledged coverage) and such judgments, orders or decrees (i) are the
subject of any enforcement proceeding commenced by any creditor or (ii)
shall continue unsatisfied, undischarged and unstayed for a period ending
on the first to occur of (A) the last day on which such judgment, order or
decree becomes final and unappealable or (B) 60 days.
(i) ERISA. The occurrence of any of the following events or
conditions if such occurrence would have or be reasonably likely to have a
Material Adverse Effect: (A) any "accumulated funding deficiency," as such
term is defined in Section 302 of ERISA and Section 412 of the Code,
whether or not waived, shall exist with respect to any Plan, or any lien
shall arise on the assets of the Parent or any of its Subsidiaries or any
ERISA Affiliate in favor of the PBGC or a Plan; (B) a Termination Event
shall occur with respect to a Single Employer Plan, which is, in the
reasonable opinion of the Administrative Agent, likely to result in the
termination of such Plan for purposes of Title IV of ERISA; (C) a
Termination Event shall occur with respect to a Multiemployer Plan or
Multiple Employer Plan, which is, in the reasonable opinion of the
Administrative Agent, likely to result in (i) the termination of such Plan
for purposes of Title IV of ERISA, or (ii) the Parent or any of its
Subsidiaries or any ERISA Affiliate incurring any liability in connection
with a withdrawal from, reorganization of (within the meaning of Section
4241 of ERISA), or insolvency (within the meaning of Section 4245 of
ERISA) of such Plan; or (D) any prohibited transaction (within the meaning
of Section 406 of ERISA or Section 4975 of the Code) or breach of
fiduciary responsibility shall occur which may subject the Parent or any
of its Subsidiaries or any ERISA Affiliate to any liability under Sections
406, 409, 502(i), or 502(l) of ERISA or Section 4975 of the Code, or under
any agreement or other instrument pursuant to which the Parent or any of
its Subsidiaries or any ERISA Affiliate has agreed or is required to
indemnify any person against any such liability.
(j) Ownership. There shall occur a Change of Control.
(k) Subordinated Debt. (i) Any Governmental Authority with
applicable jurisdiction determines that the Lenders are not holders of
Senior Indebtedness (as defined in the documentation evidencing the Junior
Subordinated Note) or Senior Debt (as defined in the documentation
evidencing the Senior Subordinated Credit Agreement) or (ii) the
subordination provisions in the Junior Subordinated Note or the
Intercreditor
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Agreement shall, in whole or in part, terminate, cease to be effective or
cease to be legally valid, binding and enforceable as to any holder of the
Subordinated Debt.
(l) Any breach of the Intercreditor Agreement by a Credit Party or
by the Subordinated Agent or a Subordinated Lender (as such terms are
defined in the Intercreditor Agreement).
9.2 Acceleration; Remedies.
Upon the occurrence, and during the continuance, of an Event of Default,
and at any time thereafter unless and until such Event of Default has been
waived in writing by the Required Lenders (or the Lenders as may be required
hereunder), the Administrative Agent shall, upon the request and direction of
the Required Lenders, by written notice to the Borrowers, take the following
actions without prejudice to the rights of the Agents or any Lender to enforce
its claims against the Credit Parties, except as otherwise specifically provided
for herein:
(a) Termination of Commitments. Declare the Commitments terminated
whereupon the Commitments shall be immediately terminated.
(b) Acceleration of Loans. Declare the unpaid principal of and any
accrued interest in respect of all Loans, any reimbursement obligations
arising from drawings under Letters of Credit and any and all other
indebtedness or obligations of any and every kind owing by a Credit Party
to any of the Lenders hereunder to be due whereupon the same shall be
immediately due and payable without presentment, demand, protest or other
notice of any kind, all of which are hereby waived by the Credit Parties.
(c) Cash Collateral. Direct the Borrowers to pay (and the Borrowers
agree that upon receipt of such notice, or upon the occurrence of an Event
of Default under Section 9.1(f), they will immediately pay) to the
Administrative Agent additional cash, to be held by the Administrative
Agent, for the benefit of the Lenders, in a cash collateral account as
additional security for the LOC Obligations in respect of subsequent
drawings under all then outstanding Letters of Credit in an amount equal
to the maximum aggregate amount which may be drawn under all Letters of
Credits then outstanding.
(d) Enforcement of Rights. Enforce any and all rights and interests
created and existing under the Credit Documents, including, without
limitation, all rights and remedies existing under the Collateral
Documents, all rights and remedies against a Guarantor and all rights of
set-off.
Notwithstanding the foregoing, if an Event of Default specified in Section
9.1(f) shall occur, then the Commitments shall automatically terminate and all
Loans, all reimbursement obligations under Letters of Credit, all accrued
interest in respect thereof, all accrued and unpaid fees and other indebtedness
or obligations owing to the Lenders hereunder shall immediately become due and
payable without the giving of any notice or other action by the Agents or the
Lenders, which notice or other action is expressly waived by the Credit Parties.
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Notwithstanding the fact that enforcement powers reside primarily with the
Administrative Agent, each Lender has, to the extent permitted by law, a
separate right of payment and shall be considered a separate "creditor" holding
a separate "claim" within the meaning of Section 101(5) of the Bankruptcy Code
or any other insolvency statute.
9.3 Allocation of Payments After Event of Default.
Notwithstanding any other provisions of this Credit Agreement, after the
occurrence and during the continuance of an Event of Default, all amounts
collected or received by an Agent or any Lender on account of amounts
outstanding under any of the Credit Documents or in respect of the Collateral
shall be paid over or delivered as follows:
FIRST, to the payment of all reasonable out-of-pocket costs and
expenses (including without limitation reasonable attorneys' fees) of the
Agents or any of the Lenders in connection with enforcing the rights of
the Lenders under the Credit Documents and any protective advances made by
the Agents or any of the Lenders with respect to the Collateral under or
pursuant to the terms of the Collateral Documents;
SECOND, to payment of any fees owed to an Agent, the Issuing Lender
or any Lender;
THIRD, to the payment of all accrued interest payable to the Lenders
hereunder and all other obligations which shall have become due and
payable under the Credit Documents and not repaid pursuant to clauses
"FIRST" and "SECOND" above;
FOURTH, to the payment of the outstanding principal amount of the
Loans and unreimbursed drawings under Letters of Credit, to the payment or
cash collateralization of the outstanding LOC Obligations, pro rata as set
forth below;
FIFTH, to any principal amounts outstanding under Hedging Agreements
between a Credit Party and a Lender, pro rata, as set forth below; and
SIXTH, to the payment of the surplus, if any, to whoever may be
lawfully entitled to receive such surplus.
In carrying out the foregoing, (a) amounts received shall be applied in the
numerical order provided until exhausted prior to application to the next
succeeding category; (b) each of the Lenders shall receive an amount equal to
its pro rata share (based on the proportion that the then outstanding Loans, LOC
Obligations and obligations under Hedging Agreements held by such Lender bears
to the aggregate then outstanding Loans, LOC Obligations and obligations under
Hedging Agreements) of amounts available to be applied; and (c) to the extent
that any amounts available for distribution pursuant to clause "FOURTH" above
are attributable to the issued but undrawn amount of outstanding Letters of
Credit, such amounts shall be held by the Collateral Agent in a cash collateral
account and applied (x) first, to reimburse the Issuing Lender from time to time
for any drawings under such Letters of Credit and (y) then, following the
expiration of all Letters of Credit, to all other obligations of the types
described in clauses "FOURTH," and "FIFTH" above in the manner provided in this
Section 9.3.
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SECTION 10
AGENCY PROVISIONS
10.1 Appointment.
Each Lender hereby designates and appoints NationsBank, N.A. as
Administrative Agent and Collateral Agent of such Lender to act as specified
herein and the other Credit Documents, and each such Lender hereby authorizes
the Agents, as the agents for such Lender, to take such action on its behalf
under the provisions of this Credit Agreement and the other Credit Documents and
to exercise such powers and perform such duties as are expressly delegated by
the terms hereof and of the other Credit Documents, together with such other
powers as are reasonably incidental thereto. Notwithstanding any provision to
the contrary elsewhere herein and in the other Credit Documents, the Agents
shall not have any duties or responsibilities, except those expressly set forth
herein and therein, or any fiduciary relationship with any Lender, and no
implied covenants, functions, responsibilities, duties, obligations or
liabilities shall be read into this Credit Agreement or any of the other Credit
Documents, or shall otherwise exist against the Agents. The provisions of this
Section are solely for the benefit of the Agents and the Lenders and none of the
Credit Parties shall have any rights as a third party beneficiary of the
provisions hereof. In performing its functions and duties under this Credit
Agreement and the other Credit Documents, each Agent shall act solely as an
agent of the Lenders and does not assume and shall not be deemed to have assumed
any obligation or relationship of agency or trust with or for any Credit Party.
10.2 Delegation of Duties.
An Agent may execute any of its duties hereunder or under the other Credit
Documents by or through agents or attorneys-in-fact and shall be entitled to
advice of counsel concerning all matters pertaining to such duties. An Agent
shall not be responsible for the negligence or misconduct of any agents or
attorneys-in-fact selected by it with reasonable care.
10.3 Exculpatory Provisions.
Neither the Agents nor any of their officers, directors, employees,
agents, attorneys-in-fact or affiliates shall be liable for any action lawfully
taken or omitted to be taken by it or such Person under or in connection
herewith or in connection with any of the other Credit Documents (except for its
or such Person's own gross negligence or willful misconduct) or responsible in
any manner to any of the Lenders for any recitals, statements, representations
or warranties made by any of the Credit Parties contained herein or in any of
the other Credit Documents or in any certificate, report, document, financial
statement or other written or oral statement referred to or provided for in, or
received by an Agent under or in connection herewith or in connection with the
other Credit Documents, or enforceability or sufficiency therefor of any of the
other Credit Documents, or for any failure of the Borrowers to perform its
obligations hereunder or thereunder. The Agents shall not be responsible to any
Lender for the effectiveness, genuineness, validity, enforceability,
collectibility or sufficiency of this Credit Agreement, or any of the other
Credit Documents or for any representations, warranties, recitals or statements
made herein or therein or made by a Borrower or any Credit Party in any written
or oral statement or in any financial or other statements, instruments, reports,
certificates or any other documents in connection herewith or therewith
furnished or made by an Agent to the Lenders or by or on behalf of the Credit
Parties to the Agents or any Lender or be required to ascertain or inquire as to
the performance or observance of any of the terms,
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conditions, provisions, covenants or agreements contained herein or therein or
as to the use of the proceeds of the Loans or the use of the Letters of Credit
or of the existence or possible existence of any Default or Event of Default or
to inspect the properties, books or records of the Credit Parties (except the
Agents shall inspect the books and records of the Credit Parties upon the
request of the Required Lenders). The Agents are not trustees for the Lenders
and owe no fiduciary duty to the Lenders.
10.4 Reliance on Communications.
The Agents shall be entitled to rely, and shall be fully protected in
relying, upon any note, writing, resolution, notice, consent, certificate,
affidavit, letter, cablegram, telegram, telecopy, telex or teletype message,
statement, order or other document or conversation reasonably believed by it to
be genuine and correct and to have been signed, sent or made by the proper
Person or Persons and upon advice and statements of legal counsel (including,
without limitation, counsel to any of the Credit Parties, independent
accountants and other experts selected by the Agents with reasonable care). The
Agents may deem and treat the Lenders as the owner of its interests hereunder
for all purposes unless a written notice of assignment, negotiation or transfer
thereof shall have been filed with the Administrative Agent in accordance with
Section 11.3(b). The Agents shall be fully justified in failing or refusing to
take any action under this Credit Agreement or under any of the other Credit
Documents unless it shall first receive such advice or concurrence of the
Required Lenders as it deems appropriate or it shall first be indemnified to its
satisfaction by the Lenders against any and all liability and expense which may
be incurred by it by reason of taking or continuing to take any such action. The
Agents shall in all cases be fully protected in acting, or in refraining from
acting, hereunder or under any of the other Credit Documents in accordance with
a request of the Required Lenders (or to the extent specifically provided in
Section 11.6, all the Lenders) and such request and any action taken or failure
to act pursuant thereto shall be binding upon all the Lenders (including their
successors and assigns).
10.5 Notice of Default.
An Agent shall not be deemed to have knowledge or notice of the occurrence
of any Default or Event of Default hereunder unless such Agent has received
notice from a Lender or a Credit Party referring to the Credit Document,
describing such Default or Event of Default and stating that such notice is a
"notice of default." In the event that the Administrative Agent receives such a
notice, the Administrative Agent shall give prompt notice thereof to the
Lenders. The Administrative Agent shall take such action with respect to such
Default or Event of Default as shall be reasonably directed by the Required
Lenders and as is permitted by the Credit Documents.
10.6 Non-Reliance on Agents and Other Lenders.
Each Lender expressly acknowledges that neither the Agents, NMSI nor any
of their officers, directors, employees, agents, attorneys-in-fact or affiliates
has made any representations or warranties to it and that no act by the Agents
or any affiliate thereof hereinafter taken, including any review of the affairs
of any Credit Party, shall be deemed to constitute any representation or
warranty by the Agents to any Lender. Each Lender represents to the Agents and
NMSI that it has, independently and without reliance upon the Agents or NMSI or
any other Lender, and based on such documents and information as it has deemed
appropriate, made its own appraisal of and investigation into the business,
assets, operations, property,
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financial and other conditions, prospects and creditworthiness of the Credit
Parties and made its own decision to make its Loans hereunder and enter into
this Credit Agreement. Each Lender also represents that it will, independently
and without reliance upon the Agents or NMSI or any other Lender, and based on
such documents and information as it shall deem appropriate at the time,
continue to make its own credit analysis, appraisals and decisions in taking or
not taking action under this Credit Agreement, and to make such investigation as
it deems necessary to inform itself as to the business, assets, operations,
property, financial and other conditions, prospects and creditworthiness of the
Credit Parties. Except for notices, reports and other documents expressly
required to be furnished to the Lenders by the Administrative Agent hereunder,
the Agents and NMSI shall not have any duty or responsibility to provide any
Lender with any credit or other information concerning the business, operations,
assets, property, financial or other conditions, prospects or creditworthiness
of the Credit Parties which may come into the possession of the Agents, NMSI or
any of their officers, directors, employees, agents, attorneys-in-fact or
affiliates.
10.7 Indemnification.
The Lenders agree to indemnify each Agent in its capacity as such (to the
extent not reimbursed by the Borrowers and without limiting the obligation of
the Borrowers to do so), ratably according to their respective Commitments (or
if the Commitments have expired or been terminated, in accordance with the
respective principal amounts of outstanding Loans and Participation Interest of
the Lenders), from and against any and all liabilities, obligations, losses,
damages, penalties, actions, judgments, suits, costs, expenses or disbursements
of any kind whatsoever which may at any time (including without limitation at
any time following payment in full of the Credit Party Obligations) be imposed
on, incurred by or asserted against an Agent in its capacity as such in any way
relating to or arising out of this Credit Agreement or the other Credit
Documents or any documents contemplated by or referred to herein or therein or
the transactions contemplated hereby or thereby or any action taken or omitted
by an Agent under or in connection with any of the foregoing; provided that no
Lender shall be liable for the payment of any portion of such liabilities,
obligations, losses, damages, penalties, actions, judgments, suits, costs,
expenses or disbursements resulting from the gross negligence or willful
misconduct of an Agent. If any indemnity furnished to an Agent for any purpose
shall, in the opinion of such Agent, be insufficient or become impaired, such
Agent may call for additional indemnity and cease, or not commence, to do the
acts indemnified against until such additional indemnity is furnished. The
agreements in this Section shall survive the payment of the Credit Party
Obligations and all other amounts payable hereunder and under the other Credit
Documents.
10.8 Agents in Their Individual Capacity.
Each Agent and its affiliates may make loans to, accept deposits from and
generally engage in any kind of business with a Borrower or any other Credit
Party as though such Agent were not an Agent hereunder. With respect to the
Loans made and Letters of Credit issued and all obligations owing to it, an
Agent shall have the same rights and powers under this Credit Agreement as any
Lender and may exercise the same as though they were not an Agent, and the terms
"Lender" and "Lenders" shall include each Agent in its individual capacity.
10.9 Successor Agent.
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Any Agent may, at any time, resign upon 20 days written notice to the
Lenders. Upon any such resignation, the Required Lenders shall, with the consent
of the Borrowers, such consent not to be unreasonably withheld or delayed, have
the right to appoint a successor Agent. If no successor Agent shall have been so
appointed by the Required Lenders, and shall have accepted such appointment,
within 60 days after the notice of resignation, then the retiring Agent shall
select a successor Agent, with the consent of the Borrowers, such consent not to
be unreasonably withheld or delayed, provided such successor is an Eligible
Assignee. Upon the acceptance of any appointment as an Agent hereunder by a
successor, such successor Agent shall thereupon succeed to and become vested
with all the rights, powers, privileges and duties of the retiring Agent, and
the retiring Agent shall be discharged from its duties and obligations as an
Agent, as appropriate, under this Credit Agreement and the other Credit
Documents and the provisions of this Section 10.9 shall inure to its benefit as
to any actions taken or omitted to be taken by it while it was an Agent under
this Credit Agreement.
SECTION 11
MISCELLANEOUS
11.1 Notices.
Except as otherwise expressly provided herein, all notices and other
communications shall have been duly given and shall be effective (a) when
delivered, (b) when transmitted via telecopy (or other facsimile device) to the
number set out below, (c) the Business Day following the day on which the same
has been delivered prepaid to a reputable national overnight air courier
service, or (d) the third Business Day following the day on which the same is
sent by certified or registered mail, postage prepaid, in each case to the
respective parties at the address or telecopy numbers set forth on Schedule
11.1, or at such other address as such party may specify by written notice to
the other parties hereto.
11.2 Right of Set-Off.
In addition to any rights now or hereafter granted under applicable law or
otherwise, and not by way of limitation of any such rights, upon the occurrence
of an Event of Default and the commencement of remedies described in Section
9.2, each Lender is authorized at any time and from time to time, without
presentment, demand, protest or other notice of any kind (all of which rights
being hereby expressly waived), to set-off and to appropriate and apply any and
all deposits (general or special) and any other indebtedness at any time held or
owing by such Lender (including, without limitation, branches, agencies or
Affiliates of such Lender wherever located) to or for the credit or the account
of any Credit Party against obligations and liabilities of such Credit Party to
the Lenders hereunder, under the Notes, the other Credit Documents or otherwise,
irrespective of whether the Administrative Agent or the Lenders shall have made
any demand hereunder and although such obligations, liabilities or claims, or
any of them, may be contingent or unmatured, and any such set-off shall be
deemed to have been made immediately upon the occurrence of an Event of Default
even though such charge is made or entered on the books of such Lender
subsequent thereto. The Credit Parties hereby agree that any Person purchasing a
participation in the Loans and Commitments hereunder pursuant to Section 11.3(c)
or 3.8 may exercise all rights of set-off with respect to its participation
interest as fully as if such Person were a Lender hereunder.
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11.3 Benefit of Agreement.
(a) Generally. This Credit Agreement shall be binding upon and inure
to the benefit of and be enforceable by the respective successors and
assigns of the parties hereto; provided that none of the Credit Parties
may assign and transfer any of its interests (except as permitted by
Section 8.4 or 8.5) without the prior written consent of the Lenders; and
provided further that the rights of each Lender to transfer, assign or
grant participations in its rights and/or obligations hereunder shall be
limited as set forth below in subsections (b) and (c) of this Section
11.3. Notwithstanding the above (including anything set forth in
subsections (b) and (c) of this Section 11.3), nothing herein shall
restrict, prevent or prohibit any Lender from (A) pledging its Loans
hereunder to a Federal Reserve Bank in support of borrowings made by such
Lender from such Federal Reserve Bank, or (B) granting assignments or
participations in such Lender's Loans and/or Commitments hereunder to its
parent company and/or to any Affiliate of such Lender or to any existing
Lender or Affiliate thereof.
(b) Assignments. Each Lender may, with the prior written consent of
the Borrowers and the Agents (provided that no consent of the Borrowers
shall be required during the existence and continuation of an Event of
Default), which consent shall not be unreasonably withheld or delayed,
assign all or a portion of its rights and obligations hereunder pursuant
to an assignment agreement substantially in the form of Exhibit 11.3 to
one or more Eligible Assignees; provided that (i) any such assignment
shall be in a minimum aggregate amount of $10,000,000 of the Commitments
and in integral multiples of $1,000,000 above such amount (or the
remaining amount of Commitments held by such Lender), (ii) each such
assignment shall be of a constant, not varying, percentage of all of the
assigning Lender's rights and obligations under the Commitment being
assigned and (iii) no assignment may be made to a competitor of a
Borrower. Any assignment hereunder shall be effective upon satisfaction of
the conditions set forth above and delivery to the Administrative Agent of
a duly executed assignment agreement together with a transfer fee of
$3,500 payable to the Administrative Agent for its own account. Upon the
effectiveness of any such assignment, the assignee shall become a "Lender"
for all purposes of this Credit Agreement and the other Credit Documents
and, to the extent of such assignment, the assigning Lender shall be
relieved of its obligations hereunder to the extent of the Loans and
Commitment components being assigned. As a condition to any such
assignment, the assigning Lender shall surrender the appropriate Note or
Notes, and the Borrowers will promptly provide to the assigning Lender and
to the assignee separate promissory notes in the amount of their
respective interests substantially in the form of the original Note or
Notes (but with notation thereon that it is given in substitution for and
replacement of the original Note or Notes or any replacement notes
thereof).
By executing and delivering an assignment agreement in accordance with
this Section 11.3(b), the assigning Lender thereunder and the assignee
thereunder shall be deemed to confirm to and agree with each other and the
other parties hereto as follows: (i) such assigning Lender warrants that
it is the legal and beneficial owner of the interest being assigned
thereby free and clear of any adverse claim and the assignee warrants that
it is an Eligible Assignee; (ii) except as set forth in clause (i) above,
such assigning Lender makes no representation or warranty and assumes no
responsibility with respect to any
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statements, warranties or representations made in or in connection with
this Credit Agreement, any of the other Credit Documents or any other
instrument or document furnished pursuant hereto or thereto, or the
execution, legality, validity, enforceability, genuineness, sufficiency or
value of this Credit Agreement, any of the other Credit Documents or any
other instrument or document furnished pursuant hereto or thereto or the
financial condition of any Credit Party or the performance or observance
by any Credit Party of any of its obligations under this Credit Agreement,
any of the other Credit Documents or any other instrument or document
furnished pursuant hereto or thereto; (iii) such assignee represents and
warrants that it is legally authorized to enter into such assignment
agreement; (iv) such assignee confirms that it has received a copy of this
Credit Agreement, the other Credit Documents and such other documents and
information as it has deemed appropriate to make its own credit analysis
and decision to enter into such assignment agreement; (v) such assignee
will independently and without reliance upon the Agents, such assigning
Lender or any other Lender, and based on such documents and information as
it shall deem appropriate at the time, continue to make its own credit
decisions in taking or not taking action under this Credit Agreement and
the other Credit Documents; (vi) such assignee appoints and authorizes the
Agents to take such action on its behalf and to exercise such powers under
this Credit Agreement or any other Credit Document as are delegated to the
Agents by the terms hereof or thereof, together with such powers as are
reasonably incidental thereto; and (vii) such assignee agrees that it will
perform in accordance with their terms all the obligations which by the
terms of this Credit Agreement and the other Credit Documents are required
to be performed by it as a Lender.
(c) Participations. Each Lender may sell, transfer, grant or assign
participations in all or any part of such Lender's interests and
obligations hereunder; provided that (i) such selling Lender shall remain
a "Lender" for all purposes under this Credit Agreement (such selling
Lender's obligations under the Credit Documents remaining unchanged) and
the participant shall not constitute a Lender hereunder, (ii) no such
participant shall have, or be granted, rights to approve any amendment or
waiver relating to this Credit Agreement or the other Credit Documents
except to the extent any such amendment or waiver would (A) reduce the
principal of or rate of interest on or fees in respect of any Loans in
which the participant is participating or increase any Commitments with
respect thereto, (B) postpone the date fixed for any payment of principal
(including the extension of the final maturity of any Loan or the date of
any mandatory prepayment), interest or fees in which the participant is
participating, or (C) release all or substantially all of the collateral
or guaranties (except as expressly provided in the Credit Documents)
supporting any of the Loans or Commitments in which the participant is
participating, (iii) sub-participations by the participant (except to an
Affiliate, parent company or Affiliate of a parent company of the
participant) shall be prohibited and (iv) any such participations shall be
in a minimum aggregate amount of $10,000,000 of the Commitments and in
integral multiples of $1,000,000 in excess thereof. In the case of any
such participation, the participant shall not have any rights under this
Credit Agreement or the other Credit Documents (the participant's rights
against the selling Lender in respect of such participation to be those
set forth in the participation agreement with such Lender creating such
participation) and all amounts payable by the Borrowers hereunder shall
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be determined as if such Lender had not sold such participation; provided,
however, that such participant shall be entitled to receive additional
amounts under Sections 3.9, 3.12, 3.13 and 3.14 to the same extent that
the Lender from which such participant acquired its participation would be
entitled to the benefit of such cost protection provisions.
11.4 No Waiver; Remedies Cumulative.
No failure or delay on the part of an Agent or any Lender in exercising
any right, power or privilege hereunder or under any other Credit Document and
no course of dealing between the Borrowers or any Credit Party and the Agents or
any Lender shall operate as a waiver thereof; nor shall any single or partial
exercise of any right, power or privilege hereunder or under any other Credit
Document preclude any other or further exercise thereof or the exercise of any
other right, power or privilege hereunder or thereunder. The rights and remedies
provided herein are cumulative and not exclusive of any rights or remedies which
the Agents or any Lender would otherwise have. No notice to or demand on any
Credit Party in any case shall entitle any Credit Party to any other or further
notice or demand in similar or other circumstances or constitute a waiver of the
rights of the Agents or the Lenders to any other or further action in any
circumstances without notice or demand.
11.5 Payment of Expenses; Indemnification.
The Credit Parties agree to: (a) pay all reasonable out-of-pocket costs
and expenses of (i) the Administrative Agent and NMSI in connection with (A) the
negotiation, preparation, execution and delivery and administration of this
Credit Agreement and the other Credit Documents and the documents and
instruments referred to therein (including, without limitation, the reasonable
fees and expenses of Moore & Van Allen, special counsel to the Administrative
Agent) subject to the limitations set forth in the letter agreement among Gerber
Childrenswear, Inc., NationsBank, N.A. and NMSI dated as of September 22, 1997,
and (B) any amendment, waiver or consent relating hereto and thereto including,
but not limited to, any such amendments, waivers or consents resulting from or
related to any work-out, renegotiation or restructure relating to the
performance by the Credit Parties under this Credit Agreement and (ii) the
Agents and the Lenders in connection with (A) enforcement of the Credit
Documents and the documents and instruments referred to therein, including,
without limitation, in connection with any such enforcement, the reasonable fees
and disbursements of counsel for the Agents and each of the Lenders, and (B) any
bankruptcy or insolvency proceeding of a Credit Party of any of its Subsidiaries
and (b) indemnify each Agent, NMSI and each Lender, its officers, directors,
employees, representatives and agents from and hold each of them harmless
against any and all losses, liabilities, claims, damages or expenses incurred by
any of them as a result of, or arising out of, or in any way related to, or by
reason of, any investigation, litigation or other proceeding (whether or not any
Agent, NMSI or Lender is a party thereto) related to (i) the entering into
and/or performance of any Credit Document or the use of proceeds of any Loans
(including other extensions of credit) hereunder or the consummation of any
other transactions contemplated in any Credit Document, including, without
limitation, the reasonable fees and disbursements of counsel incurred in
connection with any such investigation, litigation or other proceeding, (ii) any
Environmental Claim, (iii) any claims for Non-Excluded Taxes (but excluding in
the case of (i), (ii) and (iii) above, any such losses, liabilities, claims,
damages or expenses to the extent incurred by reason of gross negligence or
willful misconduct on the part of the Person to be indemnified) and (iv) any
claims
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for amounts incurred by the Administrative Agent pursuant to that certain letter
agreement among NationsBank of Tennessee, N.A., Auburn Hosiery Mills, Inc. and
the Administrative Agent dated as of the Closing Date.
11.6 Amendments, Waivers and Consents.
Subject to Section 11.18(b), neither this Credit Agreement nor any other
Credit Document nor any of the terms hereof or thereof may be amended, changed,
waived, discharged or terminated unless such amendment, change, waiver,
discharge or termination is in writing and signed by the Required Lenders and
the then Credit Parties; provided that no such amendment, change, waiver,
discharge or termination shall without the consent of each Lender affected
thereby:
(a) extend the Maturity Date or postpone or extend the time for any
Principal Amortization Payment;
(b) reduce the rate or extend the time of payment of interest (other
than as a result of waiving the applicability of any post-default increase
in interest rates) thereon or fees hereunder;
(c) reduce or waive the principal amount of any Loan;
(d) increase or extend the Commitment of a Lender or the total
Commitments over the amount thereof in effect (it being understood and
agreed that a waiver of any Default or Event of Default or a waiver of any
mandatory reduction in the Commitments shall not constitute a change in
the terms of any Commitment of any Lender);
(e) release any material portion of the Collateral securing the
Credit Party Obligations hereunder (provided that the Collateral Agent
may, without consent from any other Lender, release any Collateral that is
sold or transferred by a Credit Party in conformance with Section 8.5);
(f) release a Borrower or the Parent from its obligations or release
all or substantially all of the other Credit Parties from their respective
obligations under the Credit Documents;
(g) amend, modify or waive any provision of this Section or Section
3.4(a), 3.4(b)(i), 3.7, 3.8, 3.9, 3.10, 3.11, 3.12, 3.13, 3.14, 9.1(a),
11.2, 11.3 or 11.5;
(h) reduce any percentage specified in, or otherwise modify, the
definition of Required Lenders; or
(i) consent to the assignment or transfer by a Borrower or the
Parent of any of its rights and obligations under (or in respect of) the
Credit Documents.
Notwithstanding the above, no provisions of Section 10 may be amended or
modified without the consent of the Agents.
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Notwithstanding the fact that the consent of all the Lenders is required in
certain circumstances as set forth above, (x) each Lender is entitled to vote as
such Lender sees fit on any reorganization plan that affects the Loans or the
Letters of Credit, and each Lender acknowledges that the provisions of Section
1126(c) of the Bankruptcy Code supersedes the unanimous consent provisions set
forth herein and (y) the Required Lenders may consent to allow a Credit Party to
use cash collateral in the context of a bankruptcy or insolvency proceeding.
11.7 Counterparts.
This Credit Agreement may be executed in any number of counterparts, each
of which where so executed and delivered shall be an original, but all of which
shall constitute one and the same instrument. Delivery of executed counterparts
by telecopy shall be as effective as an original and shall constitute a
representation that an original will be delivered.
11.8 Headings.
The headings of the sections and subsections hereof are provided for
convenience only and shall not in any way affect the meaning or construction of
any provision of this Credit Agreement.
11.9 Defaulting Lender.
Each Lender understands and agrees that if such Lender is a Defaulting
Lender then notwithstanding the provisions of Section 11.6 it shall not be
entitled to vote on any matter requiring the consent of the Required Lenders or
to object to any matter requiring the consent of all the Lenders; provided,
however, that all other benefits and obligations under the Credit Documents
shall apply to such Defaulting Lender.
11.10 Survival of Indemnification and Representations and Warranties.
All indemnities set forth herein and all representations and warranties
made herein shall survive the execution and delivery of this Credit Agreement,
the making of the Loans, the issuance of the Letters of Credit and the repayment
of the Loans, LOC Obligations and other obligations and the termination of the
Commitments hereunder.
11.11 Governing Law; Jurisdiction.
(a) THIS AGREEMENT AND THE OTHER CREDIT DOCUMENTS AND THE RIGHTS AND
OBLIGATIONS OF THE PARTIES HEREUNDER AND THEREUNDER SHALL BE GOVERNED BY
AND CONSTRUED AND INTERPRETED IN ACCORDANCE WITH THE LAWS OF THE STATE OF
NORTH CAROLINA (other than the Mortgage Documents which shall be governed
by the laws of the state where the real property is located that is
covered by such Mortgage Document). Any legal action or proceeding with
respect to this Agreement or any other Credit Document may be brought in
the courts of the State of North Carolina or of the United States for the
Western District of North Carolina, and, by execution and delivery of this
Credit Agreement, each Credit Party hereby irrevocably accepts for itself
and in respect of its property, generally and unconditionally, the
jurisdiction of such courts. Each Credit Party further irrevocably
consents to the service of process out of any of the aforementioned courts
in any such action or proceeding by the mailing of copies thereof by
registered or certified mail, postage prepaid, to it at the address for
notices pursuant
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to Section 11.1, such service to become effective 10 days after such
mailing. Nothing herein shall affect the right of a Lender to serve
process in any other manner permitted by law or to commence legal
proceedings or to otherwise proceed against a Credit Party in any other
jurisdiction. Each Credit Party agrees that a final judgment in any 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; provided that nothing in this Section 11.11(a) is intended to impair
a Credit Party's right under applicable law to appeal or seek a stay of
any judgment.
(b) Each Credit Party hereby irrevocably waives any objection which
it may now or hereafter have to the laying of venue of any of the
aforesaid actions or proceedings arising out of or in connection with this
Agreement or any other Credit Document brought in the courts referred to
in subsection (a) hereof and hereby further irrevocably waives and agrees
not to plead or claim in any such court that any such action or proceeding
brought in any such court has been brought in an inconvenient forum.
11.12 Waiver of Jury Trial.
EACH OF THE PARTIES TO THIS AGREEMENT HEREBY IRREVOCABLY WAIVES ALL RIGHT
TO TRIAL BY JURY IN ANY ACTION, PROCEEDING OR COUNTERCLAIM ARISING OUT OF OR
RELATING TO THIS CREDIT AGREEMENT, ANY OF THE OTHER CREDIT DOCUMENTS OR THE
TRANSACTIONS CONTEMPLATED HEREBY.
11.13 Time.
All references to time herein shall be references to Eastern Standard Time
or Eastern Daylight time, as the case may be, unless specified otherwise.
11.14 Severability.
If any provision of any of the Credit Documents is determined to be
illegal, invalid or unenforceable, such provision shall be fully severable and
the remaining provisions shall remain in full force and effect and shall be
construed without giving effect to the illegal, invalid or unenforceable
provisions.
11.15 Further Assurances.
The Credit Parties agree, upon the request of the Administrative Agent, to
promptly take such actions, as reasonably requested, as is necessary to carry
out the intent of this Credit Agreement and the other Credit Documents,
including, but not limited to, such actions as are necessary to ensure that the
Lenders have a perfected security interest in the Collateral subject to no Liens
other than Permitted Liens.
11.16 Confidentiality.
Each Lender agrees that it will use its reasonable best efforts to keep
confidential and to cause any representative designated under Section 7.12 to
keep confidential any non-public information from time to time supplied to it
under any Credit Document; provided, however, that nothing herein shall prevent
the disclosure of any such information to (a) the extent a Lender in good faith
believes such disclosure is required by Requirement of Law, (b) counsel
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for a Lender or to its accountants, (c) bank examiners or auditors or comparable
Persons, (d) any affiliate of a Lender, (e) any other Lender, or any assignee,
transferee or participant, or any potential assignee, transferee or participant,
of all or any portion of any Lender's rights under this Agreement who is
notified of the confidential nature of the information or (f) any other Person
in connection with any litigation to which any one or more of the Lenders is a
party; and provided further that no Lender shall have any obligation under this
Section 11.16 to the extent any such information becomes available on a
non-confidential basis from a source other than a Credit Party or that any
information becomes publicly available other than by a breach of this Section
11.16 by any Lender or representative thereof.
11.17 Entirety.
This Credit Agreement together with the other Credit Documents and the Fee
Letter represent the entire agreement of the parties hereto and thereto, and
supersede all prior agreements and understandings, oral or written, if any,
including any commitment letters or correspondence relating to the Credit
Documents or the transactions contemplated herein and therein.
11.18 Binding Effect; Continuing Agreement.
(a) This Credit Agreement shall become effective at such time when all of
the conditions set forth in Section 5.1 have been satisfied or waived by the
Lenders and it shall have been executed by the Borrowers, the Guarantors and the
Agents, and the Agents shall have received copies hereof (telefaxed or
otherwise) which, when taken together, bear the signatures of each Lender, and
thereafter this Credit Agreement shall be binding upon and inure to the benefit
of the Borrowers, the Guarantors, the Agents and each Lender and their
respective successors and assigns.
(b) This Credit Agreement shall be a continuing agreement and shall remain
in full force and effect until all Loans, LOC Obligations, interest, fees and
other Credit Party Obligations have been paid in full and all Commitments and
Letters of Credit have been terminated. Upon termination, the Credit Parties
shall have no further obligations (other than the indemnification provisions
that survive) under the Credit Documents and the Collateral Agent shall, at the
request and expense of the Borrowers, deliver all Collateral in its possession
to the Borrowers and release all Liens on Collateral; provided that should any
payment, in whole or in part, of the Credit Party Obligations be rescinded or
otherwise required to be restored or returned by an Agent or any Lender, whether
as a result of any proceedings in bankruptcy or reorganization or otherwise,
then the Credit Documents shall automatically be reinstated and all Liens of the
Lenders shall reattach to the Collateral and all amounts required to be restored
or returned and all costs and expenses incurred by an Agent or Lender in
connection therewith shall be deemed included as part of the Credit Party
Obligations.
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[REMAINDER OF PAGE INTENTIONALLY LEFT BLANK]
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<PAGE> 100
Each of the parties hereto has caused a counterpart of this Credit
Agreement to be duly executed and delivered as of the date first above written.
BORROWERS:
GERBER CHILDRENSWEAR, INC.,
a Delaware corporation
By: /s/ Richard Solar
-----------------------------------
Name: Richard Solar
Title: Senior Vice President
AUBURN HOSIERY MILLS, INC.,
a Kentucky corporation
By: /s/ Richard Solar
-----------------------------------
Name: Richard Solar
Title: Senior Vice President
<PAGE> 101
GUARANTORS:
GCIH, INC.,
a Delaware corporation
By: /s/ Richard Solar
-----------------------------------
Name: Richard Solar
Title: Senior Vice President
COSTURA DOMINICANA, INC.,
a Delaware corporation
By: /s/ Richard Solar
-----------------------------------
Name: Richard Solar
Title: Senior Vice President
AUBURN HOLDINGS, INC.,
a Delaware corporation
By: /s/ Richard Solar
-----------------------------------
Name: Richard Solar
Title: Senior Vice President
GCI IP SUB, INC.,
a Delaware corporation
By: /s/ Richard Solar
-----------------------------------
Name: Richard Solar
Title: Senior Vice President
AUBURN MERGER CO,
a Delaware corporation
By: /s/ Richard Solar
-----------------------------------
Name: Richard Solar
Title: Senior Vice President
<PAGE> 102
LENDERS:
NATIONSBANK, N.A.,
individually in its capacity as a
Lender and in its capacity as Administrative
Agent and Collateral Agent
By: /s/ David H. Dinkins
-----------------------------------
Name: DAVID H. DINKINS
Title: Vice President
NATIONSBANK OF TENNESSEE, N.A.,
solely in its capacity as an Issuing Lender in
connection with certain Existing Letters of
Credit
By: /s/ David H. Dinkins
-----------------------------------
Name: DAVID H. DINKINS
Title: Vice President
<PAGE> 103
BANK OF AMERICA, FSB
By: /s/ Calvin E. Blount
----------------------------------------
Name: CALVIN E. BLOUNT
Title: Vice President
<PAGE> 104
THE CHASE MANHATTAN BANK
By: /s/ Maureen Morgan
----------------------------------------
Name: MAUREEN MORGAN
Title: Vice President
<PAGE> 105
FLEET BANK, N.A.
By: /s/ Steven R. Navarro
----------------------------------------
Name: STEVEN R. NAVARRO
Title: Senior Vice President
<PAGE> 106
SUNTRUST BANK, ATLANTA
By: /s/ Jeffrey D. Drucker
----------------------------------------
Name: JEFFREY D. DRUCKER
Title: Banking Officer
By: /s/ Raymond B. King
----------------------------------------
Name: RAYMOND B. KING
Title: Vice President
<PAGE> 107
WACHOVIA BANK, N.A.
By: /s/ Richard E.S. Bowen
----------------------------------------
Name: RICHARD E.S. BOWEN
Title: Assistant Vice President
<PAGE> 108
BANK BOSTON, N.A.
By: /s/ Kenneth S. Struglia
----------------------------------------
Name: KENNETH S. STRUGLIA
Title: Vice President
<PAGE> 1
Exhibit 10.1
STOCK PURCHASE AGREEMENT
Between
GERBER PRODUCTS COMPANY
and
GCIH, INC.
dated as of
December 14, 1995
<PAGE> 2
TABLE OF CONTENTS
ARTICLE I PURCHASE AND SALE OF STOCK.................................... 1
1.1 Transfer of Stock....................................... 1
1.2 Consideration........................................... 1
1.3 The Closing............................................. 1
1.4 Purchase Price Adjustment............................... 3
1.5 Further Assurances...................................... 7
ARTICLE II REPRESENTATIONS AND WARRANTIES OF SELLER...................... 7
2.1 Corporate Organization.................................. 7
2.2 Capital Stock........................................... 8
2.3 Ownership of Stock...................................... 8
2.4 Authorization, Etc...................................... 9
2.5 Balance Sheet and Income Statement...................... 9
2.6 No Approvals or Conflicts............................... 10
2.7 Compliance with Law; Governmental Authorizations........ 11
2.8 Litigation.............................................. 11
2.9 Title to Assets......................................... 11
2.10 Absence of Certain Changes.............................. 12
2.11 Taxes................................................... 13
2.12 Employee Benefits....................................... 15
2.13 Labor Relations......................................... 17
2.14 Patents, Trademarks, Trade Names, Etc................... 17
2.15 Contracts............................................... 18
2.16 Environmental Matters................................... 19
2.17 Insurance............................................... 20
2.18 Title to Real Estate Properties......................... 21
2.19 Affiliate Transactions.................................. 22
2.20 No Brokers' or Other Fees............................... 22
ARTICLE III REPRESENTATIONS AND WARRANTIES OF PURCHASER................... 23
3.1 Organization............................................ 23
3.2 Authorization, Etc...................................... 23
3.3 No Approvals or Conflicts............................... 23
3.4 Acquisition for Investment.............................. 24
3.5 Financing............................................... 24
3.6 Hart-Scott-Rodino Act................................... 24
3.7 No Brokers' or Other Fees............................... 25
i
<PAGE> 3
Page
ARTICLE IV CONDITIONS TO SELLER'S OBLIGATIONS............................ 25
4.1 Representations and Warranties.......................... 25
4.2 Performance............................................. 25
4.3 Officer's Certificate................................... 25
4.4 HSR Act................................................. 25
4.5 Injunctions............................................. 25
4.6 Consents................................................ 26
4.7 License and Distributor Agreement....................... 26
4.8 Release of Letters of Credit............................ 26
ARTICLE V CONDITIONS TO PURCHASER'S OBLIGATIONS......................... 26
5.1 Representations and Warranties.......................... 26
5.2 Performance............................................. 26
5.3 Officer's Certificate................................... 26
5.4 Resignation of Directors................................ 27
5.5 HSR Act................................................. 27
5.6 Injunctions............................................. 27
5.7 Consents................................................ 27
5.8 Ancillary Agreements.................................... 27
5.9 Title Insurance......................................... 27
5.10 Surveys................................................. 28
ARTICLE VI COVENANTS AND AGREEMENTS...................................... 28
6.1 Conduct of Business by Seller............................ 28
6.2 Access to Books and Records; Cooperation................. 29
6.3 Filings and Consents..................................... 30
6.4 Tax Matters.............................................. 30
6.5 WARN Act................................................. 36
6.6 Supplements to Disclosure Schedule....................... 37
6.7 Covenant to Satisfy Conditions........................... 37
6.8 Use of "Gerber" Name..................................... 37
6.9 Intercompany Obligations................................. 37
6.10 Employment Benefit Provisions............................ 38
6.11 Ancillary Agreements..................................... 40
6.12 Covenant Not to Compete.................................. 40
6.13 Release of Guaranty and Revocation of Powers of Attorney. 42
6.14 Liabilities Retained by Seller........................... 42
6.15 Director and Officer Liability and Indemnification....... 43
ii
<PAGE> 4
Page
6.16 Exclusivity.............................................. 43
6.17 Financing................................................ 43
ARTICLE VII TERMINATION................................................... 44
7.1 Termination.............................................. 44
7.2 Procedure and Effect of Termination...................... 44
ARTICLE VIII INDEMNIFICATION............................................... 45
8.1 Indemnification.......................................... 45
8.2 Environmental Indemnification ........................... 49
ARTICLE IX MISCELLANEOUS................................................. 50
9.1 Fees and Expenses........................................ 50
9.2 Governing Law............................................ 50
9.3 Amendment................................................ 50
9.4 No Assignment............................................ 50
9.5 Waiver................................................... 51
9.6 Notices.................................................. 51
9.7 Complete Agreement....................................... 53
9.8 Counterparts............................................. 53
9.9 Publicity................................................ 53
9.10 Headings................................................. 53
9.11 Knowledge................................................ 53
9.12 Severability............................................. 53
9.13 Third Parties............................................ 54
9.14 Specific Performance..................................... 54
9.15 Dispute Resolution....................................... 54
9.16 Confidentiality of Company Information................... 55
iii
<PAGE> 5
STOCK PURCHASE AGREEMENT
This Stock Purchase Agreement (this "Agreement"), dated as of
December 14, 1995, is entered into by and between Gerber Products Company, a
Michigan corporation ("Seller"), and GCIH, Inc., a Delaware corporation
("Purchaser").
WHEREAS, Seller is the beneficial owner of record of all of the
outstanding shares of common stock, par value $100 per share (the "Shares"), of
Gerber Childrenswear, Inc., a Delaware corporation (the "Company"); and
WHEREAS, Purchaser desires to purchase and Seller desires to sell
the Shares upon the terms and conditions set forth herein.
NOW, THEREFORE, in consideration of the foregoing premises and the
mutual covenants contained herein, the parties hereto agree as follows:
ARTICLE I
PURCHASE AND SALE OF STOCK
1. Transfer of Stock. On the Closing Date (as defined in Section 1.3
below) and subject to the terms and conditions set forth in this Agreement,
Seller will sell, assign, transfer and deliver to Purchaser the Shares, free and
clear of all options, pledges, security interests, voting trust or similar
arrangements, liens, charges or other encumbrances or restrictions on voting or
transfer ("Encumbrances"), other than the restrictions imposed by Federal and
state securities laws.
2. Consideration. On the Closing Date and subject to the terms and
conditions set forth in this Agreement, in reliance on the representations,
warranties, covenants and agreements of the parties contained herein and in
consideration of the sale, assignment, transfer and delivery of the Shares,
Purchaser will pay to Seller the amount set forth in Section 1.3(b)(i) hereof
(the "Purchase Price").
3. The Closing. The closing (the "Closing") of the transactions
contemplated in this Agreement shall take place at such place as may reasonably
be designated by Purchaser at 9:00 a.m., local time, on January 12, 1996, or as
soon thereafter as practicable following the satisfaction or waiver of all of
the conditions set forth in Articles IV and V hereof (the "Closing Date"), or at
such other place and time as may be agreed upon by Seller and Purchaser.
Notwithstanding the fact that all of the conditions to Closing set forth in
Article IV or V hereof have been satisfied or waived by Purchaser, Purchaser may
unilaterally extend the Closing Date beyond January 12, 1996 if and for so long
as Purchaser is continuing in good faith to use its reasonable best efforts to
<PAGE> 6
consummate the financing set forth in the Commitment Letters (as defined in
Section 3.5 and beyond January 19, 1996 only if on or before January 19, 1996,
the stockholders of Purchaser shall have paid the Purchaser the full amount of
the Equity Investment (as defined in Section 6.17) provided, that in no event
shall the Closing Date be extended pursuant to this sentence beyond January 31,
1996.
(a) Deliveries by Seller. At or prior to the Closing, Seller shall
deliver or cause to be delivered to Purchaser the following:
(i) certificates evidencing the Shares, which certificates shall
be properly endorsed for transfer or accompanied by duly
executed stock powers, in either case executed in blank or in
favor of Purchaser or its assigns and otherwise in a form
acceptable for transfer on the books of the Company; and
(ii) all other previously undelivered documents required to be
delivered by Seller to Purchaser at or prior to the Closing
Date in connection with the transactions contemplated hereby,
including the documents described in Article V hereof.
(b) Deliveries by Purchaser. At or prior to the Closing, Purchaser shall
deliver or cause to be delivered to Seller the following:
(i) $64 million by wire transfer of immediately available funds to
an account designated by Seller, less the amount (if any) of
principal, accrued interest, prepayment fees or penalties or
similar charges with respect to any indebtedness for borrowed
money (including any capitalized lease obligations as
determined pursuant to generally-accepted accounting
principles ("GAAP")), of the Company and the Subsidiaries (as
defined below) outstanding as of the Closing on the Closing
Date;
(ii) an executed promissory note of Purchaser and payable to Seller
and having the terms set forth on Exhibit 1.3(b)(ii) attached
hereto (the "Note") in the principal amount of $10 million and
otherwise in form and substance reasonably acceptable to
Seller and Purchaser; and
2
<PAGE> 7
(iii) all other previously undelivered documents required to be
delivered by Purchaser to Seller at or prior to the Closing
Date in connection with the transactions contemplated hereby.
(c) All instruments and documents executed and delivered to Purchaser
pursuant hereto shall be in form and substance, and shall be
executed in a manner reasonably satisfactory to Purchaser. All
instruments and documents executed and delivered to Seller pursuant
hereto shall be in form and substance, and shall be executed in a
manner reasonably satisfactory to Seller.
(d) Seller agrees and covenants that the cash and cash equivalents of
the Company and the Subsidiaries on hand as of the Closing shall not
be less than $300,000 in the aggregate.
4. Purchase Price Adjustment. (a) As soon as practicable, but in no
event later than 60 days following the Closing Date (as hereinafter defined),
Purchaser shall prepare a Statement of Adjusted Working Capital of the Company
and the Subsidiaries (as defined below) as of the open of business on the
Closing Date (including the notes thereto, the "Closing Date Statement"). The
Closing Date Statement shall present the net amount of the Company's
consolidated current assets less the Company's consolidated current liabilities
(in each case excluding (i) any amounts payable to or receivable from Seller or
any of its Affiliates (as defined in Section 2.3 hereof) other than the Company
and its Subsidiaries that do not remain outstanding after the Closing, (ii)
accrued state and federal income taxes, (iii) the amount, if any, by which net
inventory included in such calculation exceeds $64 million in the aggregate and
(iv) the amount by which any accruals with respect to health and short term
disability benefits provided to employees of the Company included in such
calculation exceeds $419,595 in the aggregate as of the open of business on the
Closing Date (the "Net Working Capital Amount") and shall be prepared with
respect to such items on a basis consistent with the Balance Sheet (as defined
in Section 2.5) and in accordance with GAAP (subject to the adjustments and
exceptions referred to in Section 2.5 of the Disclosure Schedule other than Item
9 thereof); provided that all known arithmetic errors shall be taken into
account in the preparation of the Closing Date Statement. With respect to the
preparation of the Closing Date Statement, no change in accounting principles
shall be made from those utilized in preparing the Balance Sheet including,
without limitation, with respect to the nature of accounts, or the determination
of the level of reserves or level of accruals. For purposes of the preceding
sentence, "changes in accounting principles" includes all changes in accounting
principles, policies, practices, procedures or methodologies with respect to
financial statements, their classification or their display, as well as all
changes in practices, methods, conventions or assumptions (unless required by
objective changes in underlying events) utilized in making accounting estimates.
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<PAGE> 8
(b) During the preparation of the Closing Date Statement and the period
of any dispute within the contemplation of this Section 1.4,
Purchaser shall cause the Company to (i) provide Seller and Seller's
authorized representatives with access to the books, records,
facilities, employees and accountants of the Company, (ii) provide
Seller as promptly as practicable after the Closing Date (but in no
event later than 15 days after the Closing Date) with normal
month-end closing financial information for the period ending on the
Closing Date and (iii) cooperate with Seller and Seller's authorized
representatives, including the provision on a timely basis of all
information necessary or useful in connection with Seller's review
of the Closing Date Statement.
(c) Purchaser shall deliver a copy of the Closing Date Statement,
together with the work papers used in the preparation thereof, to
Seller promptly after it has been prepared and in no event later
than 60 days after the Closing Date. After receipt of the Closing
Date Statement, Seller shall have 30 days to review the Closing Date
Statement, together with the work papers used in the preparation
thereof. Unless Seller delivers written notice to Purchaser on or
prior to the 30th day after Seller's receipt of the Closing Date
Statement specifying all disputed items and the basis therefor,
Seller shall be deemed to have accepted and agreed to the Closing
Date Statement. If Seller so notifies Purchaser of its objection to
the Closing Date Statement on the grounds that such statement was
not prepared on a basis consistent with the Balance Sheet, Seller
and Purchaser shall, within 30 days following such notice (the
"Resolution Period"), attempt to resolve their differences and any
resolution by them as to any disputed amounts shall be final,
binding and conclusive. If following resolution of any disputed
amounts there do not remain in dispute amounts the aggregate net
effect of which exceeds $100,000, then all amounts remaining in
dispute shall be deemed to have been resolved in favor of the
Closing Date Statement delivered by Purchaser to Seller.
(d) If, at the conclusion of the Resolution Period, the aggregate net
effect of all amounts remaining in dispute exceeds $100,000, then
all amounts remaining in dispute shall be submitted to KPMG Peat
Marwick (the "Neutral Auditors"). In the event that KPMG Peat
Marwick is unwilling to serve as the Neutral Auditor hereunder and
Purchaser and Seller are unable to agree on a substitute therefor,
Purchaser or Seller may request the American Arbitration Association
to appoint a nationally recognized accounting firm to act as Neutral
Auditor hereunder who shall not have had a material relationship
with Seller or Purchaser or any of their Affiliates within the past
two years. Each party agrees to execute, if requested by the Neutral
Auditors, a reasonable engagement letter. All fees and expenses
relating to the work, if any, to be performed by the Neutral
Auditors shall be borne equally by Seller and Purchaser. The Neutral
Auditors shall act as an arbitrator to determine, based solely
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<PAGE> 9
on presentations by Seller and Purchaser, and not by independent
review, only those issues still in dispute. The Neutral Auditors'
determination shall be made within 30 days of their selection,
whether or not such presentations by Seller and Purchaser have been
made within such period, shall be made in accordance with the terms
of this Section 1.4, and shall be set forth in a written statement
delivered to Seller and Purchaser and shall be final, binding and
conclusive. The term "Adjusted Closing Date Statement," as
hereinafter used, shall mean the definitive Closing Date Statement
agreed to by Purchaser and Seller in accordance with Section 1.4(c)
or the definitive Closing Date Statement resulting from the
determinations made by the Neutral Auditors in accordance with this
Section 1.4(d) (in addition to those items theretofore agreed to by
Seller and Purchaser), in each case prepared in the manner set forth
in the last sentence of Section 1.4(a) hereof. The Net Working
Capital Amount reflected on the Adjusted Closing Date Statement
shall not be more than that specified by Seller in its notice to
Purchaser pursuant to clause (c) above nor less than that specified
by Purchaser on the Closing Date Statement.
(e) The Purchase Price shall be increased or decreased, as the case may
be, dollar for dollar, to the extent the Net Working Capital Amount
reflected in the Adjusted Closing Date Statement is greater than or
less than, respectively, $67.8 million; provided that in no event
will such increase exceed $1.5 million. The amount of any increase
to or reduction of the Purchase Price pursuant to this Section 1.4
shall bear interest from the Closing Date through the date of
payment at the publicly announced base interest rate of Citicorp,
N.A. in effect from time to time from the Closing Date to the date
of such payment. The amount of any reduction of the Purchase Price
pursuant to this Section 1.4(e), together with interest thereon,
shall be paid by Seller by wire transfer in immediately available
funds to the account specified by Purchaser and the amount of any
increase to the Purchase Price pursuant to this Section 1.4(e),
together with interest thereon, shall be paid by the assignment to
Seller of bona fide accounts receivable of the Company from one of
the Company's customers identified in Section 1.4(e) of the
Disclosure Schedule which accounts are not past due on the date of
transfer and are not then the subject of any payment or other
dispute. In addition, prior to the Closing and without limitation as
to amount, Seller may cause the Company to assign such accounts
receivable to Seller to the extent that Seller believes in good
faith that such assignment will not cause the Net Working Capital
Amount to be less than $67.8 million. The collection of any accounts
receivable assigned to Seller pursuant to this paragraph (e) shall
be managed by the Company as agent for Seller and the Company shall,
promptly upon receipt thereof, remit all proceeds of such accounts
receivable to Seller without any set off or other reduction thereto.
Such payment or transfer, as the case may be, shall be made within
five business days after the Adjusted Closing Date Statement is
agreed to by Purchaser
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<PAGE> 10
and Seller or any remaining disputed items are ultimately determined
by the Neutral Auditors.
(f) Seller and the Company have conducted a physical inventory of the
finished goods, work in progress and raw material of the Company
(the "Inventory") on December 2, 1995 (the "Inventory Date") which
representatives of Purchaser have observed. Purchaser and Seller
acknowledge and agree that the reserves for excess and obsolete
inventory reflected on the consolidated balance sheet of the Company
and the Subsidiaries as of November 30, 1995 (the "November Balance
Sheet") are adequate as of November 30, 1995 based on such physical
inventory. Neither party will dispute the adequacy of any reserves
for excess and obsolete inventory, other than with respect to any
changes thereto resulting from objective changes to actual physical
inventory levels after the Inventory Date.
5. Further Assurances. After the Closing, each party hereto shall,
and shall cause its officers, employees, agents and representatives to, from
time to time, at the request of the other party and without further cost or
expense to such other party, execute and deliver such other instruments of
conveyance and transfer and take such other actions as such other party may
reasonably request in order to more effectively consummate the transactions
contemplated hereby and to vest in Purchaser good and valid title to the Shares.
ARTICLE II
REPRESENTATIONS AND WARRANTIES OF SELLER
Seller represents and warrants to Purchaser as follows:
1. Corporate Organization. Seller is a corporation duly organized,
validly existing and in good standing under the laws of the State of Michigan
and the Company is a corporation duly organized, validly existing and in good
standing under the laws of the State of Delaware. The Company and each
Subsidiary has full corporate power and authority to own its properties and
assets and to carry on its business as now being conducted and is duly qualified
or licensed to do business as a foreign corporation in good standing in the
jurisdictions in which the ownership of its property or the conduct of its
business requires such qualification, except jurisdictions in which the failure
to be so qualified or licensed would not have a material adverse effect on the
business, operations or financial condition of the Company and its subsidiaries
considered as a single enterprise (hereinafter referred to as a "Material
Adverse Effect"). Seller has delivered to Purchaser complete and correct copies
of the charter and all amendments thereto to the date hereof, and the bylaws as
presently in effect of the Company and the comparable governing documents of
each Subsidiary. Section 2.1 of the disclosure schedule relating to this
Agreement and identified by the execution
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<PAGE> 11
thereof by Purchaser and Seller (the "Disclosure Schedule") sets forth a list of
each of the Company's subsidiaries (the "Subsidiaries"). Each Subsidiary is a
corporation validly existing and in good standing under the laws of the
jurisdiction of its incorporation, has the power and authority to carry on its
business as now being conducted, and to own and operate the properties and
assets now owned and being operated by it. Except as set forth in Section 2.1 of
the Disclosure Schedule, the Company does not own, directly or indirectly, any
capital stock or other equity securities of any corporation or have any direct
or indirect equity or ownership interest in any partnership, joint venture or
other business other than equity securities or ownership interests which are
immaterial in amount or significance.
2. Capital Stock. The authorized capital stock of the Company
consists of 10 shares of common stock, par value $100 per share, of which only
the Shares are issued and outstanding and no other shares of any other class or
series of capital stock of the Company are issued and outstanding. All of the
outstanding shares of capital stock of the Subsidiaries (the "Subsidiary
Shares") are owned by the Company. Except as set forth in Section 2.2 of the
Disclosure Schedule, there are no subscriptions, options, warrants, convertible
securities calls, rights, contracts, commitments, understandings, restrictions
or arrangements relating to the issuance, sale, redemption, acquisition,
repurchase, transfer or voting of any shares of common stock of the Company or
any of the Subsidiaries, including any rights of conversion or exchange under
any outstanding securities or other instruments. All of the Shares and
Subsidiary Shares have been duly authorized, validly issued and are fully paid,
nonassessable and free of preemptive rights. Except as set forth in Section 2.2
of the Disclosure Schedule, there are no outstanding or authorized stock
appreciation, phantom stock or similar rights with respect to the Company or any
of its Subsidiaries.
3. Ownership of Stock. The Shares are owned by Seller and the
Subsidiary Shares are owned directly by the Company, in each case free and clear
of all Encumbrances, other than the restrictions imposed by Federal and state
securities laws. Upon the consummation of the transactions contemplated hereby,
Purchaser will acquire title to the Shares, free and clear of all Encumbrances,
other than the restrictions imposed by Federal and state securities laws and
Encumbrances arising as a result of any action taken by Purchaser or any of its
affiliates ("Affiliates") as defined in Rule 12b-2 of the regulations
promulgated pursuant to the Securities Exchange Act of 1934, as amended (the
"Exchange Act").
4. Authorization, Etc. Seller has full corporate power and authority
to execute and deliver this Agreement and the documents contemplated hereby and
to carry out the transactions contemplated hereby and thereby. The Board of
Directors of Seller has duly approved and authorized the execution and delivery
by Seller of this Agreement and the documents contemplated hereby and the
consummation by Seller of the transactions contemplated hereby and thereby, and
no other corporate proceedings on the part of Seller are necessary to approve
and authorize the execution and delivery by Seller of this Agreement and the
documents contemplated hereby and the consummation by Seller of the transactions
contemplated hereby and thereby. This Agreement
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<PAGE> 12
constitutes a valid and binding agreement of Seller, assuming the due execution
of this Agreement by Purchaser, enforceable against Seller in accordance with
its terms, except that (i) the enforcement hereof may be limited by bankruptcy,
insolvency, reorganization, moratorium or other similar laws now or hereafter in
effect relating to creditors' rights generally and (ii) the remedy of specific
performance and injunctive and other forms of equitable relief may be subject
to equitable defenses and to the discretion of the court before which any
proceeding therefor may be brought.
5. Balance Sheet and Income Statement. Section 2.5 of the Disclosure
Schedule contains the unaudited consolidated Statement of Financial Position of
the Company as of October 28, 1995 (such Statement is referred to herein as the
"Balance Sheet" and the date of such Balance Sheet is referred to herein as the
"Balance Sheet Date") and the unaudited consolidated Statement of Operations of
the Company for the 10 months then ended. Except as set forth in Section 2.5 of
the Disclosure Schedule, such Balance Sheet and income statement were prepared
from, and are in accordance with, the books and records of the Company, fairly
present in all material respects the financial position and results of
operations of the Company and its Subsidiaries as of the date thereof and for
the period then ended and, except for the omission of a cash flow statement and
any required footnotes to the Financial Statements and as otherwise set forth
therein, have been prepared in accordance with GAAP applied on a basis
consistent with the presentation of financial information contained in the
Gerber Childrenswear, Inc. Offering Memorandum, dated May 1995. Except as
disclosed in Section 2.5 of the Disclosure Schedule, neither the Company nor any
of the Subsidiaries has any liabilities or obligations, whether accrued,
absolute, contingent or otherwise, other than (i) liabilities and obligations
that are reflected, accrued or reserved for in the Balance Sheet, (ii)
obligations incurred in the ordinary course of business and consistent with past
practice since the date of the Balance Sheet (none of which is a liability for
tort, breach of contract or warranty, infringement or violation of law), (iii)
liabilities that arise as a result of a breach of the representations and
warranties contained in Section 2.11 hereof and (iv) other liabilities and
obligations that are disclosed in the Disclosure Schedule or are otherwise
specifically the subject of any other representation or warranty contained in
this Article II.
6. No Approvals or Conflicts. Except as set forth in Section 2.6 of
the Disclosure Schedule, neither the execution and delivery by Seller of this
Agreement nor the consummation by Seller of the transactions contemplated hereby
will (i) violate, conflict with or result in a breach of any provision of the
charter or bylaws of Seller, the Company or any Subsidiary, (ii) violate,
conflict with or result in a breach of any provision of, or constitute a default
(or an event which, with notice or lapse of time or both, would constitute a
default) under, or result in the creation of any lien, security interest, charge
or encumbrance upon any of the properties of the Company or the Subsidiaries or
on Seller's interest in the Shares under, any note, bond, mortgage, indenture,
deed of trust, license, franchise, permit, lease, contract, agreement or other
instrument to which Seller, the Company, the Subsidiaries or any of their
respective properties may be bound, (iii) violate any order, injunction,
judgment, ruling, law or regulation of any court or governmental authority
applicable to Seller, the Company or the Subsidiaries or any of their respective
properties
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<PAGE> 13
or (iv) except for applicable requirements of the Hart-Scott-Rodino Antitrust
Improvements Act of 1976, as amended (the "HSR Act"), require any consent,
approval or authorization of, or notice to, or declaration, filing or
registration with, any governmental or regulatory authority or other third
party; provided that insofar as the representations and warranties made in
clauses (ii), (iii) and (iv) of this Section 2.6 relate to Seller, they are
limited to those matters with respect to which a violation, breach, default,
conflict or other such event would have a material adverse effect on Seller's
ability to consummate the transactions contemplated hereby.
7. Compliance with Law; Governmental Authorizations. Except as set
forth in Section 2.7 of the Disclosure Schedule, the Company and the
Subsidiaries are not in violation in any material respect of any order,
injunction, judgment, ruling, law or regulation of any court or governmental
authority applicable to the property or business of the Company or the
Subsidiaries. Except as set forth in Section 2.7 of the Disclosure Schedule, the
licenses, permits and other governmental authorizations held by the Company and
the Subsidiaries are valid and sufficient for the conduct of the Company's
businesses as currently conducted in all material respects. Notwithstanding the
foregoing, this Section 2.7 shall not apply to Environmental Laws (as defined in
Section 2.16 hereof) and any permits required thereunder which are exclusively
the subject of the representation contained in Section 2.16 hereof. Except as
set forth in Section 2.7 of the Disclosure Schedule, the Company has paid all
import duties and other similar fees and charges due and payable by the Company
prior to the date hereof.
8. Litigation. Except as set forth in Section 2.8 of the Disclosure
Schedule, as of the date hereof, there are no claims, actions, injunctions,
proceedings (including arbitration proceedings) or investigations pending or, to
the knowledge of Seller, threatened against the Company or the Subsidiaries,
before any court or governmental or regulatory authority or body or arbitrator.
9. Title to Assets. Except as set forth in Section 2.9 of the
Disclosure Schedule, on the Balance Sheet Date, the Company had and, except with
respect to dispositions of assets in accordance with Section 2.10(c) since the
Balance Sheet Date (including distributions of all of the Company's and the
Subsidiaries' then cash balances to Seller immediately prior to the Closing),
the Company and the Subsidiaries now have, good and valid title to all the
personal property reflected on the Balance Sheet or which would have been
reflected on the Balance Sheet if acquired after the Balance Sheet Date, free
and clear of all Encumbrances of any nature except for (i) exceptions to title
as set forth in Section 2.9 of the Disclosure Schedule; (ii) liens for Taxes (as
defined in Section 2.11 below) not yet payable or any Taxes being contested in
good faith by appropriate proceedings and for which adequate reserves have been
established on the Balance Sheet; (iii) liens arising as a matter of law in the
ordinary course of business, provided that the obligations secured by such liens
are not delinquent or are being contested in good faith; and (iv) such
imperfections of title and encumbrances, if any, as do not, in the aggregate,
materially interfere with the present use of any of the Company's or the
Subsidiaries' properties and assets subject thereto (the foregoing items (i)
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<PAGE> 14
through (v) are collectively referred to herein as "Permitted Encumbrances").
Except for cash (which will be distributed to Seller prior to the Closing
subject to the provisions of Section 1.3(d) hereof), assets disposed of in
accordance with Section 2.10(c) since the Balance Sheet Date and assets directly
related to the provision of those services described in Section 2.9 of the
Disclosure Schedule that are provided to the Company by Seller, the Company or
the Subsidiaries, as of the Balance Sheet Date and the date hereof, own, or have
valid leasehold interests in, and as of the Closing Date will own or have a
valid leasehold interest in, all material tangible properties and assets used in
the conduct of the Company's business.
10. Absence of Certain Changes. Except as disclosed in Section 2.10
of the Disclosure Schedule and as otherwise provided herein or in the other
agreements referred to herein, since the Balance Sheet Date and through the date
of this Agreement:
(a) the business of the Company and each Subsidiary has been conducted
only in the ordinary course and consistent with past practice in all
material respects;
(b) there has been no direct or indirect redemption, purchase or other
acquisition by the Company or any Subsidiary of any shares of its
capital stock, or any declaration, setting aside or payment of any
dividend or other distribution by the Company or any Subsidiary
other than cash management procedures in the ordinary course of
Seller's or the Company's or such Subsidiary's business, consistent
with past practice;
(c) there has been no sale, destruction, lien imposed upon, assignment
or transfer of any material assets of the Company or the
Subsidiaries (other than sales, assignments or transfers of
inventory in the ordinary course of business, consistent with past
practice and sales, assignments or transfers of other assets in an
amount not exceeding $50,000 in the aggregate in any one month);
(d) other than indebtedness between Seller and the Company, the Company
has not created, incurred, assumed or guaranteed (i) any
indebtedness for borrowed money (including capitalized lease
obligations) either involving more than $50,000 or outside the
ordinary course of business, consistent with past practice or (ii)
any letter of credit obligations outside the ordinary course of
business, consistent with past practice;
(e) the Company has not granted any compensation increase in excess of
$10,000 per year to any director, officer or employee or made or
granted any increase in benefits under, or employer contributions
to, any employee benefit plan or arrangement other than customary
increases consistent with past practice;
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<PAGE> 15
(f) the Company has not entered into any material amendment to any
material contract to which it is a party, entered into or terminated
any material contract or made any material change to the terms of
employment of any of the key executive officers of the Company;
(g) the Company has not made any material change to its accounting
procedures or practices (including its cash management procedures);
(h) the Company has not entered into any transaction with any Insiders
(as defined in Section 2.19 hereof) except in the ordinary course of
business, consistent with past practice; and
(i) the Company has not granted any license or sublicense to any person
of any material Intellectual Property (as defined in Section 2.14).
11. Taxes. (a) Except as set forth in Section 2.11 of the Disclosure
Schedule, (i) the Company, or an Affiliate of the Company on its behalf, has
duly filed with the appropriate Federal, state, local and foreign taxing
authorities all income Tax Returns (as defined below) and all other material Tax
Returns required to be filed by or with respect to the Company, the Subsidiaries
and each Seller Group as of the date hereof and such Tax Returns are true,
correct and complete in all material respects, (ii) the Company, the
Subsidiaries or an Affiliate of the Company on their behalf has paid or made
provision for in the Balance Sheet all material Taxes (as defined below) of the
Company and the Subsidiaries that are due or accrued as of the Balance Sheet
Date (whether or not such Taxes are shown on any Tax Return) and has paid or
accrued all material Taxes that have become due since the Balance Sheet Date,
(iii) neither the Company nor any of its Subsidiaries is a party to any tax
sharing or tax allocation agreement, (iv) neither the Company nor any of its
Subsidiaries has ever been a member of an Affiliated Group other than a Seller
Group in any taxable year for which the statute of limitations has not yet
expired; and (v) the Company and each of its Subsidiaries has withheld and paid
all material Taxes required to have been withheld and paid in connection with
amounts paid or owing to any employee, independent contractor, creditor,
stockholder or other third party. Except as set forth in Section 2.11 of the
Disclosure Schedule there are no material liens for Taxes upon the assets of the
Company or the Subsidiaries except liens for current Taxes not yet due or Taxes
being contested in good faith by appropriate proceedings for which adequate
reserves have been established on the Balance Sheet. Except as set forth in
Section 2.11 of the Disclosure Schedule, as of the date hereof, none of the
Company, its Subsidiaries or any member of a Seller Group has received any
written notice of deficiency or assessment from any Federal, state, local or
foreign taxing authority with respect to liabilities for material Taxes of the
Company or the Subsidiaries which have not been paid or finally settled, and any
such deficiency or assessment disclosed in Section 2.11 of the Disclosure
Schedule is being contested in good faith through appropriate proceedings for
which adequate reserves have been established on the Balance Sheet.
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<PAGE> 16
(b) With respect to Taxes for which the Company or its Subsidiaries are
liable, except as set forth in Section 2.11 of the Disclosure
Schedule, none of the Company, its Subsidiaries, or any Seller Group
(i) is the subject of a Tax audit or other Tax examination, (ii) has
received written notification from any Tax authority that it will be
the subject of a Tax audit or other Tax examination, (iii) has
received written notification from any Tax authority where it does
not file Tax Returns that it is or may be subject to Tax in that
jurisdiction, or (iv) has waived or consented to extend the period
during which any Tax may be assessed.
(c) For purposes of this Agreement, "Affiliated Group" means an
affiliated group as defined in Section 1504 of the Code (or any
similar combined, consolidated or unitary group defined under state,
local or foreign income Tax law).
(d) For purposes of this Agreement, "Code" means the Internal Revenue
Code of 1986, as amended through the date hereof.
(e) For purposes of this Agreement, "Seller Group" shall mean any
Affiliated Group including the Seller and one or more of the Company
and its Subsidiaries.
(f) For purposes of this Agreement, "Taxes" shall mean all taxes,
charges, fees, levies, penalties or other assessments imposed by any
United States Federal, state, local or foreign taxing authority,
including, but not limited to, income, service, leasing, occupation,
excise, property, sales and use, transfer, franchise, payroll,
withholding, social security or other taxes, including any interest,
penalties or additions attributable thereto.
(g) For purposes of this Agreement, "Tax Return" shall mean any return,
report, information return or other document (including any related
or supporting information) filed or required to be filed with any
taxing authority with respect to Taxes.
12. Employee Benefits. (a) Schedule 2.12 of the Disclosure Schedule
sets forth a true and complete list of each employee benefit plan, bonus plan or
other contract or agreement with any employee that is maintained for employees
or former employees of the Company or the Subsidiaries by the Company (the
"Plans").
(b) Each of the Plans that is subject to the Employee Retirement Income
Security Act of 1974, as amended ("ERISA") is in material compliance
with the currently applicable provisions of ERISA and, except as
disclosed in Schedule 2.12 of the Disclosure Schedule, no Plan is
subject to Title IV of ERISA. Each of the Plans that is intended
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<PAGE> 17
to be qualified under Section 401(a) of the Code has received a
favorable determination letter that it is so qualified, nothing has
happened since the issuance of such letter which would result in a
revocation of such letter and each of the Plans were timely amended
and filed with the IRS for changes made by the Tax Reform Act of
1986.
(c) Except as disclosed in Section 2.12 of the Disclosure Schedule, all
contributions (including all employer contributions and employee
salary reduction contributions) that are due have been paid to each
Plan when required to be paid, and all contributions for any period
ending on or before the Closing Date that are not yet due but are
due prior to the Closing Date will be paid to each Plan or accrued
in accordance with the past practice of Seller and the Company;
provided that any further contributions by Seller or the Company
from and after the date hereof and prior to the Closing to the
Retirement Plan for Non-Salaried Employees of Gerber Childrenswear,
Inc. (the "Hourly Pension Plan") shall be reimbursed to Seller
pursuant to Section 6.10 hereof.
(d) There have been no prohibited transactions within the meaning of
Section 406 of ERISA or any material reportable events within the
meaning of Section 4043 of ERISA with respect to any Plan for which
Purchaser or the Company will be liable after the Closing and the
liability for which has not been reported and paid in full prior to
the Closing Date. No breach of fiduciary duty in connection with the
administration or investment of the assets of any Plan has occurred
which is reasonably likely to result in any material liability to
the Company or any of the Subsidiaries. As of the date hereof, no
charge, complaint, action, suit, proceedings, hearing,
investigation, claim, or demand with respect to the administration
or the investment of the assets of any Plan (other than routine
claims for benefits) is pending or, to the knowledge of Seller,
threatened.
(e) None of Seller, the Company or the Subsidiaries contributes to any
multiemployer plan, as defined in Section 3(37) of ERISA, on behalf
of employees or former employees of the Company or the Subsidiaries,
nor does the Company or any of the Subsidiaries have any liability
with respect to any multiemployer plan.
(f) All Form 5500 Annual Reports, Summary Annual Reports, PBGC-1s and
Summary Plan Descriptions with respect to each Plan have been
properly filed with the appropriate government agency or distributed
to participants, and the Company and its Subsidiaries have complied
in all material respects with the requirements of Section 498OB of
the Code.
(g) Except as set forth in Section 2.12 of the Disclosure Schedule, the
market value of assets under each Plan which is an employee pension
benefit plan (as defined in
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Section 3(2) of ERISA) equals or exceeds the present value of all
benefit liabilities thereunder, determined on an on-going basis; and
no proceeding by the Pension Benefit Guaranty Corporation ("PBGC")
to terminate any such Plan has been instituted or threatened.
Neither the Company nor any of its Subsidiaries has incurred any
material liability arising as a result of any violation of
applicable law to the PBGC, the Internal Revenue Service, any
multiemployer plan or otherwise with respect to any Plan or with
respect to any employee pension benefit plan currently or previously
maintained by members of the controlled group of companies (as
defined in Section 414 of the Code) that includes the Company (the
"Controlled Group") that has not been satisfied in full.
(h) Except as set forth in Section 2.12 of the Disclosure Schedule,
neither the Company nor any of its Subsidiaries is obligated (under
any contract entered into before the Closing) to make any payments
that would be nondeductible under Section 280G of the Code (or any
corresponding provision of state, local, or foreign income Tax law).
13. Labor Relations. None of Seller, the Company or the Subsidiaries
is a party to any collective bargaining agreement applicable to employees of the
Company or the Subsidiaries. Except as set forth in Sections 2.8 and 2.13 of the
Disclosure Schedule, the Company and the Subsidiaries are in material compliance
with all applicable laws respecting employment and employment practices, terms
and conditions of employment and wages and hours and are not engaged in any
unfair labor practice, and, as of the date hereof, there is no labor strike,
dispute, slowdown or stoppage actually pending or, to the knowledge of Seller,
threatened against or affecting the Company or the Subsidiaries.
14. Patents, Trademarks, Trade Names, Etc. Sections 2.14 (1)(A),
2.14(1)(B), 2.14(3)(A), 2.14(6) and 2.14(7) of the Disclosure Schedule contain
an accurate description identifying all registered patents, trademarks, service
marks, trade dress, trade names and copyrights (collectively, "Registered
Intellectual Property") and Sections 2.14(2) and 2.14(3)(B) of the Disclosure
Schedule contain an accurate description identifying all material common law
trademarks, service marks, trade dress and trade names (such material common
law trademarks, service marks, trade dress and trade names, together with the
Registered Intellectual Property, the "Intellectual Property") used in the
conduct of the Company's business as of the Balance Sheet Date and the Date
hereof and, as such sections of the Disclosure Schedule may be amended, as of
the Closing Date, or owned by the Company or the Subsidiaries, all registrations
and applications therefor, and Section 2.14 of the Disclosure Schedule contains
a list of all material licenses and other agreements relating thereto. Except as
set forth in Section 2.14 of the Disclosure Schedule, (i) the Company or its
Subsidiaries owns, free and clear of all Encumbrances (other than Permitted
Encumbrances) or has a valid right to use the Intellectual Property and all
material trade secrets, confidential business information and other know-how in
each case necessary for the operation of their business as presently conducted
in all material respects, (ii) the consummation of the transactions contemplated
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by this Agreement will not impair the validity, enforceability, ownership or
right to use of the Intellectual Property, (iii) no claims have been asserted in
writing by any person to the use of any such Intellectual Property, or
challenging or questioning the validity or effectiveness of any such license or
agreement, (iv) neither the Company nor any Subsidiary has infringed upon or
misappropriated in any material respect any rights of third parties with
respect to any of the Registered Intellectual Property and no third party has
infringed upon or misappropriated in any material respect any rights of the
Company or the Subsidiaries with respect to the Registered Intellectual Property
and (v) to the knowledge of Seller, neither the Company nor any Subsidiary has
infringed upon or misappropriated in any material respect any rights of third
parties with respect to any Intellectual Property that is not Registered
Intellectual Property and to the knowledge of Seller, no third party has
infringed upon or misappropriated in any material respect any rights of the
Company or the Subsidiaries with respect to Intellectual Property that is not
Registered Intellectual Property.
15. Contracts. Section 2.15(a) of the Disclosure Schedule contains a
true and complete list of each of the following to which the Company or any of
the Subsidiaries is a party: (i) all agreements and arrangements relating to the
borrowing of money by the Company or any Subsidiary or any mortgaging or
pledging of any assets owned by the Company or any Subsidiary and all letters of
credit issued by any third party for the benefit of the Company or any
subsidiary, (ii) any guaranties by the Company or any Subsidiary of any
obligation for borrowed money of any third party, (iii) all employment,
management, consulting or severance agreements between the Company and any
officer, director, employee or full-time consultant of the Company providing for
annual compensation in excess of $50,000 or any extraordinary payments as a
result of a change in control of the Company, (iv) any capitalized lease
obligations providing for payments in excess of $50,000 in the aggregate and (v)
any agreements that prohibit the Company in any material respect from freely
engaging in its business as presently conducted. Except as set forth in Section
2.15(b) of the Disclosure Schedule, each of the material contracts, agreements
and understandings to which the Company or any of the Subsidiaries is or, as of
the Closing Date, will be a party (including the software licenses identified in
Section 2.15 of the Disclosure Schedule which the Company is entitled to the
benefit of) or by which any of its assets or operations may be bound is in full
force and effect, and there are no existing breaches or defaults by the Company
or such Subsidiary or, to the knowledge of Seller, any other party thereunder
nor has any event occurred which would permit the termination or acceleration
thereof or which, with notice or lapse of time, would constitute a breach or
default thereunder. The Company has not entered into any agreement with any
director, officer or employee that will require the acceleration of any
compensation or the payment of any bonus as a result of the consummation of the
transactions contemplated hereby.
16. Environmental Matters. (a) Except as set forth in Section 2.16
of the Disclosure Schedule, neither the Company nor any of the Subsidiaries has
received any written notice, since January 1, 1993, alleging the violation of,
or any liabilities arising under, any applicable Environmental Laws or
asserting any common law claim relating to any environmental matter with respect
to the business of the Company or any of the Subsidiaries or any real property
owned
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or leased by the Company or the Subsidiaries and the Company and the
Subsidiaries are in compliance in all material respects with all Environmental
Laws.
(b) Except as set forth in Section 2.16 of the Disclosure Schedule, (i)
the Company and its Subsidiaries have obtained, and are in
compliance with, all material permits required pursuant to
applicable Environmental Laws with respect to the business of the
Company and the Subsidiaries as currently conducted, (ii) no
Hazardous Material has been stored, treated or disposed of by the
Company or the Subsidiaries on the real estate currently owned or
operated by the Company or the Subsidiaries except in compliance in
all material respects with applicable Environmental Laws, (iii) the
Company and the Subsidiaries have lawfully disposed of Hazardous
Material used, handled or generated by the Company or the
Subsidiaries in all material respects and (iv) neither the Company
nor any of the Subsidiaries nor any predecessor in interest to the
properties presently owned or leased by the Company or the
Subsidiaries has stored, treated, transported, disposed of or
arranged for the disposal of any Hazardous Material in a manner
that is reasonably likely to give rise to any material remedial
action or response costs pursuant to Environmental Laws.
(c) Except as set forth in Section 2.16 of the Disclosure Schedule, no
written or, to the knowledge of Seller, oral notice of Release of
Hazardous Material has been filed since January 1, 1993 by or on
behalf of the Company or any of the Subsidiaries pursuant to
Environmental Laws, and, to the knowledge of Seller, no property or
facility now owned or operated by the Company or any of the
Subsidiaries is on the CERCLA National Priorities List, the
Comprehensive Environmental Response, Compensation, and Liability
Information System index or any similar state list.
(d) For purposes of this Agreement, (i) "Environmental Laws" shall mean
all federal, state, local and foreign statutes, rules, regulations,
ordinances and other such provisions having the force and effect of
law, all judicial and administrative orders concerning public health
and safety, worker health and safety, and pollution or protection of
the environment, including without limitation all those relating to
the presence, use, production, generation, handling, transportation,
treatment, storage, disposal, distribution, labeling, testing,
processing, discharge, Release, threatened Release, control or
cleanup of any Hazardous Material; (ii) "Hazardous Material" shall
mean anything that is a "hazardous substance" pursuant to the
Comprehensive Response, Compensation, and Liability Act ("CERCLA"),
any substance that is a "solid waste" or "hazardous waste" pursuant
to the Resource Conservation and Recovery Act, any pesticide,
pollutant, contaminant, toxic chemical, petroleum product or
byproduct, asbestos, polychlorinated biphenyl or radiation; and
(iii) "Release" shall have the meaning set forth in CERCLA.
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17. Insurance. Section 2.17 of the Disclosure Schedule lists all
material insurance policies covering the assets, employees and operations of the
Company and the Subsidiaries as of the date hereof. All insurance coverage and
bonds with respect to the properties and business of the Company and the
Subsidiaries that are in effect as of the date hereof shall be terminated as of
the Closing Date.
18. Title to Real Estate Properties. (a) Section 2.18 of the
Disclosure Schedule attached hereto lists and briefly describes all real
property owned by the Company or its Subsidiaries. With respect to each such
parcel of owned real property: (i) the identified owner has good and valid title
to the parcel of real property, free and clear of any Encumbrance, except for
(A) statutory liens for current taxes or other governmental charges with respect
to such real property not yet due and payable or the amount or validity of which
is being contested in good faith by appropriate proceedings by the Company or
its Subsidiaries and for which appropriate reserves have been established, (B)
mechanics', carriers', workmans' and other similar statutory liens arising or
incurred in the ordinary course of business with respect to obligations that are
not delinquent, (C) zoning, entitlement, building and other land use regulations
imposed by governmental agencies having jurisdiction over the real property
which are not violated by the current use and operation of the real property,
and (D) covenants, conditions, restrictions, easements and other matters
affecting title to the real property which do not materially impair the use of
the real property for the purposes for which it is used in connection with the
businesses of the Company and its Subsidiaries (the foregoing items (A) through
(D) collectively referred to as "Permitted Liens"); (ii) there are no pending
or, to the knowledge of Seller, threatened condemnation proceedings relating to
the property; (iii) there are no leases, subleases, licenses, concessions, or
other agreements, written or oral, granting to any party or parties the right of
use or occupancy of any portion of the parcel of real property; and (iv) there
are no outstanding options or rights of first refusal to purchase any parcel of
real property, or any portion thereof or interest therein;
(b) Section 2.18 of the Disclosure Schedule attached hereto lists and
describes briefly all real property that is used or occupied by the
Company or its Subsidiaries in connection with their businesses but
not owned by the Company or its Subsidiaries and the leases,
subleases and agreements by which such property is used and
occupied. Except as otherwise described in Section 2.18 of the
Disclosure Schedule, with respect to each such parcel of leased real
property: (i) the leases and subleases described in Section 2.18 of
the Disclosure Schedule constitute all of the leases, subleases and
agreements under which the Company or any of its Subsidiaries hold
any interest in any real estate used in connection with their
businesses; (ii) the Company has made available to Purchaser and its
counsel true, correct and complete copies of all of the leases,
subleases and agreements described in Section 2.18 of the Disclosure
Schedule; (iii) each such lease, sublease or agreement is in full
force and effect; (iv) there are no leases, subleases, licenses,
concessions, or other agreements, written or oral, to which Seller
or the Company is a party granting to any party or
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parties (other than the Company or its subsidiaries) the right of
use or occupancy of such parcel of leased real property; and (v) all
rents payable by the Company under such leases and subleases due
prior to the date hereof have been paid and neither the Company nor
any of its Subsidiaries nor, to the knowledge of Seller, any other
party to any such lease, sublease or agreement is in material breach
or default thereof, and no event has occurred which, with notice or
the lapse of time, or both, would constitute such a breach or
default or permit termination, modification or acceleration thereof
or thereunder. With respect to the lease for office space in
Charlotte, North Carolina between Equitable American Property, Inc.,
as landlord and Gerber Childrenswear, Inc., as tenant and the lease
for the warehouse facility in Ballinger, Texas between C.O.
Richards, Trustee of the Edna Wylie Real Estate Trust and C.H. Wylie
Real Estate Trust, as landlord and Gerber Childrenswear, Inc., as
tenant described on Section 2.18 to the Disclosure Schedule, neither
tenant under such leases has sent any written notice to the
applicable landlord with respect to such tenant's right to purchase
the premises described under such lease.
19. Affiliate Transactions. Except as disclosed in Section 2.19 of
the Disclosure Schedule, no officer, director, employee, stockholder or
Affiliate of the Company or any of its Subsidiaries, or any immediate family
member of any of the foregoing, (collectively, the "Insiders"), is a party to
any agreement or contract with the Company or any of its Subsidiaries or has any
interest in any material property, real or personal or mixed, tangible or
intangible, used in the business of the Company or any of its Subsidiaries.
20. No Brokers' or Other Fees. Except for the fees payable to
Wasserstein Perella & Co., Inc. by Seller, no broker, finder or investment
banker is entitled to any fee or commission in connection with the transactions
contemplated hereby based upon arrangements made by or on behalf of Seller or
the Company.
ARTICLE III
REPRESENTATIONS AND WARRANTIES OF PURCHASER
Purchaser hereby represents and warrants to Seller as follows:
1. Organization. Purchaser is a corporation duly organized, validly
existing and in good standing under the laws of the State of Delaware.
2. Authorization, Etc. Purchaser has full corporate power and
authority to execute and deliver this Agreement, the Note and the other
documents contemplated hereby and to carry out the transactions contemplated
hereby and thereby. The Board of Directors of Pur-
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chaser has duly approved and authorized the execution and delivery by Purchaser
of this Agreement, the Note and the other documents contemplated hereby and the
consummation by Purchaser of the transactions contemplated hereby and thereby,
and no other corporate proceedings on the part of Purchaser are necessary to
approve and authorize the execution and delivery by Purchaser of this Agreement,
the Note and the other documents contemplated hereby and the consummation by
Purchaser of the transactions contemplated hereby and thereby. This Agreement
and the Note constitute valid and binding agreements of Purchaser, assuming the
due execution of this Agreement by Seller, enforceable against Purchaser in
accordance with their terms, except that (i) the enforcement hereof may be
limited by bankruptcy, insolvency, reorganization, moratorium or other similar
laws now or hereafter in effect relating to creditors' rights generally and (ii)
the remedy of specific performance and injunctive and other forms of equitable
relief may be subject to equitable defenses and to the discretion of the court
before which any proceeding therefor may be brought.
3. No Approvals or Conflicts. Except as set forth in Section 3.3 of
the Disclosure Schedule, neither the execution and delivery by Purchaser of this
Agreement and the Note nor the consummation by Purchaser of the transactions
contemplated hereby and thereby will (i) violate, conflict with or result in a
breach of any provision of the charter or bylaws of Purchaser, (ii) violate,
conflict with or result in a breach of any provision of, or constitute a default
(or an event which, with notice or lapse of time or both, would constitute a
default) under, or result in the creation of any lien, security interest, charge
or encumbrance upon any of Purchaser's properties under, any note, bond,
mortgage, indenture, deed of trust, license, franchise, permit, lease, contract,
agreement or other instrument to which Purchaser or its subsidiaries or any of
their respective properties may be bound, (iii) violate any order, injunction,
judgment, ruling, law or regulation of any court or governmental authority
applicable to Purchaser or its subsidiaries or any of their respective
properties, or (iv) except for applicable requirements of the Exchange Act and
the HSR Act, require any consent, approval or authorization of, or notice to, or
declaration, filing or registration with, any governmental or regulatory
authority or other third party, which, in the case of clauses (ii), (iii) and
(iv) above, would have a material adverse effect on the business, operations or
financial condition of Purchaser and its subsidiaries, considered as a single
enterprise or on Purchaser's ability to consummate the transactions contemplated
hereby.
4. Acquisition for Investment. Purchaser is acquiring the Shares
solely for its own account and not with a view to any distribution or other
disposition of such Shares, and the Shares will not be transferred except in a
transaction registered or exempt from registration under the Securities Act of
1933, as amended.
5. Financing. Purchaser has received written commitments for debt
and equity financing (the "Financing") for the consummation of the transactions
contemplated hereby (the "Commitment Letters"). The proceeds of the Financing
set forth in the Commitment
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Letters, together with Purchaser's cash on hand as of the date hereof and as of
the Closing Date, will be sufficient to enable Purchaser to pay the full amount
of the cash Purchase Price at the Closing. True and complete copies of each of
the Commitment Letters are set forth in Section 3.5 of the Disclosure Schedule.
6. Hart-Scott-Rodino Act. Purchaser is its own "ultimate parent
entity" as such term is defined by the rules promulgated in connection with the
Hart-Scott-Rodino Antitrust Improvements Act of 1976, as amended (the "HSR
Rules"). Purchaser does not have a regularly prepared balance sheet and does not
have annual net sales or total assets of ten million dollars or more as defined
by Section 801.11(e) of the HSR Rules.
7. No Brokers' or Other Fees. No broker, finder or investment banker
is entitled to any fee or commission in connection with the transactions
contemplated hereby based upon arrangements made by or on behalf of Purchaser.
ARTICLE IV
CONDITIONS TO SELLER'S OBLIGATIONS
The obligations of Seller to effect the Closing under this Agreement
are subject to the satisfaction, at or prior to the Closing, of each of the
following conditions, unless waived in writing by Seller.
1. Representations and Warranties. The representations and
warranties made by Purchaser in this Agreement shall be true and correct in all
material respects on the Closing Date as though such representations and
warranties were made at such date, except for changes expressly permitted by
this Agreement or the other agreements referred to herein.
2. Performance. Purchaser shall have performed and complied in all
material respects with all agreements, obligations and conditions required by
this Agreement to be so performed or complied with by Purchaser prior to the
Closing.
3. Officer's Certificate. Purchaser shall have delivered to Seller a
certificate, dated the Closing Date and executed by the President or a Vice
President of Purchaser, certifying to the fulfillment of the conditions
specified in Sections 4.1 and 4.2 hereof.
4. HSR Act. All applicable waiting periods under the HSR Act with
respect to the transactions contemplated hereby shall have expired or been
terminated.
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5. Injunctions. On the Closing Date there shall be no injunction,
writ, preliminary restraining order or other order in effect of any nature
issued by a court or governmental agency of competent jurisdiction directing
that the transactions provided for herein not be consummated as provided herein.
6. Consents. Those material governmental consents necessary to
effect the Closing shall have been obtained.
7. License and Distributor Agreement. The Company shall have entered
into the Gerber License and the Distributor Agreement (as defined in Section
6.11 below).
8. Release of Letters of Credit. All outstanding letters of credit
for purchases of goods or services by, or otherwise issued for the benefit of,
the Company or any Subsidiary with respect to which Seller has any obligations
shall be terminated or Seller shall be unconditionally released from, or
indemnified by a responsible financial institution in a form satisfactory to
Seller for, all obligations with respect thereto.
ARTICLE V
CONDITIONS TO PURCHASER'S OBLIGATIONS
The obligations of Purchaser to effect the Closing under this
Agreement are subject to the satisfaction, at or prior to the Closing, of each
of the following conditions, unless waived in writing by Purchaser.
1. Representations and Warranties. The representations and
warranties made by Seller in this Agreement shall be true and correct in all
material respects on the Closing Date as though such representations and
warranties were made at such date, except for changes expressly permitted by
the terms of this Agreement or the other agreements referred to herein.
2. Performance. Seller shall have performed and complied in all
material respects with all agreements, obligations and conditions required by
this Agreement to be so performed or complied with by Seller prior to the
Closing.
3. Officer's Certificate. Seller shall have delivered to Purchaser a
certificate, dated the Closing Date and executed by the President or a Vice
President of Seller, certifying to the fulfillment of the conditions specified
in Sections 5.1 and 5.2 hereof.
4. Resignation of Directors. Seller shall have delivered to
Purchaser the written resignations of all of the directors of the Company
effective as of the Closing Date.
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5. HSR Act. All applicable waiting periods under the HSR Act with
respect to the transactions contemplated hereby shall have expired or been
terminated.
6. Injunctions. On the Closing Date there shall be no injunction,
writ, preliminary restraining order or other order in effect of any nature
issued by a court or governmental agency of competent jurisdiction directing
that the transactions provided for herein not be consummated as provided herein.
7. Consents. Those material governmental and third party consents
necessary to effect the Closing and for the Company to operate its business in
all material respects after the Closing as presently operated shall have been
obtained.
8. Ancillary Agreements. Seller shall have entered into the Gerber
License, the Transition Services Agreement (as such terms are defined in Section
6.11 below) and the Distributor Agreement and each shall be in full force and
effect.
9. Title Insurance. Seller will have obtained and delivered to
Purchaser an ALTA Owner's Policy of Title Insurance for each of the parcels of
owned real property and the ground lease of the property located in Fort Kent,
Maine listed in Section 2.18 of the Disclosure Schedule, issued by Chicago Title
Insurance Company or another title insurer reasonably satisfactory to Purchaser
(the "Title Insurer"), in the amount of the fair market value thereof (including
all improvements thereon), insuring Purchaser's interest in such parcel as of
the Closing, subject only to the Permitted Liens. Such title policies shall
include such endorsements as Purchaser shall reasonably require (including
without limitation non-imputation endorsements) to the extent such endorsement
are reasonably obtainable. Seller shall provide such affidavits as are customary
and as the Title Insurer shall reasonably require in connection with providing
non-imputation endorsements. The cost and expense of obtaining such policies
shall be borne 50% by Purchaser and 50% by Seller, provided that Seller's
obligations under Section 5.9 and 5.10 shall not exceed $45,000 in the
aggregate.
10. Surveys. Seller shall have procured and delivered to Purchaser,
current surveys of each of the parcels of owned real property and the ground
lease of the property located in Fort Kent, Maine listed in Section 2.18 of the
Disclosure Schedule prepared by a licensed surveyor and conforming to the
Minimum Standard Detail Requirements jointly established and approved in 1992 by
ALTA and ACSM and certified to Purchaser, Purchaser's lender and the Title
Insurer and showing no encroachments or defects on such parcels of owned real
property other than Permitted Liens. The cost and expense of obtaining such
surveys shall be borne 50% by Purchaser and 50% by Seller, provided that
Seller's obligations under Section 5.9 and 5.10 shall not exceed $45,000 in the
aggregate.
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11. Material Adverse Change. Since November 30, 1995, there has been
no material adverse change to the business, assets, results of operations or
financial condition of the Company and the Subsidiaries, considered as a single
enterprise.
ARTICLE VI
COVENANTS AND AGREEMENTS
1. Conduct of Business by Seller. Seller covenants that, except (i)
for actions taken to implement this Agreement and the transactions contemplated
hereby, (ii) as disclosed in the Disclosure Schedule, (iii) for distributions of
the Company's then cash balances to Seller immediately prior to the Closing
(subject to the provisions of Section 1.3(d)), (iv) for any assignment of
accounts receivable to Seller pursuant to Section 1.4(e) or (v) as consented to
by Purchaser, from and after the date of this Agreement and until the Closing
Date Seller shall:
(a) use reasonable efforts consistent with good business judgment to
preserve intact the present business organization and relationships
of the Company and the Subsidiaries and generally operate the
Company and the Subsidiaries in the ordinary and regular course of
business consistent with prior practices in all material respects
(including, without limitation, with respect to maintenance of
working capital balances and cash management practices);
(b) refrain from (i) causing to be issued, sold or transferred any
shares of capital stock or other securities of the Company or any
options, warrants or commitments of any kind with respect thereto,
(ii) directly or indirectly causing to be purchased, redeemed or
otherwise acquired or disposed of any shares of capital stock of the
Company; (iii) declaring, setting aside or paying any dividend or
other distribution other than cash management procedures in the
ordinary course of Seller's or the Company's business; (iv)
permitting or allowing the Company or a Subsidiary to borrow or
agree to borrow any funds or incur, whether directly or by way of
guarantee, any obligation for borrowed money, other than in the
ordinary course of business and consistent with past practice, (v)
subjecting any of the property or assets of the Company or any
Subsidiary (real, personal or mixed, tangible or intangible) to any
material mortgage, pledge, lien or encumbrance or otherwise
permitting or allowing the disposition of any material property or
assets of the Company or any Subsidiary (real, personal or mixed,
tangible or intangible), other than sales of inventory in the
ordinary course of business and sales of other assets in an
aggregate amount not exceeding $50,000 in any month, or (vi)
agreeing to do any of the foregoing;
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(c) maintain the books and records of the Company in accordance with
prior practice;
(d) not take or cause to be taken or permit or suffer to occur, any
action or event described in Section 2.10 hereof; and
(e) not pay or permit the Company to pay any of the 1995 Bonuses.
2. Access to Books and Records; Cooperation.
(a) Except as otherwise provided in Section 6.4, each party agrees that
from the date hereof until the Closing and, with respect to any
financial reporting matters or tax matters that are the subject of
Section 6.4, after the Closing until such time as the statute of
limitations with respect to such tax matters has expired, during
normal business hours, such party will permit, at no charge, cost or
expense to such party and without disruption of such party's
business, the other party hereto and its auditors and other
representatives to have reasonable access to the properties,
auditors and officers of the Company and to all books and records
relating to the Company and to examine and take copies thereof.
(b) Each party agrees not to destroy at any time any files or records
which are subject to Section 6.2(a) without giving reasonable notice
to the other party, and within 30 days of receipt of such notice,
such other party may cause to be delivered to it the records
intended to be destroyed, at such other party's expense.
3. Filings and Consents. Each of Seller and Purchaser: (a) shall
promptly prepare and make any required filings under the HSR Act and (b) shall
use all reasonable efforts to obtain and to cooperate in obtaining any consent,
approval, authorization or order of, and in making any registration or filing
with, any governmental agency or body or other third party required in
connection with the execution, delivery or performance of this Agreement. Seller
and Purchaser will furnish to one another such necessary information and
reasonable assistance as may be requested in connection with the preparation of
filings or submissions under the HSR Act.
4. Tax Matters.
(a) Liability of Seller for Taxable Periods Ending On or Before Closing
Date. Seller shall be liable for, and shall indemnify and hold
Purchaser, the Company and the Subsidiaries harmless against, all
Taxes payable by the Company and the Subsidiaries for all taxable
periods ending on or before the Closing Date (including, without
limitation, (i) all income Taxes arising from the transfer of the
Shares or as a result of the Section 338 (h)(10) Election (as
defined below) and
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(ii) any liability for the Taxes of any Person under Treas. Reg. ss.
1.1502-6 (or any similar provision of state, local or foreign law),
as a transferee or successor, by contract, or otherwise), but, with
respect to Taxes other than income Taxes, only to the extent that
the amount of such other Taxes exceeds the amount of such other
Taxes that have been provided for in the Closing Date Statement.
Notwithstanding the foregoing or any other provision of this
Agreement, Purchaser, the Company and the Subsidiaries shall be
liable for, and shall indemnify and hold Seller and its Affiliates
harmless against, (x) all Taxes arising from transactions that occur
outside of the ordinary course of business after the Closing on the
Closing Date and (y) all sales, use, transfer or other similar Taxes
arising out of the transfer of the Shares or the election to be made
with respect to the transactions contemplated by this Agreement
under Section 338(h)(10) of the Code (or any other election under
any similar state or local statute) (the "Section 338(h)(10)
Election"). Seller shall file all Tax Returns relating to the
Company and its Subsidiaries for all taxable periods ending on or
before the Closing Date. Seller shall determine the amount of
taxable income or loss of the Company and its Subsidiaries for
periods ending on or prior to the Closing Date on the basis of its
permanent records and consistent with the past income tax accounting
methods utilized in preparing its prior income tax returns. Such
determination shall be binding on Seller and Purchaser to the extent
allowable under applicable law.
(b) Liability of Parties for Straddle Period Taxes. With respect to any
taxable period that begins on or before the Closing Date and ends
after the Closing Date (a "Straddle Period"), Seller shall be liable
for, and shall indemnify and hold Purchaser, the Company and the
Subsidiaries harmless against, all Taxes that relate to the portion
of such period ending on the Closing Date, but only to the extent
that such Taxes exceed the sum of (i) the aggregate estimated Tax
payments made by Seller, the Company, its Subsidiaries and any
Seller Group with respect to such Taxes prior to the Closing and
(ii) the amount of Taxes reflected as a liability on the Closing
Date Statement. Purchaser, the Company and the Subsidiaries shall be
liable for, and shall indemnify and hold Seller and its Affiliates
harmless against, all Taxes that relate to the portion of such
period beginning on the day after the Closing Date or that are
reflected as a liability on the Closing Date Statement. For these
purposes, Taxes that are based on sales or net income shall be
allocated between the portion of the period ending on the Closing
Date and the portion of the period beginning after the Closing Date
based upon an interim closing of the books as of the close of
business on the Closing Date. Taxes that are not based on sales or
net income shall be allocated between the portion of the period
ending on the Closing Date and the portion of the period beginning
after the Closing Date based upon the relative number of days in
each such period. Purchaser shall be responsible for the preparation
and filing of all
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Tax Returns relating to Straddle Periods, which shall be prepared
based on the permanent records of the Company and the Subsidiaries,
consistent with past Tax accounting methods in preparing prior Tax
Returns. At least 10 days prior to the due date for filing any such
Tax Return, Purchaser shall furnish copies of such Tax Return to
Seller, along with Purchaser's computation of the portion of such
Taxes for which Purchaser believes Seller is liable, for Seller's
review and comment. Any dispute regarding such Tax Returns or the
amount for which Seller is liable pursuant to such Tax Returns shall
be resolved in accordance with the dispute resolution procedure of
Section 6.4(g) hereof. Seller shall pay any amounts it owes to
Purchaser under this Section 6.4(b) no later than the last to occur
of (A) the date that is 10 days after the date of receipt of
Purchaser's computation of the amount owed by Seller, (B) the date
that is 10 days after the date of resolution of any dispute resolved
under the dispute resolution procedure of Section 6.4(g) and (C) the
date that is five days before the due date for payment of the
applicable Tax.
(c) Liability of Purchaser for Taxable Periods Beginning After Closing
Date. Purchaser and the Company shall be liable for, and shall
indemnify and hold Seller and any of its affiliates harmless
against, all Taxes payable by the Company or any of the Subsidiaries
for any taxable periods beginning after the Closing Date. Purchaser
shall file all Tax Returns relating to the Company and the
Subsidiaries for all taxable periods beginning after the Closing
Date. Purchaser will forego the carryback period with respect to
any net operating losses or capital losses of the Company or its
Subsidiaries under Section 172 or Section 1212 of the Code to the
extent such carryback period includes taxable periods ending on or
before the Closing Date.
(d) Refunds or Credits. Any refunds or credits of Taxes for which Seller
is liable pursuant to Section 6.4(a) or Section 6.4(b) shall be
solely for the account of Seller, and, to the extent that such
refunds or credits are attributable to Taxes for which Purchaser is
liable pursuant to Section 6.4(b) or Section 6.4(c), such refunds or
credits shall be solely for the account of Purchaser. Purchaser
shall cause the Company and the Subsidiaries promptly to forward to
Seller or to reimburse Seller for any such refunds or credits due
Seller after receipt thereof by Purchaser, the Company or any of the
Subsidiaries, and Seller shall promptly forward to Purchaser or
reimburse Purchaser for any refunds or credits due Purchaser after
receipt thereof by Seller of such refunds or credits that are for
the account of the Purchaser or the Company hereunder.
(e) Mutual Cooperation. As soon as practicable, but in any event within
30 days after Seller's or Purchaser's request, as the case may be,
Purchaser shall or shall cause
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<PAGE> 31
the Company to deliver to Seller, or Seller shall deliver to
Purchaser, such information and other data in the possession of
Seller, Purchaser, the Company or any Subsidiary, as the case may
be, relating to the Tax Returns and Taxes of the Company and
Subsidiaries, including such information and other data customarily
required by Seller or Purchaser, as the case may be, to cause the
payment of all Taxes or to permit the preparation of any Tax Returns
for which it has responsibility or liability or to respond to audits
by any taxing authorities with respect to any Tax Returns or Taxes
for which it has any responsibility or liability under this
Agreement or otherwise or to otherwise enable Seller or Purchaser,
as the case may be, to satisfy its accounting or Tax requirements.
In connection with the foregoing, Purchaser and Seller shall make
available such knowledgeable employees of the Company or Seller, as
the case may be, as Seller or Purchaser may reasonably request,
which employees shall, among other things, prepare all schedules,
work papers and other documents in a manner consistent with past
practice that are reasonably necessary to assist Seller in preparing
Tax Returns or satisfying its financial reporting requirements. Upon
Seller's reasonable request, Purchaser shall cause an appropriate
officer of the Company or the Subsidiaries to sign Tax Returns
relating to periods ending on or prior to the Closing Date. For a
period of six years after the Closing, and, if at the expiration
thereof any Tax audit or judicial proceeding is in progress or the
applicable statute of limitations has been extended in writing, for
such longer period as such audit or judicial proceeding is in
progress or such statutory period has been agreed to be extended,
Purchaser shall, and shall cause the Company and the Subsidiaries
to, maintain and make available to Seller, on Seller's reasonable
request, copies of any and all information, books and records
referred to in this Section 6.4(e). After such period, Purchaser or
the Company may dispose of such information, books and records,
provided that prior to such disposition Purchaser shall give Seller
a reasonable opportunity to take possession of such information,
books and records.
(f) Contests. Whenever any taxing authority asserts a claim, makes an
assessment or otherwise disputes or affects the Tax reporting
position of the Company or Subsidiaries for periods for which Seller
is or may be liable under this Agreement, Purchaser shall, promptly
upon receipt by Purchaser, the Company or any Subsidiary of notice
thereof, inform Seller. Seller shall have the right to control any
resulting proceedings and to determine whether and when to settle
any such claim, assessment or dispute, to the extent such
proceedings or determinations affect the Tax reporting position of
the Company or any Subsidiary or the amount of Taxes for which
Seller is or may be liable for all taxable periods ending on or
before the Closing Date; provided, however, that Seller shall not
settle any such claim, assessment, or dispute in a manner that
adversely affects the Tax liability of the Company or any of its
Subsidiaries for any Tax period ending
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<PAGE> 32
after the Closing Date without Purchaser's prior consent (which
consent shall not be unreasonably withheld). Whenever any taxing
authority asserts a claim, makes an assessment or otherwise disputes
the amount of Taxes for which Purchaser is liable under this
Agreement, Seller shall, promptly upon receiving notice thereof,
inform Purchaser. Purchaser shall have the right to control any
resulting proceedings and to determine whether and when to settle
any such claim, assessment or dispute, to the extent such
proceedings affect the amount of Taxes for which Purchaser is liable
under this Agreement for all taxable periods beginning after the
Closing Date; provided, however, that Purchaser and its Affiliates
shall not (and shall cause the Company and its Subsidiaries not to)
(i) take any position on any Tax Return or in any contest or
proceeding that is inconsistent with this Agreement or a position
taken by Seller and its Affiliates (including the Company and its
Subsidiaries) with respect to Taxes incurred on or prior to the
Closing Date, or (ii) settle any claim, assessment, or dispute in a
manner that adversely affects the Tax liability of the Company, its
Subsidiaries or any Seller Group for any Tax period beginning before
the Closing Date, in each case without Seller's prior consent (which
consent shall not be unreasonably withheld). Seller and Purchaser
will jointly control and determine whether to settle any claim,
assessment or dispute asserted or made by any taxing authority with
respect to Taxes attributable to a Straddle Period. No such claim,
assessment or dispute shall be settled without the prior consent of
both Seller and Purchaser (which consent shall not be unreasonably
withheld).
(g) Resolution of Disagreements Between Seller and Purchaser. If Seller
and Purchaser disagree as to the amount for which each is liable
under this Section 6.4, Seller and Purchaser shall promptly consult
with each other in an effort to resolve such dispute. If any such
point of disagreement cannot be resolved within 15 days (or, in the
case of dispute arising under Section 6.4(b), five days) after the
date of consultation, Seller and Purchaser shall jointly select from
the "Big Six" accounting firms (which are listed in Section 6.4 of
the Disclosure Schedule), a firm of independent public accountants
which has not performed any services since January 1, 1990 for
Seller, Purchaser or their respective Affiliates, to act as an
arbitrator to resolve all points of disagreement concerning Tax
accounting matters with respect to this Agreement. If the parties
cannot agree on the selection of an accounting firm within 15 days
(or, in the case of a dispute arising under Section 6.4(b), five
days), then such accounting firm shall be selected by the Chief
Judge of the United States District Court for the Western District
of Michigan.
(h) 338(h)(10) Election. Seller, Purchaser and their respective
Affiliates will jointly execute and make a timely election on Form
8023-A or in such other manner as
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<PAGE> 33
may be required by rule or regulation of the Internal Revenue
Service under Section 338(h)(10) of the Code for the Company and its
Subsidiaries, and jointly execute and make a timely election in the
manner required under any similar state or local statute as Seller
shall designate or as shall be required, concerning the transactions
contemplated by this Agreement. Seller shall pay, and shall
indemnify Purchaser, the Company and the Subsidiaries against, all
income Taxes resulting from the Section 338(h)(10) Election.
Purchaser shall pay, and shall indemnify Seller and its Affiliates
against, all sales, use, transfer or other similar Taxes resulting
from the Section 338(h)(10) Election. Purchaser and Seller shall use
their best efforts to agree, as soon as practicable after Closing
but in no event later than 60 days following the Closing Date, on
the computation of the Modified Aggregate Deemed Sale Price
("MADSP") (as defined under Treasury Regulations) and the
allocation of the MADSP among the assets as of the Closing Date.
Purchaser shall, with the assistance and cooperation of Seller,
prepare initial drafts of all forms required to be filed with
respect to the Section 338(h)(10) Election in accordance with
applicable Tax laws, and Purchaser shall deliver such forms and
related documents to Seller at least 120 days prior to the due date
of filing. Purchaser and Seller will agree on the content of the
forms for the Section 338(h)(10) Election and will execute such
forms (or cause such forms to be executed) at least 45 days prior to
the due date of filing such completed forms. Seller shall be
responsible for filing such completed forms. Any disputes regarding
any aspect of the Section 338(h)(10) Election shall be resolved in
accordance with the dispute resolution procedure of Section 6.4(g)
hereof. Seller shall indemnify Purchaser for all Taxes incurred by
Purchaser, the Company or its Subsidiaries as a result off Seller's
failure to comply with its obligations under this Section 6.4(h),
and Purchaser shall indemnify Seller for all Taxes incurred by
Seller or its Affiliates as a result of Purchaser's failure to
comply with its obligations under this Section 6.4(h).
(i) From and after the Closing, Purchaser and the Company will be
responsible for the fees of Mintax, Inc. pursuant to the Engagement
Agreement between Seller and Mintax, Inc. entered into by Seller on
February 12, 1992 relating to state tax incentives of the Company
applicable to Taxes for which Purchaser is responsible pursuant to
Section 6.4(b) or Section 6.4(c).
(j) Tax Sharing Agreement. The obligations of the Company and the
Subsidiaries under any Tax sharing agreements or similar
arrangements with respect to or involving the Company and its
Subsidiaries shall be terminated as of the Closing Date and, after
the Closing Date, the Company and its Subsidiaries shall not be
bound thereby or have any liability thereunder.
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(k) Exclusive Remedy. As between Purchaser, the Company and its
Subsidiaries, on the one hand, and Seller, on the other hand, the
rights, indemnifications and obligations set forth in this Section
6.4 will be the sole and exclusive remedies with respect to any
dispute relating to Taxes (other than disputes arising with respect
to Section 2.12 or Section 6.10, the sole and exclusive remedies for
which will be as provided in Section 8.1). Any claims for
indemnification pursuant to this Section 6.4 must be delivered in
writing by the party seeking indemnification to the party from which
indemnification is sought no later than 30 days following the date
of expiration of the statute of limitations applicable to the Tax
for which indemnification is sought.
5. WARN Act. Purchaser and Seller agree that for purposes of the
United States Worker Adjustment and Retraining Notification Act (the "WARN
Act"), the Closing Date shall be the "effective date" as such term is used in
the WARN Act. Purchaser acknowledges and represents that it has no present
intent to engage in a "mass layoff" or "plant closing" with respect to the
Company as defined in the WARN Act. Seller acknowledges and represents that the
Company has not engaged in any "mass layoff" during the two years prior to the
date hereof for which it has not provided advance notice thereof pursuant to the
WARN Act. Purchaser agrees that from and after the Closing Date it shall be
responsible for any notification required under the WARN Act with respect to the
Company and shall indemnify Seller and hold Seller harmless from and against all
fines and other payments which may become due under the WARN Act with respect to
the Company.
6. Supplements to Disclosure Schedule. From time to time prior to
the Closing, Seller and Purchaser will promptly supplement or amend the sections
of the Disclosure Schedule relating to their respective representations and
warranties in this Agreement with respect to any matter, condition or occurrence
hereafter arising which, if existing or occurring at the date of this Agreement,
would have been required to be set forth or described in their respective
sections of the Disclosure Schedule. Except with respect to a supplement or
amendment not objected to in writing by the other party within five business
days after receipt thereof, no supplement or amendment by either party shall
have any effect for the purpose of (i) determining satisfaction by Seller of the
conditions set forth in Sections 5.1 and 5.2 hereof or the compliance by Seller
with the covenant set forth in Section 6.1 hereof, (ii) determining satisfaction
by Purchaser of the conditions set forth in Sections 4.1 and 4.2 hereof or (iii)
determining the amount of any indemnification payments under Article VIII
hereof.
7. Covenant to Satisfy Conditions. Each party agrees to use its
reasonable best efforts to insure that the conditions set forth in Article IV
and Article V hereof are satisfied and to consummate the transactions
contemplated hereby, insofar as such matters are within the control of such
party.
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8. Use of "Gerber" Name. Except for any publication or press release
expressly permitted by Section 9.9, Purchaser agrees and agrees to cause the
Company not to use the "Gerber" name, trademark, tradename or logo at any time
after the Closing Date, except as explicitly provided in the Gerber License.
9. Intercompany Obligations. Immediately prior to the Closing Date,
(i) the Company shall eliminate without recourse, in the form of a return of
capital, all indebtedness of Seller and Seller's Affiliates (other than the
Company and the Subsidiaries) to the Company and the Subsidiaries, other than
indebtedness for goods and services (which services will be consistent with past
practice) provided to Seller or Seller's Affiliates (other than the Company and
the Subsidiaries) by the Company or its Subsidiaries which indebtedness shall
remain outstanding and be paid in a manner consistent with past practice; and
(ii) Seller shall eliminate, in the form of a capital contribution, all
indebtedness of the Company and its Subsidiaries to Seller and its Affiliates
(other than the Company and its Subsidiaries), other than indebtedness for goods
and services (which services will be consistent with past practice) provided to
the Company or its Subsidiaries by Seller or such Affiliates, which indebtedness
shall remain outstanding and be paid pursuant to the terms thereof (i.e., with
respect to goods provided to Seller, margin will be included thereon as
described in the Distributor Agreement).
10. Employment Benefit Provisions.
(a) Purchaser agrees that until December 31, 1996, Purchaser shall cause
the Company and the Subsidiaries to maintain compensation,
incentive, savings, retirement and welfare benefit plans and
programs for the benefit of current employees of the Company (as of
the Closing Date) and the Subsidiaries employed on the Closing Date
which are in the aggregate substantially similar to those provided
to them by Seller, the Company and the Subsidiaries immediately
prior to the Closing Date. All employees of the Company shall be
given credit in determining participation, benefit accrual and
vesting under any benefit plans maintained by the Company, the
Subsidiaries or Purchaser on and after the Closing Date for the
period during which he or she was employed by Seller, its
Affiliates and the Company to the extent that any similar benefit
plan or arrangement of Seller, the Company and the Subsidiaries uses
length of service as a factor in determining participation, benefit
accrual or vesting thereunder.
(b) From and after the Closing Date, the Company shall retain all
liability for any bonus or incentive plan or arrangement (other than
the one-time stay bonus obligations payable on the Closing Date
pursuant to agreements dated March 9, 1995 or March 10, 1995 with
the individuals identified in Section 6.10(b)(1) of the Disclosure
Schedule) with respect to current employees of the Company (as of
the Closing Date) or any of the Subsidiaries entered into or in
effect prior to the
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<PAGE> 36
Closing Date and disclosed to Purchaser prior to the date hereof. In
addition, the Company shall assume and retain any liability incurred
with respect to any employee benefit plan currently or previously
maintained or contributed to by Seller, the Company or any of the
Subsidiaries for the benefit of current or, except as provided
below, former employees of the Company and the Subsidiaries
(including, but not limited to, the supplemental pension payments to
the persons identified in Item 1 of Section 2.5 of the Disclosure
Schedule), other than any such liability which has been incurred or
will be incurred (i) under the Company's retiree medical plan with
respect to individuals who have retired from the Company or the
Subsidiaries on or before the Closing Date and (ii) under the
Company's long term disability plan (but not medical claims which
are under the Company's health insurance plan) with respect to
employees receiving long term disability benefits as of the Closing
Date or receiving short term disability benefits as of the Closing
Date who be come eligible for long term disability benefits after
the Closing Date without returning to full-time employment with the
Company (the liabilities referred to in clause (i) and (ii) are
collectively referred to as the "Retained Benefits"), which
Retained Benefits shall be assumed and/or retained by Seller from
and after the Closing Date. The aggregate amount of any
contributions made by Seller or the Company to the Hourly Pension
Plan after the date hereof and prior to the Closing Date shall be
reimbursed to Seller in cash at the Closing. The Company and
Purchaser shall also assume and be responsible for, the liabilities
and obligations of Seller for compensation and benefits payable upon
termination of employment following the Closing Date to the
individuals identified in Section 6.10(b)(2) of the Disclosure
Schedule pursuant to agreements between Seller and such individuals
dated March 9, 1995 or March 10, 1995 (the "Severance Obligations")
(i) for the first two such individuals whose employment with the
Company is terminated after the Closing Date, (ii) for the third
such individual whose employment with the Company is terminated
after the Closing Date (the "Third Employee") to the extent the
Severance Obligations with respect to such Third Employee exceed
$250,000 and (iii) for all other such individuals whose employment
with the Company is terminated after the Closing Date. Except as
provided below, Seller will not amend any provision of the severance
and/or stay bonus agreements dated March 9, 1995 or March 10, 1995
between Seller and each of the individuals identified in Section
6.10(b)(1) and (2) of the Disclosure Schedule without the prior
written consent of Purchaser. Seller shall retain and be responsible
for Severance Obligations with respect to the Third Employee up to
a maximum of $250,000. Such Severance Obligations retained by Seller
are referred to herein as the "Seller Severance Obligations." Seller
also shall assume and/or retain liability from and after the Closing
Date for (i) any fines or penalties resulting from the failure of
the Company to make any required pension plan contribution on time,
(ii) claims which are incurred by the
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<PAGE> 37
Company or any of its Subsidiaries as the result of any employee
pension benefit plan (as defined in Section 3(2) of ERISA) which is
or was maintained or contributed to by Seller or any other member of
the Controlled Group (other than the Company or its Subsidiaries),
and (iii) claims or losses which are or have been or will be
incurred by the Company or on behalf of the Company with respect to
Wyvis Hunt (provided that Purchaser and the Company shall not employ
Wyvis Hunt after the Closing Date without the prior written consent
of Seller) (collectively, the "Retained Obligations to Employees").
Prior to the Closing Date, Seller will either (i) enter into
amendments of each of the Severance Agreements to amend the
definition of "cause" referred to therein to change the references
to Seller in such definition to references to the Company or (ii)
indemnify Purchaser and the Company for Severance Obligations
incurred by them as a result of a termination of employment which
Purchaser or the Company would not have incurred but for the fact
that the amendment referenced to in clause (i) above had not been
made.
11. Ancillary Agreements. On the Closing Date, (i) Seller and the
Company shall enter into a license agreement, substantially in the form of
Exhibit 6.11(i) hereto (the "Gerber License"); (ii) Seller and the Company shall
enter into a transition services agreement, substantially in the form of
Exhibit 6.11(ii) hereto (the "Transition Services Agreement"); and (iii) Seller
shall cause each of Gerber (Canada) Inc. and Seller to enter into, and the
Company shall enter into, a distributor agreement, substantially in the form of
Exhibit 6.11(iii) hereto (the "Distributor Agreement").
12. Covenant Not to Compete. (a) Non-Competition. In consideration
of the mutual covenants and agreements provided for herein, (i) during the
period that the Gerber License is in effect or (ii) in the event that Seller has
been finally judicially determined to have breached its obligations under the
Gerber License in a manner that gives rise to a right of termination on the part
of the Company and the Gerber License is terminated by the Company as a result
of such breach thereof by Seller, for a period of twenty years from the date of
this Agreement (the "Non-Compete Period"), except as expressly permitted by the
terms of the Distributor Agreement for so long as the Distributor Agreement
remains in effect, neither Seller nor any of its Affiliates (other than the
Company and its Subsidiaries) shall engage directly or indirectly in (1) the
Company Business (as defined below) or (2) the manufacture, sale, or
distribution of apparel that would constitute Licensed Articles but for the fact
that such apparel is not sold under any of the Licensed Trade marks (as defined
in the Gerber License) (each of the foregoing collectively referred to herein
as the "Prohibited Businesses"), in each case in the geographic locations where
the Company is licensed to use the Licensed Trademarks pursuant to the Gerber
License and such other geographic areas where, pursuant to Section 1(b)(ii) of
the Gerber License, Seller has agreed to first offer such areas to the Company,
except for those areas that have been offered to the Company pursuant to such
Section 1(b)(ii) and the Company has
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<PAGE> 38
declined or failed to accept such offer in the period specified therein;
provided, that ownership of less than 5% of the outstanding stock of any
publicly-traded corporation shall not be deemed to be engaging solely by reason
thereof in any of such Prohibited Businesses and Seller or its Affiliates may
acquire any business or enterprise that is engaged in the Prohibited Businesses
if no more than 10% of the consolidated revenues for the immediately preceding
12 months of such business or enterprise are derived from the Prohibited
Businesses and, within eighteen months after such acquisition, Seller or such
Affiliate divests that portion of the acquired business that engages in the
Prohibited Businesses. The "Company Business" consists of the manufacture, sale
and distribution of items constituting "Licensed Articles" as such term is
defined in Section 1(a) of the Gerber License and other activities incident
thereto. If the final judgment of a court of competent jurisdiction declares
that any term or provision of this Section 6.12(a) is invalid or unenforceable,
the parties agree that the court making the determination of invalidity or
unenforceability shall have the power to reduce the scope, duration, or area of
the term or provision, to delete specific words or phrases, or to replace any
invalid or unenforceable term or provision with a term or provision that is
valid and enforceable and that comes closest to expressing the intention of the
invalid or unenforceable term or provision, and this Agreement shall be
enforceable as so modified after the expiration of the time within which the
judgment may be appealed.
(b) Non-Solicitation. Seller agrees that, during the three-year period
after the Closing Date (the "Restricted Period"), Seller shall not,
and shall not permit its Affiliates to, directly or indirectly
contact or solicit for the purpose of offering employment to or
hiring (whether as an employee, consultant, agent, independent
contractor or otherwise) or actually hire any person employed by the
Company or any of its Subsidiaries at any time prior to the Closing
Date or during the Restricted Period, without the prior written
consent of the Company.
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13. Release of Guaranty and Revocation of Powers of Attorney.
(a) Purchaser acknowledges that simultaneously with the Closing or
promptly thereafter, Seller intends to cause Seller's existing
Flammable Fabrics Guaranty to the Consumer Products Safety
Commission to be modified or replaced, such that the existing
guaranty will not, following the Closing, guaranty obligations of or
relating to the Company. Purchaser agrees to cooperate with Seller
in causing Seller to be released from all such obligations, and to
take all reasonable and necessary actions in connection therewith,
including issuing or causing to be issued, a Flammable Fabrics
Guaranty satisfactory to the Consumer Products Safety Commission,
guarantying obligations of or relating to the Company.
(b) Purchaser acknowledges that the Company currently benefits from
certain powers of attorney by Seller in favor of certain agents who
assist Seller in Seller's and the Company's dealings with United
States customs agents. It is agreed and understood by Purchaser that
simultaneously with the Closing or promptly thereafter, Purchaser
shall revoke or modify such powers of attorney to eliminate the
powers granted with respect to the Company.
14. Liabilities Retained by Seller. Seller shall retain and be
responsible for all losses, damages, costs and expenses arising out of all
claims, regardless of when made, against the Company (i) under any workers'
compensation statute, (ii) with respect to accidents caused by vehicles owned or
operated by the Company in Maine, North Carolina, South Carolina and Texas, in
each case referred to in clause (i) or (ii) above, arising solely out of
injuries, actions or omissions occurring subsequent to December 31, 1988 and
prior to the Closing. Seller shall retain the exclusive right to administer and
control the defense of all proceedings and claims that are the subject of this
Section 6.14 and Purchaser and the Company shall have no right to participate
in the defense thereof. Purchaser and the Company agree, to the extent
reasonably requested by Seller, to cooperate with Seller in the defense of all
such proceedings and claims, including providing Seller, its representatives and
counsel with access to the books, records and employees of the Company and
testifying in any proceedings in connection therewith. Seller shall also retain
and be responsible for (i) the fees of Wasserstein Perella & Co., Inc. in
connection with the transactions contemplated hereby and (ii) the excise tax of
$26,000 payable by the Company with respect to the late payment of a
contribution to the Company's defined contribution plan for hourly employees.
All of the liabilities to be retained by Seller pursuant to this Section 6.14
are referred to herein as the "Retained Liabilities."
15. Director and Officer Liability and Indemnification. For a
period of seven years after the Closing, Purchaser shall not permit the Company
or Subsidiary to, amend, repeal or modify any provision in its respective
charter or bylaws relating to the exculpation or indemnification of former
officers and directors (unless required by law), it being the intent of
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<PAGE> 40
the parties that the officers and directors of the Company and Subsidiary prior
to the Closing shall continue to be entitled to such exculpation and
indemnification to the fullest extent permitted under applicable law.
16. Exclusivity. From and after the date hereof and until this
Agreement is terminated by its terms, none of the Company, any of its
Subsidiaries or Seller shall (and the Company, its Subsidiaries and Seller shall
not cause or permit any Affiliate, director, officer, employee or agent of the
Company, any of its Subsidiaries or their Affiliates to), (a) solicit, initiate
or encourage, directly or indirectly, the submission of any proposal or offer
from any Person (including any of them) relating to any (i) liquidation,
dissolution or recapitalization of, (ii) merger or consolidation with or into,
(iii) acquisition or purchase of assets of or any equity interest in or (iv)
similar transaction or business combination involving the Company or any of its
Subsidiaries (each, a "Significant Transaction") or agree to do any of the
foregoing or (b) participate in any discussions or negotiations regarding,
furnish any information with respect to, assist or participate in, or facilitate
in any other manner any effort or attempt by any other Person to do or seek to
do any of the foregoing. Neither the Company nor Seller is presently a party to
any agreement with respect to a Significant Transaction for the sale of the
Company or all or substantially all of its assets other than confidentiality
agreements in effect on the date hereof.
17. Financing. Purchaser shall use its reasonable best efforts to
obtain the maximum amount of Senior Financing available to it [on terms and
conditions reasonably acceptable to Purchaser; such reasonable best efforts will
not require the payment of any fees in excess of those set forth in the
Commitment Letters, the investment of equity in excess of the Equity Investment
(as defined below) or additional debt by the equity holders of Purchaser or any
Affiliate thereof. Prior to the date hereof, Purchaser's equity holders have
delivered to Purchaser the Commitment Letter with respect to Purchaser's equity
financing, which is attached hereto as Exhibit 6.17, providing for an aggregate
commitment of $12,500,000 (the "Equity Investment") to purchase equity
securities of Purchaser. Such Commitment Letter with respect to the Equity
Investment shall not be amended or modified prior to the Closing without the
prior written consent of Seller.
ARTICLE VII
TERMINATION
1. Termination. This Agreement may be terminated and abandoned at
any time prior to the Closing:
(a) by the mutual consent of Seller and Purchaser;
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<PAGE> 41
(b) by either Seller or Purchaser in the event the Closing has not
occurred on or before February 28, 1996 (the "Cut-Off Date"), unless
the failure of such consummation shall be due to the failure of the
party seeking to terminate this Agreement to comply in all material
respects with the agreements and covenants contained herein to be
performed by such party on or before the Cut-Off Date;
(c) by either Seller or Purchaser in the event any court or governmental
agency of competent jurisdiction shall have issued an order, decree
or ruling or taken any other action restraining, enjoining or
otherwise prohibiting the transactions contemplated hereby and such
order, decree or ruling or other action shall have become final and
nonappealable; or
(d) by Purchaser or Seller on or before the close of business on
December 17, 1995 if the Board of Directors of Sandoz, Ltd. shall
not have approved this Agreement and the transactions contemplated
hereby.
2. Procedure and Effect of Termination. In the event of the
termination and abandonment of this Agreement by Seller or Purchaser pursuant to
Section 7.1 hereof, written notice thereof shall forthwith be given to the other
party. If the transactions contemplated by this Agreement are terminated as
provided herein:
(a) Each party will redeliver all documents, work papers and other
material of any other party relating to the transactions
contemplated hereby, whether so obtained before or after the
execution hereof, to the party furnishing the same;
(b) All confidential information received by Purchaser or its affiliates
with respect to the business of the Company or Seller or their
subsidiaries shall be treated in accordance with the provisions of
that certain executed Confidentiality Agreement, between EKI
Investments and Seller (the "Confidentiality Agreement"), which
shall survive the termination of this Agreement; and
(c) No party to this Agreement will have any liability under this
Agreement to the other except (i) as stated in subparagraphs (a) and
(b) of this Section 7.2 and (ii) for any breach of any provision of
this Agreement and (iii) as provided in the Confidentiality
Agreement.
ARTICLE VIII
INDEMNIFICATION
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1. Indemnification. None of the provisions of this Section 8.1 shall
apply to the claims, obligations, liabilities, covenants and representations
regarding Taxes of the Company or Subsidiaries, which shall be governed solely
by the terms of Section 6.4. As between Purchaser, on the one hand, and Seller,
on the other hand, the rights and obligations set forth in this Article VIII,
Sections 6.4, 6.10, 6.11 and 6.14 and in the Confidentiality Agreement will be
the exclusive remedies of the parties hereto with respect to any disputes
relating to this Agreement, the events giving rise to this Agreement and the
transactions provided for herein or contemplated hereby other than an action for
fraud.
(a) Indemnification by Seller. Subject to the limits set forth in this
Section 8.1, Seller agrees to indemnify, defend and hold Purchaser,
its officers, directors, agents and affiliates, harmless from and in
respect of any and all losses, damages, costs and reasonable
expenses (including, without limitation, reasonable expenses of
counsel), in each individual case that exceeds $25,000
(collectively, "Losses") for the full amount of such Losses (subject
to the limitations set forth be low), that they may incur arising
out of or due to (i) any inaccuracy of any representation or the
breach of any warranty of Seller contained in this Agreement or the
Disclosure Schedule, (ii) the breach after the Closing Date by
Seller of any license agreement with a third party to which both
Seller and the Company remain parties after the Closing Date, (iii)
any claims in respect of any physical injury or distress to any
person or physical damage to any property alleged to have occurred
prior to the Closing Date by reason of any alleged defect in any
product sold by the Company which claim is based upon the doctrine
of strict liability in tort or negligence or similar common law tort
theory, (iv) the Retained Benefits, (v) the breach of any covenant
or agreement of Seller contained in this Agreement, (vi) the
Retained Liabilities, (vii) the Retained Obligations to Employees
and (viii) the Seller Severance Obligations. Anything to the
contrary contained herein notwithstanding, none of Purchaser or its
officers, directors, agents or affiliates shall be entitled to
recover from Seller for any claims for indemnity or damages with
respect to any inaccuracy or breach of any representations or
warranties unless and until the total of all such claims in respect
of Losses pursuant to this Section 8.1(a)(i) exceeds $250,000 and
then only for 50% of the amount by which such claims exceed $250,000
but do not exceed $750,000 and then for 100% of the amount by which
such claims exceed $750,000; provided, however, that none of
Purchaser or its officers, directors, agents or affiliates shall be
entitled to recover from Seller more than $30 million in the
aggregate (the "Cap Amount") pursuant to this Section 8.1(a)(i).
(b) Indemnification by Purchaser and the Company. Subject to the limits
set forth in this Section 8.1, Purchaser and the Company jointly and
severally agree to indemnify, defend and hold Seller, its officers,
directors, agents and affiliates,
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<PAGE> 43
harmless from and in respect of any and all Losses that they may
incur (i) arising out of or due to any inaccuracy of any
representation or the breach of any warranty, covenant, undertaking
or other agreement of Purchaser contained in this Agreement, (ii)
arising out of any and all actions, suits, claims and administrative
or other proceedings of every kind and nature instituted or pending
against Seller or any of its affiliates at any time before or after
the Closing Date to the extent that such Losses (x) relate to or
arise out of or in connection with the assets, businesses,
operations, conduct, products and/or employees (including former
employees and specifically including, without limitation, Purchaser
Severance Obligations) of the Company, whether relating to or
arising out of or in connection with occurrences or omissions before
or after the Closing Date and (y) do not arise out of a breach of
Seller's representations and warranties in, or a default in the
performance of any of Seller's covenants under, this Agreement or do
not represent a Loss with respect to the Note, Retained Liabilities,
Retained Obligations to Employees, Retained Benefits or Seller
Severance Obligations, (iii) arising out of the breach after the
Closing Date by the Company of any license agreement with a third
party to which both Seller and the Company remain parties after the
Closing Date.
(c) Survival of Representations and Warranties. The several
representations and warranties of the parties contained in this
Agreement or in any instrument delivered pursuant hereto will
survive the Closing Date and will remain in full force and effect
thereafter (i) with respect to the representations contained in
Sections 2.1, 2.2, 2.3 and 2.4, indefinitely, (ii) with respect to
the representations contained in Section 2.11, until the expiration
of the applicable statute of limitations, (iii) with respect to the
representations contained in Section 2.16, for a period of five
years after the Closing Date and (iv) with respect to all other
representations and warranties, for a period of 18 months after the
Closing Date; provided, however, that such representations or
warranties shall survive (if at all) beyond such period with respect
to any inaccuracy therein or breach thereof, notice of which shall
have been duly given within such applicable period in accordance
with Section 8.1(d) hereof.
(d) Notice and Opportunity to Defend. If there occurs an event which a
party asserts is an indemnifiable event pursuant to Section 8.1(a)
or 8.1(b), the party seeking indemnification shall notify the other
party obligated to provide indemnification (the "Indemnifying
Party") promptly. If such event involves (i) any claim or (ii) the
commencement of any action or proceeding by a third person, the
party seeking indemnification will give such Indemnifying Party
prompt written notice of such claim or the commencement of such
action or proceeding; provided, however, that the failure to provide
prompt notice as provided herein will relieve
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<PAGE> 44
the Indemnifying Party of its obligations hereunder only to the
extent that such failure prejudices the Indemnifying Party
hereunder. In case any such action shall be brought against any
party seeking indemnification and it shall notify the Indemnifying
Party of the commencement thereof, the Indemnifying Party shall be
entitled to participate therein and, may elect, within 20 days of
receiving such notice, to assume the defense thereof, with counsel
reasonably satisfactory to such party seeking indemnification
(provided that the Indemnifying Party shall only be entitled to
assume the defense of such action (A) to the extent that the action
seeks only money damages the responsibility for which would not be
shared with Purchaser pursuant to Section 8.1(a) and which are not
in excess of the Cap Amount from, and not injunctive or other
equitable relief against, the party seeking indemnification, and (B)
if the Indemnifying Party first acknowledges in writing to the party
seeking indemnification that the party seeking indemnification is
entitled to indemnification under this Section 8.01 with respect to
such matter) and, after notice from the Indemnifying Party to such
party seeking indemnification of such election so to assume the
defense thereof, the Indemnifying Party shall not be liable to the
party seeking indemnification hereunder for any legal expenses of
other counsel or any other expenses subsequently incurred by such
party in connection with the defense thereof. The party seeking
indemnification agrees to cooperate fully with the Indemnifying
Party and its counsel in the defense against any such action or
asserted liability. The party seeking indemnification shall have the
right to participate at its own expense in the defense of such
action or asserted liability. In no event shall an Indemnifying
Party be liable for any settlement effected without its consent,
which consent shall not be unreasonably withheld. In no event shall
a party seeking indemnification be liable for any settlement
effected without its consent, which consent shall not be
unreasonably withheld, unless such settlement does not contain any
terms or conditions that are adverse to the interests of the party
seeking indemnification.
(e) Adjustment for Insurance and Taxes. The amount which an Indemnifying
Party is required to pay to, for or on behalf of any other party
(hereinafter referred to as an "Indemnitee") pursuant to this
Section 8.1 shall be adjusted (including, without limitation,
retroactively) (i) by any insurance proceeds actually recovered by
or on behalf of such Indemnitee in reduction of the related
indemnifiable loss (the "Indemnifiable Loss") and (ii) (A) reduced
by the present value of the amount of any Tax savings resulting from
any tax benefit to the party seeking indemnification (or, when such
party is Purchaser, the Company) as a result of the Indemnifiable
Loss, and (B) increased by the present value of the amount of any
Tax due with respect to the indemnification payment itself. Amounts
required to be paid, as so adjusted, are hereafter sometimes called
an "Indemnity Payment."
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<PAGE> 45
If an Indemnitee shall have received or shall have had paid on its
behalf an Indemnity Payment in respect of an Indemnifiable Loss and
shall subsequently receive insurance proceeds in respect of such
Indemnifiable Loss, or realize any net tax benefit (as computed in
clause (ii) above) as a result of such Indemnifiable Loss, then the
Indemnitee shall pay to the Indemnifying Party the amount of such
insurance proceeds or net tax benefit or, if lesser, the amount of
the Indemnity Payment.
2. Environmental Indemnification. Seller agrees to indemnify,
defend, and hold harmless Purchaser, its officers, directors, agents, and
affiliates from and in respect of any and all losses, damages, costs, and
reasonable expenses (including, without limitation, cleanup costs, removal
costs, and reasonable expenses of counsel), that they may incur arising under
applicable Environmental Laws out of or due to (i) the ownership, operation, use
or lease of any property or facility, other than those properties or facilities
set forth on Section 2.18 of the Disclosure Schedule, by the Company or any of
its predecessors or any of the Subsidiaries; (ii) the presence, on or prior to
the Closing Date, of stained soil or pavement at and around oil tanks, oil tank
piping, and air compressor blow down pipes at the three facilities operated by
the Company in the Dominican Republic; (iii) the exposure, on or prior to the
Closing Date, of employees or other persons to cotton dust at any facility owned
or operated by the Company or any of its predecessors or any of the
Subsidiaries; and (iv) 25% of the total out of pocket cost to Purchaser and the
Company of any removal of lead paint at the Upper Pelzer, South Carolina and
Lower Pelzer, South Carolina facilities that is peeling or damaged as of the
Closing Date (it being understood that, notwithstanding anything to the contrary
contained herein, Purchaser and the Company shall retain responsibility for 75%
of such cost). The environmental indemnification set forth in this Section 8.2
is not subject to the $25,000 threshold amount contained in the definition of
"Losses" in Section 8.1(a), the provisions of the last sentence of Section
8.1(a) or the Cap Amount. Purchaser and the Company shall (A) consult with
Seller with respect to any proposed investigatory, remedial or corrective action
for which Seller would be obligated to indemnify Purchaser pursuant to this
Section 8.2 and (B) so long as Seller acknowledges in writing that Purchaser is
entitled to indemnification pursuant to this Section 8.2 with respect to the
matters for which any investigatory, remedial or corrective action is proposed
to be taken, Purchaser and the Company shall not take any such action or incur
any costs with respect thereto without the prior written consent of Seller, such
consent not to be unreasonably withheld or delayed (provided that Purchaser and
the Company may take such action and incur such costs without Seller's prior
written consent to respond to any exigent circumstances that reasonably requires
the Company to act immediately to remedy or prevent a violation of, or to comply
with any obligation under, Environmental Laws, it being understood that
Purchaser and the Company shall at all times act in good faith to give effect to
the provisions of this Section 8.2 to the fullest extent possible consistent
with the constraints imposed by such exigent circumstances).
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<PAGE> 46
ARTICLE IX
MISCELLANEOUS
1. Fees and Expenses. Seller (and not the Company) shall bear its
own expenses and Purchaser shall bear its own expenses in connection with the
negotiation and consummation of the transactions contemplated by this Agreement.
Each of Seller and Purchaser shall bear the fees and expenses of any broker or
finder retained by such party in connection with the transactions contemplated
herein. Seller and Purchaser shall share equally the reasonable fees and
expenses of one counsel for the management of the Company in connection with
negotiating arrangements relating to their equity arrangements after the Closing
up to a maximum of $50,000 in the aggregate.
2. Governing Law. This Agreement shall be construed under and
governed by the laws of the State of Delaware without regard to the conflicts of
laws provisions thereof.
3. Amendment. This Agreement may not be amended, modified or
supplemented except upon the execution and delivery of a written agreement
executed by the party hereto.
4. No Assignment. Neither this Agreement nor any of the rights,
interests or obligations hereunder shall be assigned by any party hereto without
the prior written consent of the other party hereto; provided that Purchaser may
assign its rights and obligations under this Agreement (i) to any one of its
Affiliates without obtaining such consent, (ii) for collateral security purposes
to any lenders providing financing to Purchaser, the Company or any of their
Affiliates or Subsidiaries, and any such lender may exercise all of the rights
and remedies of Purchaser hereunder, and (iii) following the Closing, in
connection with any sale of all or substantially all of the assets, capital
stock or business of Purchaser or the Company, provided further, that, in the
case of clauses (i), (ii) and (iii) above, Purchaser shall not be released from
any of its obligations hereunder.
5. Waiver. Any of the terms or conditions of this Agreement which
may be lawfully waived may be waived in writing at any time by each party which
is entitled to the benefits thereof. Any waiver of any of the provisions of this
Agreement by any party hereto shall be binding only if set forth in an
instrument in writing signed on behalf of such party. No failure to enforce any
provision of this Agreement shall be deemed to or shall constitute a waiver of
such provision and no waiver of any of the provisions of this Agreement shall be
deemed to or shall constitute a waiver of any other provision hereof (whether or
not similar) nor shall such waiver constitute a continuing waiver.
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<PAGE> 47
6. Notices. All notices, requests, claims, demands and other
communications hereunder shall be in writing and shall be given by delivery, by
telex, telecopier, overnight courier or by mail (registered or certified mail,
postage prepaid, return receipt requested) to the respective parties as
follows:
If to Purchaser:
Gerber Childrenswear, Inc.
531 Main Street
Greenville, SC 29602
Attention: President
(803) 240-5977 (telecopier)
(803) 240-2840 (telephone)
with a copy to:
Citicorp Venture Capital, Ltd
399 Park Avenue
14th Floor, Zone 4
New York, New York 10022
Attention: John Weber
(212) 888-2940 (telecopier)
(212) 559-1127 (telephone)
and a copy to:
GCIH, Inc.
1333 Broadway
7th Floor
New York, New York 10018
Attention: Chairman
(212) 268-7364 (telecopier)
(212) 268-5100 (telephone)
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<PAGE> 48
and a copy to:
Kirkland & Ellis
153 East 53rd Street
New York, N.Y. 10022
Attention: Kirk A. Radke, Esq.
(212) 446-4900 (telecopier)
(212) 446-4940 (telephone)
If to Seller:
Gerber Products Company
445 State Street
Fremont, Michigan 49412
Attention: General Counsel
(616) 928-2331 (telecopier)
(616) 928-2000 (telephone)
with a copy to:
Skadden, Arps, Slate, Meagher & Flom
333 West Wacker Drive
Chicago, Illinois 60606
Attention: William R. Kunkel, Esq.
(312) 407-0411 (telecopier)
(312) 407-0700 (telephone)
or to such other address as any party hereto may, from time to time, designate
in a written notice given in like manner.
7. Complete Agreement. This Agreement, the Confidentiality
Agreement and the other documents and writings referred to herein or delivered
pursuant hereto contain the entire understanding of the parties with respect to
the subject matter hereof and thereof and supersede all prior agreements and
understandings, both written and oral, between the parties with respect to the
subject matter hereof and thereof. This Agreement shall be binding upon and
shall inure to the benefit of the parties hereto and their respective successors
and permitted assigns.
8. Counterparts. This Agreement may be executed in one or more
counterparts, all of which shall be considered one and the same agreement and
each of which shall be deemed an original.
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<PAGE> 49
9. Publicity. Seller and Purchaser will consult with each other and
will mutually agree upon any publication or press release of any nature with
respect to this Agreement or the transactions contemplated hereby and shall not
issue any such publication or press release prior to such consultation and
agreement except as may be required by applicable law or by obligations pursuant
to any listing agreement with any securities exchange or any securities exchange
regulation, in which case the party proposing to issue such publication or press
release shall use reasonable efforts to consult in good faith with the other
party before issuing any such publication or press release.
10. Headings. The headings contained in this Agreement are for
reference only and shall not affect in any way the meaning or interpretation of
this Agreement.
11. Knowledge. For purposes of this Agreement, the term "knowledge"
means, with respect to Purchaser, the actual knowledge of any senior executive
officer of Purchaser and, with respect to Seller, the actual knowledge of any
senior corporate executive officer of Seller.
12. Severability. Any provision of this Agreement which is invalid,
illegal or unenforceable in any jurisdiction shall, as to that jurisdiction, be
ineffective to the extent of such invalidity, illegality or unenforceability,
without affecting in any way the remaining provisions hereof in such
jurisdiction or rendering that or any other provision of this Agreement invalid,
illegal or unenforceable in any other jurisdiction.
13. Third Parties. Except as specifically set forth or referred to
herein, nothing herein expressed or implied is intended or shall be construed to
confer upon or give to any person or corporation, other than the parties hereto
and their permitted successors or assigns, any rights or remedies under or by
reason of this Agreement.
14. Specific Performance. Each of the parties acknowledges and
agrees that the other party would be damaged irreparably in the event any of the
provisions of this Agreement are not performed in accordance with their specific
terms or otherwise are breached. Accordingly, each of the parties agrees that
the other party shall be entitled to an injunction or injunctions to prevent
breaches of the provisions of this Agreement and to enforce specifically this
Agreement and the terms and provisions hereof in any action instituted in any
court having jurisdiction over the parties and the matter, in addition to any
other remedy to which they may be entitled, at law or in equity, and that such
injunction shall be available without the parties bringing suit being required
to post any bond or undertaking.
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<PAGE> 50
15. Dispute Resolution.
(a) Arbitration. In the event of disputes between the parties with
respect to the terms and conditions of this Agreement, such disputes
shall be resolved by and through an arbitration proceeding to be
conducted under the auspices of the American Arbitration Association
(the "AAA") in New York, New York pursuant to the AAA's Commercial
Arbitration Rules. Such arbitration proceeding shall be conducted in
as expedited a manner as is then permitted by those rules. The
arbitrator or arbitrators in any such arbitration (an "Arbitration")
shall be persons who are expert in the subject matter of the
dispute. Both the foregoing agreement of the parties to arbitrate
any and all such claims, and the results, determination, finding,
judgment and/or award rendered through such Arbitration, shall be
final and binding on the parties thereto and may be specifically
enforced by legal proceedings.
(b) Selection of Arbitrators. Seller shall appoint one (1) arbitrator,
and Purchaser one (1) arbitrator within a term of thirty (30)
calendar days from the date of any claim hereunder, and the two (2)
arbitrators so appointed shall appoint the third arbitrator, within
a term of thirty (30) calendar days from the date in which the last
of the two (2) arbitrators have been selected.
If either Seller or Purchaser fails to select its arbitrator within
the term mentioned above, or in the event that the two (2) selected arbitrators
are unable or unwilling to select a third arbitrator within fourteen (14)
calendar days following the selection of the last of them, then AAA shall select
the arbitrator that was not selected by either of Seller or Purchaser or the
third arbitrator as the case may be, in accordance with the procedure set forth
below, and the three (3) arbitrators shall constitute the arbitration panel for
purposes of the dispute.
(c) Procedure. Each party shall bear separately the cost of their
respective attorneys, witnesses and experts in connection with such
arbitration. Time is of the essence in this arbitration procedure,
and the arbitrators shall be instructed and required to render their
decision within ten (10) days following completion of the
Arbitration.
(d) Exclusive Remedy. Any and all legal proceedings to enforce this
Agreement (except for any action to compel arbitration hereunder,
any action to enforce any award or judgment rendered thereby, any
dispute resolution pursuant to Section 1.4 hereof or any action for
specific performance under Section 9.14), shall be governed in
accordance with this Section 9.15.
16. Confidentiality of Company Information. It is under stood that
Seller may have confidential information concerning the Company which, if known
to competitors thereof,
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<PAGE> 51
may damage the Company. Seller agrees that from and after the Closing Date,
Seller will not divulge to any third party any confidential information obtained
by Seller concerning the Company, including but not limited to customer and
supplier lists, marketing strategy, specifications, product information, sales
data, trade secrets and business information. The foregoing obligations shall
not apply to information which: (a) is or becomes part of the public domain
other than through breach of this Agreement by Seller, (b) is or becomes
available to Seller from any unaffiliated source which has no obligation of
confidentiality to Purchaser; or (c) is required to be disclosed by law or
governmental order (but only to the extent so required).
IN WITNESS WHEREOF, each of Purchaser and Seller have caused this
Agreement to be executed by their duly authorized officers as of the day and
year first above written.
GERBER PRODUCTS COMPANY
By
---------------------
Name:
Title:
GCIH, INC.
By
---------------------
Name:
Title:
<PAGE> 1
Exhibit 10.2
FORM OF EXECUTIVE STOCK PURCHASE AGREEMENT
EXECUTIVE STOCK PURCHASE AGREEMENT dated as of January 22, 1996, by
and among GCIH, INC., a Delaware corporation (the "Company"), Gerber
Childrenswear, Inc., a Delaware corporation ("GCI"), ______________ (the
"Executive") and Citicorp Venture Capital, Ltd., a New York corporation ("CVC").
The Company and the Executive desire to enter into an agreement that
will provide for (i) the employment of the Executive as ___________________ of
the Company, (ii) the acquisition by the Executive of ________ shares of the
Company's Class B Common Stock, par value $0.01 per share (the "Class B Common",
and (iii) the acquisition by the Executive of _______ shares of the Company's
Series A Preferred Stock, par value $0.01 per share (the "Series A Preferred")
upon the terms and conditions set forth herein. All of such shares of Class B
Common, Series A Preferred and all shares of capital stock hereafter acquired by
the Executive are referred to herein as "Executive Stock."
WHEREAS, the Company was formed for the purpose of acquiring all of
the outstanding capital stock of GCI, pursuant to the terms of that certain
stock purchase agreement ("Stock Purchase Agreement"), dated as of December 14,
1995, by and among the Company and Gerber Products Company, a Michigan
corporation (the "Seller").
The execution and delivery of this Agreement by the Company and the
Executive is a condition to the purchase of certain securities of the Company by
Citicorp Venture Capital, Ltd., a New York corporation ("CVC"), pursuant to a
securities purchase agreement, dated as of the date hereof (the "CVC Securities
Purchase Agreement"). Certain provisions of this Agreement are intended for the
benefit of, and will be enforceable by, CVC.
NOW, THEREFORE, the parties hereto agree as follows:
1. Definitions. As used herein, the following terms shall have the
following meanings.
"Affiliate" shall mean, as to any Person, any other Person which
directly or indirectly controls, or is under common control with, or is
controlled by, such Person. As used in this definition, "control" (including,
with its correlative meanings, "controlled by" and "under common control with")
shall mean possession, directly or indirectly, of power to direct or cause the
direction of management or policies (whether through ownership of securities or
partnership or other ownership interests, by contract or otherwise).
"Board" means the Company's board of directors.
"Book Value" of each share of Vesting Executive Stock shall be equal
to the quotient determined by dividing (A) the excess of Company's consolidated
assets over its consolidated liabilities as of the end of the fiscal quarter
immediately preceding the date of Executive's Termination, determined on a
consolidated basis in accordance with GAAP less the liquidation value of all of
the Company's outstanding preferred stock, if any by (B) the total number of
shares of Common Stock outstanding on a fully-diluted basis (including in such
calculation the aggregate
<PAGE> 2
conversion price an exercise price of all outstanding convertible securities,
options and warrants).
"Business Day" means any day other than a Saturday or Sunday or a
day on which commercial banks are required or authorized to close in New York,
New York.
"Cause" means (i) a material breach of this Agreement by the
Executive that is not susceptible to remedy or cure, or if susceptible to remedy
or cure, is not cured or remedied and continues for fifteen (15) Business Days
after the Board has given written notice to Executive specifying in reasonable
detail the manner in which Executive has breached this Agreement, (ii) the
determination by the Board, in the exercise of its reasonable judgment, that the
Executive committed a felony, a crime involving moral turpitude or other act
causing material harm to the standing and reputation of the Company or its
Subsidiaries in each case after notice to Executive and reasonable procedure for
Executive to state his case to the Board, (iii) the determination by the Board,
in the exercise of its reasonable judgment, that the Executive breached his duty
of loyalty to the Company and its Subsidiaries after notice to Executive and
reasonable procedure for Executive to state his case to the Board, or (iv) the
Executive's continued failure to perform his duties to the Company and its
Subsidiaries after written notice and, if susceptible to remedy or cure is not
cured or remedied and continues for fifteen (15) Business Days after the Board
has given written notice to the Executive specifying in reasonable detail the
manner in which the Executive has continued to fail to perform his duties.
"Common Stock" means the Class A Common, the Class B Common, the
Class C Common, and the Class D Common, as adjusted for any stock split, stock
dividend, share combination, share exchange, recapitalization, merger,
consolidation or other reorganization.
"Executive Stock" is defined in the preamble hereto and will include
shares of the Company's capital stock issued with respect to Executive Stock by
way of a stock split, stock dividend or other recapitalization. Executive Stock
will cease to be Executive Stock when transferred pursuant to a Qualified Public
Offering or Sale of the Company. Executive Stock will continue to be Executive
Stock in the hands of any holder other than the Executive, including all
transferees of the Executive (except for the Company and CVC (or its designee)),
and except as otherwise provided herein, each such other holder of Executive
Stock will succeed to all rights and obligations attributable to the Executive
as a holder of Executive Stock hereunder.
"GAAP" means U.S. generally accepted accounting principles, as in
effect from time to time and as adopted by the Company with the consent of its
independent public accountants, consistently applied.
"Original Cost" of each share Vesting Executive Stock purchased on
the date hereof will be equal to $1.00 per share.
"Permanent Disability" means Executive is unable to perform, by
reason of physical or mental incapacity, his duties or obligation under this
Agreement, for a period of ninety (90) consecutive days or a total period of one
hundred twenty (120) days in any three hundred sixty (360) day period.
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"Person" means an individual, a partnership, a corporation, an
association, a joint stock company, a trust, a joint venture, an unincorporated
organization or a governmental entity or any department, agency or political
subdivision thereof.
"Qualified Public Offering" means the sale, in an under-written
public offering registered under the Securities Act, of shares of the Company's
Common Stock having an aggregate value of at least $30 million.
"Registration Rights Agreement" means the Registration Rights
Agreement, dated as of the date hereof, by and among the Company, CVC and the
Executives and others, as in effect from time to time.
"Sale of the Company" means the sale of the Company, in a single
transaction or a series of related transactions, to a third party (which is not
an Affiliate of the Approving Stockholders) (a) pursuant to which such third
party proposes to acquire all or substantially all of the outstanding Common
Stock (whether by merger, consolidation, recapitalization, reorganization,
purchase of the outstanding Common Stock or otherwise) or all or substantially
all of the consolidated assets of the Company, (b) which has been approved by
the Board and holders of a majority of the outstanding shares of Common Stock
issued to CVC and its Affiliates, other than Citicorp Mezzanine Partners, L.P.,
a Delaware limited partnership ("CMP"), voting together as a single class (the
"Approving Stockholders"), and (c) pursuant to which all holders of Common Stock
receive with respect thereto (whether in such transaction or, with respect to an
asset sale, upon a subsequent liquidation) the same form and amount of
consideration per share of Common Stock or, if any holders are given an option
as to the form and amount of consideration to be received, all holders are given
the same option.
"Securities Act" means the Securities Act of 1933, as amended from
time to time.
"Stockholders Agreement" means the Stockholders Agreement, dated as
of the date hereof, by and among the Company, the Executives, CVC and others, as
in effect from time to time.
"Subsidiary" means, with respect to any Person, any corporation,
partnership, association or other business entity of which (i) if a corporation,
a majority of the total voting power of shares of stock 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 that Person or one or more of the other Subsidiaries of that
Person or a combination thereof, or (ii) if a partnership, association or other
business entity, a majority of the partnership or other similar ownership
interest thereof is at the time owned or controlled, directly or indirectly, by
any Person or one or more Subsidiaries of that Person or a combination thereof.
For purposes hereof, a Person or Persons shall be deemed to have a majority
ownership interest in a partnership, association or other business entity if
such Person or Persons shall be allocated a majority of partnership, association
or other business entity gains or losses or shall be or control the managing
director or general partner of such partnership, association or other business
entity.
"Termination Year" means that fiscal year of the Company during
which the Employment Period ends pursuant to the terms of Section 7(d) hereof.
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"Vesting Executive Stock" means the _______ shares of Class B Common
subject to vesting and stock issued in connection therewith, as adjusted for any
stock split, stock dividend, share combination, share exchange,
recapitalization, merger, consolidation or other reorganization. Vesting
Executive Stock will cease to be Vesting Executive Stock when transferred
pursuant to a Public Sale or Sale of the Company. Vesting Executive Stock will
continue to be Vesting Executive Stock in the hands of any holder other than the
Executive, including all transferees of the Executive (except for the Company
and CVC (or its designees)), and except as otherwise provided herein, each such
other holder of Vesting Executive Stock will succeed to all rights and
obligations attributable to the Executive as a holder of Executive Stock
hereunder.
2. Purchase and Sale of Executive Securities.
(a) Upon execution of this Agreement, the Executive will purchase,
and the Company will sell (i) ________ shares of Class B Common at a price of
$1.00 per share, (ii) ______ shares of Class B Common at a price of $__ per
share and (iii) _______ shares of Series A Preferred at a price of $100.00 per
share, for a total purchase price of $__________ (the "Purchase Price"). The
Company will deliver to the Executive certificates representing such shares, and
on the date hereof (the "Purchase Date"), the Executive will deliver to the
Company (or its designee) a check or wire transfer of immediately available
funds in an amount equal to the Purchase Price less the $______ partial payment
previously made by the Executive to the Company. The Purchase Date may be
extended at the option of the Company and CVC.
(b) Upon execution of this Agreement, the Executive shall execute
and deliver the Stockholders Agreement.
(c) With respect to the Vesting Executive Stock, within 30 days
after the Executive purchases any Vesting Executive Stock from the Company, the
Executive will make an effective election with the Internal Revenue Service
under Section 83(b) of the Internal Revenue Code and the regulations promulgated
thereunder in the form of Exhibit A attached hereto.
(d) In connection with the purchase and sale of the Executive Stock
hereunder, the Executive represents and warrants to the Company that:
(i) The Executive Stock to be acquired by the Executive
pursuant to this Agreement will be acquired for the Executive's own account and
not with a view to, or intention of, distribution thereof in violation of the
Securities Act, or any applicable state securities laws, and the Executive Stock
will not be disposed of in contravention of the Securities Act or any applicable
state securities laws.
(ii) No commission, fee or other remuneration is to be paid or
given, directly or indirectly, to any Person for soliciting the Executive to
purchase the Executive Stock.
(iii) The Executive is an executive officer of the Company, is
sophisticated in financial matters and is able to evaluate the risks and
benefits of the investment in the Executive Stock and has determined that such
investment in the Executive Stock is suitable for the Executive, based upon the
Executive's financial situation and needs, as well as the Executive's other
securities holdings.
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(iv) The Executive qualifies an "accredited investor" within
the meaning of Rule 501(a) of Regulation D under the Securities Act.
(v) The Executive:
(A) has not filed a registration statement which is the
subject of a currently effective registration stop order entered pursuant to any
state's securities law within the last five years;
(B) has not been convicted within the last five years of
any felony or misdemeanor in connection with the offer, purchase or sale of any
security or any felony involving fraud or deceit, including, but not limited to,
forgery, embezzlement, obtaining money under false pretenses, larceny or
conspiracy to defraud;
(C) is not currently subject to any state administrative
enforcement order or judgment entered by the state securities administrator
within the last five years or is subject to any state's administrative
enforcement order or judgment in which fraud or deceit, including, but not
limited to, making untrue statements of material facts and omitting to state
material facts, was found and the order or judgment was entered within the last
five years;
(D) is not subject to any state's administrative
enforcement order or judgment which prohibits, denies or revokes the use of any
exemption from registration in connection with the offer, purchase or sale of
securities; or
(E) is not currently subject to any order, judgment or
decree of any court of competent jurisdiction, entered within the last five
years, temporarily or preliminarily restraining or enjoining such party from
engaging in or continuing any conduct or practice in connection with the
purchase or sale of any security or involving the making of any false filing
with the state.
(vi) The Executive is able to bear the economic risk of the
Executive's investment in the Executive Stock for an indefinite period of time
and the Executive understands that the Executive Stock has not been registered
under the Securities Act and cannot be sold unless subsequently registered under
the Securities Act or an exemption from such registration is available.
(vii) The Executive has had an opportunity to ask questions
and receive answers concerning the terms and conditions of the offering of
Executive Stock and has had full access to such other information concerning the
Company as the Executive has requested. The Executive has reviewed, or has had
an opportunity to review, the following documents: (A) the Stock Purchase
Agreement; (B) the Company's Certificate of Incorporation and Bylaws; (C) the
loan agreements, notes and related documents with the Company's senior lenders;
(D) the loan agreement, notes and related documents with the Company's senior
subordinated lender; and (E) all of the materials provided by the Company to any
Person providing financing to the Company, including, but not limited to, the
Company's pro forma balance sheet, as well as financial projections, estimates,
forecasts, budgets, summaries, reports and other related documents.
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(viii) This Agreement constitutes the legal, valid and binding
obligation of the Executive, enforceable in accordance with its terms, and the
execution, delivery and performance of this Agreement by the Executive does not
and will not conflict with, violate or cause a breach of any agreement, contract
or instrument to which the Executive is a party or any judgment, order or decree
to which the Executive is subject.
(e) As an inducement to the Company to issue the Executive Stock to
the Executive, and as a condition thereto, the Executive acknowledges and agrees
that neither the issuance of the Executive Stock to the Executive nor any
provision contained herein shall entitle the Executive to remain in the
employment of the Company and its Subsidiaries or affect the right of the
Company to terminate the Executive's employment at any time for any reason.
3. Vesting of Executive Stock. (a) (i) ________ shares of the Class B
Common evidenced by certificates and stock issued in connection therewith and
acquired by the Executive hereunder and (ii) 1,188.4 shares of Series A
Preferred evidenced by certificates and stock issued in connection therewith are
fully vested as of the date hereof and are not subject to the terms of Section 4
below. The Vesting Executive Stock originally acquired by the Executive will
become vested in accordance with the following schedule if, as of each such
date, the Executive is still employed by the Company or its Subsidiaries.
Cumulative Percentage of Shares
of Vesting Executive
Date Stock Which Will Vest
- ------------------------------------------------ -------------------------------
First anniversary of the date hereof ("Year 1") 20%
Second anniversary of the date hereof ("Year 2") 40%
Third anniversary of the date hereof ("Year 3") 60%
Fourth anniversary of the date hereof ("Year 4") 80%
Fifth anniversary of the date hereof ("Year 5") 100%
If after the first anniversary of the date hereof, the Executive
ceases to be employed by the Company or its Subsidiaries for any reason,
including the death or permanent disability of the Executive, the cumulative
percentage of the Vesting Executive Stock to become vested will be determined on
a pro rata basis according to the number of days elapsed since the prior
anniversary date.
(b) Shares of Vesting Executive Stock which have become vested are
referred to herein as "Vested Shares," and all other shares of Vesting Executive
Stock are referred to herein as "Unvested Shares."
4. Repurchase Option on Vesting Executive Stock. In the event the
Executive ceases to be employed by the Company and its Subsidiaries for any
reason (the "Termination"), the Vesting Executive Stock (whether held by the
Executive or one or more of the Executive's transferees) will be subject to
repurchase by the Company and CVC (or its designees) pursuant to the terms and
conditions set forth in this Section 4 (the "Repurchase Option").
(a) (i) The purchase price for each Unvested Share of Vesting
Executive Stock will be the Executive's Original Cost for such share; (ii) the
purchase price for each Vested Share
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<PAGE> 7
of Vesting Executive Stock will be the Book Value for such share; and (iii)
notwithstanding the foregoing, if the Executive's Termination was for Cause,
then the purchase price for each Vested Share and each Unvested Share will be
the Executive's Original Cost.
(b) In the event that the Company or CVC exercises the Repurchase
Option and an Approved Sale or Qualified Public Offering (each a "Qualified
Transfer") occurs within one (1) year following the Executive's Termination, the
purchase price received by the Executive pursuant to the terms of Section
4(a)(ii) above shall be increased (but not decreased) by an amount (the
"Repurchase Price Adjustment") equal to (i), in the case of an Approved Sale,
the difference between the Book Value received for each share and the price per
share which the Executive would have received had the Executive held such shares
at the time of the Qualified Transfer and (ii) in the case of a Qualified Public
Offering, the net price received by the Company in connection therewith assuming
(for purposes of this calculation only) that as of such date Executive's Vesting
Executive Stock remained outstanding. The Repurchase Price Adjustment shall be
payable by the Company to the Executive upon consummation of a Qualified
Transfer.
(c) The Board may elect to cause the Company to purchase (i) all or
a portion of the Unvested Shares and/or, (ii) all or a portion of the Vested
Shares by delivering written notice (the "Repurchase Notice") to the holder or
holders of the Vesting Executive Stock within 90 days after the Termination. The
Repurchase Notice will set forth the number of Unvested Shares and Vested Shares
to be acquired from each holder, the aggregate consideration to be paid for such
securities and the time and place for the closing of the transaction. The number
of shares of Vesting Executive Stock to be repurchased by the Company shall
first be satisfied to the extent possible from the Vesting Executive Stock held
by the Executive at the time of delivery of the Repurchase Notice. If the shares
of Vesting Stock then held by the Executive are less than the total number of
shares of Vesting Executive Stock the Company has elected to purchase the
Company shall purchase the remaining Vesting Executive Stock elected to be
purchased from the other holder(s) of Executive Stock, pro rata according to the
amount of such Vesting Executive Stock held by such other holder(s) at the time
of delivery of such Repurchase Notice (determined as nearly as practicable to
the nearest share). The number of Unvested Shares and Vested Shares to be
repurchased hereunder will be allocated among the Executive and the other
holders of Vesting Executive Stock (if any) pro rata according to the number of
shares of Vesting Executive Stock to be purchased from such Persons.
(d) If for any reason the Company does not elect to purchase all of
the shares of Vesting Executive Stock that are subject to such Repurchase
Option, pursuant to the Repurchase Option, CVC (or its designees) shall be
entitled to exercise the Repurchase Option for the Vesting Executive Stock the
Company has not elected to purchase (the "Available Securities"). Of the
Available Securities, the Vested Shares are referred to herein as "Available
Vested Shares" and Unvested Shares are referred to herein as "Available Unvested
Shares". As soon as practicable after the Company has determined that there will
be Available Securities, but in any event within 180 days after the Termination,
the Company shall give written notice (the "Option Notice") to CVC (or its
designees) setting forth the number of Available Vested Shares, Available
Unvested Shares, and the purchase price for each of such Available Securities.
CVC (or its designees) may elect to purchase all or a portion of (i) Available
Vested Shares, and/or (ii) all or a portion of the Available Unvested Shares by
giving written notice to the Company within 90 days after the Option Notice has
been given by the Company. As soon as practicable, and in any event within ten
days after the
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<PAGE> 8
expiration of the 90-day period set forth above, the Company shall notify each
holder of Vesting Executive Stock as to the number of Vested Shares or Unvested
Shares being purchased from such holder by CVC (or its designees) (the
"Supplemental Repurchase Notice"). At the time the Company delivers the
Supplemental Repurchase Notice to the holder(s) of such Vesting Executive Stock,
the Company shall also deliver written notice to CVC (or its designees) setting
forth the number of Vested Shares and Unvested Shares which CVC (or its
designees) is entitled to purchase, the aggregate purchase price and the time
and place of the closing of the transaction.
(e) The closing of the purchase of the Vesting Executive Stock
pursuant to the Repurchase Option shall take place on the date designated by the
Company in the Repurchase Notice or Supplemental Repurchase Notice, which date
shall not be later than the 60th day after the delivery of the later of such
notices to be delivered (or, if later, the 15th day after the Book Value is
finally determined) nor earlier than the fifth day after such delivery. The
Company and/or CVC (or its designee) will pay for the Vesting Executive Stock to
be purchased pursuant to the Repurchase Option by delivery of a certified or
cashier's check or wire transfer of funds. The purchasers of Vesting Executive
Stock hereunder will be entitled to receive customary representations and
warranties from the sellers as to title, authority and capacity to sell and to
require all sellers' signatures to be guaranteed.
(f) Notwithstanding anything to the contrary contained in this
Agreement, all repurchases of Vesting Executive Stock by the Company shall be
subject to applicable restrictions contained in the Delaware General Corporation
Law. If any such restrictions prohibit the repurchase of Vesting Executive Stock
hereunder which the Company is otherwise entitled to make, the Company may make
such repurchases as soon as it is permitted to do so under such restrictions.
5. Restrictions on Transfer.
(a) The Executive Stock will bear the following legend:
"THE SECURITIES REPRESENTED BY THIS CERTIFICATE HAVE NOT BEEN
REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED (THE "ACT"),
AND MAY NOT BE SOLD OR TRANSFERRED IN THE ABSENCE OF AN EFFECTIVE
REGISTRATION STATEMENT UNDER THE ACT OR AN EXEMP TION FROM
REGISTRATION THEREUNDER. THE SECURITIES REPRESENTED BY THIS
CERTIFICATE ARE ALSO SUBJECT TO ADDITIONAL RESTRICTIONS ON TRANSFER,
CERTAIN REPURCHASE OPTIONS AND CERTAIN OTHER AGREEMENTS SET FORTH IN
AN EXECUTIVE STOCK PURCHASE AGREEMENT BETWEEN THE COMPANY AND THE
SIGNATORY THERETO DATED AS OF JANUARY 22, 1996. A COPY OF SUCH
AGREEMENT MAY BE OBTAINED BY THE HOLDER HEREOF AT THE COMPANY'S
PRINCIPAL PLACE OF BUSINESS WITHOUT CHARGE."
(b) No holder of Executive Stock may sell, transfer or dispose of
any shares of Executive Stock (except pursuant to an effective registration
statement under the Securities Act) without first delivering to the Company an
opinion of counsel (reasonably acceptable in form and
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<PAGE> 9
substance to the Company) that neither registration nor qualification under the
Securities Act and applicable state securities laws is required in connection
with such transfer.
(c) Each holder of Executive Stock agrees not to effect any public
sale or distribution of any Executive Stock or other equity securities of the
Company, or any securities convertible into or exchangeable or exercisable for
any of the Company's equity securities, during the seven days prior to and the
180 days after the effectiveness of any underwritten public offering, except as
part of such underwritten public offering or if otherwise permitted by the
Company.
6. Representations and Warranties of the Company. The Company hereby
represents and warrants to the Executive that:
(a) Immediately following the consummation of the transactions
contemplated hereby, the authorized capital stock of the Company shall consist
of (i) 661,655.1 shares of Class A Common Stock, par value $0.01 per share (the
"Class A Common") of which 661,655.1 shares shall be issued and outstanding,
(ii) 144,594.9 shares of Class B Common, of which 144,594.9 shares shall be
issued and outstanding, (iii) 2,500.0 shares of Class C Common Stock, par value
$0.01 per share (the "Class C Common") of which 2,500.0 shares shall be issued
and outstanding, (iv) 191,250.0 shares of Class D Common Stock, par value $0.01
per share (the "Class D Common") of which 191,250.0 shares shall be reserved for
issuance upon exercise of the Warrant held by Citicorp Mezzanine Partners, L.P.,
a Delaware limited partnership, and (v) 117,402.5 shares of Series A Preferred
of which 117,402.5 shares shall be issued and outstanding. Except as set forth
in this Section 6(a) and except for capital stock of the Company's Subsidiaries
owned directly or indirectly by the Company, as of immediately following the
consummation of the transactions contemplated hereby, neither the Company nor
any Subsidiary shall have outstanding any stock or securities convertible or
exchangeable for any shares of its capital stock or containing any profit
participation features, nor shall it have outstanding any rights or options to
subscribe for or to purchase its capital stock or any stock or securities
convertible into or exchangeable for its capital stock or any stock appreciation
rights or phantom stock plans. As of immediately following the consummation of
the transactions contemplated hereby, all of the outstanding shares of the
Company's capital stock shall be validly issued, fully paid and nonassessable.
(b) There are no statutory or contractual stockholders preemptive
rights or rights of refusal with respect to the issuance of the Executive Stock
hereunder. The Company has not violated any applicable federal or state
securities laws in connection with the offer, sale or issuance of any of its
capital stock, and the offer, sale and issuance of the Executive Stock hereunder
do not require registration under the Securities Act or any applicable state
securities laws. To the best of the Company's knowledge, there are no agreements
between the Company's stockholders with respect to the voting or transfer of the
Company's capital stock or with respect to any other aspect of the Company's
affairs, except for (i) the Stockholders Agreement, (ii) the Registration Rights
Agreement and (iii) the Executive Stock Purchase Agreements dated as of the date
hereof by and between the Company and certain employees of the Company.
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7. Employment.
(a) Employment. The Company agrees to employ the Executive, and the
Executive hereby accepts employment with the Company, upon the terms and
conditions set forth in this Agreement for the period beginning on the Purchase
Date and ending as provided in Section 7(d) (the "Employment Period").
(b) Position and Duties.
(i) Commencing on the Closing Date and continuing during the
Employment Period, Executive shall serve as ___________ of the Company under the
supervision and direction of the Company's and GCI's respective boards of
directors.
(ii) The Executive shall devote his best efforts and his full
business time and attention (except for permitted vacation periods and
reasonable periods of illness or other incapacity which does not constitute
Permanent Disability) to the business and affairs of the Company, GCI and its
Subsidiaries. The Executive shall perform his duties and responsibilities to the
best of his abilities in a diligent, trustworthy, businesslike and efficient
manner. The Executive shall not be required to change his principal residence
from the New York metropolitan area.
(c) Base Salary and Benefits.
(i) In order to induce the Executive to enter this Agreement
and commence employment hereunder, the Company shall pay to the Executive a
bonus payment of $______ (the "Signing Bonus") on the Purchase Date. The Signing
Bonus shall be payable in a single installment, and shall be subject to
customary withholding.
(ii) During the Employment Period, Executive's base salary
shall be $_______ per annum (the "Base Salary"), which salary shall be payable
in regular installments in accordance with the Company's general payroll
practices and shall be subject to customary withholding.
(iii) Executive Bonus. (A) As soon as practicable following
the execution of this Agreement, the Board shall, in good faith, adopt an
incentive performance plan based on discussions with the Executive and
management and based upon the pro forma plans and projections which management
has previously submitted to the Company (the "1996 Plan"). If the criteria of
the 1996 Plan are completely achieved, the Executive's bonus (in any year, the
"Bonus") for the fiscal year ended December 31, 1996 (the "1996 Bonus") shall be
determined in accordance with the provisions of the 1996 Plan, and shall not be
less than $148,000.
(B) Thereafter during the Employment Period and promptly
following the end of each fiscal year, the Board will engage in similar
discussions with the Executive and management and shall in good faith, adopt
annual incentive performance plans.
(iv) In addition to the Base Salary and any Bonuses payable to
the Executive pursuant to Section 7(c), Executive shall be entitled, during the
Employment Period, to the following benefits (collectively, "Benefits"):
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(A) The Executive shall be entitled to participate in
all of the Company's or the Subsidiaries' employee benefit programs for which
senior executive employees of the Company or its Subsidiaries are generally
eligible on the same terms and conditions as such senior executive employees;
(B) The Company will pay the premiums on a term life
insurance policy in the amount of $625,000, to be obtained by the Executive for
the benefit of the Executive or such other beneficiary as the Executive shall
name therein; and
(C) The Company will pay the dues of the Executive for
the Executive's membership in the Harmonie Club and any reasonable business
expenses related thereto.
(v) The Company shall reimburse the Executive for all
reasonable expenses incurred by him in the course of performing his duties under
this Agreement which are consistent with the Company's and its Subsidiaries'
policies in effect from time to time with respect to travel, entertainment and
other business expenses, subject to the Company and its Subsidiaries'
requirements with respect to reporting and documentation of such expenses.
(d) Term.
(i) The Employment Period shall end on January 22, 2001,
subject to earlier termination (A) by reason of the Executive's death or
Permanent Disability, (B) by resolution of the directors constituting a majority
of the Board's voting power, with or without Cause or (C) upon the Executive's
voluntary resignation.
(ii) Termination for Cause. If the Employment Period is
terminated by the Company for Cause, the Executive shall be entitled to his Base
Salary through the date of termination, but shall not be entitled to any further
Base Salary or any Bonus or Benefits for that year or any future year, or to any
severance compensation of any kind, nature or amount.
(iii) Death or Disability. If Executive's employment is
terminated as a result of his death or Permanent Disability, the Company shall
pay to Executive or his estate, as applicable, (A) all previously earned and
accrued but unpaid Base Salary up to the date of such termination and for
eighteen (18) months following the date of such termination determined for such
period pursuant to the terms of Section 7(c)(ii) above, and (B) an amount equal
to his Bonus for the year preceding the Termination Year, proportionately
reduced based upon the number of days remaining in the Termination Year after
the date of Termination; provided in each case, however, that neither Executive
nor his estate shall be entitled to any further Base Salary or any Bonus or
Benefits for that year or any future year.
(iv) Resignation. If the Employment Period terminates as a
result of Executive's voluntary resignation, the Executive shall be entitled to
his Base Salary through the date of termination, but shall not be entitled to
any further Base Salary or any Bonus or Benefits for that year or any future
year, or to any severance compensation of any kind, nature or amount.
(v) Termination Without Cause. Subject to paragraph 7(d)(vi),
if the Employment Period is terminated other than pursuant to paragraphs (ii),
(iii), or (iv) above,
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Executive shall be entitled to (A) all previously earned and accrued but unpaid
Base Salary up to the date of such termination, and for eighteen (18) months
following the date of such termination determined for such period pursuant to
the terms of Section 7(c)(ii) above, and (B) an amount equal to his Bonus for
the year preceding the Termination Year, proportionately reduced based upon the
number of days remaining in the Termination Year after the date of Termination;
provided in each case, however, that the Executive shall not be entitled to any
further Base Salary or any Bonus or Benefits for that year or any future year.
(vi) Executive agrees that Executive shall be entitled to the
payments provided for in paragraph 7(d)(v) if and only if Executive has not
breached as of the date of termination of the Employment Period the provisions
of Sections 8, 9 and 10 hereof and does not breach such sections at any time
during the period for which such payments are to be made; provided, that the
Company's obligation to make such payments will terminate upon the occurrence of
any such breach during such severance period.
(vii) Any payments pursuant to this Section 7(d) shall be made
in monthly installments on the payment dates on which Executive's Base Salary
would have otherwise been paid if the Employment Period had continued, and as of
the date of the final such payment none of the Company, or any of its
Subsidiaries shall have any further obligation to Executive pursuant to this
Section 7(d) except as provided by law. In the event that the Company fails to
tender to the Executive two (2) payments pursuant to this Section 7(d) within
five Business Days of when such payment was due pursuant to the terms of the
preceding sentence (each an "Untendered Severance Payment"), the Company shall
accelerate all remaining payments due to the Executive pursuant to this Section
7(d) (the "Accelerated Severance Payments"). The Accelerated Severance Payments
shall be payable by the Company to the Executive in one installment no later
than five Business Days following the date that the last Untendered Severance
Payment was due to be paid to the Executive.
(viii) Executive hereby agrees that no severance compensation
of any kind, nature or amount shall be payable to Executive except as expressly
set forth in this Section 7(d), and except for such payments, Executive hereby
irrevocably waives any claim for severance compensation.
(ix) All of Executive's rights to Benefits and Bonuses
hereunder (if any) accruing after the termination of the Employment Period shall
cease upon such termination.
(x) All obligations of the Company to the Executives under
this Section 7 will be deemed the joint and several obligations of the Company
and GCI.
8. Confidential Information. The Executive acknowledges that the
information, observations and data obtained by him while employed by the Company
or any of its Subsidiaries concerning the business or affairs of the Company or
any Subsidiary ("Confidential Information") are the property of the Company or
such Subsidiary. Therefore, Executive agrees that he shall not disclose to any
unauthorized person or use for his own account any Confidential Information
without the prior written consent of the Board, unless and to the extent that
the aforementioned matters become generally known to and available for use by
the public other than as a result of Executive's acts or omissions to act.
Executive shall deliver to the Company at the termination of such
-12-
<PAGE> 13
Executive's employment, or at any other time the Company may request, all
memoranda, notes, plans, records, reports, computer tapes and software and other
documents and data (and copies thereof) relating to the Confidential
Information, Work Product (as defined below) and the business of the Company or
any Subsidiary which he may then possess or have under his control.
9. Inventions and Patents. Executive agrees that all inventions,
innovations, improvements, developments, methods, designs, analyses, drawings,
reports, and all similar or related information which relates to the Company's
or any of its Subsidiaries' actual or anticipated business, research and
development or existing or future products or services and which are conceived,
developed or made by Executive while employed by the Company or any of its
Subsidiaries ("Work Product") belong to the Company or such Subsidiary.
Executive will promptly disclose such Work Product to the Board and perform all
actions reasonably requested by the Board (whether during or after Executive's
employment period) to establish and confirm such ownership (including, without
limitation, assignments, consents, powers of attorney and other instruments).
10. Non-compete, Non-solicitation.
(a) Executive acknowledges that in the course of his employment with
the Company and its Subsidiaries he has become familiar, and he will become
familiar, with the Company's and its Subsidiaries' trade secrets and with other
Confidential Information and that his services have been and will be of special,
unique and extraordinary value to the Company and its Subsidiaries. Therefore,
Executive agrees that, during the time he is employed by the Company and its
Subsidiaries and for eighteen months thereafter if the Executive is entitled to
receive any payments pursuant to the terms of Section 7(d) hereof (the
"Noncompete Period"), he shall not directly or indirectly own, operate, manage,
control, participate in, consult with, advise, services for, or in any manner
engage in any business (including by himself or in association with any person,
firm, corporate or other business organization or through any other entity) in
competition with, or potential competition with, the businesses of the Company
or its Subsidiaries as such businesses exist or are in process on the date of
the termination of Executive's employment, within any geographical area in which
the Company or its Subsidiaries engage or plan to engage in such businesses.
Nothing herein shall prohibit Executive from being a passive owner of not more
than 2% of the outstanding stock of a corporation which is publicly traded, so
long as Executive has no active participation in the business of such
corporation. For purposes of this Section 10(a), the Non- Compete Period shall
terminate and the Executive shall be released from his obligations under this
Section 10(a), if at any time after a Termination an Executive who is eligible
to receive payments pursuant to the terms of Section 7(d) hereof irrevocably and
unconditionally waives in writing all rights to such payments.
(b) During the Noncompete Period, Executive shall not directly or
indirectly through another entity (i) induce or attempt to induce any employee
of the Company or any Subsidiary to leave the employ of the Company or such
Subsidiary, or in any way interfere with the relationship between the Company or
any Subsidiary and any employee thereof, including without limitation, inducing
or attempting to induce any union, employee or group of employees to interfere
with the business or operations of the Company or its Subsidiaries, (ii) hire
any person who was an employee of the Company or any Subsidiary at any time
during the Executive's employment period, or (iii) induce or attempt to induce
any customer, supplier, distributor, franchisee, licensee or other business
relation of the Company or any Subsidiary to cease doing business with the
Company or
-13-
<PAGE> 14
such Subsidiary, or in any way interfere with the relationship between any such
customer, supplier, distributor, franchisee, licensee or business relation and
the Company or any Subsidiary. For purposes of Section 10(b)(ii) and (iii), the
Non-Compete Period shall terminate and the Executive shall be released from his
obligations under Section 10(b)(ii) and (iii) if at any time after a Termination
an Executive who is eligible to receive payments pursuant to the terms of
Section 7(d) hereof irrevocably and unconditionally waives in writing all rights
to such payments.
(c) Executive agrees that: (i) the covenants set forth in this
Section 10 are reasonable in geographical and temporal scope and in all other
respects, (ii) the Company would not have entered into this Agreement but for
the covenants of Executive contained herein, and (iii) the covenants contained
herein have been made in order to induce the Company to enter into this
Agreement.
(d) If, at the time of enforcement of this Section 10, a court shall
hold that the duration, scope or area restrictions stated herein are
unreasonable under circumstances then existing, the parties agree that the
maximum duration, scope or area reasonable under such circumstances shall be
substituted for the stated duration, scope or area and that the court shall be
allowed to revise the restrictions contained herein to cover the maximum period,
scope and area permitted by law.
(e) Executive recognizes and affirms that in the event of his breach
of any provision of this Section 10, money damages would be inadequate and the
Company and CVC would have no adequate remedy at law. Accordingly, Executive
agrees that in the event of a breach or a threatened breach by Executive of any
of the provisions of this Section 10, the Company, in addition and supplementary
to other rights and remedies existing in its favor, may apply to any court of
law or equity of competent jurisdiction for specific performance and/or
injunctive or other relief in order to enforce or prevent any violations of the
provisions hereof (without posting a bond or other security).
11. Notices. All notices, demands or other communications to be given or
delivered under or by reason of the provisions of this Agreement will be in
writing and will be deemed to have been given when delivered personally, mailed
by certified or registered mail, return receipt requested and postage prepaid,
or sent via a nationally recognized overnight courier, or sent via facsimile to
the recipient with a confirmation of receipt and accompanied by a certified or
registered mailing. Such notices, demands and other communications will be sent
to the address indicated below:
To the Company:
GCIH, Inc.
531 Main Street
Greenville, S.C. 29602
Attention: President
Telecopy No.: (803) 240-5977
-14-
<PAGE> 15
With a copy to:
Citicorp Venture Capital, Ltd.
399 Park Avenue
14th Floor
New York, NY 10043
Attention: John Weber
Telecopy No.: (212) 888-2940
To the Executive:
c/o Gerber Childrenswear, Inc.
1333 Broadway, 7th Floor
New York, New York 10018
Attention: [Executive]
Telecopy No.: (212) 268-7364
With a copy to:
[Executive's Counsel]
---------------------
---------------------
---------------------
Attention: _________
Telecopy No.: _______
To CVC:
Citicorp Venture Capital
399 Park Avenue
14th Floor
New York, NY 10043
Attention: John Weber
Telecopy No.: (212) 888-2940
With a copy to:
Kirkland & Ellis
153 East 53rd Street
New York, NY 10022
Attention: Kirk A. Radke, Esq.
Telecopy No.: (212) 446-4900
or such other address or to the attention of such other person as the recipient
party shall have specified by prior written notice to the sending party.
-15-
<PAGE> 16
12. Miscellaneous.
(a) Transfers in Violation of Agreement. Any Transfer or attempted
Transfer of any Executive Stock in violation of any provision of this Agreement
shall be null and void, and the Company shall not record such Transfer on its
books or treat any purported transferee of such Executive Stock as the owner of
such securities for any purpose.
(b) Severability. Whenever possible, each provision of this
Agreement will be interpreted in such manner as to be effective and valid under
applicable law, but if any provision of this Agreement is held to be invalid,
illegal or unenforceable in any respect under any applicable law or rule in any
jurisdiction, such invalidity, illegality or unenforceability will not affect
any other provision or any other jurisdiction, but this Agreement will be
reformed, construed and enforced in such jurisdiction as if such invalid,
illegal or unenforceable provision had never been contained herein.
(c) Complete Agreement. This Agreement, the Stockholders Agreement,
the Registration Rights Agreement and the Letter Agreement dated as of January
22, 1996 between the Executive, the Company and CVC embody the complete
agreement and understanding among the parties and supersede and preempt any
prior understandings, agreements or representations by or among the parties,
written or oral, which may have related to the subject matter hereof in any way.
(d) Counterparts. This Agreement may be executed in separate
counterparts, each of which is deemed to be an original and all of which taken
together constitute one and the same agreement.
(e) Successors and Assigns. Except as otherwise provided herein,
this Agreement shall bind and inure to the benefit of and be enforceable by the
Executive, the Company, CVC and their respective successors and assigns
(including subsequent holders of Executive Stock); provided that the rights and
obligations of the Executive under this Agreement shall not be assignable except
in connection with a permitted transfer of Executive Stock hereunder.
(f) Third Party Beneficiary. This Agreement is intended for the
benefit of, and will be enforceable by, CVC.
(g) Governing Law. The corporate law of the State of Delaware will
govern all questions concerning the relative rights of the Company and its
stockholders. All other questions con cerning the construction, validity and
interpretation of this Agreement and the exhibits hereto will be governed by and
construed in accordance with the domestic laws of the State of New York, without
giving effect to any choice of law or conflict of law provision or rule (whether
of the State of New York or any other jurisdiction) that would cause the
application of the laws of any jurisdiction other than the State of New York.
(h) Remedies. Each of the parties to this Agreement (including CVC)
will be entitled to enforce its rights under this Agreement specifically, to
recover damages and costs (including reasonable attorneys' fees) caused by any
breach of any provision of this Agreement and to exercise all other rights
existing in its favor. The parties hereto agree and acknowledge that money
damages may not be an adequate remedy for any breach of the provisions of this
Agreement
-16-
<PAGE> 17
and that any party may in its sole discretion apply to any court of law or
equity of competent jurisdiction (without posting any bond or deposit) for
specific performance and/or other injunctive relief in order to enforce or
prevent any violations of the provisions of this Agreement.
(i) Amendment and Waiver. The provisions of this Agreement may be
amended and waived only with the prior written consent of the Company, the
Executive and CVC.
* * * * *
-17-
<PAGE> 18
IN WITNESS WHEREOF, the parties hereto have executed this Executive
Stock Purchase Agreement as of the date first written above.
GCIH, INC.
By: /s/ Richard Solar
---------------------------------
Name: Richard Solar
Title: Senior Vice President
GERBER CHILDRENSWEAR, INC.
By: /s/ David H. Jones
---------------------------------
Name: David H. Jones
Title: President
---------------------------------
[EXECUTIVE]
Agreed and Accepted:
CITICORP VENTURE CAPITAL, LTD.
By:
-----------
Name:
Title:
<PAGE> 19
CONSENT OF SPOUSE
The undersigned spouse of the Executive named in the attached
Agreement has read and understands the terms of the Agreement and has had an
opportunity to discuss it with individuals of her choice. The undersigned
understands that even if the securities referred to in the Agreement are
considered to be a part of the "marital property" belonging to her and the
Executive, the Agreement restricts the transfer or distribution of those
securities to anyone other than the Executive, a "Permitted Transferee" as such
term is defined in the Stockholders Agreement, the company which issued the
securities and certain other persons. The undersigned agrees to these
restrictions and waives any rights (other than to the economic value of such
securities) she might otherwise have in those shares as specifically
identifiable property.
------------------
(Signature)
------------------
(Print Name)
-19-
<PAGE> 20
EXHIBIT A
______, 1996
ELECTION TO INCLUDE STOCK AND NOTES IN GROSS
INCOME PURSUANT TO SECTION 83(b) OF THE
INTERNAL REVENUE CODE
The undersigned purchased shares of Common Stock, par value $0.01
per share (the "Shares"), of GCIH, Inc. (the "Company") on January __, 1996.
Under certain circumstances, the Company has the right to repurchase the Shares
at cost from the undersigned (or from the holder of the Shares, if different
from the undersigned) should the undersigned cease to be employed by the Company
and its subsidiaries. Hence, the Shares are subject to a substantial risk of
forfeiture and are non-transferable. The undersigned desires to make an election
to have the Shares taxed under the provision of Code ss.83(b) at the time he
purchased the Securities.
Therefore, pursuant to Code ss.83(b) and Treasury Regula tion
ss.1.83-2 promulgated thereunder, the undersigned hereby makes an election, with
respect to the Shares (described below), to report as taxable income for
calendar year 1996 the excess (if any) of the Shares' fair market value on
January __, 1996 over the purchase price thereof.
The following information is supplied in accordance with Treasury
Regulation ss.1.83-2(e):
1. The name, address and social security number of the
undersigned:
Name:
-------------------------------
Address:
---------------------------------
---------------------------------
SSN:
---------------------------------
2. A description of the property with respect to which the election
is being made: _________ shares of GCIH, Inc. Common Stock, par value $0.01 per
share.
3. The date on which the property was transferred: January ___,
1996. The taxable year for which such election is made: calendar 1996.
4. The restrictions to which the property is subject: If during the
first five years after the purchase of the Shares the undersigned ceases to be
employed by the Company or any of its subsidiaries, the unvested portion of the
Shares will be subject to repurchase by the Company at cost, and at any time
prior to a public offering by the Company or a sale of the Company the
undersigned ceases to be employed by the Company or any of its subsidiaries, the
vested portion of the Shares will be subject to repurchase by the Company at
book value. One-fifth of the Shares will become vested shares on each of the
first five anniversary dates of the purchase of the Shares.
<PAGE> 21
5. The fair market value on January __, 1996 of the property with
respect to which the election is being made, determined without regard to any
lapse restrictions: $1.00 per Share.
6. The amount paid for such property: $1.00 per Share.
A copy of this election has been furnished to the Secretary of the
Company pursuant to Treasury Regulations ss.1.83-2(e)(7).
Dated: _____________, 199 __________________________
Name: [Executive]
-2-
<PAGE> 1
EXHIBIT 10.3
FORM OF MANAGER SECURITIES PURCHASE AGREEMENT
THIS AGREEMENT is made as of _______________ by and among
GCIH, Inc., a Delaware corporation (the "Company"), _________ (the "Manager")
and Citicorp Venture Capital, Ltd., a New York corporation, ("CVC"). CVC is made
a party to this Agreement solely for purposes of the repurchase rights of CVC
set forth in Section 4.
WHEREAS, the Company and/or its Subsidiaries have established
a written compensatory benefit plan for the participation of certain employees
(the "Plan"), and the Manager and other employees (collectively, the "Managers")
desire to participate in the Plan;
WHEREAS, pursuant to the Plan, the Company, and the Manager
desire to enter into an agreement pursuant to which Manager will purchase, and
the Company will sell __________ shares of the Company's Class B Common Stock,
par value $0.01 per share (the "Class B Common"), upon the terms and conditions
set forth herein. All of such shares of Class B Common and all shares of capital
stock hereafter acquired by the Manager are referred to herein as "Manager
Stock";
NOW, THEREFORE, the parties hereto agree as follows:
1. Definitions. As used herein, the following terms
shall have the following meanings.
"Affiliate" shall mean, as to any Person, any other Person
which directly or indirectly controls, or is under common control with, or is
controlled by, such Person. As used in this definition, "control" (including,
with its correlative meanings, "controlled by" and "under common control with")
shall mean possession, directly or indirectly, of power to direct or cause the
direction of management or policies (whether through ownership of securities or
partnership or other ownership interests, by contract or otherwise).
"Board" means the Company's board of directors.
"Book Value" of each share of Manager Stock shall be equal to
the quotient determined by dividing (A) the excess of Company's consolidated
assets over its consolidated liabilities as of the end of the fiscal quarter
immediately preceding the date of Manager's Termination, determined on a
consolidated basis in accordance with GAAP less the liquidation value of all of
the Company's outstanding preferred stock, if any by (B) the total number of
shares of Common Stock outstanding on a fully-diluted basis (including in such
calculation the aggregate conversion price an exercise price of all outstanding
convertible securities, options and warrants).
"Business Day" means any day other than a Saturday or Sunday
or a day on which commercial banks are required or authorized to close in New
York, New York.
<PAGE> 2
"Cause" means (i) a material breach of this Agreement by the
Manager that is not susceptible to remedy or cure, or if susceptible to remedy
or cure, is not cured or remedied and continues for a reasonable period of time
after any Executive or the Manager's direct supervisor has given notice to
Manager specifying in reasonable detail the manner in which Manager has breached
this Agreement, (ii) the determination by any Executive, in the exercise of his
reasonable judgment, that the Manager committed a felony, a crime involving
moral turpitude or other act causing material harm to the standing and
reputation of the Company or its Subsidiaries in each case after notice to
Manager and reasonable procedure for Manager to state his case to any Executive,
(iii) the determination by any Executive, in the exercise of his reasonable
judgment, that the Manager breached his duty of loyalty to the Company and its
Subsidiaries after notice to Manager and reasonable procedure for Manager to
state his case to any Executive, or (iv) the Manager's continued failure to
perform his duties to the Company and its Subsidiaries after notice, and, if
susceptible to remedy or cure, is not cured or remedied and continues for a
reasonable period of time after any Executive or the Manager's direct supervisor
has given notice to the Manager specifying in reasonable detail the manner in
which the Manager has continued to fail to perform his duties.
"Common Stock" means the Class A Common, the Class B Common,
the Class C Common, and the Class D Common, as adjusted for any stock split,
stock dividend, share combination, share exchange, recapitalization, merger,
consolidation or other reorganization.
"CVC" means Citicorp Venture Capital, Ltd., a New York
corporation.
"Executives" shall mean Edward Kittredge, Richard Solar, David
Uren, and certain other executive officers of the Company or GCI.
"Manager Stock" is defined in the preamble hereto and will
include shares of the Company's capital stock issued with respect to Manager
Stock by way of a stock split, stock dividend or other recapitalization. Manager
Stock will cease to be Manager Stock when transferred pursuant to a Qualified
Public Offering or Sale of the Company. Manager Stock will continue to be
Manager Stock in the hands of any holder other than the Manager, including all
transferees of the Manager (except for the Company and CVC (or its designee)),
and except as otherwise provided herein, each such other holder of Manager Stock
will succeed to all rights and obligations attributable to the Manager as a
holder of Manager Stock hereunder.
"GAAP" means U.S. generally accepted accounting principles, as
in effect from time to time and as adopted by the Company with the consent of
its independent public accountants, consistently applied.
"GCI" means Gerber Childrenswear, Inc., a Delaware corporation
and wholly-owned subsidiary of the Company.
"Original Cost" of each share of Manager Stock purchased on
the date hereof will be equal to $1.00 per share.
"Permanent Disability" means Manager is unable to perform, by
reason of physical or mental incapacity, his duties or obligations under this
Agreement, for a period of ninety (90)
2
<PAGE> 3
consecutive days or a total period of one hundred twenty (120) days in any three
hundred sixty (360) day period.
"Person" means an individual, a partnership, a corporation, an
association, a joint stock company, a trust, a joint venture, an unincorporated
organization or a governmental entity or any department, agency or political
subdivision thereof.
"Qualified Public Offering" means any sale, in an
under-written public offering registered under the Securities Act, of shares of
the Company's Common Stock having an aggregate value of at least $30 million.
"Registration Rights Agreement" means the Registration Rights
Agreement, dated as of the date hereof, by and among the Company, CVC, the
Managers and others, as in effect from time to time.
"Sale of the Company" means the sale of the Company, in a
single transaction or a series of related transactions, to a third party (which
is not an Affiliate of the Approving Stockholders) (a) pursuant to which such
third party proposes to acquire all or substantially all of the outstanding
Common Stock (whether by merger, consolidation, recapitalization,
reorganization, purchase of the outstanding Common Stock or otherwise) or all or
substantially all of the consolidated assets of the Company, (b) which has been
approved by the Board and holders of a majority of the outstanding shares of
Common Stock issued to CVC and its Affiliates, other than Citicorp Mezzanine
Partners, L.P., a Delaware limited partnership ("CMP"), voting together as a
single class (the "Approving Stockholders"), and (c) pursuant to which all
holders of Common Stock receive with respect thereto (whether in such
transaction or, with respect to an asset sale, upon a subsequent liquidation)
the same form and amount of consideration per share of Common Stock or, if any
holders are given an option as to the form and amount of consideration to be
received, all holders are given the same option.
"Securities Act" means the Securities Act of 1933, as amended
from time to time.
"Stockholders Agreement" means the Stockholders Agreement,
dated as of the date hereof, by and among the Company, the Executives, CVC, the
Managers and others, as in effect from time to time.
"Subsidiary" means, with respect to any Person, any
corporation, partnership, association or other business entity of which (i) if a
corporation, a majority of the total voting power of shares of stock 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 that Person or one or more of the other Subsidiaries
of that Person or a combination thereof, or (ii) if a partnership, association
or other business entity, a majority of the partnership or other similar
ownership interest thereof is at the time owned or controlled, directly or
indirectly, by any Person or one or more Subsidiaries of that Person or a
combination thereof. For purposes hereof, a Person or Persons shall be deemed to
have a majority ownership interest in a partnership, association or other
business entity if such Person or Persons shall be allocated a majority of
3
<PAGE> 4
partnership, association or other business entity gains or losses or shall be or
control the managing director or general partner of such partnership,
association or other business entity.
2. Purchase and Sale of Manager Securities.
(a) Upon execution of this Agreement, the Manager will
purchase, and the Company will sell (i) _________ shares of Class B Common at a
price of $1.00 per share for a total purchase price of _________ (the "Purchase
Price"). The Company will deliver to the Manager certificates representing such
shares, and on the date hereof (the "Purchase Date"), the Manager will deliver
to the Company (or its designee) a check or wire transfer of immediately
available funds in the aggregate amount equal to the Purchase Price. The
Purchase Date may be extended at the option of the Company.
(b) Upon execution of this Agreement, the Manager shall
execute and deliver a joinder to the Stockholders Agreement and a joinder to the
Registration Rights Agreement.
(c) With respect to the Manager Stock, within 30 days after
the Manager purchases any Manager Stock from the Company, the Manager will make
an effective election with the Internal Revenue Service under Section 83(b) of
the Internal Revenue Code and the regulations promulgated thereunder in the form
of Exhibit A attached hereto.
(d) In connection with the purchase and sale of the Manager
Stock hereunder, the Manager represents and warrants to the Company that:
(i) The Manager Stock to be acquired by the Manager
pursuant to this Agreement will be acquired for the Manager's own account and
not with a view to, or intention of, distribution thereof in violation of the
Securities Act, or any applicable state securities laws, and the Manager Stock
will not be disposed of in contravention of the Securities Act or any applicable
state securities laws.
(ii) No commission, fee or other remuneration is to
be paid or given, directly or indirectly, to any Person for soliciting the
Manager to purchase the Manager Stock.
(iii) The Manager Stock is being offered pursuant to
a written compensatory benefit plan established by the Company for the
participation of certain of its employees, copies of which have been provided to
the Manager.
(iv) The Manager is able to bear the economic risk of
the Manager's investment in the Manager Stock for an indefinite period of time
and the Manager understands that the Manager Stock has not been registered under
the Securities Act and cannot be sold unless subsequently registered under the
Securities Act or an exemption from such registration is available.
(v) The Manager has had an opportunity to ask
questions and receive answers concerning the terms and conditions of the
offering of Manager Stock and has had full access to such other information
concerning the Company as the Manager has requested. The Manager has reviewed,
or has had an opportunity to review, the following documents: (A) the Stock
4
<PAGE> 5
Purchase Agreement; (B) the Company's Certificate of Incorporation and Bylaws;
(C) the loan agreements, notes and related documents with the Company's senior
lenders; (D) the loan agreement, notes and related documents with the Company's
senior subordinated lender; and (E) all of the materials provided by the Company
to any Person providing financing to the Company, including, but not limited to,
the Company's pro forma balance sheet, as well as financial projections,
estimates, forecasts, budgets, summaries, reports and other related documents.
(vi) This Agreement constitutes the legal, valid and
binding obligation of the Manager, enforceable in accordance with its terms, and
the execution, delivery and performance of this Agreement by the Manager does
not and will not conflict with, violate or cause a breach of any agreement,
contract or instrument to which the Manager is a party or any judgment, order or
decree to which the Manager is subject.
(e) As an inducement to the Company to issue the
Manager Stock to the Manager, and as a condition thereto, the Manager
acknowledges and agrees that neither the issuance of the Manager Stock to the
Manager nor any provision contained herein shall entitle the Manager to remain
in the employment of the Company and its Subsidiaries or affect the right of the
Company to terminate the Manager's employment at any time for any reason.
3. Vesting of Manager Stock. The Manager Stock originally
acquired by the Manager will become vested in accordance with the following
schedule if, as of each such date, the Manager is still employed by the Company
or its Subsidiaries.
<TABLE>
<CAPTION>
Cumulative Percentage of Shares of Manager Stock
Date Which Will Vest
- ------------------------------------------------- ------------------------------------------------
<S> <C>
October 1, 1997 ("Year 1") 20%
Second anniversary of the date hereof ("Year 2") 40%
Third anniversary of the date hereof ("Year 3") 60%
Fourth anniversary of the date hereof ("Year 4") 80%
Fifth anniversary of the date hereof ("Year 5") 100%
</TABLE>
If after ____________, the Manager ceases to be employed by
the Company or its Subsidiaries for any reason, including the death or Permanent
Disability of the Manager, the cumulative percentage of the Manager Stock to
become vested will be determined on a pro rata basis according to the number of
days elapsed since the prior anniversary date.
(b) Shares of Manager Stock which have become vested are
referred to herein as "Vested Shares," and all other shares of Manager Stock are
referred to herein as "Unvested Shares."
4. Repurchase Option on Manager Stock. In the event the Manager
ceases to be employed by the Company and its Subsidiaries for any reason (the
"Termination"), the Manager Stock (whether held by the Manager or one or more of
the Manager's transferees) will be subject to repurchase by first, the Company,
and second, CVC (or its designees) pursuant to the terms and conditions set
forth in this Section 4 (the "Repurchase Option").
5
<PAGE> 6
(a) (i) The purchase price for each Unvested Share of Manager
Stock will be the Manager's Original Cost for such share; (ii) the purchase
price for each Vested Share of Manager Stock will be the Book Value for such
share; and (iii) notwithstanding the foregoing, if the Manager's Termination was
for Cause, then the purchase price for each Vested Share and each Unvested Share
will be the Manager's Original Cost.
(b) The Board may elect to cause the Company to purchase (i)
all or a portion of the Unvested Shares and/or, (ii) all or a portion of the
Vested Shares by delivering written notice (the "Repurchase Notice") to the
holder or holders of the Manager Stock within 90 days after the Termination. The
Repurchase Notice will set forth the number of Unvested Shares and Vested Shares
to be acquired from each holder, the aggregate consideration to be paid for such
securities and the time and place for the closing of the transaction. The number
of shares of Manager Stock to be repurchased by the Company shall first be
satisfied to the extent possible from the Manager Stock held by the Manager at
the time of delivery of the Repurchase Notice. If the shares of Vesting Stock
then held by the Manager are less than the total number of shares of Manager
Stock the Company has elected to purchase the Company shall purchase the
remaining Manager Stock elected to be purchased from the other holder(s) of
Manager Stock, pro rata according to the amount of such Manager Stock held by
such other holder(s) at the time of delivery of such Repurchase Notice
(determined as nearly as practicable to the nearest share) provided, however,
that only those shares of Manager Stock subject to the Repurchase Option
pursuant to this Section 4 may be purchased by the Company pursuant to the terms
of this Section 4(b). The number of Unvested Shares and Vested Shares to be
repurchased hereunder will be allocated among the Manager and the other holders
of Manager Stock (if any) pro rata according to the number of shares of Manager
Stock to be purchased from such Persons.
(c) If for any reason the Company does not elect to purchase
all of the shares of Manager Stock that are subject to such Repurchase Option,
pursuant to the Repurchase Option, then CVC (or its designees) shall be entitled
to exercise the Repurchase Option for the Manager Stock the Company has not
elected to purchase (the "Available Securities"). Of the Available Securities,
the Vested Shares are referred to herein as "Available Vested Shares" and
Unvested Shares are referred to herein as "Available Unvested Shares". As soon
as practicable after the Company has determined that there will be Available
Securities, but in any event within 180 days after the Termination, the Company
shall give written notice (the "Option Notice") to CVC (or its designees)
setting forth the number of Available Vested Shares, Available Unvested Shares,
and the purchase price for each of such Available Securities. CVC (or its
designees) may elect to purchase all or a portion of (i) Available Vested
Shares, and/or (ii) all or a portion of the Available Unvested Shares by giving
written notice to the Company within 90 days after the Option Notice has been
given by the Company. As soon as practicable, and in any event within ten days
after the expiration of the 90-day period set forth above, the Company shall
notify each holder of Manager Stock as to the number of Vested Shares or
Unvested Shares being purchased from such holder by CVC (or its designees) (the
"Supplemental Repurchase Notice"). At the time the Company delivers the
Supplemental Repurchase Notice to the holder(s) of such Manager Stock, the
Company shall also deliver written notice to CVC (or its designees) setting
forth the number of Vested Shares and Unvested Shares which CVC (or its
designees) is entitled to purchase, the aggregate purchase price and the time
and place of the closing of the transaction.
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<PAGE> 7
(d) The closing of the purchase of the Manager Stock pursuant
to the Repurchase Option shall take place on the date designated by the Company
in the Repurchase Notice or Supplemental Repurchase Notice, which date shall not
be later than the 60th day after the delivery of the later of such notices to be
delivered (or, if later, the 15th day after the Book Value is finally
determined) nor earlier than the fifth day after such delivery. The Company
and/or CVC (or its designee) will pay for the Manager Stock to be purchased
pursuant to the Repurchase Option by delivery of a certified or cashier's check
or wire transfer of funds. The purchasers of Manager Stock hereunder will be
entitled to receive customary representations and warranties from the sellers as
to title, authority and capacity to sell.
(e) Notwithstanding anything to the contrary contained in this
Agreement, all repurchases of Manager Stock by the Company shall be subject to
applicable restrictions contained in the Delaware General Corporation Law. If
any such restrictions prohibit the repurchase of Manager Stock hereunder which
the Company is otherwise entitled to make, the Company may make such repurchases
as soon as it is permitted to do so under such restrictions.
5. Restrictions on Transfer.
(a) The Manager Stock will bear the following legend:
"THE SECURITIES REPRESENTED BY THIS CERTIFICATE HAVE NOT BEEN
REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED (THE
"ACT"), AND MAY NOT BE SOLD OR TRANSFERRED IN THE ABSENCE OF
AN EFFECTIVE REGISTRATION STATEMENT UNDER THE ACT OR AN
EXEMPTION FROM REGISTRATION THEREUNDER. THE SECURITIES
REPRESENTED BY THIS CERTIFICATE ARE ALSO SUBJECT TO ADDITIONAL
RESTRICTIONS ON TRANSFER, CERTAIN REPURCHASE OPTIONS AND
CERTAIN OTHER AGREEMENTS SET FORTH IN A MANAGER SECURITIES
PURCHASE AGREEMENT BETWEEN THE COMPANY AND THE SIGNATORY
THERETO DATED AS OF ______________________. A COPY OF SUCH
AGREEMENT MAY BE OBTAINED BY THE HOLDER HEREOF AT THE
COMPANY'S PRINCIPAL PLACE OF BUSINESS WITHOUT CHARGE."
(b) No holder of Manager Stock may sell, transfer or dispose
of any shares of Manager Stock (except pursuant to an effective registration
statement under the Securities Act) without first delivering to the Company an
opinion of counsel (reasonably acceptable in form and substance to the Company)
that neither registration nor qualification under the Securities Act and
applicable state securities laws is required in connection with such transfer.
(c) Each holder of Manager Stock agrees not to effect any
Qualified Public Offering or distribution of any Manager Stock or other equity
securities of the Company, or any securities convertible into or exchangeable or
exercisable for any of the Company's equity securities, during the seven days
prior to and the 180 days after the effectiveness of any underwritten public
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<PAGE> 8
offering, except as part of such underwritten public offering or if otherwise
permitted by the Company.
6. Representations and Warranties of the Company. The Company
hereby represents and warrants to the Manager that:
(a) Immediately following the consummation of the Equity
Transactions, the authorized capital stock of the Company shall consist of (i)
______________ shares of Class A Common Stock par value $0.01 per share (the
"Class A Common"), of which ___________ shares shall be issued and outstanding,
(ii) __________ shares of Class B Common, of which ___________ shares shall be
issued and outstanding, (iii) ________ shares of Class C Common Stock, par value
$0.01 per share (the "Class C Common"), of which _________ shares shall be
issued and outstanding, (iv) ___________ shares of Class D Common Stock, par
value $0.01 per share (the "Class D Common") of which _________ shares shall be
reserved for issuance upon exercise of the Warrant held by CMP, and (v)
___________ shares of Series A Preferred of which ___________ shall be issued
and outstanding. Except as set forth in this Section 6(a) and except for capital
stock of the Company's Subsidiaries owned directly or indirectly by the Company,
as of immediately following the consummation of the transactions contemplated
hereby, neither the Company nor any Subsidiary shall have outstanding any stock
or securities convertible or exchangeable for any shares of its capital stock or
containing any profit participation features, nor shall it have outstanding any
rights or options to subscribe for or to purchase its capital stock or any stock
or securities convertible into or exchangeable for its capital stock or any
stock appreciation rights or phantom stock plans. As of immediately following
the consummation of the transactions contemplated hereby, all of the outstanding
shares of the Company's capital stock shall be validly issued, fully paid and
nonassessable.
(b) There are no statutory or contractual stockholders
preemptive rights or rights of refusal with respect to the issuance of the
Manager Stock hereunder. The Company has not violated any applicable federal or
state securities laws in connection with the offer, sale or issuance of any of
its capital stock, and the offer, sale and issuance of the Manager Stock
hereunder do not require registration under the Securities Act or any applicable
state securities laws. To the best of the Company's knowledge, there are no
agreements between the Company's stockholders with respect to the voting or
transfer of the Company's capital stock or with respect to any other aspect of
the Company's affairs, except for (i) the Stockholders Agreement, (ii) the
Registration Rights Agreement and (iii) the Manager Stock Purchase Agreements
dated as of the date hereof by and between the Company and certain employees of
the Company.
7. Confidential Information. The Manager acknowledges that the
information, observations and data obtained by him while employed by the Company
or any of its Subsidiaries concerning the business or affairs of the Company or
any Subsidiary ("Confidential Information") are the property of the Company or
such Subsidiary. Therefore, Manager agrees that he shall not disclose to any
unauthorized person or use for his own account any Confidential Information
without the prior written consent of the Board, unless and to the extent that
the aforementioned matters become generally known to and available for use by
the public other than as a result of Manager's acts or omissions to act. Manager
shall deliver to the Company at the termination of such Manager's employment, or
at any other time the Company may request, all memoranda, notes, plans, records,
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<PAGE> 9
reports, computer tapes and software and other documents and data (and copies
thereof) relating to the Confidential Information, Work Product (as defined
below) and the business of the Company or any Subsidiary which he may then
possess or have under his control.
8. Inventions and Patents. Manager agrees that all inventions,
innovations, improvements, developments, methods, designs, analyses, drawings,
reports, and all similar or related information which relates to the Company's
or any of its Subsidiaries' actual or anticipated business, research and
development or existing or future products or services and which are conceived,
developed or made by Manager while employed by the Company or any of its
Subsidiaries ("Work Product") belong to the Company or such Subsidiary. Manager
will promptly disclose such Work Product to the Board and perform all actions
reasonably requested by the Board (whether during or after Manager's employment
period) to establish and confirm such ownership (including, without limitation,
assignments, consents, powers of attorney and other instruments).
9. Non-solicitation.
(a) During the time the Manager is employed by the Company and
its Subsidiaries and for a period of six months thereafter (the "Noncompete
Period"), Manager shall not directly or indirectly through another entity (i)
induce or attempt to induce any employee of the Company or any Subsidiary to
leave the employ of the Company or such Subsidiary, or in any way interfere with
the relationship between the Company or any Subsidiary and any employee thereof,
including without limitation, inducing or attempting to induce any union,
employee or group of employees to interfere with the business or operations of
the Company or its Subsidiaries, (ii) hire any person who was an employee of the
Company or any Subsidiary at any time during the Manager's employment period, or
(iii) induce or attempt to induce any customer, supplier, distributor,
franchisee, licensee or other business relation of the Company or any Subsidiary
to cease doing business with the Company or such Subsidiary, or in any way
interfere with the relationship between any such customer, supplier,
distributor, franchisee, licensee or business relation and the Company or any
Subsidiary.
(b) Manager agrees that: (i) the covenants set forth in this
Section 9 are reasonable in geographical and temporal scope and in all other
respects, (ii) the Company would not have entered into this Agreement but for
the covenants of Manager contained herein, and (iii) the covenants contained
herein have been made in order to induce the Company to enter into this
Agreement.
(c) If, at the time of enforcement of this Section 9, a court
shall hold that the duration, scope or area restrictions stated herein are
unreasonable under circumstances then existing, the parties agree that the
maximum duration, scope or area reasonable under such circumstances shall be
substituted for the stated duration, scope or area and that the court shall be
allowed to revise the restrictions contained herein to cover the maximum period,
scope and area permitted by law.
(d) Manager recognizes and affirms that in the event of his
breach of any provision of this Section 9, money damages would be inadequate and
the Company and CVC would have no adequate remedy at law. Accordingly, Manager
agrees that in the event of a breach or a threatened breach by Manager of any of
the provisions of this Section 9, the Company, in addition
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<PAGE> 10
and supplementary to other rights and remedies existing in its favor, may apply
to any court of law or equity of competent jurisdiction for specific performance
and/or injunctive or other relief in order to enforce or prevent any violations
of the provisions hereof (without posting a bond or other security).
10. Notices. All notices, demands or other communications to be
given or delivered under or by reason of the provisions of this Agreement will
be in writing and will be deemed to have been given when delivered personally,
mailed by certified or registered mail, return receipt requested and postage
prepaid, or sent via a nationally recognized overnight courier, or sent via
facsimile to the recipient with a confirmation of receipt and accompanied by a
certified or registered mailing. Such notices, demands and other communications
will be sent to the address indicated below:
To the Company:
GCIH, Inc.
531 Main Street
Greenville, S.C. 29602
Attention: President
Telecopy No.: (803) 240-5977
With a copy to:
Citicorp Venture Capital, Ltd.
399 Park Avenue
14th Floor
New York, NY 10043
Attention: John Weber
Telecopy No.: (212) 888-2940
To the Manager:
c/o Gerber Childrenswear, Inc.
531 South Main Street
Greenville, SC 29602
Attention: [_______________]
Telecopy No.: (803) 240-5977
To CVC:
Citicorp Venture Capital
399 Park Avenue
14th Floor
New York, NY 10043
Attention: John Weber
Telecopy No.: (212) 888-2940
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<PAGE> 11
With a copy to:
Kirkland & Ellis
153 East 53rd Street
New York, NY 10022
Attention: Kirk A. Radke, Esq.
Telecopy No.: (212) 446-4900
or such other address or to the attention of such other person as the recipient
party shall have specified by prior written notice to the sending party.
11. Miscellaneous.
(a) Transfers in Violation of Agreement. Any Transfer or
attempted Transfer of any Manager Stock in violation of any provision of this
Agreement shall be null and void, and the Company shall not record such Transfer
on its books or treat any purported transferee of such Manager Stock as the
owner of such securities for any purpose.
(b) Severability. Whenever possible, each provision of this
Agreement will be interpreted in such manner as to be effective and valid under
applicable law, but if any provision of this Agreement is held to be invalid,
illegal or unenforceable in any respect under any applicable law or rule in any
jurisdiction, such invalidity, illegality or unenforceability will not affect
any other provision or any other jurisdiction, but this Agreement will be
reformed, construed and enforced in such jurisdiction as if such invalid,
illegal or unenforceable provision had never been contained herein.
(c) Complete Agreement. This Agreement, the Stockholders
Agreement, and the Registration Rights Agreement embody the complete agreement
and understanding among the parties and supersede and preempt any prior
understandings, agreements or representations by or among the parties, written
or oral, which may have related to the subject matter hereof in any way.
(d) Counterparts. This Agreement may be executed in separate
counterparts, each of which is deemed to be an original and all of which taken
together constitute one and the same agreement.
(e) Successors and Assigns. Except as otherwise provided
herein, this Agreement shall bind and inure to the benefit of and be enforceable
by the Manager, the Company, CVC and their respective successors and assigns
(including subsequent holders of Manager Stock); provided that the rights and
obligations of the Manager under this Agreement shall not be assignable except
in connection with a permitted transfer of Manager Stock hereunder.
(f) Third Party Beneficiary. This Agreement is intended for
the benefit of, and will be enforceable by, CVC.
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<PAGE> 12
(g) GOVERNING LAW. THE CORPORATE LAW OF THE STATE OF DELAWARE
WILL GOVERN ALL QUESTIONS CONCERNING THE RELATIVE RIGHTS OF THE COMPANY AND ITS
STOCKHOLDERS. ALL OTHER QUESTIONS CONCERNING THE CONSTRUCTION, VALIDITY AND
INTERPRETATION OF THIS AGREEMENT AND THE EXHIBITS HERETO WILL BE GOVERNED BY AND
CONSTRUED IN ACCORDANCE WITH THE DOMESTIC LAWS OF THE STATE OF NEW YORK, WITHOUT
GIVING EFFECT TO ANY CHOICE OF LAW OR CONFLICT OF LAW PROVISION OR RULE (WHETHER
OF THE STATE OF NEW YORK OR ANY OTHER JURISDICTION) THAT WOULD CAUSE THE
APPLICATION OF THE LAWS OF ANY JURISDICTION OTHER THAN THE STATE OF NEW YORK.
(h) Remedies. Each of the parties to this Agreement (including
CVC) will be entitled to enforce its rights under this Agreement specifically,
to recover damages and costs (including reasonable attorneys' fees) caused by
any breach of any provision of this Agreement and to exercise all other rights
existing in its favor. The parties hereto agree and acknowledge that money
damages may not be an adequate remedy for any breach of the provisions of this
Agreement and that any party may in its sole discretion apply to any court of
law or equity of competent jurisdiction (without posting any bond or deposit)
for specific performance and/or other injunctive relief in order to enforce or
prevent any violations of the provisions of this Agreement.
(i) Amendment and Waiver. The provisions of this Agreement may
be amended and waived only with the prior written consent of the Company, the
Manager and CVC.
* * * * *
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<PAGE> 13
IN WITNESS WHEREOF, the parties hereto have executed this
Manager Stock Purchase Agreement as of the date first written above.
GCIH, INC.
By: ____________________________
Name:
Title:
GERBER CHILDRENSWEAR, INC.
By: ____________________________
Name:
Title:
_____________________________________
[MANAGER]
The undersigned is a party to this Agreement solely for purposes of the
repurchase rights of CVC set forth in Section 4:
CITICORP VENTURE CAPITAL, LTD.
By: ____________________________
Name:
Title:
<PAGE> 14
CONSENT OF SPOUSE
The undersigned spouse of the Manager named in the attached
Agreement has read and understands the terms of the Agreement and has had an
opportunity to discuss it with individuals of her choice. The undersigned
understands that even if the securities referred to in the Agreement are
considered to be a part of the "marital property" belonging to her and the
Manager, the Agreement restricts the transfer or distribution of those
securities to anyone other than the Manager, a "Permitted Transferee" as such
term is defined in the Stockholders Agreement, the company which issued the
securities and certain other persons. The undersigned agrees to these
restrictions and waives any rights (other than to the economic value of such
securities) she might otherwise have in those shares as specifically
identifiable property.
____________________(Signature)
____________________(Print Name)
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<PAGE> 15
CONSENT OF MANAGER
The undersigned Manager named in the attached Agreement has
read and understands the terms of the Agreement and has had the opportunity to
discuss it with counsel, accountants, or other financial and legal advisors of
his/her choice.
The undersigned is able to bear the economic risk of his/her
investment in the Manager Stock for an indefinite period of time. The
undersigned understands that the Manager Stock has not been registered under the
Securities Act and cannot be sold unless subsequently registered under the
Securities Act or unless an exemption from such registration is available.
Further, the Manager is willing to bear the risk of such illiquidity. The
Manager understands that his/her execution of this Agreement and/or
participation in the Plan is not a condition of his/her employment with the
Company or GCI.
____________________(Signature)
____________________(Print Name)
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<PAGE> 16
EXHIBIT A
______________, 199_
ELECTION TO INCLUDE STOCK AND NOTES IN GROSS
INCOME PURSUANT TO SECTION 83(b) OF THE
INTERNAL REVENUE CODE
The undersigned purchased shares of Common Stock, par value
$0.01 per share (the "Shares"), of GCIH, Inc. (the "Company") on __________,
199_. Under certain circumstances, the Company has the right to repurchase the
Shares at cost from the undersigned (or from the holder of the Shares, if
different from the undersigned) should the undersigned cease to be employed by
the Company and its subsidiaries. Hence, the Shares are subject to a substantial
risk of forfeiture and are non-transferable. The undersigned desires to make an
election to have the Shares taxed under the provision of Code Section 83(b) at
the time he purchased the Securities.
Therefore, pursuant to Code Section 83(b) and Treasury
Regulation Section 1.83-2 promulgated thereunder, the undersigned hereby makes
an election, with respect to the Shares (described below), to report as taxable
income for calendar year 199_ the excess (if any) of the Shares' fair market
value on __________, 199_ over the purchase price thereof.
The following information is supplied in accordance with
Treasury Regulation Section 1.83-2(e):
1. The name, address and social security number of the
undersigned:
Name: ____________________
Address: ______________________
______________________
SSN: ______________________
2. A description of the property with respect to which
the election is being made: __________ shares of GCIH, Inc. Common Stock, par
value $0.01 per share.
3. The date on which the property was transferred:
__________, 199_. The taxable year for which such election is made: calendar
199_.
4. The restrictions to which the property is subject: If
during the first five years after the purchase of the Shares the undersigned
ceases to be employed by the Company or any of its subsidiaries, the unvested
portion of the Shares will be subject to repurchase by the Company at cost, and
at any time prior to a public offering by the Company or a sale of the Company
the undersigned ceases to be employed by the Company or any of its subsidiaries,
the vested portion of the Shares will be subject to repurchase by the Company at
book value. One-fifth of the Shares will become vested shares on each of the
first five anniversary dates of the purchase of the Shares.
A - 1
<PAGE> 17
5. The fair market value on __________, 199_ of the
property with respect to which the election is being made, determined without
regard to any lapse restrictions: $1.00 per Share.
6. The amount paid for such property: $1.00 per Share.
A copy of this election has been furnished to the Secretary of
the Company pursuant to Treasury Regulations Section 1.83-2(e)(7).
Dated: _____________, 199_ __________________________
Name: [MANAGER]
A - 2
<PAGE> 1
Exhibit 10.4
CVC SECURITIES PURCHASE AGREEMENT
CVC SECURITIES PURCHASE AGREEMENT dated as of January 22, 1996 by
and among GCIH, Inc., a Delaware corporation (the "Company"), and Citicorp
Venture Capital, Ltd., a New York corporation ("CVC").
CVC desires to purchase from the Company and Company desires to sell
shares of (i) the Company's 12% Series A Preferred Stock, par value $.01 per
share (the "Series A Preferred"), and (ii) the Company's Class A Common Stock,
par value $.01 per share (the "Class A Common"). The execution and delivery of
(A) each of the Executive Stock Purchase Agreements, (B) the Securities Purchase
Agreements, (C) the Investor Stock Purchase Agreement, and (D) the Seller Note
Purchase Agreement are conditions to CVC's obligations under this Agreement.
NOW, THEREFORE, in consideration of the mutual covenants contained
herein and other good and valuable consideration, the receipt and sufficiency of
which are hereby acknowledged, the parties to this Agreement hereby agree as
follows:
1. Definitions. As used herein, the following terms shall have the
following meanings:
"Affiliate" of any particular Person or entity means any other
Person or entity controlling, controlled by or under common control with such
particular Person or entity and, in the case of a limited partnership,
"Affiliate" includes limited partners of such limited partnership.
"Certificate of Incorporation" means the Company's certificate of
incorporation, as amended from time to time.
"Exchange Act" means the Securities Exchange Act of 1934, as
amended.
"Executive Stock Purchase Agreements" means the Executive Stock
Purchase Agreements between the Company and each of Edward Kittredge, Richard
Solar, David Jones, David Uren, (each an "Executive"), dated as of the date
hereof, pursuant to which each Executive is purchasing shares of the Class B
Common Stock of the Company, par value $.01 per share (the "Class B Common") and
shares of the Series A Preferred.
"Investor Stock Purchase Agreement" means that stock purchase
agreement dated as of the date hereof, between the Company and Lawrence R. Glenn
(the "Investor"), pursuant to which the Investor is purchasing shares of Class C
Common Stock of the Company, par value $.01 per share (the "Class C Common").
"Officer's Certificate" means a certificate signed by the Company's
president or its chief financial officer, stating that (i) the officer signing
such certificate has made or has caused to be made such investigations as are
necessary in order to permit him to verify the accuracy of the information set
forth in such certificate or any documents accompanying such certificate and
<PAGE> 2
(ii) such certificate does not misstate any material fact and does not omit to
state any fact necessary to make the certificate not misleading.
"Person" means an individual, a partnership, a corporation, an
association, a joint stock company, a trust, a joint venture, an unincorporated
organization and a governmental entity or any department, agency or political
subdivision thereof.
"Registration Rights Agreement" means the Registration Rights
Agreement between the Company, CVC, Citicorp Mezzanine Partners, L.P., a
Delaware corporation ("CMP"), CCT III Partners, L.P., a Delaware limited partner
("CCT"), Edward Kittredge, Richard Solar, David Jones, David Uren, and each
other executive of the Company or its subsidiaries who acquires Common Stock
(the "Executives"), the Investor, and the persons set forth on the Individual
Purchaser signature page attached thereto (the "Individual Purchasers").
"Restricted Securities" means (i) the Stock (as defined below)
issued hereunder, (ii) any securities issued with respect to the Stock referred
to in clause (i) above by way of a stock dividend or stock split or in
connection with a combination of shares, recapitalization, merger, consolidation
or other reorganization and (iii) any securities issued pursuant to an exchange
of such Stock. As to any particular Restricted Securities, such securities shall
cease to be Restricted Securities when they have (a) been effectively registered
under the Securities Act and disposed of in accordance with the registration
statement covering them, (b) become eligible for sale pursuant to Rule 144 (or
any similar provision then in force) under the Securities Act or (c) been
otherwise transferred and new certificates for them not bearing the Securities
Act legend set forth in Section 9 have been delivered by the Company. Whenever
any particular securities cease to be Restricted Securities, the holder thereof
shall be entitled to receive from the Company, without expense, new securities
of like tenor not bearing a Securities Act legend of the character set forth in
Section 9.
"SBA" means the United States Small Business Administration, and any
successor agency performing the functions thereof.
"SBIC" means a Small Business Investment Company licensed by an SBA
under the SBIC Act.
"SBIC Act" means the Small Business Investment Act of 1959, as
amended.
"SBIC Regulations" means the SBIC Act and the regulations issued by
the SBA thereunder, codified as Title 13 of the Code of Federal Regulations ("13
CFR"), parts 107 and 121.
"Securities Act" means the Securities Act of 1933, as amended.
"Securities Purchase Agreement" means that Securities Purchase
Agreement, dated as of the date hereof, between the Company and the Persons
listed on the signature pages thereto (the "Purchasers") pursuant to which the
Purchasers are purchasing shares of (i) the Series A Preferred, and (ii) the
Class A Common.
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<PAGE> 3
"Seller Note Purchase Agreement" means the Seller Note Purchase
Agreement, dated as of the date hereof, between the Company and Gerber Products
Company (the "Seller") a Michigan corporation, pursuant to which the Seller is
purchasing certain securities of the Company.
"Stockholders Agreement" means the Stockholders Agreement, dated as
of the date hereof, between the Company, CVC, CMP, CCT, the Executives, the
Investor, and the Individual Purchasers.
"Subsidiary" means, with respect to any Person, any corporation,
partnership, association or other business entity of which (i) if a corporation,
a majority of the total voting power of shares of stock 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 that Person or one or more of the other Subsidiaries of that
Person or a combination thereof, or (ii) if a partnership, association or other
business entity, a majority of the partnership or other similar ownership
interest thereof is at the time owned or controlled, directly or indirectly, by
any Person or one or more Subsidiaries of that Person or a combination thereof.
For purposes hereof, a Person or Persons shall be deemed to have a majority
ownership interest in a partnership, association or other business entity if
such Person or Persons shall be allocated a majority of partnership, association
or other business entity gains or losses or shall be or control the managing
director or general partner of such partnership, association or other business
entity.
2. Authorization and Closing.
(a) Authorization of the Stock. The Company shall authorize the
issuance and sale to CVC of its Class A Common and its Series A Preferred, each
having the rights and preferences set forth in Exhibit A attached hereto. The
Class A Common and the Series A Preferred are collectively referred to herein as
the "Stock."
(b) Purchase and Sale of the Stock. At the Closing, the Company
shall sell to CVC and, subject to the terms and conditions set forth herein, CVC
shall purchase from the Company (i) 523,476.0 shares of Class A Common at a
price of $0.01 per share, and (ii) 86,974.5 shares of Series A Preferred at a
price of $100.0 per share.
(c) The Closing. The closing of the purchase and sale of the Stock
(the "Closing") shall take place at the offices of Kirkland & Ellis, 153 East
53rd Street, New York, New York 10022 at 10:00 a.m. New York time on January 22,
1996 or at such other place or such other time or date as the Company may
designate. At the Closing, the Company shall deliver to CVC stock certificates
evidencing the Stock to be purchased by CVC, each registered in CVC's or its
nominee's name, upon payment of the purchase price thereof by a cashier's or
certified check, or by wire transfer of immediately available funds to an
account designated by the Company.
3. Financial Statements and Other Information. The Company shall,
upon the request of CVC so long as CVC holds any Stock, deliver to CVC:
(a) as soon as available but in any event within 30 days after the
end of each monthly accounting period in each fiscal year, unaudited
consolidating and consolidated statements of income and cash flows of the
Company and its Subsidiaries for such monthly period and for the
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<PAGE> 4
period from the beginning of the fiscal year to the end of such month, and
unaudited consolidating and consolidated balance sheets of the Company and its
Subsidiaries as of the end of such monthly period, setting forth in each case
comparisons to the annual budget and to the corresponding period in the
preceding fiscal year, and all such statements shall be prepared in accordance
with generally accepted accounting principles, consistently applied, subject to
the absence of footnote disclosures and to normal year-end adjustments, and
shall be accompanied by an Officer's Certificate;
(b) within 45 days after the end of each quarterly accounting period
in each fiscal year, unaudited consolidating and consolidated statements of
income and cash flows of the Company and its Subsidiaries for such quarterly
period, and unaudited consolidating and consolidated balance sheets of the
Company and its Subsidiaries as of the end of such quarterly period, setting
forth in each case comparisons to the annual budget and to the corresponding
period in the preceding fiscal year, and all such statements shall be prepared
in accordance with generally accepted accounting principles, consistently
applied, subject to the absence of footnote disclosures and to normal year-end
adjustments, and shall be accompanied by an Officer's Certificate;
(c) within 90 days after the end of each fiscal year, audited
consolidating and consolidated statements of income and cash flows of the
Company and its Subsidiaries for such fiscal year, and audited consolidating and
consolidated balance sheets of the Company and its Subsidiaries as of the end of
such fiscal year, setting forth in each case comparisons to the annual budget
and to the preceding fiscal year, all prepared in accordance with generally
accepted accounting principles, consistently applied, and accompanied by (i)
with respect to the consolidated portions of such statements, an opinion of an
independent accounting firm of recognized national standing, (ii) a certificate
from such accounting firm, addressed to the Company's board of directors,
stating that in the course of its examination nothing came to its attention that
caused it to believe that there was any default by the Company or any Subsidiary
in the fulfillment of or compliance with any of the terms, covenants, provisions
or conditions of any material agreement to which the Company or any Subsidiary
is a party or, if such accountants have reason to believe any default by the
Company or any Subsidiary exists, a certificate specifying the nature and period
of existence thereof, and (iii) a copy of such firm's annual management letter
to the board of directors;
(d) promptly upon receipt thereof, any additional reports,
management letters or other detailed information concerning significant aspects
of the Company's operations or financial affairs given to the Company by its
independent accountants (and not otherwise contained in other materials provided
hereunder);
(e) at least 30 days prior to the end of each fiscal year, an annual
budget prepared on a monthly basis for the Company and its Subsidiaries for the
following fiscal year (displaying anticipated statements of income and cash
flows and balance sheets), and following preparation thereof quarterly revisions
of such budget and any other significant budgets prepared by the Company or its
Subsidiaries, and within 30 days after any monthly period in which there is a
material adverse deviation from the annual budget, an Officer's Certificate
explaining the deviation and what actions the Company has taken and proposes to
take with respect thereto; and
(f) with reasonable promptness, such other information and financial
data concerning the Company and its Subsidiaries as any Person entitled to
receive information under this Section 3 may reasonably request.
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<PAGE> 5
4. Inspection of Property. The Company shall permit any
representatives designated by CVC (so long as CVC holds any Stock), upon
reasonable notice and during normal business hours and such other times as any
such holder may reasonably request, to (i) visit and inspect any of the
properties of the Company and its Subsidiaries, (ii) examine the corporate and
financial records of the Company and its Subsidiaries and make copies thereof or
extracts therefrom and (iii) discuss the affairs, finances and accounts of any
such corporations with the directors, officers, key employees and independent
accountants of the Company and its Subsidiaries.
5. Regulatory Compliance Cooperation.
(a) Regulatory Violation. In the event that CVC determines that it
has a Regulatory Problem (as defined below), the Company agrees to take all such
actions as are reasonably requested by CVC in order (i) to effectuate and
facilitate any transfer by CVC of any securities of the Company then held by CVC
to any Person designated by CVC (ii) to permit CVC (or any of its affiliates) to
exchange all or a portion of any voting security then held by it on a
share-for-share basis for shares of a nonvoting security of the Company, which
nonvoting security shall be identical in all respects to the voting security
exchanged for it, except that it shall be nonvoting and shall be convertible
into a voting security on such terms as are requested by CVC in light of
regulatory considerations then prevailing, and (iii) to continue and preserve
the respective allocation of the voting interests with respect to the Company
provided for in the Stockholders Agreement by and among the Company, CVC and
others dated as of the date hereof, and with respect to CVC's ownership of the
Company's Stock. Such actions may include, but shall not necessarily be limited
to entering into such additional agreements, adopting such amendments to the
Certificate of Incorporation and bylaws of the Company and taking such
additional actions as are reasonably requested by CVC in order to effectuate the
intent of the foregoing. For purposes of this Agreement, a "Regulatory Problem"
means any set of facts or circumstances wherein it has been asserted by any
governmental regulatory agency (or CVC believes that there is a substantial risk
of such assertion) that CVC is not entitled to hold, or exercise any significant
right with respect to, the Stock.
(b) Use of Proceeds. The Company hereby agrees that: (i) the Company
will provide CVC with a written summary certified by the Company's president or
chief financial officer describing in reasonable detail the Company's use of the
proceeds received hereunder (including the intended use of any such unused
proceeds as of the date of such summary) (A) within 75 days of the date hereof,
and (B) at the end of each month thereafter until all of the proceeds received
hereunder have been used by the Company and its Subsidiaries, and (ii) the
Company will repurchase at the request of CVC the Stock for an amount equal to
the purchase price thereof (plus any accrued interest or dividends thereon),
payable in immediately available funds, in the event that CVC determines in its
reasonable good faith judgment that a Regulatory Violation (as defined below)
occurred. In the event of such repurchase, the Company shall pay for such Stock
by a cashier's check, certified check or wire transfer within 30 days after the
Company's receipt of the repurchase request, and upon such payment, CVC shall
deliver the certificates evidencing the securities being repurchased.
For purposes of this Agreement, "Regulatory Violation" means (a) a
diversion of the proceeds of the sale of Stock hereunder described on the use of
proceeds statement delivered by the Company at the Closing, if such diversion
was effected without obtaining the prior written consent of CVC (which consent
may be withheld in CVC's sole discretion) or (b) a change in the principal
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<PAGE> 6
business activity of the Company and its Subsidiaries to an ineligible business
activity (within the meaning of the SBIC Regulations), if such change occurs
within one year after the date hereof.
(c) Number of Stockholders. As long as CVC holds any Stock, the
Company shall notify CVC (a) at least 15 days prior to taking any action after
which the number of record holders of the Company's voting stock would be
increased from fewer than 50 to 50 or more, and (b) of any other action or
occurrence after which the number of record holders of the Company's voting
stock was increased (or would increase) from fewer than 50 to 50 or more, as
soon as practicable after the Company becomes aware that such other action or
occurrence has occurred or is proposed to occur.
(d) Economic Impact Information. Promptly after the end of each
fiscal year (but in any event prior to February 28 of each year) the Company
shall deliver to CVC a written assessment of the economic impact of CVC's
investment in the Company, specifying the full-time equivalent jobs created or
retained in connection with the investment, the impact of the investment on the
businesses of the Company in terms of expanded revenue and taxes, and other
economic benefits resulting from the investment, including but not limited to,
technology development or commercialization, minority business development,
urban or rural business development, expansion of exports.
6. Notice of Developments. The Company will give prompt written
notice to CVC of any material adverse development causing a breach of any of the
above representations and warranties. No disclosure by the Company pursuant to
this Section 7, however, shall prevent or cure any misrepresentation, breach of
warranty, or breach of contract.
7. Representations and Warranties of the Company. The Company hereby
represents and warrants to CVC that:
(a) Organization and Corporate Power. The Company is a corporation
duly organized, validly existing and in good standing under the laws of Delaware
and is qualified to do business in every jurisdiction in which its ownership of
property or conduct of business requires it to qualify. The Company has all
requisite corporate power and authority to carry out the transactions
contemplated by this Agreement.
(b) Authorization; No Breach. The execution, delivery and
performance of this Agreement has been duly authorized by the Company. This
Agreement constitutes a valid and binding obligation of the Company, enforceable
in accordance with its terms. The execution and delivery by the Company of this
Agreement, the offering, sale and issuance of the Stock hereunder and the
fulfillment of and compliance with the respective terms hereof and thereof by
the Company, do not and shall not (i) conflict with or result in a breach of the
terms, conditions or provisions of, (ii) constitute a default under, (iii)
result in the creation of any lien, security interest, charge or encumbrance
upon the Company's capital stock or assets pursuant to, (iv) give any third
party the right to modify, terminate or accelerate any obligation under, (v)
result in a violation of, or (vi) require any authorization, consent, approval,
exemption or other action by or notice to any court or administrative or
governmental body pursuant to, the charter or bylaws of the Company, or any law,
statute, rule or regulation to which the Company is subject, or any agreement,
instrument, order, judgment or decree to which the Company is subject.
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<PAGE> 7
8. Capital Stock and Related Matters.
(a) As of immediately following the Closing, the authorized capital
stock of the Company shall consist of:
(i) 661,655.1 shares of Class A Common, of which 661,657.2
shares shall be issued and outstanding
(ii) 144,594.9 shares of Class B Common, of which 144,592.8
shares shall be issued and outstanding;
(iii) 2,500.0 shares of Class C Common, of which 2,500.0
shares shall be issued and outstanding;
(iv) 191,250.0 shares of Class D Common, of which no shares
shall be issued and outstanding, and 191,250.0 shares shall be reserved for
issuance upon exercise of the Warrant held by Citicorp Mezzanine Partners, L.P.,
a Delaware limited partnership; and
(v) 117,402.5 shares of 12% Series A Preferred Stock, par
value $.01 per share, of which 117,402.5 shares shall be issued and outstanding.
Except as set forth in this Section 8(c), immediately following the consummation
of the transactions contemplated hereby, neither the Company nor any Subsidiary
shall have outstanding any stock or securities convertible or exchangeable for
any shares of its capital stock or containing any profit participation features,
nor shall it have outstanding any rights or options to subscribe for or to
purchase its capital stock or any stock or securities convertible into or
exchangeable for its capital stock or any stock appreciation rights or phantom
stock plans. Immediately following the consummation of the transactions
contemplated hereby, all of the outstanding shares of the Company's capital
stock shall be validly issued, fully paid and nonassessable.
(b) There are no statutory or, to the best of the Company's
knowledge, contractual stockholders preemptive rights or rights of refusal with
respect to the issuance of the Stock hereunder. To the best of the Company's
knowledge, the Company has not violated any applicable federal or state
securities laws in connection with the offer, sale or issuance of any of its
capital stock, and the offer, sale and issuance of the Stock hereunder do not
require registration under the Securities Act or any applicable state securities
laws.
(c) Small Business Matters. The Company, together with its
"affiliates" (as that term is defined in 13 CFR, ss.121.401), is a "small
business concern" within the meaning of the SBIC regulations, including 13 CFR
ss.121.802. The information regarding the Company and its affiliates set forth
in the SBA Form 480, Form 652 and Section A of Form 1031 is accurate and
complete. Copies of such forms shall have been completed by the Company and
delivered to CVC at the Closing. Neither the Company nor any Subsidiary
presently engages in, or shall hereafter engage in, any activities, nor shall
the Company or any Subsidiary use directly or indirectly the proceeds from the
sale of the Stock hereunder for any purpose, for which an SBIC is prohibited
from providing funds by SBIC regulations, including 13 CFR ss.107.804 and
ss.107.901.
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<PAGE> 8
9. Investor's Investment Representations. CVC hereby represents that
it is acquiring the Restricted Securities purchased hereunder or acquired
pursuant hereto for its own account with the present intention of holding such
securities for purposes of investment, and that it has no intention of selling
such securities in a public distribution in violation of the federal securities
laws or any applicable state securities laws. Each certificate for Restricted
Securities shall be imprinted with a legend in substantially the following form:
"THE SECURITIES REPRESENTED BY THIS CERTIFICATE WERE ORIGI NALLY ISSUED ON
JANUARY 22, 1996, AND HAVE NOT BEEN REGISTERED UNDER THE SECURITIES ACT
OF 1933, AS AMENDED. THE TRANSFER OF THE SECURITIES REPRESENTED BY THIS
CERTIFICATE IS SUBJECT TO THE CONDITIONS SPECIFIED IN THE STOCK PURCHASE
AGREEMENT, DATED AS OF JANUARY 22, 1996 BETWEEN THE ISSUER (THE "COMPANY")
AND CITICORP VENTURE CAPITAL, LTD. A COPY OF SUCH CONDITIONS SHALL BE
FURNISHED BY THE COMPANY TO THE HOLDER HEREOF UPON WRITTEN REQUEST AND
WITHOUT CHARGE."
10. SBA Forms. The Company shall deliver to CVC prior to the
Closing:
(a) duly completed and executed SBA Forms 480, 652 and Part A of
1031;
(b) a business plan showing the Company's financial projections
(including balance sheets and income and cash flow statements) for the period
ending December 31, 1995;
(c) a written statement from the Company regarding its intended use
of the proceeds of the purchase of Stock hereunder; and
(d) a list, after giving effect to the transactions contemplated by
this Agreement, of (a) the name of each of the Company's directors, (b) the name
and title of each of the Company's officers, and (c) the name of each of the
Company's stockholders setting forth the number and class of shares held Prior
to the Closing, the Company shall deliver to the Purchaser all of the following
documents: SBA Forms 480, 652 and 1031 and a list of (a) the name of each of the
Company's directors as of the Closing, (b) the name and title of each of the
Company's officers as of the Closing, and (c) after giving effect to the
transactions contemplated by this Agreement, the name of each of the Company's
stockholders (setting forth the number and class of shares held).
11. Miscellaneous.
(a) Expenses. The Company agrees to pay and hold CVC harmless from
and against liability for the payment of all fees and expenses incurred in
connection with the transactions contemplated by this Agreement and each of the
agreements contemplated hereby, including (i) reasonable attorneys',
consultants' and accountants' fees and expenses arising in connection with the
negotiation, execution and consummation of the transactions contemplated by this
Agreement and each of the agreements contemplated hereby, (ii) reasonable fees
and expenses incurred with respect to any amendments or waivers (whether or not
the same become effective) under or in respect of this
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<PAGE> 9
Agreement, the Registration Rights Agreement, the Stockholders Agreement, the
agreements contemplated hereby or the Certificate of Incorporation, (iii) stamp
and other taxes which may be payable in respect of the execution and delivery of
this Agreement, (iv) reasonable fees and expenses incurred in respect of the
enforcement of the rights granted under this Agreement, the agreements
contemplated hereby and the Certificate of Incorporation, and (v) fees and
expenses incurred by CVC in filing with any governmental agency with respect to
its investment in the Company or any other filing with any governmental agency
with respect to the Company which mentions CVC.
(b) Remedies. CVC shall have all rights and remedies set forth in
this Agreement and the Certificate of Incorporation and all rights and remedies
which CVC have been granted at any time under any other agreement or contract
and all of the rights which CVC have under any law. The parties hereto agree and
acknowledge that money damages may not be an adequate remedy for any breach of
the provisions of this Agreement and that any Person having any rights under
this Agreement may in its sole discretion apply to any court of law or equity of
competent jurisdiction (without posting any bond or other security) for specific
performance and for other injunctive relief in order to enforce or prevent
violation of the provisions of this Agreement.
(c) Notices. Any notice provided for in this Agreement must be in
writing and must be either personally delivered, mailed by first class mail
(postage prepaid and return receipt requested) or sent by reputable overnight
courier service (charges prepaid) to the recipient at the address below
indicated:
To the Company:
GCIH, Inc.
531 Main Street
Greenville, SC 29602
Attention: President
With a copy to:
Kirkland & Ellis
Citicorp Center
153 East 53rd Street
New York, NY 10022-4675
Attention: Kirk A. Radke, Esq.
To CVC:
Citicorp Venture Capital, Ltd.
399 Park Avenue
14th Floor
New York, NY 10043
Attention: John Weber
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<PAGE> 10
With a copy to:
Kirkland & Ellis
Citicorp Center
153 East 53rd Street
New York, NY 10022-4675
Attention: Kirk A. Radke, Esq.
or such other address or to the attention of such other person as the recipient
party shall have specified by prior written notice to the sending party. Any
notice under this Agreement will be deemed to have been given when so delivered
or sent or, if mailed, five days after deposit in the U.S. mail.
(d) Successors and Assigns. All covenants and agreements in this
Agreement by or on behalf of any of the parties hereto will bind and inure to
the benefit of the respective successors and assigns of the parties hereto
whether so expressed or not. In addition, whether or not any express assignment
has been made, the provisions of this Agreement which are for the benefit of CVC
or holders of Restricted Securities are also for the benefit of, and enforceable
by, any subsequent holder of Restricted Securities.
(e) Consent to Amendments. Except as otherwise expressly provided
herein, the provisions of this Agreement may be amended and the Company may take
any action herein prohibited, or omit to perform any act herein required to be
performed by it, only if the Company has obtained the written consent of holders
of a majority of the issued and outstanding shares of the Stock issued
hereunder. No other course of dealing between the Company and CVC or any delay
in exercising any rights hereunder or under the Certificate of Incorporation
shall operate as a waiver of any rights of CVC.
(f) Survival of Representations and Warranties. All representations
and warranties contained herein or made in writing by any party in connection
herewith shall survive the execution and delivery of this Agreement and the
consummation of the transactions contemplated hereby, regardless of any
investigation made by CVC or on its behalf.
(g) Severability. Whenever possible, each provision of this
Agreement shall be interpreted in such manner as to be effective and valid under
applicable law, but if any provision of this Agreement is held to be invalid,
illegal or unenforceable in any respect under any applicable law or rule in any
jurisdiction, such invalidity, illegality or unenforceability shall not affect
any other provision or any other jurisdiction, but this Agreement shall be
reformed, construed and enforced in such jurisdiction as if such invalid,
illegal or unenforceable provision had never been contained herein.
(h) Entire Agreement. Except as otherwise expressly set forth
herein, this document embodies the complete agreement and understanding among
the parties hereto with respect to the subject matter hereof and supersedes and
preempts any prior understandings, agreements or representations by or among the
parties, written or oral, which may have related to the subject matter hereof in
any way.
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<PAGE> 11
(i) Counterparts. This Agreement may be executed in separate
counterparts each of which shall be an original and all of which taken together
shall constitute one and the same agree ment.
(j) Governing Law. The corporate laws of the State of Delaware will
govern all questions concerning the relative rights of the Company and its
stockholders. All other questions concerning the construction, validity and
interpretation of this Agreement shall be governed and construed in accordance
with the domestic laws of the State of New York, without giving effect to any
choice of law or conflict of law provision or rule (whether of the State of New
York or any other jurisdiction) that would cause the application of the laws of
any jurisdiction other than the State of New York.
(k) Descriptive Headings. The descriptive headings of this Agreement
are inserted for convenience only and do not constitute a part of this
Agreement.
* * *
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<PAGE> 12
IN WITNESS WHEREOF, the parties hereto have executed this Agreement
as of the date first above written.
GCIH, INC.
By: /s/ Richard Solar
--------------------------------
Name: Richard Solar
Title: Senior Vice President
CITICORP VENTURE CAPITAL, LTD.
By: /s/ John Weber
--------------------------------
Name: John Weber
Title: Assistant Vice President
<PAGE> 13
Exhibit A
Certificate of Incorporation
(see attached)
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<PAGE> 1
Exhibit 10.5
FORM OF DIRECTOR STOCK PURCHASE AGREEMENT
DIRECTOR STOCK PURCHASE AGREEMENT dated as of _________________, by
and between GCIH, Inc., a Delaware corporation (the "Company"), and ________
__________ (the "Director").
WHEREAS, the Company and the Director desire to enter into an
agreement that will provide for (i) the continuing service of the Director as a
member of the Board of Directors of the Company and/or Gerber Childrenswear,
Inc., a Delaware corporation ("GCI"), and (ii) the acquisition by the Director
of _______ shares of the Company's Class B Common Stock, par value $0.01 per
share, as adjusted for any stock split, stock dividend, share combination, share
exchange, recapitalization, merger, consolidation or other reorganization (the
"Class B Common") upon the terms and conditions set forth herein. The Class B
Common shall have the rights and preferences set forth in Exhibit A attached
hereto;
NOW, THEREFORE, in consideration of the mutual undertaking contained
herein, the parties hereto agree as follows:
1. Definitions. As used herein, the following terms shall have the
following meanings.
"Book Value" of each share of Director Stock will be equal to the
quotient determined by dividing (A) the excess of Company's assets over its
liabilities as set forth on the Company's audited balance sheet which has been
delivered for the most recent year end, by (B) the total number of shares of
Common Stock outstanding as of the date of such balance sheet as stated therein,
on a fully diluted basis, as determined in accordance with GAAP consistently
applied.
"CMP" means Citicorp Mezzanine Partners, L.P., a Delaware limited
partnership.
"Common Stock" means the Class A Common, the Class B Common, the
Class C Common Stock of the Company, par value $0.01 per share (the "Class C
Common"), and the Class D Common Stock of the Company, par value $0.01 per share
(the "Class D Common"), as adjusted for any stock split, stock dividend, share
combination, share exchange, recapitalization, merger, consolidation or other
reorganization.
<PAGE> 2
"CVC" means Citicorp Venture Capital, Ltd., a New York corporation.
"GAAP" means U.S. generally accepted accounting principles, as in
effect from time to time and as adopted by the Company with the consent of its
independent public accountants, consistently applied.
"Director Stock" means all of such shares of Class B Common acquired
by the Director hereunder and all shares of Common Stock hereafter acquired by
the Director. Director Stock will continue to be Director Stock in the hands of
any holder other than the Director, including all transferees of the Director
(except for the Company and CVC (or its designee)), and except as otherwise
provided herein, each such other holder of Director Stock will succeed to all
rights and obligations attributable to the Director as a holder of Director
Stock hereunder. Director Stock will also include shares of the Company's
capital stock issued with respect to Director Stock by way of a stock split,
stock dividend or other recapitalization. Director Stock will cease to be
Director Stock when transferred pursuant to a Public Sale.
"Original Cost" of each share of Common Stock purchased hereunder
will be equal to $1.00 (as proportionately adjusted for all subsequent stock
splits, stock dividends and other recapitalizations).
"Person" means an individual, a partnership, a corporation, an
association, a joint stock company, a limited liability company, a trust, a
joint venture, an unincorporated organization or a governmental entity or any
department, agency or political subdivision thereof.
"Public Sale" means any sale pursuant to a registered public
offering under the Securities Act or any sale to the public pursuant to Rule 144
under the Securities Act effected through a broker, dealer or market maker.
"Registration Rights Agreement" means the Registration Rights
Agreement, dated as of the date hereof, by and among the Company, CVC, the
Director and others, as in effect from time to time.
"Securities Act" means the Securities Act of 1933, as amended from
time to time.
"Stockholders Agreement" means the Stockholders Agreement, dated as
of the date hereof, by and among the Company, the Director, CVC and others, as
in effect from time to time.
"Subsidiary" means, with respect to any Person, any corporation,
partnership, association or other business entity of which (i) if a corporation,
a majority of the total voting power of shares of stock 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 that Person or one or more of the other Subsidiaries of that
Person or a combination thereof, or (ii) if a partnership, association or other
business entity, a majority of the partnership or other similar ownership
interest thereof is at the time owned or controlled, directly or indirectly, by
any Person or one or more Subsidiaries of that Person or a combination thereof.
For purposes
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<PAGE> 3
hereof, a Person or Persons shall be deemed to have a majority ownership
interest in a partnership, association or other business entity if such Person
or Persons shall be allocated a majority of partnership, association or other
business entity gains or losses or shall be or control the managing director or
general partner of such partnership, association or other business entity.
2. Board of Directors. As of the date hereof, the Director agrees to
serve as a member of the Board of Directors of the Company and/or each of its
Subsidiaries. The Director agrees to devote his best efforts to the business and
affairs of the Company and its Subsidiaries.
3. Purchase and Sale of Director Stock.
(a) Upon execution of this Agreement, the Director will purchase,
and the Company will sell, _____ shares of Class B Common at a price of $1.00
per share. The Company will deliver to the Director certificates representing
such shares, and the Director will deliver to the Company a check or wire
transfer of immediately available funds in the aggregate amount of $_______.
Upon execution of this Agreement, the Director shall execute and deliver a
joinder to the Stockholders Agreement and a joinder to the Registration Rights
Agreement.
(b) In connection with the purchase and sale of the Director Stock
hereunder, the Director represents and warrants to the Company that:
(i) The Director Stock to be pursuant to the Director
pursuant to this Agreement will be acquired for the
Director's own account and not with a view to, or
intention of, distribution thereof in violation of the
Securities Act, or any applicable state securities laws,
and the Director Stock will not be disposed of in
contravention of the Securities Act or any applicable
state securities laws.
(ii) No commission, fee or other remuneration is to be paid
or given directly or indirectly, to any Person for
soliciting the Director to purchase the Director Stock.
(iii) The Director is a director of the Company, is
sophisticated in financial matters and is able to
evaluate the risks and benefits of the investment in the
Director Stock and has determined that such investment
in the Director Stock is suitable for the Director,
based upon the Director's financial situation and needs,
as well as the Director's other securities holdings.
(iv) The Director qualifies as an "accredited investor"
within the meaning of Rule 501(a) of Regulation D under
the Securities Act.
(v) Neither the Director nor, to the Director's knowledge,
the Company, any predecessor, affiliate, director,
officer, general partner or beneficial owner of 10% or
more of any class of the Company's
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<PAGE> 4
equity securities, or any promoter presently connected
with the Company in any capacity:
(A) has filed a registration statement which is the
subject of a currently effective registration stop
order entered pursuant to any state's securities
law within the last five years;
(B) has been convicted within the last five years of
any felony or misdemeanor in connection with the
offer, purchase or sale of any security or any
felony involving fraud or deceit, including, but
not limited to, forgery, embezzlement, obtaining
money under false pretenses, larceny or conspiracy
to defraud;
(C) is currently subject to any state administrative
enforcement order or judgment entered by the state
securities administrator within the last five
years or is subject to any state's administrative
enforcement order or judgment in which fraud or
deceit, including, but not limited to, making
untrue statements of material facts and omitting
to state material facts, was found and the order
or judgment was entered within the last five
years;
(D) is subject to any state's administrative
enforcement order or judgment which prohibits,
denies or revokes the use of any exemption from
registration in connection with the offer,
purchase or sale of securities; or
(E) is currently subject to any order, judgment or
decree of any court of competent jurisdiction,
entered within the last five years, temporarily or
preliminarily restraining or enjoining such party
from engaging in or continuing any conduct or
practice in connection with the purchase or sale
of any security or involving the making of any
false filing with the state.
(vi) The Director is able to bear the economic risk of the
Director's investment in the Director Stock for an
indefinite period of time and the Director understands
that the Director Stock has not been registered under
the Securities Act and cannot be sold unless
subsequently registered under the Securities Act or an
exemption from such registration is available.
(vii) The Director has had an opportunity to ask questions and
receive answers concerning the terms and conditions of
the offering of Director Stock and has had full access
to such other information
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<PAGE> 5
concerning the Company as the Director has requested.
The Director has reviewed, or has had an opportunity to
review, a copy of the Stock Purchase Agreement, pursuant
to which the Company will acquire substantially all of
the Stock of GCI from the Seller, and the Director is
familiar with the transactions contemplated thereby. The
Director has also reviewed, or has had an opportunity to
review, the following documents: (A) the Company's
Certificate of Incorporation and Bylaws; (B) the loan
agreements, notes and related documents with GCI's
senior lenders; (C) the loan agreements, notes and
related documents with GCI's senior subordinated lender;
and (D) all of the materials provided by the Company and
its Subsidiaries to any Person providing financing to
the Company and its Subsidiaries, including, but not
limited to, the Company's and GCI's pro forma balance
sheets, as well as financial projections, estimates,
forecasts, budgets, summaries, reports and other related
documents.
(viii) This Agreement constitutes the legal, valid and binding
obligation of the Director, enforceable in accordance
with its terms, and the execution, delivery and
performance of this Agreement by the Director does not
and will not conflict with, violate or cause a breach of
any agreement, contract or instrument to which the
Director is a party or any judgment, order or decree to
which the Director is subject.
4. Restrictions on Transfer.
(a) The certificates representing the Director Stock will bear the
following legend:
"THE SECURITIES REPRESENTED BY THIS CERTIFICATE WERE ORIGINALLY
ISSUED AS OF ____________, 1997, HAVE NOT BEEN REGISTERED UNDER THE
SECURITIES ACT OF 1933, AS AMENDED (THE "ACT"), AND MAY NOT BE SOLD
OR TRANSFERRED IN THE ABSENCE OF AN EFFECTIVE REGISTRATION STATEMENT
UNDER THE ACT OR AN EXEMPTION FROM REGISTRATION THEREUNDER.
(b) No holder of Director Stock may sell, transfer or dispose of any
Director Stock (except pursuant to an effective registration statement under the
Securities Act) without first delivering to the Company an opinion of counsel
(reasonably acceptable in form and substance to the Company) that neither
registration nor qualification under the Securities Act and applicable state
securities laws is required in connection with such transfer.
(c) Each holder of Director Stock agrees not to effect any public
sale or distribution of any Director Stock or other equity securities of the
Company, or any securities convertible into or exchangeable or exercisable for
any of the Company's equity securities, during
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<PAGE> 6
the seven days prior to and the 180 days after the effectiveness of any
underwritten public offering, except as part of such underwritten public
offering or if otherwise permitted by the Company.
5. Repurchase Option.
(a) The Director Stock is subject to repurchase by the Company or
its designees (the "Purchasing Entity") at any time and from time to time
pursuant to the terms and conditions set forth in this paragraph 5 (the
"Repurchase Option").
(b) The purchase price for each Share of Director Stock will be the
then applicable Book Value for such share.
(c) The Purchasing Entity may elect to purchase all or any portion
of the Director Stock by delivering written notice (the "Repurchase Notice") to
the Director. The Repurchase Notice will set forth the number of shares to be
acquired, the nominated purchaser of the shares, the aggregate consideration to
be paid for such shares and the time and place for the closing of the
transaction.
(d) The closing of the purchase of the Director Stock pursuant to
the Repurchase Option shall take place on the date designated by the Purchasing
Entity in the Repurchase Notice, which may be the date of such Repurchase
Notice. The Company and the Director agree that the closing of the purchase of
such shares shall be, for all purposes, deemed to have occurred upon the tender
by the Purchasing Entity to the Director of the purchase price thereof. The
Purchasing Entity will pay for the Director Stock to be purchased pursuant to
the Repurchase Option by delivery of a check in the aggregate amount of the
purchase price for such securities. The Purchasing Entity of Director Stock
hereunder will be entitled to receive customary representations and warranties
from the Director regarding such sale.
6. Representations and Warranties of the Company. The Company hereby
represents and warrants to the Director that:
(a) Immediately following the consummation of the Equity
Transactions, the authorized capital stock of the Company shall consist of (a)
_______ shares of Class A Common, of which _________ shares shall be issued and
outstanding, (b) _______ shares of Class B Common, of which _________ shares
shall be issued and outstanding, (c) _______ shares of Class C Common, of which
_______ shares shall be issued and outstanding, (d) _________ shares of Class D
Common, of which no shares shall be issued and outstanding and _________ shares
shall be reserved for issuance upon exercise of the Warrant held by CMP, and (e)
_________ shares of 12.00% Series A Preferred, of which _________ shares shall
be issued and outstanding. Except as set forth in this Section 5(a) and except
for capital stock of the Company's Subsidiaries owned directly or indirectly by
the Company, as of immediately following the consummation of the transactions
contemplated hereby, neither the Company nor any Subsidiary shall have
outstanding any stock or securities convertible or exchangeable for any shares
of its capital stock or containing any profit participation features, nor shall
it have outstanding any rights or options to subscribe for or to purchase its
capital stock or any stock or securities convertible into or exchangeable for
its capital stock or any stock appreciation rights or phantom stock plans. As of
immediately following the consummation of the
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<PAGE> 7
transactions contemplated hereby, all of the outstanding shares of the Company's
capital stock shall be validly issued, fully paid and nonassessable.
(b) There are no statutory or, to the best of the Company's
knowledge, contractual stockholders preemptive rights or rights of refusal with
respect to the issuance of the Director Stock hereunder. To the best of the
Company's knowledge, the Company has not violated any applicable federal or
state securities laws in connection with the offer, sale or issuance of any of
its capital stock, and the offer, sale and issuance of the Director Stock
hereunder do not require registration under the Securities Act or any applicable
state securities laws. To the best of the Company's knowledge, there are no
agreements between the Company's stockholders with respect to the voting or
transfer of the Company's capital stock, except for (a) the Stockholders
Agreement, (b) the Registration Rights Agreement and (c) this Director Stock
Purchase Agreement.
7. Notices. All notices, demands or other communications to be given
or delivered under or by reason of the provisions of this Agreement will be in
writing and will be deemed to have been given when delivered personally, mailed
by certified or registered mail, return receipt requested and postage prepaid,
or sent via a nationally recognized overnight courier, or sent via facsimile to
the recipient. Such notices, demands and other communications will be sent to
the address indicated below:
To the Company:
GCIH, Inc.
531 Main Street
Greenville, SC 29602
Attention: President
Telecopy No. (803) 240-5977
With a copy to:
Citicorp Venture Capital, Ltd.
399 Park Avenue
14th Floor
New York, NY 10043
Attention: John Weber
Telecopy No.: (212) 888-2940
To the Director:
---------------------------------
---------------------------------
---------------------------------
---------------------------------
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<PAGE> 8
To CVC:
Citicorp Venture Capital
399 Park Avenue
14th Floor
New York, NY 10043
Attention: John Weber
Telecopy No.: (212) 888-2940
With a copy to:
Kirkland & Ellis
153 East 53rd Street
New York, NY 10022
Attention: Kirk A. Radke, Esq.
Telecopy No.: (212) 446-4900
or such other address or to the attention of such other person as the recipient
party shall have specified by prior written notice to the sending party.
8. Miscellaneous.
(a) Survival of Representations and Warranties. All representations
and warranties contained herein or made in writing by any party in connection
herewith shall survive the execution and delivery of this Agreement and the
consummation of the transactions contemplated hereby.
(b) Transfers in Violation of Agreement. Any Transfer or attempted
Transfer of any Director Stock in violation of any provision of this Agreement
shall be null and void, and the Company shall not record such Transfer on its
books or treat any purported transferee of such Director Stock as the owner of
such stock for any purpose.
(c) Severability. Whenever possible, each provision of this
Agreement will be interpreted in such manner as to be effective and valid under
applicable law, but if any provision of this Agreement is held to be invalid,
illegal or unenforceable in any respect under any applicable law or rule in any
jurisdiction, such invalidity, illegality or unenforceability will not affect
any other provision or any other jurisdiction, but this Agreement will be
reformed, construed and enforced in such jurisdiction as if such invalid,
illegal or unenforceable provision had never been contained herein.
(d) Complete Agreement. This Agreement and the other documents of
even date herewith which have been executed by the Company and the Director
embody the complete agreement and understanding among the parties and supersede
and preempt any prior under standings, agreements or representations by or among
the parties, written or oral, which may have related to the subject matter
hereof in any way.
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<PAGE> 9
(e) Counterparts. This Agreement may be executed in separate
counterparts, each of which is deemed to be an original and all of which taken
together constitute one and the same agreement.
(f) Successors and Assigns. Except as otherwise provided herein,
this Agreement shall bind and inure to the benefit of and be enforceable by the
Director, the Company, CVC and their respective successors and assigns
(including subsequent holders of Director Stock); provided that the rights and
obligations of the Director under this Agreement shall not be assignable except
in connection with a permitted transfer of Director Stock hereunder.
(g) Governing Law. The corporate law of the State of Delaware will
govern all questions concerning the relative rights of the Company and its
stockholders. All other questions concerning the construction, validity and
interpretation of this Agreement and the exhibits hereto will be governed by and
construed in accordance with the domestic laws of the State of New York, without
giving effect to any choice of law or conflict of law provision or rule (whether
of the State of New York or any other jurisdiction) that would cause the
application of the laws of any jurisdiction other than the State of New York.
(h) Remedies. Each of the parties to this Agreement (including CVC)
will be entitled to enforce its rights under this Agreement specifically, to
recover damages and costs (including reasonable attorneys' fees) caused by any
breach of any provision of this Agreement and to exercise all other rights
existing in its favor. The parties hereto agree and acknowledge that money
damages may not be an adequate remedy for any breach of the provisions of this
Agreement and that any party may in its sole discretion apply to any court of
law or equity of competent jurisdiction (without posting any bond or deposit)
for specific performance and/or other injunctive relief in order to enforce or
prevent any violations of the provisions of this Agreement.
(i) Amendment and Waiver. The provisions of this Agreement may be
amended and waived only with the prior written consent of the Company, the
Director and CVC.
* * * * *
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<PAGE> 10
IN WITNESS WHEREOF, the parties hereto have executed this Director
Stock Purchase Agreement as of the date first written above.
GCIH, INC.
By: /s/ Richard Solar
-------------------------------
Name: RICHARD SOLAR
Title:Senior Vice President
------------------------------------
[Director]
ACKNOWLEDGED AND AGREED:
CITICORP VENTURE CAPITAL, LTD.
By: /s/ John Weber
-------------------------------------
Name: JOHN WEBER
Title: Assistant Vice President
<PAGE> 11
CONSENT OF SPOUSE
The undersigned spouse of the Director named in the attached
Agreement has read and understands the terms of the Agreement and has had an
opportunity to discuss it with individuals of her choice. The undersigned
understands that even if the securities referred to in the Agreement are
considered to be a part of the "marital property" belonging to her and the
Director, the Agreement restricts the transfer or distribution of those
securities to anyone other than the Director, a "Permitted Transferee" as such
term is defined in the Stockholders Agreement, the company which issued the
securities and certain other persons. The undersigned agrees to these
restrictions and waives any rights (other than to the economic value of such
securities) she might otherwise have in those shares as specifically
identifiable property.
______________________ (Signature)
______________________ (Print Name)
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<PAGE> 12
EXHIBIT A
Certificate of Incorporation
See attached.
A-1
<PAGE> 1
Exhibit 10.7
================================================================================
STOCK PURCHASE AGREEMENT
for the purchase of the
outstanding capital stock of
AUBURN HOSIERY MILLS, INC.,
by and among
GCIH, INC.,
JAMES P. MANNING,
EILEEN MANNING
and
CERTAIN CHARITABLE REMAINDER TRUSTS
November 12, 1997
================================================================================
<PAGE> 2
TABLE OF CONTENTS
Page
Section 1. Purchase and Sale................................................2
1A. Purchase and Sale of the Shares..................................2
1B. Purchase Price...................................................2
1C. The Closing......................................................2
Section 2. Representations and Warranties of the Sellers With Respect
to the Companies.................................................3
2A. Organization, Corporate Power and Licenses.......................3
2B. Capital Stock and Related Matters................................3
2C. Subsidiaries; Investments........................................4
2D. Authorization; No Breach.........................................4
2E. Financial Statements.............................................4
2F. Absence of Undisclosed Liabilities...............................4
2G. Accounts Receivable..............................................5
2H. Inventory........................................................5
2I. Product Warranty.................................................5
2J. No Material Adverse Effect.......................................5
2K. Absence of Certain Developments..................................5
2L. Assets...........................................................7
2M. Tax Matters......................................................7
2N. Contracts and Commitments........................................8
2O. Intellectual Property Rights....................................10
2P. Litigation, etc. ...............................................11
2Q. Brokerage.......................................................12
2R. Insurance.......................................................12
2S. Employees.......................................................12
2T. Employee Benefits...............................................13
2U. Compliance with Laws; Permits...................................16
2V. Environmental and Safety Matters................................16
2W. Affiliate Transactions..........................................17
2X. Suppliers and Customers.........................................17
2Y. Real Property...................................................18
2Z. Fees and Expenses...............................................19
2AA. Sufficiency of Assets...........................................19
2BB. Exclusivity.....................................................19
Section 3. Representations and Warranties of the Sellers...................19
3A. Power and Authority.............................................19
3B. Authorization; No Breach........................................19
3C. Title to Shares.................................................20
3D. Brokerage.......................................................20
3E. Litigation, etc. ...............................................20
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<PAGE> 3
Section 4. Representations and Warranties of the Purchaser.................20
4A. Organization. ..................................................20
4B. Authorization; No Breach. ......................................20
4C. Brokerage.......................................................21
4D. Investment. ....................................................21
Section 5. Confidentiality, Noncompetition and Nonsolicitation for
James P. Manning ...............................................21
5A. Confidential Information........................................21
5B. Work Product....................................................22
5C. Noncompete, Nonsolicitation.....................................22
Section 6. Indemnification..................................................23
6A. Survival of Representations and Warranties......................23
6B. General Indemnification. .......................................23
Section 7. Conditions to Closing...........................................27
7A. Conditions of the Purchaser's Obligations at the Closing........27
7B. Waiver..........................................................30
7C. Conditions of the Sellers' Obligations at the Closing...........30
(i) Representations and Warranties; Covenants.................30
(ii) Litigation................................................30
(iii) Consents and Approvals....................................30
(iv) Escrow Agreement..........................................30
(v) Sport Socks Ireland Agreement.............................30
(vi) Indemnification Agreement.................................31
(vii) Closing Documents.........................................31
7D. Waiver..........................................................31
Section 8. Pre-Closing Covenants and Agreements............................31
8A. General.........................................................31
8B. Third Party Notices and Consents................................31
8C. Operation of Business...........................................31
8D. Full Access.....................................................31
8E. Notice of Material Developments.................................32
8F. Exclusivity.....................................................32
8G. Tax Matters.....................................................32
8H. Intercompany Obligations/Affiliate Transactions.................32
8I. Termination.....................................................33
8J. Effect of Termination...........................................33
8K. Certain Releases................................................33
8L. Existing Liens..................................................34
Section 9. Post-Closing Covenants and Agreements...........................34
9A. Certain Tax Matters.............................................34
9B. Press Release and Announcements.................................35
9C. Litigation Support..............................................35
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<PAGE> 4
9D. Transition......................................................36
9E. General.........................................................36
Section 10. Definitions....................................................36
Section 11. Miscellaneous..................................................43
11A. Fees and Expenses...............................................43
11B. Remedies........................................................44
11C. Consent to Amendments; Waivers..................................44
11D. Successors and Assigns..........................................44
11E. Severability....................................................44
11F. Counterparts....................................................44
11G. Descriptive Headings; Interpretation............................45
11H. Entire Agreement................................................45
11I. No Third-Party Beneficiaries....................................45
11J. Schedules and Exhibits..........................................45
11K. GOVERNING LAW; WAIVER OF JURY TRIAL.............................45
11L. Notices.........................................................46
11M. Jurisdiction and Venue..........................................47
11N. No Strict Construction..........................................48
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<PAGE> 5
EXHIBITS AND SCHEDULES
Exhibits:
Exhibit A - Share Ownership
Exhibit B - Form of Escrow Agreement
Exhibit C - Form of Opinion of Sellers' Counsel
Schedules:
Schedule 1C - Manning Debt as of September 30, 1997
Schedule 2A - Foreign Qualifications Schedule
Schedule 2B - Capital Stock of Each Company
Schedule 2C - Subsidiaries
Schedule 2D - Consents
Schedule 2E - Financial Statements
Schedule 2F - Disclosed Liabilities
Schedule 2G - Accounts Receivable
Schedule 2H - Inventory
Schedule 2I - Product Warranty
Schedule 2K - Absence of Certain Developments
Schedule 2L - Liens
Schedule 2M - Taxes
Schedule 2N - Contracts and Commitments
Schedule 2O - Intellectual Property Rights
Schedule 2P - Litigation
Schedule 2R - Insurance
Schedule 2S - Employees; JPM Employees
Schedule 2T - Employees Benefit
Schedule 2U - Compliance
Schedule 2V - Environmental and Safety Matters
Schedule 2W - Affiliate Transactions
Schedule 2X - Supplies and Customers
Schedule 2Y(i) - Owned Property
Schedule 2Y(ii) - Leased Property
Schedule 2Y(iii) - Real Property
Schedule 7A(iii) - Directors
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<PAGE> 6
STOCK PURCHASE AGREEMENT
This STOCK PURCHASE AGREEMENT (this "Agreement") is made as of
November 12, 1997 by and among GCIH, Inc., a Delaware corporation ("GCIH"),
James P. Manning ("Manning"), Eileen Manning, The Laurie Donnelly Charitable
Remainder Trust, The Helen Enigan Charitable Remainder Trust, The Kathryn
Jackson Charitable Remainder Trust, The James and Eileen Manning Charitable
Remainder Trust, The Lynn Satalino Charitable Remainder Trust and The Mary
Manning Charitable Remainder Trust (each such charitable remainder trust, a
trust formed under the laws of the state of State of New York) (each of the
eight immediately preceding parties, a "Seller" and collectively, the
"Sellers"). The Purchaser and the Sellers are sometimes collectively referred to
herein as the "Parties" and individually as a "Party". Capitalized terms used
herein and not otherwise defined herein have the meanings given to such terms in
Section 10.
WHEREAS, as of the date hereof, (a) the Sellers collectively own
100% of the outstanding capital stock (the "Auburn Shares") of Auburn Hosiery
Mills, Inc., a Kentucky corporation, ("Auburn") and (b) Auburn owns 99.99% and
Manning owns .01% (the "Manning UK Share") of the outstanding capital stock of
Sport Socks Company Limited, a company registered under the laws of the England
and Wales ("Sport Socks UK"). Auburn and Sport Socks UK are referred to
collectively herein as the "Companies". The Auburn Shares and the Manning UK
Share are referred to collectively as the "Shares";
WHEREAS, prior to the Closing Date, the Sellers will have
transferred or caused to be transferred (a) to Sport Socks (Ireland) Ltd., a
company organized under the laws of Ireland, 100% of the capital stock of which
is owned collectively by Manning and Eileen Manning ("Sports Socks Ireland")
certain of the assets of Euro Sport Socks Company, Ltd., a company organized
under the laws of the United Kingdom, and (b) to Auburn, certain of the assets
of Converse Accessories, Inc. (such companies (a)-(b), the "Ancillary Companies"
and such transfers, the "Ancillary Company Transfers");
WHEREAS, prior to the Ancillary Company Transfers, the Companies,
Sport Socks Ireland, and the Ancillary Companies engaged, collectively, in the
manufacture and distribution of licensed athletic socks for men and boys in the
United States and Western Europe under the brand names Wilson(R), Coca-Cola(R),
Converse(R) and Dunlop(R) (such business, as conducted by the Companies, Sport
Socks Ireland and the Ancillary Companies, collectively, the "Auburn Business")
and as of the date hereof, the Auburn Business is conducted by the Companies;
WHEREAS, subject to the terms and conditions set forth herein, the
Purchaser desires to purchase all of the Shares from the Sellers and the Sellers
desire to sell the Shares to the Purchaser; and
WHEREAS, simultaneously with the execution hereof, the Purchaser and
Manning shall enter into a Purchase Agreement (the "Sport Socks Ireland
Agreement"), pursuant to which the
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<PAGE> 7
Purchaser shall purchase all of the shares of outstanding capital stock of Sport
Socks Ireland (the "Irish Shares") from Manning and Manning shall sell the Irish
Shares to Purchaser.
NOW, THEREFORE, in consideration of the mutual covenants, agreements
and understandings herein contained, the receipt and sufficiency of which is
hereby acknowledged, the Parties hereby agree as follows:
Section 1. Purchase and Sale
1A. Purchase and Sale of the Shares. At the Closing, subject to the
terms set forth herein, the Purchaser shall purchase from each Seller, and each
Seller shall sell, convey, assign, transfer and deliver to the Purchaser, that
number of Shares set forth opposite such Seller's name on Exhibit A hereto, free
and clear of any mortgage, pledge, security interest, encumbrance, charge or
other Lien.
1B. Purchase Price. The consideration to be paid by Purchaser for
the Shares (the "Purchase Price") shall be $28,000,000.
1C. The Closing. The closing of the purchase and sale of the Shares
(the "Sale") and the transactions relating thereto (collectively, the "Closing")
will take place at the offices of Kirkland & Ellis, 153 East 53rd Street, New
York, New York, commencing at 9:00 a.m. local time, as soon as practicable
following the satisfaction or waiver of all the conditions set forth in Section
7 hereof (the "Closing Date") or at such other place and time as may be agreed
upon by the Sellers and the Purchaser. The date and time of the Closing are
referred to as the "Closing Date". At the Closing, subject to the satisfaction
or waiver of each of the conditions set forth in Section 7:
(i) the Purchaser shall deliver to each Seller, by wire
transfer of immediately available funds to the account or accounts specified in
writing by such Seller, the amount set forth opposite such Seller's name on
Exhibit A hereto;
(ii) the Purchaser shall deliver on behalf of Manning,
$700,000 by wire transfer of immediately available funds to an escrow account
(the "Escrow Account") pursuant to an escrow agreement dated as of the Closing
Date by and among the Purchaser, Manning and SunTrust Bank, Atlanta, as Escrow
Agent (the "Escrow Agent"), in the form of Exhibit B hereto (the "Escrow
Agreement");
(iii) Manning shall repay or cause to be repaid to any member
of the Company Group, in full, any Indebtedness owed by Manning or any Person
controlled by or related to Manning (other than Sport Socks UK or Sport Socks
Ireland) to any member of the Company Group (such Indebtedness, the "Manning
Debt"), the amount of which as of September 30, 1997 is set forth on Schedule 1C
hereto; and
(iv) each of the Sellers will deliver to the Purchaser stock
certificates representing all of his, hers or its Shares, endorsed in blank or
accompanied by duly executed and witnessed assignment documents.
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<PAGE> 8
Section 2. Representations and Warranties of the Sellers With
Respect to the Companies. As a material inducement to the Purchaser to enter
into this Agreement and purchase the Shares hereunder, each of the Sellers,
jointly and severally, represents and warrants to the Purchaser as follows:
2A. Organization, Corporate Power and Licenses. Each of the
Companies is a corporation duly organized, validly existing and in good standing
under the Laws of its jurisdiction of incorporation and is qualified to do
business in every jurisdiction in which the failure to be so qualified would
reasonably be expected to have a Material Adverse Effect, which such
jurisdictions are set forth on Schedule 2A attached hereto. Each of the
Companies possesses all requisite corporate power and authority necessary to own
and operate its properties, to carry on its businesses as now conducted and
presently proposed to be conducted and to carry out the transactions
contemplated by this Agreement. The copies of the charter documents,
organizational documents, and bylaws of the Companies which have been furnished
to the Purchaser reflect all amendments made thereto at any time prior to the
date of this Agreement and are correct and complete. The minute books
(containing the records of meetings of the stockholders, the board of directors
and any committees of the board of directors), the stock certificate books and
the stock record books of each of the Companies are correct and complete in all
material respects.
2B. Capital Stock and Related Matters.
(i) As of immediately prior to the Closing, the authorized capital
stock of each of the Companies is as set forth on Schedule 2B(i) attached
hereto. The Shares constitute all of the outstanding capital stock of Auburn and
as of immediately prior to the Closing will be held beneficially and of record
by each Seller (free and clear of all Encumbrances) as set forth on Schedule
2B(i) attached hereto. Schedule 2B(i) sets forth the capitalization of each of
the Companies and the name of each Person holding any equity securities of such
Company, any securities convertible or exchangeable for any equity securities of
such Company and any options or other rights to purchase equity securities of
such Company and the amount and type of such securities, options or rights held
by such Persons as of the Closing Date and immediately thereafter. Neither of
the Companies has outstanding (1) any stock or securities convertible or
exchangeable for any shares of its capital stock or containing any profit
participation features, (2) any rights or options to subscribe for or to
purchase its capital stock or (3) any stock appreciation rights or phantom stock
or similar plans or rights. Neither of the Companies is subject to any
obligation (contingent or otherwise) to repurchase or otherwise acquire or
retire any shares of its capital stock or any warrants, options or other rights
to acquire its capital stock. As of the Closing and immediately thereafter, all
of the outstanding shares of the Companies' capital stock shall be validly
issued, fully paid and nonassessable.
(ii) Neither of the Companies has received written notice of any
violation and is not otherwise aware of any violation of any applicable federal
or state securities laws, whether of the United States or otherwise, in
connection with the offer, sale or issuance of any of its capital stock or the
offer, sale or issuance of any of its debt securities. There are no agreements
between any of the Companies' shareholders or with any other Person with respect
to the voting, transfer or registration of any of the Companies' capital stock
or with respect to any other aspect of any of the
- 3 -
<PAGE> 9
Companies' affairs that will survive the Closing Date (other than this Agreement
and except as provided in Schedule 2B(ii) attached hereto).
2C. Subsidiaries; Investments. Except as set forth on Schedule 2C
attached hereto, neither of the Companies owns nor holds the right to acquire
any shares of stock or any other security or interest in any other Person. Other
than Auburn, the sole subsidiary of which is Sport Socks UK, neither of the
Companies has ever had any Subsidiaries.
2D. Authorization; No Breach. The execution, delivery and
performance of the agreements or instruments contemplated hereby to which either
of the Companies is a party or by which either of the Companies is bound have
been duly authorized by such Company. All agreements contemplated hereby to
which either of the Companies is a party, when executed and delivered by such
Company in accordance with the terms hereof, shall each constitute a valid and
binding obligation of such Company enforceable in accordance with their terms,
except as such enforceability may be limited by (x) applicable insolvency,
bankruptcy, reorganization, moratorium or other similar laws affecting
creditors' rights generally and (y) applicable equitable principles (whether
considered in a proceeding at law or in equity). Except as set forth on Schedule
2D attached hereto, the execution, delivery and performance by the Sellers of
this Agreement and the agreements to be executed in connection herewith, and the
fulfillment of and compliance with the respective terms hereof and thereof by
the Sellers, do not and shall not (i) conflict with or result in a breach of the
terms, conditions or provisions of, (ii) constitute a default under (whether
with or without the passage of time, the giving of notice or both), (iii) give
any third party the right to modify, terminate or accelerate any obligation
under, (iv) result in a violation of, or (v) require any authorization, consent,
approval, exemption or other action by or notice or declaration to, or filing
with, any Government Entity or third party pursuant to, (A) the organizational
documents of either of the Companies, (B) any Law to which either of the
Companies is subject, or (C) any agreement, instrument, order, judgment or
decree to which either of the Companies is subject.
2E. Financial Statements. (i) Attached hereto as Schedule 2E are:
(a) the audited consolidated balance sheets of each of the Companies as of
December 31, 1995 and December 31, 1996 (collectively, the "1996 Balance Sheet")
and the related statements of income, stockholders' equity and cash flows for
the respective twelve-month periods then ended and (b) the unaudited balance
sheet of Auburn as of September 30, 1997 (the "Interim Balance Sheet"), and the
related statements of income for the nine-month period then ended.
(ii) Except as set forth on Schedule 2E, each of the foregoing
financial statements (including in all cases the notes thereto, if any) fairly
presents the financial condition, operating results and cash flows of the
Companies, if applicable, and has been prepared in accordance with (a) GAAP in
the case of Auburn and (b) in the case of the 1996 Balance Sheet and related
financial statements, Auditing Standards issued by the Auditing Practices Board
of the United Kingdom in the case of Sport Socks UK, in each case consistently
applied throughout such financial statements and the periods covered thereby,
subject in the case of the unaudited financial statements to the absence of
footnote disclosure and year end adjustment.
2F. Absence of Undisclosed Liabilities. Except as set forth on
Schedule 2F attached hereto, to the Knowledge of Manning, Jack Lichtenstein,
Gordon Minter, Tom Maurer,
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<PAGE> 10
Kevin Angliss or (for purposes of Sport Socks UK only) Donald Murphy
(collectively, the "Manning Parties") neither of the Companies has any
obligation or liability (whether accrued, absolute, contingent, unliquidated or
otherwise, whether due or to become due and regardless of when asserted)
required to be set forth on a balance sheet in accordance with GAAP arising out
of transactions entered into at or prior to the date hereof, or any action or
inaction at or prior to the date hereof, or any state of facts existing at or
prior to the date hereof, other than: (i) liabilities set forth on the
liabilities side of the 1996 Balance Sheet (rather than any notes thereto), (ii)
liabilities and obligations which have arisen after the date of the 1996 Balance
Sheet in the ordinary course of business (none of which is a liability resulting
from breach of contract, breach of warranty, tort, infringement, claim or
lawsuit) and (iii) other liabilities and obligations expressly disclosed on any
Schedule to this Agreement, or any liabilities and obligations which would be
reasonably likely to be caused by, and are caused by, facts expressly disclosed
on any Schedule to this Agreement.
2G. Accounts Receivable. Except as set forth on Schedule 2G attached
hereto, all notes and accounts receivables of the Companies are reflected
properly on their books and records, are valid receivables subject to no setoffs
or counterclaims other than setoffs or counterclaims in the ordinary course of
business and are current and collectible in accordance with their terms at
levels consistent with the past custom and practice of the Companies.
2H. Inventory. Except as set forth on Schedule 2H attached hereto,
the inventory shown on the 1996 Balance Sheet and the inventory on hand as of
the Closing Date consists or shall consist of a quantity and quality usable and
saleable in the ordinary course of business consistent with past custom and
practice.
2I. Product Warranty. All products manufactured, sold, leased or
delivered by either of the Companies have been in conformity in all material
respects with all applicable contractual commitments and all express and implied
warranties, and neither of the Companies has any liability (and there is no
reasonable basis for any present or future action, suit, proceeding, hearing,
investigation, charge, complaint, claim or demand against it giving rise to any
such liability) for replacement or repair thereof or other damages in connection
therewith in excess of past custom and practice and experience. No products
manufactured, sold, leased or delivered by either of the Companies and no
services rendered by either of the Companies are subject to any Guarantee,
warranty or other indemnity beyond the applicable standard terms and conditions
of such sale, lease or service. Schedule 2I attached hereto includes copies of
such standard terms and conditions of sale, lease and service for the Companies
(containing applicable guaranty, warranty and indemnity provisions).
2J. No Material Adverse Effect. Since December 31, 1996, there has
occurred no fact, event or circumstance which has had or would reasonably be
expected to have a Material Adverse Effect.
2K. Absence of Certain Developments. Except as expressly
contemplated by this Agreement, since December 31, 1996 each of the Companies
has conducted its business only in the ordinary course of business consistent
with past custom and practice. In addition, except as expressly contemplated by
this Agreement, or as set forth on Schedule 2K, since September 30, 1997,
neither of the Companies has:
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<PAGE> 11
(i) issued any notes, bonds or other debt securities or any capital
stock or other equity securities or any securities or rights convertible,
exchangeable or exercisable into any capital stock or other equity securities;
(ii) incurred any Indebtedness, other than Indebtedness to
unaffiliated third parties in the ordinary course of business;
(iii) discharged or satisfied any material Lien or paid any material
obligation or liability, other than current liabilities paid in the ordinary
course of business consistent with past custom and practice;
(iv) declared, set aside or made any payment or distribution of cash
or other property to the Sellers with respect to their capital stock or other
equity securities, or purchased, redeemed or otherwise acquired any shares of
its capital stock or other equity securities (including any warrants, options or
other rights to acquire its capital stock or other equity securities);
(v) mortgaged or pledged any of its properties or assets or
subjected them to any Lien, except Permitted Liens;
(vi) sold, assigned, transferred, leased, licensed or abandoned any
of its assets, tangible or intangible (including, without limitation, any
Intellectual Property rights), except in the ordinary course of business
consistent with past custom and practice;
(vii) made or granted any bonus or any wage or salary increase to
any employee or group of employees except in the ordinary course of business in
accordance with past custom and practice, or made or granted any increase in any
employee benefit plan or arrangement, or amended or terminated any existing
employee benefit plan or arrangement or adopted any new employee benefit plan or
arrangement;
(viii) made capital expenditures or commitments therefor in excess
of $200,000 in the aggregate;
(ix) except in the ordinary course of business in accordance with
past custom and practice and pursuant to the Companies' existing credit
facilities, delayed, postponed or canceled the payment of any accounts payable
or any other liability or obligation or agreed or negotiated with any party to
extend the payment date of any accounts payable or accelerated the collection of
any accounts or notes receivable;
(x) except for travel advances made in the ordinary course, made any
loans or advances to, Guarantees for the benefit of, or any Investments in, any
Persons or formed any Subsidiary;
(xi) suffered any damage, destruction or casualty loss exceeding in
the aggregate $25,000, whether or not covered by insurance, or experienced any
material changes in the amount and scope of insurance coverage;
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<PAGE> 12
(xii) made any change in any method of accounting or accounting
policies, or made any write-down or write-up in the value of its inventory;
(xiii) directly or indirectly engaged in any transaction or entered
into any arrangement with any officer, director, partner, shareholder or
Affiliate of either of the Companies;
(xiv) amended its articles of incorporation, bylaws or other
organizational documents;
(xv) made any payment to any Party with respect to any Seller
Expenses;
(xvi) increased the amount of Manning Debt, other than Indebtedness
of JPM incurred in the ordinary course of business in accordance with past
practices, assuming that sales commissions payable by Auburn to JPM are accrued
at a rate of 5.5% for such period;
(xvii) (A) hired or fired any employee of either Company having an
annual base salary in calendar year 1997 of $50,000 or more (or the equivalent
in any other currency assuming conversion into U.S. dollars at the Prevailing
Exchange Rate) or (B) hired any individual who, if employed on September 30,
1997, would be a JPM Employee (as hereinafter defined) or fired any JPM
Employee;
(xviii) taken any action or omit to take any action which act or
omission would reasonably be expected to have a Material Adverse Effect; or
(xix) agreed, whether orally or in writing, to do any of the
foregoing.
2L. Assets. Except as set forth on Schedule 2L attached hereto, each
of the Companies has good, marketable and valid title to, a valid, marketable
leasehold interest in, or a valid license or right to use, the assets, tangible
or intangible, used by it, located on its premises or shown on the 1996 Balance
Sheet or the Interim Balance Sheet or acquired thereafter free and clear of all
Liens other than Permitted Liens, except for assets disposed of in the ordinary
course of business since the date of the 1996 Balance Sheet or Interim Balance
Sheet, as the case may be.
2M. Tax Matters. Except as set forth on Schedule 2M attached hereto:
(i) each of the Companies has filed or caused to be filed all
material Tax Returns which it is required to file under applicable laws
and regulations, and all such Tax Returns are complete and correct in all
material respects;
(ii) each of the Companies has paid all material Taxes due and
owing by it (whether or not such Taxes are shown or required to be shown
on a Tax Return) or has accrued a liability with respect thereto on the
books and records of the Companies in accordance with GAAP and the prior
accounting practices of the Companies and has withheld and paid over to
the appropriate taxing authority all material Taxes which it is required
to withhold from amounts paid or owing to any employee, shareholder,
creditor or other third party;
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<PAGE> 13
(iii) neither of the Companies has waived any statute of
limitations with respect to any material Taxes or agreed to any extension
of time for filing any material Tax Return which has not been filed; and
neither of the Companies has consented to extend to a date later than the
date hereof the period in which any material Tax may be assessed or
collected by any Taxing Authority;
(iv) the accruals for Taxes on the books and records of the
Companies are adequate in accordance with GAAP and the prior accounting
practices of the Companies to pay all Tax liabilities of each of the
Companies not yet paid for all periods through the Closing Date;
(v) no foreign, federal, state or local tax audits or
administrative or judicial proceedings are pending or being conducted with
respect to the Companies;
(vi) no claim has ever been made by a taxing authority in a
jurisdiction where either of the Companies does not file Tax Returns that
the Company so not filing may be subject to Taxes assessed by such
jurisdiction;
(vii) neither of the Companies has ever been a member of an
Affiliated Group or filed or been included in a combined, consolidated or
unitary income Tax Return, other than for an Affiliated Group of which
Auburn is the common parent corporation;
(viii) neither of the Companies is a party to or bound by any
Tax allocation or Tax sharing agreement;
(ix) there are no Liens for Taxes (other than for current
Taxes not yet due and payable) upon the assets of either of the Companies;
(x) neither of the Companies has entered into an agreement
that would require that either of the Companies make an excess parachute
payment within the meaning of Section 280G of the Code;
(xi) neither of the Companies has filed a consent under Code
ss.341(f) concerning collapsible corporations; and
(xii) neither of the Companies will be required to make an
adjustment to taxable income under Code ss.481 for any period ending on or
after the Closing Date by reason of a voluntary change in accounting
method initiated by any of the Companies on or prior to the Closing Date
and the Internal Revenue Service has not initiated or proposed any such
change in accounting method.
2N. Contracts and Commitments.
(i) Except as expressly contemplated by this Agreement or as set
forth on Schedule 2N attached hereto, neither of (a) the Companies nor (b) any
of the Sellers or their
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<PAGE> 14
Affiliates (as such contract or commitment relates to either of the Companies)
is a party to or bound by any written or oral:
(a) pension, profit sharing, stock option, employee stock
purchase or other plan or arrangement providing for deferred or other
compensation to employees or any other employee benefit plan, arrangement
or practice, whether formal or informal;
(b) collective bargaining agreement or any other contract with
any labor union, or severance agreements, programs, policies or
arrangements;
(c) management agreement or contract for the employment of any
officer, individual employee or other Person on a full-time, part-time,
consulting or other basis which (i) provides annual cash or other
compensation in excess of $50,000, (ii) provides for the payment of any
cash or other compensation or benefits upon the consummation of the
transactions contemplated hereby or (iii) otherwise restricts his, her, or
its ability to terminate the employment of any employee at any time for
any lawful reason or for no reason without penalty or liability;
(d) contract or agreement involving any Governmental Entity;
(e) agreement or indenture relating to borrowed money or other
Indebtedness or the mortgaging, pledging or otherwise placing a Lien on
any material asset or material group of assets of either of the Companies
or any letter of credit arrangements;
(f) Guarantee, other than endorsements made for collection in
the ordinary course of business;
(g) lease or agreement under which either of the Companies is
(i) lessee of or holds or operates any personal property, owned by any
other party, except for any lease of personal property under which the
aggregate annual rental payments do not exceed $25,000 or (ii) lessor of
or permits any third party to hold, occupy, or operate any property, real
or personal, owned or controlled by either of the Companies;
(h) contract or group of related contracts with the same party
or group of affiliated parties for the purchase or sale of raw materials,
commodities, supplies, products, equipment or other personal property or
services under which the undelivered balance since December 31, 1996 of
such products and services has a selling price in excess of $25,000;
(i) other contract or group of related contracts with the same
party or group of affiliated parties continuing over a period of more than
six months from the date or dates thereof, not terminable by either of the
Companies upon 30 days or less notice without penalty or involving more
than $25,000;
(j) contract relating to the marketing, sale, advertising or
promotion of its products;
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<PAGE> 15
(k) agreements relating to the ownership of, investments in or
loans and advances to any Person, including investments in joint ventures
and minority equity investments;
(l) license, royalty, indemnification or other agreement with
respect to any intangible property (including any Intellectual Property
rights);
(m) agent, sales representative, sales or distribution
agreement;
(n) power of attorney or other similar agreement or grant of
agency;
(o) contract or agreement prohibiting it from freely engaging
in any business or competing anywhere in the world, including, without
limitation, any nondisclosure or confidentiality agreements; or
(p) other agreement which is material to its operations and
business prospects or involves a consideration in excess of $25,000
annually, whether or not in the ordinary course of business.
(ii) All of the contracts, agreements and instruments set forth or
required to be set forth on Schedule 2N (the "Material Contracts") are valid,
binding and enforceable in accordance with their respective terms, except as
such enforceability may be limited by (x) applicable insolvency, bankruptcy,
reorganization, moratorium or other similar laws affecting creditors' rights
generally and (y) applicable equitable principles (whether considered in a
proceeding at law or in equity). Each of the Material Contracts shall be in full
force and effect in all material respects without penalty in accordance with
their terms upon consummation of the transactions contemplated hereby. Each of
the Companies has performed all material obligations required to be performed by
it and is not in default under or in material breach of nor in receipt of any
claim of default or breach under any Material Contract; no event has occurred
which with the passage of time or the giving of notice or both would result in a
material default, material breach or material event of noncompliance by either
of the Companies under any Material Contract; and none of the Manning Parties
has any Knowledge of any breach or cancellation or anticipated breach or
cancellation by the other parties to any Material Contract.
(iii) The Purchaser has been supplied with a true and correct copy
of each written Material Contract, together with all material amendments,
waivers or other changes thereto (all of which amendments, waivers or other
changes thereto are described on Schedule 2N).
2O. Intellectual Property Rights.
(i) Schedule 2O attached hereto contains a complete and accurate
list of all (a) patented and registered Company Intellectual Property, (b)
pending patent applications and other applications for registrations of Company
Intellectual Property, and (c) all material computer software owned or used by
any of the Companies. Schedule 2O also contains a complete and accurate list of
all licenses or similar agreements covering Intellectual Property rights to
which any
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<PAGE> 16
of the Companies is or as of the Closing Date is required to be a party, either
as licensee or licensor, in each case identifying the subject Intellectual
Property rights.
(ii) Except as set forth on Schedule 2O, each of the Companies owns
all right, title and interest to, or has, or as of the Closing Date will have
the right to use pursuant to a valid and effective written license, free and
clear of all Liens other than Permitted Liens, all Company Intellectual
Property. The Company Intellectual Property comprises all of the Intellectual
Property rights necessary for the operation of the business of the Companies as
presently conducted and as presently proposed to be conducted. No loss or
expiration of any of the Company Intellectual Property is threatened or pending.
Each of the Companies has taken all commercially reasonable action to maintain
and protect the Company Intellectual Property. To any of the Manning Parties'
Knowledge, the owners of any Company Intellectual Property licensed to either of
the Companies have taken all commercially reasonable action to maintain and
protect the Company Intellectual Property subject to such licenses.
(iii) Except as set forth on Schedule 2O, (a) no claims by any other
Person asserting the invalidity, misuse or unenforceability of any of the
Company Intellectual Property have been made in writing within the past five (5)
years or are currently outstanding or threatened, and, to the Knowledge of any
of the Manning Parties, there is no basis for any such claim, (b) the operation
of the business of the Companies as currently conducted and as proposed to be
conducted has not infringed, misappropriated or conflicted with and will not
infringe, misappropriate or conflict with any Intellectual Property rights of
other Persons and neither of the Companies has received any written notice
regarding any of the foregoing (including, without limitation, any demands or
offers to license any Intellectual Property rights from any other Person) and
(c) no third party has infringed, misappropriated or otherwise acted in conflict
with any of the Company Intellectual Property. The transactions contemplated by
this Agreement shall have no Material Adverse Effect on the right, title or
interest of either of the Companies in and to the Company Intellectual Property
and all of such Company Intellectual Property shall be owned or available for
use by the applicable Company on substantially identical terms and conditions
immediately after the Closing.
2P. Litigation, etc. Except as set forth on Schedule 2P attached
hereto, there are no (and, during the five years preceding the date hereof,
there have not been any) actions, suits, proceedings (including any arbitration
proceedings), orders, investigations or claims pending or, to the Knowledge of
the Manning Parties, threatened against either of the Companies (or to the
Knowledge of any of the Manning Parties, pending or threatened against any of
the officers, directors or employees of either of the Companies with respect to
their businesses or proposed business activities), or pending or threatened by
either of the Companies against any third party, at law or in equity, or before
or by any Government Entity (including any actions, suits, proceedings or
investigations with respect to the transactions contemplated by this Agreement);
neither of the Companies is subject to any arbitration proceedings under
collective bargaining agreements or otherwise or any governmental investigations
or inquiries; and, to the Knowledge of the Manning Parties, there is no basis
for any of the foregoing. The Companies are fully insured (subject to applicable
policy deductibles) with respect to each of the matters set forth on Schedule
2P. Neither of the Companies is subject to any judgment, order or decree of any
Government Entity, and neither of the Companies has received any opinion or
memorandum or legal advice from legal counsel to
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<PAGE> 17
the effect that it is exposed, from a legal standpoint, to any liability which
would reasonably be expected to have a Material Adverse Effect.
2Q. Brokerage. There are and shall be no claims for brokerage
commissions, finders' fees or similar compensation in connection with the
transactions contemplated by this Agreement based on any arrangement or
agreement to which either of the Companies is a party or to which either of the
Companies is subject.
2R. Insurance. Schedule 2R attached hereto contains a brief
description of each insurance policy maintained by each of the Companies with
respect to its properties, assets and business, and each such policy shall be in
full force and effect as of the Closing or a substituted policy shall have been
obtained therefor. Neither of the Companies is in default with respect to any of
its material obligations under any insurance policy maintained by it, and
neither of the Companies has ever been denied insurance coverage. The insurance
coverage of the Companies is customary for corporations of similar size engaged
in similar lines of business. Except as set forth on Schedule 2R, neither of the
Companies has any self-insurance or co-insurance programs, and the reserves set
forth on the 1996 Balance Sheet are adequate to cover all anticipated
liabilities with respect to any such self-insurance or co-insurance programs.
2S. Employees. The Companies have previously delivered to the
Purchaser a true and complete list, as of September 30, 1997, of (i) the
employees employed by (A) either Company having an annual base salary in
calendar year 1997 of $50,000 or more (or the equivalent in any other currency
assuming conversion into U.S. dollars at the Prevailing Exchange Rate) or, (B)
J. P. Manning, Inc., a New York corporation, ("JPM") which employees are listed
on Schedule 2S hereto (the "JPM Employees"), (ii) the rate of all current
compensation payable to each such employee, including, without limitation, any
bonus, contingent or deferred compensation and fringe benefits, and (iii) the
directors of each of the Companies. Except as set forth on Schedule 2S attached
hereto, to the Knowledge of any of the Manning Parties, no executive or key
employee of either of the Companies nor any of the JPM Employees and no group of
employees of either of the Companies nor any of the JPM Employees has any plans
to terminate employment with any of the Companies or JPM, as the case may be. To
the Knowledge of any of the Manning Parties, neither of the Companies nor JPM,
has (a) any material labor relations problems (including any additional union
organization activities, threatened or actual strikes or work stoppages or
material grievances), (b) engaged in any unfair labor practices, (c) during the
past five years, suffered any labor strike, lockout, work stoppage or other
material labor dispute or, (d) any union organization campaign is in progress
with respect to any of the employees, nor any question concerning representation
exists respecting such employees. Except as disclosed on Schedule 2S, neither of
the Companies nor JPM is party to or bound by any collective bargaining
agreement or relationship with any labor organization. Neither of the Companies
nor JPM has engaged in any plant closing or employee layoff activities within
the last two (2) years that would violate or in any way implicate the Worker
Adjustment Retraining and Notification Act of 1988, as amended, or any similar
state or local plant closing or mass layoff statute, rule or regulation. During
the past five years, any notice from any Company required under any law or
collective bargaining agreement has been given, and all bargaining obligations
of any Company with any employee representative have been satisfied, including,
but not limited to, obligations relating to the effects on bargaining unit
employees of the transactions contemplated by this Agreement.
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<PAGE> 18
2T. Employee Benefits.
(i) Schedule 2T attached hereto lists each Employee Benefit Plan
that either of the Companies maintains or to which either of the Companies
contributes or has any actual liability, or to the Knowledge of any Manning
Party, any potential liability.
(ii) With respect to each Employee Benefit Plan which provides
benefits to or with respect to current or former employees of either Company:
(a) Each such Employee Benefit Plan (and each related trust,
insurance contract, or fund) complies in form and in operation in all
material respects with the applicable requirements of ERISA, the Code,
other applicable laws, and its terms.
(b) Except as set forth on Schedule 2M(i)(a)(1), all required
reports and descriptions (including Internal Revenue Service Form 5500
annual reports, summary annual reports, PBGC-1's, and summary plan
descriptions) have been correctly and timely filed or distributed
appropriately with respect to each such Employee Benefit Plan. The
requirements of Part 6 of Subtitle B of Title I of ERISA and of Code
ss.4980B ("COBRA") have been met in all material respects with respect to
each such Employee Benefit Plan which is an Employee Welfare Benefit Plan.
(c) All contributions (including all employer contributions
and employee salary reduction contributions) which are due to each such
Employee Benefit Plan which is an Employee Pension Benefit Plan have been
paid and all contributions for any period ending on or before the Closing
Date which are not yet due have been paid to each Employee Pension Benefit
Plan or accrued. All premiums or other payments which are due with respect
to each such Employee Benefit Plan which is an Employee Welfare Benefit
Plan, have been paid, and there are sufficient reserves to cover claims
which have occurred but have not been reported.
(d) Each Employee Benefit Plan which is an Employee Pension
Benefit Plan designed to meet the requirements of a "qualified plan" under
Code ss.401(a) has received, within the last two years, a favorable
determination letter from the Internal Revenue Service, and since each
such determination letter was issued, no facts or other circumstances have
arisen or become known to either the Company or any of the Sellers which
could result in any of such Employee Benefit Plans no longer being a
"qualified plan".
(e) The market value of assets under each such Employee
Benefit Plan which is an Employee Pension Benefit Plan (other than any
Multiemployer Plan) equals or exceeds the present value of all vested and
nonvested liabilities thereunder determined in accordance with PBGC
methods, factors, and assumptions applicable to an Employee Pension
Benefit Plan terminating on the Closing Date, and there has been no
application for or waiver of the minimum funding standards imposed by
Section 412 of the Code.
(f) The Sellers have delivered to the Purchaser, to the extent
applicable, correct and complete copies of the plan documents and summary
plan descriptions, the most
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<PAGE> 19
recent determination letter received from the Internal Revenue Service,
the most recent Internal Revenue Service Form 5500 annual report, and all
related trust agreements, insurance contracts, and other funding
agreements which implement each Employee Benefit Plan.
(g) With respect to each Employee Benefit Plan that either of
the Companies and the Controlled Group of Corporations which includes the
Companies maintains or ever has maintained or to which any of them
contributes, ever has contributed, or ever has been required to
contribute:
(1) No such Employee Benefit Plan which is an Employee
Pension Benefit Plan subject to Title IV of ERISA (other than any
Multiemployer Plan) has been completely or partially terminated or
been the subject of a Reportable Event as to which notices would be
required to be filed with the PBGC. No proceeding by the PBGC to
terminate any such Employee Pension Benefit Plan (other than any
Multiemployer Plan) has been instituted or threatened.
(2) There have been no Prohibited Transactions with
respect to any such Employee Benefit Plan subject to Title I of
ERISA or Section 4975 of the Code (i) which have not been corrected,
(ii) for which any liability or penalty has not been paid in full
and (iii) which could result in liability to the Companies. To the
Knowledge of any Manning Party, no Fiduciary of any Employee Benefit
Plan subject to Title I of ERISA has any Liability for breach of
fiduciary duty or any other failure to act under Title I of ERISA or
comply with Title I of ERISA in connection with the administration
or investment of the assets of any such Employee Benefit Plan. No
action, suit, proceeding, hearing, or investigation with respect to
the administration or the investment of the assets of any such
Employee Benefit Plan (other than routine claims for benefits) is
pending or, to the Knowledge of any Manning Party, threatened. None
of the Manning Parties has any Knowledge of any reasonable basis for
any such action, suit, proceeding, hearing, or investigation.
(3) Neither of the Companies has incurred, and neither
of the Companies has a reason to expect that it will incur, any
Liability to the PBGC (other than PBGC premium payments) or
otherwise under Title IV of ERISA or under Chapter 43 of the Code
with respect to any such Employee Benefit Plan which is an Employee
Pension Benefit Plan subject to the provisions of ERISA and the
Code.
(h) Neither of the Companies, and the other members of the
Controlled Group of Corporations that includes the Companies contributes
to, ever has contributed to, or ever has been required to contribute to
any Multiemployer Plan or has any actual or potential Liability (including
any withdrawal liability resulting from its withdrawal from any such plan
in a complete or partial withdrawal as such terms are used in Part I of
Subtitle E of Title IV of ERISA) under any Multiemployer Plan.
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<PAGE> 20
(iii) Neither of the Companies maintains or ever has maintained or
contributes, ever has contributed, or ever has been required to contribute to
any Employee Welfare Benefit Plan providing medical, health, or life insurance
or other welfare-type benefits for current or future retired or terminated
employees, their spouses, or their dependents (other than in accordance with
COBRA or other government mandated benefit laws.
(iv) With respect to each Employee Benefit Plan which provides
benefits to or with respect to current or former employees outside the United
States:
(a) Each such Employee Benefit Plan complies in form and in
operation with the applicable requirements of law and in accordance with
its terms.
(b) All contributions or premium payments which are due on or
before the Closing Date with respect to each such Employee Benefit Plan
will be timely paid in full and all contributions and premium payments
which are not due for all periods ending on the Closing Date will be
adequately accrued.
(c) (1) Neither of the Companies, or, to the Manning Parties'
Knowledge, any other Person has engaged in any transactions that could
reasonably be expected to result in the imposition of a material penalty
under law or a material tax; (2) neither of the Companies nor any of their
officers or employees have any liability for breach of fiduciary duty or
any other failure to act or comply with the requirements of law in
connection with the administration of such Employee Benefit Plan or the
investment of the assets thereunder; and (3) no actions, investigations,
suits or claims are pending or, to the Knowledge of the Sellers,
threatened, and the Sellers have no Knowledge of any facts or
circumstances which could give rise to or could reasonably be expected to
give rise to any such actions, suits or claims (other than for benefits
payable in the ordinary course of business).
(d) With respect to each pension plan, as of the Closing Date,
the market value of the assets equals or exceeds the present value of
benefit liabilities thereunder.
(e) Neither of the Companies has any liability with respect to
the termination of a benefit plan that has not been satisfied in full.
(f) No power to increase benefits or provide different
benefits under any Plan has been exercised in respect of any current or
former employees of the Companies, and there are no circumstances in which
there is a practice of exercising such power. Each Employee Benefit Plan
which is a pension scheme is an exempt approved scheme within the meaning
of Chapter 1 of Part XIV of the Income and Corporation Taxes Act of 1988
and all of the participants of any Employee Benefit Plan which is a
pension scheme are contracted out of the United Kingdom State Earnings
Related Pension Scheme by virtue of their participation. No assets of any
Employee Benefit Plan for current or former employees have been assigned
by the trustees as security for a loan or otherwise, nor is there any
agreement to assign those assets.
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<PAGE> 21
(g) The Sellers have delivered or made available to Purchaser
true and complete copies of the following documents in connection with
each such Employee Benefit Plan (where applicable): (A) all plan documents
as in effect on the date hereof, together with all amendments thereto; (B)
all current plan descriptions and summaries of material modifications; (C)
the most recently prepared actuarial valuation report for each Employee
Benefit Plan; and (D) the most recently prepared financial statements.
(v) None of the Employee Benefit Plans of the Companies obligates
the Sellers to pay any separation, severance, termination or similar benefit
solely as a result of any transaction contemplated by this Agreement or solely
as a result of a change in control or ownership within the meaning of Section
280G of the Code.
2U. Compliance with Laws; Permits. Except as set forth on Schedule
2U attached hereto:
(i) Each of the Companies has complied with all applicable Laws
relating to the operation of its business. No notices have been received by and
no claims have been filed against either of the Companies alleging a violation
of any such Laws.
(ii) Except for any qualifications to do business as a foreign
corporation in any state, each of the Companies holds all permits, licenses,
certificates, accreditations and other authorizations of all Government Entities
required for the conduct of its business and the ownership of its properties,
and Schedule 2U sets forth a list of all of such permits, licenses,
certificates, accreditations and other authorizations. No notices have been
received by either of the Companies alleging the failure to hold any permit,
license, certificate, accreditation or other authorization of any Government
Entity. Each of the Companies is in compliance with all terms and conditions of
all permits, licenses, accreditations and authorizations which it holds. Except
as disclosed on Schedule 2U all of such permits, licenses, accreditations and
authorizations will be available for use by the Companies immediately after the
Closing.
2V. Environmental and Safety Matters. Except as set forth on
Schedule 2V attached hereto:
(i) Each of the Companies and their respective predecessors has
complied with and is in compliance with all Environmental and Safety
Requirements.
(ii) Without limiting the generality of the foregoing, each of the
Companies has obtained and complied with, and is in compliance with, all
permits, licenses and other authorizations that are required pursuant to
Environmental and Safety Requirements for the occupation of its facilities and
the operation of its business.
(iii) Neither the Companies nor their respective predecessors or
Affiliates has received any written or, to the Knowledge of any Manning Party,
oral notice, report or other information regarding any actual or alleged
violation of Environmental and Safety Requirements, or any liabilities or
potential liabilities (whether accrued, absolute, contingent, unliquidated or
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<PAGE> 22
otherwise), including any investigatory, remedial or corrective obligations,
relating to either of them or their facilities arising under Environmental and
Safety Requirements.
(iv) None of the following exists at any property or facility owned
or operated by either of the Companies in a condition that has given or would
give rise to liability under any Environmental and Safety Requirements: (1)
underground storage tanks, (2) asbestos-containing material in any form or
condition, (3) materials or equipment containing polychlorinated biphenyls, or
(4) landfills, surface impoundments, or disposal areas.
(v) Neither of the Companies or their respective predecessors has
treated, stored, disposed of, arranged for or permitted the disposal of,
transported, handled, or Released any substance, including without limitation
any hazardous substance, or owned or operated any property or facility (and no
such property or facility is contaminated by any such substance) in a manner
that would give rise to liabilities, including any liability for response costs,
corrective action costs, personal injury, property damage, natural resources
damages or attorney fees, pursuant to CERCLA or any other Environmental and
Safety Requirements.
(vi) Neither this Agreement nor the consummation of the transaction
that is the subject of this Agreement will result in any obligations for site
investigation or cleanup, or notification to or consent of government agencies
or third parties, pursuant to any of the so-called "transaction-triggered" or
"responsible property transfer" Environmental and Safety Requirements.
(vii) Neither of the Companies nor any of their respective
predecessors has, either expressly or by operation of law, assumed, undertaken
or otherwise become subject to any liability, including without limitation any
obligation for corrective or remedial action, of any other Person relating to
Environmental and Safety Requirements.
(viii) No facts, events or conditions relating to the past or
present facilities, properties or operations of the Companies or any of their
respective predecessors will prevent, hinder or limit continued compliance with
Environmental and Safety Requirements, give rise to any investigatory, remedial
or corrective obligations pursuant to Environmental and Safety Requirements, or
give rise to any other liabilities (whether accrued, absolute, contingent,
unliquidated or otherwise) pursuant to Environmental and Safety Requirements,
including without limitation any relating to onsite or offsite Releases or
threatened Releases of hazardous materials, substances or wastes, personal
injury, property damage or natural resources damage.
2W. Affiliate Transactions. Except as set forth on Schedule 2W
attached hereto, as of immediately following the Closing, no officer, director,
shareholder or Affiliate of either of the Companies or any individual related by
blood, marriage or adoption to any such individual or any entity in which any
such Person or individual owns any beneficial interest, is a party to any
agreement, contract, commitment or transaction with either of the Companies or
either of the Companies' executive officers or has any material interest in any
material property used by either of the Companies.
2X. Suppliers and Customers. Schedule 2X attached hereto accurately
sets forth a list of the top ten customers and suppliers of each of the
Companies by dollar volume of sales and
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purchases, respectively, for the fiscal year ended December 31, 1996. Since
December 31, 1996, neither of the Companies has received any written notice from
any material supplier to the effect that, and none of the Manning Parties has
any Knowledge that, any such supplier will stop, materially decrease the rate
of, or materially change the terms (whether related to payment, price or
otherwise) with respect to, supplying materials, products or services to either
of the Companies (whether as a result of the consummation of the transactions
contemplated hereby or otherwise). Neither of the Companies has received any
written notice from any material customer of either of the Companies to the
effect that, and to the Knowledge of the Manning Parties, there is no reason to
believe that, such customer will stop, or materially decrease the rate of,
buying products of either of the Companies (whether as a result of the
consummation of the transactions contemplated hereby or otherwise).
2Y. Real Property.
(i) Attached as Schedule 2Y(i) is a complete and accurate list
setting forth the name, address and a legal description of each parcel of real
property owned in fee by the Companies (the "Owned Property"). The Companies
have good and marketable title in and to all of the Owned Property subject to no
Liens other than the Liens set forth on Schedule 2Y(i) and Permitted Liens.
(ii) Schedule 2Y(ii) attached hereto sets forth a list of all
leases, subleases and other occupancy agreements, including all amendments,
extensions and other modifications (the "Leases") for real property (the "Leased
Property", and together with the "Owned Property," the "Real Property") under
which either of the Companies is the "tenant", "subtenant" or other lessee party
or for which, in the case of the third item in subsection (ii) thereon, a third
party is the "tenant," "subtenant" or other lessee party for the benefit of a
Company. Auburn or Sport Socks UK, as the case may be, has a good and valid
leasehold interest in and to all of the Leased Property, subject to no Liens
except for Liens set forth on Schedule 2Y(ii) and Permitted Liens. Each Lease is
in full force and effect and is enforceable in accordance with its terms. There
exists no default or condition which, with the giving of notice, the passage of
time or both, could become a default under any Lease. The Companies have
previously delivered to the Purchaser true and complete copies of all the
Leases.
(iii) Except as set forth in Schedule 2Y(iii) attached hereto, the
Real Property constitutes all of the real property owned, leased, occupied or
otherwise utilized in connection with the business of the Companies. Other than
the Companies, there are no parties in possession or parties having any current
or future right to occupy any of the Real Property. The Real Property is in good
condition and repair, subject to ordinary wear and tear, and is sufficient and
appropriate for the conduct of the Companies' business. The Real Property and
all plants, buildings and improvements located thereon conform in all material
respects to all applicable building, zoning and other laws, ordinances, rules
and regulations. All material permits, licenses and other approvals necessary to
the current occupancy and use of the Owned Property have been obtained, are in
full force and effect and have not been violated. There exists no material
violation of any covenant, condition, restriction, easement, agreement or order
affecting any portion of the Owned Property. All improvements located on the
Real Property have direct access to a public road adjoining such Real Property.
No such improvements or accessways encroach on land not included in the Real
Property and no such improvement is dependent for its access, operation or
utility on any land,
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<PAGE> 24
building or other improvement not included in the Real Property. There is no
pending or, to the Knowledge of the Manning Parties, any threatened condemnation
proceeding affecting any portion of the Real Property.
(iv) There are no outstanding options or rights of first refusal
with respect to the purchase or use of any of the Owned Property, any portion
thereof or interest therein, except as set forth on Schedule 2Y(iv) attached
hereto. Neither of the Companies is obligated to purchase or lease any real
property, except as set forth on Schedule 2Y(iv).
2Z. Fees and Expenses. Neither of the Companies (i) has any
liability or obligation to pay any fees, expenses, commissions or costs
(including, without limitation, any and all real property transfer, transfer
gains, stamp, and other similar Taxes, if any) incurred by the Sellers or the
Companies in connection with the transactions contemplated by this Agreement
(such fees, expenses, commissions, and costs the "Seller Expenses"), or (ii) has
made any payments to any Person with respect to any Seller Expenses. The Seller
Expenses shall be paid by the Sellers.
2AA. Sufficiency of Assets. The Companies and Sport Socks Ireland
have, or will have as of the Closing, good, marketable and valid title to, a
valid leasehold interest in, or valid license or right to use, all of the
assets, tangible or intangible, necessary to conduct the Auburn Business as
conducted by the Companies, Sport Socks Ireland and the Ancillary Companies
prior to the Ancillary Company Transfers.
2BB. Exclusivity. Neither of the Companies, the Sellers, or any of
their respective representatives, officers, directors, agents, stockholders or
Affiliates is party to or bound by any agreement which shall directly or
indirectly initiate, solicit, entertain, negotiate, accept or discuss any
proposal or offer to acquire all or any significant part of either of the
Companies (an "Acquisition Proposal"), whether by merger, purchase of stock,
purchase of assets, tender offer or otherwise (a "Third Party Acquisition")
other than under this Agreement, and all such Persons have terminated all
discussions with third parties (other than the Purchaser) regarding Acquisition
Proposals or Third Party Acquisitions.
Section 3. Representations and Warranties of the Sellers. As a
material inducement to the Purchaser to enter into this Agreement and purchase
the Shares hereunder, each Seller, severally and individually for himself,
herself or itself only, hereby represents and warrants to the Purchaser as
follows:
3A. Power and Authority. Each Seller who is a natural person has the
legal right, capacity and power to execute, deliver and perform this Agreement
and the agreements, certificates and instruments to be executed and delivered by
such Seller pursuant hereto. Each Seller which is a trust has the full power and
authority to execute, deliver and perform this Agreement and the agreements,
certificates and instruments to be executed and delivered by such Seller
pursuant hereto.
3B. Authorization; No Breach. The execution, delivery and
performance of this Agreement and all other agreements or instruments
contemplated hereby to which the Sellers are parties or by which the Sellers are
bound have been duly authorized by the Sellers. This Agreement and all other
agreements contemplated hereby to which the Sellers are parties, when executed
and
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<PAGE> 25
delivered by the Sellers in accordance with the terms hereof, shall each
constitute a valid and binding obligation of the Sellers, enforceable in
accordance with its terms, except as such enforceability may be limited by (x)
applicable insolvency, bankruptcy, reorganization, moratorium or other similar
laws affecting creditors' rights generally and (y) applicable equitable
principles (whether considered in a proceeding at law or in equity). The
execution, delivery and performance by the Sellers of this Agreement and all
other agreements contemplated hereby to which the Sellers are parties, and the
fulfillment of and compliance with the respective terms hereof and thereof by
the Sellers, do not and shall not (i) conflict with or result in a breach of the
terms, conditions or provisions of, (ii) constitute a default under (whether
with or without the passage of time, the giving of notice or both), (iii) give
any third party the right to modify, terminate or accelerate any obligation
under, (iv) result in a violation of, or (v) require any authorization, consent,
approval, exemption or other action by or notice or declaration to, or filing
with, any Government Entity pursuant to, (A) the organizational documents, if
any, of the Sellers, (B) any Law to which the Sellers are subject, or (C) any
agreement, instrument, order, judgment or decree to which the Sellers are
subject.
3C. Title to Shares. On the Closing Date, all of the Shares set
forth opposite each Seller's name on Exhibit A will be owned of record and
beneficially by such Seller, and such Seller will have good and marketable title
to such Shares, free and clear of all Liens, agreements, voting trusts, proxies
and other arrangements or restrictions of any kind whatsoever (collectively,
"Encumbrances"). Each Seller shall sell to the Purchaser good and marketable
title to the Shares free and clear of all Encumbrances.
3D. Brokerage. There are no claims for brokerage commissions,
finders' fees or similar compensation in connection with the transactions
contemplated by this Agreement based on any arrangement or agreement to which
the Seller is a party or to which the Seller is subject.
3E. Litigation, etc. There are no actions, suits, proceedings
(including any arbitration proceedings), orders, investigations or claims
pending or, to the Seller's Knowledge, threatened against or affecting the
Seller in which it is sought to restrain or prohibit or to obtain damages or
other relief in connection with the transactions contemplated hereby.
Section 4. Representations and Warranties of the Purchaser. As a
material inducement to the Sellers to enter into this Agreement and take the
actions set forth in Section 1, the Purchaser represents and warrants to the
Sellers as follows:
4A. Organization. The Purchaser is a corporation duly organized,
validly existing and in good standing under the Laws of its jurisdiction of
incorporation. The Purchaser possesses all requisite power and authority
necessary to carry out the transactions contemplated by this Agreement.
4B. Authorization; No Breach. The execution, delivery and
performance of this Agreement and all other agreements or instruments
contemplated hereby to which the Purchaser is a party or by which the Purchaser
is bound have been duly authorized by the Purchaser. This Agreement and all
other agreements contemplated hereby to which the Purchaser is a party, when
executed and delivered by the Purchaser in accordance with the terms hereof,
shall each constitute
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<PAGE> 26
a valid and binding obligation of the Purchaser, enforceable in accordance with
its terms, except as such enforceability may be limited by (x) applicable
insolvency, bankruptcy, reorganization, moratorium or other similar laws
affecting creditors' rights generally and (y) applicable equitable principles
(whether considered in a proceeding at law or in equity). The execution,
delivery and performance by the Purchaser of this Agreement and all other
agreements contemplated hereby to which the Purchaser is a party, and the
fulfillment of and compliance with the respective terms hereof and thereof by
the Purchaser, do not and shall not (i) conflict with or result in a breach of
the terms, conditions or provisions of, (ii) constitute a default under (whether
with or without the passage of time, the giving of notice or both), (iii) give
any third party the right to modify, terminate or accelerate any obligation
under, (iv) result in a violation of, or (v) require any authorization, consent,
approval, exemption or other action by or notice or declaration to, or filing
with, any Government Entity or third party pursuant to, (A) the organizational
documents of the Purchaser, (B) any Law to which the Purchaser is subject, or
(C) any agreement, instrument, order, judgment or decree to which the Purchaser
is subject.
4C. Brokerage. There are no claims for brokerage commissions,
finders' fees or similar compensation in connection with the transactions
contemplated by this Agreement based on any arrangement or agreement to which
the Purchaser is a party or to which the Purchaser is subject.
4D. Investment. The Purchaser is not acquiring the Shares with a
view to or for sale in connection with any distribution thereof within the
meaning of the Securities Act.
Section 5. Confidentiality, Noncompetition and Nonsolicitation for
James P. Manning.
5A. Confidential Information. Manning acknowledges that the
information, observations and data disclosed to, developed by or obtained by him
while employed by either of the Companies concerning the business or affairs of
the Companies (including without limitation the Companies' technology, methods
of doing business and supplier and customer information) (collectively, the
"Confidential Information") are the property of the Companies and that the
continued success of the Companies depends in large part on keeping this
information from becoming known to competitors of the Companies. Therefore, in
consideration of the payments being made to Manning pursuant to the terms of
this Agreement, Manning agrees that, for all times after the Closing Date,
except as required by law or court order, he shall not, directly or indirectly,
disclose to any unauthorized person or use for his own account any Confidential
Information without the prior written consent of the Board as it exists after
the Closing Date, unless and to the extent that the aforementioned matters
become generally known to and available for use by the public other than as a
result of his acts or omissions to act. Manning further agrees to use his
commercially reasonable best efforts and diligence to safeguard the Confidential
Information and to protect it against disclosure, misuse, espionage, loss or
theft. Manning shall deliver to the Companies at any time either of the
Companies may reasonably request, all memoranda, correspondence, notes, plans,
records, reports, manuals, photographs, computer tapes and software and other
documents and data (and copies thereof) relating to the Confidential
Information, the Work Product or the business of the Companies which he may then
possess or have under his control. If either Company requests, Manning agrees to
provide written confirmation that Manning has returned all such materials to
such Company.
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<PAGE> 27
5B. Work Product. Manning agrees that all inventions, innovations,
improvements, developments, methods, processes, programs, designs, analyses,
drawings, reports, and all similar or related information which relates to the
Companies' actual or anticipated business or research and development or
existing or future products or services and which are conceived, developed,
contributed to or made by Manning (either solely or jointly with others) prior
to the Closing (the "Work Product") shall be the sole and exclusive property of
such Company. Manning will promptly disclose such Work Product to the Board and
perform all actions reasonably requested by the Board (whether before or after
his employment with any Company terminates) to establish and confirm such
ownership (including, without limitation, the execution of assignments,
consents, powers of attorney and other instruments).
5C. Noncompete, Nonsolicitation.
(i) Manning acknowledges that in the course of his relationship with
the Companies, he has become familiar with such Companies' trade secrets and
with other Confidential Information and that his services have been and will be
of special, unique and extraordinary value to the Companies. Therefore, in
consideration of the payments being made to Manning pursuant to the terms of
this Agreement and the Sport Socks Ireland Agreement, Manning agrees that,
during the five-year period following the Closing Date (the "Noncompete
Period"), he shall not directly or indirectly own, operate, lease, manage,
control, participate in, consult with, advise, permit his name to be used by,
provide services for, or in any manner engage in any business (including by
himself or in association with any person, firm, corporation or other business
organization or through any other entity) in which either of the Companies
engages, as such business exists or is in process on the date hereof, within any
geographical area in which any Company engages in such business as of the date
hereof. Nothing herein shall prohibit Manning from being a passive owner of not
more than 5% of the outstanding stock of any corporation which is publicly
traded, and which is a direct competitor of either of the Companies, so long as
Manning has no active participation in the business of such corporation.
(ii) During the Noncompete Period, Manning shall not directly or
indirectly through another entity (x) induce or attempt to induce any employee
of either of the Companies to leave the employ of such Company, or in any way
interfere with the relationship between such Company and any employee thereof,
including without limitation, inducing or attempting to induce any union,
employee or group of employees to interfere with the business or operations of
either Company, (y) hire any person who was an employee of either Company at any
time during Manning's employment period or (z) induce or attempt to induce any
customer, supplier, distributor, franchisee, licensee or other business relation
of either Company or the Purchaser to cease doing business with such Company or
the Purchaser, or in any way interfere with the relationship between any such
customer, supplier, distributor, franchisee, licensee or business relation and
such Company or the Purchaser.
(iii) Manning agrees and acknowledges that (x) the covenants set
forth in this Section 5C are reasonable in geographical and temporal scope and
in all other respects, (y) the Purchaser would not have entered into this
Agreement but for the covenants of Manning contained herein, and (z) the
covenants contained herein have been made in order to induce the Purchaser to
enter into this Agreement.
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<PAGE> 28
(iv) If, at the time of enforcement of this Section 5C, a court
shall hold that the duration, scope or area restrictions stated herein are
unreasonable under circumstances then existing, the parties agree that the
maximum duration, scope or area reasonable under such circumstances shall be
substituted for the stated duration, scope or area and that the court shall be
allowed to revise the restrictions contained herein to cover the maximum period,
scope and area permitted by law.
(v) Manning recognizes and affirms that in the event of his breach
of any provision of this Section 5C, money damages would be inadequate and the
Purchaser and the Companies would have no adequate remedy at law. Accordingly,
Manning agrees that in the event of a breach or a threatened breach by Manning
of any of the provisions of this Section 5C, the Purchaser and the Company
against which such breach is made or such threatened breach exists, in addition
and supplementary to other rights and remedies existing in their favor, may
apply to any court of law or equity of competent jurisdiction for specific
performance and/or injunctive or other relief in order to enforce or prevent any
violations of the provisions hereof (without posting a bond or other security).
Section 6. Indemnification.
6A. Survival of Representations and Warranties. The representations
and warranties in Sections 2, 3 and 4 of this Agreement shall survive the
Closing for a period of one year following the Closing Date except that (i) the
representations and warranties in Section 2M (Tax Matters) shall survive until
the end of the applicable statute of limitations, and (ii) the representations
and warranties contained in Sections 2A (Organization) (other than the last
sentence thereof), 2B (Capital Stock and Related Matters), 2D (Authorization; No
Breach (other than the second sentence thereof)), 3A (Power and Authority), 3B
(Authorization; No Breach (other than the second sentence thereof)), 3C (Title
to Shares), 4A (Organization) and 4B (Authorization; No Breach (other than the
second sentence thereof)) shall survive forever; provided, that any
representation or warranty in respect of which indemnity may be sought under
Section 6B, and the indemnity with respect thereto, shall survive the time at
which it would otherwise terminate pursuant to this Section 6A if written notice
of the inaccuracy or breach or potential inaccuracy or breach thereof giving
rise to such right or potential right of indemnity shall have been given to the
Party against whom such indemnity may be sought prior to such time. The
representations and warranties in Section 2, 3 and 4 of this Agreement shall
survive for the periods set forth in this Section 6A and shall in no event be
affected by any investigation, inquiry or examination made for or on behalf of
any Party, or the Knowledge of any Party's officers, directors, shareholders,
employees or agents or the acceptance by any Party of any certificate or opinion
hereunder.
6B. General Indemnification.
(i) Indemnification for the Benefit of the Purchaser by the
Sellers. The Sellers shall indemnify the Purchaser and its Affiliates,
shareholders, partners, officers, directors, employees, agents, representatives,
successors and permitted assigns and the Companies (collectively, the "Seller
Indemnified Parties") and save and hold each of them harmless against and pay on
behalf of or reimburse such Seller Indemnified Parties as and when incurred for
any direct or indirect loss, liability, demand, claim, action, cause of action,
cost, damage, deficiency, Tax, penalty, fine or expense, whether or not arising
out of third party claims (including interest,
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<PAGE> 29
penalties, reasonable attorneys', consultants' and experts' fees and expenses
and all amounts paid in investigation, defense or settlement of any of the
foregoing), but expressly excluding consequential damages and lost profits
(collectively, "Losses"), which any such Seller Indemnified Party may suffer,
sustain or become subject to, as a result of, in connection with, relating or
incidental to or by virtue of: (a) any facts or circumstances which constitute a
breach of any representation or warranty of the Sellers under Sections 2 or 3 of
this Agreement (it being understood and agreed that for purposes of this Section
6 and the Indemnification Agreement, Section 2M(i) shall be deemed not to
include any qualification for materiality); or (b) any nonfulfillment or breach
of any covenant, agreement or other provision by the Sellers under this
Agreement or any of the Schedules attached hereto required to be performed or
complied with by the Sellers before or after the Closing; or (c) any claim by
any Person (other than the Purchaser) with respect to, or arising as a result
of, any Acquisition Proposal or Third Party Acquisition proposed prior to the
Closing Date; or (d) any Employee Benefit Plan of JPM which provides or has at
any time provided benefits to any JPM Employee (each, a "JPM Benefit Plan"); or
(e) provided the relevant indemnification claim is made within one year of the
Closing Date, any Existing Lien. If and to the extent any provision of this
Section 6B is unenforceable for any reason, each Seller hereby agrees to make
the maximum contribution to the payment and satisfaction of any Loss for which
indemnification is provided for in this Section 6B which is permissible under
applicable Laws. Notwithstanding anything contained herein, in no event shall
either Company be required to provide indemnification or contribution for any
obligation of the Seller under this Section 6B.
(ii) Indemnification for the Benefit of the Sellers by the
Purchaser. The Purchaser shall indemnify the Sellers and their Affiliates,
shareholders, officers, directors, employees, agents, representatives,
successors and permitted assigns (collectively, the "Purchaser Indemnified
Parties") and hold them harmless against any Losses which the Purchaser
Indemnified Parties may suffer, sustain or become subject to, as a result of, in
connection with, relating or incidental to or by virtue of: (a) any facts or
circumstances which constitute a breach of any representation or warranty of the
Purchaser under Section 4 of this Agreement; or (b) any nonfulfillment or breach
of any covenant, agreement or other provision by the Purchaser under this
Agreement required to be performed or complied with by the Purchaser before or
after the Closing.
(iii) Manner of Payment. Any indemnification of the Seller
Indemnified Parties or the Purchaser Indemnified Parties pursuant to this
Section 6B shall be effected by wire transfer of immediately available funds
from the Sellers or the Purchaser, as the case may be, to an account designated
in writing by any Seller Indemnified Party or Purchaser Indemnified Party, as
the case may be, within 15 days after the determination thereof. The amount of
any Loss for which indemnification is provided pursuant to this Section 6B shall
be net of any amounts actually recovered by the indemnified party under
insurance policies with respect to such Loss. Any such indemnification payments
to be made to a Seller Indemnified Party shall be made (a) first from the Escrow
Account, and (b) to the extent the amount in the Escrow Account is insufficient
for purposes of making such payment, from the Sellers. Further, the Parties
agree to treat the amount of any indemnification payment made as a purchase
price adjustment, and shall prepare all Tax Returns consistent with that
position. The amount of any Loss for which indemnification is provided pursuant
to this Section 6B shall take into account any reductions in or refunds of Taxes
realized by the Purchaser or the Companies with respect to subsequent taxable
years as a result of the incurrence of such Losses ("Tax Benefits"). At the
option of the Purchaser, such Tax Benefits shall be taken
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<PAGE> 30
into account either (i) by reducing the amount of the required indemnification
by the present value of the future Tax Benefits or (ii) through a reimbursement
of such Tax Benefits to the Sellers as and when such Tax Benefits are actually
realized. In the event that any taxing authority successfully asserts that the
receipt by the Purchaser of an indemnification payment is taxable income, the
Sellers agree to indemnify the Purchasers for the Tax cost of that
indemnification payment.
(iv) General Indemnification Procedures. Any Person making a
claim for indemnification under this Section 6B (an "Indemnitee") shall notify
the indemnifying party (an "Indemnitor") of the claim in writing promptly after
receiving written notice of any action, lawsuit, proceeding, investigation or
other claim against it (if by a third party), describing the claim, the amount
thereof (if known and quantifiable) and the basis thereof; provided that the
failure to so notify an Indemnitor shall not relieve the Indemnitor of its
obligations hereunder unless the Indemnitor shall be actually prejudiced by such
failure to so notify. In addition, to the extent an Indemnitee shall seek
payment from the Escrow Account, such Indemnitee shall also give notice of the
relevant claim to the Escrow Agent.
(v) Defense of Third Party Claims. Any Indemnitor shall be
entitled to participate in the defense of such action, lawsuit, proceeding,
investigation or other claim giving rise to an Indemnitee's claim for
indemnification at such Indemnitor's expense, and at its option (subject to the
limitations set forth below) shall be entitled to assume the defense thereof by
appointing a reputable counsel reasonably acceptable to the Indemnitee to be the
lead counsel in connection with such defense; provided that prior to the
Indemnitor assuming control of such defense it shall first demonstrate to the
Indemnitee in writing such Indemnitor's financial ability to provide full
indemnification to the Indemnitee with respect to such action, lawsuit,
proceeding, investigation or other claim giving rise to such claim for
indemnification hereunder; and, provided further, that:
(a) the Indemnitee shall be entitled to participate in the
defense of such claim and to employ counsel of its choice for such
purpose; provided that the fees and expenses of such separate counsel
shall be borne by the Indemnitee (other than any fees and expenses of such
separate counsel that are incurred prior to the date the Indemnitor
effectively assumes control of such defense which, notwithstanding the
foregoing, shall be borne by the Indemnitor if Indemnitee is otherwise
entitled to indemnity pursuant to this Section 6B);
(b) the Indemnitor shall not be entitled to assume control of
such defense and shall pay the fees and expenses of counsel retained by
the Indemnitee if (1) the claim for indemnification relates to or arises
in connection with any criminal proceeding, action, indictment, allegation
or investigation (provided that in such event (x) the Indemnitee shall not
enter into any settlement of a claim without the prior written consent of
the Indemnitor (which shall not be unreasonably withheld), (y) the
Indemnitor shall be entitled to participate in the defense of such claim
and to employ counsel of its choice for such purpose (provided that the
fees and expenses of such separate counsel shall be borne by the
Indemnitor), and (z) the Indemnitor shall be entitled to review the files
and record relating to such defense upon request of the Indemnitor); (2)
the claim seeks an injunction or equitable relief against the Indemnitee;
(3) a conflict of interest exists between the
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Indemnitor and the Indemnitee; or (4) the Indemnitor failed or is failing
to vigorously prosecute or defend such claim; and
(c) if the Indemnitor shall control the defense of any such
claim, the Indemnitor shall obtain the prior written consent of the
Indemnitee before entering into any settlement of a claim or ceasing to
defend such claim if, pursuant to or as a result of such settlement or
cessation, injunctive or other equitable relief will be imposed against
the Indemnitee or if such settlement does not expressly and
unconditionally release the Indemnitee from all liabilities and
obligations with respect to such claim, without prejudice.
(vi) Defense of Tax Matters.
(a) The Purchaser shall promptly notify the Sellers in writing
upon receipt by the Purchaser or any Affiliate of the Purchaser (including the
Companies after the Closing Date) of written notice of any inquiries, claims,
assessments, audits or similar events with respect to Taxes relating to a
taxable period or portion thereof ending on or prior to the Closing Date for
which the Sellers may be liable under this Agreement (any such inquiry, claim,
assessment, audit or similar event, a "Tax Matter"). The Sellers, at their sole
expense, shall have the option of assuming the exclusive representation of the
interests of the Companies with respect to any Tax Matter before the Internal
Revenue Service, any other taxing authority, any other governmental agency or
authority or any court and, if such right is exercised, shall have the sole
right to extend or waive the statute of limitations with respect to a Tax Matter
and to control the defense, compromise or other resolution of any Tax Matter,
including responding to inquiries, filing Tax Returns and settling audits;
provided, however, that the Sellers shall not enter into any settlement of or
otherwise compromise any Tax Matter that adversely affects the Tax liability of
the Purchaser or the Companies for any period following the Closing Date,
including the portion of a period beginning before the Closing Date and ending
after the Closing Date (the "Overlap Period") that is after the Closing Date,
without the prior written consent of the Purchaser, which consent shall not be
unreasonably withheld and provided further, that unless the Sellers agree in
writing to assume the defense of any Tax Matters within 20 days of receiving
notice thereof from the Purchaser, the Purchaser shall have the right (but not
the obligation) to defend such Tax Matters and to be indemnified by the Sellers
for the reasonable cost thereof. If Sellers shall assume the representation of
the interests of the Companies with respect to a Tax Matter, the Sellers shall
keep the Purchaser fully informed with respect to the commencement, status and
nature of such Tax Matter, and shall in good faith allow the Purchaser's
representatives to attend any proceedings relating to a Tax Matter and to make
comments to the Sellers regarding the conduct of or positions taken in any such
proceeding.
(b) Except as otherwise provided in Section 6 of this
Agreement, the Purchaser shall at its sole expense have the right to control any
audit or examination by any taxing authority, initiate any claim for refund or
amend any Tax Return, and contest, resolve and defend against any assessment for
additional Taxes, notice of Tax deficiency or other adjustment of Taxes of, or
relating to, the income, assets or operations of the Companies for all taxable
periods; provided, however, that the Purchaser shall not, and shall cause its
Affiliates (including the Companies) not to, enter into any settlement of any
contest or otherwise compromise any issue that may adversely affect the Tax
liability of the Sellers or the Companies for any period prior to the
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Closing Date (including the pre-Closing portion of the Overlap Period if a claim
for indemnification would arise (directly or indirectly) from such action
without the prior written consent of the Sellers, which consent shall not be
unreasonably withheld. If the Purchaser shall assume the representation of the
interests of the Companies with respect to a Tax Matter, the Purchaser shall
keep the Sellers fully informed with respect to the commencement, status and
nature of such Tax Matter, and shall in good faith allow the Sellers'
representatives to attend any proceedings relating to a Tax Matter and to make
comments to the Purchaser regarding the conduct of or positions taken in any
such proceeding.
(vii) Limitations on Indemnification. Notwithstanding anything
in this Agreement to the contrary, the indemnification rights granted pursuant
to this Section 6B shall be subject to the terms, conditions and limitations set
forth in the Indemnification Agreement.
(viii) Other Indemnification Provisions; Certain Waivers; etc.
With the exception of any claims of common law fraud which are proven and upon
which a judgment entered in the involved proceeding shall be expressly based,
the Parties agree that the provisions of this Section 6B shall be the exclusive
remedy for all claims of breach or indemnification pursuant to this Agreement
and the parties expressly waive the remedy of rescission of contract. Each
Seller hereby agrees not to make any claim for indemnification hereunder against
either of the Companies by reason of the fact that such Seller was a
shareholder, director, officer, employee or agent of either of the Companies or
was serving at the request of either of the Companies as a partner, trustee,
director, officer, employee or agent of another entity (whether such claim is
for judgments, damages, penalties, fines, costs, amounts paid in settlement,
losses, expenses or otherwise) with respect to any action, suit, proceeding,
complaint, claim or demand brought by any of the Seller Indemnified Parties
against any Seller pursuant to this Agreement, and each Seller hereby
acknowledges and agrees that he, she or it shall have no claims or right to
contribution or indemnity from either of the Companies with respect to any
amounts paid by any Seller pursuant to this Section 6B.
Section 7. Conditions to Closing.
7A. Conditions of the Purchaser's Obligations at the Closing. The
obligation of the Purchaser to take the actions set forth in Section 1 hereof is
subject to satisfaction of the following conditions:
(i) Representations and Warranties; Covenants. The
representations and warranties contained in Sections 2 and 3 hereof shall be
true and correct in all material respects at and as of the Closing as though
then made and as though the Closing Date was substituted for the date of this
Agreement throughout such representations and warranties, and the Companies and
the Sellers shall have performed in all material respects all of the covenants
required to be performed by the Companies and the Sellers hereunder prior to the
Closing.
(ii) Opinion of the Sellers' Counsel. The Purchaser shall have
received the opinion of local counsel to the Sellers in the form of Exhibit C
hereto, together with a reliance letter with respect thereto addressed to the
Lender.
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(iii) Resignation of Directors. The Purchaser shall have
received the written resignations of all officers and members of the board of
directors of each of the Companies, each of which is set forth on Schedule
7A(iii) hereto, each such resignation to be effective as of the Closing;
(iv) Repayment of the Manning Debt. The Manning Debt shall
have been repaid in full and the Purchaser shall have received evidence of such
repayment.
(v) Existing Agreements. The Purchaser shall have received
evidence of termination and cancellation without recourse of any existing
agreements between either of the Companies and/or key executive officers on the
one hand and one or more of the Sellers, officers, directors or Affiliates of
either of the Companies on the other hand, regarding ownership or control of
either of the Companies or otherwise (other than any such agreements between or
among any of Auburn, Sport Socks UK and Sport Socks Ireland).
(vi) Litigation. No suit, action or other proceeding, or
injunction, order, decree or judgment relating thereto, shall be threatened or
shall be pending in which it is sought to restrain or prohibit or to obtain
damages or other relief in connection with the transactions contemplated hereby
or that would reasonably be expected to have a Material Adverse Effect, and no
injunction, judgment, order, decree or ruling with respect thereto shall be in
effect.
(vii) Consents and Approvals. All applicable waiting periods
(and any extensions thereof) under the Hart-Scott-Rodino Act shall have expired
or otherwise been terminated, and the Companies shall have made all filings and
shall have obtained all third party and governmental permits, authorizations,
consents and approvals required to be obtained by the Companies or the Sellers
to consummate the transactions contemplated by this Agreement including, but not
limited to, consents for those Material Contracts listed on Schedule 2D and
marked with an asterisk (*).
(viii) Material Adverse Change. Since the date hereof, there
shall have been no fact, event or circumstance which could have a Material
Adverse Effect.
(ix) Escrow Agreement. Manning shall have executed and
delivered the Escrow Agreement to the Purchaser.
(x) Sport Socks Ireland Agreement. All of Purchaser's
conditions precedent to the consummation of the transactions contemplated by the
Sport Socks Ireland Agreement shall have been satisfied or waived.
(xi) Indemnification Agreement. The Sellers shall have
executed and delivered the Indemnification Agreement to the Purchaser.
(xii) Financing. The Purchaser shall have received, on terms
and conditions reasonably satisfactory to it, the cash proceeds of all of the
financing it needs in order to consummate the transactions contemplated hereby
and by the Sport Socks Ireland Agreement and fund the working capital
requirements of the Companies after the Closing.
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(xiii) Stockholder's Equity. The consolidated stockholders'
equity of the Company Group as of the last day of the month ended immediately
prior to the Closing Date calculated in accordance with GAAP (assuming
conversion into U.S. dollars of amounts denoted in a currency other than U.S.
dollars at the Prevailing Exchange Rate), shall not be less than $21,800,000.
(xiv) Real Property.
(a) A title insurance company licensed to do business in
Kentucky (the "Title Company") shall be willing to insure, at standard
rates, the Companies' marketable title in and to the Owned Property in fee
simple and Purchaser's lender's mortgage lien on the Owned Property free
and clear of all Liens, defects, claims, leases, rights of possession or
other encumbrances (other than items disclosed on Schedules 2Y(i) and (ii)
and Permitted Liens) including such endorsements and affirmative coverages
as Purchaser and the Lender shall reasonably require (including without
limitation non-imputation endorsements) ("Title Insurance"). Sellers and
the Companies shall provide all such affidavits and indemnities as the
Title Company reasonably shall require in order to afford such coverages.
(b) Purchaser shall have received a survey of each Owned
Property conforming to the Minimum Standard Detail Requirements jointly
established and approved in 1992 by ALTA and ACSM certified to the
applicable Company, the Purchaser, the Lender and the Title Company and
showing no defects, encroachments or encumbrances other than the items
disclosed in Schedule 2Y(i) or items that would not adversely affect the
value of the Owned Property or the marketability of title thereto
(collectively, "Surveys").
(c) All Real Property shall be in substantially the same
condition and repair as that on the date of this Agreement, reasonable
wear and tear excepted.
(d) Sellers shall have timely paid any and all real
property transfer, transfer gains, stamp and other similar taxes, if any,
assessed in connection with the transactions contemplated by this
Agreement, and shall have delivered evidence satisfactory to Purchaser and
the Title Company of the payment thereof.
(xv) Closing Documents. At Closing, the Companies and the
Sellers shall have delivered to the Purchaser the following documents:
(a) a certificate of Manning, dated as of the Closing
Date, stating that the conditions specified in clauses 7(A)(i) through
7(A)(viii) have been fully satisfied;
(b) all existing minute books, stock certificates, stock
transfer records, corporate seals and other materials relating to each
Company's respective corporate administration which are in the possession
of either Company, Seller or Affiliate thereof;
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(c) good standing certificates of Auburn from its
jurisdiction of incorporation and each jurisdiction where it is qualified
to do business, in each case, dated within 10 days prior to the Closing
Date; and
(d) such other documents relating to the transactions
contemplated by this Agreement as the Purchaser or its counsel may
reasonably request.
(e) evidence of termination of all powers of attorney,
grants of agency and other agreements listed on Schedule 2N(i)(n) hereto.
(xvi) Good Standing of Sport Socks UK. The Purchaser shall be
reasonably satisfied with the results of its search in the public register of
the United Kingdom with respect to the good standing of Sport Socks UK.
7B. Waiver. Any condition specified in Section 7A may be waived if
consented to in writing by the Purchaser.
7C. Conditions of the Sellers' Obligations at the Closing. The
obligation of the Sellers to take the actions set forth in Section 1 hereof is
subject to satisfaction of the following conditions:
(i) Representations and Warranties; Covenants. The
representations and warranties contained in Section 4 hereof shall be true and
correct in all material respects at and as of the Closing as though then made
and as though the Closing Date was substituted for the date of this Agreement
throughout such representations and warranties, and the Purchaser shall have
performed in all material respects all of the covenants required to be performed
by the Purchaser prior to the Closing.
(ii) Litigation. No suit, action or other proceeding, or
injunction, order, decree or judgment relating thereto, shall be threatened or
shall be pending in which it is sought to restrain or prohibit or to obtain
damages or other relief in connection with the transactions contemplated hereby
and no injunction, judgment, order, decree or ruling with respect thereto shall
be in effect.
(iii) Consents and Approvals. (a) All applicable waiting
periods (and any extensions thereof) under the Hart-Scott-Rodino Act shall have
expired or otherwise been terminated, and (b) the Purchaser shall have made all
filings and shall have obtained all third party and governmental permits,
authorizations, consents and approvals required to be obtained by the Purchaser
to consummate the transactions contemplated by this Agreement.
(iv) Escrow Agreement. The Purchaser shall have executed and
delivered the Escrow Agreement to the Sellers.
(v) Sport Socks Ireland Agreement. All of Sellers' conditions
precedent to the consummation of the transactions contemplated by the Sport
Socks Ireland Agreement shall have been satisfied or waived.
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<PAGE> 36
(vi) Indemnification Agreement. The Purchaser shall have
executed and delivered the Indemnification Agreement.
(vii) Closing Documents. At the Closing, the Purchaser shall
have delivered the following documents to the Sellers:
(a) a certificate of an officer of the Purchaser, dated
the Closing Date, stating that the conditions specified in Section 7C(i)
through (iii) shall have been fully satisfied; and
(b) such other documents relating to the transactions
contemplated by this Agreement as the Sellers or Sellers' counsel may
reasonably request.
7D. Waiver. Any condition specified in Section 7C may be waived if
consented to in writing by Manning.
Section 8. Pre-Closing Covenants and Agreements. Each of the Parties
agrees as follows with respect to the period between the date of this Agreement
and the Closing:
8A. General. Each of the Parties shall use its commercially
reasonable best efforts to take all action and to do all things necessary,
proper or advisable in order to consummate and make effective the transactions
contemplated by this Agreement (including satisfaction, but not waiver, of the
conditions set forth in Sections 7A and 7C and execution and delivery of the
agreements and instruments contemplated hereby to be executed and delivered at
the Closing).
8B. Third Party Notices and Consents. The Companies and the Sellers
shall use their respective commercially reasonable best efforts to (i) give
required notices to third parties, (ii) obtain any required consents (including
consents for those Material Contracts on Schedule 2D and marked with an asterisk
(*))and (iii) take any actions reasonably required by any third party, in each
case in connection with the matters contemplated by this Agreement.
8C. Operation of Business. Each of the Companies shall, and the
Sellers shall cause the Companies to, operate its business only in the usual and
ordinary course of business consistent with past custom and practice and in
accordance with all Laws and will exert its best efforts to preserve the
goodwill and organization of its business and the relationships with its
customers, suppliers, employees and other Persons having business relations with
the Companies. Without limiting the generality of the foregoing, prior to the
Closing, without the prior written consent of the Purchaser, each Seller
covenants that such Seller will cause the Companies to not, directly or
indirectly, except as expressly contemplated by this Agreement, take or omit to
take any action that would require disclosure under Section 2K or that would
otherwise result in a breach of any of the representations, warranties or
covenants made by the Companies or the Sellers in this Agreement.
8D. Full Access. Each Seller shall cause the Companies to afford,
and cause its officers, directors, employees, attorneys, accountants, advisors
and other agents to afford, to the Purchaser and its accounting, legal,
financing and other representatives, as well as their respective
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officers, employees, affiliates and other agents, upon request of the Purchaser,
full and complete access during reasonable business hours to all premises,
properties and personnel of the Companies and to all business, financial, legal,
tax, compensation and other data and information (including, but not limited to
all books, records (including tax records), contracts, customer lists and other
documents and records (including any working papers of the Companies'
personnel)) concerning the Companies and their affairs and operations; provided,
that such access shall not unreasonably interfere with the business operations
of the Companies. Furthermore, each Seller shall, and shall cause the Companies
to, cooperate with and facilitate interviews by the Purchaser or its
representatives with the Companies' employees and customers; provided, that the
Purchaser shall provide the Companies with prior notice before the Purchaser
conducts any interviews with customers or employees of the Companies.
8E. Notice of Material Developments. Each Party shall give prompt
written notice to the other Parties of (i) any variances in any of its
representations or warranties contained in this Agreement, (ii) any breach of
any covenant hereunder by such Party and (iii) any other material development
affecting the ability of such Party to consummate the transactions contemplated
by this Agreement.
8F. Exclusivity. Neither of the Companies, Sellers or any of their
respective representatives, officers, directors, agents, stockholders or
Affiliates shall directly or indirectly initiate, solicit, entertain, negotiate,
accept or discuss any proposal or offer to acquire all or any significant part
of the Companies, whether by merger, purchase of stock, purchase of assets,
tender offer or otherwise, or provide any nonpublic information to any third
party in connection with an Acquisition Proposal or a Third Party Acquisition,
or enter into any agreement, arrangement or understanding requiring the
Companies or the Sellers to abandon, terminate or fail to consummate the Sale.
8G. Tax Matters. Except as expressly contemplated by this Agreement,
the Sellers and the Companies agree to provide the Purchaser with prior written
notice before the Sellers and/or the Companies make or change any election,
change an annual accounting period, adopt or change any accounting method, file
any amended Tax Return, enter into any closing agreement, settle any Tax claim
or assessment relating to the Companies, surrender any right to claim a refund
of Taxes, consent to any extension or waiver of the limitation period applicable
to any Tax claim or assessment relating to the Companies, or take any other
similar action, or omit to take any action relating to the filing of any Tax
Return or the payment of any Tax, if such election, adoption, change, amendment,
agreement, settlement, surrender, consent or other action or omission could have
the effect of increasing the present or future Tax liability or decreasing any
present or future Tax asset of the Companies or the Purchaser.
8H. Intercompany Obligations/Affiliate Transactions. At the Closing,
the Companies shall eliminate, cancel and forgive, without recourse, all
obligations or liabilities owed to them by or from them to any Company Affiliate
other than (i) the Manning Note Payable which shall be repaid by the Purchaser
to Manning pursuant to the Irish Stock Purchase Agreement; (ii) the Manning
Debt, which shall be repaid by the holders thereof to Auburn pursuant to Section
1C(iii) hereof; (iii) any such obligations or liabilities between either of the
Companies and any of the
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Companies or Sport Socks Ireland; and (iv) other obligations or liabilities
incurred in the ordinary course of business consistent with past custom and
practice of the type described on Schedule 8H.
8I. Termination. This Agreement may be terminated at any time prior
to the Closing:
(i) by the written consent of the Parties;
(ii) by the Purchaser, if there has been a material violation
or breach by any Seller of any covenant, representation or warranty contained in
this Agreement which has prevented the satisfaction of any condition to the
obligations of the Purchaser to close the transactions contemplated by this
Agreement and such violation or breach has not been waived by the Purchaser or,
in the case of a covenant breach, cured by the Sellers within the earlier of ten
days after written notice thereof from the Purchaser and the Closing Date;
(iii) by the Sellers, if there has been a material violation
or breach by the Purchaser of any covenant, representation or warranty contained
in this Agreement which has prevented the satisfaction or any condition of the
obligation of the Sellers to close the transactions contemplated by this
Agreement and such violation or breach has not been waived by the Sellers or,
with respect to a covenant breach, cured by the Purchaser within the earlier of
10 days after written notice thereof by any Seller and the Closing Date;
(iv) by Manning or the Purchaser if the transactions
contemplated hereby have not been consummated by December 31, 1997; provided,
however, that neither Manning nor the Purchaser shall be entitled to terminate
this Agreement pursuant to this Section 8I(iv) if such Person's (or, in the case
of Manning, any Seller's) breach of this Agreement has prevented the
consummation of the transactions contemplated hereby; or
(v) by Manning or the Purchaser in the event that the Sport
Socks Ireland Agreement is terminated in accordance with the terms thereof.
8J. Effect of Termination. In the event that this Agreement shall
have been terminated pursuant to Section 8I, all further obligations of the
Parties under this Agreement (other than pursuant to Section 9B and 11A, which
shall continue in full force and effect) shall terminate without further
liability or obligation of any Party; provided, however, that no Party shall be
released from liability hereunder if this Agreement is terminated and the
transactions abandoned by reason of (a) willful failure of such party to have
performed its obligations hereunder or (b) any knowing misrepresentation made by
such Party of any matter set forth herein.
8K. Certain Releases. The Purchaser and the Sellers shall take all
commercially reasonable actions necessary to obtain a complete release,
effective on or prior to the Closing Date, of Manning, JPM or any Affiliate of
Manning (other than a member of the Company Group) from any and all obligations
(A) to Matec S.R.L. or any of its Affiliates arising from those notes of Matec
S.R.L. listed as item 1 on Schedule 2D hereof or (B) with respect to those
automobile leases listed on Schedule 8K attached hereto (the "JPM Auto Leases").
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<PAGE> 39
8L. Existing Liens. With respect to the liens described in items (b)
and (c) on Schedule 2Y(i) (collectively, the "Existing Liens"), the Companies
and the Sellers covenant and agree, at their own expense, to use their
reasonable best efforts prior to the Closing Date (such efforts not to include
the initiation of any proceeding or legal action) to pursue diligently and
obtain recordable evidence of the repayment and discharge of the Existing Liens
(including but not limited to releases and/or satisfactions with respect
thereto), such evidence to be sufficient for the Existing Liens to be removed
from all applicable public records. The Companies and the Sellers shall also
cause any such releases and satisfactions to be recorded of record in all
relevant local records.
Section 9. Post-Closing Covenants and Agreements. The Parties agree
as follows with respect to the period following the Closing.
9A. Certain Tax Matters.
(i) Each of the Companies shall prepare, or cause to be prepared,
and file, or cause to be filed, any Tax Returns of such Company for Tax periods
which end on or before the Closing Date and which have not been filed as of the
Closing Date. Each of the Companies shall prepare, or cause to be prepared, and
file, or cause to be filed, any Tax Returns of either of the Companies for Tax
periods which begin before the Closing Date and end after the Closing Date. Any
Tax Return filed by either of the Companies after the Closing Date that includes
a period prior to the day after the Closing Date shall be prepared on a basis
consistent with past practice and shall be forwarded to Manning no less than 60
days prior to the due date for that Tax Return for Manning's review. Manning
shall have 30 days from the date of receipt of such Tax Returns in which to
object to any portion of a Tax Return (if no such objection is received by the
Companies within 30 days of Manning's receipt of the Tax Returns. Manning shall
be deemed to have approved the Tax Returns). If Manning objects to any portion
of a Tax Return forwarded to him, Manning and the Companies shall negotiate in
good faith to achieve a mutually acceptable reporting position for the Tax
Return. If Manning and the Companies are not able to reach agreement on a
reporting position by the date 15 days prior to the due date for the Tax Return,
Manning and the Companies shall present their respective positions to an
accounting firm of national reputation that has no ties to either Manning or the
Companies, which shall decide between the two positions, consistent with past
practice. The decision of the accounting firm so chosen shall be binding on the
parties and the Tax Return shall be so filed.
(ii) With respect to any Tax periods ending after the Closing Date,
each of the Companies may make or change any election, file any amended Tax
Return, enter into any closing agreement, settle any Tax claim or assessment
relating to such Company, surrender any right to claim a refund of Taxes, or
take any other similar action, or omit to take any action relating to the filing
of any Tax Return or the payment of any Tax; provided that neither of the
Companies shall take such action without the prior written consent of Manning if
such action would have the effect of increasing the present or future Tax
liability or decreasing any present or future Tax asset of the Companies or the
Sellers with respect to any Tax periods or portion thereof ending on or prior to
the Closing Date.
(iii) Cooperation on Tax Matters. The Parties shall cooperate fully,
as and to the extent reasonably requested by each Party and at the requesting
Party's expense, in connection with
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the preparation of the Tax Returns and any audit, litigation or other proceeding
with respect to Taxes. Such cooperation shall include the retention and (upon
any Party's request) the provision of records and information which are
reasonably relevant to any such audit, litigation or other proceeding and making
employees available on a mutually convenient basis to provide additional
information and explanation of any material provided hereunder.
(iv) Post-Closing Access to Business Records and Accounting
Cooperation. The Purchaser agrees that, following the Closing, the Sellers and
the Sellers' attorneys, accountants, officers and other representatives, shall
have reasonable access, during normal business hours, to the books and records
of the Companies to the extent they relate to a period prior to the Closing Date
(and shall permit such persons to examine and copy at such person's sole expense
such books and records to the extent requested by such party), and shall cause
the directors, officers and employees of the Companies to furnish all
information reasonably requested by the Sellers in connection with financial
reporting and Tax matters (including financial and Tax audits, preparation of
Tax Returns and Tax contests) and other similar business purposes. The Purchaser
shall not permit the Companies to destroy or dispose of any such books and
records without the prior written consent of the Sellers prior to the sixth
anniversary of the Closing Date. On and after the sixth anniversary of the
Closing Date, neither the Purchaser nor the Companies shall destroy or dispose
or allow the destruction or disposition of such books and records without first
having offered in writing to deliver such books and records to the Sellers at
the Sellers' sole expense. The Purchaser may permit the Companies to dispose of
the books and records described in such notice if the Sellers shall fail to
request copies of such books and records within 90 days after receipt of the
notice described in the preceding sentence.
9B. Press Release and Announcements. None of the Parties nor any of
their respective representatives shall make any public announcement with respect
to this Agreement or the transactions contemplated hereby without the prior
written consent of Manning and the Purchaser. The foregoing notwithstanding, any
such public announcement may be made if required by applicable law or a
securities exchange rule, provided that the Party required to make such public
announcement shall confer with (i) Manning if such Party is the Purchaser or
(ii) the Purchaser if such Party is any Seller concerning the timing and content
of such public announcement before the same is made. For the avoidance of doubt,
nothing contained in this Section 9B shall prevent the Purchaser from making any
disclosure with respect to this Agreement or the transactions contemplated
hereby without the written consent of Manning in connection with (a) any filings
made by Purchaser on behalf of itself or either of the Companies with the SBA or
the SEC or (b) the financing by the Purchaser of the transactions contemplated
hereby.
9C. Litigation Support. In the event and for so long as any Party
actively is contesting or defending against any action, suit, proceeding,
hearing, investigation, charge, complaint, claim, or demand in connection with
(i) any transaction contemplated under this Agreement or (ii) any fact,
situation, circumstance, status, condition, activity, practice, plan,
occurrence, event, incident, action, failure to act, or transaction on or prior
to the Closing Date involving either of the Companies, each of the other Parties
will cooperate with him, her or its and his, her or its counsel in the contest
or defense, make available their personnel, and provide such testimony and
access to their books and records as shall be necessary in connection with the
contest
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or defense, all at the sole cost and expenses of the contesting or defending
Party (unless the contesting or defending Party is entitled to indemnification
therefor under Section 6).
9D. Transition. None of the Sellers will take any action that is
designed or intended to have the effect of discouraging any lessor, licensor,
customer, supplier or other business associate of either of the Companies from
maintaining the same business relationships with the Companies after the Closing
as it maintained with the Companies prior to the Closing. Each of the Sellers
will refer all customer inquiries relating to the business of the Companies to
the Purchaser from and after the Closing.
9E. General. (i) In case at any time after the Closing any further
action is necessary to carry out the purposes of this Agreement, each of the
Parties will take such further action (including the execution and delivery of
such further instruments and documents) as any other Party reasonably may
request, all at the sole cost and expense of the requesting Party (unless the
requesting Party is entitled to indemnification therefor under Section 6. The
Sellers acknowledge and agree that from and after the Closing the Purchaser,
subject to the provisions of Section 9A, will be entitled to possession of all
documents, books, records (including Tax records), agreements, and financial
data of any sort relating to the Companies.
(ii) For one year after the Closing Date, the Sellers agree to
provide to Purchaser and cause Sellers' accountants to provide to Purchaser (a)
any and all financial information related to any member of the Company Group or
JPM which is reasonably requested by Purchaser in connection with a filing by
Buyer for registration of securities with the Securities and Exchange Commission
(an "SEC Filing") and (b) any financial information of Sellers related to the
Auburn Business which is required to be furnished by Purchaser under Regulation
S-X of the Securities Act of 1933, as amended, in connection with an SEC Filing.
After such one-year period, Sellers agree to provide any such information, as is
reasonably practicable. Purchaser agrees (1) to reimburse Sellers, forthwith
upon presentation of invoices in reasonable detail to identify the nature and
amount of the expenditure, for any and all reasonable out-of-pocket costs and
out-of-pocket expenses incurred by Sellers in connection with providing such
information, (2) not to bring any claim against any member of the Company Group
or JPM with respect to the accuracy or completeness of any such information
delivered for such purpose and (3) not to disclose the source of such
information to any third party without the prior consent of Manning, except as
required by law or court order or unless and to the extent that the
aforementioned matters become generally known to and available for use by the
public other than as a result of Purchaser's acts or omissions to act.
Section 10. Definitions. For the purposes of this Agreement, the
following terms have the meanings set forth below:
"Accredited Investor" has the meaning set forth in Regulation D
promulgated under the Securities Act.
"Acquisition Proposal" has the meaning set forth in Section 2BB.
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"Affiliate" of any particular Person means any other Person
controlling, controlled by or under common control with such particular Person,
where "control" means the possession, directly or indirectly, of the power to
direct the management and policies of a Person whether through the ownership of
voting securities, contract or otherwise.
"Affiliated Group" means any affiliated group as defined in Code
ss.1504 that has filed a consolidated return for federal income tax purposes (or
any similar group under state, local or foreign law) for a period during which
any of the Companies was a member.
"Agreement" has the meaning set forth in the recitals.
"Ancillary Companies" has the meaning set forth in the recitals.
"Ancillary Company Transfers" has the meaning set forth in the
recitals.
"Auburn" has the meaning set forth in the recitals.
"Auburn Business" has the meaning set forth in the recitals.
"Auburn Shares" has the meaning set forth in the recitals.
"Board" means the board of directors of Auburn.
"CERCLA" means the Comprehensive Environmental Response,
Compensation, and Liability Act of 1980, as amended.
"Closing" has the meaning set forth in Section 1C.
"Closing Date" has the meaning set forth in Section 1C.
"COBRA" has the meaning set forth in Section 2T(ii)(b).
"Code" means the Internal Revenue Code of 1986, as amended.
"Companies" has the meaning set forth in the recitals.
"Company Affiliates" means any member of the Company Group and any
other affiliates of any member of the Company Group or Manning.
"Company Group" means collectively, Auburn, Sport Socks UK, and
Sport Socks Ireland.
"Company Intellectual Property" means all of the Intellectual
Property rights owned or used by either of the Companies.
"Confidential Information" has the meaning set forth in Section 5A.
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<PAGE> 43
"Controlled Group of Corporations" has the meaning set forth in Code
ss.1563.
"Employee Benefit Plan" means any oral or written benefit plan,
program, agreement or arrangement for the benefit of current or former employees
or their respective dependents or beneficiaries, including, without limitation,
any bonus, deferred compensation, incentive compensation, severance, share
purchase, stock option, stock appreciation, phantom stock, savings, profit
sharing, health or other medical, life, disability, travel, accident or other
welfare benefit plan or other insurance, supplementary unemployment, pension,
retirement or other supplementary retirement program, agreement or arrangement.
"Employee Pension Benefit Plan" has the meaning set forth in ERISA
ss.3(2).
"Employee Welfare Benefit Plan" has the meaning set forth in ERISA
ss.3(1).
"Encumbrances" has the meaning set forth in Section 3C.
"Environmental and Safety Requirements" shall mean all federal,
state, local and foreign statutes, regulations, ordinances and other provisions
having the force or effect of law, all judicial and administrative orders and
determinations, all contractual obligations and all common law concerning public
health and safety, worker health and safety, and pollution or protection of the
environment, including without limitation all those relating to the presence,
use, production, generation, handling, transportation, treatment, storage,
disposal, distribution, labeling, testing, processing, discharge, Release,
threatened Release, control, or cleanup of any hazardous materials, substances
or wastes, chemical substances or mixtures, pesticides, pollutants,
contaminants, toxic chemicals, petroleum products or byproducts, asbestos,
polychlorinated biphenyls, noise or radiation, each as amended.
"ERISA" means the Employee Retirement Income Security Act of 1974,
as amended.
"Escrow Account" has the meaning set forth in Section 1C(ii).
"Escrow Agent" has the meaning set forth in Section 1C(ii).
"Escrow Agreement" has the meaning set forth in Section 1C(ii).
"Existing Liens" has the meaning set forth in Section 8L.
"Fiduciary" has the meaning set forth in ERISA ss.3(21).
"GAAP" means United States generally accepted accounting principles
consistently applied, as in effect from time to time.
"Government Entity" means individually, and "Government Entities"
means collectively, the United States of America or any other nation, including,
for the avoidance of doubt, the United Kingdom, any state or other political
subdivision thereof, or any entity exercising
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<PAGE> 44
executive, legislative, judicial, regulatory or administrative functions of
government, including any court, in each case having jurisdiction over either
Company or any of their assets.
"Guarantee" means any guarantee of the payment or performance of any
Indebtedness or other obligation and any other arrangement whereby credit is
extended to one obligor on the basis of any promise of such Person, whether that
promise is expressed in terms of an obligation to pay the Indebtedness of such
obligor, to provide reimbursement, or to purchase an obligation owed by such
obligor, or to purchase goods and services from such obligor pursuant to a
take-or-pay contract, or to maintain the capital, working capital, solvency or
general financial condition of such obligor, whether or not any such arrangement
is listed in the balance sheet of such Person, or referred to in a footnote
thereto, but shall not include endorsements of items for collection in the
ordinary course of business.
"Indebtedness" means at a particular time, without duplication, (i)
any obligations under any indebtedness for borrowed money, (ii) any indebtedness
evidenced by any note, bond, debenture or other debt security, (iii) any
commitment by which a Person assures a creditor against loss (including
contingent reimbursement obligations with respect to letters of credit), (iv)
any indebtedness pursuant to a Guarantee, (v) any obligations under capitalized
leases or with respect to which a Person is liable, contingently or otherwise,
as obligor, guarantor or otherwise, or with respect to which obligations a
Person assures a creditor against loss, and (vi) any indebtedness secured by a
Lien on a Person's assets, including, without limitation, in each case, all
principal, interest premiums, penalties, fees, expenses and brokerage costs. Any
Indebtedness denoted in a currency other than U.S. dollars shall be converted
into U.S. dollars for purposes of calculating Indebtedness, assuming conversion
at the Prevailing Exchange Rate.
"Indemnification Agreement" shall mean the Indemnification Agreement
dated as of the date hereof among the Purchaser and each of the Sellers.
"Indemnitee" has the meaning set forth in Section 6B(iv).
"Indemnitor" has the meaning set forth in Section 6B(iv).
"Intellectual Property" means all (i) patents, patent applications,
patent disclosures and inventions, as well as any reissues, continuations,
continuations-in-part, divisions, revisions, extensions or reexaminations
thereof, (ii) trademarks, service marks, trade dress, trade names, logos,
slogans, corporate names and Internet domain names, and registrations and
applications for registration thereof, together with all of the goodwill
associated therewith, (iii) copyrights and copyrightable works, and
registrations and applications for registration thereof, (iv) computer software,
data, data bases and documentation, and (v) trade secrets and other confidential
information (including, ideas, formulas, compositions, inventions (whether
patentable or unpatentable and whether or not reduced to practice), know-how,
manufacturing and production processes and techniques, research and development
information, drawings, specifications, designs, plans, proposals, technical
data, financial, business, and marketing plans and customer and supplier lists
and information).
"Interim Balance Sheet" has the meaning set forth in Section
2E(i)(b).
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<PAGE> 45
"Investment" as applied to any Person means (i) any direct or
indirect purchase or other acquisition by such Person of any notes, obligations,
instruments, stock, securities or ownership interest (including partnership
interests and joint venture interests) of any other Person and (ii) any capital
contribution by such Person to any other Person.
"Irish Shares" has the meaning set forth in the recitals.
"JPM" has the meaning set forth in Section 2S.
"JPM Auto Leases" has the meaning set forth in Section 8K.
"JPM Benefit Plan" has the meaning set forth in Section 6B(i)(e).
"JPM Employees" has the meaning set forth in Section 2S.
"Knowledge" means actual knowledge after reasonable investigation.
"Laws" means all statutes, laws, codes, ordinances, regulations,
rules, orders, judgments, writs, injunctions, acts or decrees of any Government
Entity.
"Lease" has the meaning set forth in Section 2Y(ii).
"Leased Property" has the meaning set forth in Section 2Y(ii).
"Lender" means NationsBank, N.A.
"Liabilities" means any liability (whether known or unknown, whether
asserted or unasserted, whether absolute or contingent, whether accrued or
unaccrued, whether liquidated or unliquidated, and whether due or to become
due), including any liability for Taxes.
"Lien" or "Liens" means any mortgage, pledge, security interest,
encumbrance, encroachment, lien or other defect in title or charge of any kind
(including any conditional sale or other title retention agreement or lease in
the nature thereof), any sale of receivables with recourse against either of the
Companies, any filing or agreement to file a financing statement as debtor under
the Uniform Commercial Code or any similar statute (other than to reflect
ownership by a third party of property leased to either of the Companies under a
lease which is not in the nature of a conditional sale or title retention
agreement), or any subordination arrangement in favor of another Person.
"Losses" has the meaning set forth in Section 6B(i).
"Manning" has the meaning set forth in the recitals.
"Manning Debt" has the meaning set forth in Section 1C(iii).
"Manning Note Payable" has the meaning given to such term in the
Irish Stock Purchase Agreement.
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<PAGE> 46
"Manning Parties" has the meaning set forth in Section 2F.
"Manning UK Share" has the meaning set forth in the recitals.
"Material Adverse Effect" means a material and adverse effect upon
the business, operations, assets, liabilities, financial condition, operating
results, prospects, cash flow, net worth or employee, customer or supplier
relations of the Companies taken as a whole.
"Material Contracts" has the meaning set forth in Section 2N(ii).
"Multiemployer Plan" has the meaning set forth in ERISA ss.3(37).
"Overlap Period" has the meaning set forth in Section 6B(vi).
"1996 Balance Sheet" has the meaning set forth in Section 2E.
"Noncompete Period" has the meaning set forth in Section 5C.
"Owned Property" has the meaning set forth in Section 2Y(ii).
"Party" has the meaning set forth in the recitals.
"PBGC" means the Pension Benefit Guaranty Corporation.
"Permitted Liens" means (i) Liens for Taxes or assessments and
similar charges, which either are (a) not delinquent or (b) being contested in
good faith and by appropriate proceedings, and adequate reserves (as determined
in accordance with GAAP, consistently applied) have been established on either
of the Companies' books with respect thereto, (ii) mechanics', materialmen's or
contractors' Liens or encumbrances or any similar statutory Lien or restriction
for amounts not yet due and payable and for which the Title Company has
affirmatively insured against collection, (iii) zoning, entitlement, building
and other land use regulations imposed by governmental agencies having
jurisdiction over the Real Property which are not violated by the current use
and operation of the Real Property, and (iv) covenants, conditions,
restrictions, easements and other similar matters of record affecting title to
the Real Property which do not materially impair the occupancy or use of the
Real Property for the purposes for which it is currently used in connection with
either of the Companies' businesses.
"Person" means an individual, a partnership, a corporation, a
limited liability company, an association, a joint stock company, a trust, a
joint venture, an unincorporated organization and a governmental entity or any
department, agency or political subdivision thereof.
"Prevailing Exchange Rate" means (a) in the case of any amount
denoted in Irish pounds, an exchange rate of U.S.$1.40 to one Irish pound, and
(b) in the case of any amount denoted in a currency other than U.S. dollars or
Irish pounds, an amount to be agreed upon by the parties hereto at the date of
such determination.
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<PAGE> 47
"Prohibited Transactions" has the meaning set forth in ERISA ss.406
and Code ss.4975.
"Purchase Price" has the meaning set forth in Section 1B(i).
"Purchaser" has the meaning set forth in the recitals.
"Purchaser Transaction Costs" has the meaning set forth in Section
11A.
"Real Property" has the meaning set forth in Section 2Y(ii).
"Release" shall have the meaning set forth in CERCLA.
"Reportable Event" has the meaning set forth in ERISA ss.4043.
"Sale" has the meaning set forth in Section 1D.
"SBA" means the United States Small Business Administration and any
successor agency performing the functions thereof.
"SEC" means the Securities and Exchange Commission and any successor
agency performing the functions thereof.
"SEC Filing" has the meaning set forth in Section 9E(ii).
"Securities Act" means the Securities Act of 1933, as amended, or
any similar federal law then in force.
"Seller Expenses" has the meaning set forth in Section 2BB.
"Seller Transaction Costs" has the meaning set forth in Section 11A.
"Sellers" has the meaning set forth in the recitals.
"Shares" has the meaning set forth in the recitals.
"Sport Socks Ireland" has the meaning set forth in the recitals.
"Sport Socks Ireland Agreement" has the meaning set forth in the
recitals.
"Sport Socks UK" has the meaning set forth in the recitals.
"Subsidiary" means, with respect to any Person, any corporation,
limited liability company, partnership, association or other business entity of
which (i) if a corporation, a majority of the total voting power of shares of
stock 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 that Person or one or more of the other
Subsidiaries of that
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<PAGE> 48
Person or a combination thereof, or (ii) if a limited liability company,
partnership, association or other business entity, a majority of the partnership
or other similar ownership interest thereof is at the time owned or controlled,
directly or indirectly, by any Person or one or more Subsidiaries of that Person
or a combination thereof. For purposes hereof, a Person or Persons shall be
deemed to have a majority ownership interest in a limited liability company,
partnership, association or other business entity if such Person or Persons
shall be allocated a majority of limited liability company, partnership,
association or other business entity gains or losses or shall be or control any
managing director or general partner of such limited liability company,
partnership, association or other business entity.
"Surveys" have the meaning set forth in Section 7A(xv).
"Tax" or "Taxes" means federal, state, county, local, foreign or
other income, gross receipts, ad valorem, franchise, profits, sales or use,
transfer, registration, excise, utility, environmental, communications, real or
personal property, capital stock, license, payroll, wage or other withholding,
employment, social security, severance, stamp, occupation, alternative or add-on
minimum, estimated and other taxes of any kind whatsoever (including
deficiencies, penalties, additions to tax, and interest attributable thereto)
whether disputed or not.
"Tax Benefits" has the meaning set forth in Section 6B(iii).
"Tax Matter" has the meaning set forth in Section 6B(vi).
"Tax Return" means any return, information report or filing with
respect to Taxes, including any schedules attached thereto and including any
amendment thereof.
"Third Party Acquisition" has the meaning set forth in Section 2BB.
"Title Company" has the meaning set forth in Section 7A(xvi).
"Title Insurance" has the meaning set forth in Section 7A(xv).
"Treasury Regulation" means the United States Treasury Regulations
promulgated under the Code, and any reference to any particular Treasury
Regulation section shall be interpreted to include any final or temporary
revision of or successor to that section regardless of how numbered or
classified.
"Work Product" has the meaning set forth in Section 5B.
Section 11. Miscellaneous.
11A. Fees and Expenses. Subject to the immediately following
sentence and Section 8J hereof, the Purchaser will be responsible for all costs
and expenses incurred by the Purchaser in connection with the negotiation,
preparation and entry into this Agreement and the consummation of the
transactions contemplated hereby ("Purchaser Transaction Costs"), and the
Sellers (and not the Companies) will pay all costs and expenses incurred by the
Sellers or either of
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<PAGE> 49
the Companies in connection with the negotiation, preparation and entry into
this Agreement and the consummation of the transactions contemplated hereby (the
"Seller Transaction Costs"). The Parties hereby covenant and agree that the
Purchaser shall bear the cost of Title Insurance and Surveys incurred pursuant
to Section 7A(xiv) hereof.
11B. Remedies. The Parties agree and acknowledge that money damages
may not be an adequate remedy for any breach of the provisions of this
Agreement. Except as expressly provided in this Agreement, and except as such
enforceability may be limited by (x) applicable solvency, bankruptcy,
reorganization, moratorium or other similar laws affecting creditors' rights
generally and (y) applicable equitable principles (whether considered in a
proceeding at law or in equity), any Party may, in its sole discretion, ask for
specific performance (without posting a bond or other security) and/or
injunctive relief in order to enforce or prevent any violations of the
provisions of this Agreement. All such rights and remedies shall be cumulative
and non-exclusive, and may be exercised singularly or concurrently. One or more
successive actions may be brought against the Sellers, either in the same action
or in separate actions, as often as the Purchaser deems advisable, until all of
the obligations to the Purchaser are paid and performed in full.
11C. Consent to Amendments; Waivers. This Agreement may be amended,
or any provision of this Agreement may be waived upon the approval, in a
writing, executed by all of the Parties. No course of dealing between or among
the Parties shall be deemed effective to modify, amend or discharge any part of
this Agreement or any rights or obligations of any such Party or such holder
under or by reason of this Agreement.
11D. Successors and Assigns. This Agreement and all covenants and
agreements contained herein and rights, interests or obligations hereunder, by
or on behalf of any of the Parties hereto, shall bind and inure to the benefit
of the respective successors and permitted assigns of the Parties hereto whether
so expressed or not, except that neither this Agreement nor any of the covenants
and agreements herein or rights, interests or obligations hereunder may be
assigned by the Purchaser without the prior written consent of Manning or by any
Seller without the prior written consent of Purchaser; provided, however, that
the Purchaser may assign this Agreement and its rights and obligations hereunder
(i) to any of its Affiliates or (ii) following the Closing, in connection with
any sale of all or substantially all of the assets, capital stock or business of
Purchaser or either of the Companies, provided, however, that the Purchaser
shall not be released from any of its obligations hereunder.
11E. Severability. Whenever possible, each provision of this
Agreement shall be interpreted in such manner as to be effective and valid under
applicable law, but if any provision of this Agreement or the application of any
such provision to any Person or circumstance shall be held to be prohibited by,
illegal or unenforceable under applicable law or rule in any respect by a court
of competent jurisdiction, such provision shall be ineffective only to the
extent of such prohibition, illegality or unenforceability, without invalidating
the remainder of such provision or the remaining provisions of this Agreement.
11F. Counterparts. This Agreement may be executed in counterparts
(including by means of telecopied signature pages), any one of which need not
contain the signatures of more than one Party, but all such counterparts taken
together shall constitute one and the same agreement.
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<PAGE> 50
11G. Descriptive Headings; Interpretation. The headings and captions
used in this Agreement and the table of contents to this Agreement are for
reference purposes only and shall not affect in any way the meaning or
interpretation of this Agreement. Any capitalized terms used in any Schedule or
Exhibit attached hereto and not otherwise defined therein shall have the
meanings set forth in this Agreement. The use of the word "including" herein
shall mean "including without limitation".
11H. Entire Agreement. This Agreement and the agreements and
documents referred to herein contain the entire agreement and understanding
among the Parties with respect to the subject matter hereof and supersede all
prior agreements and understandings, whether written or oral, relating to such
subject matter in any way.
11I. No Third-Party Beneficiaries. This Agreement is for the sole
benefit of the Parties and their successors and permitted assigns and nothing
herein expressed or implied shall give or be construed to give any Person, other
than the Parties and such successors and permitted assigns, any legal or
equitable rights hereunder.
11J. Schedules and Exhibits. All Schedules and Exhibits attached
hereto or referred to herein are hereby incorporated in and made a part of this
Agreement as if set forth in full herein.
11K. GOVERNING LAW; WAIVER OF JURY TRIAL.
(i) ALL ISSUES AND QUESTIONS CONCERNING THE CONSTRUCTION, VALIDITY,
ENFORCEMENT AND INTERPRETATION OF THIS AGREEMENT AND THE SCHEDULES AND EXHIBITS
HERETO SHALL BE GOVERNED BY, AND CONSTRUED IN ACCORDANCE WITH, THE LAWS OF THE
STATE OF NEW YORK WITHOUT GIVING EFFECT TO ANY CHOICE OF LAW OR CONFLICT OF LAW
RULES OR PROVISIONS (WHETHER OF THE STATE OF NEW YORK OR ANY OTHER JURISDICTION)
THAT WOULD CAUSE THE APPLICATION OF THE LAWS OF ANY JURISDICTION OTHER THAN THE
STATE OF NEW YORK. IN FURTHERANCE OF THE FOREGOING, THE INTERNAL LAW OF THE
STATE OF NEW YORK SHALL CONTROL THE INTERPRETATION AND CONSTRUCTION OF THIS
AGREEMENT (AND ALL SCHEDULES AND EXHIBITS HERETO), EVEN THOUGH UNDER THAT
JURISDICTION'S CHOICE OF LAW OR CONFLICT OF LAW ANALYSIS, THE SUBSTANTIVE LAW OF
SOME OTHER JURISDICTION WOULD ORDINARILY APPLY.
(ii) THE PARTIES HERETO AGREE AND ACKNOWLEDGE THAT THE SELECTION OF
NEW YORK LAW PURSUANT TO THIS SECTION 11K IS A MATERIAL INDUCEMENT TO THE
PURCHASER TO ENTER INTO THIS AGREEMENT AND CONSUMMATE THE TRANSACTIONS
CONTEMPLATED HEREBY.
(iii) IF APPLICABLE TO ANY DISPUTE ARISING HEREUNDER, EACH PARTY
HEREBY IRREVOCABLY WAIVES, TO THE FULLEST EXTENT PERMITTED
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<PAGE> 51
BY LAW, ANY RIGHT TO HAVE A JURY PARTICIPATE IN RESOLVING ANY DISPUTE ARISING
OUT OF, IN CONNECTION WITH, RELATED TO, OR INCIDENTAL TO THE RELATIONSHIP AMONG
THEM ESTABLISHED BY THIS AGREEMENT OR ANY OTHER DOCUMENT, AGREEMENT OR
INSTRUMENT ENTERED INTO IN CONNECTION WITH THIS AGREEMENT OR THE TRANSACTIONS
CONTEMPLATED HEREBY.
11L. Notices. All notices, demands or other communications to be
given or delivered under or by reason of the provisions of this Agreement shall
be in writing and shall be deemed to have been given when delivered personally
to the recipient or when sent by facsimile followed by delivery by reputable
overnight courier service, one day after being sent to the recipient by
reputable overnight courier service (charges prepaid) or five days after being
mailed to the recipient by certified or registered mail, return receipt
requested and postage prepaid. Such notices, demands and other communications
shall be sent to the Purchaser and the Sellers at the addresses indicated below
or to such other address or to the attention of such other person as the
recipient party has specified by prior written notice to the sending party. All
notices, demands and other communications hereunder may be given by any other
means (including telecopy or electronic mail), but shall not be deemed to have
been duly given unless and until it is actually received by the intended
recipient.
The Sellers:
c/o Mr. James P. Manning
930 Fifth Avenue
New York, New York 10021
Facsimile: 212-689-3874
with copies to:
(the delivery of which shall not constitute
the delivery of a notice to any Seller)
White & Case
1155 Avenue of the Americas
New York, NY 10036
Attention: Anthony F. Kahn, Esq.
Facsimile: 212-354-8113
and
Mr. Jack Lichtenstein
225 West 34th St., Suite 1600
New York, NY 10022
Facsimile: 212-268-9441
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To the Purchaser :
GCIH, Inc.
1333 Broadway, 7th Floor
New York, NY 10018
Attention: Mr. Richard Solar
Facsimile: 212-268-5122
with a copy to:
Gerber Childrenswear, Inc.
7005 Pelham Road
Greenville, SC 29615
Attention: David Uren
Facsimile: 864-987-5499
and a copy to:
(the delivery of which shall not constitute
the delivery of a notice to the Purchaser)
Kirkland & Ellis
153 East 53rd Street
New York, NY 10022
Attention: Kirk A. Radke, Esq.
Facsimile: 212-446-4900
11M. Jurisdiction and Venue. SUBJECT TO SECTION 11K, ALL JUDICIAL
PROCEEDINGS BROUGHT BY OR AGAINST EITHER OF THE COMPANIES, THE PURCHASER OR THE
SELLERS WITH RESPECT TO THIS AGREEMENT, ANY OTHER AGREEMENT CONTEMPLATED HEREBY
OR ANY TRANSACTIONS CONTEMPLATED HEREBY OR THEREBY SHALL BE BROUGHT IN ANY STATE
OR FEDERAL COURT OF COMPETENT JURISDICTION IN THE CITY OF NEW YORK IN THE STATE
OF NEW YORK. BY EXECUTION AND DELIVERY OF THIS AGREEMENT EACH OF THE PURCHASER
AND THE SELLERS ACCEPTS FOR ITSELF, HIMSELF OR HERSELF AND IN CONNECTION WITH
ITS, HIS OR HER RESPECTIVE PROPERTIES, GENERALLY AND UNCONDITIONALLY, THE
EXCLUSIVE JURISDICTION OF THE AFORESAID COURTS, AND IRREVOCABLY AGREES TO BE
BOUND BY ANY JUDGMENT RENDERED THEREBY IN CONNECTION WITH THIS AGREEMENT. THE
PURCHASER AND THE SELLERS HEREBY WAIVE ANY CLAIM THAT SUCH JURISDICTION IS AN
INCONVENIENT FORUM OR AN IMPROPER FORUM BASED ON LACK OF VENUE. THE PURCHASER
AND THE SELLERS DESIGNATE AND APPOINT CT CORPORATION SYSTEM, 1633 BROADWAY, NEW
YORK, NEW YORK 10019 (AND SUCH OTHER PERSONS AS MAY HEREAFTER BE SELECTED BY
SUCH PERSON WITH THE CONSENT OF THE PURCHASER) TO RECEIVE ON ITS BEHALF SERVICE
OF ALL PROCESS IN ANY SUCH PROCEEDINGS IN ANY SUCH COURT, SUCH SERVICE BEING
HEREBY ACKNOWLEDGED BY THE PURCHASER AND THE SELLERS TO BE EFFECTIVE AND
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<PAGE> 53
BINDING SERVICE IN EVERY RESPECT. A COPY OF SUCH PROCESS SO SERVED SHALL BE
MAILED BY REGISTERED MAIL TO THE PURCHASER OR THE SELLERS AT SUCH PERSON'S
RESPECTIVE ADDRESSES PROVIDED HEREIN. TO THE EXTENT PERMITTED BY LAW, IF ANY
AGENT APPOINTED BY THE PURCHASER OR THE SELLERS REFUSES TO ACCEPT SERVICE, SUCH
PERSON HEREBY AGREES THAT SERVICE UPON SUCH PERSON BY MAIL SHALL CONSTITUTE
SUFFICIENT NOTICE.
11N. No Strict Construction. The Parties have participated jointly
in the negotiation and drafting of this Agreement. In the event an ambiguity or
question of intent or interpretation arises, this Agreement shall be construed
as if drafted jointly by the Parties, and no presumption or burden of proof
shall arise favoring or disfavoring any Party by virtue of the authorship of any
of the provisions of this Agreement.
* * * * *
- 48 -
<PAGE> 54
IN WITNESS WHEREOF, the parties hereto have executed this Stock
Purchase Agreement on the date first written above.
GCIH, INC.
By: /s/ Edward Kittredge
-----------------------------
Name: EDWARD KITTREDGE
Title: Chairman and CEO
/s/ James P. Manning
---------------------------------
JAMES P. MANNING
/s/ Eileen Manning
---------------------------------
EILEEN MANNING
THE LAURIE DONNELLY CHARITABLE
REMAINDER TRUST
THE HELEN ENIGAN CHARITABLE
REMAINDER TRUST
THE KATHRYN JACKSON CHARITABLE
REMAINDER TRUST
THE JAMES AND EILEEN MANNING
CHARITABLE REMAINDER TRUST
THE LYNN SATALINO CHARITABLE
REMAINDER TRUST
THE MARY MANNING CHARITABLE
REMAINDER TRUST
By: /s/ Jack Lichtenstein
-----------------------------
Jack Lichtenstein, as co-trustee and not
individually
By: /s/ John Reiner
-----------------------------
John Reiner, as co-trustee and not individually
- 49 -
<PAGE> 1
Exhibit 10.8
================================================================================
SHARE PURCHASE AGREEMENT
for the purchase of the
entire issued share capital of
SPORT SOCKS CO. (IRELAND) LIMITED
by and among
GCIH, INC.,
JAMES P. MANNING
and
EILEEN MANNING
December 16, 1997
================================================================================
<PAGE> 2
TABLE OF CONTENTS
Page
Section 1. Purchase and Sale................................................2
1A. Purchase and Sale of the Shares..................................2
1B. Purchase Price...................................................2
1C. The Closing......................................................2
Section 2. Representations and Warranties of the Sellers With Respect to
the Company .....................................................3
2A. Organization, Corporate Power and Licenses.......................4
2B. Share Capital and Related Matters................................4
2C. Subsidiaries; Investments........................................4
2D. Authorization; No Breach.........................................4
2E. Financial Statements.............................................5
2F. Absence of Undisclosed Liabilities...............................5
2G. Accounts Receivable..............................................6
2H. Inventory........................................................6
2I. Product Warranty.................................................6
2J. No Material Adverse Effect.......................................6
2K. Absence of Certain Developments..................................6
2L. Assets...........................................................8
2M. Tax Matters......................................................8
2N. Contracts and Commitments.......................................13
2O. Intellectual Property Rights....................................15
2P. Litigation, etc. ...............................................16
2Q. Brokerage.......................................................16
2R. Insurance.......................................................16
2S. Employees.......................................................16
2T. Employee Benefits...............................................17
2U. Compliance with Laws; Permits...................................19
2V. Environmental and Safety Matters................................19
2W. Affiliate Transactions..........................................20
2X. Suppliers and Customers.........................................20
2Y. Real Property...................................................21
2Z. Fees and Expenses...............................................21
2AA. Sufficiency of Assets...........................................22
2BB. Exclusivity.....................................................22
2CC. IDA Grants......................................................22
Section 3. Representations and Warranties of the Sellers...................22
3A. Power and Authority.............................................22
3B. Authorization; No Breach........................................22
3C. Title to Shares.................................................23
3D. Brokerage.......................................................23
3E. Litigation, etc. ...............................................23
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<PAGE> 3
Section 4. Representations and Warranties of the Purchaser.................23
4A. Organization. ..................................................23
4B. Authorization; No Breach. ......................................23
4C. Brokerage.......................................................24
Section 5. Confidentiality, Noncompetition and Nonsolicitation for
James P. Manning ...............................................24
5A. Confidential Information........................................24
5B. Work Product....................................................24
5C. Noncompete, Nonsolicitation.....................................25
Section 6. Indemnification.................................................26
6A. Survival of Representations and Warranties......................26
6B. General Indemnification. .......................................26
Section 7. Conditions to Closing...........................................30
7A. Conditions of the Purchaser's Obligations at the Closing........30
7B. Waiver..........................................................32
7C. Conditions of the Sellers' Obligations at the Closing...........32
(i) Representations and Warranties; Covenants.................32
(ii) Litigation................................................32
(iii) Consents and Approvals....................................32
(iv) Escrow Agreement..........................................33
(v) Auburn Purchase Agreement.................................33
(vi) Indemnification Agreement.................................33
(vii) Closing Documents.........................................33
7D. Waiver..........................................................33
Section 8. Pre-Closing Covenants and Agreements............................33
8A. General.........................................................33
8B. Third Party Notices and Consents................................33
8C. Operation of Business...........................................34
8D. Full Access.....................................................34
8E. Notice of Material Developments.................................34
8F. Exclusivity.....................................................34
8G. Tax Matters.....................................................35
8H. Intercompany Obligations/Affiliate Transactions.................35
8I. Termination.....................................................35
8J. Effect of Termination...........................................36
Section 9. Post-Closing Covenants and Agreements...........................36
9A. Certain Tax Matters.............................................36
9B. Press Release and Announcements.................................37
9C. Litigation Support..............................................37
9D. Transition......................................................38
9E. General.........................................................38
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<PAGE> 4
Section 10. Definitions....................................................38
Section 11. Miscellaneous..................................................44
11A. Fees and Expenses...............................................44
11B. Remedies........................................................44
11C. Consent to Amendments; Waivers..................................44
11D. Successors and Assigns..........................................45
11E. Severability....................................................45
11F. Counterparts....................................................45
11G. Descriptive Headings; Interpretation............................45
11H. Entire Agreement................................................45
11I. No Third-Party Beneficiaries....................................45
11J. Schedules and Exhibits..........................................45
11K. GOVERNING LAW; WAIVER OF JURY TRIAL.............................46
11L. Notices.........................................................46
11M. Jurisdiction and Venue..........................................48
11N. No Strict Construction..........................................48
- iii -
<PAGE> 5
EXHIBITS AND SCHEDULES
Exhibits:
Exhibit A - Share Ownership
Exhibit B - Form of Escrow Agreement
Schedules:
Schedule 1C - Manning Note Payable
Schedule 2B - Capital Stock of Each Company
Schedule 2C - Subsidiaries
Schedule 2D - Consents
Schedule 2E - Financial Statements
Schedule 2F - Disclosed Liabilities
Schedule 2G - Accounts Receivable
Schedule 2I - Product Warranty
Schedule 2K - Absence of Certain Developments
Schedule 2L - Liens
Schedule 2M - Taxes
Schedule 2N - Contracts and Commitments
Schedule 2O - Intellectual Property Rights
Schedule 2P - Litigation
Schedule 2R - Insurance
Schedule 2S - Employees
Schedule 2T - Employees Benefit
Schedule 2U - Compliance
Schedule 2V - Environmental and Safety Matters
Schedule 2W - Affiliate Transactions
Schedule 2X - Supplies and Customers
Schedule 2Y(i) - Owned Property
Schedule 2Y(ii) - Leased Property
Schedule 2Y(iv) - Real Estate Options
Schedule 2AA - Guaranties
Schedule 7A(ii) - Resigning Directors
Schedule 8H - Intercompany Obligations
- iv -
<PAGE> 6
SHARE PURCHASE AGREEMENT
This SHARE PURCHASE AGREEMENT (this "Agreement") is made as of
December 16, 1997 among GCIH, Inc., a Delaware corporation (the "Purchaser"),
James P. Manning ("Manning") and Eileen Manning, (each of the two immediately
preceding parties, a "Seller" and collectively, the "Sellers"). The Purchaser
and the Sellers are sometimes collectively referred to herein as the "Parties"
and individually as a "Party". Capitalized terms used herein and not otherwise
defined herein have the meanings given to such terms in Section 10.
WHEREAS, as of the date hereof, the authorized share capital of
Sport Socks Co. (Ireland) Limited (the "Company") is comprised of 5,000,000
ordinary shares of IR(pounds)1 each, the entire issued share capital is
comprised of 1,723,800 ordinary shares of IR(pounds)1 each (the "Shares") and
the Sellers collectively own 100% of the shares in the Company;
WHEREAS, the Company is a private limited company incorporated in
Ireland under the Companies Acts 1963 to 1990 on 19th December, 1989 under
Registration number 152979;
WHEREAS, the Sellers have transferred or caused to be transferred,
or prior to the Closing shall have transferred or caused to be transferred (a)
to the Company certain of the assets of Euro Sport Socks Company Limited, a
company organized under the laws of Ireland, and (b) to Auburn Hosiery Mills,
Inc., a Kentucky corporation ("Auburn"), certain of the assets of Converse
Accessories, Inc., a New York corporation (such companies (a)-(b), the
"Ancillary Companies" and such transfers, the "Ancillary Company Transfers");
WHEREAS, prior to the Ancillary Company Transfers, the Company,
Auburn, Sport Socks Company (U.K.) Limited, a company registered under the laws
of the United Kingdom ("Sport Socks UK"), and the Ancillary Companies engaged,
collectively, in the manufacture and distribution of licensed athletic socks for
men and boys in the United States and Western Europe under the brand names
Wilson(R), Coca-Cola(R), Converse(R) and Dunlop(R) (such business, as conducted
by the Company, Auburn, Sport Socks U.K. and the Ancillary Companies,
collectively, the "Auburn Business") and as of the date hereof, the Auburn
Business is conducted by the Company, Auburn, Sport Socks UK and the Ancillary
Companies;
WHEREAS, subject to the terms and conditions set forth herein, the
Purchaser desires to purchase all of the Shares from the Sellers and the Sellers
desire to sell the Shares to the Purchaser; and
WHEREAS, on November 12, 1997 the Purchaser, Manning and certain
other parties thereto entered into a Purchase Agreement (the "Auburn Purchase
Agreement"), pursuant to which the Purchaser shall purchase all of the shares of
outstanding capital stock (the "Auburn Shares") of Auburn, from Manning and the
other stockholders of Auburn, and Manning and the other stockholders of Auburn
shall sell the Auburn Shares to Purchaser.
NOW, THEREFORE, in consideration of the mutual covenants, agreements
and understandings herein contained, the receipt and sufficiency of which is
hereby acknowledged, the Parties hereby agree as follows:
<PAGE> 7
Section 1. Purchase and Sale
1A. Purchase and Sale of the Shares. At the Closing, subject to the
terms set forth herein, the Purchaser shall purchase from each Seller as
beneficial owner, and each Seller shall sell, convey, assign, transfer and
deliver to the Purchaser, that number of Shares set forth opposite such Seller's
name on Exhibit A hereto, free and clear of any mortgage, pledge, security
interest, encumbrance, charge or other Lien.
1B. Purchase Price. The consideration to be paid by Purchaser for
the Shares (the "Purchase Price") shall be $12,000,000.00.
1C. The Closing. The closing of the purchase and sale of the Shares
(the "Sale") and the transactions relating thereto (collectively, the "Closing")
will take place at the offices of Kirkland & Ellis, 153 East 53rd Street, New
York, New York, commencing at 9:00 a.m. local time, as soon as practicable
following the satisfaction or waiver of all conditions set forth in Section 7
hereof or at such other place and time as may be agreed by the Sellers and the
Purchaser. The date and time of the Closing are referred to as the "Closing
Date". At the Closing, subject to the satisfaction or waiver of each of the
conditions set forth in Section 7:
(i) the Purchaser shall deliver to each Seller, by wire
transfer of immediately available funds to the account or accounts specified in
writing by such Seller, the amount set forth opposite such Seller's name on
Exhibit A hereto;
(ii) the Purchaser shall deliver on behalf of Manning,
$300,000 by wire transfer of immediately available funds to an escrow account
(the "Escrow Account") pursuant to an escrow agreement dated as of the Closing
Date by and among the Purchaser, Manning and Sun Trust Bank, Atlanta, as Escrow
Agent (the "Escrow Agent"), in the form of Exhibit B hereto (the "Escrow
Agreement");
(iii) the Purchaser or its designee shall procure that the
Company shall repay and extinguish in full, at the Closing, all amounts
outstanding pursuant to a loan from Manning to the Company described on Schedule
1C hereto ("the "Manning Note Payable"); and
(iv) each of the Sellers will:
(a) deliver to the Purchaser (or its designee) share
certificates representing all of his or her Shares;
(b) deliver to the Purchaser (or its designee) and/or
its nominees duly executed share transfers in respect of the Shares;
(c) deliver to the Purchaser (or its designee) a letter
of resignation under seal from the Secretary containing an acknowledgment
that he or she has no claim against the Company in respect of breach of
contract, compensation for loss of office or otherwise howsoever arising;
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<PAGE> 8
(d) procure the release of any and all guarantees or
indemnities or security given by the Company for or on behalf of the
Sellers or any director of the Company;
(e) deliver to the Purchaser (or its designee) copies of
all bank mandates of the Company together with copies of statements of all
bank accounts as at a date not earlier than the day immediately preceding
the Closing Date and all cheque books of the Company in current use and
the cash book balances of the Company as at the Closing Date with
reconciliation statements reconciling such balances with the bank
statements referred to above;
(f) deliver to the Purchaser (or its designee) all
credit cards in the name of or for the account of the Company in the
possession of any officer or employee of the Company resigning at Closing;
(g) procure that a meeting of the board of directors of
the Company is held at which, inter alia:
(A) the share transfers referred to in Section
1C(iv)(b) are approved (subject only to stamping);
(B) the resignations referred to in Section 7A(ii)
are accepted;
(C) all existing mandates for the operation of
bank accounts of the Company are revoked and new mandates are issued
giving authority to such persons as the Purchaser may nominate;
(D) such persons as the Purchaser may nominate are
appointed as directors, secretary, auditors and solicitors of the
Company with immediate effect; and
(v) The Purchaser shall complete the stamping of the share
transfers referred to in Section 1C(iv)(b) as soon as practicable. Prior
to such stamping being completed, the Sellers shall cooperate in any
manner reasonably required by the Purchaser for the convening of any
general meetings required by the Purchaser, including the completion of
proxy forms on a timely basis and generally shall act in all respects as
the nominee of and in accordance with the reasonable directions of the
Purchaser.
Section 2. Representations and Warranties of the Sellers With
Respect to the Company. As a material inducement to the Purchaser to enter into
this Agreement and purchase the Shares hereunder, each of the Sellers, jointly
and severally, represents and warrants to the Purchaser as follows:
2A. Organization, Corporate Power and Licenses. The Company is a
corporation duly organized and validly existing under the Laws of Ireland. The
Company possesses all requisite
- 3 -
<PAGE> 9
corporate power and authority necessary to own and operate its properties, to
carry on its businesses as now conducted and presently proposed to be conducted
and to carry out the transactions contemplated by this Agreement. The copies of
the Memorandum and Articles of Association of the Company which have been
furnished to the Purchaser reflect all amendments made thereto at any time prior
to the date of this Agreement and are correct and complete. The minute books
(containing the records of meetings of the stockholders, the board of directors
and any committees of the board of directors) and share registers of the Company
are correct and complete in all material respects.
2B. Share Capital and Related Matters.
(i) As of immediately prior to the Closing, the authorized share
capital of the Company is as set forth on Schedule 2B(i) attached hereto. The
Shares constitute the entire issued share capital of the Company and as of
immediately prior to the Closing will be held beneficially and legally by each
Seller (free and clear of all Encumbrances) as set forth on Schedule 2B(i)
attached hereto. Schedule 2B(i) sets forth the capitalization of the Company and
the name of each Person holding any equity securities of the Company . The
Company has no outstanding (1) shares or securities convertible or exchangeable
for any shares of its capital or containing any profit participation features,
(2) any rights or options to subscribe for or to purchase its share capital or
(3) any share appreciation rights or phantom stock or similar plans or rights.
The Company is not subject to any obligation (contingent or otherwise) to
repurchase or otherwise acquire or retire any shares of its share capital or any
warrants, options or other rights to acquire its share capital. As of the
Closing and immediately thereafter, all of the outstanding shares of the
Company's share capital shall be validly issued, fully paid and nonassessable.
(ii) The Company has not received written notice of any violation
and is not otherwise aware of any violation of any applicable federal or state
securities laws, whether of Ireland, the United States or otherwise, in
connection with the offer, sale or issuance of any of its capital stock or the
offer, sale or issuance of any of its debt securities. There are no agreements
between the shareholders of the Company or with any other Person with respect to
the voting, transfer or registration of the Company's share capital or with
respect to any other aspect of the Company's affairs that will survive the
Closing Date (other than this Agreement and except as provided in Schedule
2B(ii) attached hereto).
2C. Subsidiaries; Investments. Except as set forth on Schedule 2C
attached hereto, the Company does not own or hold the right to acquire any
shares of stock or any other security or interest in any other Person. The
Company has never had any Subsidiaries.
2D. Authorization; No Breach. The execution, delivery and
performance of the agreements or instruments contemplated hereby to which the
Company is a party or by which the Company is bound have been duly authorized by
the Company. All agreements contemplated hereby to which the Company is a party,
when executed and delivered by the Company in accordance with the terms hereof,
shall constitute a valid and binding obligation of the Company enforceable in
accordance with their terms, except as such enforceability may be limited by (x)
applicable insolvency, bankruptcy, reorganization, moratorium or other similar
laws affecting creditors' rights generally and (y) applicable equitable
principles (whether considered in a proceeding at law or in equity). Except as
set forth on Schedule 2D attached hereto, the execution,
- 4 -
<PAGE> 10
delivery and performance by the Sellers of this Agreement and the agreements to
be executed in connection herewith, and the fulfillment of and compliance with
the respective terms hereof and thereof by the Sellers, do not and shall not (i)
conflict with or result in a breach of the terms, conditions or provisions of,
(ii) constitute a default under (whether with or without the passage of time,
the giving of notice or both), (iii) give any third party the right to modify,
terminate or accelerate any obligation under, (iv) result in a violation of, or
(v) require any authorization, consent, approval, exemption or other action by
or notice or declaration to, or filing with, any Government Entity or third
party pursuant to, (A) the organizational documents of the Company, (B) any Law
to which the Company is subject, or (C) any agreement, instrument, order,
judgment or decree to which the Company is subject.
2E. Financial Statements. (i) Attached hereto as Schedule 2E are:
(a) the audited consolidated balance sheets of the Company as of December 31,
1995 and December 31, 1996 (collectively, the "1996 Balance Sheet") and the
related statements of income, stockholders' equity and cash flows for the
respective twelve-month periods then ended and (b) the unaudited balance sheet
of the Company as of November 2, 1997 (the "Interim Balance Sheet"), and the
related statements of income for the period then ended.
(ii) Except as set forth on Schedule 2E, each of the foregoing
financial statements (including in all cases the notes thereto, if any) fairly
presents the financial condition, operating results and cash flows of the
Company, and has been prepared in accordance with generally accepted accounting
principles applicable in Ireland ("Irish GAAP") and all statements of standard
accounting practice and on a basis consistent with the audited accounts of the
Company for all prior accounting periods, and where applicable, in accordance
with the Companies Acts 1963-1990.
2F. Absence of Undisclosed Liabilities. Except as set forth on
Schedule 2F attached hereto, to the Knowledge of the Manning Parties the Company
has no obligation or liability (whether accrued, absolute, contingent,
unliquidated or otherwise, whether due or to become due and regardless of when
asserted) required to be set forth on a balance sheet in accordance with Irish
GAAP arising out of transactions entered into at or prior to the date hereof, or
any action or inaction at or prior to the date hereof, or any state of facts
existing at or prior to the date hereof, other than: (i) liabilities set forth
on the liabilities side of the 1996 Balance Sheet (rather than any notes
thereto), (ii) liabilities and obligations which have arisen after the date of
the 1996 Balance Sheet in the ordinary course of business (none of which is a
liability resulting from breach of contract, breach of warranty, tort,
infringement, claim or lawsuit) and (iii) other liabilities and obligations
expressly disclosed on any Schedule to this Agreement, or any liabilities and
obligations which would be reasonably likely to be caused by, and are caused by,
facts expressly disclosed on any Schedule to this Agreement.
2G. Accounts Receivable. Except as set forth on Schedule 2L attached
hereto, all notes and accounts receivables of the Company are reflected properly
on their books and records, are valid receivables subject to no setoffs or
counterclaims other than setoffs or counterclaims in the ordinary course of
business and are current and collectible in accordance with their terms at
levels consistent with the past custom and practice of the Company.
- 5 -
<PAGE> 11
2H. Inventory. Except as set forth on Schedule 2H attached hereto,
the inventory shown on the 1996 Balance Sheet and the inventory on hand as of
the Closing Date consists or shall consist of a quantity and quality usable and
saleable in the ordinary course of business consistent with past custom and
practice.
2I. Product Warranty. All products manufactured, sold, leased or
delivered by the Company have been in conformity in all material respects with
all applicable contractual commitments and all express and implied warranties,
and the Company has no liability (and there is no reasonable basis for any
present or future action, suit, proceeding, hearing, investigation, charge,
complaint, claim or demand against it giving rise to any such liability) for
replacement or repair thereof or other damages in connection therewith in excess
of past custom and practice and experience. No products manufactured, sold,
leased or delivered by the Company and no services rendered by the Company are
subject to any Guarantee, warranty or other indemnity beyond the applicable
standard terms and conditions of such sale, lease or service. Schedule 2I
attached hereto includes copies of such standard terms and conditions of sale,
lease and service for the Company (containing applicable guaranty, warranty and
indemnity provisions).
2J. No Material Adverse Effect. Since December 31, 1996, there has
occurred no fact, event or circumstance which has had or would reasonably be
expected to have a Material Adverse Effect.
2K. Absence of Certain Developments. Except as expressly
contemplated by this Agreement, since December 31, 1996 the Company has
conducted its business only in the ordinary course of business consistent with
past custom and practice. In addition, except as expressly contemplated by this
Agreement, or as set forth on Schedule 2K, since November 2, 1997, the Company
has not:
(i) issued any notes, bonds or other debt securities or any share or
capital stock or other equity securities or any securities or rights
convertible, exchangeable or exercisable into any share or capital stock or
other equity securities;
(ii) incurred any Indebtedness, other than Indebtedness to
unaffiliated third parties in the ordinary course of business;
(iii) discharged or satisfied any material Lien or paid any material
obligation or liability, other than current liabilities paid in the ordinary
course of business consistent with past custom and practice;
(iv) declared, set aside or made any payment or distribution of cash
or other property to the Sellers with respect to their share or capital stock or
other equity securities, or purchased, redeemed or otherwise acquired any shares
of its share or capital stock or other equity securities (including any
warrants, options or other rights to acquire its share or capital stock or other
equity securities);
(v) mortgaged or pledged any of its properties or assets or
subjected them to any Lien, except Permitted Liens;
- 6 -
<PAGE> 12
(vi) sold, assigned, transferred, leased, licensed or abandoned any
of its assets, tangible or intangible (including, without limitation, any
Intellectual Property rights), except in the ordinary course of business
consistent with past custom and practice;
(vii) made or granted any bonus or any wage or salary increase to
any employee or group of employees except in the ordinary course of business in
accordance with past custom and practice, or made or granted any increase in any
employee benefit plan or arrangement, or amended or terminated any existing
employee benefit plan or arrangement or adopted any new employee benefit plan or
arrangement;
(viii) made capital expenditures or commitments therefor in excess
of IR(pound)138,000 in the aggregate;
(ix) except in the ordinary course of business in accordance with
past custom and practice and pursuant to the Company's existing credit
facilities, delayed, postponed or canceled the payment of any accounts payable
or any other liability or obligation or agreed or negotiated with any party to
extend the payment date of any accounts payable or accelerated the collection of
any accounts or notes receivable;
(x) except for travel advances made in the ordinary course, made any
loans or advances to, Guarantees for the benefit of, or any Investments in, any
Persons or formed any Subsidiary;
(xi) suffered any damage, destruction or casualty loss exceeding in
the aggregate IR(pound)17,000, whether or not covered by insurance, or
experienced any material changes in the amount and scope of insurance coverage;
(xii) made any change in any method of accounting or accounting
policies, or made any write-down or write-up in the value of its inventory;
(xiii) directly or indirectly engaged in any transaction or entered
into any arrangement with any officer, director, partner, shareholder or
Affiliate of the Company;
(xiv) amended its memorandum and articles of association, bylaws or
other organizational documents;
(xv) made any payment to any Party with respect to any Seller
Expenses;
(xvi) hired or fired any employee of the Company having an annual
base salary in calendar year 1997 of IR(pound)34,000 or more;
(xvii) taken any action or omit to take any action which act or
omission would reasonably be expected to have a Material Adverse Effect; or
(xviii) agreed, whether orally or in writing, to do any of the
foregoing.
- 7 -
<PAGE> 13
2L. Assets. Except as set forth on Schedule 2L attached hereto, the
Company has good, marketable and valid title (as that phrase is commonly
understood by the legal profession in each relevant jurisdiction) to, a valid,
marketable leasehold interest in (as that phrase is commonly understood by the
legal profession in each relevant jurisdiction), or a valid license or right to
use, the assets, tangible or intangible, used by it, located on its premises or
shown on the 1996 Balance Sheet or the Interim Balance Sheet or acquired
thereafter free and clear of all Liens other than Permitted Liens, except for
assets disposed of in the ordinary course of business since the date of the 1996
Balance Sheet or Interim Balance Sheet, as the case may be.
2M. Tax Matters.
(i) Except as set forth on Schedule 2M attached hereto:
(a) the Company has filed or caused to be filed all material
Tax Returns which it is required to file under applicable laws and
regulations, and all such Tax Returns are complete and correct in all
material respects;
(b) the Company has paid all material Taxes due and owing by
it (whether or not such Taxes are shown or required to be shown on a Tax
Return) or has accrued a liability with respect thereto on the books and
records of the Company in accordance with Irish GAAP and the prior
accounting practices of the Company and has withheld and paid over to the
appropriate taxing authority all material Taxes which it is required to
withhold from amounts paid or owing to any employee, shareholder, creditor
or other third party;
(c) the Company has not waived any statute of limitations with
respect to any material Taxes or agreed to any extension of time for
filing any material Tax Return which has not been filed; and the Company
has not consented to extend to a date later than the date hereof the
period in which any material Tax may be assessed or collected by any
Taxing Authority;
(d) the accruals for Taxes on the books and records of the
Company are adequate in accordance with Irish GAAP and the prior
accounting practices of the Company to pay all Tax liabilities of the
Company not yet paid for all periods through the Closing Date and were
made in accordance with Irish GAAP;
(e) no foreign or local tax audits whether full audit or PAYE
or VAT audits or administrative or judicial proceedings are pending or
being conducted with respect to the Company; and
(f) no claim has ever been made by a taxing authority in a
jurisdiction where the Company does not file Tax Returns that the Company
so not filing may be subject to Taxes assessed by such jurisdiction;
(ii) (a) All Taxation of any material nature whatsoever or other
sums imposed, charged, assessed, levied or payable under the provisions of all
applicable legislation relating to Taxation for which the Company is liable as a
result of any act or omission prior to Completion will if and insofar as such
Taxation or other sums ought to be paid prior to or on Completion have been
- 8 -
<PAGE> 14
paid at or before Completion and in particular but without prejudice to the
generality of the foregoing at Completion all amounts due for payment to the
Revenue Commissioners or any other fiscal or revenue authority in respect of VAT
or in respect of the "Pay As You Earn" (PAYE) regulations from time to time in
force will have been paid by the relevant due dates and at Completion all Social
Welfare and Pay Related Social Insurance contributions (both employer's and
employees') due in respect of the employees of the Company will have been duly
paid on their due payment dates.
(b) The Company has within the prescribed time periods duly
and properly made all material returns, computations and payments and given or
delivered to the Revenue Commissioners and all other relevant fiscal or revenue
authorities all notices, accounts and information required for the purpose of
assessing its liability to Taxation and all such returns, notices, accounts and
information are complete and correct in all material respects and not misleading
and the Company is not and has not been nor is it likely to become involved in
any dispute with the Revenue Commissioners or any other relevant fiscal or
revenue authority in relation to any matter concerning its liability or
potential liability to Taxation and the Warrantors are not aware of any matter
or circumstance which may lead to any such dispute and there is no appeal by the
Company pending against any assessment to Taxation.
(c) No notice of attachment has been served on the Company
under Section 73(2) (attachment of defaulter's funds) of the Finance Act, 1988.
(d) There is no appeal by the Company pending against any
assessment to tax and the Company is not in default in payment of any tax within
the period prescribed for payment thereof.
(e) No change of ownership of the Company within the meaning
of Section 27 of the CTA has taken place.
(f) The Company has duly complied with the requirements of
Section 151 (payment made under deduction of tax) of the CTA and with the
requirements of all other provisions relating to the deduction and withholding
of tax at source up to the date hereof and all such tax which has become due to
the Revenue Commissioners has been paid to the Revenue Commissioners.
(g) The Company has not committed any act or made any omission
which might constitute an offence under Section 94 (aiding, abetting, assisting
etc. tax evasion) of the Finance Act, 1983.
(h) The company is resident in Ireland for the purposes of
Taxation and has not been at any time resident in any jurisdiction other than
Ireland for Taxation purposes nor has it been at any time managed or controlled
in or from any country other than Ireland and the Company has not at any time
carried on any trade in any other country and the Company does not have any
permanent establishment outside of Ireland.
(i) The Company has not made any transfer as is referred to in
Section 35 of the CGTA or received any asset by way of gift as mentioned in
paragraph 18 of Schedule 4 to the CGTA.
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<PAGE> 15
(j) The Company has not entered into any transaction which
has, will or may give rise to a material charge to tax under the provisions of
the CGTA.
(k) There is no unsatisfied liability to capital acquisition
tax attached or attributable to any shares in the capital of the Company and no
shares in the capital of the Company are subject to a charge in favor of the
Revenue Commissioners.
(l) No person is liable to capital acquisitions tax
attributable to the value of any of the shares in the capital of the Company and
in consequence no person has the power to raise the amount of such tax by sale
or mortgage of or by a terminable charge on any shares in the capital of the
Company or any assets in the Company.
(m) The Company has not been a party to or involved in any
share for share exchange nor any scheme or reconstruction or amalgamation such
as are mentioned in Schedule 2 to the CGTA or Section 127 of the CTA under which
shares or debentures have been issued or any transfer of assets effected.
(n) The Company has not made any claim for "roll-over relief"
under Section 28 of the CGTA.
(o) The Company has not surrendered any amount by way of group
relief under the provisions of Sections 107 to 120 (inclusive) of the CTA.
(p) The Company has not and will not at any time hereafter in
respect of any period up to Completion become liable to make a subvention
payment or any other payment for an amount surrendered by any other company
under or in connection with the provisions of Section 107 of the CTA.
(q) No allowable loss which has arisen or which may hereafter
arise in respect of any period prior to Completion on the disposal by the
Company of shares in or securities of any company is liable to be disallowed in
whole or in part by virtue of the application of Section 138 (transactions in a
group) or Section 139 (dividend stripping) of the CTA.
(r) The Company is not, and has at no time been, a member of a
group of companies within the meaning of Section 129 of the CTA or associated
with any other company within the meaning of Section 19 of the Finance Act,
1952.
(s) No relief or exemption or reduction has been obtained or
claimed by the Company in respect of any capital duty or stamp duty.
(t) All documents in the possession or under the control of
the Company which attract or may attract stamp duty have been properly stamped
and all other capital and/or stamp duty howsoever arising or payable has been
paid by the Company and there is no outstanding liability therefor or interest
thereon.
(u) The Company is a registered and taxable person for the
purposes of the VAT Act and has complied in all material respects with such
legislation and all regulations made
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<PAGE> 16
or notices issued thereunder and has maintained full, complete, correct and up
to date records, invoices and other documents (as the case may be) appropriate
or requisite for the purposes thereof.
(v) The Company has not since the last audited accounts or
paid any dividend or other distribution (other than those for which full reserve
or provision was made in the audited accounts) or any such loan or advance as is
referred to in Section 98 of the CTA.
(w) The Company has never incurred any expense or paid any
amount in consequence of which the Company has been or could be treated under
Section 96 or Section 97 of the CTA as having made a distribution treatment of
expenses as dividends.
(x) There has not been in respect of any tax accounting period
any excess of distribution investment and estate income within the meaning of
Section 100 (surcharge on investment income) of the CTA.
(y) The Company has not within the meaning of Chapter III of
the Finance Act, 1987 received payment in respect of professional services from
an accountable person (withholding tax on professional fees).
(z) The Company has not entered into or been a party to any
schemes or arrangements which might be considered by the Revenue Commissioners
to be a tax avoidance transaction within the meaning of the Finance Act, 1989.
(aa) No asset has been disposed of by the Company to a
Connected Person of the Company or otherwise than at arm's length.
(bb) The Company has not repaid share capital or any part
thereof and the Company has not issued as paid up otherwise than by the receipt
of new consideration any new shares.
(cc) No distribution has been made by the Company since 5
April 1976 within the meaning of Sections 84 and 85 of the CTA except dividends
and interest shown in its audited accounts.
(dd) The limitation on the meaning of "distribution" provided
for by Section 84A (limitation on use of Section 84 finance) of the CTA does not
apply to any financial arrangements of the Company.
(ee) At the Closing Date the Company has no liability to ACT
under Chapter VII of Part I of the Finance Act, 1983.
(ff) The Company has claimed relief under Chapter VI of Part I
(manufacturing relief) of the Finance Act, 1980 and all the existing operations
of the Company will continue to qualify for the relief and there is no dispute
with the Inspector of Taxes with regard to this relief.
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<PAGE> 17
(gg) The utilization of losses incurred by the Company is not
restricted by Section 10A, Section 16A or Section 116A of the CTA.
(hh) The Company, if it holds a fixed charge on the books
debts of a Person, has furnished to the Revenue Commissioners the relevant
particulars of the fixed charge so as to obtain the protection afforded under
Section 115 Finance Act 1986.
(ii) The Company has not effected or entered into any act
transaction or arrangement of any nature whereby it has incurred or may
hereafter incur any liability under or by virtue of any of the sections 83, 84,
85 and 92 of the 1967 Act.
(jj) The Company is not liable to any claim in respect of tax
due under Section 17 Finance Act 1970, as amended by Section 20 Finance Act
1976.
(kk) The amendments of Section 34 of the Finance Act 1973,
dealing with the tax treatment of patent royalties and related distributions, do
not apply to the Company.
(ll) Neither the Company nor any of its shareholders is
affected by the restrictions on the Business Expansion Scheme relief which are
contained in Section 9 of the Finance Act 1989.
(mm) The assets being transferred under the agreement are not
assets to which paragraph 11 Schedule 4 Capital Gains Tax 1975 applies.
(iii) The Company is, has always been and, through the Closing, will
continue to be a qualifying company within the meaning of the Finance Act, 1980
for the purposes of manufacturing relief and there is no dispute with the
Revenue Commissioners of Ireland in that regard.
(iv) In this Section 2M and in the Schedule 2M, unless the context
otherwise requires or unless otherwise specified, any reference to any statutory
provision, or to any order or regulation, shall be construed as a reference to
that provision, order or regulation as extended, modified, replaced or
re-enacted prior to the date hereof by and in the Taxes Consolidation Act of
1997 and all statutory instruments, regulations and orders made thereunder or
deriving validity therefrom before the date hereof.
2N. Contracts and Commitments.
(i) Except as expressly contemplated by this Agreement or as set
forth on Schedule 2N attached hereto, neither (a) the Company nor (b) any of the
Sellers or their Affiliates (as such contract or commitment relates to the
Company) is a party to or bound by any written or oral:
(a) pension, profit sharing, stock option, employee stock
purchase or other plan or arrangement providing for deferred or other
compensation to employees or any other employee benefit plan, arrangement
or practice, whether formal or informal;
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<PAGE> 18
(b) collective bargaining agreement or any other contract with
any labor union, or severance agreements, programs, policies or
arrangements;
(c) management agreement or contract for the employment of any
officer, individual employee or other Person on a full-time, part-time,
consulting or other basis which (i) provides annual cash or other
compensation in excess of IR(pound)34,000, (ii) provides for the payment
of any cash or other compensation or benefits upon the consummation of the
transactions contemplated hereby or (iii) otherwise restricts his, her, or
its ability to terminate the employment of any employee at any time for
any lawful reason or for no reason without penalty or liability;
(d) contract or agreement involving any Governmental Entity;
(e) agreement or indenture relating to borrowed money or other
Indebtedness or the mortgaging, pledging or otherwise placing a Lien on
any material asset or material group of assets of the Company or any
letter of credit arrangements;
(f) Guarantee, other than endorsements made for collection in
the ordinary course of business;
(g) lease or agreement under which the Company is (i) lessee
of or holds or operates any personal property, owned by any other party,
except for any lease of personal property under which the aggregate annual
rental payments do not exceed IR(pound)17,000 or (ii) lessor of or permits
any third party to hold, occupy, or operate any property, real or
personal, owned or controlled by the Company;
(h) contract or group of related contracts with the same party
or group of affiliated parties for the purchase or sale of raw materials,
commodities, supplies, products, equipment or other personal property or
services under which the undelivered balance since December 31, 1996 of
such products and services has a selling price in excess of
IR(pound)17,000;
(i) other contract or group of related contracts with the same
party or group of affiliated parties continuing over a period of more than
six months from the date or dates thereof, not terminable by the Company
upon 30 days or less notice without penalty or involving more than
IR(pound)17,000;
(j) contract relating to the marketing, sale, advertising or
promotion of its products;
(k) agreements relating to the ownership of, investments in or
loans and advances to any Person, including investments in joint ventures
and minority equity investments;
(l) license, royalty, indemnification or other agreement with
respect to any intangible property (including any Intellectual Property
rights);
(m) agent, sales representative, sales or distribution
agreement;
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<PAGE> 19
(n) power of attorney or other similar agreement or grant of
agency;
(o) contract or agreement prohibiting it from freely engaging
in any business or competing anywhere in the world, including, without
limitation, any nondisclosure or confidentiality agreements; or
(p) other agreement which is material to its operations and
business prospects or involves a consideration in excess of
IR(pound)17,000 annually, whether or not in the ordinary course of
business.
(ii) All of the contracts, agreements and instruments set forth or
required to be set forth on Schedule 2N (the "Material Contracts") are valid,
binding and enforceable in accordance with their respective terms, except as
such enforceability may be limited by (x) applicable insolvency, bankruptcy,
reorganization, moratorium or other similar laws affecting creditors' rights
generally and (y) applicable equitable principles (whether considered in a
proceeding at law or in equity). Each of the Material Contracts shall be in full
force and effect in all material respects without penalty in accordance with
their terms upon consummation of the transactions contemplated hereby. The
Company has performed all material obligations required to be performed by it
and is not in default under or in material breach of nor in receipt of any claim
of default or breach under any Material Contract; no event has occurred which
with the passage of time or the giving of notice or both would result in a
material default, material breach or material event of noncompliance by the
Company under any Material Contract; and none of the Manning Parties has
Knowledge of any breach or cancellation or anticipated breach or cancellation by
the other parties to any Material Contract.
(iii) The Purchaser has been supplied with a true and correct copy
of each written Material Contract, together with all amendments, waivers or
other changes thereto (all of which amendments, waivers or other changes thereto
are described on Schedule 2N).
2O. Intellectual Property Rights.
(i) Schedule 2O attached hereto contains a complete and accurate
list of all (a) patented and registered Company Intellectual Property, (b)
pending patent applications and other applications or similar procedures for
registrations of Company Intellectual Property, and (c) all material computer
software owned or used by the Company. Schedule 2O also contains a complete and
accurate list of all licenses or similar agreements covering Intellectual
Property rights to which the Company is or as of the Closing Date is required to
be a party, either as licensee or licensor, in each case identifying the subject
Intellectual Property rights.
(ii) Except as set forth on Schedule 2O, the Company owns all right,
title and interest to, or has, or as of the Closing Date will have the right to
use pursuant to a valid and effective written license, free and clear of all
Liens other than Permitted Liens, all Company Intellectual Property. The Company
Intellectual Property comprises all of the Intellectual Property rights
necessary for the operation of the business of the Company as presently
conducted and as presently proposed to be conducted. No loss or expiration of
any of the Company Intellectual Property is threatened or pending. The Company
has taken all commercially reasonable action to maintain and protect the Company
Intellectual Property. To the Manning Parties' Knowledge, the
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<PAGE> 20
owners of any Company Intellectual Property licensed to the Company have taken
all commercially reasonable action to maintain and protect the Company
Intellectual Property subject to such licenses.
(iii) Except as set forth on Schedule 2O, (a) no claims by any other
Person asserting the invalidity, misuse or unenforceability of the Company
Intellectual Property have been made in writing within the past five (5) years
or are currently outstanding or threatened, and, to the Knowledge of the Manning
Parties there is no basis for any such claim, (b) the operation of the business
of the Company as currently conducted and as proposed to be conducted has not
infringed, misappropriated or conflicted with and will not infringe,
misappropriate or conflict with any Intellectual Property rights of other
Persons and the Company has not received any written notice regarding any of the
foregoing (including, without limitation, any demands or offers to license any
Intellectual Property rights from any other Person) and (c) no third party has
infringed, misappropriated or otherwise acted in conflict with any of the
Company Intellectual Property. The transactions contemplated by this Agreement
shall have no Material Adverse Effect on the right, title or interest of the
Company in and to the Company Intellectual Property and all of such Company
Intellectual Property shall be owned or available for use by the Company on
substantially identical terms and conditions immediately after the Closing.
2P. Litigation, etc. Except as set forth on Schedule 2P attached
hereto, there are no (and, during the five years preceding the date hereof,
there have not been any) actions, suits, proceedings (including any arbitration
proceedings), orders, investigations or claims pending or, to the Knowledge of
the Manning Parties threatened against the Company (or to the Knowledge of the
Manning Parties, pending or threatened against any of the officers, directors or
employees of the Company with respect to its businesses or proposed business
activities), or pending or threatened by the Company against any third party, at
law or in equity, or before or by any Government Entity (including any actions,
suits, proceedings or investigations with respect to the transactions
contemplated by this Agreement); the Company is not subject to any arbitration
proceedings under collective bargaining agreements or otherwise or any
governmental investigations or inquiries; and, to the Knowledge of the Manning
Parties, there is no basis for any of the foregoing. The Company is fully
insured (subject to applicable policy deductibles) with respect to each of the
matters set forth on Schedule 2P. The Company is not subject to any judgment,
order or decree of any Government Entity, and the Company has not received any
opinion or memorandum or legal advice from legal counsel to the effect that it
is exposed, from a legal standpoint, to any liability which would reasonably be
expected to have a Material Adverse Effect.
2Q. Brokerage. There are and shall be no claims for brokerage
commissions, finders' fees or similar compensation in connection with the
transactions contemplated by this Agreement based on any arrangement or
agreement to which the Company is a party or to which the Company is subject.
2R. Insurance. Schedule 2R attached hereto contains a brief
description of each insurance policy maintained by the Company with respect to
its properties, assets and business, and each such policy shall be in full force
and effect as of the Closing or a substituted policy shall have been obtained
therefor. The Company is not in default with respect to any of its material
obligations under any insurance policy maintained by it, and the Company has
never been denied insurance coverage. The insurance coverage of the Company is
customary for corporations of similar size engaged in similar lines of business.
Except as set forth on Schedule 2R, the Company has not had
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<PAGE> 21
any self-insurance or co-insurance programs, and the reserves set forth on the
1996 Balance Sheet are adequate to cover all anticipated liabilities with
respect to any such self-insurance or co-insurance programs.
2S. Employees. Schedule 2S sets forth a true and complete list, as
of September 30, 1997, of (i) the employees employed by the Company having an
annual base salary in calendar year 1997 of IR(pound)34,000 or more or, (ii) the
rate of all current compensation payable to each such employee, including,
without limitation, any bonus, contingent or deferred compensation and fringe
benefits and (iii) the directors of the Company. Except as set forth on Schedule
2S attached hereto, to the Knowledge of the Manning Parties, no executive or key
employee of the Company and no group of employees of the Company has any plans
to terminate employment with the Company. To the Knowledge of the Manning
Parties, the Company, has (a) no material labor relations problems (including
any additional union organization activities, threatened or actual strikes or
work stoppages or material grievances), (b) not engaged in any unfair labor
practices, (c) not during the past five years, suffered any labor strike,
lockout, work stoppage or other material labor dispute or, (d) any union
organization campaign is in progress with respect to any of the employees, nor
any question concerning representation exists respecting such employees. Except
as disclosed on Schedule 2S, the Company is not party to or bound by any
collective bargaining agreement or relationship with any labor organization. The
Company has not engaged in any plant closing or employee layoff activities
within the last two (2) years. During the past five years, any notice from any
Company required under any law or collective bargaining agreement has been
given, and all bargaining obligations of any Company with any employee
representative have been satisfied, including, but not limited to, obligations
relating to the effects on bargaining unit employees of the transactions
contemplated by this Agreement. The Company has complied in all material
respects with all applicable Irish law regulating employment.
2T. Employee Benefits.
(i) Schedule 2T attached hereto lists each Employee Benefit Plan
that the Company maintains or to which the Company contributes or has any actual
liability, or to the Knowledge of the Manning Parties, any potential liability.
(ii) With respect to each Employee Benefit Plan which provides
benefits to or with respect to current or former employees in the Republic of
Ireland or the United Kingdom:
(a) Each such Employee Benefit Plan complies in form and in
operation in accordance with its terms and with the applicable
requirements of law, including:
(A) the Pensions Act, 1990 and all regulations made
thereunder;
(B) the Irish Retirement Benefits District; and
(C) Article 119 of the Treaty of Rome.
(b) Except as set forth on Schedule 2T, all contributions or
premium payments which are due on or before the Closing Date with respect
to each such Employee Benefit
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<PAGE> 22
Plan will be timely paid in full and all contributions and premium
payments which are not due for all periods ending on the Closing Date will
be adequately accrued.
(c) (1) Neither the Company, or, to the Manning Parties'
Knowledge, any other Person has engaged in any transactions that could
reasonably be expected to result in the imposition of a material penalty
under law or a material tax; (2) neither the Company nor any of its
officers or employees have any liability for breach of fiduciary duty or
any other failure to act or comply with the requirements of law in
connection with the administration of such Employee Benefit Plan or the
investment of the assets thereunder; and (3) no actions, investigations,
suits or claims are pending or, to the Knowledge of the Manning Parties,
threatened, and the Manning Parties have no Knowledge of any facts or
circumstances which could give rise to or could reasonably be expected to
give rise to any such actions, suits or claims (other than for benefits
payable in the ordinary course of business).
(d) With respect to any Employee Benefit Plan which is a
defined benefit occupational pension plan, as of the Closing Date, the
actuarial value of the assets equals or exceeds the present actuarial
value of benefit liabilities thereunder.
(e) The Company has no liability with respect to the
termination of a benefit plan that has not been satisfied in full.
(f) No power to increase benefits or provide different
benefits under any Plan has been exercised in respect of any current or
former employees of the Company, and there are no circumstances in which
there is a practice of exercising such power. Each Employee Benefit Plan
which is a pension scheme is an exempt approved scheme within the meaning
of Sections 15 and 16 of the Finance Act 1972 (Ireland) and all of the
participants of any Employee Benefit Plan which is a pension scheme
established in the United Kingdom are contracted out of the United Kingdom
State Earnings Related Pension Scheme by virtue of their participation. No
assets of any Employee Benefit Plan for current or former employees have
been assigned by the trustees as security for a loan or otherwise, nor is
there any agreement to assign those assets. To the knowledge of the
Manning Parties, there are no matters or circumstances which might
prejudice any Employee Benefit Plan's approval or, in the case of any
pension plan which is at present approved on an interim basis, the
granting of exempt approval with respect to such plan.
(g) The Sellers have delivered or made available to Purchaser
true and complete copies of the following documents in connection with
each such Employee Benefit Plan (where applicable): (A) all plan documents
as in effect on the date hereof, together with all amendments thereto; (B)
all current plan descriptions and summaries of material modifications; (C)
the most recently prepared actuarial valuation report for each Employee
Benefit Plan; and (D) the most recently prepared financial statements.
(h) All benefits payable under any Employee Benefit Plan on
the death or disability of a member thereof while in an employment to
which the Employee Benefit Plan relates or during a period of sickness of
a member thereof are fully insured under policies effected with a life
office duly authorized under the applicable legislation to carry on life
assurance business in Ireland and at normal rates and on its normal terms
for persons
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<PAGE> 23
in good health. All information furnished to such life offices was true
and complete. All such policies are in force and there are no grounds
entitling such life offices to avail liability thereunder.
(iii) None of the Employee Benefit Plans of the Company obligates
the Sellers to pay any separation, severance, termination or similar benefit
solely as a result of any transaction contemplated by this Agreement or solely
as a result of a change in control or ownership.
2U. Compliance with Laws; Permits. Except as set forth on Schedule
2U attached hereto:
(i) The Company has complied with all applicable Laws relating to
the operation of its business. No notices have been received by and no claims
have been filed against the Company alleging a violation of any such Laws.
(ii) Except for any qualifications to do business as a foreign
corporation in any state, the Company holds all permits, licenses, certificates,
accreditations and other authorizations of all Government Entities required for
the conduct of its business and the ownership of its properties, and Schedule 2U
sets forth a list of all of such permits, licenses, certificates, accreditations
and other authorizations. No notices have been received by the Company alleging
the failure to hold any permit, license, certificate, accreditation or other
authorization of any Government Entity. The Company is in compliance with all
terms and conditions of all permits, licenses, accreditations and authorizations
which it holds. Except as disclosed on Schedule 2U all of such permits,
licenses, accreditations and authorizations will be available for use by the
Company immediately after the Closing.
2V. Environmental and Safety Matters. Except as set forth on
Schedule 2V attached hereto:
(i) The Company and its predecessors have complied with and are in
compliance with all Environmental and Safety Requirements.
(ii) Without limiting the generality of the foregoing, the Company
has obtained and complied with, and is in compliance with, all permits, licenses
and other authorizations that are required pursuant to Environmental and Safety
Requirements for the occupation of its facilities and the operation of its
business.
(iii) Neither the Company nor its predecessors or Affiliates has
received any written or, to the Knowledge of the Manning Parties, oral notice,
report or other information regarding any actual or alleged violation of
Environmental and Safety Requirements, or any liabilities or potential
liabilities (whether accrued, absolute, contingent, unliquidated or otherwise),
including any investigatory, remedial or corrective obligations, relating to the
Company or its facilities arising under Environmental and Safety Requirements.
(iv) None of the following exists at any property or facility owned
or operated by the Company in a condition that has given or would give rise to
liability under any Environmental and Safety Requirements: (1) underground
storage tanks, (2) asbestos-containing material in any
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<PAGE> 24
form or condition, (3) materials or equipment containing polychlorinated
biphenyls, or (4) landfills, surface impoundments, or disposal areas.
(v) None of the Company or any of its predecessors has treated,
stored, disposed of, arranged for or permitted the disposal of, transported,
handled, or released any substance, including without limitation any hazardous
substance, or owned or operated any property or facility (and no such property
or facility is contaminated by any such substance) in a manner that would give
rise to liabilities, including any liability for response costs, corrective
action costs, personal injury, property damage, natural resources damages or
attorney fees, pursuant to any Environmental and Safety Requirements.
(vi) Neither this Agreement nor the consummation of the transaction
that is the subject of this Agreement will result in any obligations for site
investigation or cleanup, or notification to or consent of government agencies
or third parties, pursuant to any of the so-called "transaction-triggered" or
"responsible property transfer" Environmental and Safety Requirements.
(vii) None of the Company or any of its predecessors has, either
expressly or by operation of law, assumed, undertaken or otherwise become
subject to any liability, including without limitation any obligation for
corrective or remedial action, of any other Person relating to Environmental and
Safety Requirements.
(viii) No facts, events or conditions relating to the past or
present facilities, properties or operations of the Company or any of its
predecessors will prevent, hinder or limit continued compliance with
Environmental and Safety Requirements, give rise to any investigatory, remedial
or corrective obligations pursuant to Environmental and Safety Requirements, or
give rise to any other liabilities (whether accrued, absolute, contingent,
unliquidated or otherwise) pursuant to Environmental and Safety Requirements,
including without limitation any relating to onsite or offsite releases or
threatened releases of hazardous materials, substances or wastes, personal
injury, property damage or natural resources damage.
2W. Affiliate Transactions. Except as set forth on Schedule 2W
attached hereto, as of immediately following the Closing, no officer, director,
shareholder or Affiliate of the Company or any individual related by blood,
marriage or adoption to any such individual or any entity in which any such
Person or individual owns any beneficial interest, is a party to any agreement,
contract, commitment or transaction with the Company or the Company's executive
officers or has any material interest in any material property used by the
Company.
2X. Suppliers and Customers. Schedule 2X attached hereto accurately
sets forth a list of the top ten customers and suppliers of the Company by Irish
Pound volume of sales and purchases, respectively, for the fiscal year ended
December 31, 1996. Since December 31, 1996, the Company has not received any
written notice from any material supplier to the effect that, and none of the
Manning Parties have Knowledge that, any such supplier will stop, materially
decrease the rate of, or materially change the terms (whether related to
payment, price or otherwise) with respect to, supplying materials, products or
services to the Company (whether as a result of the consummation of the
transactions contemplated hereby or otherwise). The Company has not received any
written notice from any material customer of the Company to the effect that, and
to the Knowledge of the Manning Parties, there is no reason to believe that,
such customer will stop, or
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<PAGE> 25
materially decrease the rate of, buying products of the Company (whether as a
result of the consummation of the transactions contemplated hereby or
otherwise).
2Y. Real Property.
(i) Attached as Schedule 2Y(i) is a complete and accurate list
setting forth the name, address and a legal description of each parcel of real
property owned in fee by the Company (the "Owned Property"). The Company has
good and marketable title (as that phrase is commonly understood by the legal
profession in each relevant jurisdiction) in and to all of the Owned Property
subject to no Liens or other encumbrances other than the Liens or other
encumbrances set forth on Schedule 2Y(i) and Permitted Liens.
(ii) Schedule 2Y(ii) attached hereto sets forth a list of all
leases, subleases and other occupancy agreements, including all amendments,
extensions and other modifications (the "Leases") for real property (the "Leased
Property", and together with the "Owned Property," the "Real Property") under
which the Company is the "tenant", "subtenant", "guarantor", "surety" or other
lessee party. The Company has a good and valid leasehold interest in and to all
of the Leased Property, subject to no Liens except for Liens set forth on
Schedule 2Y(ii) and Permitted Liens. Each Lease is in full force and effect and
is enforceable in accordance with its terms. There exists no default or
condition which, with the giving of notice, the passage of time or both, could
become a default under any Lease. The Company has previously delivered to the
Purchaser true and complete copies of all the Leases.
(iii) The Real Property constitutes all of the real property owned,
leased, occupied or otherwise utilized in connection with the business of the
Company or in respect of which the Company has any liability, contingent or
otherwise. Other than the Company, there are no parties in possession or parties
having any current or future right to occupy any of the Real Property. The Real
Property is in good condition and repair, subject to ordinary wear and tear, and
is sufficient and appropriate for the conduct of the Company's business. The
Real Property and all plants, buildings and improvements located thereon conform
in all material respects to all applicable building, zoning and other laws,
ordinances, rules and regulations. All material permits, licenses and other
approvals necessary for the current occupancy and use of the Real Property have
been obtained, are in full force and effect and have not been violated. There
exists no material violation of any covenant, condition, restriction, easement,
agreement or order affecting any portion of the Real Property. All improvements
located on the Real Property have direct access to a public road adjoining such
Real Property. No such improvements or accessways encroach on land not included
in the Real Property and no such improvement is dependent for its access,
operation or utility on any land, building or other improvement not included in
the Real Property. There is no pending or, to the Knowledge of the Manning
Parties, any threatened condemnation proceeding affecting any portion of the
Real Property.
(iv) There are no outstanding options or rights of first refusal
with respect to the purchase or use of any of the Owned Property, any portion
thereof or interest therein, except as set forth on Schedule 2Y(iv) attached
hereto. The Company is not obligated to purchase or lease any real property,
except as set forth on Schedule 2Y(iv).
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<PAGE> 26
2Z. Fees and Expenses. The Company (i) has no liability or
obligation to pay any fees, expenses, commissions or costs (including, without
limitation, any and all real property transfer, transfer gains, stamp, and other
similar Taxes, if any) incurred by the Sellers or the Company in connection with
the transactions contemplated by this Agreement (such fees, expenses,
commissions, and costs the "Seller Expenses"), and (ii) has not made any
payments to any Person with respect to any Seller Expenses. The Seller Expenses
shall be paid by the Sellers.
2AA. Sufficiency of Assets. The members of the Company Group have,
or will have as of the Closing, good, marketable and valid title to, or a valid
leasehold interest in, or valid license or right to use, all of the assets,
tangible or intangible, necessary to conduct the Business as conducted by the
members of the Company Group and the Ancillary Companies prior to the Ancillary
Company Transfers.
2BB. Exclusivity. None of the Company, the Sellers, or any of their
respective representatives, officers, directors, agents, stockholders or
Affiliates is party to or bound by any agreement which shall directly or
indirectly initiate, solicit, entertain, negotiate, accept or discuss any
proposal or offer to acquire all or any significant part of the Company (an
"Acquisition Proposal"), whether by merger, purchase of stock, purchase of
assets, tender offer or otherwise (a "Third Party Acquisition") other than under
this Agreement, and all such Persons have terminated all discussions with third
parties (other than the Purchaser) regarding Acquisition Proposals or Third
Party Acquisitions.
2CC. IDA Grants. Except as set forth on Schedule 2CC, none of the
Manning Parties has any knowledge that any event has occurred or that any state
of affairs exists, such as would entitle the Industrial Development Agency
(Ireland) or Forbairt to stop payment of any grant and/or revoke, cancel or
reduce any grant or other payment received or to be received by the Company from
the aforementioned bodies in accordance with any agreements entered into by them
with the Company.
Section 3. Representations and Warranties of the Sellers. As a
material inducement to the Purchaser to enter into this Agreement and purchase
the Shares hereunder, each Seller, severally and individually for himself or
herself only, hereby represents and warrants to the Purchaser as follows:
3A. Power and Authority. Each Seller has the legal right, capacity
and power to execute, deliver and perform this Agreement and the agreements,
certificates and instruments to be executed and delivered by such Seller
pursuant hereto.
3B. Authorization; No Breach. The execution, delivery and
performance of this Agreement and all other agreements or instruments
contemplated hereby to which the Sellers are parties or by which the Sellers are
bound have been duly authorized by the Sellers. This Agreement and all other
agreements contemplated hereby to which the Sellers are parties, when executed
and delivered by the Sellers in accordance with the terms hereof, shall each
constitute a valid and binding obligation of the Sellers, enforceable in
accordance with its terms, except as such enforceability may be limited by (x)
applicable insolvency, bankruptcy, reorganization, moratorium or other similar
laws affecting creditors' rights generally and (y) applicable equitable
principles (whether considered in a proceeding at law or in equity). The
execution, delivery and performance
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<PAGE> 27
by the Sellers of this Agreement and all other agreements contemplated hereby to
which the Sellers are parties, and the fulfillment of and compliance with the
respective terms hereof and thereof by the Sellers, do not and shall not (i)
conflict with or result in a breach of the terms, conditions or provisions of,
(ii) constitute a default under (whether with or without the passage of time,
the giving of notice or both), (iii) give any third party the right to modify,
terminate or accelerate any obligation under, (iv) result in a violation of, or
(v) require any authorization, consent (except in respect of the consent which
has been obtained from the Industrial Development Agency (Ireland)), approval,
exemption or other action by or notice or declaration to, or filing with, any
Government Entity pursuant to, (A) the organizational documents, if any, of the
Sellers, (B) any Law to which the Sellers are subject, or (C) any agreement,
instrument, order, judgment or decree to which the Sellers are subject.
3C. Title to Shares. On the Closing Date, all of the Shares set
forth opposite each Seller's name on Exhibit A will be owned of record and
beneficially by such Seller, and such Seller will have good and marketable title
to such Shares, free and clear of all Liens, agreements, voting trusts, proxies
and other arrangements or restrictions of any kind whatsoever (collectively,
"Encumbrances"). Each Seller shall sell to the Purchaser good and marketable
title to the Shares free and clear of all Encumbrances.
3D. Brokerage. There are no claims for brokerage commissions,
finders' fees or similar compensation in connection with the transactions
contemplated by this Agreement based on any arrangement or agreement to which
the Seller is a party or to which the Seller is subject.
3E. Litigation, etc. There are no actions, suits, proceedings
(including any arbitration proceedings), orders, investigations or claims
pending or, to the Sellers' Knowledge, threatened against or affecting the
Seller in which it is sought to restrain or prohibit or to obtain damages or
other relief in connection with the transactions contemplated hereby.
Section 4. Representations and Warranties of the Purchaser. As a
material inducement to the Sellers to enter into this Agreement and take the
actions set forth in Section 1, the Purchaser hereby represents and warrants to
the Sellers as follows:
4A. Organization. The Purchaser is a corporation duly organized,
validly existing and in good standing under the Laws of its jurisdiction of
incorporation. The Purchaser possesses all requisite power and authority
necessary to carry out the transactions contemplated by this Agreement.
4B. Authorization; No Breach. The execution, delivery and
performance of this Agreement and all other agreements or instruments
contemplated hereby to which the Purchaser is a party or by which the Purchaser
is bound have been duly authorized by the Purchaser. This Agreement and all
other agreements contemplated hereby to which the Purchaser is a party, when
executed and delivered by the Purchaser in accordance with the terms hereof,
shall each constitute a valid and binding obligation of the Purchaser,
enforceable in accordance with its terms, except as such enforceability may be
limited by (x) applicable insolvency, bankruptcy, reorganization, moratorium or
other similar laws affecting creditors' rights generally and (y) applicable
equitable principles (whether considered in a proceeding at law or in equity).
The execution, delivery and performance by the Purchaser of this Agreement and
all other agreements contemplated hereby to
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<PAGE> 28
which the Purchaser is a party, and the fulfillment of and compliance with the
respective terms hereof and thereof by the Purchaser, do not and shall not (i)
conflict with or result in a breach of the terms, conditions or provisions of,
(ii) constitute a default under (whether with or without the passage of time,
the giving of notice or both), (iii) give any third party the right to modify,
terminate or accelerate any obligation under, (iv) result in a violation of, or
(v) require any authorization, consent, approval, exemption or other action by
or notice or declaration to, or filing with, any Government Entity or third
party pursuant to, (A) the organizational documents of the Purchaser, (B) any
Law to which the Purchaser is subject, or (C) any agreement, instrument, order,
judgment or decree to which the Purchaser is subject.
4C. Brokerage. There are no claims for brokerage commissions,
finders' fees or similar compensation in connection with the transactions
contemplated by this Agreement based on any arrangement or agreement to which
the Purchaser is a party or to which the Purchaser is subject.
Section 5. Confidentiality, Noncompetition and Nonsolicitation for
James P. Manning.
5A. Confidential Information. Manning acknowledges that the
information, observations and data disclosed to, developed by or obtained by him
while Manning possessed an ownership interest in the Company concerning the
business or affairs of the Company (including without limitation the Company's
technology, methods of doing business and supplier and customer information)
(collectively, the "Confidential Information") are the property of the Company
and that the continued success of the Company depends in large part on keeping
this information from becoming known to competitors of the Company. Therefore,
in consideration of the payments being made to Manning pursuant to the terms of
this Agreement, Manning agrees that, for all times after the Closing Date,
except as required by law or court order, he shall not, directly or indirectly,
disclose to any unauthorized person or use for his own account any Confidential
Information without the prior written consent of the Board as it exists after
the Closing Date, unless and to the extent that the aforementioned matters
become generally known to and available for use by the public other than as a
result of his acts or omissions to act. Manning further agrees to use his
commercially reasonable best efforts and diligence to safeguard the Confidential
Information and to protect it against disclosure, misuse, espionage, loss or
theft. Manning shall deliver to the Company at any time the Company may
reasonably request, all memoranda, correspondence, notes, plans, records,
reports, manuals, photographs, computer tapes and software and other documents
and data (and copies thereof) relating to the Confidential Information, the Work
Product or the business of the Company which he may then possess or have under
his control. If the Company requests, Manning agrees to provide written
confirmation that Manning has returned all such materials to the Company.
5B. Work Product. Manning agrees that all inventions, innovations,
improvements, developments, methods, processes, programs, designs, analyses,
drawings, reports, and all similar or related information which relates to the
Company's actual or anticipated business or research and development or existing
or future products or services and which are conceived, developed, contributed
to or made by Manning (either solely or jointly with others) prior to the
Closing (the "Work Product") shall be the sole and exclusive property of the
Company. Manning will promptly disclose such Work Product to the Board and
perform all actions reasonably requested by the Board (whether before or after
the Closing Date) to establish and confirm such ownership
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<PAGE> 29
(including, without limitation, the execution of assignments, consents, powers
of attorney and other instruments).
5C. Noncompete, Nonsolicitation.
(i) Manning acknowledges that in the course of his relationship with
the Company, he has become familiar with the Company's trade secrets and with
other Confidential Information and that his services have been and will be of
special, unique and extraordinary value to the Company. Therefore, in
consideration of the payments being made to Manning pursuant to the terms of
this Agreement and the Auburn Purchase Agreement, Manning agrees that, during
the two-year period following the Closing Date (the "Noncompete Period"), he
shall not directly or indirectly own, operate, lease, manage, control,
participate in, consult with, advise, permit his name to be used by, provide
services for, or in any manner engage in any business (including by himself or
in association with any person, firm, corporation or other business organization
or through any other entity) in which the Company engages, as such business
exists or is in process on the date hereof, within any geographical area in
which the Company engages in such business as of the date hereof. Nothing herein
shall prohibit Manning from being a passive owner of not more than 5% of the
outstanding stock of any corporation which is publicly traded, and which is a
direct competitor of the Company, so long as Manning has no active participation
in the business of such corporation.
(ii) During the Noncompete Period, Manning shall not directly or
indirectly through another entity (x) induce or attempt to induce any employee
of the Company to leave the employ of the Company, or in any way interfere with
the relationship between the Company and any employee thereof, including without
limitation, inducing or attempting to induce any union, employee or group of
employees to interfere with the business or operations of the Company, (y) hire
any person who was an employee of the Company at any time during Manning's
employment period, or (z) induce or attempt to induce any customer, supplier,
distributor, franchisee, licensee or other business relation of the Company or
the Purchaser to cease doing business with the Company or the Purchaser, or in
any way interfere with the relationship between any such customer, supplier,
distributor, franchisee, licensee or business relation and the Company or the
Purchaser.
(iii) Manning agrees and acknowledges that (x) the covenants set
forth in this Section 5C are reasonable in geographical and temporal scope and
in all other respects, (y) the Purchaser would not have entered into this
Agreement but for the covenants of Manning contained herein, and (z) the
covenants contained herein have been made in order to induce the Purchaser to
enter into this Agreement.
(iv) If, at the time of enforcement of this Section 5C, a court
shall hold that the duration, scope or area restrictions stated herein are
unreasonable under circumstances then existing, the parties agree that the
maximum duration, scope or area reasonable under such circumstances shall be
substituted for the stated duration, scope or area and that the court shall be
allowed to revise the restrictions contained herein to cover the maximum period,
scope and area permitted by law.
(v) Manning recognizes and affirms that in the event of his breach
of any provision of this Section 5C, money damages would be inadequate and the
Purchaser and the Company would have no adequate remedy at law. Accordingly,
Manning agrees that in the event
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<PAGE> 30
of a breach or a threatened breach by Manning of any of the provisions of this
Section 5C, the Purchaser and the Company against which such breach is made or
such threatened breach exists, in addition and supplementary to other rights and
remedies existing in their favor, may apply to any court of law or equity of
competent jurisdiction for specific performance and/or injunctive or other
relief in order to enforce or prevent any violations of the provisions hereof
(without posting a bond or other security).
Section 6. Indemnification.
6A. Survival of Representations and Warranties. The representations
and warranties in Sections 2, 3 and 4 of this Agreement shall survive the
Closing for a period of one year following the Closing Date except that (i) the
representations and warranties in Section 2M (Tax Matters) shall survive until
the end of the applicable statute of limitations, and (ii) the representations
and warranties contained in Sections 2A (Organization) (other than the last
sentence thereof), 2B (Capital Stock and Related Matters), 2D (Authorization; No
Breach) (other than the second sentence thereof), 3A (Power and Authority), 3B
(Authorization; No Breach) (other than the second sentence thereof), 3C (Title
to Shares), 4A (Organization), and 4B (Authorization; No Breach) (other than the
second sentence thereof) shall survive forever; provided, that any
representation or warranty in respect of which indemnity may be sought under
Section 6B, and the indemnity with respect thereto, shall survive the time at
which it would otherwise terminate pursuant to this Section 6A if written notice
of the inaccuracy or breach or potential inaccuracy or breach thereof giving
rise to such right or potential right of indemnity shall have been given to the
Party against whom such indemnity may be sought prior to such time. Such written
notice is deemed to have been given to Sellers with regard to the matters set
forth on Schedule 6A hereto. The representations and warranties in Section 2, 3
and 4 of this Agreement shall survive for the periods set forth in this Section
6A and shall in no event be affected by any investigation, inquiry or
examination made for or on behalf of any Party, or the Knowledge of any Party's
officers, directors, shareholders, employees or agents or the acceptance by any
Party of any certificate or opinion hereunder.
6B. General Indemnification.
(i) Indemnification for the Benefit of the Purchaser by the
Sellers. The Sellers shall indemnify the Purchaser and its Affiliates,
shareholders, partners, officers, directors, employees, agents, representatives,
successors and permitted assigns and the Company (collectively, the "Seller
Indemnified Parties") and save and hold each of them harmless against and pay on
behalf of or reimburse such Seller Indemnified Parties as and when incurred for
any direct or indirect loss, liability, demand, claim, action, cause of action,
cost, damage, deficiency, Tax, penalty, fine or expense, whether or not arising
out of third party claims (including interest, penalties, reasonable attorneys',
consultants' and experts' fees and expenses and all amounts paid in
investigation, defense or settlement of any of the foregoing), but expressly
excluding consequential damages and lost profits (collectively, "Losses"), which
any such Seller Indemnified Party may suffer, sustain or become subject to, as a
result of, in connection with, relating or incidental to or by virtue of: (a)
any facts or circumstances which constitute a breach of any representation or
warranty of the Sellers under Sections 2 or 3 of this Agreement, (it being
understood and agreed that for purposes of this Section 6 and the
Indemnification Agreement Section 2M(i) shall be deemed not to include any
qualifications for materiality); or (b) any nonfulfillment or breach of any
covenant, agreement or
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<PAGE> 31
other provision by the Sellers under this Agreement or any of the Schedules
attached hereto required to be performed or complied with by the Sellers before
or after the Closing; or (c) any claim by any Person (other than the Purchaser)
with respect to, or arising as a result of, any Acquisition Proposal or Third
Party Acquisition proposed prior to the Closing Date. If and to the extent any
provision of this Section 6B is unenforceable for any reason, each Seller hereby
agrees to make the maximum contribution to the payment and satisfaction of any
Loss for which indemnification is provided for in this Section 6B which is
permissible under applicable Laws. Notwithstanding anything contained herein, in
no event shall the Company be required to provide indemnification or
contribution for any obligation of the Seller under this Section 6B.
(ii) Indemnification for the Benefit of the Sellers by the
Purchaser. The Purchaser shall indemnify the Sellers and their Affiliates,
shareholders, officers, directors, employees, agents, representatives,
successors and permitted assigns (collectively, the "Purchaser Indemnified
Parties") and hold them harmless against any Losses which the Purchaser
Indemnified Parties may suffer, sustain or become subject to, as a result of, in
connection with, relating or incidental to or by virtue of: (a) any facts or
circumstances which constitute a breach of any representation or warranty of the
Purchaser under Section 4 of this Agreement; or (b) any nonfulfillment or breach
of any covenant, agreement or other provision by the Purchaser under this
Agreement required to be performed or complied with by the Purchaser before or
after the Closing.
(iii) Manner of Payment. Any indemnification of the Seller
Indemnified Parties or the Purchaser Indemnified Parties pursuant to this
Section 6B shall be effected by wire transfer of immediately available funds
from the Sellers or the Purchaser, as the case may be, to an account designated
in writing by any Seller Indemnified Party or Purchaser Indemnified Party, as
the case may be, within 15 days after the determination thereof. The amount of
any Loss for which indemnification is provided pursuant to this Section 6B shall
be net of any amounts actually recovered by the indemnified party under
insurance policies with respect to such Loss. Any such indemnification payments
to be made to a Seller Indemnified Party shall be made (a) first from the Escrow
Account, and (b) to the extent the amount in the Escrow Account is insufficient
for purposes of making such payment, from the Sellers. Further, the Parties
agree to treat the amount of any indemnification payment made as a purchase
price adjustment, and shall prepare all Tax Returns consistent with that
position. The amount of any Loss for which indemnification is provided pursuant
to this Section 6B shall take into account any reductions in or refunds of Taxes
realized by the Purchaser or the Company with respect to subsequent taxable
years as a result of the incurrence of such Losses ("Tax Benefits"). At the
option of the Purchaser, such Tax Benefits shall be taken into account either
(i) by reducing the amount of the required indemnification by the present value
of the future Tax Benefits or (ii) through a reimbursement of such Tax Benefits
to the Sellers as and when such Tax Benefits are actually realized. In the event
that any taxing authority successfully asserts that the receipt by the Purchaser
of an indemnification payment is taxable income, the Sellers agree to indemnify
the Purchasers for the Tax cost of that indemnification payment.
(iv) General Indemnification Procedures. Any Person making a
claim for indemnification under this Section 6B (an "Indemnitee") shall notify
the indemnifying party (an "Indemnitor") of the claim in writing promptly after
receiving written notice of any action, lawsuit, proceeding, investigation or
other claim against it (if by a third party), describing the claim, the amount
thereof (if known and quantifiable) and the basis thereof; provided that the
failure to so
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<PAGE> 32
notify an Indemnitor shall not relieve the Indemnitor of its obligations
hereunder unless the Indemnitor shall be actually prejudiced by such failure to
so notify. In addition, to the extent an Indemnitee shall seek payment from the
Escrow Account, such Indemnitee shall also give notice of the relevant claim to
the Escrow Agent.
(v) Defense of Third Party Claims. Any Indemnitor shall be
entitled to participate in the defense of such action, lawsuit, proceeding,
investigation or other claim giving rise to an Indemnitee's claim for
indemnification at such Indemnitor's expense, and at its option (subject to the
limitations set forth below) shall be entitled to assume the defense thereof by
appointing a reputable counsel reasonably acceptable to the Indemnitee to be the
lead counsel in connection with such defense; provided that prior to the
Indemnitor assuming control of such defense it shall first demonstrate to the
Indemnitee in writing such Indemnitor's financial ability to provide full
indemnification to the Indemnitee with respect to such action, lawsuit,
proceeding, investigation or other claim giving rise to such claim for
indemnification hereunder; and, provided further, that:
(a) the Indemnitee shall be entitled to participate in
the defense of such claim and to employ counsel of its choice for such
purpose; provided that the fees and expenses of such separate counsel
shall be borne by the Indemnitee (other than any fees and expenses of such
separate counsel that are incurred prior to the date the Indemnitor
effectively assumes control of such defense which, notwithstanding the
foregoing, shall be borne by the Indemnitor if Indemnitee is otherwise
entitled to indemnity pursuant to this Section 6B);
(b) the Indemnitor shall not be entitled to assume
control of such defense and shall pay the fees and expenses of counsel
retained by the Indemnitee if (1) the claim for indemnification relates to
or arises in connection with any criminal proceeding, action, indictment,
allegation or investigation (provided that in such event (x) the
Indemnitee shall not enter into any settlement of a claim without the
prior written consent of the Indemnitor (which shall not be unreasonably
withheld), (y) the Indemnitor shall be entitled to participate in the
defense of such claim and to employ counsel of its choice for such purpose
(provided that the fees and expenses of such separate counsel shall be
borne by the Indemnitor), and (z) the Indemnitor shall be entitled to
review the files and record relating to such defense upon request of the
Indemnitor); (2) the claim seeks an injunction or equitable relief against
the Indemnitee; (3) a conflict of interest exists between the Indemnitor
and the Indemnitee; or (4) the Indemnitor failed or is failing to
vigorously prosecute or defend such claim; and
(c) if the Indemnitor shall control the defense of any
such claim, the Indemnitor shall obtain the prior written consent of the
Indemnitee before entering into any settlement of a claim or ceasing to
defend such claim if, pursuant to or as a result of such settlement or
cessation, injunctive or other equitable relief will be imposed against
the Indemnitee or if such settlement does not expressly and
unconditionally release the Indemnitee from all liabilities and
obligations with respect to such claim, without prejudice.
(vi) Defense of Tax Matters.
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<PAGE> 33
(a) The Purchaser shall promptly notify the Sellers in
writing upon receipt by the Purchaser or any Affiliate of the Purchaser
(including the Company after the Closing Date) of written notice of any
inquiries, claims, assessments, audits or similar events with respect to
Taxes relating to a taxable period or portion thereof ending on or prior
to the Closing Date for which the Sellers may be liable under this
Agreement (any such inquiry, claim, assessment, audit or similar event, a
"Tax Matter"). The Sellers, at their sole expense, shall have the option
of assuming the exclusive representation of the interests of the Company
with respect to any Tax Matter before any relevant taxing authority, any
other governmental agency or authority or any court and, if such right is
exercised, shall have the sole right to extend or waive the statute of
limitations with respect to a Tax Matter and to control the defense,
compromise or other resolution of any Tax Matter, including responding to
inquiries, filing Tax Returns and settling audits; provided, however, that
the Sellers shall not enter into any settlement of or otherwise compromise
any Tax Matter that adversely affects the Tax liability of the Purchaser
or the Company for any period following the Closing Date, including the
portion of a period beginning before the Closing Date and ending after the
Closing Date (the "Overlap Period") that is after the Closing Date,
without the prior written consent of the Purchaser, which consent shall
not be unreasonably withheld and, provided further, that unless the
Sellers agree in writing to assume the defense of any Tax Matters within
20 days of receiving notice thereof from the Purchaser, the Purchaser
shall have the right (but not the obligation) to defend such Tax Matters
and to be indemnified by the Sellers for the reasonable cost thereof. If
the Sellers shall assume the representation of the interests of the
Company with respect to a Tax Matter, the Sellers shall keep the Purchaser
fully informed with respect to the commencement, status and nature of such
Tax Matter and shall in good faith allow the Purchaser's representatives
to attend any proceedings relating to such Tax Matter and to make comments
to the Sellers regarding the conduct of or positions taken in any such
proceeding.
(b) Except as otherwise provided in Section 6 of this
Agreement, the Purchaser shall at its sole expense have the right to
control any audit or examination by any taxing authority, initiate any
claim for refund or amend any Tax Return, and contest, resolve and defend
against any assessment for additional Taxes, notice of Tax deficiency or
other adjustment of Taxes of, or relating to, the income, assets or
operations of the Company for all taxable periods; provided, however, that
the Purchaser shall not, and shall cause its Affiliates (including the
Company) not to, enter into any settlement of any contest or otherwise
compromise any issue that may adversely affect the Tax liability of the
Sellers or the Company for any period prior to the Closing Date (including
the pre-Closing portion of the Overlap Period) if a claim for
indemnification would arise (directly or indirectly) from such action
without the prior written consent of the Sellers, which consent shall not
be unreasonably withheld. If the Purchaser shall assume the representation
of the interests of the Company with respect to a Tax Matter, the
Purchaser shall keep the Sellers fully informed with respect to the
commencement, status and nature of such Tax Matter, and shall in good
faith allow the Sellers' representatives to attend any proceedings
relating to such Tax Matter and to make comments to the Purchaser
regarding the conduct of or positions taken in any such proceeding.
(vii) Limitations on Indemnification. Notwithstanding anything
in this Agreement to the contrary, the indemnification rights granted pursuant
to this Section 6B shall be subject to the terms, conditions and limitations set
forth in the Indemnification Agreement.
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<PAGE> 34
(viii) Other Indemnification Provisions; Certain Waivers; etc.
With the exception of any claims of common law fraud which are proven and upon
which a judgment entered in the involved proceeding shall be expressly based,
the Parties agree that the provisions of this Section 6B shall be the exclusive
remedy for all claims of breach or indemnification pursuant to this Agreement
and the parties expressly waive the remedy of rescission of contract. Each
Seller hereby agrees not to make any claim for indemnification hereunder against
the Company by reason of the fact that such Seller was a shareholder, director,
officer, employee or agent of the Company or was serving at the request of the
Company as a partner, trustee, director, officer, employee or agent of another
entity (whether such claim is for judgments, damages, penalties, fines, costs,
amounts paid in settlement, losses, expenses or otherwise) with respect to any
action, suit, proceeding, complaint, claim or demand brought by any of the
Seller Indemnified Parties against any Seller pursuant to this Agreement, and
each Seller hereby acknowledges and agrees that he, she or it shall have no
claims or right to contribution or indemnity from the Company with respect to
any amounts paid by any Seller pursuant to this Section 6B.
Section 7. Conditions to Closing.
7A. Conditions of the Purchaser's Obligations at the Closing. The
obligation of the Purchaser to take the actions set forth in Section 1 hereof is
subject to satisfaction of the following conditions:
(i) Representations and Warranties; Covenants. The
representations and warranties contained in Sections 2 and 3 hereof shall be
true and correct in all material respects at and as of the Closing as though
then made and as though the Closing Date was substituted for the date of this
Agreement throughout such representations and warranties, and the Company and
the Sellers shall have performed in all material respects all of the covenants
required to be performed by the Company and the Sellers hereunder prior to the
Closing.
(ii) Resignation of Directors. The Purchaser shall have
received the written resignations of all officers and members of the board of
directors of the Company, each of which is set forth on Schedule 7A(ii) hereto,
each such resignation to be effective as of the Closing.
(iii) Existing Agreements. The Purchaser shall have received
evidence of termination and cancellation without recourse of any existing
agreements between the Company and/or key executive officers on the one hand and
one or more of the Sellers, officers, directors or Affiliates of the Company on
the other hand, regarding ownership or control of the Company or otherwise
(other than any such agreements between or among any members of the Company
Group).
(iv) Litigation. No suit, action or other proceeding, or
injunction, order, decree or judgment relating thereto, shall be threatened or
shall be pending in which it is sought to restrain or prohibit or to obtain
damages or other relief in connection with the transactions contemplated hereby
or that would reasonably be expected to have a Material Adverse Effect, and no
injunction, judgment, order, decree or ruling with respect thereto shall be in
effect.
(v) Consents and Approvals. The Company shall have made all
filings and shall have obtained all third party and governmental permits,
authorizations, consents and approvals required to be obtained by the Company or
the Sellers to consummate the transactions
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contemplated by this Agreement including, but not limited to, consents for those
Material Contracts listed on Schedule 2D and marked with an asterisk (*).
(vi) Material Adverse Change. Since the date hereof, there
shall have been no fact, event or circumstance which could have a Material
Adverse Effect.
(vii) Escrow Agreement. Manning shall have executed and
delivered the Escrow Agreement to the Purchaser.
(viii) Auburn Purchase Agreement. All of Purchaser's
conditions precedent to the consummation of the transactions contemplated by the
Auburn Purchase Agreement shall have been satisfied or waived.
(ix) Indemnification Agreement. The Sellers shall have
executed and delivered the Indemnification Agreement to the Purchaser.
(x) Financing. The Purchaser shall have received, on terms and
conditions reasonably satisfactory to it, the cash proceeds of all of the
financing it needs in order to consummate the transactions contemplated hereby
and by the Auburn Purchase Agreement and fund the working capital requirements
of the Company after the Closing.
(xi) Real Property.
(a) All Real Property shall be in substantially the same
condition and repair as that on the date of this Agreement, reasonable
wear and tear excepted.
(b) Sellers shall have timely paid any and all real
property transfer, transfer gains, stamp and other similar taxes, if any,
assessed in connection with the transactions contemplated by this
Agreement.
(xii) Closing Documents. At Closing, the Company and the
Sellers shall have delivered to the Purchaser the following documents:
(a) a certificate of Manning, dated as of the Closing
Date, stating that the conditions specified in clauses 7(A)(i) through
7(A)(vi) (not including clause 7(A)(iii)) have been fully satisfied;
(b) all existing minute books, stock certificates, stock
transfer records, corporate seals and other materials relating to the
Company's corporate administration which are in the possession of the
Company, the Sellers or any Affiliate thereof;
(c) evidence of termination of all powers of attorney,
grants of agency and other agreements listed on Schedule 2N(i)(n) hereto;
and
(d) such other documents relating to the transactions
contemplated by this Agreement as the Purchaser or its counsel may
reasonably request.
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(xiii) Good Standing of the Company. The Purchaser shall be
satisfied, in its reasonable discretion, with the results of its searching the
public register of Ireland with respect to the good standing of the Company.
7B. Waiver. Any condition specified in Section 7A may be waived if
consented to in writing by the Purchaser.
7C. Conditions of the Sellers' Obligations at the Closing. The
obligation of the Sellers to take the actions set forth in Section 1 hereof is
subject to satisfaction of the following conditions:
(i) Representations and Warranties; Covenants. The
representations and warranties contained in Section 4 hereof shall be true and
correct in all material respects at and as of the Closing as though then made
and as though the Closing Date was substituted for the date of this Agreement
throughout such representations and warranties, and the Purchaser shall have
performed in all material respects all of the covenants required to be performed
by the Purchaser prior to the Closing.
(ii) Litigation. No suit, action or other proceeding, or
injunction, order, decree or judgment relating thereto, shall be threatened or
shall be pending in which it is sought to restrain or prohibit or to obtain
damages or other relief in connection with the transactions contemplated hereby
and no injunction, judgment, order, decree or ruling with respect thereto shall
be in effect.
(iii) Consents and Approvals. The Purchaser shall have made
all filings and shall have obtained all third party and governmental permits,
authorizations, consents and approvals required to be obtained by the Purchaser
to consummate the transactions contemplated by this Agreement.
(iv) Escrow Agreement. The Purchaser shall have executed and
delivered the Escrow Agreement to the Sellers.
(v) Auburn Purchase Agreement. All of Sellers' conditions
precedent to the consummation of the transactions contemplated by the Auburn
Purchase Agreement shall have been satisfied or waived.
(vi) Indemnification Agreement. The Purchaser shall have
executed and delivered the Indemnification Agreement.
(vii) Closing Documents. At the Closing, the Purchaser shall
have delivered the following documents to the Sellers:
(a) a certificate of an officer of the Purchaser, dated
the Closing Date, stating that the conditions specified in Section 7C(i)
through (iii) shall have been fully satisfied; and
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<PAGE> 37
(b) such other documents relating to the transactions
contemplated by this Agreement as the Sellers or Sellers' counsel may
reasonably request.
(viii)Repayment of Manning Note Payable. The Manning Note
Payable shall have been repaid in full.
7D. Waiver. Any condition specified in Section 7C may be waived if
consented to in writing by Manning.
Section 8. Pre-Closing Covenants and Agreements. Each of the Parties
agrees as follows with respect to the period between the date of this Agreement
and the Closing:
8A. General. Each of the Parties shall use its commercially
reasonable best efforts to take all action and to do all things necessary,
proper or advisable in order to consummate and make effective the transactions
contemplated by this Agreement (including satisfaction, but not waiver, of the
conditions set forth in Sections 7A and 7C and execution and delivery of the
agreements and instruments contemplated hereby to be executed and delivered at
the Closing).
8B. Third Party Notices and Consents. The Company and the Sellers
shall use their respective commercially reasonable best efforts to (i) give
required notices to third parties, (ii) obtain any required consents (including
consents for those Material Contracts on Schedule 2D and marked with an asterisk
(*))and (iii) take any actions reasonably required by any third party, in each
case in connection with the matters contemplated by this Agreement.
8C. Operation of Business. The Company shall, and the Sellers shall
cause the Company to, operate its business only in the usual and ordinary course
of business consistent with past custom and practice and in accordance with all
Laws and will exert its best efforts to preserve the goodwill and organization
of its business and the relationships with its customers, suppliers, employees
and other Persons having business relations with the Company. Without limiting
the generality of the foregoing, prior to the Closing, without the prior written
consent of the Purchaser, each Seller covenants that such Seller will cause the
Company to not, directly or indirectly, except as expressly contemplated by this
Agreement, take or omit to take any action that would require disclosure under
Section 2K or that would otherwise result in a breach of any of the
representations, warranties or covenants made by the Company or the Sellers in
this Agreement.
8D. Full Access. Each Seller shall cause the Company to afford, and
cause its officers, directors, employees, attorneys, accountants, advisors and
other agents to afford, to the Purchaser and its accounting, legal, financing
and other representatives, as well as their respective officers, employees,
affiliates and other agents, upon request of the Purchaser, full and complete
access during reasonable business hours to all premises, properties and
personnel of the Company and to all business, financial, legal, tax,
compensation and other data and information (including, but not limited to all
books, records (including tax records), contracts, customer lists and other
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documents and records (including any working papers of the Company's personnel))
concerning the Company's and its affairs and operations; provided, that such
access shall not unreasonably interfere with the business operations of the
Company. Furthermore, each Seller shall, and shall cause the Company to,
cooperate with and facilitate interviews by the Purchaser or its representatives
with the Company's employees and customers; provided, that the Purchaser shall
provide the Company with prior notice before the Purchaser conducts any
interviews with customers or employees of the Company.
8E. Notice of Material Developments. Each Party shall give prompt
written notice to the other Parties of (i) any variances in any of its
representations or warranties contained in this Agreement, (ii) any breach of
any covenant hereunder by such Party and (iii) any other material development
affecting the ability of such Party to consummate the transactions contemplated
by this Agreement.
8F. Exclusivity. None of the Company, the Sellers or any of their
respective representatives, officers, directors, agents, stockholders or
Affiliates shall directly or indirectly initiate, solicit, entertain, negotiate,
accept or discuss any proposal or offer to acquire all or any significant part
of the Company, whether by merger, purchase of stock, purchase of assets, tender
offer or otherwise, or provide any nonpublic information to any third party in
connection with an Acquisition Proposal or a Third Party Acquisition, or enter
into any agreement, arrangement or understanding requiring the Company or the
Sellers to abandon, terminate or fail to consummate the Sale.
8G. Tax Matters. Except as expressly contemplated by this Agreement,
the Sellers and the Company agree to provide the Purchaser with prior written
notice before the Sellers and/or the Company make or change any election, change
an annual accounting period, adopt or change any accounting method, file any
amended Tax Return, enter into any closing agreement, settle any Tax claim or
assessment relating to the Company, surrender any right to claim a refund of
Taxes, consent to any extension or waiver of the limitation period applicable to
any Tax claim or assessment relating to the Company, or take any other similar
action, or omit to take any action relating to the filing of any Tax Return or
the payment of any Tax, if such election, adoption, change, amendment,
agreement, settlement, surrender, consent or other action or omission could have
the effect of increasing the present or future Tax liability or decreasing any
present or future Tax asset of the Company or the Purchaser.
8H. Intercompany Obligations/Affiliate Transactions. At the Closing,
the Company shall eliminate, cancel and forgive, without recourse, all
obligations or liabilities owed to it by, or from it to, any Company Affiliate
other than (i) the Manning Note Payable which shall be repaid by the Purchaser
to Manning pursuant to Section 1C(iii) hereof; (ii) any such obligations or
liabilities between any members of the Company Group; and (iii) other
obligations or liabilities incurred in the ordinary course of business
consistent with past custom and practice of the type described on Schedule 8H.
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<PAGE> 39
8I. Termination. This Agreement may be terminated at any time prior
to the Closing:
(i) by the written consent of the Parties;
(ii) by the Purchaser, if there has been a material violation
or breach by any Seller of any covenant, representation or warranty contained in
this Agreement which has prevented the satisfaction of any condition to the
obligations of the Purchaser to close the transactions contemplated by this
Agreement and such violation or breach has not been waived by the Purchaser or,
in the case of a covenant breach, cured by the Sellers within the earlier of ten
days after written notice thereof from the Purchaser and the Closing Date;
(iii) by the Sellers, if there has been a material violation
or breach by the Purchaser of any covenant, representation or warranty contained
in this Agreement which has prevented the satisfaction or any condition of the
obligation of the Sellers to close the transactions contemplated by this
Agreement and such violation or breach has not been waived by the Sellers or,
with respect to a covenant breach, cured by the Purchaser within the earlier of
10 days after written notice thereof by any Seller and the Closing Date;
(iv) by Manning or the Purchaser if the transactions
contemplated hereby have not been consummated by December 31, 1997; provided,
however, that neither Manning nor the Purchaser shall be entitled to terminate
this Agreement pursuant to this Section 8I(iv) if such Person's (or, in the case
of Manning, any Seller's) breach of this Agreement has prevented the
consummation of the transactions contemplated hereby; or
(v) by Manning or the Purchaser in the event that the Auburn
Purchase Agreement is terminated in accordance with the terms thereof.
8J. Effect of Termination. In the event that this Agreement shall
have been terminated pursuant to Section 8I, all further obligations of the
Parties under this Agreement (other than pursuant to Section 9B and 11A, which
shall continue in full force and effect) shall terminate without further
liability or obligation of any Party; provided, however, that (i) no Party shall
be released from liability hereunder if this Agreement is terminated and the
transactions abandoned by reason of (a) willful failure of such party to have
performed its obligations hereunder or (b) any knowing misrepresentation made by
such Party of any matter set forth herein.
Section 9. Post-Closing Covenants and Agreements. The Parties agree
as follows with respect to the period following the Closing.
9A. Certain Tax Matters.
(i) The Company shall prepare, or cause to be prepared, and file, or
cause to be filed, any Tax Returns of the Company for Tax periods which end on
or before the Closing Date and which have not been filed as of the Closing Date.
The Company shall prepare, or cause to be prepared, and file, or cause to be
filed, any Tax Returns of the Company for Tax periods which begin before the
Closing Date and end after the Closing Date. Any Tax Return filed by the Company
after the Closing Date that includes a period prior to the day after the Closing
Date shall
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be prepared on a basis consistent with past practice and shall be forwarded to
Manning no less than 60 days prior to the due date for that Tax Return for
Manning's review. Manning shall have 30 days from the date of receipt of such
Tax Returns in which to object to any portion of a Tax Return (if no such
objection is received by the Company within 30 days of Manning's receipt of the
Tax Returns, Manning shall be deemed to have approved the Tax Returns). If
Manning objects to any portion of a Tax Return forwarded to him, Manning and the
Company shall negotiate in good faith to achieve a mutually acceptable reporting
position for the Tax Return. If Manning and the Company are not able to reach
agreement on a reporting position by the date 15 days prior to the due date for
the Tax Return, Manning and the Company shall present their respective positions
to an accounting firm of national reputation that has no ties to either Manning
or the Company, which shall decide between the two positions, consistent with
past practice. The decision of the accounting firm so chosen shall be binding on
the parties and the Tax Return shall be so filed.
(ii) With respect to any Tax periods ending after the Closing Date,
the Company may make or change any election, file any amended Tax Return, enter
into any closing agreement, settle any Tax claim or assessment relating to the
Company, surrender any right to claim a refund of Taxes, or take any other
similar action, or omit to take any action relating to the filing of any Tax
Return or the payment of any Tax; provided that the Company shall not take such
action without the prior written consent of Manning if such action would have
the effect of increasing the present or future Tax liability or decreasing any
present or future Tax asset of the Company or the Sellers with respect to any
Tax periods or portion thereof ending on or prior to the Closing Date.
(iii) Cooperation on Tax Matters. The Parties shall cooperate fully,
as and to the extent reasonably requested by each Party and at the requesting
Party's expense, in connection with the preparation of the Tax Returns and any
audit, litigation or other proceeding with respect to Taxes. Such cooperation
shall include the retention and (upon any Party's request) the provision of
records and information which are reasonably relevant to any such audit,
litigation or other proceeding and making employees available on a mutually
convenient basis to provide additional information and explanation of any
material provided hereunder.
(iv) Post-Closing Access to Business Records and Accounting
Cooperation. The Purchaser agrees that, following the Closing, the Sellers and
the Sellers' attorneys, accountants, officers and other representatives, shall
have reasonable access, during normal business hours, to the books and records
of the Company to the extent they relate to a period prior to the Closing Date
(and shall permit such persons to examine and copy at such person's sole expense
such books and records to the extent requested by such party), and shall cause
the directors, officers and employees of the Company to furnish all information
reasonably requested by the Sellers in connection with financial reporting and
Tax matters (including financial and Tax audits, preparation of the Tax Returns
and Tax contests) and other similar business purposes. The Purchaser shall not
permit the Company to destroy or dispose of any such books and records without
the prior written consent of the Sellers prior to the sixth anniversary of the
Closing Date. On and after the sixth anniversary of the Closing Date, neither
the Purchaser nor the Company shall destroy or dispose or allow the destruction
or disposition of such books and records without first having offered in writing
to deliver such books and records to the Sellers at the Sellers' sole expense.
The Purchaser may permit the Company to dispose of the books and records
described in such notice if the Sellers shall fail to request copies of such
books and records within 90 days after receipt of the notice described in the
preceding sentence.
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<PAGE> 41
9B. Press Release and Announcements. None of the Parties nor any of
their respective representatives shall make any public announcement with respect
to this Agreement or the transactions contemplated hereby without the prior
written consent of Manning and the Purchaser. The foregoing notwithstanding, any
such public announcement may be made if required by applicable law or a
securities exchange rule, provided that the Party required to make such public
announcement shall confer with (i) Manning if such Party is the Purchaser or
(ii) the Purchaser if such Party is any Seller concerning the timing and content
of such public announcement before the same is made. For the avoidance of doubt,
nothing contained in this Section 9B shall prevent the Purchaser from making any
disclosure with respect to this Agreement or the transactions contemplated
hereby without the written consent of Manning in connection with (a) any filings
made by Purchaser on behalf of itself or the Company with the SBA or the SEC or
(b) the financing by the Purchaser of the transactions contemplated hereby.
9C. Litigation Support. In the event and for so long as any Party
actively is contesting or defending against any action, suit, proceeding,
hearing, investigation, charge, complaint, claim, or demand in connection with
(i) any transaction contemplated under this Agreement or (ii) any fact,
situation, circumstance, status, condition, activity, practice, plan,
occurrence, event, incident, action, failure to act, or transaction on or prior
to the Closing Date involving the Company, each of the other Parties will
cooperate with him, her or its and his, her or its counsel in the contest or
defense, make available their personnel, and provide such testimony and access
to their books and records as shall be necessary in connection with the contest
or defense, all at the sole cost and expenses of the contesting or defending
Party (unless the contesting or defending Party is entitled to indemnification
therefor under Section 6).
9D. Transition. Neither of the Sellers will take any action that is
designed or intended to have the effect of discouraging any lessor, licensor,
customer, supplier or other business associate of the Company from maintaining
the same business relationships with the Company after the Closing as it
maintained with the Company prior to the Closing. Each of the Sellers will refer
all customer inquiries relating to the business of the Company to the Purchaser
from and after the Closing.
9E. General. In case at any time after the Closing any further
action is necessary to carry out the purposes of this Agreement, each of the
Parties will take such further action (including the execution and delivery of
such further instruments and documents) as any other Party reasonably may
request, all at the sole cost and expense of the requesting Party (unless the
requesting Party is entitled to indemnification therefor under Section 6. The
Sellers acknowledge and agree that from and after the Closing the Purchaser,
subject to the provisions of Section 9A, will be entitled to possession of all
documents, books, records (including Tax records), agreements, and financial
data of any sort relating to the Company.
Section 10. Definitions. For the purposes of this Agreement, the
following terms have the meanings set forth below:
"Acquisition Proposal" has the meaning set forth in Section 2BB.
"Affiliate" of any particular Person means any other Person
controlling, controlled by or under common control with such particular Person,
where "control" means the possession,
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directly or indirectly, of the power to direct the management and policies of a
Person whether through the ownership of voting securities, contract or otherwise
including a subsidiary within the meaning of ss.155 of the Companies Act 1963.
"Agreement" has the meaning set forth in the recitals.
"Ancillary Companies" has the meaning set forth in the recitals.
"Ancillary Company Transfers" has the meaning set forth in the
recitals.
"Auburn" has the meaning set forth in the recitals.
"Auburn Business" has the meaning set forth in the recitals.
"Auburn Purchase Agreement" has the meaning set forth in the
recitals.
"Auburn Shares" has the meaning set forth in the recitals.
"Board" means the board of directors of the Company.
"CGTA" means the Capital Gains Tax Act, 1975.
"Closing" has the meaning set forth in Section 1C.
"Closing Date" has the meaning set forth in Section 1C.
"Company" has the meaning set forth in the recitals.
"Company Affiliates" means any member of the Company Group and any
other affiliates of any member of the Company Group or Manning.
"Company Group" means collectively, Auburn, Sport Socks UK and the
Company.
"Company Intellectual Property" means all of the Intellectual
Property rights owned or used by the Company.
"Confidential Information" has the meaning set forth in Section 5A.
"Connected Person" means, with respect to any Person, any Person who
is, for the purposes of the CGTA, connected with such Person by virtue of
Section 131 of the Finance Act, 1996.
"CTA" means the Corporation Tax Act, 1976.
"Employee Benefit Plan" means any oral or written benefit plan,
program, agreement or arrangement for the benefit of current or former employees
or their respective dependents or beneficiaries, including, without limitation,
any bonus, deferred compensation, incentive
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compensation, severance, share purchase, stock option, stock appreciation,
phantom stock, savings, profit sharing, health or other medical, life,
disability, travel, accident or other welfare benefit plan or other insurance,
supplementary unemployment, pension, retirement or other supplementary
retirement program, agreement or arrangement.
"Encumbrances" has the meaning set forth in Section 3C.
"Environmental and Safety Requirements" shall mean all federal,
state, local and foreign statutes, regulations, ordinances and other provisions
having the force or effect of law, all judicial and administrative orders and
determinations, all contractual obligations and all common law concerning public
health and safety, worker health and safety, and pollution or protection of the
environment, including without limitation all those relating to the presence,
use, production, generation, handling, transportation, treatment, storage,
disposal, distribution, labeling, testing, processing, discharge, release,
threatened release, control, or cleanup of any hazardous materials, substances
or wastes, chemical substances or mixtures, pesticides, pollutants,
contaminants, toxic chemicals, petroleum products or byproducts, asbestos,
polychlorinated biphenyls, noise or radiation.
"Escrow Account" has the meaning set forth in Section 1D.
"Escrow Agent" has the meaning set forth in Section 1C(ii).
"Escrow Agreement" has the meaning set forth in Section 1D.
"Government Entity" means individually, and "Government Entities"
means collectively, the United States of America, Ireland or any other nation,
any state or other political subdivision thereof, or any entity exercising
executive, legislative, judicial, regulatory or administrative functions of
government, including any court, in each case having jurisdiction over the
Company or any of its assets.
"Guarantee" means any guarantee of the payment or performance of any
Indebtedness or other obligation and any other arrangement whereby credit is
extended to one obligor on the basis of any promise of such Person, whether that
promise is expressed in terms of an obligation to pay the Indebtedness of such
obligor, to provide reimbursement, or to purchase an obligation owed by such
obligor, or to purchase goods and services from such obligor pursuant to a
take-or-pay contract, or to maintain the capital, working capital, solvency or
general financial condition of such obligor, whether or not any such arrangement
is listed in the balance sheet of such Person, or referred to in a footnote
thereto, but shall not include endorsements of items for collection in the
ordinary course of business.
"Indebtedness" means at a particular time, without duplication, (i)
any obligations under any indebtedness for borrowed money, (ii) any indebtedness
evidenced by any note, bond, debenture or other debt security, (iii) any
commitment by which a Person assures a creditor against loss (including
contingent reimbursement obligations with respect to letters of credit), (iv)
any indebtedness pursuant to a Guarantee, (v) any obligations under capitalized
leases or with respect to which a Person is liable, contingently or otherwise,
as obligor, guarantor or otherwise, or with respect to which obligations a
Person assures a creditor against loss, and (vi) any indebtedness
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secured by a Lien on a Person's assets, including, without limitation, in each
case, all principal, interest premiums, penalties, fees, expenses and brokerage
costs. Any Indebtedness denoted in a currency other than U.S. dollars shall be
converted into U.S. dollars for purposes of calculating Indebtedness, assuming
conversion at the Prevailing Exchange Rate.
"Indemnification Agreement" shall mean the Indemnification Agreement
dated as of November 12, 1997 among the Purchaser, the Sellers and certain other
Persons.
"Indemnitee" has the meaning set forth in Section 6B(iv).
"Indemnitor" has the meaning set forth in Section 6B(iv).
"Intellectual Property" means all (i) patents, patent applications,
patent disclosures and inventions, as well as any reissues, continuations,
continuations-in-part, divisions, revisions, extensions or reexaminations
thereof, (ii) trademarks, service marks, trade dress, trade names, logos,
slogans, corporate names and Internet domain names, and registrations and
applications for registration thereof, together with all of the goodwill
associated therewith, (iii) copyrights and copyrightable works, and
registrations and applications for registration thereof, (iv) computer software,
data, data bases and documentation, and (v) trade secrets and other confidential
information (including, ideas, formulas, compositions, inventions (whether
patentable or unpatentable and whether or not reduced to practice), know-how,
manufacturing and production processes and techniques, research and development
information, drawings, specifications, designs, plans, proposals, technical
data, financial, business, and marketing plans and customer and supplier lists
and information).
"Interim Balance Sheet" has the meaning set forth in Section
2E(i)(b).
"Investment" as applied to any Person means (i) any direct or
indirect purchase or other acquisition by such Person of any notes, obligations,
instruments, stock, securities or ownership interest (including partnership
interests and joint venture interests) of any other Person and (ii) any capital
contribution by such Person to any other Person.
"Irish GAAP" has the meaning set forth in Section 2E.
"Knowledge" means actual knowledge after reasonable investigation.
"Laws" means all statutes, laws, codes, ordinances, regulations,
rules, orders, judgments, writs, injunctions, acts or decrees of any Government
Entity.
"Lease" has the meaning set forth in Section 2Y(ii).
"Leased Property" has the meaning set forth in Section 2Y(ii).
"Liabilities" means any liability (whether known or unknown, whether
asserted or unasserted, whether absolute or contingent, whether accrued or
unaccrued, whether liquidated or unliquidated, and whether due or to become
due), including any liability for Taxes.
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"Lien" or "Liens" means any mortgage, pledge, security interest,
encumbrance, encroachment, lien or other defect in title or charge of any kind
(including any conditional sale or other title retention agreement or lease in
the nature thereof), any sale of receivables with recourse against the Company,
any filing or agreement to file a financing statement as debtor under the
Uniform Commercial Code or any similar statute (other than to reflect ownership
by a third party of property leased to the Company under a lease which is not in
the nature of a conditional sale or title retention agreement), or any
subordination arrangement in favor of another Person.
"Losses" has the meaning set forth in Section 6B(i).
"Manning" has the meaning set forth in the recitals.
"Manning Note Payable" has the meaning set forth in Section 1C(iii).
"Manning Parties" means Manning, Jack Lichtenstein, Gordon Minter,
Tom Maurer, Kevin Angliss, Donald Murphy, Stephen Barter, Pat Sugrue and Tom
Collins.
"Material Adverse Effect" means a material and adverse effect upon
the business, operations, assets, liabilities, financial condition, operating
results, prospects, cash flow, net worth or employee, customer or supplier
relations of the Company.
"Material Contracts" has the meaning set forth in Section 2N(ii).
"Overlap Period" has the meaning set forth in Section 6B(vi).
"1996 Balance Sheet" has the meaning set forth in Section 2E.
"Noncompete Period" has the meaning set forth in Section 5C.
"Owned Property" has the meaning set forth in Section 2Y(ii).
"Party" has the meaning set forth in the recitals.
"Permitted Liens" means (i) Liens for Taxes or assessments and
similar charges, which either are (a) not delinquent or (b) being contested in
good faith and by appropriate proceedings, and adequate reserves (as determined
in accordance with Irish GAAP, consistently applied) have been established on
the Company's books with respect thereto, (ii) zoning, entitlement, building and
other land use regulations imposed by governmental agencies having jurisdiction
over the Real Property which are not violated by the current use and operation
of the Real Property, and (iii) covenants, conditions, restrictions, easements
and other similar matters of record affecting title to the Real Property which
do not materially impair the occupancy or use of the Real Property for the
purposes for which it is currently used in connection with the Company's
businesses.
"Person" means an individual, a partnership, a corporation, a
limited liability company, an association, a joint stock company, a trust, a
joint venture, an unincorporated organization and a governmental entity or any
department, agency or political subdivision thereof.
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<PAGE> 46
"Prevailing Exchange Rate" means (a) in the case of any amount
denoted in Irish pounds, an exchange rate of U.S.$1.40 to one Irish pound, and
(b) in the case of any amount denoted in a currency other than U.S. dollars or
Irish pounds, an amount to be agreed upon by the parties hereto at the date of
such determination.
"Purchase Price" has the meaning set forth in Section 1B(i).
"Purchaser" has the meaning set forth in the recitals.
"Purchaser Transaction Costs" has the meaning set forth in Section
11A.
"Real Property" has the meaning set forth in Section 2Y(ii).
"Sale" has the meaning set forth in Section 1D.
"SBA" means the United States Small Business Administration and any
successor agency performing the functions thereof.
"SEC" means the Securities and Exchange Commission and any successor
agency performing the functions thereof.
"Seller Expenses" has the meaning set forth in Section 2Z.
"Seller Transaction Costs" has the meaning set forth in Section 11A.
"Sellers" has the meaning set forth in the recitals.
"Shares" has the meaning set forth in the recitals.
"Sport Socks UK" has the meaning set forth in the recitals.
"Subsidiary" means, with respect to any Person, any corporation,
limited liability company, partnership, association or other business entity of
which (i) if a corporation, a majority of the total voting power of shares of
stock 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 that Person or one or more of the other
Subsidiaries of that Person or a combination thereof, or (ii) if a limited
liability company, partnership, association or other business entity, a majority
of the partnership or other similar ownership interest thereof is at the time
owned or controlled, directly or indirectly, by any Person or one or more
Subsidiaries of that Person or a combination thereof. For purposes hereof, a
Person or Persons shall be deemed to have a majority ownership interest in a
limited liability company, partnership, association or other business entity if
such Person or Persons shall be allocated a majority of limited liability
company, partnership, association or other business entity gains or losses or
shall be or control any managing director or general partner of such limited
liability company, partnership, association or other business entity.
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<PAGE> 47
"Tax" or "Taxes" or "Taxation" means all forms of taxation, duties,
imposts, levies, withholding, rates and charges of whatsoever nature whether of
Ireland or elsewhere in any part of the world wherever and whenever created or
imposed including income tax, corporation tax, advance corporation tax, capital
gains tax, capital acquisitions tax, deposit interest retention tax, VAT, sales
tax, customs and other import or export duties, excise duties, stamp duty,
capital duty, wealth tax, property tax, rates, pay-related social insurance or
other similar contributions and generally all taxes, duties, imposts,
withholdings, levies, rates and charges of whatsoever nature on or in relation
to income, profits, gains, sales, receipts, use or occupation and any taxes,
duties, imposts or levies supplementing or replacing any of the foregoing and
any and all interests, charges, surcharges, fines and penalties in relation to
any of the foregoing.
"Tax Benefits" has the meaning set forth in Section 6B(iii).
"Tax Matter" has the meaning set forth in Section 6B(vi).
"Tax Return" means any return, information report or filing with
respect to Taxes, including any schedules attached thereto and including any
amendment thereof.
"Third Party Acquisition" has the meaning set forth in Section 2BB.
"VAT" means value added tax.
"VAT Act" means the Value Added Tax Act, 1972;
"Work Product" has the meaning set forth in Section 5B.
Section 11. Miscellaneous.
11A. Fees and Expenses. The Purchaser will be responsible for all
costs and expenses incurred by the Purchaser in connection with the negotiation,
preparation and entry into this Agreement and the consummation of the
transactions contemplated hereby ("Purchaser Transaction Costs"), and the
Sellers (and not the Company) will pay all costs and expenses incurred by the
Sellers or the Company in connection with the negotiation, preparation and entry
into this Agreement and the consummation of the transactions contemplated hereby
(the "Seller Transaction Costs").
11B. Remedies. The Parties agree and acknowledge that money damages
may not be an adequate remedy for any breach of the provisions of this
Agreement. Except as expressly provided in this Agreement, and except as such
enforceability may be limited by (x) applicable solvency, bankruptcy,
reorganization, moratorium or other similar laws affecting creditors' rights
generally and (y) applicable equitable principles (whether considered in a
proceeding at law or in equity), any Party may, in its sole discretion, ask for
specific performance (without posting a bond or other security) and/or
injunctive relief in order to enforce or prevent any violations of the
provisions of this Agreement. All such rights and remedies shall be cumulative
and non-exclusive, and may be exercised singularly or concurrently. One or more
successive actions may be brought against the Sellers, either in the same action
or in separate actions, as often as the Purchaser deems advisable, until all of
the obligations to the Purchaser are paid and performed in full.
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<PAGE> 48
11C. Consent to Amendments; Waivers. This Agreement may be amended,
or any provision of this Agreement may be waived upon the approval, in a
writing, executed by all of the Parties. No course of dealing between or among
the Parties shall be deemed effective to modify, amend or discharge any part of
this Agreement or any rights or obligations of any such Party or such holder
under or by reason of this Agreement.
11D. Successors and Assigns. This Agreement and all covenants and
agreements contained herein and rights, interests or obligations hereunder, by
or on behalf of any of the Parties hereto, shall bind and inure to the benefit
of the respective successors and permitted assigns of the Parties hereto whether
so expressed or not, except that neither this Agreement nor any of the covenants
and agreements herein or rights, interests or obligations hereunder may be
assigned by the Purchaser without the prior written consent of Manning or by any
Seller without the prior written consent of the Purchaser; provided, however,
that the Purchaser may assign this Agreement and its rights and obligations
hereunder (i) to any of its Affiliates or (ii) following the Closing, in
connection with any sale of all or substantially all of the assets, capital
stock or business of Purchaser or the Company, provided, however, that the
Purchaser shall not be released from any of its obligations hereunder.
11E. Severability. Whenever possible, each provision of this
Agreement shall be interpreted in such manner as to be effective and valid under
applicable law, but if any provision of this Agreement or the application of any
such provision to any Person or circumstance shall be held to be prohibited by,
illegal or unenforceable under applicable law or rule in any respect by a court
of competent jurisdiction, such provision shall be ineffective only to the
extent of such prohibition, illegality or unenforceability, without invalidating
the remainder of such provision or the remaining provisions of this Agreement.
11F. Counterparts. This Agreement may be executed in counterparts
(including by means of telecopied signature pages), any one of which need not
contain the signatures of more than one Party, but all such counterparts taken
together shall constitute one and the same agreement.
11G. Descriptive Headings; Interpretation. The headings and captions
used in this Agreement and the table of contents to this Agreement are for
reference purposes only and shall not affect in any way the meaning or
interpretation of this Agreement. Any capitalized terms used in any Schedule or
Exhibit attached hereto and not otherwise defined therein shall have the
meanings set forth in this Agreement. The use of the word "including" herein
shall mean "including without limitation".
11H. Entire Agreement. This Agreement and the agreements and
documents referred to herein contain the entire agreement and understanding
among the Parties with respect to the subject matter hereof and supersede all
prior agreements and understandings, whether written or oral, relating to such
subject matter in any way.
11I. No Third-Party Beneficiaries. This Agreement is for the sole
benefit of the Parties and their successors and permitted assigns and nothing
herein expressed or implied shall give or be construed to give any Person, other
than the Parties and such successors and permitted assigns, any legal or
equitable rights hereunder.
- 43 -
<PAGE> 49
11J. Schedules and Exhibits. All Schedules and Exhibits attached
hereto or referred to herein are hereby incorporated in and made a part of this
Agreement as if set forth in full herein.
11K. GOVERNING LAW; WAIVER OF JURY TRIAL.
(i) ALL ISSUES AND QUESTIONS CONCERNING THE CONSTRUCTION, VALIDITY,
ENFORCEMENT AND INTERPRETATION OF THIS AGREEMENT AND THE SCHEDULES AND EXHIBITS
HERETO SHALL BE GOVERNED BY, AND CONSTRUED IN ACCORDANCE WITH, THE LAWS OF THE
STATE OF NEW YORK WITHOUT GIVING EFFECT TO ANY CHOICE OF LAW OR CONFLICT OF LAW
RULES OR PROVISIONS (WHETHER OF THE STATE OF NEW YORK OR ANY OTHER JURISDICTION)
THAT WOULD CAUSE THE APPLICATION OF THE LAWS OF ANY JURISDICTION OTHER THAN THE
STATE OF NEW YORK. IN FURTHERANCE OF THE FOREGOING, THE INTERNAL LAW OF THE
STATE OF NEW YORK SHALL CONTROL THE INTERPRETATION AND CONSTRUCTION OF THIS
AGREEMENT (AND ALL SCHEDULES AND EXHIBITS HERETO), EVEN THOUGH UNDER THAT
JURISDICTION'S CHOICE OF LAW OR CONFLICT OF LAW ANALYSIS, THE SUBSTANTIVE LAW OF
SOME OTHER JURISDICTION WOULD ORDINARILY APPLY.
(ii) THE PARTIES HERETO AGREE AND ACKNOWLEDGE THAT THE SELECTION OF
NEW YORK LAW PURSUANT TO THIS SECTION 11K IS A MATERIAL INDUCEMENT TO THE
PURCHASER TO ENTER INTO THIS AGREEMENT AND CONSUMMATE THE TRANSACTIONS
CONTEMPLATED HEREBY.
(iii) IF APPLICABLE TO ANY DISPUTE ARISING HEREUNDER, EACH PARTY
HEREBY IRREVOCABLY WAIVES, TO THE FULLEST EXTENT PERMITTED BY LAW, ANY RIGHT TO
HAVE A JURY PARTICIPATE IN RESOLVING ANY DISPUTE ARISING OUT OF, IN CONNECTION
WITH, RELATED TO, OR INCIDENTAL TO THE RELATIONSHIP AMONG THEM ESTABLISHED BY
THIS AGREEMENT OR ANY OTHER DOCUMENT, AGREEMENT OR INSTRUMENT ENTERED INTO IN
CONNECTION WITH THIS AGREEMENT OR THE TRANSACTIONS CONTEMPLATED HEREBY.
11L. Notices. All notices, demands or other communications to be
given or delivered under or by reason of the provisions of this Agreement shall
be in writing and shall be deemed to have been given when delivered personally
to the recipient or when sent by facsimile followed by delivery by reputable
overnight courier service, one day after being sent to the recipient by
reputable overnight courier service (charges prepaid) or five days after being
mailed to the recipient by certified or registered mail, return receipt
requested and postage prepaid. Such notices, demands and other communications
shall be sent to the Purchaser and the Sellers at the addresses indicated below
or to such other address or to the attention of such other person as the
recipient party has specified by prior written notice to the sending party. All
notices, demands and other communications hereunder may be given by any other
means (including telecopy or electronic mail),
- 44 -
<PAGE> 50
but shall not be deemed to have been duly given unless and until it is actually
received by the intended recipient.
The Sellers:
c/o Mr. James P. Manning
930 Fifth Avenue
New York, New York 10021
Facsimile: 212 689-3874
with copies to:
(the delivery of which shall not constitute
the delivery of a notice to any Seller)
White & Case
1155 Avenue of the Americas
New York, NY 10036
Attention: Anthony F. Kahn, Esq.
Facsimile: 212-354-8113
and
Mr. Jack Lichtenstein
225 West 34th St., Suite 1600
New York, NY 10022
Facsimile: 212-268-9441
The Purchaser:
GCIH, Inc.
1333 Broadway, 7th Floor
New York, NY 10018
Attention: Mr. Richard Solar
Facsimile: 212-268-5122
with a copy to:
Gerber Childrenswear, Inc.
7005 Pelham Road
Greenville, SC 29615
Attention: David Uren
Facsimile: 864-987-5499
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<PAGE> 51
and a copy to:
(the delivery of which shall not constitute
the delivery of a notice to the Purchaser)
Kirkland & Ellis
153 East 53rd Street
New York, NY 10022
Attention: Kirk A. Radke, Esq.
Facsimile: 212-446-4900
11M. Jurisdiction and Venue. SUBJECT TO SECTION 11K, ALL JUDICIAL
PROCEEDINGS BROUGHT BY OR AGAINST THE COMPANY, THE PURCHASER OR THE SELLERS WITH
RESPECT TO THIS AGREEMENT, ANY OTHER AGREEMENT CONTEMPLATED HEREBY OR ANY
TRANSACTIONS CONTEMPLATED HEREBY OR THEREBY SHALL BE BROUGHT IN ANY STATE OR
FEDERAL COURT OF COMPETENT JURISDICTION IN THE CITY OF NEW YORK IN THE STATE OF
NEW YORK. BY EXECUTION AND DELIVERY OF THIS AGREEMENT EACH OF THE PURCHASER AND
THE SELLERS ACCEPTS FOR ITSELF, HIMSELF OR HERSELF AND IN CONNECTION WITH ITS,
HIS OR HER RESPECTIVE PROPERTIES, GENERALLY AND UNCONDITIONALLY, THE EXCLUSIVE
JURISDICTION OF THE AFORESAID COURTS, AND IRREVOCABLY AGREES TO BE BOUND BY ANY
JUDGMENT RENDERED THEREBY IN CONNECTION WITH THIS AGREEMENT. THE PURCHASER AND
THE SELLERS HEREBY WAIVE ANY CLAIM THAT SUCH JURISDICTION IS AN INCONVENIENT
FORUM OR AN IMPROPER FORUM BASED ON LACK OF VENUE. THE PURCHASER AND THE SELLERS
DESIGNATE AND APPOINT CT CORPORATION SYSTEM, 1633 BROADWAY, NEW YORK, NEW YORK
10019 (AND SUCH OTHER PERSONS AS MAY HEREAFTER BE SELECTED BY SUCH PERSON WITH
THE CONSENT OF THE PURCHASER) TO RECEIVE ON ITS BEHALF SERVICE OF ALL PROCESS IN
ANY SUCH PROCEEDINGS IN ANY SUCH COURT, SUCH SERVICE BEING HEREBY ACKNOWLEDGED
BY THE PURCHASER AND THE SELLERS TO BE EFFECTIVE AND BINDING SERVICE IN EVERY
RESPECT. A COPY OF SUCH PROCESS SO SERVED SHALL BE MAILED BY REGISTERED MAIL TO
THE PURCHASER OR THE SELLERS AT SUCH PERSON'S RESPECTIVE ADDRESSES PROVIDED
HEREIN. TO THE EXTENT PERMITTED BY LAW, IF ANY AGENT APPOINTED BY THE PURCHASER
OR THE SELLERS REFUSES TO ACCEPT SERVICE, SUCH PERSON HEREBY AGREES THAT SERVICE
UPON SUCH PERSON BY MAIL SHALL CONSTITUTE SUFFICIENT NOTICE.
11N. No Strict Construction. The Parties have participated jointly
in the negotiation and drafting of this Agreement. In the event an ambiguity or
question of intent or interpretation arises, this Agreement shall be construed
as if drafted jointly by the Parties, and no presumption or burden of proof
shall arise favoring or disfavoring any Party by virtue of the authorship of any
of the provisions of this Agreement.
* * * * *
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<PAGE> 52
IN WITNESS WHEREOF, the parties hereto have executed this Stock
Purchase Agreement on the date first written above.
GCIH, INC.
By: /s/ Richard Solar
-----------------------------
Name: RICHARD SOLAR
Title: Senior Vice President
/s/ James P. Manning
---------------------------------
JAMES P. MANNING
/s/ Eileen Manning
---------------------------------
EILEEN MANNING
- 47 -
<PAGE> 1
Exhibit 10.9
AMENDED AND RESTATED
SENIOR SUBORDINATED CREDIT AGREEMENT
dated as of
December 17, 1997
by and among
GERBER CHILDRENSWEAR, INC.,
AUBURN HOSIERY MILLS, INC.
as Borrowers,
GCIH, INC.,
THE DOMESTIC SUBSIDIARIES (AS DEFINED HEREIN)
as Guarantors,
and
CITICORP MEZZANINE PARTNERS, L.P.
as Lender
<PAGE> 2
TABLE OF CONTENTS
ARTICLE 1. DEFINITIONS.......................................................1
SECTION 1.1 Certain Defined Terms....................................1
SECTION 1.2 Accounting Terms........................................17
ARTICLE 2. AMOUNT AND TERMS OF NOTE AND LOAN................................17
SECTION 2.1 Loan and Note...........................................17
SECTION 2.2 Interest on the Loans...................................18
SECTION 2.3 Prepayments and Payments................................18
SECTION 2.4 Use of Proceeds.........................................21
ARTICLE 3. CONDITIONS TO LOAN...............................................21
SECTION 3.1 Conditions..............................................21
ARTICLE 4. REPRESENTATIONS AND WARRANTIES...................................23
SECTION 4.1 Organization and Good Standing..........................23
SECTION 4.2 Authorization and Power.................................23
SECTION 4.3 No Conflicts or Consents................................23
SECTION 4.4 Enforceable Obligations.................................23
SECTION 4.5 Title to Properties; Liens..............................23
SECTION 4.6 Financial Condition.....................................24
SECTION 4.7 No Default..............................................24
SECTION 4.8 Contractual Obligations.................................24
SECTION 4.9 No Litigation...........................................24
SECTION 4.10 Use of Proceeds; Margin Stock...........................24
SECTION 4.11 No Financing of Regulated Corporate Takeovers...........24
SECTION 4.12 Compliance with Law.....................................24
SECTION 4.13 Capital Structure and Subsidiaries......................24
SECTION 4.14 Licenses, Trademarks, etc...............................25
SECTION 4.15 Permits and Licenses....................................25
SECTION 4.16 ERISA...................................................25
SECTION 4.17 Investment Company Act..................................26
SECTION 4.18 Public Utility Holding Company Act......................26
SECTION 4.19 Environmental and Safety Matters........................26
SECTION 4.20 Financial Condition.....................................27
SECTION 4.21 Senior Credit Documents.................................28
SECTION 4.22 Auburn Acquisition; Ireland Acquisition.................28
SECTION 4.23 Subordinated Indebtedness...............................28
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<PAGE> 3
ARTICLE 5. AFFIRMATIVE COVENANTS............................................28
SECTION 5.1 Financial Statements and Other Reports..................28
SECTION 5.2 Corporate Existence, Etc................................30
SECTION 5.3 Payment of Taxes; Tax Consolidation.....................31
SECTION 5.4 Maintenance of Properties; Insurance....................31
SECTION 5.5 Inspection..............................................31
SECTION 5.6 No Further Negative Pledges.............................31
SECTION 5.7 Compliance with Laws, Etc...............................31
SECTION 5.8 Maintenance of Accurate Records, Etc....................31
SECTION 5.9 Lender Meeting..........................................32
SECTION 5.10 ERISA Compliance........................................32
SECTION 5.11 Environmental Matters...................................32
ARTICLE 6. NEGATIVE AND FINANCIAL COVENANTS.................................32
SECTION 6.1 Indebtedness............................................32
SECTION 6.2 Transactions with Shareholders and Affiliates...........32
SECTION 6.3 Restricted Junior Payments..............................33
SECTION 6.4 Liens...................................................34
SECTION 6.5 Mergers.................................................34
SECTION 6.6 Limitation on Sale of Less Than Substantially All
Assets..................................................34
SECTION 6.7 Limitation on Dividend and Other Payment Restrictions
Affecting Subsidiaries..................................35
SECTION 6.8 Investments.............................................35
SECTION 6.9 Restrictions on Additional Subordinated Indebtedness;
Amendments to Preferred Stock and Seller Notes..........35
SECTION 6.10 No Amendment of Organizational Documents................35
SECTION 6.11 Conduct of Business.....................................35
SECTION 6.12 No Creation of New Subsidiaries.........................35
SECTION 6.13 Compliance with ERISA...................................35
SECTION 6.14 Material License Agreements.............................36
SECTION 6.15 Amendments with Respect to Senior Debt..................36
SECTION 6.16 Leverage Ratio..........................................36
SECTION 6.17 Capitalization Ratio....................................36
SECTION 6.18 Fixed Charge Ratio......................................37
ARTICLE 7. EVENTS OF DEFAULT................................................37
SECTION 7.1 Failure To Make Payments When Due.......................37
SECTION 7.2 Default in and Acceleration of Other Agreements.........37
SECTION 7.3 Breach of Certain Covenants and Agreements..............37
SECTION 7.4 Breach of Warranty......................................37
SECTION 7.5 Involuntary Bankruptcy; Appointment of Receiver, Etc....37
SECTION 7.6 Voluntary Bankruptcy; Appointment of Receiver, Etc......38
SECTION 7.7 Judgments and Attachments...............................38
SECTION 7.8 Other Agreements........................................38
-ii-
<PAGE> 4
SECTION 7.9 Change in Control.........................................38
ARTICLE 8. SUBORDINATION....................................................39
ARTICLE 9. GUARANTEE........................................................39
SECTION 9.1 Guarantee...............................................39
SECTION 9.2 Obligations Unconditional...............................39
SECTION 9.3 Reinstatement...........................................40
SECTION 9.4 Subrogation.............................................40
SECTION 9.5 Remedies................................................40
ARTICLE 10. MISCELLANEOUS...................................................40
SECTION 10.1 Participations in Loan and Note........................40
SECTION 10.2 Expenses...............................................41
SECTION 10.3 Indemnity..............................................42
SECTION 10.4 Set-Off................................................43
SECTION 10.5 Amendments and Waivers.................................43
SECTION 10.6 Independence of Covenants..............................43
SECTION 10.7 Notices................................................43
SECTION 10.8 Survival of Warranties and Certain Agreements..........45
SECTION 10.9 Failure or Indulgence Not Waiver; Remedies Cumulative..45
SECTION 10.10 Severability...........................................45
SECTION 10.11 Heading................................................45
SECTION 10.12 Applicable Law.........................................45
SECTION 10.13 Successors and Assigns; Subsequent Holders of Notes....45
SECTION 10.14 Consent to Jurisdiction and Service of Process.........46
SECTION 10.15 Waiver of Jury Trial...................................46
SECTION 10.16 Counterparts; Effectiveness............................47
SECTION 10.17 Entirety...............................................47
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<PAGE> 5
Exhibit A - Form of the Note
Exhibit B - Subordination Agreement
Schedule 1.1(b) - License Agreements
Schedule 4.5 - Title to Properties; Liens
Schedule 4.9 - No Litigation
Schedule 4.13(a) - Capital Structure
Schedule 4.13(b) - Subsidiaries
Schedule 4.14 - Licenses; Trademarks
Schedule 4.16 - ERISA
Schedule 4.19 - Environmental and Safety Matters
Schedule 6.8 - Investments
Schedule 6.14 - Material License Agreements
-iv-
<PAGE> 6
AMENDED AND RESTATED SENIOR SUBORDINATED CREDIT AGREEMENT (the
"Agreement"), dated as of December 17, 1997, by and among GERBER CHILDRENSWEAR,
INC. (as successor by merger of GCIH Merger Sub, Inc.), a Delaware corporation
(the "Company"), AUBURN HOSIERY MILLS, INC., a Kentucky corporation ("Auburn"),
GCIH, INC., a Delaware corporation ("Holding"), each of the Domestic
Subsidiaries (as defined below) of Holding, the Company and Auburn, and CITICORP
MEZZANINE PARTNERS, L.P., a Delaware limited partnership (the "Lender").
WHEREAS, the Company, Holding and the Lender entered into a Senior
Subordinated Credit Agreement, dated as of January 22, 1996 (the "Original
Agreement") pursuant to which, among other things, the Lender provided
$22,500,000 of senior subordinated financing to the Company in connection with
the Acquisition;
WHEREAS, the Company and Holding have requested the Lender's consent
to (i) the acquisition (the "Auburn Acquisition") by Holding of Auburn and Sport
Socks Company Limited, a company registered under the laws of England and Wales
("Sport Socks UK") pursuant to the Stock Purchase Agreement, dated as of
November 12, 1997, by and among Holding and the stockholders of Auburn and Sport
Socks UK signatory thereto (as amended from time to time, the "Auburn Purchase
Agreement") and (ii) the acquisition (the "Ireland Acquisition") by Holding of
Sports Socks Co. (Ireland) Limited ("Sport Socks Ireland") pursuant to the Stock
Purchase Agreement dated as of December 16, 1997, by and among Holdings and the
stockholders of Sport Socks Ireland signatory thereto (as amended from time to
time the "Ireland Purchase Agreement");
WHEREAS, the Guarantors (as defined below) are willing to guaranty
all of the Obligations of the Borrowers (as defined below) to Lender under the
Loan Documents; and
WHEREAS, the Credit Parties and the Lender desire to amend and
restate in its entirety the Original Agreement in order to, among other things,
provide Lender's consent to the Auburn Acquisition, the Ireland Acquisition and
the financing thereof;
NOW, THEREFORE, in consideration of the premises and the agreements,
provisions and covenants herein contained, the Credit Parties and the Lender
agree as follows:
ARTICLE 1. DEFINITIONS
SECTION 1.1 Certain Defined Terms.
The following terms used in this Agreement shall have the following
meanings:
"Acquisition" means the acquisition by GCIH Merger Sub, Inc. of the
Company from the Seller on the Closing Date pursuant to the terms of the
Purchase Agreement.
"Affiliate", as applied to any Person, means any other Person
directly or indirectly controlling, controlled by, or under common control with,
that Person. For the purposes of this definition, "control" (including with
correlative meanings, the terms "controlling" "controlled by" and "under common
control with"), as applied to any Person, means the possession, directly,
<PAGE> 7
indirectly or beneficially, of the power to direct or cause the direction of the
management and policies of that Person, whether through the ownership of voting
securities or by contract or otherwise. None of the Lender, any Senior Lender
nor any of the parents of Lender or any Senior Lender, any of the respective
Subsidiaries (other than, with respect to Lender, CVC), nor Seller, shall be
treated as an Affiliate of any Credit Party or shall be deemed to be a holder of
5% or more of any class of equity securities of any Credit Party.
"Agent" means NationsBank, N.A., as administrative agent under the
Senior Credit Agreement, and its successors and assigns.
"Asset Sale" means the sale, transfer or other disposition by any
Credit Party or any of its Subsidiaries to any Person other than any Credit
Party or any of its Subsidiaries of (i) any of the stock of any Credit Party's
Subsidiaries, and (ii) any other assets having a value in excess of $100,000 (it
being understood that if the value thereof exceeds $100,000, the entire value
and not just the portion in excess of $100,000 shall be subject to Section
2.3(a)(ii)). Notwithstanding the foregoing, an Asset Sale shall not include (A)
inventory sales in the ordinary course of business, (B) sales or other
dispositions of obsolete or excess equipment or damaged, obsolete or slow-moving
inventory and (C) licensing of trademarks and other intellectual property for
fair value in the ordinary course of business to third parties.
"Auburn" has the meaning set forth in the recitals hereto.
"Auburn Acquisition" has the meaning set forth in the recitals
hereto.
"Auburn Purchase Agreement" has the meaning set forth in the
recitals hereto.
"Bankruptcy Code" means Title 11 of the United States Code, as now
and hereafter in effect, or any successor statute.
"Bankruptcy Event" has the meaning set forth in the Subordination
Agreement.
"Board of Directors" means the Board of Directors of any Credit
Party or any of their respective Subsidiaries, as applicable, or any duly
authorized committee of that Board.
"Borrowers" means, collectively, the Company and Auburn, in each
case together with any successors and permitted assigns. All Obligations of the
Borrowers referred to herein shall be deemed to be on a joint and several basis
among the Borrowers.
"Business Day" means any day excluding Saturday, Sunday and any day
which is a legal holiday under the laws of the State of New York or is a day on
which banking institutions located in such state are authorized or required by
law or other governmental action to close.
"CERCLA" means the Comprehensive Environmental Response,
Compensation and Liability Act of 1980, as amended from time to time, or any
successor federal statute.
"CERCLIS" means the Comprehensive Environmental Response,
Compensation and Liability Information System.
-2-
<PAGE> 8
"CVC" means Citicorp Venture Capital, Ltd., a New York corporation.
"CVC Group" means CVC, its Affiliates, officers and directors of CVC
and its Affiliates appointed to such position by CVC, and independent directors
of Holding appointed by CVC.
"Capital Expenditures" means all expenditures of the Credit Parties
and their Subsidiaries which, in accordance with GAAP, would be classified as
capital expenditures, including, without limitation, Capital Leases.
"Capital Lease" means as applied to any Person, any lease of any
property (whether real, personal or mixed) by that Person as lessee which, in
accordance with GAAP, is or should be accounted for as a capital lease on the
balance sheet of that Person and the amount of such obligation shall be the
capitalized amount thereof determined in accordance with GAAP.
"Capital Stock" of any Person means any and all shares, interests,
participations, or other equivalents (however designated, including stock
appreciation rights) of its capital stock and any rights (other than debt
securities convertible into capital stock), warrants or options to acquire such
capital stock.
"Capitalization Ratio" means the ratio of (a) Funded Debt to (b)
Total Capitalization.
"Cash Equivalents" means: (a) securities issued or directly and
fully guaranteed or insured by the United States of America or any agency or
instrumentality thereof (provided that the full faith and credit of the United
States of America is pledged in support thereof) having maturities of not more
than twelve months from the date of acquisition; (b) U.S. dollar denominated
time and demand deposits and certificates of deposit of (i) any Senior Lender,
(ii) any domestic commercial bank having capital and surplus in excess of
$500,000,00 or (iii) any bank whose short-term commercial paper rating from S&P
is at least A-1 or the equivalent thereof or from Moody's is at least P-1 or the
equivalent thereof (any such bank being an "Approved Bank"), in each case with
maturities of not more than 270 days from the date of acquisition, (c)
commercial paper and variable or fixed rate notes issued by any Approved Bank
(or by the parent company thereof) or any variable rate notes issued by, or
guaranteed by, any domestic corporation rated A-1 (or the equivalent thereof) or
better by S&P or P-1 (or the equivalent thereof) or better by Moody's and
maturing within six months of the date of acquisition, (d) repurchase agreements
with a bank or trust company (including any of the Senior Lenders) or recognized
securities dealer having capital and surplus in excess of $500,000,000 for
direct obligations issued by or fully guaranteed by the United States of America
in which a Borrower hall have a perfected first priority security interest
(subject to no other Liens) and having, on the date of purchase thereof, a fair
market value of at least 100% of the amount of the repurchase obligations and
(e) Investments, classified in accordance with GAAP as current assets, in money
market investment programs registered under the Investment Company Act of 1940,
as amended, which are administered by reputable financial institutions having
capital of at least $500,000,000 and the portfolios of which consist
substantially of Investments of the character described in the foregoing
subdivisions (a) through (d).
"Cash Proceeds" means, with respect to any financing, Asset Sale, or
Casualty Event, cash payments received from such financing, Asset Sale or
Casualty Event including any cash
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received by way of deferred payment pursuant to a note receivable or otherwise,
but only as and when so received.
"Casualty Event" means, with respect to any property of any Person,
any loss of or damage to, or any condemnation or other taking of, such property
for which such Person or any of its Subsidiaries receives insurance proceeds,
proceeds of a condemnation award or other compensation.
"Change in Control" means that any of the following shall have
occurred:
(a) Holding shall cease to own and control, beneficially and of
record, 100% of the issued and outstanding shares of Capital Stock of the
Borrowers;
(b) CVC Group (other than Lender) and Lawrence R. Glenn (the initial
holder of all Class C Common Stock of Holding) shall cease to own and control at
least 51% (or, on or after the consummation of a sale of stock of Holding
registered under the Securities Act of 1933, as amended, 30%) of the fully
diluted voting power represented by Capital Stock and other securities of
Holding, or shall cease to have the power to appoint directors holding a
majority of the voting power of the Board of Directors of Holding or CVC Group
shall cease to have an unencumbered cash investment of at least $6,250,000 in
Common Stock and Preferred Stock; or
(c) following the consummation of a sale of Capital Stock of Holding
registered under the Securities Act of 1933, as amended, any person or group
(within the meaning of sections 13(d) and 14(d)(2) of the Exchange Act, as
amended) other than CVC shall acquire a greater percentage of the fully diluted
voting power represented by the Capital Stock and other securities of Holding
than that owned and controlled by CVC.
"Chief Financial Officer" means the highest ranking officer of any
company then in charge of the financial matters of such company.
"Closing Date" means January 22, 1996.
"Code" means the Internal Revenue Code of 1986, as amended, or any
successor statute.
"Common Stock" means, collectively, the Class A Common Stock, par
value $0.01 per share, the Class B Common Stock, par value $0.01 per share, the
Class C Common Stock, par value $0.01 per share, the Class D Common Stock, par
value $0.01 per share, and any other shares of Capital Stock designated as
common stock, of Holding, and any Capital Stock issued with respect thereto in a
stock consolidation, reclassification or other recapitalization.
"Company" has the meaning set forth in the recitals hereto.
"Contested Claim" means any Tax, Indebtedness, Contingent Liability
or other claim or liability, (i) the validity or amount of which is being
contested in good faith by appropriate proceedings, (ii) which has been bonded
or for which adequate reserves, as required by GAAP, have been established and
(iii) with respect to which any right to execute upon or sell any assets of any
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Credit Party has not matured or has been and continues to be effectively
enjoined, superseded or stayed.
"Contingent Liabilities" means, as applied to any Person, any
guarantees, endorsements, agreements to purchase or provide funds for the
payment of obligations of others, or other liabilities which would be classified
as contingent in accordance with GAAP.
"Contractual Obligations" means, as applied to any Person, any
provision of any security issued by that Person or of any indenture, mortgage,
deed of trust, contract, undertaking, agreement, or other written instrument to
which that Person is a party or by which it or any of its owned properties is
bound or to which it or any of its owned properties is subject.
"Credit Party", and collectively, "Credit Parties" means and
includes, Holding, the Borrowers, each Domestic Subsidiary of Holding and the
Borrowers, and any Subsidiary of the Borrowers or Holding which is or becomes a
party to any Loan Document.
"Current Maturities of Long Term Debt" means all scheduled payments
required to be paid within one year from the date of determination with respect
to any Funded Debt (other than Revolving Loans or Swing Line Loans).
"Domestic Subsidiary" means all direct and indirect Subsidiaries of
Holding or a Borrower that are domiciled, incorporated or organized under the
laws of any state of the United States or the District of Columbia whether
existing as of the date hereof or hereafter created or acquired. As of the
Restatement Date, the Domestic Subsidiaries are as set forth on Schedule 4.13.
"EBITDA" means, for any period, with respect to the Credit Parties
and their Subsidiaries on a consolidated basis, the sum of (a) Net Income for
such period (excluding the effect of any extraordinary or other non-recurring
gains (including any gain from the sale of property) or non-cash losses plus (b)
an amount which, in the determination of Net Income for such period has been
deducted for (i) Interest Expense for such period, (ii) total Federal, state,
foreign or other income and franchise Taxes for such period, (iii) all
depreciation and amortization for such period, and (iv) all other non-cash
charges, including, without limitation, non-cash royalty payments under existing
License Agreements, all as determined in accordance with GAAP.
"EBITDAR" means, for any period, the sum of EBITDA for such period
plus an amount which in the determination of Net Income for such period has been
deducted for cash Rent Expense for such period, all as determined in accordance
with GAAP.
"ERISA" means the Employee Retirement Income Security Act of 1974,
as amended from time to time, or any successor statute.
"ERISA Affiliate" of any Person means any corporation or trade or
business which is a member of the same controlled group of corporations or under
common control with such Person (within the meaning of Section 414(b)(c)(m) or
(o) of the Code) as such Person.
"ERISA Event" with respect to any Person means (a) the occurrence of
a reportable event, within the meaning of Section 4043 of ERISA, with respect to
any Pension Plan of such
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<PAGE> 11
Person, unless the 30-day notice requirement with respect to such event has been
waived by the PBGC; (b) the provision by the administrator of any Plan of such
Person of a notice of intent to terminate such Pension Plan pursuant to Section
4041(a)(2) of ERISA (including any such notice with respect to a pension plan
amendment referred to in Section 4041(a)(2) of ERISA); (c) the cessation of
operations at a facility of such Person in the circumstances described in
Section 4068(a) of ERISA; (d) the withdrawal by such Person from a Pension Plan
during a plan year for which it was a substantial employer, as defined in
Section 4001(a)(2) of ERISA; (e) the failure by such Person to make a payment to
a Pension Plan required under Section 302(f)(1) of ERISA; (f) the adoption of an
amendment to a Pension Plan of such Person requiring the provision of security
to such Pension Plan pursuant to Section 307 of ERISA; or (g) the institution by
the PBGC of proceedings to terminate a Pension Plan of such Person 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 Pension Plan.
"Employee Benefit Plan" means any employee benefit plan within the
meaning of Section 3(3) of ERISA which (a) is maintained or contributed to by
any Credit Party or any ERISA Affiliate of any Credit Party, other than a
Multiemployer Plan or (b) has at any time within the preceding six (6) years
been maintained for the employees of any Credit Party or any current ERISA
Affiliate.
"Environmental and Safety Laws" means any and all present or future
federal, state, local and foreign statutes, laws, regulations, ordinances and
similar provisions having the force or effect of law, all judicial and
administrative orders and determinations, all contractual obligations and common
law concerning public health or safety, worker health or safety or pollution or
protection of the environment, including, without limitation, those relating to
any emissions, discharges or Releases of Hazardous Materials to ambient air,
surface water, ground water or land, or otherwise relating to the manufacture,
processing, distribution, use, treatment, storage, disposal, transport, control,
cleanup or handling of Hazardous Materials.
"Environmental Claim" means, with respect to any Person, any written
notice, claim, demand or other communication alleging or asserting such Person's
liability for investigatory costs, cleanup costs, governmental response costs,
damages to natural resources or other property, personal injuries, fines or
penalties arising out of, based on or resulting from (a) the presence, handling,
generation, treatment, storage, disposal, Release or threatened Release into the
environment of any Hazardous Material at any location, whether or not owned by
such Person, or (b) circumstances forming the basis of any violation, or alleged
violation, of any Environmental and Safety Law.
"Environmental Permit" has the meaning set forth in Section 4.19(a)
hereto.
"Event of Default" means each of the events set forth in Article 7.
"Exchange Act" means the Securities Exchange Act of 1934, as amended
from time to time, and any successor statute.
"Fiscal Quarter" means the quarterly periods ending on March 31,
June 30, September 30, and December 31 of each Fiscal Year.
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"Fiscal Year" means each twelve month period ending on the last day
of December in each year.
"Fixed Charge Ratio" means the ratio of (a) EBITDAR less Capital
Expenditures made in cash to (b) cash Interest Expense plus Current Maturities
of Long Term Debt plus cash income Taxes plus cash Rent Expense.
"Foreign Subsidiary" means all subsidiaries of Holding or a Borrower
that are not Domestic Subsidiaries.
"Funded Debt" means, without duplication, the sum of (a) all
Indebtedness of the Credit Parties and their Subsidiaries for borrowed money,
(b) all purchase money Indebtedness of the Credit Parties and their
Subsidiaries, (c) the principal portion of all obligations of the Credit Parties
and their Subsidiaries under Capital Leases, (d) all obligations, contingent or
otherwise, relative to the face amount of all letters of credit (other than
letters of credit supporting inventory purchases in the ordinary course of
business), whether or not drawn, and banker's acceptances issued for the account
of a Credit Party or its Subsidiaries (it being understood that, to the extent
an undrawn letter of credit supports another obligation consisting of
Indebtedness, in calculating aggregated Indebtedness only such other obligation
shall be included), (e) all Guaranty Obligations of the Credit Parties and their
Subsidiaries with respect to Funded Debt of another Person, (f) all Funded Debt
of another entity secured by a Lien on any property of the Credit Parties and
their Subsidiaries whether or not such Funded Debt has been assumed by a Credit
Party or any of its Subsidiaries, (g) all Funded Debt of any partnership or
unincorporated joint venture to the extent a Credit Party or one of its
Subsidiaries is legally obligated or has a reasonable expectation of being
liable with respect thereto, net of any assets of such partnership or joint
venture and (h) the principal balance outstanding under any synthetic lease, tax
retention operating lease, off-balance sheet loan or similar off-balance sheet
financing product where such transaction is considered borrowed money
indebtedness for tax purposes but is classified as an operating lease in
accordance with GAAP.
"GAAP" means generally accepted accounting principles in the United
States applied on a consistent basis and subject to Section 1.2.
"Guarantors" means Holding, each of the Domestic Subsidiaries of
Holding (other than the Borrowers) and the Borrowers and each other Person which
becomes a guarantor hereunder of the Restatement Date, together with their
successors and assigns.
"Guaranty Obligations" means, with respect to any Person, without
duplication, any obligations (other than endorsements in the ordinary course of
business of negotiable instruments for deposit or collection) guaranteeing any
Indebtedness of any other Person in any manner, whether direct or indirect, and
including without limitation any obligation, whether or not contingent, (a) to
purchase any such Indebtedness or other monetary obligation or any property
constituting security therefor, (b) to advance or provide funds or other support
for the payment or purchase of such Indebtedness or monetary obligation or to
maintain working capital, solvency or other balance sheet condition of such
other Person (including, without limitation, maintenance agreements, comfort
letters, take or pay arrangements, put agreements or similar agreements or
arrangements) for the benefit of the holder of Indebtedness of such other
Person, (c) to lease or purchase property, securities or services primarily for
the purpose of assuring the owner of such Indebtedness or (d) to
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<PAGE> 13
otherwise assure or hold harmless the owner of such Indebtedness or monetary
obligation against loss in respect thereof. The amount of any Guaranty
Obligation hereunder shall (subject to any limitations set forth therein) be
deemed to be an amount equal to the outstanding principal amount (or maximum
principal amount, if larger) of the Indebtedness in respect of which such
Guaranty Obligation is made.
"Hazardous Material" means all or any of the following: (a)
substances that are defined or listed in, or otherwise classified pursuant to,
any applicable Environmental and Safety Laws as "hazardous substances",
"hazardous materials", "hazardous wastes", "toxic substances" or any other
formulation intended to define, list or classify substances by reason of
deleterious properties such as ignitability, corrosivity, reactivity,
carcinogenicity, reproductive toxicity, "TLCP" toxicity or "EP" toxicity; (b)
oil, petroleum or petroleum derived substances, natural gas, natural gas liquids
or synthetic gas and drilling fluids, produced waters and other wastes
associated with the exploration, development or production of crude oil, natural
gas or geothermal resources; (c) any flammable substances or explosives or any
radioactive materials; (d) underground storage tanks, whether empty or
containing any substance or surface impoundments; and (e) asbestos in any form
or electrical equipment which contains any oil or dielectric fluid containing
levels of polychlorinated biphenyls.
"Hedging Agreements" means, collectively, interest rate protection
agreements, foreign currency exchange agreements, commodity purchase or option
agreements or other interest or exchange rate or commodity price hedging
agreements, in each case, entered into or purchased by a Credit Party.
"Holding" has the meaning set forth in the recitals hereto.
"Indebtedness" of any Person means, without duplication, (a) all
obligations of such Person for borrowed money, (b) all obligations of such
Person evidenced by bonds, debentures, notes or similar instruments, or upon
which interest payments are customarily made, (c) all obligations of such Person
under conditional sale or other title retention agreements relating to property
purchased by such Person to the extent of the value of such property (other than
customary reservations or retentions of title under agreements with suppliers
entered into in the ordinary course of business), (d) all obligations, other
than intercompany items, of such Person issued or assumed as the deferred
purchase price of property or services purchased by such Person which would
appear as liabilities on a balance sheet of such Person, (e) all Indebtedness of
others secured by (or for which the holder of such Indebtedness has an existing
right, contingent or otherwise, to be secured by) any Lien on, or payable out of
the proceeds of production from, property owned or acquired by such Person,
whether or not the obligations secured thereby have been assumed, (f) all
Guaranty Obligations of such Person, (g) the principal portion of all
obligations of such Person under (i) Capital Leases and (ii) any synthetic
lease, tax retention operating lease, off-balance sheet loan or similar
off-balance sheet financing product of such Person where such transaction is
considered borrowed money indebtedness for tax purposes but is classified as an
operating lease in accordance with GAAP, (h) all net obligations of such Person
in respect of Hedging Agreements, (i) the maximum amount of all performance and
standby letters of credit issued or bankers' acceptances facilities created for
the account of such Person and, without duplication, all drafts drawn thereunder
(to the extent unreimbursed), and (j) the aggregate amount of uncollected
accounts receivable of such Person subject at such time to a sale of receivables
(or similar transaction) regardless of
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whether such transaction is effected without recourse to such Person or in a
manner that would not be reflected on the balance sheet of such Person in
accordance with GAAP. The Indebtedness of any Person shall included the
Indebtedness of any partnership or unincorporated joint venture in which such
Person is legally obligated.
"Indemnified Liabilities" has the meaning set forth in Section 10.3
"Indemnitees" has the meaning set forth in Section 10.3.
"Indemnitors" has the meaning set forth in Section 10.3.
"Initial Interest Payment Date" means July 15, 1996.
"Interest Payment Date" means the last day of each Interest Period.
"Interest Period" means initially the period commencing on the
Closing Date and ending on the Initial Interest Payment Date, and, thereafter,
each six-month period; provided, that:
(i) if an Interest Period would otherwise expire on a day
which is not a Business Day, such Interest Period shall expire on the next
succeeding Business Day; and
(ii) no Interest Period shall extend beyond the Maturity Date.
"Investment" in any Person means (a) the acquisition (whether for
cash, property, services, assumption of Indebtedness, securities or otherwise)
of assets, shares of capital stock, bonds, notes, debentures, partnership, joint
ventures or other ownership interests or other securities of such other Person
or (b) any deposits with, or advance, loan or other extension of credit to, such
Person (other than deposits made in connection with the purchase of equipment or
other assets in the ordinary course of business) or (c) any other capital
contribution to or investment in such Person, including, without limitation, any
Guaranty Obligation (including any support for letter of credit issued on behalf
of such Person) incurred for the benefit of such Person. The amount of any
Investment shall be the original cost of such Investment plus the cost of all
additions thereto, without any adjustments for increases or decreases in value,
or write-ups, write-downs or write-offs with respect to such Investment.
"Ireland Acquisition" has the meaning set forth in the recitals
hereto.
"Ireland Purchase Agreement" has the meaning set forth in the
recitals hereto.
"Lender" has the meaning assigned to that term in the preamble to
this Agreement and shall include any assignees of the Loan or Notes pursuant to
Section 10.1.
"Letters of Credit" has the meaning set forth in the Senior Credit
Agreement as in effect on the Restatement Date.
"Leverage Ratio" means, as of the end of each fiscal quarter, a
ratio of (a) total Funded Debt on such date to (b) EBITDA for the twelve month
period ending on such date.
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"License Agreements" means those license agreements listed in
Schedule 1.1(b) hereto.
"Lien" means any lien, mortgage, pledge, security interest, charge
or encumbrance of any kind, whether voluntary or involuntary (including any
conditional sale or other title retention agreement, any lease in the nature
thereof, and any agreement to give any security interest).
"Litigation" means any proceeding, claim, lawsuit and/or
investigation conducted or overtly threatened by or before any Tribunal.
"Loan" has the meaning set forth in Section 2.1.
"Loan Documents" means, collectively, this Agreement, the Note, the
Warrant, the Warrant Agreement, the Subordination Agreement, the Stockholders
Agreement, the Registration Rights Agreement and all other documents,
instruments and agreements executed and/or delivered in connection herewith and
therewith, each as amended, supplemented or modified from time to time.
"Margin Stock" has the meaning assigned to that term in Regulation U
of the Board of Governors of the Federal Reserve System as in effect from time
to time.
"Material Adverse Effect" means, with respect to any Person, a
material adverse effect on (a) the business, assets, condition (financial or
otherwise), operations, properties or prospects of such Person or (b) the
ability of such Person to perform its obligations under any Loan Document to
which it is a party or of Lender to enforce or collect any of the Obligations.
"Material License Agreements" means (a) all license agreements set
forth on Schedule 6.14 hereto and (b) each other license agreement entered into
by a Credit Party in which the annual revenues derived from the sale of
inventory subject to such license agreement exceeds 5% of the total annual
revenues of the Credit Parties and their Subsidiaries.
"Maturity Date" means January 22, 2004.
"Moody's" means Moody's Investors Services, Inc., or any successor
or assignee of the business of such company in the business of rating
securities.
"Multiemployer Plan" means a Pension Plan which is a multiemployer
plan as defined in Section 4001(a)(3) of ERISA.
"Net Cash Proceeds" means, with respect to any financing, Asset Sale
or Casualty Event, (a) the Cash Proceeds received by any Credit Party or any of
their respective Subsidiaries, minus (b) (i) reasonable brokerage commissions
and other reasonable fees and expenses (including reasonable fees and expenses
of counsel, certified public accountants and reasonable and customary fees of
investment bankers) related to such financing, Asset Sale or Casualty Event, and
(ii) the sum of (A) any Taxes incurred (after taking into account available
carryforwards and credits) by such Credit Party as a result of such financing,
Asset Sale or Casualty Event, plus (B) in the case of any Asset Sale, the
principal amount of any Indebtedness for borrowed money which is secured by the
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<PAGE> 16
asset sold in such Asset Sale (other than any such Indebtedness for borrowed
money assumed by the purchaser of such asset).
"Net Income" shall mean, for any period, the net income after Taxes
for such period of the Credit Parties and their Subsidiaries on a consolidated
basis, determined in accordance with GAAP.
"Note" means one or more notes of the Borrowers issued pursuant to
Sections 2.1 or 12.1, substantially in the form of Exhibit A hereto.
"Note Register" has the meaning set forth in Section 10.1.
"Obligations" means all obligations of every nature of the Credit
Parties from time to time owed to the Lender under the Loan Documents, it being
understood that all such obligations of the Borrowers shall be joint and
several.
"Officer's Certificate" means, as applied to any corporation, a
certificate executed on behalf of such corporation by its Chief Executive
Officer, its President or one of its Vice Presidents or its Chief Financial
Officer or its Treasurer; provided, that every Officer's Certificate with
respect to the compliance with a condition precedent to the making of a Loan
hereunder shall include (i) a statement that the officer or officers making or
giving such Officer's Certificate have read such condition and any definitions
or other provisions contained in this Agreement relating thereto, (ii) a
statement of the signers that they have made or have caused to be made such
examination or investigation as they deem necessary to enable them to certify
that such condition has been complied with, and (iii) a statement that such
condition has been complied with.
"PBGC" means the Pension Benefit Guaranty Corporation, and any
successor to all or any of the Pension Benefit Guaranty Corporation's functions
under ERISA.
"Pension Plan" means an employee Benefit Plan which is subject to
the provisions of Title IV of ERISA.
"Permits" has the meaning provided in Section 4.15.
"Permitted Acquisitions" means an acquisition of all or
substantially all of the assets or stock of another Person by a Credit Party or
its Subsidiaries; provided, that (a) such acquisition does not cause or would
not be reasonably expected to cause a Potential Event of Default or Event of
Default, (b) after giving effect to such acquisition, the Credit Parties would
be in compliance on a pro forma basis (as such pro forma compliance is computed
in accordance with Regulation S-X of the Securities Act) with all of the
financial covenants set forth in Sections 6.16 though 6.19, (c) such Person must
in all material respects engage in a business similar to or a logical extension
of the business of the Credit Parties and their Subsidiaries and (d) the
aggregate amount of all such acquisitions shall not exceed $10,000,000 during
the term of this Agreement.
"Permitted Investments" mans Investments which are (a) cash or Cash
Equivalents, (b) accounts receivable created, acquired or made in the ordinary
course of business and payable or dischargeable in accordance with customary
trade terms, (c) inventory, raw materials and general
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intangibles acquired in the ordinary course of business, (d) Investments by a
Credit Party in another Credit Party, (e) Investments by a Foreign Subsidiary in
a Credit Party or another Foreign Subsidiary, (f) a one-time Investment
(excluding the purchase price paid by Holding to acquire Sport Socks Ireland) by
a Credit Party in Sport Socks Ireland not to exceed $3,000,000 and additional
Investments by Credit Parties in Foreign Subsidiaries, not to exceed $1,000,000,
in the aggregate, at any one time, (g) loans to directors, officers or employees
in the ordinary course of business for reasonable business expenses, not to
exceed, in the aggregate, $500,000 at any one time, (h) Investments in Capital
Expenditures, (i) Investments by Holding in Capital Stock of Holding resulting
from the repurchase of such stock from employees who voluntarily or
involuntarily terminate their employment from Holding and its Subsidiaries not
to exceed $500,000 (net of any proceeds from the reissuance of any such shares
to other employees of Holding), in the aggregate, during the term of this
Agreement, (j) Investments in Permitted Acquisitions, (k) Investments received
in connection with the reorganization or bankruptcy of a customer or supplier of
a Credit Party or one of its Subsidiaries as consideration for prior
Indebtedness owed by such supplier or customer, (l) Investments consisting of
Guaranty Obligations otherwise permitted by Section 6.1, (m) non-cash proceeds
received in connection with an Asset Sale so long as the value of such non-cash
proceeds does not exceed, at any one time, $1,000,000, and (n) other Investments
(in addition to those set forth above) not to exceed, in the aggregate, $500,000
at any one time.
"Permitted Liens" means the following types of Liens:
(a) Liens (other than Liens relating to Environmental Claims or
ERISA) for Taxes not yet due and payable or which are Contested Claims;
(b) statutory Liens of landlords, carriers, warehousemen, mechanics,
materialmen and other similar liens imposed by law, which are incurred in the
ordinary course of business for sums not more than thirty (30) days delinquent;
(c) Liens (other than any Lien imposed by ERISA) incurred or
deposits made in the ordinary course of business in connection with workers'
compensation, unemployment insurance and other types of social security,
statutory obligations, surety and appeal bonds, bids, leases, government
contracts, trade contracts, performance and return-of-money bonds and other
similar obligations (exclusive of obligations for the payment of borrowed
money);
(d) easements, rights-of-way, restrictions, and other similar
charges or encumbrances not interfering in any material respect with the
ordinary conduct of the business of any Credit Party or any of its Subsidiaries;
(e) Liens for purchase money obligations and under Capital Leases;
provided, that (i) the purchase or Capital Lease of the asset subject to any
such Lien is permitted under the Senior Credit Agreement and this Agreement,
(ii) the Indebtedness secured by any such Lien is permitted under the Senior
Credit Agreement and this Agreement, and (iii) such Lien encumbers only the
asset so purchased or leased and secures only Indebtedness incurred in
connection with the purchase or lease of such asset;
(f) Liens in favor Agent pursuant to the terms of the Senior Credit
Agreement; and
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(g) without duplication, other Liens permitted pursuant to the
Senior Credit Agreement.
"Permitted Refinancing" means any refinancing of Senior Debt which
refinancing does not (i) increase the amount of Senior Debt (except as permitted
by the definition of "Senior Debt" set forth herein), (ii) increase the margin
over the Base Rate (as defined in the Senior Credit Agreement as in effect on
the Restatement Date) or the Eurodollar Rate (as defined in the Senior Credit
Agreement as in effect on the Restatement Date) by more than 200 basis points
over what it is as of the date hereof (it being understood that the imposition
of a default rate of interest in accordance with subsection 3.1 of the Senior
Credit Agreement as in effect on the Restatement Date shall not be subject to
the restrictions contained in this clause (ii)), (iii) extend the maturity of
the Senior Debt beyond one year following the Maturity Date (as defined in the
Senior Credit Agreement as in effect on the Restatement Date) or (iv) change the
average weighted-life to maturity of the Senior Term Loans by more than one year
from that in effect on the Restatement Date (calculated as if such amendment was
entered into on the date hereof and taking into account all previous
amendments).
"Person" means and includes natural persons, corporations, limited
partnerships, general partnerships, joint stock companies, joint ventures,
associations, companies, trusts, banks, trust companies, land trusts, business
trusts or other organizations, whether or not legal entities, and governments
and agencies and political subdivisions thereof.
"Potential Event of Default" means a condition or event which, after
notice or lapse of time or both, would constitute an Event of Default if that
condition or event were not cured or removed within any applicable grace or cure
period.
"Preferred Stock" means 116,451.8 shares of Series A Preferred
Stock, par value $.01 per share, of Holding currently issued and outstanding and
up to 950.7 additional shares of such stock which are held in treasury as of the
Restatement Date.
"Purchase Agreement" means the Stock Purchase Agreement dated as of
December 14, 1995 by and between Seller and Holding, as amended, restated or
modified from time to time in accordance with the terms hereof.
"Qualified Sale" shall mean any sale or other disposition by any
Credit Party or any of their respective Subsidiaries, other than in the ordinary
course of business, of any equipment or property for (x) cash equal to at least
90% of the fair market value thereof, (y) "trade-in" or (z) "trade-up," if all
of the Net Cash Proceeds thereof (a) within 180 days after the date of such sale
shall be applied to the purchase of equipment to replace such sold equipment or
property, such purchased equipment or property to be used in the ordinary course
of business of such Credit Party or Subsidiary, and to have a fair market value
in the aggregate of not less than the amount of such Net Cash Proceeds, or (b)
shall be applied to the payment of Indebtedness incurred in connection with the
purchase of any equipment or property described in clause (a) above, and (c) in
the case of clause (a) above, pending such application, shall be (i) deposited
into an account in a domestic commercial Senior Lender which has capital and
surplus and undivided profits in excess of $250,000,000 or (ii) applied to
repayment of Senior Debt without reduction of the revolving loan commitments
therefor.
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"RCRA" means the Resource Conservation and Recovery Act of 1976, as
amended.
"Redeemable" means, with respect to any Capital Stock, Indebtedness
or other right or obligation, any such Capital Stock, Indebtedness, 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.
"Registration Rights Agreement" means the Amended and Restated
Registration Rights Agreement, dated as of the Closing Date, by and among CVC,
the Lender, Holding and certain other stockholders of Holding signatory thereto,
as the same may be amended, modified or restated from time to time.
"Regulations G, T, U and X" means Regulations G, T, U and X of the
Board of Governors of the Federal Reserve System as in effect from time to time.
"Release" means any "release" as such term is defined in 42 U.S.C.
ss. 9601(22), or any successor federal statute or analogous state law.
"Rent Expense" means, for any period, with respect to the Credit
Parties and their Subsidiaries on a consolidated basis, all rent payable under
an operating lease (whether a lease of real property, personal property or
mixed), as determined in accordance with GAAP.
"Restatement Date" means December 17, 1997.
"Restricted Junior Payment" means (i) any dividend or other
distribution, direct or indirect, on account of any shares of Capital Stock of
Holding or the Borrowers now or hereafter outstanding, except a dividend payable
solely in shares of the class of stock on which such dividend is declared to the
holders of that class, (ii) any redemption, conversion, exchange, retirement,
defeasance, sinking fund or similar payment, purchase or other acquisition for
value, direct or indi rect, of any shares of any Capital Stock of Holding, the
Borrowers or any of their respective Subsidiaries now or hereafter outstanding,
(iii) any payment made to retire, or to obtain the surrender of, any outstanding
warrants, options, stock appreciation rights, phantom stock rights or other
rights to acquire, or participate in the appreciation in value of, shares of any
class of Capital Stock of any Credit Party or any of their respective
Subsidiaries now or hereafter outstanding, and (iv) any payment or prepayment of
principal, or premium, if any, redemption, conversion, exchange, purchase,
retirement prior to stated maturity, defeasance, sinking fund, or similar
payment with respect to any Subordinated Indebtedness or other Indebtedness
which ranks pari passu with the Note (other than in connection with any
refinancing thereof; provided, that the Indebtedness incurred in such
refinancing shall be at least as subordinated to the Note as the Subordinated
Indebtedness refinanced or rank pari passu with the Note, in the case of pari
passu Indebtedness refinanced).
"Revolving Loans" means the "Revolving Loans" made to the Borrowers
pursuant to Section 2.1 of the Senior Credit Agreement as in effect on the
Restatement Date.
"Revolving Loan Committed Amount" has the meaning set forth in the
Senior Credit Agreement as in effect on the Restatement Date.
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"S&P" means Standard & Poor's Ratings Services, a division of The
McGraw-Hill Companies, Inc., or any successor or assignee of the business of
such division in the business of rating securities.
"Securities Act" means the Securities Act of 1933, as amended, and
the rules and regulations promulgated thereunder.
"Seller" means Gerber Products Company, a Michigan corporation.
"Seller Note" means the Junior Subordinated Promissory Note due
January 22, 2006, dated the Closing Date, issued by Holding to Seller, in an
original aggregate principal amount of $12,500,000, and all "Junior Interest
Notes" issued pursuant to Section 4(e) thereof.
"Senior Credit Agreement" means the Credit Agreement dated as of the
date hereof by and among the Borrowers, the Guarantors, the Agent and the other
Senior Lenders, as such agreement may be amended, restated, supplemented or
otherwise modified from time to time (provided that any such amendment,
supplement or other modification of the Senior Credit Agreement effected in
contravention of Section 6.15 shall be disregarded and given no effect for
purposes of this definition), or any credit document which evidences any
Permitted Refinancing. As of any date of determination, unless otherwise
indicated in this Agreement, references to the Senior Credit Agreement shall
mean the form of Senior Credit Agreement as of such date, regardless of whether
the Senior Credit Agreement shall be in effect as of such date.
"Senior Credit Documents" means, collectively, the Senior Credit
Agreement, and other "Credit Documents" (as that term is defined in the Senior
Credit Agreement), and each other document or instrument executed by Agent, the
Senior Lenders, the Credit Parties or any of their respective Subsidiaries in
connection therewith.
"Senior Debt" means shall mean (i) all Credit Party Obligations
(including contingent obligations) (as defined in the Senior Credit Agreement as
in effect on the Restatement Date) now or hereafter incurred pursuant to and in
accordance with the terms of the Senior Credit Agreement, (ii) any additional
Indebtedness incurred under the Senior Credit Agreement whether such obligations
or additional Indebtedness involve principal prepayment charges, interest
(including, without limitation, interest accruing after the filing of a petition
initiating any proceeding under the Bankruptcy Code, whether or not allowed as a
claim in such proceeding), indemnities or reimbursement of fees, expenses or
other amounts, and (iii) any Indebtedness incurred for the purpose of
refinancing, restructuring, extending or renewing (collectively, "Refinancing")
the Credit Party Obligations of the Company under the Senior Credit Agreement as
set forth in clauses (i) and (ii) above; provided, that in no event shall the
principal amount of Senior Debt (for purposes of this Agreement) exceed the sum
of (A) the Senior Term Loan Committed Amount less any principal repayments made
with respect to the Senior Term Loans, plus, (B) the Revolving Committed Amount
less any permanent reductions in the Revolving Committed Amount plus (C)
$12,500,000.
"Senior Lenders" means, as at the Restatement Date, the "Lenders"
and the "Issuing Lenders" (each, as defined in the Senior Credit Agreement as in
effect on the Restatement Date) and thereafter the lenders from time to time
under the Senior Credit Agreement.
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"Senior Term Loan" means, the "Term Loan" made to the Borrowers
pursuant to Section 2.4 of the Senior Credit Agreement on or before the
Restatement Date.
"Sport Socks Ireland" has the meaning set forth in the recitals
hereto.
"Sport Socks UK" has the meaning set forth in the recitals hereto.
"Senior Term Loan Committed Amount" means the "Term Loan Committed
Amount" as defined in the Senior Credit Agreement as in effect on the
Restatement Date.
"Stockholders Agreement" means the Stockholders Agreement, dated as
of the date hereof, by and among CVC, Lender, Holding and certain other
stockholders of Holding signatory thereto, as the same may be amended, modified
or restated from time to time.
"Subordinated Indebtedness" means Indebtedness of the Credit Parties
and their respective Subsidiaries which by its terms is expressly subordinated
in right of payment to the Note, including, without limitation, the Seller Note.
"Subordination Agreement" means the Subordination and Intercreditor
Agreement dated as of the Restatement Date by and among the Credit Parties,
Agent and the Lender, substantially in the form of Exhibit B hereto.
"Subsidiary" means, with respect to any Person, corporation,
association or other business entity of which more than 50% of the total voting
power of shares of stock 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 any Person or one
or more of the other Subsidiaries of that Person or a combination thereof.
"Swing Line Loans" means the "Swing Line Loans" made to the
Borrowers pursuant to Section 2.3 of the Senior Credit Agreement as in effect on
the Restatement Date.
"Taxes" means all taxes, assessments, fees, levies, imposts, duties,
penalties, deductions, withholdings or other charges of any nature whatsoever
from time to time or at any time imposed by any law or any Tribunal.
"Total Capitalization" means the sum of (a) all stockholder's equity
(including Preferred Stock and accrued but unpaid dividends thereon) of Holding
and its Subsidiaries on a consolidated basis, as determined in accordance with
GAAP, plus (b) all Funded Debt of Holding and its Subsidiaries on a consolidated
basis.
"Transactions" has the meaning specified in Section 4.3.
"Transaction Documents" means all documents executed and delivered
in connection with the Transactions, including, without limitation, this
Agreement, the Note, the Senior Credit Documents, the Auburn Purchase Agreement
and the Ireland Purchase Agreement.
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<PAGE> 22
"Tribunal" means any government, any arbitration panel, any court or
any governmental department, commission, board, bureau, agency or
instrumentality of the United States of America or any state, province,
commonwealth, nation, territory, possession, county, parish, town, township,
village or municipality, whether now or hereafter constituted and/or existing.
"Warrant" means, collectively, one or more warrants initially
exercisable for 191,250 shares of Class D Common Stock, issued by Holding to the
Lender on the Closing Date pursuant to the Warrant Agreement.
"Warrant Agreement" means the Warrant Agreement, dated as of the
Closing Date, by and between Holding and the Lender.
"Wholly-Owned" means, with respect to a Subsidiary, any corporation,
association or other business entity of which 100% of the total voting power of
shares of stock 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 any Person or one or more
of the other Subsidiaries of that Person or a combination thereof.
SECTION 1.2 Accounting Terms. Except as otherwise expressly provided
herein, all accounting terms used herein shall be interpreted, and all financial
statements and certificates and reports as to financial matters required to be
delivered to the Lender hereunder shall be prepared in accordance with GAAP. All
calculations made for the purposes of determining compliance with this Agreement
shall (except as otherwise expressly provided herein) (a) be made by application
of GAAP as of the Restatement Date, (b) eliminate all transaction costs, not to
exceed $1,750,000, in the aggregate, incurred by the Credit Parties and their
Subsidiaries in (i) acquiring all of the shares of Auburn and Sport Socks
Ireland, (ii) entering into the Senior Credit Documents and (iii) repaying the
Indebtedness owing under the "Senior Credit Agreement" (as defined in the
Original Agreement) in effect immediately prior to the Restatement Date and (c)
be made net of the effect of any purchase price accounting adjustment as set
forth in Accounting Principles Board Opinion Nos. 16 and 17.
ARTICLE 2. AMOUNT AND TERMS OF NOTE AND LOAN
SECTION 2.1 Loan and Note.
(a) Loan. On the Closing Date, the Lender provided the Company
with a loan in the initial principal amount of $22,500,000 (the "Loan").
(b) Original Issue Discount. The parties hereto agree that any
original issue discount attributable, as a result of the delivery of the
Warrant, to any Note issued by the Borrowers in accordance with the terms and
conditions of this Agreement is less than the product of:
(i) one-quarter of one percent (0.25%) of the stated
redemption price at maturity (as such term is defined in Section 1273(a)
of the Code) of such Note, multiplied by
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(ii) the number of complete years to maturity of such Note.
The parties hereto agree to use the foregoing for all United States federal,
state and local income tax purposes with respect to the transactions
contemplated by this Agreement, the Warrant Agreement and the other Loan
Documents. The parties hereto acknowledge that such original issue discount
represents the fair market value of the Warrant as of the Closing Date.
(c) Payment of Loan. The unpaid principal amount of the Loan
and the Note plus all accrued interest thereon and all other amounts owed
hereunder and thereunder with respect thereto shall be paid in full in cash on
the Maturity Date. The Borrowers shall make a scheduled payment of the
outstanding principal amount of the Loan on January 22, 2003 in an amount equal
to 50% of the then outstanding principal amount of the Loan.
(d) Note. Upon tender to the Company of any and all Notes
currently held by the Lender, the Borrowers shall jointly execute and deliver to
the Lender on the Restatement Date a new Note (in the form attached hereto as
Exhibit A) dated the Restatement Date, to evidence the outstanding Loan, in the
aggregate principal amount of $22,500,000 and to reflect appropriate amendments
made hereby.
SECTION 2.2 Interest on the Loans.
(a) Rate of Interest. The Loan shall bear interest on the
unpaid principal amount thereof from the date made through maturity (whether by
acceleration or otherwise) at a rate equal to 12.00% per annum.
(b) Interest Payments.Accrued and unpaid interest shall be
payable with respect to the Loan, in arrears on and to each Interest Payment
Date commencing on the Initial Interest Payment Date, and upon any prepayment of
the Loan and at maturity of the Loan.
(c) Post-Maturity Interest. Any principal payments on the Loan
not paid when due (including by reason of operation of the Subordination
Agreement) and, to the extent permitted by applicable law, any interest payment
on the Loan not paid when due, whether at stated maturity, by notice of
prepayment, by acceleration or otherwise, shall thereafter bear interest payable
upon demand at a rate which is 2.00% per annum in excess of the rate of interest
otherwise payable under this Agreement for the Loan.
(d) Computation of Interest. Interest on the Loan shall be
computed on the basis of a 360-day year for the actual number of days elapsed in
the period during which it accrues. In computing such interest, the date of the
making of the Loan shall be included and the date of payment shall be excluded.
SECTION 2.3 Prepayments and Payments.
(a) Prepayments.
(i) Voluntary Prepayments. (A) The Borrowers may, upon not
less than five (5) Business Days and not more than thirty-five (35)
Business Days prior written notice
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to the Lender (which notice shall be irrevocable), at any time and from
time to time, prepay the Loan, in whole or in part, in an aggregate
minimum amount of $500,000 and integral multiples of $500,000 in excess of
that amount; provided, that in connection with any such voluntary
prepayment, the Borrowers shall prepay the Loan at the prepayment price
set forth below:
<TABLE>
<CAPTION>
% of Principal
Prepayment Date During the Period Being Paid
- --------------------------------- --------------
<S> <C>
The Restatement Date through and including 5%
January 21, 1998
January 22, 1998 through and including January 21, 4%
1999
January 22, 1999 through and including January 21, 3%
2000
January 22, 2000 through and including January 21, 2%
2001
January 22, 2001 through and including January 21, 1%
2002
January 22, 2002 through but not including the Maturity 0%
Date
</TABLE>
(B) Voluntary prepayments shall be credited against the Loan
pursuant to the terms of Section 2.3(a)(iii). Amounts so prepaid may not
be reborrowed. For purposes of this Section 2.3(a), amounts paid pursuant
to Article 7 as a result of a Change in Control shall be deemed to be a
voluntary prepayment at a prepayment price equal to 101% of the aggregate
principal amount of the Loan being so prepaid.
(ii) Mandatory Prepayments.
(A) Asset Sale. To the extent not (1) required by the Senior
Credit Agreement to prepay the Senior Debt (or to provide cash
collateral for Letters of Credit included in Senior Debt), or (2)
voluntarily used by the Borrowers to prepay or repay the Senior
Debt, or (3) in connection with a Qualified Sale, in each case
within thirty (30) days after receipt by Holding, the Borrowers, or
any of their respective Subsidiaries, as the case may be, of Cash
Proceeds of any Asset Sales, Holding, the Borrowers and their
respective Subsidiaries shall apply an amount equal to 100% of the
Net Cash Proceeds that Holding, the Borrowers, or any of their
respective Subsidiaries so receives to the prepayment of the Loan as
provided in Section 2.3(a)(iii) below. Concurrently with the making
of any prepayment pursuant to this subsection 2.3(a)(ii)(A), the
Borrowers shall deliver to the Lender an Officer's Certificate
demonstrating the derivation of Net Cash Proceeds from the gross
sales price of any correlative Asset Sale.
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<PAGE> 25
(B) Casualty Events. Except to the extent that a Casualty
Event results in Net Cash Proceeds (1) in an amount less than
$100,000 individually or in the aggregate, or (2) which are
deposited with Agent (in the event the Senior Debt is still
outstanding), or with the Lender (in the event there is no Senior
Debt outstanding) and which are subsequently applied toward
replacement, restoration, rebuilding or repair of the damaged
property within 180 days after the receipt of the proceeds for such
Casualty Event, or (3) which are used by the Borrowers to prepay the
Senior Debt (or to provide cash collateral for Letters of Credit
included in Senior Debt), promptly (and in any event within five (5)
Business Days) following the receipt by Holding, the Borrowers, or
any of their respective Subsidiaries, as the case may be, of Cash
Proceeds in respect of any Casualty Event, Holding, the Borrowers
and their respective Subsidiaries shall apply an amount equal to
100% of the Net Cash Proceeds that Holding, the Borrowers, or any of
their respective Subsidiaries so receives to the prepayment of the
Loan as provided in Section 2.3(a)(iii) below. Concurrently with the
making of any prepayment pursuant to this subsection 2.3(a)(ii)(B),
the Borrowers shall deliver to Lender an Officer's Certificate
demonstrating the derivation of Net Cash Proceeds of the Casualty
Event.
(C) Equity Issuance. To the extent not required by the Senior
Credit Agreement to prepay the Senior Debt (or to provide cash
collateral for Letters of Credit included in Senior Debt), upon any
issuance of Capital Stock of any of the Credit Parties in connection
with an underwritten public offering thereof and the receipt by
Holding, the Borrowers, or any of their respective Subsidiaries, as
the case may be, of Cash Proceeds in respect of any such issuance,
Holding, the Borrowers and their respective Subsidiaries shall apply
an amount equal to 100% of the Net Cash Proceeds that Holding, the
Borrowers, or any of their respective Subsidiaries so receives to
the prepayment of the Loan as provided in Section 2.3(a)(iii) below.
(D) Notice. The Borrowers shall notify the Lender of any
prepayment to be made pursuant to this Section 2.3(a)(ii) at least
ten (10) Business Days prior to such prepayment date (unless shorter
notice is satisfactory to the Lender).
(iii) Application of Prepayments. All prepayments
(whether voluntary or mandatory) shall (A) include payment of accrued
interest on the principal amount so prepaid, and (B) be applied to payment
of interest before application to principal.
(b) Manner and Time of Payment. All payments by the Borrowers
under the Note of principal, interest, premium and fees hereunder shall be made
without defense, set off or counterclaim, and in same day funds and delivered to
the Lender not later than 12:00 noon (New York time) on the date due at 399 Park
Avenue, New York, New York for the account of the Lender; funds received by the
Lender after that time shall be deemed to have been paid by the Borrowers on the
next succeeding Business Day.
(c) Payments on Non-Business Days. Whenever any payment to be
made hereunder or under the Note shall be stated to be due on a day which is not
a Business Day, the
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<PAGE> 26
payment shall be made on the next succeeding Business Day and such extension of
time shall be included in the computation of the payment of interest hereunder
or under the Note.
(d) Notation of Payment. The Lender agrees that before
disposing of the Note held by it, or any part thereof (other than by granting
participations therein), the Lender will make a notation thereon of all
principal payments previously made thereon and of the date to which interest
thereon has been paid and will notify the Borrowers of the name and address of
the transferee of the Note; provided, that the failure to make (or any error in
the making of) a notation of the Loan made under the Note or to notify the
Borrowers of the name and address of a transferee shall not limit or otherwise
affect the obligation of any Credit Party hereunder or under the Note with
respect to the Loan and payments of principal or interest on the Note.
SECTION 2.4 Use of Proceeds. No portion of the proceeds of the Loan
shall be used by any Credit Party in any manner which might cause the borrowing
or the application of such proceeds to violate Regulations G, T, U or X or any
other regulation of the Board of Governors of the Federal Reserve System, or to
violate the Exchange Act, in each case as in effect on the date or dates of such
borrowing and such use of proceeds.
ARTICLE 3. CONDITIONS TO LOAN.
SECTION 3.1 Conditions. This Agreement shall be effective upon the
satisfaction or waiver of all of the following conditions:
(a) Organizational Documents. On or before the Restatement
Date, the Lender shall have received the following items, each of which shall be
in form and substance satisfactory to the Lender and, unless otherwise noted,
dated the Restatement Date:
(i) Resolutions of each of the Credit Parties'
respective Board of Directors and, if necessary, shareholders, approving
and authorizing the execution, delivery and performance of this Agreement,
the Note and any other documents, instruments and certificates required to
be executed by such Credit Party in connection therewith and approving and
authorizing the execution, delivery and payment of the Note, certified as
of the Restatement Date by the Secretary or an Assistant Secretary of the
relevant Credit Party as being in full force and effect without
modification or amendment.
(ii) Signature and incumbency certificates of the
officers of each of the Credit Parties executing this Agreement and the
Note.
(iii) Executed copies of this Agreement and the Note.
(iv) Such other documents as the Lender may reasonably
request.
(b) Proceedings Satisfactory. On or before the Restatement
Date, all corporate and other proceedings taken or to be taken in connection
with the Transactions and all
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<PAGE> 27
documents incidental thereto not previously found acceptable by the Lender shall
be reasonably satisfactory in form and substance to the Lender and the Lender
shall have received all such counterpart originals or certified copies of such
documents as the Lender may reasonably request.
(c) Representations and Warranties. Concurrently with the
making of the Loan, each of the Credit Parties shall have delivered to the
Lender an Officer's Certificate in form and substance satisfactory to the Lender
to the effect that the representations and warranties in Article 4 hereof are
true, correct and complete in all respects on and as of the Restatement Date to
the same extent as though made on and as of such date.
(d) Performance of Agreements. Each of the Credit Parties
shall have performed in all material respects all agreements which this
Agreement provides shall be performed on or before the Restatement Date (except
as otherwise consented to in writing by the Lender).
(e) Potential Event of Default; Event of Default. No event
shall have occurred and be continuing or would result from the consummation of
the Transactions which would constitute an Event of Default or Potential Event
of Default.
(f) No Injunction, etc. No order, judgment or decree of any
court, arbitrator or governmental authority shall enjoin or restrain the Lender
from entering into this Agreement or consummating the Transactions.
(g) No Litigation, etc. There shall not be existing, or to the
knowledge of any Credit Party threatened, any action, suit, proceeding,
governmental investigation or arbitration against or affecting any Credit Party
or any property of any Credit Party, which, in the opinion of the Lender, could
reasonably be expected to have a Material Adverse Effect. No injunction or other
restraining order shall have been issued and no hearing to cause an injunction
or other restraining order to be issued shall be pending or noticed with respect
to any action, suit or proceeding seeking to enjoin or otherwise prevent the
consummation of, or to recover any damages or obtain relief as a result of, the
Transactions.
(h) Fees and Expenses. The Lender shall have received payment
in full for all expenses (including reasonable attorney's fees) incurred in
connection with the negotiation and execution of this Agreement, the Note and
the Subordination Agreement.
(i) Senior Credit Documents. The Lender shall have received
certified copies of each of the Senior Credit Documents (including, without
limitation, the Subordination Agreement), and all of such Senior Credit
Documents (including, without limitation, the Subordination Agreement) shall be
satisfactory, in form and substance, to the Lender. All of the conditions to the
initial borrowing under the Senior Credit Agreement as in effect on the
Restatement Date will have been satisfied or waived with the consent of the
Lender.
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<PAGE> 28
ARTICLE 4. REPRESENTATIONS AND WARRANTIES
In order to induce the Lender to amend and restate the Original
Agreement and to enter into this Agreement, each of the Credit Parties
represents and warrants to the Lender that:
SECTION 4.1 Organization and Good Standing. Each Credit Party is a
corporation, duly organized and existing in good standing under the laws of its
jurisdiction of incorporation. Each Credit Party has the corporate power and
authority to own its properties and assets and to transact the business in which
it is engaged and is duly qualified as a foreign corporation and is in good
standing in all states in which it is doing business, except where failure to be
so qualified will not have a Material Adverse Effect.
SECTION 4.2 Authorization and Power. Each Credit Party, to the
extent it is a party thereto, has the corporate power and requisite authority,
and has taken all corporate action necessary, to execute, deliver and perform
the Loan Documents.
SECTION 4.3 No Conflicts or Consents. The execution, delivery and
performance of the Loan Documents, the consummation of any of the transactions
contemplated thereby (including, without limitation, the Auburn Acquisition, the
Ireland Acquisition and the incurrence of the Senior Debt in connection
therewith) (collectively, the "Transactions"), and compliance with the terms and
provisions hereof or thereof will not contravene or conflict with any provision
of law to which any Credit Party is subject or any material judgment, license,
order or permit applicable to any Credit Party, or any material contract, lease,
indenture, loan agreement, mortgage, deed of trust or other agreement or
instrument to which any Credit Party is a party or by which any Credit Party may
be bound, or to which any Credit Party may be subject, or violate any provision
of the charters or by-laws of any Credit Party, which would in any case have a
Material Adverse Effect. No consent, approval, authorization or order of any
Tribunal or other Person is required in connection with the consummation of the
Transactions, except for such required consents, approvals and authorizations
which (a) have been obtained by the Credit Parties or permanently waived in
writing, or (b) the failure to obtain would not have a Material Adverse Effect.
SECTION 4.4 Enforceable Obligations. The Loan Documents have been
duly executed and delivered by each Credit Party (to the extent such Credit
Party is a party thereto) and are, or will be, the legal and binding obligations
of each Credit Party (to the extent such Credit Party is a party thereto),
enforceable in accordance with their respective terms, subject to applicable
laws of bankruptcy, insolvency and similar laws affecting creditors' rights and
the application of general rules at equity.
SECTION 4.5 Title to Properties; Liens. Except for Permitted Liens
and except as set forth on Schedule 4.5, all of the assets owned or leased by
the Credit Parties and their Subsidiaries are free and clear of all Liens and
other adverse claims of any nature, each Credit Party has good and indefeasible
title to, or valid and subsisting interests in, all real property included in
such assets and good title to, or valid and subsisting interests in, all
personal property included in such assets, and there are no presently effective
financing statements, deeds of trust, mortgages and similar documents or
instruments of record in any jurisdiction covering any material tangible or
intangible assets of the Credit Parties.
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<PAGE> 29
SECTION 4.6 Financial Condition. Since December 31, 1996, there has
occurred, through the Closing Date, no Material Adverse Effect.
SECTION 4.7 No Default. No event has occurred and is continuing
which constitutes a Potential Event of Default or an Event of Default.
SECTION 4.8 Contractual Obligations. No Credit Party is in default
under any Contractual Obligations to which it is a party or by which its
property is bound, where such default could reasonably be expected to have a
Material Adverse Effect.
SECTION 4.9 No Litigation. There are no actions, suits or
proceedings at law or in equity by or before any Tribunal now pending or, to any
Credit Party's best knowledge, threatened against or affecting any Credit Party
or its respective business, property or rights which could, individually or in
the aggregate, reasonably be expected to result in a Material Adverse Effect.
SECTION 4.10 Use of Proceeds; Margin Stock. None of the proceeds of
the Loan have been used to reduce or retire any Indebtedness which was
originally incurred to purchase or to carry a Margin Stock, or for any other
purpose which might constitute this transaction a "purpose credit" within the
meaning of Regulations G, T, U or X. No Credit Party has taken or will take any
action which might cause any of the Loan Documents to violate Regulations G, T,
U or X, or any other regulations of the Board of Governors of the Federal
Reserve System or to violate Section 8 of the Exchange Act or any rule or
regulation thereunder, in each case as now in effect or as the same may
hereafter be in effect.
SECTION 4.11 No Financing of Regulated Corporate Takeovers. No
proceeds of the Loan have been used to acquire any security in any transaction
which is subject to Section 13 or 14 of the Exchange Act, including particularly
(but without limitation) Sections 13(d) and 14(d) thereof.
SECTION 4.12 Compliance with Law. Each Credit Party is in compliance
with all laws, except where failure to so comply will not have a Material
Adverse Effect.
SECTION 4.13 Capital Structure and Subsidiaries. (a) As of the
Restatement Date, the authorized Capital Stock of Holding consists of (i)
750,000 shares of Class A Common Stock, par value $.01 per share, of which
638,155.1 shares are issued and outstanding, (ii) 250,000 shares of Class B
Common Stock, par value $.01 per share, of which 139,165.30 shares are issued
and outstanding and 28,929.6 shares are held in treasury, (iii) 2,500 shares of
Class C Common Stock, par value $.01 per share of which 2,500 shares are issued
and outstanding, (iv) 191,250 shares of Class D Common Stock, par value $.01 per
share, of which no shares are issued and outstanding, and (v) 117,402.5 shares
of Series A Preferred Stock, par value $.01 per share, of which 116,451.8 shares
are issued and outstanding and 950.7 shares are held in treasury. The Company's
authorized Capital Stock consists of 10 shares of Common Stock, par value $100
per share, of which 10 shares are issued and outstanding and held, beneficially
and of record, by Holding. Auburn's authorized Capital Stock consists of 2,680
shares of Common Stock, par value $100.00 per share, all of which are issued and
outstanding and held beneficially and of record by Holding after giving effect
to the Auburn Acquisition. All outstanding shares of each class of such Capital
Stock were duly authorized and validly issued, and are fully paid and
nonassessable. Except for the obligation to
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issue Class D Common Stock pursuant to the Warrant or as set forth in Schedule
4.13(a) hereto, there are no outstanding securities, rights or other agreements
of any nature that require any Credit Party or any of their Subsidiaries to
issue any of their Capital Stock.
(b) Set forth on Schedule 4.13(b) hereto is a true and
complete list of each Subsidiary of Holding or the Borrowers, setting forth each
such Subsidiary's jurisdiction of incorporation and the ownership of its Capital
Stock.
SECTION 4.14 Licenses, Trademarks, etc. Except as otherwise set
forth on Schedule 4.14 hereto, each Credit Party owns or holds valid licenses in
all necessary trademarks, copyrights, patents, patent rights and licenses to
conduct their respective businesses as operated on the date thereof. None of the
Credit Parties has been charged or, to their best knowledge, threatened to be
charged with any infringement of, nor, to their best knowledge, has any of them
infringed on, any unexpired trademark, patent, patent registration, copyright,
copyright registration or other proprietary right of any other Person.
SECTION 4.15 Permits and Licenses. All permits, licenses and other
governmental authorizations ("Permits") needed by each Credit Party to carry on
their respective businesses have been obtained and are in full force and effect
and have not been modified or amended, except for such Permits the failure of
which to have would not have a Material Adverse Effect. None of the Credit
Parties is in material breach of any such Permits except for breaches which,
considered individually or in the aggregate, would not have a Material Adverse
Effect.
SECTION 4.16 ERISA.
(a) No Credit Party maintains or contributes to any Pension
Plan or Multiemployer Plan other than those identified on Schedule 4.16 hereto.
(b) Each Credit Party is in compliance in all material
respects with all applicable provisions of ERISA and the Code with respect to
all Employee Benefit Plans. Each Employee Benefit Plan that is intended to be
qualified under Section 401(a) of the Code has received a favorable
determination letter that it is so qualified and that each trust related to such
Employee Benefit Plan is exempt from federal income tax under Section 501(a) of
the Code. No material liability has been incurred by any Credit Party or any of
their ERISA Affiliates which remains unsatisfied for any Taxes, penalties or
other amount with respect to any Employee Benefit Plan or any Multiemployer Plan
and, to the best knowledge of the Credit Parties, no such liability is expected
to be incurred except to the extent any such liability could not be expected to
have a Material Adverse Effect.
(c) No Credit Party has: (i) engaged in a nonexempt prohibited
transaction described in Section 406 of ERISA or Section 4975 of the Code; (ii)
incurred any material liability to the PBGC which remains outstanding other than
the payment of premiums and there are no such premium payments which are due and
unpaid; (iii) failed to make a required contribution or payment to a
Multiemployer Plan; or (iv) failed to make a required installment or other
required payment under Section 412 of the Code.
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(d) No ERISA Event has occurred or is reasonably expected to
occur with respect to any Employee Benefit Plan or Multiemployer Plan maintained
by any Credit Party the liability for which has not been paid in full.
(e) No material proceeding, claim, lawsuit and/or
investigation is existing or, to any Credit Party's knowledge, threatened,
concerning or involving any Employee Benefit Plan or Multiemployer Plan.
SECTION 4.17 Investment Company Act. No Credit Party is an
"investment company," or a company "controlled" by an "investment company,"
within the meaning of the Investment Company Act of 1940, as amended.
SECTION 4.18 Public Utility Holding Company Act. No Credit Party is
a "holding company," or an "affiliate" of a "holding company" or a "subsidiary
company" of a "holding company," within the meaning of the Public Utility
Holding Company Act of 1935, as amended.
SECTION 4.19 Environmental and Safety Matters.
(a) Except as set forth on Schedule 4.19 hereto:
(i) The Credit Parties have obtained all material
permits, licenses and other authorizations which are required under
Environmental and Safety Laws and applicable to the conduct of the Credit
Parties' business (collectively, "Environmental Permits").
(ii) The Credit Parties have complied and are in
compliance in all material respects with the terms and conditions of all
such Environmental Permits and have complied and are in compliance in all
material respects with all Environmental and Safety Laws.
(iii) With respect to the Credit Parties, no notice,
notification, demand, request for information, citation, summons or order
has been issued, no complaint has been filed, no penalty has been assessed
and no investigation is pending or, to the Credit Parties' best knowledge,
threatened by any Person with respect to any alleged failure to obtain any
material Environmental Permits or any material violation of any
Environmental and Safety Laws, or with respect to the generation,
treatment, storage, recycling, transportation, discharge or disposal, or
any Release or threatened Release, of any Hazardous Materials.
(iv) No property or facility now or previously owned or
operated by the Credit Parties has been or is presently operated in a
manner which requires permitting as a hazardous waste treatment, storage
or disposal facility for purposes of RCRA or any analogous state law.
(v) None of the Credit Parties has transported or
arranged for the transportation of any Hazardous Material to any location
which is on the CERCLA National Priorities List (or proposed for such
listing), the CERCLIS List or any similar state list or
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which is the subject of federal, state or local enforcement actions or
other investigations which could lead to claims against any of the Credit
Parties under any Environmental and Safety Laws.
(vi) There has been no Release of Hazardous Materials
into the environment at or from any property or facility now or previously
owned or operated by any of the Credit Parties so as to give rise to any
material present or future liability or obligation under any Environmental
and Safety Laws.
(vii) No oral or written notification of a Release of a
Hazardous Material has been filed by or on behalf of the Credit Parties
and no property or facility now or previously owned or operated by any of
the Credit Parties is on the CERCLA National Priorities List (or proposed
for such listing), the CERCLIS List or any similar state list.
(viii) No Liens have arisen under or pursuant to any
Environmental and Safety Laws on any property or facility now owned by any
of the Credit Parties, no governmental actions have been taken or are in
process which could subject any such properties or facilities to such
Liens, and none of the Credit Parties would be required to place any
notice or restriction relating to the presence of Hazardous Materials in
any deed to such property or facility.
(ix) None of the Credit Parties has, either expressly or
by operation of law, assumed or undertaken any liability or corrective or
remedial obligation of any other Person relating to Environmental and
Safety Laws.
(x) Without limiting the generality of the foregoing,
there are no other facts, events or conditions relating to the past or
present operations, properties or facilities of any of the Credit Parties
which would give rise to any liability or investigatory, corrective or
remedial obligation under any Environmental and Safety Laws with respect
to the Credit Parties.
(b) Any breach of a representation contained in Section
4.19(a) by any Credit Party shall not be deemed false or incorrect in any
material respect or constitute an Event of Default under Article 7 unless the
event or condition giving rise to such breach could reasonably be expected to
result in liability to any Credit Party in excess of $250,000 or result in a
Material Adverse Effect.
SECTION 4.20 Financial Condition. The Credit Parties are not
entering into the arrangements contemplated by this Agreement and the other
Transaction Documents with actual intent to hinder, delay or defraud either
present or future creditors. On and as of the Restatement Date on a pro forma
basis after giving effect to the Transactions and to all debts incurred or to be
created in connection herewith:
(a) the present fair salable value of the assets of each
Credit Party (on a going concern basis) will exceed the probable liability of
such Credit Party on its debts (including its contingent obligations);
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(b) no Credit Party has incurred, nor does it intend to or
believe that it will incur, debts (including Contingent Liabilities) beyond its
ability to pay such debts as such debts mature (taking into account the timing
and amounts of cash to be received from any source, and of amounts to be payable
on or in respect of debts), and the amount of cash available to each such Credit
Party after taking into account all other anticipated uses of funds is
anticipated to be sufficient to pay all such amounts on or in respect of debts,
when such amounts are required to be paid; and
(c) each Credit Party will have sufficient capital with which
to conduct its present and proposed business and the property of such Credit
Party does not constitute unreasonably small capital with which to conduct its
present or proposed business.
For purposes of this Section 4.20 "debt" means any liability on a
(i) right to payment whether or not such a right is reduced to judgment,
liquidated, unliquidated, fixed, contingent, matured, unmatured, disputed,
undisputed, legal, equitable, secured, or unsecured, or (ii) right to an
equitable remedy for breach of performance if such breach gives rise to a
payment, whether or not such a right to an equitable remedy is reduced to
judgment, fixed, contingent, matured, unmatured, disputed, undisputed, secured,
or unsecured.
SECTION 4.21 Senior Credit Documents. The Company has delivered to
the Lender true and correct copies of the Senior Credit Documents as in effect
on the Restatement Date.
SECTION 4.22 Auburn Acquisition; Ireland Acquisition. The
transactions contemplated by the Auburn Purchase Agreement and the Ireland
Purchase Agreement have been consummated in accordance with the terms of the
Auburn Purchase Agreement and the Ireland Purchase Agreement, respectively, and
nothing has come to the Credit Parties' attention that would indicate that any
of the representations and warranties contained in such agreement are not true
and correct and none of the material terms thereof have been modified, amended
or waived.
SECTION 4.23 Subordinated Indebtedness. The Loan constitutes and
will continue to constitute "Senior Debt" within the meaning of the Seller Note.
ARTICLE 5. AFFIRMATIVE COVENANTS.
Each of the Credit Parties covenants and agrees that, until the Loan
and the Note and all other amounts due under this Agreement have been paid in
full, unless the Lender shall otherwise give prior written consent, the Credit
Parties shall jointly and severally perform all covenants in this Article 5:
SECTION 5.1 Financial Statements and Other Reports. Each of the
Credit Parties will maintain, and cause each of their Subsidiaries to maintain,
a system of accounting established and administered in accordance with sound
business practices to permit preparation of consolidated financial statements in
conformity with GAAP. The Credit Parties will deliver to the Lender:
(a) as soon as available and in any event within ninety (90)
days after the end of each fiscal year of the Credit Parties (except, after the
Fiscal Years ending on December 31, 1997, within 105 days), a consolidated and
consolidating balance sheet and income statement of
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Holding and its Subsidiaries as of the end of such year, together with the
related consolidated and consolidating income statements of operations, returned
earnings and cash flow for such fiscal year, setting forth in comparative form
the consolidated figures for the previous fiscal year, all in reasonable form
and detail and audited by independent certified public accountants of recognized
national standing acceptable to the Lender and whose opinion shall be to the
effect that such financial statements have been prepared in accordance with GAAP
(except for changes with which such accountants concur) and shall not be limited
as to the scope of the audit or qualified in any manner, and accompanied by a
certificate of such accountants conducting the annual audit stating that they
have reviewed this Agreement and stating further whether, in the course of their
audit, they have become aware of any Potential Event of Default or Event of
Default and, if any such Potential Event of Default or Event of Default exists,
specifying the nature and extent thereof;
(b) as soon as available and in any event within forty-five
(45) days after the close of each of the first three fiscal quarters of Holding,
(i) a consolidated and consolidating balance sheet and income statement of
Holding and its Subsidiaries as of the end of such fiscal quarter, together with
related consolidated and consolidating statements of operations and consolidated
statements of retained earnings and cash flows for such fiscal quarter, in each
case setting forth in comparative form consolidated and consolidating figures
for (A) the corresponding periods of the preceding fiscal year and (B)
management's proposed budget for such period, all such financial information
described above to be in reasonable form and detail and reasonably acceptable to
the Lender, and accompanied by a certificate of the Chief Financial Officer of
Holding to the effect that such quarterly financial statements fairly present in
all material respects the financial condition of Holding and its Subsidiaries
and have been prepared in accordance with GAAP, subject to changes resulting
from audit and normal year-end adjustments and (ii) a management discussion and
analysis of operating results for such fiscal quarter;
(c) together with each delivery of financial statements of
Holding and its Subsidiaries pursuant to clauses (a) and (b) above, (i) an
Officers' Certificate of each such Credit Party stating that the signers have
made or caused to be made under their supervision, a review in reasonable detail
of the transactions and condition of such Credit Party and its Subsidiaries
during the accounting period covered by such financial statements and that such
review has not disclosed the existence during or at the end of such accounting
period, and that the signers do not have knowledge of the existence as at the
date of the Officers' Certificate, of any condition or event which constitutes
an Event of Default or Potential Event of Default, or, if any such condition or
event existed or exists, specifying the nature and period of existence thereof
and what action such Credit Party has taken, is taking and proposes to take with
respect thereto; and (ii) an Officer's Certificate demonstrating in reasonable
detail compliance (as determined in accordance with GAAP) on the date of such
financial statements with the restrictions contained in Sections 6.16 through
6.19 hereof;
(d) prior to the end of each fiscal year, the Credit Parties
shall deliver to the Lender an annual business plan and budget of Holding and
its Subsidiaries on a consolidated basis containing among other things, pro
forma financial projections for the next fiscal year;
(e) promptly after the occurrence of any Event of Default or
Potential Event of Default, an Officer's Certificate of the Borrowers setting
forth the details thereof and the action which the Borrowers are taking or
propose to take with respect thereto;
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(f) promptly upon their becoming available, copies of all
financial statements, reports, notices and proxy statements sent or made
available by the Credit Parties to their security holders, all registration
statements (other than the exhibits thereto) and annual, quarterly or other
reports, if any, filed by any Credit Party with the Securities and Exchange
Commission and all press releases by any Credit Party concerning material
developments in the business of such Credit Party;
(g) promptly, upon any officer of a Credit Party obtaining
knowledge thereof, notice of all litigation or proceedings commenced or
threatened affecting any Credit Party in which there is a reasonable possibility
of an adverse decision and (x) which involves liability which could reasonably
be expected to have a Material Adverse Effect (in the aggregate), or (y) in
which injunctive or similar relief is sought which if obtained could reasonably
be expected to have a Material Adverse Effect;
(h) promptly following the end of each fiscal year of each
Credit Party, a report summarizing proceedings known to any officer of such
Credit Party commenced, threatened, affecting any Credit Party in which there is
a reasonable possibility of an adverse decision which could reasonably be
expected to have a Material Adverse Effect;
(i) promptly upon receipt thereof, copies of all final reports
or letters submitted to any Credit Party by its independent certified public
accountants in connection with each annual, interim or special audit of the
financial statements of any Credit Party made by such accountants, including,
without limitation, any management report, and the Borrowers agree to obtain
such a report in connection with each of its annual audits;
(j) promptly after the availability thereof, copies of all
material amendments to the charter or by-laws of any Credit Party;
(k) promptly after receiving oral or written notice thereof,
notice (along with all material documentation) of any of the following, to the
extent it could give rise to material liabilities, losses, costs or expenses:
(1) any violation by any Credit Party of any Environmental and Safety Laws; (2)
any Environmental Claim against any Credit Party; (3) imposition of any Lien
under Environmental and Safety Laws with respect to any property or facility of
any Credit Party; or (4) any past or current Release or threatened Release of
any Hazardous Material at or from any property or facility of any Credit Party;
and
(l) with reasonable promptness, such other information and
data with respect to any Credit Party as from time to time may be reasonably
requested by the Lender.
SECTION 5.2 Corporate Existence, Etc. Except as otherwise expressly
permitted herein, each of the Credit Parties and each Subsidiary thereof will at
all times preserve and keep in full force and effect its corporate existence and
rights and franchises material to its business.
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SECTION 5.3 Payment of Taxes; Tax Consolidation.
(a) Each of the Credit Parties and any consolidated group of
which any Credit Party is a member will, and will cause each of their respective
Subsidiaries to, pay all Taxes imposed upon it or any of its properties or
assets or in respect of any of its franchises, business, income or property
before any material penalty accrues thereon, prior to the time when any material
penalty or fine shall be incurred with respect thereto; provided, that no such
Taxes need be paid with respect to any Contested Claim.
(b) None of the Credit Parties will, or will permit any of its
Subsidiaries to, file or consent to the filing of any consolidated income tax
return with any Person other than the Credit Parties, or any of their
Subsidiaries or such other Person as may be reasonably acceptable to the Lender.
SECTION 5.4 Maintenance of Properties; Insurance. Except as
permitted by Section 6.6, each Credit Party will maintain or cause to be
maintained in the ordinary course of business, consistent with past custom and
practice and with those of other Persons in the same or similar businesses
similarly situated, all material properties used or useful in the business of
the Credit Parties, ordinary wear and tear excepted, and from time to time will
make or cause to be made all appropriate repairs, renewals and replacements
thereof. Each Credit Party will maintain or cause to be maintained, with
financially sound and reputable insurers, insurance with respect to its
properties and business and the properties and business of its Subsidiaries
against loss or damage of the kinds customarily insured against by corporations
of established reputation engaged in the same or similar businesses and
similarly situated, of such types and in such amounts as are customarily carried
or maintained under similar circumstances by such other corporations.
SECTION 5.5 Inspection. Each Credit Party shall permit any
authorized representatives designated by the Lender (at such representative's
expense) to visit and inspect any of the properties of any Credit Party,
including its and their financial and accounting records, and to make copies and
take extracts therefrom, and to discuss its and their affairs, finances and
accounts with its and their officers and independent public accountants, all
upon reasonable notice and at such reasonable times during normal business hours
and as often as may be reasonably requested.
SECTION 5.6 No Further Negative Pledges. Except (i) as otherwise
expressly permitted by this Agreement or the Senior Credit Agreement, and (ii)
with respect to specific property encumbered to secure payment of particular
Indebtedness expressly permitted to be incurred by Section 6.1, the Credit
Parties and their respective Subsidiaries shall not enter into any agreement
prohibiting the creation or assumption of any Lien upon its properties or
assets, whether now owned or hereafter acquired.
SECTION 5.7 Compliance with Laws, Etc. Each Credit Party shall
exercise all due diligence in order to comply with the requirements of all
applicable laws, rules, regulations and orders of any governmental authority,
noncompliance with which might have a Material Adverse Effect.
SECTION 5.8 Maintenance of Accurate Records, Etc. Each Credit Party
shall keep, and will cause each of its Subsidiaries to keep, true books and
records and accounts in which full
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and correct entries will be made of all its respective business transactions,
and will reflect, and cause each of its Subsidiaries to reflect, in its
respective financial statements adequate accruals and appropriations to
reserves.
SECTION 5.9 Lender Meeting. Each Credit Party will participate in a
meeting with the Lender once during each fiscal year to be held at a location
and a time selected by each Credit Party and reasonably acceptable to the
Lender.
SECTION 5.10 ERISA Compliance. Each of the Credit Parties and their
ERISA Affiliates will make prompt payment of all contributions which it is
obligated to make under all Pension Plans and Multiemployer Plans and which are
required to meet the minimum funding standard set forth in ERISA with respect to
each of the Pension Plans.
SECTION 5.11 Environmental Matters. The Credit Parties shall (i)
comply in all material respects with Environmental and Safety Laws; (ii) respond
promptly and diligently to any Environmental Claims or any other matters which
could give rise to material liabilities or material investigatory, corrective or
remedial obligations under Environmental and Safety Laws; and (iii) upon the
Lender's belief (in the Lender's sole but reasonable discretion), communicated
to the Borrowers in writing, that any of the Credit Parties has breached any
representation or warranty, covenant or other provision herein relating to
Environmental and Safety Laws, provide documentation reasonably satisfactory in
form and substance to the Lender that it has complied and is in compliance with
all Environmental and Safety Laws and that there are no facts or conditions
relating to its operations or facilities that could reasonably be expected to
give rise to liabilities or investigatory, corrective or remedial obligations
under Environmental and Safety Laws.
ARTICLE 6. NEGATIVE AND FINANCIAL COVENANTS
Each of the Credit Parties covenants and agrees that until the Loan
and the Note and all amounts due under this Agreement at the time of such
termination or payment have been paid in full, unless the Lender shall otherwise
give prior written consent, each of the Credit Parties will perform all
covenants in this Article 6:
SECTION 6.1 Indebtedness. Each of the Credit Parties shall not, and
shall not permit any of their respective Subsidiaries to, directly or indirectly
create, incur, assume, extend the maturity of, or otherwise become directly or
indirectly liable with respect to, any Indebtedness other than(i) Indebtedness
under the Loan Documents, (ii) Senior Debt, (iii) other Indebtedness permitted
by the Senior Credit Agreement as in effect on the Restatement Date and (iv) the
Seller Note.
SECTION 6.2 Transactions with Shareholders and Affiliates. The
Credit Parties shall not, and shall not permit any of their respective
Subsidiaries to, directly or indirectly, enter into or permit to exist any
transaction (including, without limitation, the purchase, sale, lease or
exchange of any property or the rendering of any service) with any Affiliate of
any Credit Party (other than the Lender) or any officer, director or employee of
any Credit Party (other than an officer of the Lender), except for (i)
transactions in the ordinary course of and pursuant to the reasonable
requirements of such Credit Party's business and upon fair and reasonable terms
and which are no less favorable to such Credit Party than it would obtain in a
comparable arm's-length transaction
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with an unaffiliated Person (provided that the Lender shall receive full written
disclosure of any of the foregoing transactions which involve payments to any
Affiliate (other than the Lender) or officer, director or employee of any Credit
Party of greater than $100,000); (ii) transactions expressly permitted under
Section 6.3; and (iii) transactions contemplated by the Warrant Agreement, the
Stockholders Agreement and the Registration Rights Agreement.
SECTION 6.3 Restricted Junior Payments. The Credit Parties shall
not, and shall not permit any of their respective Subsidiaries to, directly or
indirectly, declare, order, pay, make or set apart any sum of any Restricted
Junior Payment, except that:
(a) Subsidiaries of the Borrowers may make Restricted Junior
Payments to its parents;
(b) The Borrowers may make Restricted Junior Payments to
Holding (i) to the extent necessary to permit Holding to, and Holding may, pay
cash interest on the Seller Note, but only to the extent Holding is permitted to
make such payment under the Senior Credit Agreement as in effect on the
Restatement Date, (ii) to pay off Indebtedness incurred to acquire Auburn, (iii)
for administrative expenses not to exceed $500,000 per fiscal year and (iv) to
allow for the payment of Taxes;
(c) Holding may make Restricted Junior Payments to repurchase
its Capital Stock to the extent it constitutes a Permitted Investment;
(d) Holding may redeem Warrant Shares (as defined in the
Warrant) or other securities sufficient to pay the Aggregate Exercise Price (as
defined in the Warrant) pursuant to the terms of the Warrant;
(e) Holding may make Restricted Junior Payments consisting of
dividend payments on the Preferred Stock in an amount not exceeding in any
Fiscal Year the lesser of (i) $500,000 and (ii) the amount, if any, by which
Excess Cash Flow (as defined in the Senior Credit Agreement as in effect on the
date hereof) for the immediately preceding Fiscal Year exceeded the sum of (x)
the prepayment required under subsection 3.3(b)(ii) of the Senior Credit
Agreement (as in effect on the date hereof) in respect of such immediately
preceding Fiscal Year plus (y) the amount of interest accrued (or deemed,
pursuant to the terms of the Seller Note, to have accrued) on the Seller Note in
the immediately preceding Fiscal Year, to the extent required to be paid in cash
in such Fiscal Year (that is the Fiscal Year in which such Restricted Junior
Payment is being made), (and Borrower may pay dividends to Holding to be use for
such purpose), so long as (1) no Event of Default or Potential Event of Default
is continuing or would arise as a result of such Restricted Junior Payment and
(2) such Restricted Junior Payment may be made under the terms of the Senior
Credit Agreement; and
(f) Holdings may offset any portion of the Seller Note with
any payments to be received from the Seller pursuant to the purchase price
adjustment provisions of the Purchase Agreement; provided, that such offset is
equal to or greater than the amount of such payments and does not involve any
cash payment to the Seller.
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SECTION 6.4 Liens. Except as set forth in Schedule 4.5 and except
for Permitted Liens, each of the Credit Parties shall not, and shall not permit
any of its Subsidiaries to, directly or indirectly, create, incur, assume or
permit to exist any Lien upon or with respect to any of its properties or
assets, whether now owned or hereafter acquired, or on any income or profits
therefrom, or assign or otherwise convey any right to receive income to secure
any Indebtedness.
SECTION 6.5 Mergers. Each of the Credit Parties shall not, and shall
not permit any of its Subsidiaries to, consolidate or merge with, or sell,
assign, transfer or lease all or substantially all of its assets in a single
transaction or a series of related transactions to, or liquidate, wind up or
dissolve itself (or suffer any liquidation or dissolution), or acquire by
purchase or otherwise all or substantially all of the business, property or
fixed assets or stock of, any Person; provided, that a Credit Party or a
Subsidiary of a Credit Party may merge or consolidate with or into another
Person if the following conditions are satisfied:
(a) the Lender is given prior written notice of such action;
(b) if the merger or consolidation involves a Credit Party,
the Person formed by such consolidation or into which a Credit Party is
merged shall either (i) be such Credit Party or (ii) be a Domestic
Subsidiary and expressly assume in writing all of the obligations of such
Credit Party under the Loan Documents; provided, that if the transaction
is between Holding or a Borrower and another Person, Holding or such
Borrower must be the surviving entity;
(c) the Credit Parties execute and deliver such documents,
instruments and certificates as the Lender may reasonably request;
(d) immediately after giving effect to such transaction, no
Potential Event of Default or Event of Default shall have occurred and be
continuing; and
(e) the Borrowers deliver to the Lender Agent an Officer's
Certificate demonstrating compliance with clause (b) above.
SECTION 6.6 Limitation on Sale of Less Than Substantially All
Assets. Except as permitted by the Senior Credit Agreement as in effect on the
Restatement Date, each of the Credit Parties shall not, and shall not permit any
of its Subsidiaries to, make any Asset Sale, unless (a) such Credit Party
receives consideration (including as a result of a "trade-in" or a "trade-up")
at the time of and for such Asset Sale at least equal to the fair value (which,
if greater than $100,000 shall be as determined in good faith by such Credit
Party's Board of Directors, including a valuation by such Credit Party's Board
of Directors of all non-cash consideration) of the assets disposed of in such
Asset Sale as of the date of such Asset Sale, (b) the Borrowers comply with
Section 2.3(a)(ii) or such sale is a Qualified Sale, (c) no Event of Default or
Potential Event of Default shall result from such Asset Sale and (d) after
giving effect to such Asset Sale (including any repayment of Indebtedness in
connection therewith), the Credit Parties are in compliance on a pro forma basis
with the covenants set forth in Sections 6.16 through 6.19 recomputed for the
most recently available quarter end for which information is available and is in
compliance with all other terms and conditions contained in this Agreement.
Notwithstanding any of the foregoing, except as required under the Senior Credit
Documents as in effect on the Restatement Date, the Borrowers will not, and
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will not permit any of their respective Subsidiaries to, directly or indirectly,
convey, assign or otherwise transfer any property or assets of the Borrowers or
any of their respective Subsidiaries to Holding whether now owned or hereafter
acquired, except as permitted by Section 6.3.
SECTION 6.7 Limitation on Dividend and Other Payment Restrictions
Affecting Subsidiaries. Except as permitted by the Senior Credit Documents as in
effect on the Restatement Date and as set forth in Section 6.6, the Borrowers
will not, and will not permit any of its Subsidiaries to, directly or
indirectly, create or otherwise cause or suffer to exist or become effective any
consensual encumbrance or restriction on the ability of any of its Subsidiaries
to (a) pay dividends or make any other distributions on its Capital Stock or any
other interest or participation in, or measured by, its profits owned by, or pay
any Indebtedness owed to, the Borrowers or any of their respective Subsidiaries,
(b) pay any Indebtedness owed to the Borrowers or any of their respective
Subsidiaries, (c) make loans or advances to the Borrowers or any of their
respective Subsidiaries or (d) transfer any of its properties or assets to the
Borrowers or any of their Subsidiaries.
SECTION 6.8 Investments. No Credit Party will make or acquire, nor
suffer or permit any of its direct or indirect Subsidiaries to make or acquire,
any Investment in any Person other than Permitted Investments or Investments
existing on the Restatement Date and listed on Schedule 6.8 hereto.
SECTION 6.9 Restrictions on Additional Subordinated Indebtedness;
Amendments to Preferred Stock and Seller Notes. Each Credit Party covenants that
it will not, and will not permit any of its Subsidiaries to, create or suffer to
exist any Indebtedness which (i) provides that it is subordinate in right of
payment to the Senior Debt and (ii) is senior in right of payment to or pari
passu with the Loan. Holding shall not amend the terms of the Preferred Stock or
the Seller Notes if the effect thereof is to increase the obligations of Holding
thereunder or add additional restrictions on Holding or alter the subordination
provisions set forth therein.
SECTION 6.10 No Amendment of Organizational Documents. Each Credit
Party covenants that it will not, and will not permit any of its Subsidiaries
to, permit any amendment to or modification of the charter or by-laws of any of
such respective corporations which would materially and adversely affect the
interests of the Lender.
SECTION 6.11 Conduct of Business. No Credit Party will, nor will it
permit its Subsidiaries to, alter the character of its business from that
conducted as of the Restatement Date or engage in any business other than the
business conducted as of the Restatement Date and activities which are
substantially similar or related thereto or logical extensions thereof or
immaterial businesses which are acquired as part of a Permitted Acquisition.
SECTION 6.12 No Creation of New Subsidiaries. The Credit Parties
will not create, or permit any of their respective Subsidiaries to create, any
new Subsidiaries.
SECTION 6.13 Compliance with ERISA. Without the prior written
consent of the Lender, establish any new Employee Benefit Plan or amend any
existing Employee Benefit Plan if the liability or increased liability resulting
from such establishment or amendment is material, or fail to establish, maintain
and operate each Employee Benefit Plan in compliance in all material respects
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with the provisions of ERISA, the Code and all other applicable laws and the
regulations and interpretations thereof.
SECTION 6.14 Material License Agreements. The Credit Parties will
(a) comply with the material terms of any Material License Agreement, (b) keep
each Material License Agreement in full force and effect during the term of such
Material License Agreement unless such Material License Agreement has been
replaced by a license agreement that the Borrowers reasonably believe will
provide revenues and profitability to the Credit Parties at least equal to that
of the Material License Agreement to be terminated and (c) not make any
modification or amendment to any Material License Agreement that would
materially affect the rights of the Lender under the Loan Documents.
SECTION 6.15 Amendments with Respect to Senior Debt. No Credit Party
shall, nor shall it permit any of its Subsidiaries to, amend, modify or restate
the terms of Senior Debt if such amendment, modification or restatement would
(i) increase the amount of Senior Debt (except as permitted by the definition of
"Senior Debt" set forth herein), (ii) increase the margin over the Base Rate (as
defined in the Senior Credit Agreement as in effect on the Restatement Date) or
the Eurodollar Rate (as defined in the Senior Credit Agreement as in effect on
the Restatement Date) by more than 200 basis points (it being understood that
the imposition of a default rate of interest in accordance with subsection 3.1
of the Senior Credit Agreement as in effect on the Restatement Date shall not be
subject to the restrictions contained in this clause (ii)), (iii) extend the
final maturity of the Senior Debt beyond the date one year following the
"Maturity Date" (as such term is defined in the Senior Credit Agreement as in
effect on the Restatement Date) or (iv) change the average weighted-life to
maturity of the Senior Term Loans by more than one year from that in effect on
the Restatement Date (calculated as if such amendment was entered into on the
date hereof and taking into account all previous amendments).
SECTION 6.16 Leverage Ratio. The Leverage Ratio shall be less than
or equal to the ratios set forth below as of the last day of each fiscal quarter
within the period set forth below:
(i) From the Restatement Date to December 30, 1998, 3.575 to
1.0;
(ii) From December 31, 1998 to December 30, 1999, 3.30 to
1.0;
(iii) From December 31, 1998 to December 30, 2000, 3.025 to
1.0; and
(iv) From December 31, 2000 and thereafter, 2.75 to 1.0.
SECTION 6.17 Capitalization Ratio. The Capitalization Ratio shall be
less than or equal to the ratios set forth below as of the last day of each
fiscal quarter within the period set forth below:
(i) From the Restatement Date to December 30, 1998, .9350 to
1.0;
(ii) From December 31, 1998 to December 30, 1999, .825 to
1.0;
(iii) From December 31, 1999 to December 30, 2000, .715 to
1.0; and
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(iv) From December 1, 2000 and thereafter, .66 to 1.
SECTION 6.18 Fixed Charge Ratio. The Fixed Charge Ratio, for the
twelve month period ending on the last day of each fiscal quarter of Holding,
shall be greater than or equal to 1.08 to 1.0.
ARTICLE 7. EVENTS OF DEFAULT
If any of the following conditions or events ("Events of Default")
shall occur and be continuing:
SECTION 7.1 Failure To Make Payments When Due. (a) Failure to pay
any installment of principal of the Loan when due, whether at stated maturity,
by acceleration, by notice of prepayment, by operation of Section 2.3 or
otherwise (whether or not such payment is prohibited by the terms of the
Subordination Agreement); or (b) failure to pay any interest on any Loan or any
other amount due under this Agreement (whether or not such payment is prohibited
by the terms of the Subordination Agreement) and such default continues for a
period of five (5) Business Days; or
SECTION 7.2 Default in and Acceleration of Other Agreements. (a)
Failure of any Credit Party to pay when due any principal of or interest on any
Funded Debt in excess of $500,000 in principal outstanding and the expiration of
any applicable grace periods or (b) any breach or default by any Credit Party
under any evidences of any Funded Debt in excess of $500,000; provided, that as
a result of any such failure to pay under clause (a) above, or any such breach
or default under clause (b) above, the Funded Debt thereunder shall have become
due and payable prior to its stated maturity; or
SECTION 7.3 Breach of Certain Covenants and Agreements. Failure of
any Credit Party to perform or comply with (a) any term or condition contained
in Section 2.3(a) or 5.1 (a), (b), (c), (d), or (e), 5.6, or Article 6, or (b)
any other term contained in this Agreement or the other Loan Documents and, in
the case of clause (b), such failure shall not have been remedied or waived
within thirty (30) days after receipt of written notice from the Lender of such
default (other than any occurrence described in the other provisions of this
Article 7 for which a different grace or cure period is specified or which
constitutes an immediate Event of Default); or
SECTION 7.4 Breach of Warranty. Any representation or warranty made
by any Credit Party in any Loan Document or in any statement or certificate at
any time given by such Credit Party in writing pursuant hereto or thereto or in
connection herewith or therewith shall be false in any material respect on the
date as of when made; or
SECTION 7.5 Involuntary Bankruptcy; Appointment of Receiver, Etc.
(a) A court having jurisdiction in the premises shall enter a decree or order
for relief in respect of any Credit Party in an involuntary case under the
Bankruptcy Code or any applicable bankruptcy, insolvency or other similar law
now or hereafter in effect, which decree or order is not stayed; or any other
similar relief shall be granted and remain unstayed under any applicable federal
or state law; or (b) an involuntary case is commenced against any Credit Party
under any applicable bankruptcy, insolvency or other similar law now or
hereafter in effect; or a decree or order of a court having
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jurisdiction in the premises for the appointment of a receiver, liquidator,
sequestrator, trustee, custodian or other officer having similar powers over any
Credit Party or over all or a substantial part of any of their respective
properties, shall have been entered; or an interim receiver, trustee or other
custodian of any Credit Party for all or a substantial part of their respective
properties is involuntarily appointed; or a warrant of attachment, execution or
similar process is issued against any substantial part of the property of any
Credit Party, and the continuance of any such events in this clause (b) for
sixty (60) days unless dismissed, bonded, stayed, vacated or discharged; or
SECTION 7.6 Voluntary Bankruptcy; Appointment of Receiver, Etc. Any
Credit Party shall have an order for relief entered with respect to it or
commence a voluntary case under the Bankruptcy Code or any applicable
bankruptcy, insolvency or other similar law now or hereafter in effect, or shall
consent to the entry of an order for relief in an involuntary case, or to the
conversion of an involuntary case to a voluntary case, under any such law, or
shall consent to the appointment of or taking possession by a receiver, trustee
or other custodian for all or a substantial part of its property; the making by
any Credit Party of any assignment for the benefit of creditors; or the Board of
Directors of any Credit Party (or any committee thereof) adopts any resolution
or otherwise authorizes action to approve any of the foregoing; or
SECTION 7.7 Judgments and Attachments. Any money judgment, writ or
warrant of attachment, or similar process (other than such judgment, writ,
warrant or attachment or similar process described in Section 7.5(b)) involving
together with any other one or more money judgments, writs or warrants of
attachment or similar process, an aggregate an amount in excess of $1,000,000
(to the extent not paid or covered by insurance) shall be entered or filed
against any Credit Party or any of its assets and shall remain undischarged,
unvacated, unbonded or unstayed for a period ending on the first to occur of (i)
the last day on which such judgment, order or decree becomes final and
unappealable or (ii) sixty (60) days; or
SECTION 7.8 Other Agreements. Any material provision of this
Agreement or any other Loan Document shall cease to be a valid and binding
obligation against any Credit Party except in accordance with its terms or any
Credit Party shall so state in writing; or
SECTION 7.9 Change in Control. A Change in Control shall occur;
THEN, subject to the terms of Article 8, (i) upon the occurrence of
any Event of Default described in the foregoing Section 7.5 or 7.6, the unpaid
principal amount of and accrued interest on the Loan shall automatically become
immediately due and payable, without presentment, demand, protest or other
requirements of any kind, all of which are hereby expressly waived by the Credit
Parties, and the obligations of the Lender hereunder shall thereupon terminate
and (ii) upon the occurrence and during the continuance of any other Event of
Default, the Lender may, by written notice to the Credit Parties, declare the
Loan to be, and the same shall forthwith become, due and payable, as specified
below, together with accrued interest thereon, and if such Event of Default
results from a failure to comply with Section 2.3(a), together with the
prepayment premium applicable thereto, if any.
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ARTICLE 8. SUBORDINATION
The Obligations of the Credit Parties hereunder and under the Notes
are subject to the subordination and other provision set out in the
Subordination Agreement.
ARTICLE 9. GUARANTEE
SECTION 9.1 Guarantee. In order to induce the Lender to enter into
this Agreement and to extend credit hereunder in recognition of the direct
benefits to be received by the Guarantors from the making of the Loan, each
Guarantor hereby agrees with Lender as follows:
Each Guarantor hereby unconditionally guarantees, as primary obligor
and on a joint and several basis, to the Lender and its successors and assigns
the prompt payment in full when due (whether at stated maturity, by acceleration
or otherwise) of the principal of, and interest on the Loan and all other
Obligations of the Borrowers. Each Guarantor further agrees that if the
Borrowers shall fail to pay any of their respective Obligations in full when due
(whether at stated maturity, by acceleration or otherwise), each Guarantor will
promptly pay the same, without any demand or notice whatsoever, and that in the
case of any extension of time of payment or renewal of any of the Borrowers'
Obligations, the same will be promptly paid in full in cash when due (whether at
extended maturity, by acceleration or otherwise) in accordance with the terms of
such extension or renewal.
SECTION 9.2 Obligations Unconditional. The obligations of the
Guarantors under this Article 9 are absolute and unconditional irrespective of
the value, genuineness, validity, regularity or enforceability of this
Agreement, the Notes, any Loan Document, or any other agreement or instrument
referred to herein or therein, or any substitution, release or exchange of any
other guarantee of or security for any of the Borrowers' Obligations, and to the
fullest extent permitted by applicable law, irrespective of any other
circumstance whatsoever which might otherwise constitute a legal or equitable
discharge or defense of a surety or guarantor, it being the intent of this
Section 9.2 that the obligations of the Guarantors hereunder shall be absolute
and unconditional under any and all circumstances. Without limiting the
generality of the foregoing, it is agreed that the occurrence of any one or more
of the following shall not alter or impair the liability of the Guarantors
hereunder, which shall remain absolute and unconditional as provided above:
(i) at any time or from time to time, without notice to
Holding, the time for any performance of or compliance with any of the
Borrowers' Obligations shall be extended, or such performance or
compliance shall be waived;
(ii) any of the acts mentioned in any of the provisions of
this Agreement, the Notes or any Loan Document or any other agreement or
instrument referred to herein or therein shall be done or omitted;
(iii) the maturity of any of the Borrowers' Obligations shall
be accelerated, or any such Obligations shall be modified, supplemented or
amended in any respect, or any right under this Agreement, the Notes, any
Loan Document or any other agreement or instrument referred to herein or
therein shall be waived or any other guarantee of any such
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Obligations or any security therefor shall be released or exchanged in
whole or in part or otherwise dealt with; or
(iv) any Lien granted to, or in favor of the Lender as
security or any of the Borrowers' Obligations shall fail to be perfected.
Each Guarantor hereby expressly waives diligence, presentment, demand of
payment, protest and all notices whatsoever, and any requirement that the Lender
exhaust any right, power or remedy or proceed against the Borrowers under this
Agreement, the Notes, any Loan Document or any other agreement or instrument
referred to herein or therein, or against any other Person under any other
guarantee of, or security for, any of the Borrowers' Obligations.
SECTION 9.3 Reinstatement. The obligations of the Guarantors under
this Article 9 shall be automatically reinstated if and to the extent that for
any reason any payment by or on behalf of the Borrowers in respect of the
Borrowers' Obligations is rescinded or must be otherwise restored by any holder
of any such Obligations, whether as a result of any proceedings in bankruptcy or
reorganization or otherwise, and each Guarantor agrees, on a joint and several
basis, that it will indemnify the Lender on demand for all reasonable costs and
expenses (including, without limitation, fees of counsel) incurred by the Lender
in connection with such rescission or restoration, including any such costs and
expenses incurred in defending against any claim alleging that such payment
constituted a preference, fraudulent transfer or similar payment under any
bankruptcy, insolvency or similar law.
SECTION 9.4 Subrogation. Each Guarantor hereby waives all rights of
subrogation or contribution, whether arising by contract or operation of law
(including, without limitation, any such right arising under the Bankruptcy
Code) or otherwise by reason of any payment or performance by it pursuant to the
provisions of this Article 9.
SECTION 9.5 Remedies. Each Guarantor agrees that, as between such
Guarantor and the Lender, the Obligations of the Borrowers and the Notes may be
declared to be forthwith due and payable as provided in Article 7 of this
Agreement (and shall be deemed to have become automatically due and payable in
the circumstances provided in such Article 7) for purposes of Section 9.1
notwithstanding any stay, injunction or other prohibition preventing such
declaration (or such Obligations being deemed to have become automatically due
and payable), in which case such Obligations (whether or not due and payable by
the Borrowers) shall forthwith become due and payable by the Guarantor for
purposes of Section 9.1.
SECTION 9.6 Continuing Guarantee. The guarantee in this Article 9 is
a continuing guarantee, and shall apply to all of the Borrowers' Obligations
whenever arising.
ARTICLE 10. MISCELLANEOUS
SECTION 10.1 Participations in Loan and Note.
(a) The Lender shall have the right at any time, to sell,
assign, transfer or negotiate all or any part of the Loan or Note to one or more
Persons. In the case of any sale,
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assignment, transfer or negotiation of all or part of the Loan or Note
authorized under this Section 10.1(a), the assignee, transferee or recipient
shall have, to the extent of such sale, assignment, transfer or negotiation, the
same rights, benefits and obligations as it would if it were a Lender with
respect to the Loan or Note, including, without limitation, the right to approve
or disapprove actions which, in accordance with the terms hereof, require the
approval of the Lender. The Borrowers shall maintain a register on which it will
record the name and address of each Lender, the Loan or Notes held by each
Lender and each repayment in respect of the principal amount of such Loan or
Notes (the "Note Register"). Failure to make any such recordation, or any error
in such recordation, shall not affect the Borrowers' Obligations in respect of
such Loan or Notes. With respect to the Lender and any successor in interest
thereto, (a) the transfer of any such Person's interest in the Loan or Notes and
the rights to the principal of, and interest on, and premium (if any) on any
such Loan or Note shall not be effective until such transfer is recorded on the
Note Register and prior to such recordation all amounts owing to the transferor
with respect to such Loan or Notes shall remain so owing, and (b) the Borrowers
shall immediately record all such transfers when notified thereof by the
transferor and such transfer shall be made only through either (x) the surrender
of the Note and the reissuance of the Note by the Borrowers to the new Lender or
the issuance by the Borrowers of a new Note to the new Lender or (y) recordation
of such transfer on the Note Register.
(b) The Lender may grant Participations in all or any part of
the Loan or Note to one or more Persons.
(c) In connection with any sales, assignments or transfers of
any Loan or Note referred to in Section 10.1(a), the Lender shall give notice to
the Credit Party of such Loan or Note of the identity of such parties and the
Credit Parties shall be entitled to treat such parties as Lender for all
purposes hereunder. The Lender shall obtain agreements from the purchasers,
assignees and transferees, as the case may be, that all information given to
such parties will be held in strict confidence subject to customary exceptions.
(d) In the event of an assignment by the Lender, or any
subsequent assignment, the term "Lender" herein shall be deemed to refer to each
such Lender, the term "Note" shall be deemed to refer to each "Note", and any
action requiring the consent of the Lender shall, except as otherwise provided
in Section 10.5, be deemed to require the consent of Lenders holding in excess
of 50% of the outstanding principal amount of the Note.
SECTION 10.2 Expenses. Whether or not the transactions contemplated
hereby shall be consummated, the Credit Parties jointly and severally agree to
promptly pay (i) all the actual and reasonable costs and expenses of preparation
of the Loan Documents and all the costs of furnishing all opinions by counsel
for the Credit Parties (including, without limitation, any opinions requested by
the Lender as to any legal matters arising hereunder), and of the Credit
Parties' performance of and compliance with all agreements and conditions
contained herein on its part to be performed or complied with, (ii) the
reasonable fees, expenses and disbursements of counsel to the Lender in
connection with the negotiation, preparation, execution and administration of
the Loan Documents, and the Loan hereunder, and any amendments and waivers
hereto or thereto, and (iii) after the occurrence of an Event of Default, all
costs and expenses (including reasonable attorneys' fees) incurred by the Lender
in enforcing any Obligations of or in collecting any payments due from any
Credit Party hereunder or under the Note by reason of such Event of Default or
in
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connection with any refinancing or restructuring of the credit arrangements
provided under this Agreement in the nature of a workout, or of any insolvency
or bankruptcy proceedings.
SECTION 10.3 Indemnity. In addition to the payment of expenses
pursuant to Section 10.2, whether or not the transactions contemplated hereby
shall be consummated, each of the Credit Parties (each, an "Indemnitor") agrees
to indemnify, pay and hold the Lender and any holder of any Note, and the
officers, directors, employees, agents, and Affiliates of the Lender and such
holders (collectively called the "Indemnitees") harmless from and against any
and all other liabilities, obligations, losses, damages, penalties, actions,
judgments, suits, claims, costs, expenses and disbursements of any kind or
nature whatsoever (including, without limitation, the reasonable fees and
disbursements of one counsel for such Indemnitees in connection with any
investigative, administrative or judicial proceeding commenced or threatened,
whether or not such Indemnitee shall be designated a party thereto), which may
be imposed on, incurred by, or asserted against that Indemnitee, in any manner
relating to or arising out of this Agreement, the other Loan Documents, the
Lender's agreement to make the Loan or the use or intended use of the proceeds
of the Loan hereunder including without limitation any Environmental Claim or
any other liability or investigatory, corrective or remedial obligation arising
pursuant to CERCLA or any other Environmental and Safety Laws (the "Indemnified
Liabilities"); provided, that the Indemnitor shall not have any obligation to an
Indemnitee hereunder with respect to an Indemnified Liability to the extent that
such Indemnified Liability arises from the gross negligence or willful
misconduct of that Indemnitee. Each Indemnitee shall give the Indemnitor prompt
written notice of any claim that might give rise to Indemnified Liabilities
setting forth a description of those elements of such claim of which such
Indemnitee has knowledge; provided, that any failure to give such notice shall
not affect the obligations of the Indemnitor unless (and then solely to the
extent) the Indemnitor is prejudiced. The Indemnitor shall have the right at any
time during which such claim is pending to select counsel to defend and control
the defense thereof and settle any claims for which it is responsible for
indemnification hereunder (provided that no Indemnitor will settle any such
claim without (i) the appropriate Indemnitee's prior written consent which
consent shall not be unreasonably withheld or (ii) obtaining an unconditional
release of the appropriate Indemnitee from all claims arising out of or in any
way relating to the circumstances involving such claim) so long as in any such
event, the Indemnitor shall have stated in a writing delivered to the Indemnitee
that, as between the Indemnitor and the Indemnitee, the Indemnitor is
responsible to the Indemnitee with respect to such claim to the extent subject
to the limitations set forth herein; provided, that the Indemnitor shall not be
entitled to control the defense of any claim in the event that in the reasonable
opinion of counsel for the Indemnitee there are one or more material defenses
available to the Indemnitee which are not available to the Indemnitor; provided,
further, that with respect to any claim as to which the Indemnitee is
controlling the defense, the Indemnitor will not be liable to any Indemnitee for
any settlement of any claim pursuant to this Section 10.3 that is effected
without its prior written consent. To the extent that the undertaking to
indemnify, pay and hold harmless set forth in the preceding sentence may be
unenforceable because it is violative of any law or public policy, each Credit
Party jointly and severally covenants (subject only to any maximums imposed on
any of them under applicable law), to the payment and satisfaction of all
Indemnified Liabilities incurred by the Indemnitees or any of them.
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SECTION 10.4 Set-Off. In addition to any rights now or hereafter
granted under applicable law and not by way of limitation of any such rights,
upon the occurrence and during the continuance of any Event of Default with
respect to the Loan, subject to the terms of the Subordination Agreement, the
Lender and each subsequent holder of the Note is hereby authorized by the Credit
Parties at any time or from time to time, without notice to the Credit Parties
or to any other Person, any such notice being hereby expressly waived, to
set-off and to appropriate and to apply any and all deposits (general or
special, including, but not limited to, Indebtedness evidenced by certificates
of deposit, whether matured or unmatured but not including trust accounts) and
any other Indebtedness at any time held or owing by the Lender or that
subsequent holder to or for the credit or the account of any Credit Party
against and on account of the obligations and liabilities of the Credit Parties
(or any of them) to the Lender or that subsequent holder under this Agreement
and the Notes, including, but not limited to, all claims of any nature or
description arising out of or connected with this Agreement or any Note,
irrespective of whether or not (a) the Lender or that subsequent holder shall
have made any demand hereunder or (b) the Lender or that subsequent holder shall
have declared the principal or the interest on the Loan and Note, and other
amounts due hereunder to be due and payable as permitted by Article 8 and
although said obligations and liabilities, or any of them, may be contingent or
unmatured.
SECTION 10.5 Amendments and Waivers. No amendment, modification,
termination or waiver of any provision of this Agreement or any Note, or consent
to any departure by any Credit Party therefrom, shall in any event be effective
without the written concurrence of the Lender and each Credit Party and an
opinion of counsel of the Borrowers to the effect that such amendment,
modification, termination, or waiver does not violate the Senior Credit
Agreement; provided, that no amendment, modification, waiver or consent shall,
unless in writing and signed by the holder(s) of a two-thirds in aggregate
outstanding principal amount of the Notes, do any of the following: (a) increase
or subject the Lender to any additional obligations; (b) reduce the principal
of, or interest on any Note or any fees, premiums or other amounts payable
hereunder; (c) postpone any date fixed for any payment of principal of, or
premium or interest on, any Note or any fees or other amounts payable hereunder;
or (d) amend this Section 10.5. Any waiver or consent shall be effective only in
the specific instance and for the specific purpose for which it was given. No
notice to or demand on any Credit Party in any case shall entitle any Credit
Party to any further notice or demand in similar or other circumstances. Any
amendment, modification, termination, waiver or consent effected in accordance
with this Section 10.5 shall be binding upon each holder of the Note at the time
outstanding and each future holder of the Note.
SECTION 10.6 Independence of Covenants. All covenants hereunder
shall be given independent effect so that if a particular action or condition is
not permitted by any of such covenants, the fact that it would be permitted by
an exception to, or be otherwise within the limitation of, another covenant
shall not avoid the occurrence of an Event of Default or Potential Event of
Default if such action is taken or condition exists.
SECTION 10.7 Notices. All notices, demands or other communications
to be given or delivered under or by reason of the provisions of this Agreement
shall be in writing and delivered personally, mailed by certified or registered
mail, return receipt requested and postage prepaid, sent via a nationally
recognized overnight courier, or via facsimile. Such notices, demands and other
communications will be sent to the address indicated below:
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To Any Credit Party:
Gerber Childrenswear, Inc.
531 Main Street
Greenville, SC 29602
Attention: President
Telecopy No.: (803) 240-5977
With copies to:
Citicorp Venture Capital, Ltd.
399 Park Avenue, 14th Floor
New York, NY 10043
Attention: Richard Cashin
John Weber
Telecopy No.: (212) 888-2940
and
Kirkland & Ellis
153 East 53rd Street
New York, NY 10022-4675
Attention: Kirk A. Radke, Esq.
Telecopy No.: (212) 446-4900
To the Lender:
c/o Citicorp Capital Investors, Ltd.
399 Park Avenue, 14th Floor
New York, NY 10043
Attention: Byron Knief
Telecopy No.: (212) 888-2940
With a copy to:
Kirkland & Ellis
153 East 53rd Street
New York, NY 10022-4675
Attention: Eunu Chun, Esq.
Telecopy No.: (212) 446-4900
or such other address or to the attention of such other Person as the recipient
party shall have specified by prior written notice to the sending party;
provided, that the failure to deliver copies of notices as indicated above shall
not affect the validity of any notice. Any such communication shall be deemed to
have been received (i) when delivered, if personally delivered, or sent by
nationally-recognized overnight courier or sent via facsimile or (ii) on the
third Business Day following the date on which the piece of mail containing such
communication is posted if sent by certified or registered mail.
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SECTION 10.8 Survival of Warranties and Certain Agreements. (a) All
agreements, representations and warranties made herein shall survive the
execution and delivery of this Agreement, the making of the Loan hereunder and
the execution and delivery of the Note and shall continue (but, with respect to
representations and warranties, such representations and warranties are made
only as of the date when made pursuant to Section 4) until repayment of the Note
and the Obligations in full; provided, that if all or any part of such payment
is set aside, the representations and warranties in the Loan Documents shall
continue as if no such payment had been made.
(b) Notwithstanding anything in this Agreement or implied by
law to the contrary, the agreements of the Borrowers set forth in Sections 10.2
and 10.3 shall survive the payment of the Loans and the Notes and the
termination of this Agreement.
SECTION 10.9 Failure or Indulgence Not Waiver; Remedies Cumulative.
No failure or delay on the part of any Lender or any holder of any Note in the
exercise of any power, right or privilege hereunder or under the Note shall
impair such power, right or privilege or be construed to be a waiver of any
default or acquiescence therein, nor shall any single or partial exercise of any
such power, right or privilege preclude other or further exercise thereof or of
any other right, power or privilege. All rights and remedies existing under this
Agreement or the Note are cumulative to and not exclusive of, any rights or
remedies otherwise available.
SECTION 10.10 Severability. In case any provision in or obligation
under this Agreement or any Note shall be invalid, illegal or unenforceable in
any jurisdiction, the validity, legality and enforceability of the remaining
provisions or obligations, or of such provision or obligation in any other
jurisdiction, shall not in any way be affected or impaired thereby.
SECTION 10.11 Heading. Section and subsection headings in this
Agreement are included herein for convenience of reference only and shall not
constitute a part of this Agreement for any other purpose or be given any
substantive effect.
SECTION 10.12 Applicable Law. THIS AGREEMENT AND THE NOTE SHALL BE
GOVERNED BY, AND SHALL BE CONSTRUED AND ENFORCED IN ACCORDANCE WITH, THE LAWS OF
THE STATE OF NEW YORK WITHOUT GIVING EFFECT TO ANY CHOICE OF LAW OR CONFLICT OF
LAW PROVISION OR RULE (WHETHER OF THE STATE OF NEW YORK OR ANY OTHER
JURISDICTION) THAT WOULD CAUSE THE APPLICATION OF THE LAWS OF ANY JURISDICTION
OTHER THAN THE STATE OF NEW YORK.
SECTION 10.13 Successors and Assigns; Subsequent Holders of Notes.
This Agreement shall be binding upon the parties hereto and their respective
successors and assigns and shall inure to the benefit of the parties hereto and
the successors and assigns of the Lender. The terms and provisions of this
Agreement and all other certificates delivered pursuant to Section 3 shall inure
to the benefit of any assignee or transferee of a Note pursuant to Section
10.1(a), and in the event of such transfer or assignment, the rights and
privileges herein conferred upon the Lender shall automatically extend to and be
vested in such transferee or assignee, all subject to the terms and conditions
hereof. The Credit Parties' rights or any interest therein hereunder may not be
assigned without the written consent of the Lender.
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SECTION 10.14 Consent to Jurisdiction and Service of Process.
ALL JUDICIAL PROCEEDINGS BROUGHT AGAINST ANY CREDIT PARTY WITH
RESPECT TO THIS AGREEMENT, ANY NOTE OR ANY WARRANT MAY BE BROUGHT IN ANY STATE
OR FEDERAL COURT OF COMPETENT JURISDICTION IN THE STATE OF NEW YORK AND BY
EXECUTION AND DELIVERY OF THIS AGREEMENT EACH OF THE CREDIT PARTIES ACCEPTS FOR
ITSELF AND IN CONNECTION WITH ITS PROPERTIES, GENERALLY AND UNCONDITIONALLY, THE
NONEXCLUSIVE JURISDICTION OF THE AFORESAID COURTS, AND IRREVOCABLY AGREES TO BE
BOUND BY ANY JUDGMENT RENDERED THEREBY IN CONNECTION WITH THIS AGREEMENT
SUBJECT, HOWEVER, TO RIGHTS OF APPEAL. EACH CREDIT PARTY DESIGNATES AND APPOINTS
THE CORPORATION SERVICE COMPANY, 375 HUDSON STREET, NEW YORK, NEW YORK 10014 AND
SUCH OTHER PERSONS AS MAY HEREAFTER BE SELECTED BY EACH CREDIT PARTY IRREVOCABLY
AGREEING IN WRITING TO SERVE, AS ITS AGENT TO RECEIVE ON ITS BEHALF, SERVICE OF
ALL PROCESS IN ANY SUCH PROCEEDINGS IN ANY SUCH COURT, SUCH SERVICE BEING HEREBY
ACKNOWLEDGED BY EACH OF THE CREDIT PARTIES TO BE EFFECTIVE AND BINDING SERVICE
IN EVERY RESPECT, A COPY OF SUCH PROCESS SO SERVED SHALL BE MAILED BY REGISTERED
MAIL TO EACH OF THE CREDIT PARTIES AT ITS ADDRESS PROVIDED IN SECTION 10.7
HEREOF, EXCEPT THAT UNLESS OTHERWISE PROVIDED BY APPLICABLE LAW, ANY FAILURE TO
MAIL SUCH COPY SHALL NOT AFFECT THE VALIDITY OF SERVICE OF PROCESS. IF ANY AGENT
APPOINTED BY ANY CREDIT PARTY REFUSES TO ACCEPT SERVICE, EACH CREDIT PARTY
HEREBY AGREES THAT SERVICE UPON IT BY MAIL SHALL CONSTITUTE SUFFICIENT NOTICE.
NOTHING HEREIN SHALL AFFECT THE RIGHT TO SERVE PROCESS IN ANY OTHER MANNER
PERMITTED BY LAW OR SHALL LIMIT THE RIGHT OF THE LENDER TO BRING PROCEEDINGS
AGAINST ANY CREDIT PARTY IN THE COURTS OF ANY OTHER JURISDICTION.
SECTION 10.15 Waiver of Jury Trial. EACH CREDIT PARTY HEREBY WAIVES,
TO THE EXTENT PERMITTED BY APPLICABLE LAW, TRIAL BY JURY IN ANY LITIGATION IN
ANY COURT WITH RESPECT TO, IN CONNECTION WITH, OR ARISING OUT OF THIS AGREEMENT
OR ANY OTHER LOAN DOCUMENT OR THE VALIDITY, PROTECTION, INTERPRETATION,
COLLECTION OR ENFORCEMENT THEREOF; AND EACH CREDIT PARTY HEREBY WAIVES, TO THE
EXTENT PERMITTED BY APPLICABLE LAW, THE RIGHT TO INTERPOSE ANY SET-OFF OR
COUNTERCLAIM OR CROSS-CLAIM IN CONNECTION WITH ANY SUCH LITIGATION, IRRESPECTIVE
OF THE NATURE OF SUCH SET-OFF, COUNTERCLAIM OR CROSS-CLAIM EXCEPT TO THE EXTENT
THAT THE FAILURE SO TO ASSERT ANY SUCH SET-OFF, COUNTERCLAIM OR CROSS-CLAIM
WOULD PERMANENTLY PRECLUDE THE PROSECUTION OF OR RECOVERY UPON SAME.
NOTWITHSTANDING ANYTHING CONTAINED IN THIS AGREEMENT TO THE CONTRARY, NO CLAIM
MAY BE MADE BY ANY CREDIT PARTY AGAINST ANY LENDER FOR ANY LOST PROFITS OR ANY
SPECIAL, INDIRECT OR CONSEQUENTIAL DAMAGES IN RESPECT OF ANY BREACH OR WRONGFUL
CONDUCT (OTHER THAN WILLFUL MISCONDUCT CONSTITUTING ACTUAL FRAUD) IN CONNECTION
WITH, ARISING OUT OF OR IN ANY WAY RELATED TO THE TRANSACTIONS CONTEMPLATED
HEREUNDER OR UNDER THE OTHER LOAN DOCUMENTS, OR ANY
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ACT, OMISSION OR EVENT OCCURRING IN CONNECTION THEREWITH; EACH CREDIT PARTY
HEREBY WAIVES, RELEASES AND AGREES NOT TO SUE UPON ANY SUCH CLAIM FOR ANY SUCH
DAMAGES. EACH CREDIT PARTY AGREES THAT THIS SECTION IS A SPECIFIC AND MATERIAL
ASPECT OF THIS AGREEMENT AND ACKNOWLEDGES THAT THE LENDER WOULD NOT EXTEND TO
ANY CREDIT PARTY ANY LOAN HEREUNDER IF THIS SECTION WERE NOT PART OF THIS
AGREEMENT.
SECTION 10.16 Counterparts; Effectiveness. This Agreement and any
amendments, waivers, consents or supplements may be executed in any number of
counterparts and by different parties hereto in separate counterparts, each of
which when so executed and delivered shall be deemed an original, but all such
counterparts together shall constitute but one and the same instrument. This
Agreement shall become effective upon the execution of a counterpart hereof by
each of the parties hereto, and written or telephonic notification of such
execution and authorization of delivery thereof has been received by each of the
Credit Parties and the Lender.
SECTION 10.17 Entirety. This Agreement and the other Loan Documents
embody the entire agreement among the parties and supersede all prior agreements
and understandings, if any, relating to the subject matter hereof and thereof.
* * * * *
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IN WITNESS WHEREOF the due execution hereof by the respective duly
authorized officers of the undersigned as of the date first written above.
BORROWERS:
GERBER CHILDRENSWEAR, INC.
By: /s/ Richard L. Solar
------------------------------------
Name: RICHARD L. SOLAR
Title: Senior Vice President
AUBURN HOSIERY MILLS, INC.
By: /s/ Richard L. Solar
------------------------------------
Name: RICHARD L. SOLAR
Title: Senior Vice President
GUARANTORS:
GCIH, INC.
By: /s/ Richard L. Solar
------------------------------------
Name: RICHARD L. SOLAR
Title: Senior Vice President
COSTURA DOMINICANA, INC.
By: /s/ Richard L. Solar
------------------------------------
Name: RICHARD L. SOLAR
Title: Senior Vice President
AUBURN HOLDINGS, INC.
By: /s/ Richard L. Solar
------------------------------------
Name: RICHARD L. SOLAR
Title: Senior Vice President
<PAGE> 54
GCI IP SUB, INC.
By: /s/ Richard L. Solar
------------------------------------
Name: RICHARD L. SOLAR
Title: Senior Vice President
AUBURN MERGER CO.
By: /s/ Richard L. Solar
------------------------------------
Name: RICHARD L. SOLAR
Title: Senior Vice President
CITICORP MEZZANINE PARTNERS, L.P.
By: Citicorp Capital Investors,
Ltd., its general partner
By: /s/ Byron H. Knief
------------------------------------
Name: BYRON H. KNIEF
Title: President
<PAGE> 1
Exhibit 10.10
SUBORDINATION AND INTERCREDITOR AGREEMENT
This SUBORDINATION AND INTERCREDITOR AGREEMENT (this "Agreement") is
entered into as of December 17, 1997, by and among GERBER CHILDRENSWEAR, INC.
successor in interest to GCIH Merger Sub., Inc. a Delaware corporation (the
"Company"), Auburn Hosiery Mills, Inc., a Kentucky corporation (collectively,
the Company and Auburn referred to herein as the "Borrowers") ("Auburn"), GCIH,
INC., a Delaware corporation ("Holdings"), the Domestic Subsidiaries of
Holdings, the Company and Auburn, (collectively, the "Other Guarantors"),
NationsBank, N.A., a national banking association, as administrative agent under
the Senior Credit Agreement (as defined below) (in such capacity, together with
any subsequent administrative agent under the Senior Credit Agreement, the
"Agent") and CITICORP MEZZANINE PARTNERS, L.P., a Delaware limited partnership
("CMP"), for itself as a Subordinated Lender (as defined below) and as agent for
any other Subordinated Lender. The Borrowers, Holdings and the Other Guarantors
are referred to herein as the "Subordinated Credit Parties".
RECITALS
WHEREAS, the Subordinated Credit Parties and CMP desire to induce the
Senior Lenders to make Extensions of Credit to the Borrowers pursuant to the
Senior Credit Agreement, and the Senior Lenders are willing to make such
Extensions of Credit; provided that the Subordinated Credit Parties and CMP
agree to the terms and conditions herein provided; and
WHEREAS, each of Holdings and the Other Guarantors has agreed to guarantee
the obligations of the Borrowers under the Senior Credit Agreement and Senior
Subordinated Credit Agreement.
NOW, THEREFORE, in consideration of the premises and the agreements,
provisions and covenants herein contained, the Subordinated Credit Parties, the
Agent and the Subordinated Lender agree as follows:
Section 1. Definitions. Except as otherwise provided in this Agreement,
capitalized terms used herein shall have the meanings defined in the Senior
Credit Agreement. In addition the following terms shall have the meanings set
forth below:
"Bankruptcy Event" shall mean the occurrence of any of the events set
forth in Section 9.1(f) of the Senior Credit Agreement as in effect on the date
hereof.
"Senior Credit Agreement" shall mean the Credit Agreement, dated as of the
date hereof, by and among the Company and Auburn Hosiery Mills, Inc., as the
Borrowers, Holdings and the Domestic Subsidiaries of the Borrowers and Holdings
(other than the Borrowers), as the Guarantors, the Agent and the Senior Lenders,
(as amended, modified or supplemented from time to time hereafter in accordance
with the provisions of Section 7(a) of this Agreement, together with any credit
agreement or similar document from time to time executed by the Company to
<PAGE> 2
evidence any Refinancing (as defined in the definition of Senior Debt) or
successive Refinancings; provided that any such Refinancing shall have been
consummated in compliance with the provisions of Section 7(a) of this
Agreement).
"Senior Debt" shall mean (a) all Credit Party Obligations (including
contingent obligations) now or hereafter incurred pursuant to and in accordance
with the terms of the Senior Debt Documents, (b) any additional Indebtedness
incurred under the Senior Credit Agreement, whether such Credit Party
Obligations or additional Indebtedness involve principal prepayment charges,
interest (including, without limitation, interest accruing after the filing of a
petition initiating any proceeding under the Bankruptcy Code, whether or not
allowed as a claim in such proceeding), indemnities or reimbursement of fees,
expenses or other amounts, and (c) any Indebtedness incurred for the purpose of
refinancing, restructuring, extending or renewing (collectively, "Refinancing")
the Credit Party Obligations under the Senior Credit Agreement as set forth in
clauses (a) and (b) above; provided, however, that in no event shall the
principal amount of Senior Debt (for the purposes of this Agreement) exceed an
amount equal to: (A) the Term Loan Committed Amount as in effect as of the date
hereof less any principal prepayments made with respect to the Term Loans plus
(B) the Revolving Committed Amount as in effect as of the date hereof less any
permanent reductions in the Revolving Committed Amount plus (C) $12,500,000.
"Senior Debt Documents" shall mean the Senior Credit Agreement and the
other Credit Documents.
"Senior Lenders" shall mean the Lenders from time to time party to the
Senior Credit Agreement and all other holders of Senior Debt.
"Senior Notes" shall mean the Notes as defined in the Senior Credit
Agreement.
"Senior Subordinated Credit Agreement" means the Amended and Restated
Senior Subordinated Credit Agreement, dated as of the date hereof, by and among
the Company, Holdings, Auburn, the Other Guarantors and the Subordinated Lender
pertaining to the Senior Subordinated Notes, (as the same may be amended,
modified and supplemented from time to time in accordance with the provisions of
Section 7(b) of this Agreement).
"Senior Subordinated Debt Documents" shall mean (a) the Senior
Subordinated Credit Agreement, (b) the Senior Subordinated Notes and (c) notes
or other evidence of indebtedness issued by the Company in connection with any
interest payment accrued under the Senior Subordinated Notes, all as amended,
modified or supplemented from time to time, in accordance with Section 7(b) of
this Agreement.
"Senior Subordinated Notes" shall mean the Notes as defined in the Senior
Subordinated Credit Agreement.
"Subordinated Agent" shall mean CMP, or any agent or representative
designated in writing by the Subordinated Lenders for purposes of this
Agreement.
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"Subordinated Debt" shall mean all Indebtedness, contingent obligations
(including, without limitation, the guaranty obligations of Holdings and the
Other Guarantors under Article 9 of the Senior Subordinated Credit Agreement)
and other Obligations (as defined in the Senior Subordinated Credit Agreement),
whether for principal, prepayment charges, interest, indemnities or
reimbursement of fees, expenses or other amounts, payable by the Subordinated
Credit Parties under the Senior Subordinated Debt Documents.
"Subordinated Lenders" shall mean CMP and any other Lender or Lenders (as
defined in the Senior Subordinated Credit Agreement) and all other holders of
Subordinated Debt.
Section 2. Subordination
Section 2.1 Subordination of Subordinated Debt to Senior Debt. Each of the
Subordinated Credit Parties and CMP, for itself and its respective successors
and assigns, covenants and agrees, and each other holder of Subordinated Debt,
by its acceptance thereof, shall be deemed to, for itself and its successors and
assigns have covenanted and agreed, that the payment of the Subordinated Debt
shall be subordinate and subject in right of payment, to the extent and in the
manner hereinafter set forth, to the prior payment in full in cash of all Senior
Debt, and that each holder of Senior Debt (whether now outstanding or hereafter
created, incurred, assumed or guaranteed) shall be deemed to have acquired
Senior Debt in reliance upon the provisions contained in this Agreement. The
provisions of this Agreement shall be reinstated if at any time any payment of
any of the Senior Debt is rescinded or must otherwise be returned by any holder
of Senior Debt or any representative of such holder upon the insolvency,
bankruptcy or reorganization of any Credit Party. Any provision of this
Agreement or the Subordinated Debt Documents to the contrary notwithstanding, no
Credit Party shall make, and no Subordinated Lender shall accept, any payment or
prepayment of principal, or prepayment of other amounts due thereunder, of any
kind whatsoever with respect to the Subordinated Debt at any time when any of
the Senior Debt remains outstanding (including, without limitation, any issued
but undrawn letter of credit) except that, subject to the terms and conditions
of this Agreement, including, without limitation, Sections 2.2, 2.3 and 2.4
hereof, a Credit Party may make and the Subordinated Lender may accept (a)
regularly scheduled required payments of principal and mandatory payments of
principal under Section 2.3(a)(ii) of the Senior Subordinated Credit Agreement
which have become due and payable in the absence of acceleration as provided in
the Subordinated Debt Documents as in effect on the date hereof, (b) payment of
the Subordinated Debt after it has been accelerated by the holders of
Subordinated Debt and (c) regularly scheduled payments of interest and payment
or reimbursement of all fees, expenses, indemnities and like amounts under the
Subordinated Debt Documents as in effect on the date hereof, in each case, as
and when due and payable in the absence of acceleration. In no event shall any
Subordinated Lender or the Subordinated Agent commence any action or proceeding
to contest the provisions of this Agreement or the priority of the Liens granted
to the holders of the Senior Debt by any Subordinated Credit Party. No holder of
Subordinated Debt shall take, accept or receive any collateral security from a
Subordinated Credit Party for the payment of the Subordinated Debt and to the
extent any lien is given, it is agreed that such lien is fully subordinate to
the liens in favor of the Senior Lenders in connection with the Senior Debt.
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Section 2.2 Subordinated Debt Subordinated to Prior Payment of All Senior
Debt Upon Dissolution, Liquidation, Reorganization, etc.
(a) Upon any payment or distribution of the assets of any Credit
Party of any kind or character, whether in cash, property or securities
(including (x) any collateral, whether such collateral or the proceeds
thereof at any time secure the Subordinated Debt and (y) any payments or
distributions in respect of Indebtedness which is subordinated to the
Subordinated Debt (the payments under this clause (y), "Junior
Payments")), to creditors upon any dissolution, winding-up, liquidation,
or reorganization, arrangement, adjustment, composition or readjustment of
any Credit Party or their respective securities or debt (whether voluntary
or involuntary, or in bankruptcy, insolvency, reorganization, liquidation,
receivership proceedings, or upon an assignment for the benefit of
creditors, or any other marshaling of the assets and liabilities of any
Credit Party or otherwise), then in such event:
(i) the holders of Senior Debt shall be entitled to receive
payment in full in cash of all amounts due or to become due on or in
respect of all Senior Debt before any payments of any nature are
made on account of or applied on or made with respect to the
Subordinated Debt (other than securities of Holdings or the Company
issued in connection with a proceeding described above in this
clause (a), the payment of which is junior or otherwise
subordinated, at least to the extent provided in this Agreement, to
the payment in cash or cash equivalents of all Senior Debt and to
the payment of all securities issued in exchange therefor to the
holders of the Senior Debt ("Junior Securities")); and
(ii) any payment or distribution of assets of any Credit Party
of any kind or character, whether in cash, property or securities,
by set-off or otherwise, to which the holders of Subordinated Debt
would be entitled except for the provisions of this Agreement,
including, without limitation, Junior Payments but excluding Junior
Securities, shall be paid or delivered by any debtor, custodian,
liquidating trustee or agent or other Person making such payment or
distribution, whether a trustee in bankruptcy, a receiver or
liquidating trustee or otherwise, directly to the Agent for the
benefit of the Senior Lenders in proportion to the amount of the
outstanding Senior Debt held by each of the Senior Lenders, for
application to the payment of all such Senior Debt remaining unpaid,
to the extent necessary to pay all such Senior Debt in full in cash
after giving effect to any concurrent payment or distribution, to
the holders of such Senior Debt; provided, however, that if pursuant
to an order or decree issued by a court of competent jurisdiction,
all or any portion of such assets so distributed and paid over to or
for the benefit of the holders of Senior Debt is required to be
returned to a Credit Party, or its bankruptcy estate, such holders
of Senior Debt shall pay over such assets (or the cash equivalent
thereof) to the trustee in bankruptcy, receiver, liquidating
trustee, custodian, assignee, agent or other Person specified in
such order or decree, in which event the provisions of this
Agreement shall be reinstated to the same extent as if such amounts
had not been paid over to or for the benefit of the holders of
Senior Debt as contemplated by Section 8 hereof.
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(b) The Subordinated Credit Parties shall give prompt notice to each
holder of outstanding Senior Debt and Subordinated Debt of any
dissolution, winding-up, liquidation, reorganization, arrangement,
adjustment, composition or readjustment of a Subordinated Credit Party, or
their respective securities or debt.
(c) Upon any distribution of assets of any Credit Party referred to
in this Agreement, the holders of Subordinated Debt shall be entitled to
rely upon any order or decree made by any court of competent jurisdiction
in which such dissolution, winding-up, liquidation or reorganization
proceeding is pending, or a certificate of the receiver, liquidating
trustee or similar official or the Agent or other Person making any
distribution to such holders, for the purpose of ascertaining the Persons
entitled to participate in such distribution, the holders of the Senior
Debt, the amount thereof or payable thereon, the amount or amounts paid or
distributed thereon and all other facts pertinent thereto or to this
Agreement; provided, however, that nothing contained in this clause (c)
shall relieve any party hereto from complying with any one or performing
more of the provisions of this Agreement notwithstanding any such order or
decree.
(d) (i) Each holder of Subordinated Debt shall duly and
promptly take such action as the Agent may reasonably request
to collect the Subordinated Debt for the account of the Senior
Lenders and to file appropriate claims or proofs of debt in
respect to the Subordinated Debt.
(ii) If any holder of Subordinated Debt does not file a
proper claim or proof of debt in the form required in any
dissolution, winding up, liquidation or bankruptcy
reorganization of a Credit Party prior to 10 days before the
expiration of the time to file such claim or proof (the
"Appointment Trigger Date"), then the Agent shall have the
right to file and is hereby authorized to file such a claim or
proof for and on behalf of such holder. Neither the Agent nor
any Senior Lender shall have any liability to any such holder
in connection with any such filing except to the extent of any
loss or damage suffered by such holder as a result of the
gross negligence or willful misconduct of the Agent or any
Senior Lender. CMP hereby appoints, and each other holder of
the Subordinated Debt, by its acceptance thereof, appoints, as
of the Appointment Trigger Date, the Agent, as
attorney-in-fact for such Person, solely for the purpose of
filing any such claim, proof of claim or other instrument of
similar character. Each Subordinated Lender and each other
holder of Subordinated Debt, by its acceptance thereof, agrees
that it will execute and deliver such other and further powers
of attorney or other instruments as the Agent or any Senior
Lender may reasonably request in order to accomplish the
foregoing.
Section 2.3 No Payments with Respect to Subordinated Debt in Certain
Circumstances.
(a) In circumstances in which Section 2.2 is not applicable, no
payment of any nature in respect of the Subordinated Debt (including,
without limitation, pursuant to any
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judgment with respect thereto) shall be made by or on behalf of any Credit
Party if, at the time of such payment:
(i) a default in the payment when due (whether at the maturity
thereof, or upon acceleration of maturity or otherwise and without
giving effect to any applicable grace periods) of all or any portion
of the Senior Debt (whether of principal, interest or any other
amount with respect thereto) shall have occurred, and such default
shall not have been cured or waived in accordance with the terms of
the Senior Debt Documents; or
(ii) (A) the Borrowers and the Subordinated Agent shall have
received notice from the Agent of the occurrence of one or more
Events of Default in respect of the Senior Debt (other than payment
defaults described in Section 2.3(a)(i) above), and of the
determination of the Agent to invoke this Section 2.3(a)(ii), (B)
each such Event of Default shall not have been cured or waived in
accordance with the terms of the Senior Debt Documents, and (C) 180
days shall not have elapsed since the date such notice was received
(any period during which no payment in respect of the Subordinated
Debt may be made by reason of the application of this clause (ii)
being hereinafter called a "Payment Bar Period").
(b) The Borrowers may resume payments (and may make any payments
missed due to the application of Section 2.3(a)(i) and 2.3(a)(ii)) in
respect of the Subordinated Debt or any judgment with respect thereto:
(i) in the case of a default referred to in clause (i) of
Section 2.3(a), upon a cure or waiver thereof in accordance with the
terms of the Senior Debt Documents; or
(ii) in the case of an Event of Default or Events of Default
referred to in clause (ii) of Section 2.3(a), upon the earlier to
occur of (A) the cure or waiver of all such Events of Default in
accordance with the terms of the Senior Debt Documents, or (B) the
expiration of such period of 180 days.
(c) Notwithstanding any provision of Section 2.3(a) hereof to the
contrary:
(i) no Payment Bar Period shall be in effect during more than
an aggregate of 180 days within any period of 360 consecutive days;
and
(ii) no Event of Default existing on the date any notice is
given pursuant to Section 2.3(a)(ii)(A) shall, unless the same shall
have ceased to exist for a period of at least 30 consecutive days,
be used as a basis for any subsequent such notice.
(d) In circumstances in which Section 2.2 is not applicable,
following any acceleration of the maturity of any Senior Debt and as long
as such acceleration shall continue unrescinded and unannulled, such
Senior Debt shall first be paid in full in cash, or provision for such
payment shall be made in a manner satisfactory to the holders of the
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Senior Debt, before any payment is made on account of or applied on
the Subordinated Debt (other than in the form of the Junior Securities
permitted to be received pursuant to Section 2.2(a)).
(e) The Borrowers shall give prompt written notice to the
Subordinated Agent of (i) any default in respect of Senior Debt referred
to in Section 2.3(a) hereof and (ii) any notice of the type described in
Section 2.3(a)(ii) hereof from the Agent or a holder of Senior Debt.
(f) The Agent and the Subordinated Agent shall each provide the
other with copies of all default notices given under the terms of the
Senior Debt Documents and Subordinated Debt Documents, respectively, and
all notices to the Company under this Agreement.
Section 2.4 Acceleration of Subordinated Debt; Remedies. If an "Event of
Default" (which shall mean that all necessary notices have been given and any
prerequisite for the passage of time has been satisfied) under and as defined in
the Subordinated Debt Documents (a "Subordinated Event of Default") shall exist
at any time that any Senior Debt shall be outstanding, neither the Subordinated
Agent, CMP nor any other holder of Subordinated Debt shall take any action (a)
to accelerate or to collect payment of any Subordinated Debt, (b) to foreclose
or otherwise realize on any security given to secure or guarantee such
Subordinated Debt, (c) to commence or join with any other creditor (other than
holders of a majority in principal amount of the Senior Notes or any
representative thereof) in commencing any proceeding in connection with or
premised on the occurrence of a Bankruptcy Event, or (d) to pursue any other
remedy with respect to the Subordinated Debt prior to the earlier of:
(i) the payment in full in cash of all Senior Debt;
(ii) the initiation of a proceeding (other than a proceeding
prohibited by clause (c) of this Section 2.4) in connection with or
premised upon the occurrence of a Bankruptcy Event;
(iii) the expiration of 180 days immediately following the
receipt by the Agent of notice of the occurrence of such
Subordinated Event of Default from the holder or holders entitled to
accelerate payments on the Subordinated Debt; and
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(iv) the acceleration of the maturity of the Senior Debt;
provided, however, that if, with respect to (ii) and
(iv) above, such proceeding or acceleration, respectively, is
rescinded, or with respect to (iii) above, during such 180-day
period such Subordinated Event of Default has been cured or
waived, the prohibition against taking the action described in
clauses (a), (b), (c) and (d) of this Section 2.4 shall
automatically be reinstated as of the date of the rescission,
cure or waiver, as applicable. In the event of the occurrence
of an event described in clause (ii) or clause (iii) above,
the Subordinated Agent (or if there is no Subordinated Agent,
the holders of a majority in principal amount of the
Subordinated Debt) shall give ten (10) days prior written
notice to the Agent before taking any action described in
clauses (a) (except as to acceleration as to which five (5)
days prior written notice shall be required), (b), (c) or (d)
of this Section 2.4, which notice shall describe with
specificity the action that the holder or holders of
Subordinated Debt entitled to accelerate payments on the
Subordinated Debt in good faith intend to take. Such 10 (or 5,
as applicable) day notice may be given during the 180-day
period described in clause (iii) above.
Section 3. Holders of Subordinated Debt to be Subrogated to Rights of
Holders of Senior Debt. Subject to the payment in full in cash of all Senior
Debt, the holders of Subordinated Debt shall be subrogated to the rights of the
holders of Senior Debt to receive payments or distributions of assets of the
Credit Parties applicable to the Senior Debt until the principal of, and
interest and premium (if any) on, and all other amounts payable in respect of,
Subordinated Debt shall be paid in full in cash, and for purposes of such
subrogation, no payment or distribution to the holders of the Senior Debt of
assets, whether in cash, property or securities, distributable to the holders of
Senior Debt under the provisions hereof to which the holders of Subordinated
Debt would be entitled except for the provisions of this Agreement, and no
payment pursuant to the provisions of this Agreement to the holders of the
Senior Debt by the holders of Subordinated Debt, shall, as between any Credit
Party, its creditors other than the holders of the Senior Debt, and the holders
of the Subordinated Debt, be deemed to be a payment by such Credit Party to or
on account of such Senior Debt, it being understood that the provisions of this
Agreement are, and are intended, solely for the purpose of defining the relative
rights of the holders of Subordinated Debt, on the one hand, and the holders of
Senior Debt, on the other hand.
Section 4. No Reliance. Each of the Subordinated Credit Parties and the
Subordinated Lender has examined with its counsel all documentation in
connection with the Subordinated Debt, including this Agreement. The Agent makes
no representation or warranty in connection with this Agreement, and neither the
Agent, any Senior Lender nor any one or more officers, directors, employees or
agents of the Agent or any Senior Lender shall be liable for any action lawfully
taken or omitted to be taken by them hereunder or in connection herewith, except
for their own gross negligence, bad faith or willful misconduct. Neither the
Agent nor any Senior Lender shall be responsible in any manner to a Subordinated
Credit Party or the Subordinated Lender for any recitals, statements,
representations or warranties herein or for the effectiveness, enforceability,
genuineness, validity or the due execution of this Agreement or any other
agreement made in connection herewith (other than any such agreement on the part
of the Senior Lenders) or be under an obligation to a Subordinated Credit Party
or the Subordinated Lender
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<PAGE> 9
to ascertain or to inquire about the performance or observance of any of the
terms, covenants or conditions hereof on the part of the parties hereto. Neither
the Agent nor any Senior Lender shall be deemed to have knowledge of the
occurrence of a default or an event of default under the Senior Subordinated
Credit Agreement unless the Agent or such Senior Lender has received written
notice from the Subordinated Agent or any Subordinated Lender specifying such
default or event of default. No Subordinated Lender shall be deemed to have
knowledge of the occurrence of a default or event of default under the Senior
Credit Agreement unless such Subordinated Lender or the Subordinated Agent has
received written notice from the Agent or any Senior Lender specifying such
default or event of default. Each Senior Lender and each Subordinated Lender
shall be deemed to have knowledge of such matters as are the subject of notices
delivered to the Agent and the Subordinated Agent, respectively.
Section 5. Obligations of Holdings and the Company Unconditional.
(a) Nothing contained in this Agreement is intended to or shall
impair, as between each Credit Party and their respective creditors (other
than the holders of Senior Debt), the obligations of such Credit Party to
the holders of Subordinated Debt to pay any Subordinated Debt as and when
such Subordinated Debt shall become due and payable in accordance with its
terms, which obligations the Company acknowledges are absolute and
unconditional, or to affect the relative rights of the holders of
Subordinated Debt and creditors of the Credit Parties (other than the
holders of Senior Debt), nor, except as set forth in this Agreement, shall
any holder of Subordinated Debt be prevented from accelerating the
Subordinated Debt or exercising all remedies otherwise permitted by
applicable law upon the happening of an event of default under the
applicable Subordinated Debt Documents subject to the rights, if any, of
the holders of Senior Debt set forth in this Agreement in respect of
assets, whether in cash, property or securities, of any Credit Party
received upon the exercise of any such remedy.
(b) Provided that all payments and prepayments of or with respect to
Senior Debt then due have been made and except in the circumstances
described in Sections 2.2, 2.3 and 2.4 hereof, nothing contained in this
Agreement shall affect the obligation of any Credit Party to make, or
prevent any Credit Party from making, payment at any time of any amounts
then due in respect of Subordinated Debt as contemplated by Section 2.1
hereof.
Section 6. Payments Received in Contravention of This Agreement. Should
any payment or distribution of any kind or character, whether in cash, property
or securities, or any collateral security, or the proceeds of any thereof, be
collected or received by a holder or holders of the Subordinated Debt or the
Subordinated Agent, and such collection or receipt is prohibited hereunder, such
holder or holders will promptly turn over the same to any Person designated by
the Agent in each case in the form received (except for the endorsement or the
assignment of such holder or holders when necessary) for the application to (in
the case of cash) or as collateral for (in the case of non-cash property or
securities) the payment or prepayment of all Senior Debt remaining not paid in
full in cash and, until so turned over, the same shall be held in trust by such
holder or holders or the Subordinated Agent, as applicable, as the property of
the Senior Lenders.
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<PAGE> 10
Section 7. Modifications to Senior Debt and Subordinated Debt.
(a) A holder of any Senior Debt may at any time and from time to
time without the consent of or notice to the holders of Subordinated Debt,
without incurring liability to the holders of Subordinated Debt, and
without impairing or releasing the obligations of the holders of
Subordinated Debt under this Agreement: (i) change the manner or place of
payment or change the time of payment of or renew or alter any Senior
Debt, or amend in any other manner any agreement, note, guaranty or other
instrument evidencing or securing or otherwise relating to any Senior
Debt; (ii) exercise or refrain from exercising any rights against the
Company or any other Credit Party or any other Persons (including the
holders of Subordinated Debt); (iii) apply any sums by whomsoever paid or
howsoever realized to any Senior Debt, in such manner as the holders of
Senior Debt determine and (iv) otherwise modify, amend, renew, extend or
restate the terms of the Senior Debt; provided, the holders of the Senior
Debt shall not, without the prior written consent of the holders of a
majority of the outstanding Subordinated Debt, (A) have outstanding under
the Senior Credit Agreement principal indebtedness in amounts in excess of
the limit specified in the definition of "Senior Debt", (B) increase the
margin over the Base Rate (as defined in the Senior Credit Agreement as in
effect on the date hereof) or the Eurodollar Rate (as defined in the
Senior Credit Agreement as in effect on the date hereof) by more than 200
basis points over what it is as of the date hereof (it being understood
that the imposition of a default rate of interest in accordance with
subsection 3.1 of the Senior Credit Agreement as in effect on the date
hereof shall not be subject to the restrictions contained in this clause
(B)), (C) extend the final maturity of the Senior Debt beyond the date one
year following the Maturity Date (as such term is defined in the Senior
Credit Agreement as in effect on the date hereof) or (D) change the
weighted average life to maturity of the Term Loan by more than one year
from that in effect on the Closing Date (calculated as if such amendment
was entered into on the date hereof and taking into account all previous
amendments).
(b) Each Subordinated Credit Party, the Subordinated Lender and each
holder of Subordinated Debt shall not amend or modify in any manner any
Subordinated Debt Document without the express written consent of the
Agent, in each instance, if the effect of such amendment is to (i)
increase the interest rate of the Subordinated Debt, (ii) change the dates
upon which payments of principal, interest or other amounts are due on the
Subordinated Debt, (iii) change any event of default or add any covenant
with respect to the Subordinated Debt, (iv) change the redemption or
prepayment provisions of the Senior Subordinated Credit Agreement, (v)
change the subordination provisions thereof (or the terms of any guaranty
thereof), (vi) receive any collateral or security with respect to the
Subordinated Debt or (vii) change or amend any other term of any of the
Subordinated Debt Documents if such change or amendment would (A) in any
manner materially increase the obligations of the obligor thereunder, (B)
confer additional material rights on the Subordinated Agent or the holders
of the Subordinated Debt in a manner materially adverse to Holdings, the
Company, any other Credit Party or any of the Senior Lenders or (C) in any
manner materially adversely affect the rights of the Senior Lenders. If
any Subordinated Debt Document is amended or modified in a manner that
does not violate this Section 7(b), the Borrowers agree to promptly
provide notice to the Agent of such change and deliver a copy of any
document evidencing such change.
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<PAGE> 11
(c) The Agent will provide notice to the Subordinated Agent of any
change in the identity of the Agent. The Subordinated Agent will provide
notice to the Agent of any change in the identity of the Subordinated
Agent.
Section 8. "Paid in Full". For purposes of this Agreement, "payment in
full", "paid in full" or "satisfied ", as used with respect to the Senior Debt,
means the receipt of cash equal to the full amount of Senior Debt, including,
without limitation, the principal amount of the Senior Debt and interest thereon
to the date of such payment; provided, however, that any such cash that the
holders of Senior Debt have been required to return or disgorge shall not be
deemed to have been paid to the holders of Senior Debt for the purposes of
determining whether the Senior Debt has been "paid in full" or "satisfied".
Section 9. Effect of Failure to Pay Subordinated Indebtedness. The failure
to make any payment on account of Subordinated Debt by reason of the operation
of any provision of this Agreement shall not be construed as preventing the
occurrence of an event of default under the applicable Subordinated Debt
Documents.
Section 10. No Disposition of Subordinated Debt. No holder of Subordinated
Debt will sell, assign, pledge, encumber or otherwise dispose of any of the
Subordinated Debt unless such sale, assignment, pledge, encumbrance or
disposition is made expressly subject to this Agreement and unless, after giving
effect thereto, there would not be more than three holders of Subordinated Debt.
Section 11. Legends. The Borrowers and the Subordinated Agent shall cause
each instrument or document which now or hereafter evidences all or any portion
of the Subordinated Debt to be conspicuously marked with the following legend:
"THIS INSTRUMENT IS SUBJECT TO THE TERMS OF A SUBORDINATION AND
INTERCREDITOR AGREEMENT, DATED AS OF DECEMBER 17, 1997, IN FAVOR OF
NATIONSBANK, N.A. AS ADMINISTRATIVE AGENT FOR THE LENDERS PARTY TO A
CREDIT AGREEMENT DATED AS OF SUCH DATE, AND THE SENIOR LENDERS FROM
TIME TO TIME PARTY THERETO OR PARTY TO ANY SUBSEQUENT SENIOR CREDIT
AGREEMENT CONSTITUTING A REFINANCING THEREOF, AND EACH SUBSEQUENT
AGENT FOR THE SENIOR LENDERS, WHICH AGREEMENT IS INCORPORATED HEREIN
BY REFERENCE. NOTWITHSTANDING ANY STATEMENT TO THE CONTRARY
CONTAINED IN THIS INSTRUMENT, NO PAYMENT OF ANY NATURE ON ACCOUNT OF
THE OBLIGATIONS HEREUNDER, WHETHER OF PRINCIPAL OR INTEREST, SHALL
BE MADE, PAID, RECEIVED OR ACCEPTED EXCEPT IN ACCORDANCE WITH THE
TERMS OF SUCH AGREEMENT."
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<PAGE> 12
Section 12. Remedies Enforcement.
(a) Upon any breach of this Agreement by a Subordinated Credit
Party, the Subordinated Agent or any Subordinated Lender, the Agent may,
by written notice to the Borrowers, declare the Senior Debt immediately
due and payable, and may sue and receive from the Subordinated Lenders any
payment received in violation of this Agreement. The rights and remedies
of the Agent and the Senior Lenders hereunder are cumulative and in
addition to any other rights and remedies of the Agent and the Senior
Lender under the Senior Credit Agreement or any other agreement which may
now or hereafter exist in law or at equity. No postponement or delay by
the Agent or any Senior Lender in the enforcement of any right hereunder
shall constitute a waiver thereof, nor shall any single or partial
exercise of any right hereunder preclude any other or further exercise
thereof or the exercise of any other right. Without limiting the
foregoing, the Agent and each Senior Lender (in accordance with the Senior
Credit Agreement) is hereby authorized to demand specific performance of
the provisions of this Agreement, whether or not any Credit Party shall
have complied with any of the provisions hereof applicable to it, at any
time when any Credit Party, the Subordinated Agent or any holder of the
Subordinated Debt shall have failed to comply with any of the provisions
of this Agreement applicable to it. The Subordinated Agent and the holders
of the Subordinated Debt hereby irrevocably waive any defense based on the
adequacy of a remedy at law that might be asserted as a bar to such remedy
of specific performance.
(b) The Subordinated Agent and the holders of the Subordinated Debt
hereby acknowledge that the provisions of this Agreement are intended to
be enforceable at all times, whether before or after the commencement of a
proceeding in connection with or premised on the occurrence of a
Bankruptcy Event.
Section 13. Waiver of Consolidation. Each holder of Subordinated Debt
acknowledges and agrees that (a) each Subordinated Credit Party and their
respective Affiliates are each separate and distinct entities, (b) each such
holder and each Senior Lender has relied upon the separate existence and
creditworthiness of each Subordinated Credit Party and (c) it will not at any
time when any Senior Debt has not been paid in full or when the Revolving Loan
Commitment under the Senior Credit Agreement is still in force or any Letter of
Credit is outstanding, insist upon, plead, or in any manner whatsoever, seek the
entry of any order or judgment, or take the benefit or advantage of, any
substantive consolidation, piercing of the corporate veil or any other order
or judgment that causes an effective combination of the assets and liabilities
of Holdings, the Borrowers any other Subordinated Credit Party and any other
individual, corporation, partnership or joint venture in any case or proceeding
under Title 11 of the United States Code or other similar proceeding.
Section 14. Duration and Modification of Agreement; Enforceability of
Senior Debt Documents. This Agreement is of a continuing nature, and it shall
continue in force so long as any portion of the Senior Debt has not been paid in
full or the Revolving Loan Commitment under the Senior Credit Agreement is still
in force or any Letter of Credit is outstanding. As between the Senior Lenders
and the Subordinated Lenders, the Senior Lenders may, without notice to the
Subordinated Lenders and without prejudice hereunder, extend, renew or alter the
terms of the Senior Debt Documents and the Senior Debt (to the extent such
action is allowed
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<PAGE> 13
under Section 7(a) hereof), forbear collection, release, compromise or settle,
take or release collateral security therefor and in connection with the Senior
Debt and deal with any and all parties.
Section 15. Waiver. Except as expressly provided herein, each Subordinated
Credit Party and each Subordinated Lender hereby waives to the extent permitted
by applicable law: (a) promptness, diligence, notice of acceptance or any other
notice with respect to any of the Senior Debt and this Agreement, any
requirement that any holder of Senior Debt or the Agent secure, perfect or
insure any security interest or lien on any property subject thereto or exhaust
any right to take action against any Subordinated Credit Party or any other
Person or any collateral, any presentment for payment, notice of non-payment or
nonperformance, demand, protest, notice of protest and notice of dishonor or
default with respect to the Senior Debt, (b) defenses to pay or perform based
upon any of the Senior Debt not being a valid and binding obligation of any
Subordinated Credit Party, enforceable in accordance with its terms
(notwithstanding bankruptcy laws, insolvency laws and other laws affecting
generally the protection of debtors or rights of creditors); (c) any disability
of a Subordinated Credit Party or defense available to a Subordinated Credit
Party (other than payment in full in cash) with respect to the Senior Debt,
including absence or cessation of liability for any reason whatsoever; and (d)
until all the Senior Debt is paid (in cash) and performed in full, other than as
set forth in Section 3 hereof, any right to subrogation or realization on any of
a Subordinated Credit Party's property, including participation in any
marshaling of a Subordinated Credit Party's assets.
Section 16. Inspection of Books and Records. Upon reasonable notice, each
Subordinated Credit Party shall permit the Agent at any reasonable time and from
time to time to examine and make copies and abstracts from their respective
books, records, instruments and documents evidencing or pertaining to the
Subordinated Debt.
Section 17. Expenses. The Borrowers agree to reimburse the Agent and the
Senior Lenders for all costs and expenses, including reasonable attorneys' fees
and expenses, incurred in connection with the enforcement of its rights
hereunder.
Section 18. Successors and Assigns. This Agreement shall be binding upon
each Subordinated Credit Party, the Agent, the Senior Lenders, the Subordinated
Agent and the Subordinated Lenders and their respective successors and assigns,
and shall inure to the benefit of the Agent and the Senior Lenders and their
respective successors and assigns. This Agreement shall be freely assignable at
any time by the Subordinated Lenders or the Senior Lenders provided any such
assignment is in conjunction with the assignment of the related Subordinated
Debt or Senior Debt.
SECTION 19. GOVERNING LAW. THIS AGREEMENT SHALL IN ALL RESPECTS BE
GOVERNED BY, AND CONSTRUED AND ENFORCED IN ACCORDANCE WITH THE LAWS OF THE STATE
OF NORTH CAROLINA, EXCEPT FOR ITS RULES RELATING TO THE CONFLICTS OF LAW.
Section 20. Amendments and Waivers. Except as otherwise provided herein,
this Agreement may be changed, modified or waived only by a writing signed by
the Subordinated
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<PAGE> 14
Credit Parties, the Subordinated Agent on behalf of the Subordinated Lenders and
the Agent on behalf of the Senior Lenders.
Section 21. Further Assurances. Each Subordinated Credit Party and the
holders of the Subordinated Debt each will, at the Borrowers' expense and at any
time and from time to time, promptly execute and deliver all further instruments
and documents, and take all further action, that may be reasonably necessary or
appropriate, or that the Agent may reasonably request, in order to protect any
right or interest granted or purported to be granted by this Agreement or to
enable the holders of the Senior Debt or the Agent to exercise and enforce their
rights and remedies hereunder.
Section 22. Notices. Except as otherwise expressly provided herein, all
notices and other communications shall have been duly given and shall be
effective (a) when delivered, (b) when transmitted via telecopy (or other
facsimile device), (c) the Business Day following the day on which the same has
been delivered prepaid to a reputable national overnight air courier service, or
(d) the third Business Day following the day on which the same is sent by
certified or registered mail, postage prepaid, in each case to the respective
parties at the address or telecopy numbers set forth below, or at such other
address as such party may specify by written notice to the other parties hereto.
Notices shall be addressed as follows:
If to a Subordinated Credit Party:
531 Main Street
Greenville, South Carolina 29602
Telecopy No.: (803) 240-5977
With copies to:
Citicorp Venture Capital, Ltd.
399 Park Avenue
14th Floor, Zone 4
New York, New York 10043
Telecopy No.: (212) 888-2940
Attention: Mr. John Weber
If to the Agent:
NationsBank, N. A.
100 N. Tryon Street
8th Floor
Charlotte, NC 28255
Attn: Mr. Dave Dinkins
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<PAGE> 15
Telecopy No.: (704) 386-1270
If to CMP:
c/o Citicorp Capital Investors, Ltd.
399 Park Avenue - 14th Floor, Zone 4
New York, New York 10043
Attention: Byron Knief
Telecopy No.: (212) 888-2940
With a copy to:
Kirkland & Ellis
153 East 53rd Street
New York, New York 10022-4675
Attention: Eunu Chun, Esq.
Telecopy No.: (212) 446-4900
Section 23. Counterparts. This Agreement may be executed in any number of
counterparts and by different parties hereto on separate counterparts each of
which, when so executed and delivered, shall be an original, and all such
counterparts shall together constitute one and the same instrument.
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<PAGE> 16
IN WITNESS WHEREOF, the parties hereto have executed this Agreement as of the
day and year first above written.
GERBER CHILDRENSWEAR, INC.,
a Delaware corporation
By: /s/ Richard Solar
-------------------------
Name: Richard Solar
Title: Senior Vice President
GCIH, INC.,
a Delaware corporation
By: /s/ Richard Solar
--------------------------
Name: Richard Solar
Title: Senior Vice President
AUBURN HOSIERY MILLS, INC.,
a Kentucky corporation
By: /s/ Richard Solar
-------------------------
Name: Richard Solar
Title: Senior Vice President
COSTURA DOMINICANA, INC.,
a Delaware corporation
By: /s/ Richard Solar
-------------------------
Name: Richard Solar
Title: Senior Vice President
AUBURN HOLDINGS, INC.,
a Delaware corporation
By: /s/ Richard Solar
-------------------------
Name: Richard Solar
Title: Senior Vice President
GCI IP SUB, INC.,
a Delaware corporation
By: /s/ Richard Solar
-------------------------
Name: Richard Solar
Title: Senior Vice President
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<PAGE> 17
AUBURN MERGER CO,
a Delaware corporation
By: /s/ Richard Solar
-------------------------
Name: Richard Solar
Title: Senior Vice President
NATIONSBANK, N.A.,
individually in its capacity as a
Lender and in its capacity
as Administrative Agent and Collateral Agent
By: /s/ David H. Dinkins
------------------------
Name: DAVID H. DINKINS
Title: Vice President
CITICORP MEZZANINE PARTNERS,
L.P., as Subordinated Agent for the Subordinated
Lenders and as a Subordinated Lender
By: Citicorp Capital Investors,
Ltd., its General Partner
By: /s/ Byron L. Knief
--------------------------
Name: BYRON L. KNIEF
Title: President
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<PAGE> 1
Exhibit 10.11
THIS NOTE WAS ORIGINALLY ISSUED ON DECEMBER 29, 1997, AND HAS NOT
BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED.
PURSUANT TO SECTION 4 OF THIS NOTE, THIS INSTRUMENT IS SUBORDINATED
TO THE SENIOR INDEBTEDNESS (AS DEFINED HEREIN) AND NOTWITHSTANDING
ANY STATEMENT TO THE CONTRARY CONTAINED IN THIS INSTRUMENT, NO
PAYMENT OF ANY NATURE ON ACCOUNT OF THE OBLIGATIONS HEREUNDER,
WHETHER OF PRINCIPAL OR INTEREST, SHALL BE MADE, PAID, RECEIVED OR
ACCEPTED EXCEPT IN ACCORDANCE WITH THE TERMS OF SUCH SECTION 4.
12% JUNIOR SUBORDINATED NOTE
December 29, 1997 $11,000,000
GCIH, Inc., a Delaware corporation (the "Company"), hereby promises
upon the terms and subject to the provisions hereof to pay to the order of
Gerber Products Company, a Michigan corporation (the "Subordinated Seller") (the
Subordinated Seller and each of its permitted assigns is a "Holder"), the
principal amount of Eleven Million Dollars ($11,000,000), as such amount may be
increased from time to time pursuant to Section 2 below. This Junior
Subordinated Note (this "Note") is being issued pursuant to that Note Issuance
and Settlement Agreement by and between the Subordinated Seller and the Company,
dated as of the date hereof.
1. Definitions. Except as otherwise provided in this Section 1,
capitalized terms used in this Note and not defined herein shall have the
meanings assigned to such terms in the Credit Agreement (as defined below).
"Bankruptcy Event" shall occur:
(i) if the Company or Gerber shall (1) be generally not paying its
debts as they become due, (2) file, or consent by answer or otherwise to the
filing against it of, a petition for relief or reorganization or arrangement or
any other petition in bankruptcy, for liquidation or to take advantage of any
bankruptcy or insolvency law of any jurisdiction, (3) make an assignment for the
benefit of its creditors, (4) consent to the appointment of a custodian,
receiver, trustee or other officer with similar powers with respect to it or
with respect to any substantial part of its property, (5) be adjudicated
insolvent or be liquidated under any bankruptcy or insolvency law, or (6) take
corporate action for the purpose of any of the foregoing; or
(ii) If a court or governmental authority of competent jurisdiction
shall enter an order appointing, without consent by the Company or Gerber, as
applicable, a custodian, receiver, trustee or other officer with similar powers
with respect to it or with respect to any substantial part of its property, or
if an order for relief shall be entered in any case or proceeding for
liquidation or
<PAGE> 2
reorganization or otherwise to take advantage of any bankruptcy or insolvency
law of any jurisdiction, or ordering the dissolution, winding-up or liquidation
of the Company or Gerber, or if any petition for any such relief shall be filed
against the Company or Gerber and such petition shall not be dismissed within 60
days.
"CMP" means Citicorp Mezzanine Partners, L.P., a Delaware limited
partnership, or any successor thereof.
"Change of Control" shall have the meaning set forth in the Credit
Agreement.
"Company Event of Default" has the meaning set forth in Section 6.
"Credit Agreement" means, collectively, the Credit Agreement dated
as of December 17, 1997, by and among Gerber and Auburn Hosiery Mills, Inc., a
Kentucky corporation as Borrowers, the Company and the Domestic Subsidiaries of
the Company and the Borrowers as Guarantors, NationsBank, N.A., as
Administrative Agent, and certain other parties, as the same may be amended,
restated, extended, refunded, refinanced, replaced, supplemented, restructured
or otherwise modified from time to time (in whole or in part and without
limitation as to terms, conditions or covenants and without regard to the
principal amount thereof), including all related notes, collateral documents,
guarantees, instruments and agreements entered into in connection therewith, as
the same may be amended, modified, supplemented, restated, extended, renewed,
refunded, refinanced, restructured or replaced from time to time.
"Default" unless otherwise specified, means any Default as such term
is used in either the Credit Agreement or the Senior Subordinated Credit
Agreement.
"Event of Default" unless otherwise specified, means any Event of
Default as such term is used in either the Credit Agreement or the Senior
Subordinated Credit Agreement.
"Excess Cash Flow" shall have the meaning assigned thereto in the
Credit Agreement.
"Fiscal Year" means each twelve month period ending on the last day
of December in each year.
"Gerber" means Gerber Childrenswear, Inc., a Delaware corporation
and wholly-owned Subsidiary of the Company.
"Junior Interest Notes" means, collectively, (i) any Junior
Subordinated Notes of the Company (substantially in the form attached as Exhibit
I hereto) issued pursuant to Section 2 hereof, (ii) any Junior Subordinated
Notes of the Company issued in payment of any interest accrued on any other
Junior Interest Note, or (iii) any notes which may be issued in exchange or
substitution for the notes described in clause (i) or (ii) above, in whole or in
part. Each Junior Interest Note shall provide that the entire principal amount
of such note is due on the Maturity Date.
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<PAGE> 3
"Junior Subordinated Notes" means, collectively, (i) this Note, (ii)
any Junior Interest Notes, or (iii) any notes which may be issued in exchange or
substitution of the notes described in clauses (i) or (ii) above, in whole or in
part.
"Initial Interest Payment Date" means the first Interest Payment
Date occurring after January 1, 1998 as determined in accordance with Section
4(e)(iii).
"Majority Holders" means, at any time, the holders of a majority in
aggregate principal amount of the Junior Subordinated Notes then outstanding.
"Maturity Date" has the meaning set forth in Section 3.
"no longer in effect" means, with respect to the Credit Agreement,
(i) all Senior Indebtedness thereunder has been paid in cash, and (ii) all
commitments and obligations thereunder have been terminated.
"Person" means an individual, a partnership, a corporation, an
association, a limited liability company, a joint stock company, a trust, a
joint venture, an unincorporated organization and a governmental entity or any
department, agency or political subdivision thereof.
"Senior Debt Documents" shall mean the Credit Agreement, the Senior
Subordinated Credit Agreement and all other documents and instruments delivered
or filed in connection with the creation, incurrence, guaranteeing or securing
of any Senior Indebtedness (including, without limitation, all security
agreements and mortgages).
"Senior Indebtedness" means, collectively, (i) all Indebtedness now
or hereafter incurred by the Company or any of its Subsidiaries pursuant to the
terms of the Credit Agreement, (ii) all Indebtedness or Obligations (each as
defined in the Senior Subordinated Credit Agreement) now or hereafter incurred
by the Company or any of its Subsidiaries pursuant to the Senior Subordinated
Credit Agreement, (iii) all other Indebtedness of the Company's Subsidiaries,
(iv) guarantees by the Company of indebtedness referred to in clauses (i) and
(ii) above and any Refinancings (as defined below) thereof, and (v) all
obligations of the Company or any of its Subsidiaries in respect of any
indebtedness incurred by the Company or any of its Subsidiaries for the purpose
of refinancing, restructuring, extending or renewing (collectively,
"Refinancings") the obligation of the Company or any of its Subsidiaries under
clauses (i), (ii) or (iii) above. Senior Indebtedness shall include, in all
instances, interest (at the rate set forth in such Senior Indebtedness) accruing
after the filing of a petition initiating any proceedings under any Bankruptcy
Law (as defined below), whether or not allowed as a claim in such proceeding.
Senior Indebtedness outstanding under the Senior Debt Documents shall continue
to constitute Senior Indebtedness, notwithstanding that such Senior Indebtedness
or any claim in respect thereof may be disallowed, avoided or subordinated
pursuant to any insolvency law, Title 11 of the United States Code or any
similar federal or state law for the relief of debtors or other applicable
insolvency law (each, a "Bankruptcy Law") or equitable principles (A) as a claim
for unmatured interest, or (B) as a fraudulent transfer or conveyance arising in
connection with the Purchase; provided that,
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notwithstanding any provision in this Note to the contrary, the aggregate
principal amount of Senior Indebtedness outstanding at any time shall not exceed
$122,500,000 and any principal indebtedness or principal obligation in excess of
$122,500,000 shall not be Senior Indebtedness for any purposes hereunder.
"Senior Lenders" shall mean the Lenders from time to time party to
the Credit Agreement, CMP for so long as it shall hold all or any portion of the
Senior Indebtedness under the Senior Subordinated Credit Agreement and all other
holders of Senior Indebtedness.
"Senior Notes" shall mean the Notes as defined in the Credit
Agreement.
"Senior Subordinated Credit Agreement" means the Senior Subordinated
Credit Agreement, dated as of January 22, 1996, by and among the Company, Gerber
and CMP, and as amended as of December 17, 1997, as the same may be amended,
restated, extended, refunded, refinanced, replaced, supplemented, restructured
or otherwise modified from time to time (in whole or in part and without
limitation as to terms, conditions or covenants and without regard to the
principal amount thereof), including all related notes, collateral documents,
guarantees, instruments and agreements entered into in connection therewith, as
the same may be amended, modified, supplemented, restated, extended, renewed,
refunded, refinanced, restructured or replaced from time to time.
"Subordinated Debt Documents" shall mean this Note and each Junior
Interest Note, in each case, as amended, modified, replaced or substituted from
time to time.
"Subordinated Indebtedness" shall mean all indebtedness, contingent
obligations and other obligations, whether for principal, prepayment charges,
interest, indemnities or reimbursement of fees, expenses or other amounts, of
the Company under the Subordinated Debt Documents.
"Subordinated Seller" shall have the meaning set forth in the
preamble.
"Subsidiary" means, with respect to any Person, any corporation,
partnership, association or other business entity of which (i) if a corporation,
a majority of the total voting power of shares of stock 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 that Person or one or more of the other Subsidiaries of that
Person or a combination thereof, or (ii) if a partnership, association or other
business entity, a majority of the partnership or other similar ownership
interest thereof is at the time owned or controlled, directly or indirectly, by
any Person or one or more Subsidiaries of that Person or a combination thereof.
For purposes hereof, a Person or Persons shall be deemed to have a majority
ownership interest in a partnership, association or other business entity if
such Person or Persons shall be allocated a majority of partnership, association
or other business entity gains or losses or shall be or control the managing
director or general partner of such partnership, association or other business
entity.
"Termination Date" shall mean January 22, 2001.
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2. Payment of Interest.
(a) Interest Rate. Interest shall accrue on the unpaid principal
amount of this Note from the date hereof until this Note is paid in full, at the
rate of the lesser of twelve percent (12%) per annum or the maximum rate
permitted by applicable law (the "Interest Rate").
(b) Interest Payment Date. The Company shall pay interest annually
in arrears (i) on or prior to the Termination Date, on the date determined in
accordance with Section 4(e)(iii), and (ii) after the Termination Date, the
first day of each February (each such date referred to in clause (i) or clause
(ii) above, an "Interest Payment Date"). The first Interest Payment Date shall
be the Initial Interest Payment Date.
(c) Interest Payment. On each Interest Payment Date or, if such day
is not a business day, the next succeeding business day,
(i) on or prior to the Termination Date, except as otherwise
provided in Section 4(e) hereof, the Company shall pay interest on
this Note in cash or other immediately available funds, in an
aggregate amount equal to the sum of (without duplication) (A)
interest which has accrued on this Note during the immediately
preceding Fiscal Year, plus, (B) interest ("Compound Interest")
accrued during the period beginning on January 1 of each calendar
year (the "Compound Interest Accrual Commencement Date") and ending
on the Interest Payment Date in such calendar year, on the amount of
interest which shall have accrued during the period beginning on
January 1 of the calendar year immediately preceding such Compound
Interest Accrual Commencement Date (for each year thereafter) and
ending on December 31 of the calendar year immediately preceding
such Compound Interest Accrual Commencement Date (and such Compound
Interest shall be deemed to have accrued in the Fiscal Year ending
immediately prior to the applicable Compound Interest Accrual
Commencement Date); and (without duplication)
(ii) after the Termination Date, the Company shall pay
interest which has accrued since the immediately preceding Interest
Payment Date on this Note in cash or other immediately available
funds.
To the extent interest due on this Note is not payable in cash pursuant to
Section 4(e), on each Interest Payment Date, or if such day is not a business
day, the next succeeding business day, the Company shall pay in cash such
portion of the unpaid accrued interest on this Note as is permitted to be paid
in cash pursuant to Section 4(e) and such portion of the unpaid accrued interest
on this Note that is not payable in cash pursuant to Section 4(e) by issuing to
the Holder one or more Junior Interest Notes in aggregate principal amount equal
to the amount of the unpaid accrued interest to be so paid.
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3. Payment of Principal.
(a) Scheduled Payment. On January 22, 2006 (the "Maturity Date"),
the Company shall pay to the Holder of this Note the entire principal amount,
plus all accrued and unpaid interest, of this Note which is then unpaid.
(b) Optional Prepayments. Subject to the provisions of Section 4
hereof, the Company may, at any time and from time to time, without premium or
penalty, prepay all or a portion of the unpaid principal amount of the Junior
Subordinated Notes, together with unpaid interest accrued on such portion of the
principal amount which it is prepaying since the immediately preceding Interest
Payment Date.
(c) Mandatory Prepayments. Subject to the provisions of Section 4
hereof, within 15 days of the consummation of a sale of any capital stock of the
Company in connection with the initial underwritten public offering thereof and
the receipt by the Company of cash proceeds in respect of any such sale (the
"net cash proceeds"), the Company shall apply an amount equal to the lesser of
(A) 50% of the difference of (i) the net cash proceeds that the Company so
receives and (ii) any payments required by the Senior Debt Documents to prepay
the Senior Indebtedness described in clauses (i), (ii) or (iv) of the definition
of Senior Indebtedness and any Refinancing thereof, and (B) the remaining unpaid
principal amount of all Junior Subordinated Notes, to the prepayment of all
Junior Subordinated Notes without any premium or penalty.
(d) Application of Prepayments. All prepayments (whether voluntary
or mandatory) shall include payment of accrued and unpaid interest on the
principal amount of the Junior Subordinated Notes so prepaid and shall be
applied to payment of interest before application to principal. A prepayment of
less than all of the unpaid principal amount of any Junior Subordinated Note
shall not relieve the Company of its obligation to make the scheduled payment on
such Junior Subordinated Note on the Maturity Date. A prepayment of less than
all of the aggregate unpaid principal amount of the Junior Subordinated Notes
shall be made pro rata among all holders of Junior Subordinated Notes based on
the outstanding principal amount of all Junior Subordinated Notes held by each
such holder.
4. Subordination.
(a) Subordination to Senior Indebtedness. Each of the Company and
Subordinated Seller for itself and its respective successors and assigns,
covenants and agrees, and each other holder of Subordinated Indebtedness, by its
acceptance of this Note or such Subordinated Indebtedness, shall be deemed to
have covenanted and agreed, that the payment of the Subordinated Indebtedness
shall be subordinate and subject in right of payment, to the extent and in the
manner hereinafter set forth, to the prior payment in full in cash or cash
equivalents of all Senior Indebtedness, and that each holder of Senior
Indebtedness, whether now outstanding or hereafter created, incurred, assumed or
guaranteed shall be deemed to have acquired Senior Indebtedness in reliance upon
the provisions contained in this Section 4. The provisions of this Section 4
shall be reinstated if at any time any payment of any of the Senior Indebtedness
is rescinded or must
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<PAGE> 7
otherwise be returned by any holder of Senior Indebtedness or any representative
of such holder upon the insolvency, bankruptcy or reorganization of any Credit
Party. Any provision of this Section 4 or the Subordinated Debt Documents to the
contrary notwithstanding, no Credit Party shall make, and no holder of
Subordinated Indebtedness shall accept, any payment or prepayment of principal,
or prepayment of other amounts due thereunder, of any kind whatsoever with
respect to the Subordinated Indebtedness at any time when any of the Senior
Indebtedness remains outstanding except that, subject to the other provisions of
this Section 4, a Credit Party may make and the Subordinated Seller may accept
the scheduled payment of principal due on the Maturity Date and any mandatory
payment of principal under Section 3(c) above which has become due and payable
as provided in and in accordance with the Subordinated Debt Documents as in
effect on the date hereof. Unless barred by the provisions of Sections 4(b) or
4(c), the holders of the Subordinated Indebtedness shall be entitled to receive
regularly scheduled payments of interest and payment or reimbursement of all
fees, expenses, indemnities and like amounts under the Subordinated Debt
Documents as in effect on the date hereof. In no event shall any holder of
Subordinated Indebtedness commence any action or proceeding to contest the
provisions of this Agreement or the priority of the Liens granted to the holders
of the Senior Indebtedness by Gerber or any other Credit Party. No holder of
Subordinated Indebtedness shall take, accept or receive any collateral security
from the Company or any other Credit Party for the payment of the Subordinated
Indebtedness until the Senior Credit Agreement is no longer in effect and all
Senior Indebtedness has been paid in full.
(b) Subordinated Indebtedness Subordinated to Prior Payment of All
Senior Indebtedness in Dissolution, Liquidation, Reorganization, etc.
(i) Upon any payment or distribution of the assets of any
Credit Party of any kind or character, whether in cash, property or securities
(including (i) any collateral, whether the proceeds thereof or in kind, at any
time securing the Subordinated Indebtedness and (ii) any payments or
distributions in respect of indebtedness which is subordinated to the
Subordinated Indebtedness (the payments under this clause (ii), "Junior
Payments")), to creditors upon any dissolution, winding-up, or liquidation, or
reorganization, arrangement, adjustment, composition, or readjustment of any
Credit Party or their respective securities or debt (whether voluntary or
involuntary, or in bankruptcy, insolvency, reorganization, liquidation,
receivership proceedings, or upon an assignment for the benefit of creditors, or
any other marshaling of the assets and liabilities of any Credit Party or
otherwise), then in such event:
(A) the holders of Senior Indebtedness shall be entitled
to receive payment in full in cash or cash equivalents of all amounts due
or to become due on or in respect of all Senior Indebtedness before any
payments of any nature (other than payments of interest due on the Junior
Subordinated Notes by the delivery of a Junior Interest Note pursuant to
Section 4(e)(i)) are made on account of or applied on or made with respect
to the Subordinated Indebtedness; and
(B) any payment or distribution of assets of any Credit
Party (other than payments of interest due on the Junior Subordinated
Notes by the delivery of a Junior Interest Note pursuant to Section
4(e)(i)) of any kind or character, whether in cash, property
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<PAGE> 8
or securities, by set-off or otherwise, to which the holders of
Subordinated Indebtedness would be entitled except for the provisions of
this Section 4, including, without limitation, Junior Payments, shall be
paid or delivered by any debtor, custodian, liquidating trustee or agent
or other Person making such payment or distribution, whether a trustee in
bankruptcy, a receiver or liquidating trustee or otherwise, directly to
the holders of Senior Indebtedness as their respective interests may
appear, for application to the payment of all such Senior Indebtedness
remaining unpaid, to the extent necessary to pay all such Senior
Indebtedness in full in cash or cash equivalents after giving effect to
any concurrent payment or distribution, to the holders of such Senior
Indebtedness; provided, however, that if pursuant to an order or decree
issued by a court of competent jurisdiction, all or any portion of such
assets so distributed and paid over to or for the benefit of the holders
of Senior Indebtedness is required to be returned to a Credit Party, or
its bankruptcy estate, such holders of Senior Indebtedness shall pay over
such assets (or the cash equivalent thereof) to the trustee in bankruptcy,
receiver, liquidating trustee, custodian, assignee, agent or other Person
specified in such order or decree, in which event the provisions of this
Section 4 shall be reinstated to the same extent as if such amounts had
not been paid over to or for the benefit of the holders of Senior
Indebtedness as contemplated by Section 4(a) hereof.
(ii) The Company and Gerber shall give prompt notice to each
holder of outstanding Senior Indebtedness and Subordinated Indebtedness of any
dissolution, winding-up, total or partial liquidation, reorganization,
arrangement, adjustment, composition, recapitalization or readjustment of the
Company or Gerber, or their respective securities or debt.
(iii) Each holder of Subordinated Indebtedness shall duly and
promptly take such action as the Administrative Agent (or CMP if the Credit
Agreement is no longer in effect) may reasonably request to collect the
Subordinated Indebtedness for the account of the Senior Lenders and to file
appropriate claims or proofs of debt in respect to the Subordinated
Indebtedness.
(iv) If any holder of Subordinated Indebtedness does not file
a proper claim or proof of debt in the form required in any dissolution, winding
up, liquidation or bankruptcy reorganization of a Credit Party prior to 10
business days before the expiration of the time to file such claim or proof (the
"Appointment Trigger Date"), then the Administrative Agent (or CMP if the Credit
Agreement is no longer in effect) shall have the right to file and is hereby
authorized to file such a claim or proof for and on behalf of such holder.
Neither the Administrative Agent nor any Senior Lender shall have any liability
to any such holder in connection with any such filing except to the extent of
any loss or damage suffered by such holder as a result of the gross negligence
or willful misconduct of the Administrative Agent. Subordinated Seller hereby
appoints, and each other holder of the Subordinated Indebtedness, by its
acceptance thereof, appoints, as of the Appointment Trigger Date, the
Administrative Agent (or if the Credit Agreement is no longer in effect as of
such Appointment Trigger Date, CMP), as attorney-in-fact for such Person, solely
for the purpose of filing any such claim, proof of claim or other instrument of
similar character. Subordinated Seller and each other holder of Subordinated
Indebtedness, by its acceptance thereof, agrees that it will execute and deliver
such other and further powers of attorney or other instruments
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<PAGE> 9
as the Administrative Agent or any Senior Lender may reasonably request in order
to accomplish the foregoing.
(c) No Payments with Respect to Subordinated Indebtedness in Certain
Circumstances. (i) Subject in each case to Section 4(e):
(A) In circumstances in which Section 4(b) is not
applicable, no payment of any nature in respect of the Subordinated
Indebtedness (including, without limitation, pursuant to any
judgment with respect thereto, but excluding all payments of
interest due on the Junior Subordinated Notes by delivery of a
Junior Interest Note pursuant to Section 4(e) which shall not be
restricted by this subsection 4(c)(i)(A)) shall be made by or on
behalf of the Company or any Credit Party if, at the time of such
payment:
(1) a default in the payment when due (whether at
the maturity thereof, or upon acceleration of maturity or otherwise
and without giving effect to any applicable grace periods) of all or
any portion of the Senior Indebtedness (whether of principal,
interest or any other amount with respect thereto) shall have
occurred, and such default shall not have been cured or waived in
accordance with the terms of the Senior Debt Documents (a "Payment
Default"); or
(2) subject to clause (iii) of this Section 4(c),
(x) the Company and the Subordinated Seller shall have received
notice (a "Blockage Notice") from the Administrative Agent (or CMP
if the Credit Agreement is no longer in effect) of the occurrence of
one or more Events of Default in respect of the Senior Indebtedness
(other than Payment Defaults) (a "Covenant Default") and the
determination of the Administrative Agent or CMP, as applicable, to
invoke this Section 4(c)(A)(2), (y) each such Event of Default shall
not have been cured or waived in accordance with the terms of the
applicable Senior Debt Documents, and (z) 180 days shall not have
elapsed since the date such Blockage Notice was received (any period
during which no payment in respect of the Subordinated Indebtedness
may be made by reason of the application of this clause (2) being
hereinafter called a "Payment Bar Period").
(ii) the Company may resume payments in respect of the
Subordinated Indebtedness:
(A) in the case of a Payment Default, upon a cure or
waiver thereof in accordance with the terms of the Senior Debt
Documents; or
(B) in the case of an Event of Default or Events of
Default referred to in clause (2) of Section 4(c)(i)(A), upon the
earlier to occur of the cure or waiver of all such Events of Default
in accordance with the terms of the Senior Debt Documents, or the
expiration of such period of 180 days.
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(iii) Notwithstanding any provision of Section 4(c)(i) to the
contrary:
(A) no Payment Bar Period shall be in effect during more
than an aggregate of 180 days within any period of 360 consecutive
days; and
(B) no Event of Default existing on the date any
Blockage Notice is given shall, unless the same shall have ceased to
exist for a period of at least 30 consecutive days, be used as a
basis for any subsequent such notice.
(iv) the Company shall give prompt written notice to the
Subordinated Seller of (i) any Payment Default in respect of Senior Indebtedness
and (ii) its receipt of any notice of a Covenant Default.
(v) The Subordinated Seller shall provide the Administrative
Agent and CMP with copies of all default and other notices given to the Company
or Gerber under the terms of the Subordinated Debt Documents and all notices to
the Company under this Section 4.
(d) Subordination on Acceleration of Senior Indebtedness. In
circumstances in which Section 4(b) is not applicable, following any
acceleration of the maturity of any Senior Indebtedness and as long as such
acceleration shall continue unrescinded and unannulled, such Senior Indebtedness
shall first be paid in full in cash, or provision for such payment shall be made
in a manner satisfactory to the holders of the Senior Indebtedness, before any
payment is made on account of or applied on the Subordinated Indebtedness.
(e) Interest Payments.
(i) Prior to the date that is one (1) day after the
Termination Date, notwithstanding anything contained in this Note or the
Subordinated Debt Documents to the contrary, in circumstances when Section 4(b)
is not applicable, any payment of interest otherwise due and payable under this
Note shall not be payable in cash, and the Company, in lieu of paying interest
in cash on this Note shall make payment of interest hereunder by the delivery of
one or more Junior Interest Notes in aggregate principal amount equal to the
amount of interest then due and payable under this Note and dated the date of
issuance of such Junior Interest Note, if on the Interest Payment Date any one
or more of the following shall apply:
(A) an Event of Default shall be continuing on such
Interest Payment Date under the Credit Agreement; or
(B) the Lenders under the Credit Agreement shall not
have received a prepayment of $500,000 under subsection 3.3(b)(ii)
of the Credit Agreement in respect of the Fiscal Year most recently
ended prior to the Fiscal Year in which such Interest Payment Date
occurs (unless such payment was waived in writing by the requisite
percentage of Lenders under the Credit Agreement); provided, that,
in any event interest on such Interest Payment Date shall be payable
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(x) in cash only to the extent of that portion of Excess Cash Flow
for the Fiscal Year most recently ended prior to such Interest
Payment Date remaining after application of $500,000 to such
prepayment under subsection 3.3(b)(ii) of the Credit Agreement in
respect of such Fiscal Year and (y) only in respect of interest
accrued since the immediately preceding Interest Payment Date (or
with respect to the payment of interest on the Initial Interest
Payment Date, since the date hereof); or
(C) as of such Interest Payment Date, and after giving
effect to the payment of all interest payable on such Interest
Payment Date in cash, the amount, if any, by which (1) the Revolving
Committed Amount exceeds (2) the sum of the outstanding principal
balance of the Revolving Loan plus $20,000,000, shall be less than
$12,500,000.
(ii) In the event that any Junior Interest Note is delivered
in lieu of cash as required by this Section 4(e) in respect of any
Interest Payment Date, then no Company Event of Default shall be deemed to
be continuing by virtue of such delivery and the delivery of such Junior
Interest Note shall satisfy in full the requirement of the Company to make
payment of interest due and payable on such Interest Payment Date.
(iii) On or prior to the Termination Date, Interest on this
Note accrued, or pursuant to Section 2(c)(i), deemed to have accrued,
during any Fiscal Year shall be payable on the date that is thirty (30)
days following the date that a prepayment from Excess Cash Flow in respect
of such Fiscal Year is due and payable under Subsection 3.3(b)(ii) of the
Credit Agreement; provided, however, that for purposes of calculating the
interest payable on the Initial Interest Payment Date, this Amended Note
will be deemed to have been issued and outstanding as of January 1, 1997.
(iv) No holder of this Note may offset any amounts owing by
such holder to the Company or any other Credit Party against any amounts
owning to the Company hereunder.
(f) Acceleration of Subordinated Indebtedness; Remedies. If a
Company Event of Default (which shall mean that all necessary notices have been
given and any prerequisite for the passage of time has been satisfied) under the
Subordinated Debt Documents shall exist at any time that any Senior Indebtedness
shall be outstanding, neither the Subordinated Seller, nor any other holder of
Subordinated Indebtedness shall take any action (i) to accelerate or to collect
payment of any Subordinated Indebtedness, (ii) to foreclose or otherwise realize
on any security given to secure or guarantee such Subordinated Indebtedness,
(iii) to commence or join with any other creditor (other than holders of a
majority in principal amount of the Senior Notes or any representative thereof)
in commencing any proceeding in connection with or premised on the occurrence of
a Bankruptcy Event, or (iv) to pursue any other remedy with respect to the
Subordinated Indebtedness prior to the earlier of:
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<PAGE> 12
(A) the payment in full in cash or cash equivalents of all
Senior Indebtedness;
(B) the initiation of a proceeding (other than a proceeding
prohibited by clause (iii) of this Section 4(f)) in connection with or
premised upon the occurrence of a Bankruptcy Event;
(C) the expiration of 180 days immediately following the
receipt by the Administrative Agent of notice of the occurrence of such
Company Event of Default from the holder or holders entitled to accelerate
payments on the Subordinated Indebtedness; and
(D) the acceleration of the maturity of any Senior
Indebtedness by the Administrative Agent or CMP;
provided, however, that if, with respect to (B) and (D) above, such proceeding
or acceleration, respectively, is rescinded, or with respect to (C) above,
during such 180-day period such Company Event of Default has been cured or
waived, the prohibition against taking the action described in clauses (i),
(ii), (iii) and (iv) of this Section 4(f) shall automatically be reinstated as
of the date of the rescission, cure or waiver, as applicable. In the event of
the occurrence of any event described in clause (C) or clause (D) above, the
Subordinated Seller shall give ten (10) days prior written notice to the
Administrative Agent and CMP before taking any action described in clauses (i)
(except as to acceleration as to which five (5) days prior written notice shall
be required), (ii), (iii) or (iv) of this Section 4(f), which notice shall
describe with specificity the action that the holder or holders of Subordinated
Indebtedness entitled to accelerate payments on the Subordinated Indebtedness in
good faith intend to take. Such 10 (or 5, as applicable) day notice may be given
during the 180-day period described in clause (iii) above.
(g) Holders of Subordinated Indebtedness to be Subrogated to Rights
of Holders of Senior Indebtedness. Subject to the payment in full in cash or
cash equivalents of all Senior Indebtedness, the holders of Subordinated
Indebtedness shall be subrogated to the rights of the holders of Senior
Indebtedness to receive payments or distributions of assets of the Company
applicable to the Senior Indebtedness until the principal of, and interest and
premium (if any) on, and all other amounts payable in respect of, Subordinated
Indebtedness shall be paid in full in cash or cash equivalents, and for purposes
of such subrogation, no payment or distribution to the holders of the Senior
Indebtedness of assets, whether in cash, property or securities, distributable
to the holders of Senior Indebtedness under the provisions hereof to which the
holders of Subordinated Indebtedness would be entitled except for the provisions
of this Section 4(g), and no payment pursuant to the provisions of this Article
4 to the holders of the Senior Indebtedness by the holders of Subordinated
Indebtedness, shall, as between any Credit Party, its creditors other than the
holders of the Senior Indebtedness, and the holders of the Subordinated
Indebtedness, be deemed to be a payment by such Credit Party to or on account of
such Senior Indebtedness, it being understood that the provisions of this
Section 4(g) are, and are intended, solely for the purpose of defining the
relative rights of the holders of Subordinated Indebtedness, on the one hand,
and the holders of Senior Indebtedness, on the other hand.
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(h) No Reliance. Each of the Company, each other Credit Party and
the Subordinated Seller has examined with its counsel all documentation in
connection with the Subordinated Indebtedness, including this Note. No holder of
Senior Indebtedness makes any representation or warranty in connection with this
Note, and neither the Administrative Agent, any Senior Lender nor any one or
more officers, directors, employees or agents of the Administrative Agent or any
Senior Lender shall be liable for any action lawfully taken or omitted to be
taken by them under or in connection with this Section 4, except for their own
gross negligence, bad faith or willful misconduct. Neither the Administrative
Agent nor any Senior Lender shall be responsible in any manner to the Company,
any other Credit Party or the Subordinated Seller for any recitals, statements,
representations or warranties herein or for the effectiveness, enforceability,
genuineness, validity or the due execution of this Note or any other agreement
made in connection herewith (other than any such agreement on the part of a
Senior Lender) or be under an obligation to the Company, any other Credit Party
or the Subordinated Seller to ascertain or to inquire about the performance or
observance of any of the terms, covenants or conditions hereof on the part of
the parties hereto. Neither the Administrative Agent nor any Senior Lender shall
be deemed to have knowledge of the occurrence of a default or an event of
default under the Subordinated Debt Documents unless the Administrative Agent or
such Senior Lender has received written notice from the Subordinated Seller
specifying such default or event of default. The Subordinated Seller shall not
be deemed to have knowledge of the occurrence of a default or event of default
under the Senior Debt Documents unless the Subordinated Seller has received
written notice from the Administrative Agent or any Senior Lender specifying
such default or event of default. Each holder of Senior Indebtedness and the
Subordinated Seller shall be deemed to have knowledge of such matters as are the
subject of notices delivered to the Administrative Agent or CMP (with respect to
the Senior Indebtedness) and the Subordinated Seller, respectively.
(i) Obligations of the Company Unconditional. Nothing contained in
this Section 4 is intended to or shall impair, as between each Credit Party and
their respective creditors other than the holders of Senior Indebtedness, the
obligations of such Credit Party to the holders of Subordinated Indebtedness to
pay any Subordinated Indebtedness as and when such Subordinated Indebtedness
shall become due and payable in accordance with its terms, which obligations the
Company acknowledges are absolute and unconditional, or to affect the relative
rights of the holders of Subordinated Indebtedness and creditors of the Loan
Parties other than the holders of Senior Indebtedness, nor, except as set forth
in this Section 4, shall any holder of Subordinated Indebtedness be prevented
from accelerating the Subordinated Indebtedness or exercising all remedies
otherwise permitted by applicable law upon the happening of an event of default
under the applicable Subordinated Debt Documents subject to the rights, if any,
of the holders of Senior Indebtedness set forth in this Section 4, in respect of
assets, whether in cash, property or securities, of any Credit Party received
upon the exercise of any such remedy.
(j) Payments Received in Contravention of This Indebtedness. Should
any payment or distribution of any kind of character, whether in cash, property
or securities, or any collateral security, or the proceeds of any thereof, be
collected or received by a holder or holders of the Subordinated Indebtedness
and such collection or receipt is prohibited hereunder, such holder or holders
will promptly turn over the same to any Person designated by the Administrative
Agent
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(or CMP if the Credit Agreement is no longer in effect) in each case in the form
received (except for the endorsement or the assignment of such holder or holders
when necessary) for the application to (in the case of cash) or as collateral
for (in the case of non-cash property or securities) the payment or prepayment
of all Senior Indebtedness remaining not paid in full in cash or cash
equivalents and, until so turned over, the same shall be held in trust by such
holder or holders as the property of the holders of Senior Indebtedness.
(k) Modifications to Senior and Subordinated Indebtedness.
(i) A holder of any Senior Indebtedness may at any time and
from time to time without the consent of or notice to the holders of
Subordinated Indebtedness, without incurring liability to the holders of
Subordinated Indebtedness, and without impairing or releasing the obligations of
the holders of Subordinated Indebtedness under this Agreement: (A) change the
manner or place of payment or change the time of payment of or renew or alter
any Senior Indebtedness, or amend in any other manner any agreement, note,
guaranty or other instrument evidencing or securing or otherwise relating to any
Senior Indebtedness; (B) exercise or refrain from exercising any rights against
the Company or any other Credit Party and other Persons (including the holders
of Subordinated Indebtedness); and (C) apply any sums by whomsoever paid or
howsoever realized to any Senior Indebtedness, in such manner as the holders of
Senior Indebtedness determine.
(ii) the Company, each other Credit Party, the Subordinated
Seller and each holder of Subordinated Indebtedness shall not amend or modify in
any manner this Note and the provisions of the Junior Interest Note without the
express written consent of the Administrative Agent and CMP, in each instance.
(iii) The Administrative Agent will provide notice to the
Subordinated Seller of any change in the identity of the Administrative Agent,
if other than NationsBank, N.A. The Subordinated Seller will provide notice to
the Administrative Agent and CMP of any change in the identity of the
Subordinated Seller, if other than Gerber Products Company.
(l) "Paid in Full". For purposes of this Section 4, "payment in
full", "paid in full" or "satisfied", as used with respect to the Senior
Indebtedness, means the receipt of cash or cash equivalents equal to the full
amount of Senior Indebtedness, including, without limitation, the principal
amount of the Senior Indebtedness and interest thereon to the date of such
payment; provided, however, that any such cash or cash equivalents that the
holders of Senior Indebtedness have been required to return or disgorge shall
not be deemed to have been paid to the holders of Senior Indebtedness for the
purposes of determining whether the Senior Indebtedness has been "paid in full"
or "satisfied".
(m) Effect of Failure to Pay Subordinated Indebtedness. The failure
to make any payment on account of Subordinated Indebtedness by reason of the
operation of any provision of this Agreement shall not be construed as
preventing the occurrence of an event of default under the applicable
Subordinated Debt Documents; provided, however, that the delivery of a Junior
Interest
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<PAGE> 15
Note in compliance with Section 4(e) hereof shall constitute payment in full of
interest due and payable on the applicable Interest Payment Date and no Company
Event of Default shall arise thereby.
(n) No Disposition of Subordinated Indebtedness. No holder of
Subordinated Indebtedness will sell, assign, pledge, encumber or otherwise
dispose of any of the Subordinated Indebtedness unless such sale, assignment,
pledge, encumbrance or disposition is made expressly subject to this Section 4
and unless, after giving effect thereto, there would not be more than three (3)
holders of Subordinated Indebtedness. The Subordinated Seller and each other
Holder of this Note or any Subordinated Indebtedness shall promptly notify the
Company, Administrative Agent and CMP of the occurrence of any sale, assignment,
transfer or other disposition of this Note or any Subordinated Indebtedness and
the name and address for notices hereunder of the transferee thereof.
(o) Legends. The Company and the Subordinated Seller shall cause
this Note and each other instrument or document which now or thereafter
evidences all or any portion of the Subordinated Indebtedness to be
conspicuously marked with the following legend:
"PURSUANT TO SECTION 4 OF THIS NOTE, THIS INSTRUMENT IS SUBORDINATED
TO THE SENIOR INDEBTEDNESS (AS DEFINED HEREIN) AND NOTWITHSTANDING
ANY STATEMENT TO THE CONTRARY CONTAINED IN THIS INSTRUMENT, NO
PAYMENT OF ANY NATURE ON ACCOUNT OF THE OBLIGATIONS HEREUNDER,
WHETHER OF PRINCIPAL OR INTEREST, SHALL BE MADE, PAID, RECEIVED OR
ACCEPTED EXCEPT IN ACCORDANCE WITH THE TERMS OF SUCH SECTION 4."
(p) Remedies Enforcement.
(i) Upon any breach of this Section 4 by the Company, any
other Credit Party or the Subordinated Seller, the Administrative Agent (or CMP
with respect to any Senior Indebtedness under the Senior Subordinated Credit
Agreement) may, by written notice to the Company and Gerber, declare the Senior
Indebtedness immediately due and payable, and may sue and receive from the
Subordinated Seller any payment received in violation of this Section 4. The
rights and remedies of the Administrative Agent and the Senior Lenders under
this Section 4 are cumulative and in addition to any other rights and remedies
of the Administrative Agent and the Senior Lenders under the Senior Debt
Documents or any other agreement which may now or hereafter exist in law or at
equity. No postponement or delay by the Administrative Agent or any Senior
Lender in the enforcement of any right under this Section 4 shall constitute a
waiver thereof, nor shall any single or partial exercise of any right under this
Section 4 preclude any other or further exercise thereof or the exercise of any
other right. Without limiting the foregoing, the Administrative Agent and each
Senior Lender (in accordance with the Senior Debt Documents) is hereby
authorized to demand specific performance of the provisions of this Section 4,
whether or not any Credit Party shall have complied with any of the provisions
hereof applicable to it, at any time when any Credit Party, the Subordinated
Seller or any other holder of the Subordinated
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<PAGE> 16
Indebtedness shall have failed to comply with any of the provisions of this
Section 4 applicable to it. The holders of the Subordinated Indebtedness hereby
irrevocably waive any defense based on the adequacy of a remedy at law that
might be asserted as a bar to such remedy of specific performance.
(ii) The Subordinated Seller hereby acknowledges that the
provisions of this Section 4 are intended to be enforceable at all times until
the Credit Agreement is no longer in effect and the Senior Indebtedness has been
paid in full, whether before or after the commencement of a proceeding in
connection with or premised on the occurrence of a Bankruptcy Event.
(q) Waiver of Consolidation. Each holder of Subordinated
Indebtedness acknowledges and agrees that (i) the Company, each other Credit
Party and their respective Affiliates are each separate and distinct entities,
(ii) each such holder and each Senior Lender has relied upon the separate
existence and credit worthiness of the Company and Gerber, (iii) notwithstanding
any facts, circumstances, conditions or events, Gerber Childrenswear, Inc. shall
not have any liability, obligation or indebtedness to any holder of Subordinated
Indebtedness with respect to this Note or any Junior Interest Note; provided,
that nothing in this clause (iii) shall relieve the Company or any successor of
the Company from any of its obligations hereunder (including as a result of any
merger of the Company with any Person, including those Persons referred to above
in this Section 4(q)), and (iv) it will not at any time when any Senior
Indebtedness has not been paid in full, or when the Revolving Committed Amount
under the Credit Agreement is still in force or any Letter of Credit is
outstanding, insist upon, plead, or in any manner whatsoever, seek the entry of
any order or judgment, or take the benefit or advantage of, any substantive
consolidation, piercing of the corporate veil or any other order or judgment
that causes an effective combination of the assets and liabilities of the
Company, any other Credit Party and any other individual, corporation,
partnership or joint venture in any case or proceeding under Title 11 of the
United States Code or other similar proceeding.
(r) Duration and Modification of Agreement; Enforceability of Senior
Indebtedness Documents. This Agreement is of a continuing nature, and it shall
continue in force so long as any portion of the Senior Indebtedness remains
unpaid or any Letter of Credit is outstanding or the Revolving Committed Amount
under the Credit Agreement has not terminated. As between the Senior Lenders and
the Subordinated Seller, the Senior Lenders may, without notice to the
Subordinated Seller and without prejudice hereunder, extend, renew or alter the
terms of the Senior Debt Documents and the Senior Indebtedness, forbear
collection, release, compromise or settle, take or release collateral security
therefor and in connection with the Senior Indebtedness and deal with any and
all parties.
(s) Waiver. Except as expressly provided herein, the Company, and
each other Credit Party and the Subordinated Seller hereby waive to the extent
permitted by applicable law: (i) promptness, diligence, notice of acceptance or
any other notice with respect to any of the Senior Indebtedness and this Section
4, any requirement that any holder of Senior Indebtedness or the Administrative
Agent, protest, secure, perfect or insure any security interest or lien on any
property subject thereto or exhaust any right to take action against the
Company, any other Credit Party or
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<PAGE> 17
any other Person or any collateral, presentment for payment, notice of
non-payment or nonperformance, demand, protest, notice of protest and notice of
dishonor or default with respect to the Senior Indebtedness, (ii) defenses to
pay or perform based upon any of the Senior Indebtedness not being a valid and
binding obligation of the Company, or any other Credit Party, enforceable in
accordance with its terms (notwithstanding bankruptcy laws, insolvency laws and
other laws affecting generally the protection of debtors or rights of
creditors); (iii) any disability of the Company or any other Credit Party or
defense available to the Company or any other Credit Party (other than payment
in full in cash or cash equivalents) with respect to the Senior Indebtedness,
including absence or cessation of liability for any reason whatsoever; and (iv)
until all the Senior Indebtedness is paid (in cash or cash equivalents) and
performed in full, any right to subrogation or realization on any of the
Company's or any other Credit Party's property, including participation in any
marshalling of the Company's or any other Credit Party's assets.
(t) Successors and Assigns. The provisions of this Section 4 shall
be binding upon the Company, the Administrative Agent, the Senior Lenders, the
Subordinated Seller and their respective successors and assigns, and shall inure
to the benefit of the Administrative Agent and the Senior Lenders and their
respective successors and assigns. The benefits of this Section 4 shall be
freely assignable at any time by the Senior Lenders provided any such assignment
is in conjunction with the assignment of the related Senior Indebtedness.
(u) Amendment and Waivers. Notwithstanding any other provisions of
this Note, this Section 4 may be changed, modified or waived only by a writing
signed by the Company, the Subordinated Seller, CMP and the Administrative
Agent.
(v) Further Assurances. The Company each other Credit Party and the
holders of the Subordinated Indebtedness each will, at the expense of the
Company and at any time and from time to time, promptly execute and deliver all
further instruments and documents, and take all further action, that may be
reasonably necessary or appropriate, or that the Administrative Agent may
reasonably request, in order to protect any right or interest granted or
purported to be granted to this Section 4 or to enable the holders of the Senior
Indebtedness or the Administrative Agent to the exercise and enforce their
rights and remedies hereunder.
5. Notices. Any notice or other communication required or permitted
to be given under this Note shall be in writing addressed to the respective
party as set forth below and may be personally served, telecopied or sent by
nationally recognized overnight courier service or United States certified mail,
postage prepaid, and shall be deemed to have been given: (a) if delivered in
person, when delivered; (b) if delivered by telecopy, on the date of
transmission if transmitted on a Business Day before 4:00 p.m. (CST) or, if not,
on the next succeeding Business Day; or (c) if delivered by overnight courier,
two days after delivery to such courier, properly addressed.
Notices shall be addressed as follows:
If to the Company:
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<PAGE> 18
GCIH, Inc.
1333 Broadway, 7th Floor
New York, New York 10018
Telecopy No.: (212) 268-5122
Attention: Edward Kittredge
With copies to:
CITICORP VENTURE CAPITAL, LTD.
399 Park Avenue
14th Floor, Zone 4
New York, New York 10043
Telecopy No.: (212) 888-2940
Attention: Mr. John Weber
and
KIRKLAND & ELLIS
153 East 53rd Street
New York, New York 10022
Attn: Kirk A. Radke, Esq.
Telecopy No.: (212) 446-4900
If to the Administrative Agent:
NATIONSBANK, N.A.
NationsBank Corporate Center
100 North Tryon Street, 7th Floor
NC 1-007-08-11
Charlotte, NC 28255
Telecopy No.: (704) 388-0209
Attn: David Dinkens
with a copy to:
CITICORP MEZZANINE PARTNERS, L.P.
399 Park Avenue,
14th Floor, Zone 4
New York, New York 10043
Attention: Ms. Byron Knief
Telecopy No.: (212) 888-2940
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<PAGE> 19
and to:
MOORE & VAN ALLEN
NationsBank Corporate Center
100 North Tryon Street, 47th Floor
Charlotte, NC 28202
Attn: Thomas C. O'Bannon, Esq.
If to the Subordinated Seller:
GERBER PRODUCTS COMPANY
445 State Street
Fremont, Michigan 49412
Attention: General Counsel
Telecopy: (616) 928-2331
With a copy to:
SKADDEN, ARPS, SLATE, MEAGHER & FLOM
333 West Wacker Drive
Chicago, Illinois 60606
Attention: William R. Kunkel, Esq.
Telecopy: (312) 407-0411
or to such other address as the party addressed shall have previously designated
by written notice to the serving party, given in accordance with this Section 5.
Notice not given as provided above shall, if it is in writing, be deemed given
if and when actually received by the party to whom given.
6. Events of Default.
(a) Definition. For purposes of this Note, a "Company Event of
Default" shall be deemed to have occurred upon:
(i) (A) the Company's failure to pay when due (whether
pursuant to Section 3(a) above or upon acceleration or otherwise) any portion of
the unpaid principal amount of any Junior Subordinated Note; or (B) the
Company's failure to pay any interest thereon or issue any Junior Interest Note
due or to pay any other amount due thereunder or under any other Subordinated
Debt Documents and such default continues for a period of ten (10) days.
(ii) (A) a court having jurisdiction in the premises shall
enter a decree or order for relief in respect of the Company or Gerber in
an involuntary case under any Bankruptcy Law, which decree or order is not
stayed; or any other similar relief shall be granted and remain unstayed
under any applicable federal or state law; or (B) an involuntary case is
commenced against the Company or Gerber under any applicable Bankruptcy
Law;
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<PAGE> 20
or a decree or order of a court having jurisdiction in the premises for
the appointment of a receiver, liquidator, sequestrator, trustee,
custodian or other officer having similar powers over the Company or
Gerber or over all or a substantial part of any of their respective
properties, shall have been entered; or an interim receiver, trustee or
other custodian of the Company or Gerber for all or a substantial part of
its properties is involuntarily appointed; or a warrant of attachment,
execution or similar process is issued against any substantial part of the
properties of the Company or Gerber, and the continuance of any such
events in this clause (B) for sixty (60) days unless dismissed, bonded,
stayed, vacated or discharged;
(iii) the Company or Gerber shall have an order for relief
entered with respect to it or commence a voluntary case under any
Bankruptcy Law, or shall consent to the entry of an order for relief in an
involuntary case, or to the conversion of an involuntary case to a
voluntary case, under any such law, or shall consent to the appointment of
or taking possession by a receiver, trustee or other custodian for all or
a substantial part of their respective properties; the making by the
Company or Gerber of any assignment for the benefit of creditors the
admission by the Company in writing of its inability to pay its debts as
such debts become due;
(iv) the acceleration of the maturity of any Senior
Indebtedness by the Administrative Agent or CMP; provided, that if such
acceleration is rescinded no Company Event of Default shall be deemed to
have occurred hereunder;
(v) a Change of Control shall occur; or
(vi) the Company shall fail to perform or observe its
obligations under Sections 7 and 8 hereof, and such failure shall continue
for a period of ten (10) days after the Majority Holders have given the
Company notice thereof.
(b) Consequences of Events of Default.
(i) Upon the occurrence and during the continuance of a
Company Event of Default described in clauses (i), (iv), (v) or (vi) of
Section 6(a) above, the Majority Holders may by notice to the Company and
the Administrative Agent declare all or any portion of the unpaid
principal amount of the Junior Subordinated Notes due and payable and
demand immediate payment of all or any portion of the unpaid principal
amount of the Junior Subordinated Notes, subject to the limitations
described in Section 4 above. Upon the occurrence of a Company Event of
Default described in clauses (ii) or (iii) of Section 6(a) above, the
unpaid principal amount of the Junior Subordinated Notes shall
automatically become due and payable without any notice by the holders
thereof.
(ii) Subject to Section 4 above, each holder of the Junior
Subordinated Notes shall also have all other rights which such holder may
have pursuant to applicable law or in equity.
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<PAGE> 21
7. Financial Statements and Other Reports. The Company will
maintain, and cause each of its Subsidiaries to maintain, a system of accounting
established and administered in accordance with sound business practices to
permit preparation of consolidated financial statements in conformity with GAAP.
The Company will deliver to the Subordinated Seller:
(a) as soon as practicable and in any event within ninety (90)
days after the end of each fiscal year of the Company, consolidated and
consolidating (showing intercompany eliminations) balance sheets of the
Company and its Subsidiaries as of the end of such year and the related
consolidated and consolidating (showing intercompany eliminations)
statements of income, stockholders' equity and cash flow of the Company
and its Subsidiaries for such fiscal year, setting forth in each case in
comparative form the consolidated figures for the previous fiscal year,
all in reasonable detail accompanied by an unqualified report thereon of a
firm of independent certified public accountants of recognized national
standing selected by the Company and reasonably satisfactory to the
Administrative Agent, which report shall state that such consolidated
financial statements fairly present the consolidated financial position of
the Company and its Subsidiaries as at the date indicated and the results
of their operations and cash flow for the periods indicated in conformity
with GAAP applied on a consistent basis with prior years and that the
examination by such accountants in connection with such consolidated
financial statements has been made in accordance with generally accepted
auditing standards; and
(b) as soon as practicable and in any event within forty-five
(45) days after the end of each fiscal quarter of the Company, other than
quarters which are the last fiscal quarter in a fiscal year of the
Company, copies of the consolidated and consolidating balance sheets of
the Company and its Subsidiaries as of the end of such fiscal quarter, and
related consolidated and consolidating statements of income, stockholder's
equity and cash flow of the Company and its Subsidiaries for such fiscal
quarter and for the portion of the fiscal year ending with such fiscal
quarter, in each case setting forth in comparative form the figures for
the corresponding periods of the preceding fiscal year, all in reasonable
detail.
8. Restricted Junior Payments. The Company will not, and will not
permit any of its Subsidiaries to, directly or indirectly, declare, order, pay,
make or set apart any sum of any Restricted Junior Payment, except that the
Company and its Subsidiaries may make Restricted Junior Payments permitted under
the Senior Debt Documents.
9. Amendment and Waiver. Except as otherwise expressly provided
herein, the Company may take any action herein prohibited, or omit to perform
any act herein required to be performed by it, only if the Company has obtained
the prior written consent of the Majority Holders.
10. Cancellation. After all unpaid principal and interest owed on
this Note has been paid in full, this Note shall be surrendered to the Company
for cancellation and shall not be reissued.
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<PAGE> 22
11. Governing Law; Severability. The construction, validity and
interpretation of this Note shall be governed by and construed in accordance
with the domestic laws of the State of New York, without giving effect to any
choice of law or conflict of law provision or rule (whether of the State of New
York or any other jurisdiction) that would cause the application of the laws of
any jurisdiction other than the State of New York. Whenever possible each
provision of this Note shall be interpreted in such manner as to be effective
and valid under applicable law, but if any provision of this Note shall be
prohibited by or invalid under such law, such provision shall be ineffective to
the extent of such prohibition or invalidity, without invalidating the remainder
of such provision or the remaining provisions of this Note and shall be
interpreted so as to be effective and valid.
12. Descriptive Headings. The descriptive headings of this Note are
inserted for convenience only, and do not constitute a part of this Note.
13. Expenses. The Company shall pay all reasonable out-of-pocket
costs and expenses of the Subordinated Seller actually incurred in connection
with the preservation of rights under, and enforcement of, and any renegotiation
or restructuring of this Note or the other Subordinated Debt Documents requested
by the Company and any amendment, waiver or consent requested by the Company
relating hereto or thereto (including, without limitation, the fees and
disbursements of counsel for the Subordinated Seller).
14. Waivers, etc. The Company hereby waives presentment for payment,
demand, protest and notice of dishonor. No delay on the part of the Subordinated
Seller in the exercise of any right or remedy shall operate as a waiver thereof,
and no single or partial exercise by the Subordinated Seller of any right or
remedy shall preclude any other or further exercise thereof or the exercise of
any other right or remedy.
15. Successors and Assigns Regarding Notes. The provisions of this
Note and each of the other Junior Subordinated Notes shall be binding upon the
Company and its respective successors and assigns and shall inure to the benefit
of the Subordinated Seller and its successors and assigns; provided that the
Company may not assign or transfer any of its obligations under any Junior
Subordinated Note without the prior written consent of Subordinated Seller.
* * * * *
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<PAGE> 23
IN WITNESS WHEREOF, the Company has executed and delivered this
Junior Subordinated Note on the date first written above.
GCIH, INC.
By: /s/ Richard Solar
-----------------------
Name: RICHARD SOLAR
Title:Senior Vice President
Attest:
/s/ Katherine A. Courpas
- ------------------------
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<PAGE> 24
EXHIBIT I TO 12% JUNIOR SUBORDINATED NOTE
THE SECURITIES REPRESENTED BY THIS CERTIFICATE WERE ORIGINALLY ISSUED ON
_________ __, 199_ AND HAVE NOT BEEN REGISTERED UNDER THE SECURITIES ACT
OF 1933, AS AMENDED. THE TRANSFER OF THE SECURITIES REPRESENTED BY THIS
CERTIFICATE IS SUBJECT TO THE CONDITIONS SPECIFIED IN A JUNIOR
SUBORDINATED NOTE DATED AS OF JANUARY 22, 1996 FROM THE ISSUER (THE
"COMPANY") TO THE HOLDER. A COPY OF SUCH CONDITIONS SHALL BE FURNISHED BY
THE COMPANY TO THE HOLDER HEREOF UPON WRITTEN REQUEST AND WITHOUT CHARGE.
PURSUANT TO SECTION 4 OF THIS NOTE, THIS INSTRUMENT IS SUBORDINATED TO THE
SENIOR INDEBTEDNESS (AS DEFINED HEREIN) AND NOTWITHSTANDING ANY STATEMENT
TO THE CONTRARY CONTAINED IN THIS INSTRUMENT, NO PAYMENT OF ANY NATURE ON
ACCOUNT OF THE OBLIGATIONS HEREUNDER, WHETHER OF PRINCIPAL OR INTEREST,
SHALL BE MADE, PAID, RECEIVED OR ACCEPTED EXCEPT IN ACCORDANCE WITH THE
TERMS OF SUCH SECTION 4.
JUNIOR SUBORDINATED INTEREST NOTE
[Date] $________
GCIH, INC., a Delaware corporation (the "Company"), hereby promises
to pay to the order of __________________ (the "Holder") the principal amount of
_______ Dollars ($________), together with interest thereon at the rate of
twelve percent (12%) per annum calculated from the date hereof, on January 22,
2006 (the "Maturity Date") in accordance with the provisions of this Junior
Subordinated Interest Note (this "Junior Interest Note").
This Junior Interest Note was issued pursuant to Section 2 of the
12% Junior Subordinated Note issued by the Company on January 22, 1996, or any
note which may be issued in substitution thereof or as a replacement therefor,
in whole or in part (the "Junior Subordinated Note").
The provisions of sections 1 through 15 of the Junior Subordinated
Note are hereby incorporated by reference, with all references to Junior
Subordinated Notes hereby deemed to be, for purposes of this Junior Interest
Note, references to the Junior Interest Note.
* * * * *
<PAGE> 25
IN WITNESS WHEREOF, the Company has executed and delivered this
Junior Interest Note on the date first written above.
GCIH, INC.
By: ____________________________
Name:
Title:
Attest:
- ---------------------------
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<PAGE> 1
Exhibit 10.13
LICENSE AGREEMENT
This AGREEMENT made this 22nd day of January 1996, by and between
Gerber Products Company, a Michigan corporation with its principal place of
business at 445 State Street, Fremont, Michigan 49413 ("Licensor"), and Gerber
Childrenswear, Inc. with its principal place of business at 531 South Main
Street, P.O. Box 3010, Greenville, S.C. 29602 ("Licensee").
WITNESSETH:
WHEREAS, Licensor is the sole and exclusive owner of the registered
trademark Gerber and baby head, and the associated registered trademarks and the
trademark registrations and pending applications as described in Exhibit A-1
hereto (the "Registered Trademarks") and common law trademark rights as
described in Exhibit A-2 hereto (the "Common Law Trademarks" and, together with
the Registered Trademarks, the "Licensed Trademarks");
WHEREAS, Licensee desires to utilize the Licensed Trademarks upon
and in connection with the manufacture, sale, advertisement, promotion and
distribution of articles as described in this License Agreement;
WHEREAS, this License Agreement is made pursuant to, and is attached
as an Exhibit to, that certain Stock Purchase Agreement, dated as of December
14, 1995 (the "Stock Purchase Agreement"), by and between Licensor and GCIH,
Inc. and
WHEREAS, it is a condition to the consummation of the transactions
contemplated by the Stock Purchase Agreement that the parties execute and
deliver this License Agreement.
NOW, THEREFORE, in consideration of the mutual covenants which
follow, and for other good and valuable consideration, the parties agree as
follows:
1. GRANT OF LICENSE
(a) Licensed Articles. Licensor grants to Licensee an
exclusive, non-transferable, non-assignable (except as set forth in Section 19)
license to use the Licensed Trademarks solely on and/or in association with the
manufacture, offering for sale, sale, marketing, advertising, promotion,
shipment and distribution of:
(i) shoes for infant sizes 0-6 and for toddler sizes 7-13;
(ii) underwear (including but not limited to Onesies(R), Twosies(R),
Longmates(R), training pants, undershirts, briefs, panties, vests, sacks,
gowns, kimonos, union suits, diaper vests, one-piece underwear, fashion
underwear, thermal underwear, newborn caps and booties;
<PAGE> 2
(iii) sleepwear (including but not limited to blanket sleepers, growth
sleepers, pajamas (footed and non-footed), sleep 'n play, pram suits,
gowns, kimonos, sacks, 2-way sleepers and slippers);
(iv) playwear (including but not limited to creepers, two-piece sets,
three-piece sets, overalls, shortalls, coveralls, jumpers, dresses,
shirts, sweaters, pants, sweat suits, mitts and headbands sold in
conjunction with other Licensed Articles, coordinated separates, hats,
booties and shorts);
(v) bed and bath products, more specifically products typically used in a
nursery to decorate or coordinate the nursery or bedding or to bathe a
child (including but not limited to sheets, pillowcases, comforters, dust
ruffles, blankets, diaper stackers, pillows, nursing pillows, throws,
bumper pads, lap pads, changing table pads, mattress pads, headboard
covers, quilts, room borders, wall hangings, window treatments,
coordinated fabric by yard, canopies, toddler bedding, bedding sets,
burpcloths, crib rail covers, duvet covers, wallpaper, towels, bath mitts,
washcloths, robes and bath mats, but not including switchplates, night
lights, bathtubs and nursery safety items);
(vi) reusable cloth diapers and diapering apparel products (including but
not limited to reusable cloth diapers, vinyl pants, diaper covers, diaper
liners and swim diapers);
(vii) bibs;
(viii) hosiery (including but not limited to booties, socks, slipper
socks, tights and leotards);
(ix) swimwear (including but not limited to bathing suits, robes and
cover-ups); and
(x) gift sets and layettes incorporating one or more Licensed Articles;
in each case, targeted to children, in sizes newborn to size 4T, except in the
case of blanket sleepers, growth sleepers and pram suits, targeted to children
newborn to age 14 ((i) through (ix) are collectively referred to herein as the
"Licensed Articles"), as may be approved by Licensor pursuant to Section 7,
solely within the Licensed Territory ("Licensed Rights"). In addition to the
foregoing, the Licensed Articles shall include all products shipped by Licensee
at any time during the two years immediately prior to the Closing Date which
were targeted to children in the sizes indicated above.
(b) Licensed Territory.
(i) Except as set forth in (ii) below, the Licensed Rights may be
exercised only in the United States (including the military bases,
territories and possessions thereof), Canada, Argentina, Mexico and the
Caribbean (the "Licensed Territory"); provided, however, that Argentina or
Mexico shall be excluded from Licensed Territory if the aggregate annual
dollar amount of net sales (as defined below) of Licensed Articles in 1997
or in the tenth year of the Initial Term are less than $1 million for
Argentina and less than $2 million for Mexico, or if in
2
<PAGE> 3
Argentina or Mexico the aggregate annual dollar amount of net sales (as
defined below) of Licensed Articles in the fifth year of the Second Term
is less than the aggregate annual dollar amount of net sales of Licensed
Articles in the tenth year of the Initial Term. Except as set forth in
(ii) below, Licensee agrees that it will not make or authorize any use,
direct or indirect, of the Licensed Trademarks outside the Licensed
Territory and will not knowingly sell the Licensed Articles to persons
other than Licensor and its affiliates, who intend to, or who are likely
to, resell them in any country outside the Licensed Territory.
(ii) In the event that Licensor desires to (x) license the Licensed
Trademarks for the sale and distribution of Licensed Articles or (y) sell
the Licensed Articles bearing the Licensed Trademarks in each case in any
of the countries located in South America (except Argentina) or Central
America, Licensor hereby agrees that Licensee shall first be offered a
license for such country or countries on the same terms and conditions set
forth herein and Licensee shall have a 30-day period to notify Licensor
that Licensee wishes to enter into such license. If Licensee fails to
respond within the 30-day period or declines such offer, Licensor shall be
permitted to license any person, corporation or entity in the countries
described above with respect to the Licensed Articles provided such
license is not at a royalty rate less than the rate set forth in Section 2
hereof. If (i) Licensee agrees to the license referred to above and (ii)
with respect to Licensee's sale of Licensed Articles in Argentina,
Caribbean or Mexico, Licensee agrees that it will offer to Licensor the
right to distribute the Licensed Articles in the applicable country in any
channel of distribution in which Licensor participates in such country on
terms and conditions agreed to by Licensee and Licensor. The parties
shall use best efforts to agree on such terms and conditions within 30
days of Licensee's offer to Licensor. If the parties cannot agree on such
terms and conditions within such 30- day period, then Licensee may use
other distributors on terms and conditions not more favorable to such
distributor than those offered to Licensor by Licensee.
(c) Term.
(i) This License Agreement shall commence on the date of execution and
expire on the tenth anniversary of such commencement (the "Initial Term"),
unless it is terminated earlier pursuant to a provision hereof. If not
earlier terminated pursuant to this License Agreement, this License
Agreement shall be renewable upon expiration of the Initial Term for an
additional 5-year period (the "Second Term") if the aggregate annual
dollar amount of net sales (as defined below) of Licensed Articles
(excluding sales pursuant to the Distributor Agreement, dated the date
hereof, between the parties hereto, in the tenth year of the Initial Term
is equal to or exceeds $120,000,000, and shall be renewable upon
expiration of the Second Term for an additional 5-year period (the "Third
Term") if the aggregate annual dollar amount of net sales of Licensed
Articles in the fifth year of the Second Term is equal to or exceeds the
aggregate annual dollar amount of net sales of Licensed Articles in the
tenth year of the Initial Term.
(ii) Either Licensor or Licensee, in its sole discretion, may terminate
this License Agreement at the end of the Third Term if the terminating
party provides written notice to the non-
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terminating party not less than two years prior to the end of the Third
Term. In the event such notice is not given, this License Agreement shall
continue on a year-to-year basis until such written notice is given not
less than two years prior to the desired termination date. Following
notice of termination by the Licensor to Licensee, the royalty rate set
forth in Section 2 shall be decreased to ___* and following notice of
termination by the Licensee to the Licensor, the royalty rate set forth in
Section 2 shall be increased to ___*.
2. TERMS OF PAYMENT
(a) Rate. Licensee shall pay to Licensor as royalty, the
following amounts as a percent of net sales of Licensed Articles bearing the
Licensed Trademarks:
Years
(Beginning on
the date hereof)
___
1-6:*
7:*
8-9:*
10-11:*
12-20:*
for all years thereafter (if any):*
The term "net sales" shall mean the wholesale list price of actual customer
shipments less actual quantity and placement discounts (warehouse allowances,
damaged and defective merchandise allowances, new store allowances, promotional
discount allowances), less customer penalties, handling charges and product
testing charges, less actual returns, but no adjustments shall be made in
respect of any recalls as described in Sections 7(i) and 7(j) below nor shall
deductions be made for uncollectible accounts. No costs incurred in the
manufacture, sale, or distribution of the Licensed Articles shall be deducted
from any royalties payable to Licensor. In no event shall such deductions for
quantity and placement discounts, customer penalties, handling charges, product
testing charges and bona fide returns exceed 5% of the wholesale list price.
Notwithstanding the foregoing, royalties with respect to irregulars and
closeouts (each as defined below) sold by Licensee at prices above Licensee's
cost (as such term is defined in the Distributor Agreement, dated the date
hereof, between the parties hereto) shall be equal to one-half of the then
applicable royalty rate, and no royalties shall be due and payable on sales of
Licensed Articles to Licensor or its affiliates or on sales of irregulars and
closeouts sold by Licensee at prices equal to or below Licensee's cost.
"Irregulars" shall mean Licensed Articles which contain approved images and
complete legal notices, but with certain slight defects in the manufacture or
printing of the product. Irregulars shall not include any product which is
dangerous or hazardous, contains unapproved images or lacks a complete legal
notice. Sales of irregulars shall not exceed five percent (5%) of all sales of
Licensed Articles in any calendar year. "Closeouts" shall mean first quality
Licensed Articles discounted by twenty percent (20%) or more off the wholesale
list price for such Licensed Articles for the purpose of discontinuing sales of
the Licensed Articles. Sales of closeouts shall not exceed ten percent
_______
* The Company has requested confidential treatment for this provision from
the Securities and Exchange Commission.
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(10%) of all sales of Licensed Articles in any calendar year. Licensee will
deduct or withhold from royalty payments all taxes and fees required by law or
regulation to be deducted or withheld at the lowest rate allowed by local law or
applicable law treaty, and Licensee shall timely pay such deducted or withheld
taxes or fees to the appropriate taxing authorities and provide Licensor with
acceptable proof of payment within 45 days of payment. All payments shall be in
U.S. currency drawn on a U.S. bank. The exchange rate shall be the spot exchange
(the current rate in effect for a specific day) as published in the Midwest
Edition of the Wall Street Journal as of the date of payment.
(b) Periodic Statements. Within thirty days after the end of
each calendar quarter, Licensee shall furnish to Licensor a complete and
accurate statement, in the form attached to this License Agreement as Exhibit B,
certified to be accurate, by an officer of Licensee, showing the country of
manufacture (with respect to aggregate sales), country in which sold or to which
shipped (with respect to aggregate sales), item number, description, units sold,
wholesale list price, itemized deductions and net sales price of the Licensed
Articles distributed and/or sold by Licensee during the preceding calendar
quarter. For purposes of this License Agreement, a Licensed Article shall be
considered "sold" upon the date when such Licensed Article is billed, invoiced,
shipped, or paid for, whichever event occurs first. Such statements shall be
furnished to Licensor whether or not any of the Licensed Articles have been sold
during the quarter to which such statements refer. The amount shown in the
quarterly statements as being due Licensor shall be paid simultaneously with the
submission of such statements. If Licensee is a publicly-held corporation, upon
demand of Licensor, Licensee shall, at its own expense, furnish to Licensor a
detailed statement by an independent certified public accountant which in
conjunction with Licensee's fiscal year end, substantiates the data contained in
a quarterly royalty report or all quarterly royalty reports for that fiscal
year.
(c) Royalty Payments. The receipt and/or acceptance by
Licensor of any of the statements furnished or royalties paid to Licensor (or
the cashing of any royalty checks paid) shall not preclude Licensor from
questioning the correctness thereof at any time and, in the event that any
inconsistencies or mistakes are discovered in such statements or payments, they
shall immediately be rectified and the appropriate payment made by Licensee or
Licensor, as applicable. Licensee shall not reduce royalty payments hereunder
for any reason, including purported rights to setoff. Licensee shall pay
Licensor interest on late royalty payments at an interest rate equal to the
lesser of (i) 1-3/4% per month, or (ii) the highest rate permitted by law, in
each such case, from the date the royalty payment should have been paid to
Licensor.
3. OWNERSHIP OF RIGHTS
(a) Licensor represents and warrants, and Licensee
acknowledges, that Licensor is the sole and exclusive owner of all right, title
and interest in and to the Registered Trademarks with full right to enter into
this License Agreement.
(b) Nothing in this License Agreement shall be construed as an
assignment to Licensee of any right, title and/or interest in the Licensed
Trademarks, it being understood that
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all right, title and interest relating thereto are expressly reserved by
Licensor except for the rights being licensed.
(c) Notwithstanding Licensor's grant of Licensed Rights to
Licensee, Licensor reserves the right to use or license others to use and/or
manufacture articles similar to Licensed Articles as corporate identity items;
provided, however, that Licensor shall first offer Licensee the opportunity to
manufacture such items.
(d) No license as to any articles other than with respect to
the Licensed Articles and only as to the Licensed Territory is being granted,
such grant being subject to the limitations set forth in this License Agreement,
and Licensor reserves for use as it may determine all rights of any kind in the
Licensed Trademarks other than the Licensed Rights subject to the provisions of
Section 6.12 of the Stock Purchase Agreement. Licensee recognizes that
Angel-etts of California, Inc. ("Angel-etts") has been granted the right to use
the Licensed Trademarks for products which fall into the same general product
category as one or more of the Licensed Articles and which may be similar to but
not the same as one or more of the Licensed Articles in terms of use, function,
or otherwise, and Licensee expressly concedes that the existence of said license
does not and shall not constitute a breach of this License Agreement by
Licensor. Licensee agrees that Licensed Articles manufactured by Angel-etts
shall be submitted to Licensor for approval pursuant to Section 7. Licensor
agrees that (i) the renewal or other extension of the license with Angel-etts
shall not constitute a breach by Licensee of this License Agreement and (ii) it
will not modify such license in any way, including but not limited to the
royalty payment provisions thereof.
(e) Licensee shall not use Licensor's name or the Licensed
Trademarks other than as permitted herein, it being agreed and understood that
Licensee shall be entitled to incorporate the name "Gerber" in Licensee's
corporate or business name, during the term of this License Agreement; provided,
however, that Licensee agrees that if Licensee uses the name "Gerber" in its
corporate or business name on any product other than the Licensed Articles, it
shall use a type size which is the smaller of eight point type or the type size
necessary to comply with applicable law. Licensee agrees that in using the
Licensed Trademarks, it will in no way represent that it has any rights, title
and/or interest in and/or to the Licensed Trademarks other than those expressly
granted under the terms of this License Agreement. Licensee further agrees that
it will not use and/or authorize the use, either during or after the term of
this License Agreement, of any configuration, trademark, trade name or other
designation confusingly similar to Licensor's name or Licensed Trademarks.
(f) During the term of this License Agreement and thereafter,
Licensee shall not contest or otherwise challenge or attack Licensor's rights in
the Licensed Trademarks or the validity of the license being granted herein.
4. GOOD WILL
Licensee recognizes the value of the good will associated with the
Licensed Trademarks, and acknowledges that the Licensed Trademarks and all
rights therein, and the good
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will pertaining thereto, belong exclusively to Licensor, and that the Licensed
Trademarks has a secondary meaning in the mind of the public. Licensee agrees
that its use of the Licensed Trademarks shall inure to the benefit of Licensor
and that Licensee shall not, at any time, acquire any rights in the Licensed
Trademarks by virtue of any use it may make of the Licensed Trademarks.
5. TRADEMARK AND COPYRIGHT PROTECTION
(a) The license granted is contingent upon Licensee's full and
complete compliance with the provisions of the trademark and copyright laws
applicable in the Licensed Territory with respect to its use of the Licensed
Trademarks.
(b) Licensor shall be responsible for all fees and costs,
including attorneys' fees, to prepare and file Registered User or Permitted User
documents, and administrative expenses, associated with filing for, obtaining,
maintaining and defending trademark registrations in the Licensed Territory for
the Licensed Trademarks covering any of the Licensed Articles.
(c) Licensee shall notify Licensor in writing of any
infringements or imitations by others of the Licensed Trademarks on articles
similar to those covered by this License Agreement which may come to Licensee's
attention, and Licensor shall have 30 days to determine whether it shall take
action on account of any such infringements or imitations. Any action which
Licensor takes against a third party on account of any such infringement or
imitation shall be at Licensor's expense and any final award granted or any
settlement made shall be paid to Licensor, and Licensee shall have no claim to
such award or settlement. In the event that Licensor does not take any action
within such 30 day period, Licensee may institute any suit or take any action on
account of any such suspected infringements or imitations at its own expense
and any final award or settlement shall be paid to Licensee. Each party shall
cooperate fully with the other party whenever a party takes any action against a
suspected infringing or imitating party.
(d) Licensee agrees that neither it nor its affiliates will at
any time apply for any copyright, trademark, or patent protection which would
reasonably be expected to affect Licensor's ownership of any rights in the
Licensed Trademarks, or file any document with any government authority or take
any other action which would reasonably be expected to affect Licensor's
ownership of the Licensed Trademarks, or aid or abet anyone else in doing so. If
Licensee takes an action hereunder which has an adverse effect on Licensor's
ownership of the Licensed Trademarks, Licensee must remedy such effect within 30
days of receiving written notice thereof from Licensor or such failure will
constitute a material breach of this License Agreement.
6. INDEMNIFICATION BY LICENSEE AND PRODUCT LIABILITY INSURANCE
(a) Indemnification. Licensee agrees to defend, indemnify and
hold harmless Licensor and its affiliates and the officers, directors, employees
and agents thereof, from and against any and all suits, actions, causes of
action, claims, liabilities, judgments, punitive damages, penalties, losses,
damages, costs, and expenses (including, but not limited to, attorneys' fees),
except
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to the extent due to the fault of Licensor, made or brought against, incurred by
or rendered against Licensor or its affiliates, or the officers, directors,
employees or agents thereof, which arise out of the manufacture, distribution,
shipment, exploitation, packaging, advertising, sale or other use of the
Licensed Articles. Licensor agrees to defend, indemnify and hold harmless
Licensee and its affiliates and the officers, directors, employees and agents
thereof, from and against any and all suits, actions, causes of action, claims,
liabilities, judgments, punitive damages, penalties, losses, damages, costs and
expenses (including, but not limited to, attorneys' fees), except to the extent
due to the fault of Licensee, made or brought against, incurred by or rendered
against Licensee or its affiliates, or the officers, directors, employees or
agents thereof, which arise solely out of Licensee's use of the Licensed
Trademarks pursuant to the terms of this License Agreement. Upon the filing of
any suit, action, cause of action, or upon notice of a claim, the indemnified
party shall promptly notify the indemnifying party. The indemnifying party
shall, at the indemnifying party's cost and expense, assume the defense of any
such claim using counsel of the indemnifying party's choice except in the event
that a conflict of interest may occur or appears likely to occur, in which case
the indemnified party shall be entitled to retain its own counsel to represent
its interests at the indemnifying party's reasonable cost and expense. At all
times, the indemnifying party shall keep the indemnified party informed of the
status of such claim.
(b) Insurance. Licensee agrees to obtain and maintain during
the term hereof, at its own expense, with a reputable company acceptable to
Licensor, comprehensive general liability insurance including product liability
insurance providing protection at a minimum, in the amount of $5,000,000 per
occurrence and $10,000,000 aggregate limits, with deductibles or retentions of
no more than $50,000 applicable to any claims, liabilities, damages, costs, or
expenses arising out of the contingencies described herein. The minimum per
occurrence and minimum aggregate coverages referred to in the preceding sentence
shall be increased annually based on increases in the Consumer Price Index. The
coverage limits obtained by Licensee shall not limit Licensee's requirement to
fully indemnify Licensor, as set forth above. Such insurance shall name
Licensor, its directors, officers, agents, employees, assignees, and successors,
as additional insured parties. Licensee shall be solely responsible for the
payment of any amounts which the insurance does not cover including the
"deductible" or "retention" amount. Within thirty (30) days after the execution
of this License Agreement by Licensor, Licensee shall cause the insurance
company issuing such policy to issue a certificate to Licensor confirming that
such policy has been issued and is in full force and effect and provides
coverage of Licensor as required by this Section, and also confirming that
before any cancellation, modification or reduction in coverage of said policy
the insurance company shall give Licensor thirty (30) days' prior written notice
of such proposed cancellation, modification or reduction.
7. QUALITY OF MERCHANDISE; APPROVAL PROCEDURES FOR ARTICLES AND
ADVERTISING MATERIALS
(a) Warranty of Quality. Licensee warrants that, unless
approved by Licensor pursuant to paragraph (b) of this Section 7, the Licensed
Articles will not deviate from the quality, design, material, construction,
details, fabric, weight, workmanship and finish of the Licensed Articles
approved by Licensor in or pursuant to this Section 7 and that they will be
suitable for their in-
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tended purpose. Licensee warrants further that no injurious, deleterious, or
toxic substances will be used in or on the Licensed Articles, and that the
Licensed Articles will not cause harm when used as instructed and when used with
ordinary care. Licensee shall manufacture, sell, ship, package, advertise and
distribute the Licensed Articles in compliance with all applicable Federal,
state and local laws, rules and regulations, including compliance with such
voluntary industry standards that are adopted concerning the safety and labeling
of any Licensed Article.
(b) Approval of Proposed Licensed Articles.
(1) New Licensed Articles. With respect to each Licensed
Article which the Licensee proposes to manufacture, sell, or distribute which
differs in any way (other than solely with respect to color, print, embroidery
or fabric weight or density (by less than 10%)) from the Licensed Articles
previously approved by Licensor under this Article 7, then Licensee shall submit
to Licensor for its review and approval the following materials, in the order
stated:
(i) a concept for the proposed Licensed Articles, showing by rough artwork
and product designs the nature and appearance of the proposed Licensed
Articles;
(ii) a preproduction final sample of the proposed Licensed Article,
showing the exact form, finish and quality the Licensed Article will have
when manufactured in production quantities; and
(iii) four (4) identical production samples of the Licensed Article, to be
submitted immediately upon commencement of production.
Except as set forth in the following two sentences, Licensee shall
comply with all of these approval steps for each such Licensed Article,
obtaining Licensor's written approval at each step of the procedure, unless by
prior written notice from Licensor it is exempted from any such step with
respect to a specific Licensed Article. For a new Licensed Article that is to be
produced in different colors or prints, Licensee shall be obligated to follow
the steps outlined in this Section 7(b)(1) for one color or print of such
Licensed Article. The remaining colors or prints of such Licensed Article shall
be treated in accordance with Section 7(b)(2).
(2) Certain Changes to Previously Approved Licensed Articles.
With respect to each Licensed Article that Licensee proposes to manufacture,
sell or distribute which is identical to a Licensed Article previously approved
by Licensor pursuant to this Section 7 (other than with respect to color, print,
embroidery or fabric weight or density (by less than 10%)) and the only changes
to such previously approved Licensed Articles are to the color thereof or print
or embroidery thereon, then Licensee shall submit to Licensor for its review and
approval of the following materials, in the order stated:
(i) a written notice specifically identifying the previously approved
Licensed Article being changed and the intended changes to such Licensed
Article;
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(ii) panton color swatches showing any new solid color to be used on such
Licensed Article;
(iii) finished artwork showing in detail any new print or embroidery to be
used on such Licensed Article; and
(iv) four (4) identical production samples of such License Article (as
proposed to be changed pursuant to this subparagraph (2)), to be submitted
immediately upon commencement of production.
Licensee shall comply with all of these approval steps for each such
change to any such Licensed Article, obtaining Licensor's written approval at
each step of the procedure, unless by prior written notice from Licensor it is
exempted from any such step with respect to a specific Licensed Article.
(c) Approval of Advertising Materials. The term "Advertising
Materials" shall mean all advertising and promotional or display materials and
all packaging, wrapping and labeling materials for the Licensed Articles
(including, by way of illustration but not limitation, audio and visual tapes of
radio or television ads, catalogs, trade advertisements, flyers, sales sheets,
labels, package inserts, tags and displays) which are produced by or for
Licensee, including those intended for use in connection with promotional
tie-ins with third-parties (which third-parties must be approved in writing in
advance by Licensor, such approval not to be unreasonably withheld or delayed),
and which make any use of the Licensed Trademarks. All Advertising Materials
shall comply with Licensor's Advertising Guidelines described in Exhibit C. With
respect to each different item of Advertising Material which Licensee (or any
party acting on its behalf) proposes to produce and use, Licensee shall submit
to Licensor for its review and approval the following materials, in the order
stated:
(i) proposed written copy (including scripts and/or story boards for
proposed media advertising), for the item of Advertising Material, with
attached rough artwork showing how the Licensed Trademarks will be used in
connection with the copy;
(ii) final copy for the item; and
(iii) a final printed sample of the item (or in the case of radio and
television ads, tapes of commercials) where feasible (as, for example, in
the case of labels, tags, printed brochures, catalogs, and the like).
Licensee shall be required to comply with all of these approval
steps for each item of Advertising Material, obtaining Licensor's written
approval at each step of the procedure, unless by prior notice from Licensor it
is exempted from any step with respect to a specific item of Advertising
Material. Licensee warrants and represents that any Advertising Materials
created by or on behalf of Licensee will comply with all applicable Federal,
State, and local laws, rules and regulations.
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(d) Approval of Certain Licensed Articles and Advertising
Materials. Notwithstanding the procedures set forth in clauses (b) and (c)
above, Licensor hereby approves those Licensed Articles and Advertising
Materials identified on Exhibit D, subject to the limitations set forth in such
Exhibit.
(e) Trademark and Copyright Protection. Licensee agrees that
each usage of the Licensed Trademarks shall be followed by either the TM or the
Circle R Trademark Notice symbol, as is appropriate, and the hang-tag contained
on, and the packaging of, each Licensed Article shall contain the statement
"Trademarks owned by Gerber Products Company, used with permission." In the
event that any Licensed Article is marketed in a carton, container and/or
packing or wrapping material bearing the Licensed Trademarks, this notice shall
also appear thereon. In addition, all advertising and promotional or display
materials for the Licensed Articles bearing the Licensed Trademarks must
display a legible statement along the following lines in a location reasonably
calculated to be read by anyone interested: "Gerber is a registered trademark
owned and licensed by Gerber Products Company." Notwithstanding the foregoing,
Licensee may continue to use its existing stock of packaging and hang-tags for a
reasonable period of time (not to exceed eighteen months) to permit Licensee to
modify its packaging and hang-tags printing process.
(f) Approval Standards. Licensor shall have the right to
disapprove any proposed Licensed Article or Advertising Material submitted to it
under Sections 7(b), (c) and (d) if the proposed Licensed Article or Advertising
Material in question would, in the Licensor's sole and absolute discretion
exercised in good faith, impair the value or good will associated with the
Licensed Trademarks.
(g) Time for Approval by Licensor. Licensor shall notify the
Licensee in writing of its approval or disapproval of any proposed Licensed
Article or Advertising Material submitted to it under Sections 7(b), (c) and (d)
within 10 business days after its receipt of the same. If Licensee has not
received any such approval or disapproval within such 10-day period, Licensee
may notify Licensor by telecopy, receipt of which must be acknowledge in
writing, and Licensor will then have 5 business days after receipt of such
notice to approve or disapprove of the proposed Licensed Article or Advertising
Material. Should Licensor fail to approve any of the submissions furnished it by
Licensee within such subsequent 5 business day period, such failure shall be
considered to be approval of the submission, provided that Licensee has given
Licensor reasonable advance notice of the volume of expected submissions for
approval.
(h) Maintenance of Product Quality. Prior to the sale of new
Licensed Articles and periodically during the course of sales of any Licensed
Articles, Licensee shall have the Licensed Articles tested in accordance with
all applicable Federal, state and local laws, rules and regulations, including
compliance with all voluntary industry standards that are adopted by the Company
and in accordance with the past practice of the Company, to determine whether
the Licensed Articles comply with all such laws, rules, regulations, standards
and practices. The results of all such tests shall, subject to the
confidentiality requirements of Section 22 hereof, be provided to Licensor upon
request and the Licensee shall promptly notify Licensor upon discovery by
Licensor that Licensed Articles failing to comply with such standards have been
shipped. From time
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to time after it has commenced manufacturing the Licensed Articles, Licensee,
upon request, shall furnish free-of-charge to Licensor a reasonable number of
random production samples of any Licensed Article (not to exceed 4 samples per
Licensed Article per year) and/or samples of any Advertising Materials specified
by Licensor. Licensee shall also furnish to Licensor, upon request, the
addresses of the production facilities used by Licensee for manufacturing the
Licensed Articles, and Licensee shall make arrangements for Licensor or its
representatives to inspect such production facilities upon reasonable notice
during reasonable business hours. Should a manufacturer refuse Licensor access
to the production facilities pursuant to such a request and, within five
business days thereafter, Licensor is not granted such access, Licensee shall
immediately terminate any arrangement it may have with that manufacturer with
regard to the Licensed Articles.
(i) Failure to Obtain Approval. Licensee shall not have the
right to manufacture, offer for sale, sell, distribute, ship, or use any
proposed Licensed Article or item of Advertising Material unless it has complied
with all of the approval procedures and requirements set forth in this Section 7
and has obtained Licensor's prior written approval. Failure by Licensee to
comply with the provisions of this Section 7 shall constitute a material breach
of this License Agreement and shall be grounds for termination of the Licensed
Rights by Licensor unless Licensee cures such breach within thirty (30) days
thereafter by destroying all inventories of such unapproved Licensed Articles in
its possession and recalling from its customers and destroying all such
unapproved Licensed Articles that have previously been shipped. If Licensor
elects to terminate the Licensed Rights for Licensee's failure to obtain
approval, then Licensee may not dispose of its inventory of such unapproved
Licensed Articles pursuant to Section 15.
(j) Complaints and Product Recall. Licensee shall incorporate
the toll-free consumer telephone number 1-800-443-7237 (1-800-4GERBER) which is
provided and controlled by Licensor on all Licensed Articles to ensure that all
complaints and inquiries are directed to Licensor. Any complaints or claims
with respect to Licensed Articles which are received by either party hereto or
its employees, whether written or verbal, shall be promptly conveyed to the
other party, if to Licensor, to the attention of ____________________ or to such
other person(s) as Licensor may designate and if to Licensee, to the attention
of _______________ or such other person as Licensee may designate. If any such
complaint or claim involves serious bodily injury or a threat of serious bodily
injury, or property damage, the parties will notify one another of such
complaint or claim within twenty-four (24) hours of receipt. Licensor shall
assume responsibility for handling any or all consumer complaints and inquiries
associated with Licensed Articles at a cost to Licensee, invoiced on a quarterly
basis, at the current rate charged by Licensor to other licensees for providing
such services, increased annually based on increases in the Consumer Price
Index, plus expenses; provided, however, that such increase shall not be applied
until the second anniversary of the date of this License Agreement. Licensee
shall cooperate with Licensor in the resolution of consumer complaints and
inquiries, including by providing Licensor with replacement products as
reasonably requested.
Licensee shall immediately notify Licensor of any governmental
inquiry or order to investigate, modify, or recall any Licensed Article or any
Advertising Material and such information relating thereto shall be treated
confidentially pursuant to Section 22 hereof. In such event, Licensee
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shall consult with Licensor in regard to any action it proposes to take or
negotiations in which it engages. Licensee shall be solely responsible for the
payment of any expenses associated with the above, including any fines,
penalties, or assessments incurred, costs necessary to comply with government
or voluntary industry standards or any government order, expenses related to the
investigation and/or settlement, as well as any expenses for a voluntary or
mandatory recall. Licensee shall not issue any press release or make any other
public announcement concerning the Licensed Article without Licensor's prior
written consent, which consent shall not be unreasonably withheld or delayed.
Licensee shall take such action, including recall, as may be
required by any governmental agency or commission, including, but not limited
to, the Consumer Product Safety Commission, with respect to any Licensed Article
or any Advertising Material. Licensee's failure to take such action with regard
to either the Licensed Article or the Advertising Material shall constitute a
material breach of this License Agreement, and upon such breach, Licensor shall
be entitled to any remedies provided for it under this License Agreement,
including, but not limited to, the right to terminate the Licensed Rights. If
Licensor elects to terminate the Licensed Rights for Licensee's failure to
recall, then Licensee may not dispose of its inventory of such Licensed Articles
pursuant to Section 15.
8. JOINT PROMOTIONAL ACTIVITIES AND COOPERATION
(a) Licensor and Licensee agree to cause their respective
vice-presidents of sales and other appropriate members of management to
participate in a meeting or meetings during the fall of each year and at such
other times as are necessary or appropriate during the Initial Term and any
extension, to develop in good faith, plans for the following year with respect
to joint participation by the Licensor and Licensee in trade shows, joint
promotional and trade allowance programs, joint sales calls and similar
activities. Licensor and Licensee shall endeavor in good faith to memorialize
such plans for the following year in a memorandum of understanding to be
executed, along with such other contracts relating to such joint activity, by
Licensor and Licensee.
(b) Licensor agrees that it will include, upon the Licensee's
request, promotional material with respect to the Licensed Articles produced by
Licensee, at Licensee's cost, in promotional mailings by Licensor not more than
twelve times in each calendar year during each of the first two years following
the date hereof. During the period from the second anniversary of the date
hereof to the fifth anniversary of the date hereof, Licensor shall include, at
Licensee's request, promotional material with respect to the Licensed Articles
produced by Licensee, at Licensee's cost, in promotional mailings by Licensor at
the most favorable rate then being charged by Licensor to third parties for
inclusion of such third parties' promotional material in Licensor's promotional
mailings or, if no such third party is being included in Licensor's promotional
mailings, Licensee's pro rata share of the cost of the mailings; provided,
however, Licensor shall not be obligated by the provisions of this Section 8(b)
to make any promotional mailings.
(c) Licensor agrees that it will pay $87,500 to Licensee
quarterly beginning March 31, 1996 and ending December 31,1997 for Licensee to
pay to Toys 'R' Us as a trade support
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<PAGE> 14
payment. Licensee agrees that it will provide to Licensor reasonably
satisfactory evidence that such trade support payment was used by Toys 'R' Us to
promote Licensed Articles.
(d) Licensor agrees that it will use reasonable efforts to
refrain from using products that compete with Licensed Articles manufactured and
sold by Licensee as props in photographs used in advertising by Licensor of its
products.
9. DISTRIBUTION
If Licensee (i) sells or distributes Licensed Articles to jobbers,
wholesalers, distributors, retail stores or merchants whose sales or
distribution are or will be made for publicity or promotional tie-in purposes,
combination sales, premiums, give-aways, or similar methods of merchandising;
(ii) makes door to door sales of the Licensed Articles; or (iii) sells at a
special price to any of Licensee's subsidiaries or to any other person, firm or
corporation related in any manner to Licensee or its officers, directors or
major stockholders, royalty will be paid on such sales based upon the price
generally charged the trade by Licensee. Licensee may not knowingly sell or
distribute Licensed Articles to jobbers, wholesalers, retail stores or merchants
who engage in illegal business practices. Licensee's policy of manufacturing,
sale, distribution and/or exploitation of the Licensed Articles shall be of the
highest standard and its policy of sale, distribution and/or exploitation shall
in no manner reflect adversely upon the good name of Licensor, any of its
programs, or the Licensed Trademarks, it being agreed and understood by Licensee
that any violation of this sentence by Licensee shall constitute a material
breach of this License Agreement.
10. RECORDS
Licensee shall keep accurate books of account and records covering
all transactions relating to this License Agreement. Licensor and its duly
authorized representatives shall have the right at all reasonable business hours
of the day, upon reasonable advance notice, to an examination of said books of
account and records and of all other documents and materials in the possession
or under the control of Licensee with respect to the subject matter and terms of
this License Agreement. Licensor shall have full and free access to the books of
account and records for these purposes and for the purpose of making extracts.
All books of account and records shall be kept available for at least four (4)
years after the fiscal year to which such books of account and records relate.
In the event that Licensor's duly authorized representatives shall discover a
deficiency of 5% or more in royalty payments pursuant to any such examination,
Licensee shall pay to Licensor the cost of such examination. Royalties found to
be due or refunded as a result of Licensor's examination of the Licensee's books
of accounts shall be paid immediately with interest at an interest rate equal to
the lesser of (i) 1-3/4% per month, or (ii) the highest rate permitted by law,
in each such case, from the date the royalty amount should have been paid or
refunded to Licensor or Licensee, as applicable.
11. BANKRUPTCY
At least 30 days prior to filing a petition in bankruptcy, Licensee
shall notify Licensor of its intention to file the petition or of a third
party's intention to file an involuntary
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<PAGE> 15
petition in bankruptcy against Licensee. Failure to conform to this requirement
shall be deemed a material, pre-petition, incurable breach of this License
Agreement.
12. TERMINATION FOR CAUSE
Licensor may terminate the Licensed Rights or Licensee may terminate
this License Agreement in the event of a material breach or default in any of
the provisions of this License Agreement by the other party, by the
non-breaching party's sending of a written notice of termination to the
breaching or defaulting party specifying in detail the nature of the material
breach or default. If the party receiving said notice does not remedy said
breach or default within thirty (30) days of the date of the notice or, in the
case of a breach or default which cannot reasonably be expected to be remedied
within thirty (30) days, but is capable of being remedied within a reasonable
period of time, does not institute diligent steps calculated to remedy such
breach or default in the shortest possible time, then the termination shall
become effective at the end of such thirty (30) day period. If the breaching or
defaulting party does so remedy or institute appropriate measures to remedy the
breach or default, then the notice of termination shall be deemed automatically
withdrawn and forever null and void. The failure of either party to terminate on
account of any one breach or default shall not constitute a waiver of that
party's right to terminate for any subsequent breach or default of the same
provision.
(a) Licensor may terminate the Licensed Rights effective
immediately by notice in writing to Licensee if:
(i) Licensee fails to provide notice of an intention to file a petition in
bankruptcy as required by Section 11;
(ii) Licensee files a petition to wind up its affairs, seeks the benefit
of insolvency or debt moratorium law or statute, becomes insolvent or is
unable to pay its debts as they mature, makes an assignment for the
benefit of creditors, is adjudicated a bankrupt, has a receiver appointed
for its property, ceases or threatens to cease to carry on its business,
or otherwise enters into any arrangement or composition with its
creditors, or if a substantial portion of its assets become subject to
attachment by judicial order, whether any of the foregoing is the
voluntary act of the party or otherwise;
(iii) Licensee fails to maintain insurance as required under Section 6(b);
or
(iv) the Licensee violates Section 7.
(b) Licensee may terminate this License Agreement (i) pursuant
to Section 1(c)(ii); or (ii) at any time prior to two years before the end of
the Third Term by written notice to Licensor given not less than 90 days before
the proposed termination date and providing that as of such termination date it
is surrendering its License Rights and ceasing future use of the Licensed
Trademarks pursuant to the terms and conditions of this License Agreement.
15
<PAGE> 16
13. EFFECT OF TERMINATION OR EXPIRATION
(a) Upon and after the expiration of this License Agreement,
or the termination of the Licensed Rights, in whole or in part, for any reason,
all rights granted to Licensee shall revert to Licensor (subject to the
non-competition agreement of Licensor set forth in Section 6.12 of the Stock
Purchase Agreement), and Licensee will refrain from further use of the Licensed
Trademarks or any further reference to it, direct or indirect, or anything
deemed by Licensor to be confusingly similar to the Licensed Trademarks in
connection with the manufacture, sale or distribution of Licensee's products,
except as provided in Section 15.
(b) Notwithstanding anything to the contrary contained herein,
Sections 2, 3, 4, 5(d), 6, 7(a), 7(e), 9, 10, 13, 14, 15, 18, 22 and 23 under
this Agreement shall survive termination or expiration of this License
Agreement.
(c) By exercising its right to terminate the Licensed Rights,
Licensor shall not be deemed to have waived any right to seek any other form of
relief or remedy to which it may be entitled.
(d) Licensor's termination of the Licensed Rights shall not
affect Licensee's right to dispose of inventory as granted by Section 15 except
as such rights are limited in Sections 7 and 15.
(e) In the event of Licensor's breach of any of its
obligations hereunder, Licensee may pursue any remedy it may have at law or in
equity.
(f) Upon and after the expiration of this License Agreement or
the termination of the Licensed Rights for any reason, Licensee shall promptly,
but in any event within 10 business days, change its corporate and business
names to delete any references to "Gerber".
14. FINAL STATEMENT UPON TERMINATION OR EXPIRATION
Sixty (60) days before the expiration of this License Agreement and
again within twenty (20) days after such expiration (or, in the event of
termination of the Licensed Rights, or termination pursuant to Section 16, ten
(10) days after receipt of notice of termination or the happening of the event
which terminates the Licensed Rights where no notice is required), Licensee
shall furnish Licensor a statement showing the number and description of
Licensed Articles on hand or in process. Licensor shall have the right, at its
own expense and upon reasonable advance notice during business hours, to take a
physical inventory to ascertain or verify such inventory and statement, and
refusal by Licensee to submit to such physical inventory by Licensor shall
forfeit Licensee's right to dispose of such inventory as provided in Section 15
hereof, Licensor retaining all other legal and equitable rights Licensor may
have in the circumstances.
15. DISPOSAL OF STOCK UPON EXPIRATION
16
<PAGE> 17
After expiration of this License Agreement, termination of the
Licensed Rights, or termination under Section 16, Licensee, except as otherwise
provided in this License Agreement, may dispose of Licensed Articles which are
on hand or in process at expiration, or at the time notice of termination is
sent, other than blanket sleeper products, for a period of 180 days after the
expiration or termination thereof and, with respect to blanket sleeper
products, for as long as is reasonably necessary to dispose of such products but
in no event more than one year after the expiration or termination thereof (such
period, the "Sell-Off Period"), provided royalties with respect to that period
are paid and statements are furnished for the period in accordance with Section
2. In no event, however, may the Licensee distribute and sell during such
Sell-Off Period an amount of Licensed Articles that exceeds the greatest amount
of Licensed Articles sold during any consecutive period of the same length as
the Sell-Off Period during the term of the License Agreement. During such
Sell-Off Period, Licensor may itself use or license the use of the Licensed
Trademarks in any manner at any time anywhere in the world as Licensor sees fit;
provided, however, that any such license shall be subject to Licensee's right of
sell-off granted herein. Notwithstanding anything to the contrary, Licensee
shall not manufacture, ship, distribute, sell or dispose of any affected
Licensed Articles after termination of this License Agreement, if such
termination is based on the failure of Licensee to affix notice of copyright,
trademark registration or any other notice to the Licensed Articles, cartons,
containers, or packing or wrapping material, or Advertising Materials. In the
event of such termination by Licensor by reason of any cause contained in
Section 7, Licensee, its receivers, representatives, trustees, agents,
administrators and successors shall have no further right to sell, exploit or in
any way deal in or with any of the unapproved or defective Licensed Articles or
any advertising matter, packing material, boxes, cartons or other documentation
relating thereto, except after having obtained express written consent of and
instructions with reference thereto from Licensor.
16. EXCUSE FOR NONPERFORMANCE
Licensor and Licensee shall be released from their respective
obligations and this License Agreement shall terminate in the event that
governmental regulations or other causes arising out of a state of national
emergency or war or causes beyond the control of the parties render performance
impossible and one party so informs the other in writing of such causes and its
desire to be so released. In such events, all royalties on sales theretofore
made shall become immediately due and payable.
17
<PAGE> 18
17. NOTICES
All notices and statements to be given, and all payments to be made
shall be given or made at the respective addresses of the parties as set forth
above, unless notification of change of address is given in writing and the date
of mailing shall be deemed the date the notice or statement is given unless
otherwise provided herein. Notice shall be sent by certified mail, overnight
courier, or facsimile.
18. RELATIONS OF THE PARTIES
This License Agreement does not create a partnership, agency
relationship or joint venture between the parties and the Licensee shall have no
power to obligate or bind Licensor in any manner whatsoever.
19. ASSIGNMENT
(a) Licensee may not assign any of its rights, interests or
obligations hereunder without the prior written consent of Licensor; provided
that Licensee may assign its rights and obligations hereunder without obtaining
such consent (i) to a wholly owned subsidiary of Licensee, (ii) to any person
other than a Prohibited Assignee (as defined below) in connection with the sale
of all or substantially all the assets, capital stock or business of Licensee
and (iii) for collateral security purposes to any lender providing financing to
Licensee that is secured by Licensee's inventory solely for purposes of
permitting such lender to dispose of such inventory in accordance with the terms
hereof upon a default by Licensee under any such financing; provided further,
that in either such case, Licensee shall not be released from any of its
obligations hereunder. For clarification, a public offering of the common stock
of Licensee shall not constitute an assignment for the purposes of this Section
19. For purposes of this Section 19(a), "Prohibited Assignee" shall mean (x) any
entity or affiliate thereof engaged in the infant and/or toddler nutrition
business and having revenues related to such business in excess of $100 million
per year (increased annually based on increases in the Producer Price Index),
(y) any entity or affiliate thereof engaged in the manufacture or sale of baby
care products of the type being manufactured or sold by Licensor as of the date
of the intended assignment and having revenues related to such business in
excess of $50 million per year (increased annually based on increases in the
Producer Price Index) or (z) any entity that the Board of Directors of Licensor
determines in good faith after reasonable inquiry is likely, as a result of any
such assignment, to adversely effect the reputation or good will of Licensor or
the public perception or value of the Licensed Trademarks; provided, however,
that such entity shall not be deemed to be a Prohibited Assignee unless within
30 days of receiving written notice from Licensee identifying such entity as a
potential assignee, Licensor's Board of Directors shall have (i) made the
determination specified above, (ii) provided Licensee with a detailed list of
its reasons for such determination, and (iii) issued a press release setting
forth such determination and the reasons on which it is based. Notwithstanding
the foregoing, in the event Licensee has reason to believe that Licensor's Board
of Directors has not made such determination in good faith after reasonable
inquiry, such issue of Licensor's good faith shall be resolved in accordance
with the arbitration
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<PAGE> 19
mechanism set forth in Section 19(c) of the Distributor Agreement, dated the
date hereof between the parties hereto, and if it is determined not to have been
made in good faith, then such entity will not be deemed a Prohibited Assignee.
(b) Licensor may not assign its rights and obligations under
this License Agreement without the prior written consent of Licensee.
(c) Licensee shall have the right to arrange for the
manufacture of the Licensed Article by a third party, upon Licensor's prior
written approval and upon the execution of a letter by the third party in the
form attached as Exhibit E; provided, however, that any third-party manufacturer
of Licensed Articles on the date hereof shall be deemed approved by Licensor,
and Licensee shall use its reasonable best efforts to obtain a letter in the
form of Exhibit E from such manufacturers as promptly as practicable after the
date hereof.
20. WAIVER
No waiver by either party of a breach or a default shall be deemed a
waiver by such party of a subsequent breach or default of a like or similar
nature.
21. NONCOMPETITION. During the term of this License Agreement,
Licensee shall not adopt, use, sell, manufacture or distribute
any Licensed Article with a confusingly similar trademark to
the Licensed Trademarks or an article substantially similar
to any Licensed Article with a trademark that is confusingly
similar to the Licensed Trademarks, nor shall Licensee adopt,
use, sell, manufacture or distribute any item for use in
association with the Licensed Articles that competes in any
area with items manufactured or sold by Licensor, nor shall
Licensee promote, advertise or market the sale or design of
any item which would be a Licensed Article if such item
contained a Licensed Trademark in concert with the sale or
design of any item that competes in any area with items
manufactured or sold by Licensor.
22. CONFIDENTIALITY. Except for the proper exercise of any rights
granted or reserved under other provisions of this License
Agreement, each party agrees that it will take such
precautions as it normally takes with its own confidential or
proprietary information to keep confidential and not publish
or otherwise disclose to a third party except as permitted or
anticipated herein, any information of a proprietary nature
furnished by the other party to it in connection with this
License Agreement, including, without limitation, technology,
marketing strategy, specifications, product information, data,
inventions, sales data, plans, trade secrets, call lists,
customer lists, and business information (together called
"Confidential Information") and not disclose the terms of this
License Agreement to any third party or to either party's
employees (except on a need-to-know basis), without prior
written consent of the other party except to the extent that
such
19
<PAGE> 20
Confidential Information (i) is required to be disclosed for
the purpose of complying with law or government regulations
(including to the extent required to be disclosed in
connection with any public offering of common stock of
Licensee), (ii) otherwise publicly available or has been
independently developed without breach of any confidentiality
obligations hereunder or under any other agreement or
understanding with any party. Notwithstanding the foregoing,
Licensee shall be permitted to disclose the terms of this
License Agreement as necessary to facilitate a sale of
Licensee's business or to financing sources of the Licensee.
23. GOVERNING LAW
This License Agreement shall be construed in accordance with the
internal laws of the State of Delaware except with respect to conflicts of law.
24. DISPUTE RESOLUTION
(a) Arbitration. In the event of disputes between the parties
with respect to the terms and conditions of this License Agreement, such
disputes shall be resolved by and through an arbitration proceeding to be
conducted under the auspices of the American Arbitration Association (the "AAA")
in New York, New York pursuant to the AAA's Commercial Arbitration Rules. Such
arbitration proceeding shall be conducted in as expedited a manner as is then
permitted by those rules. The arbitrator or arbitrators in any such arbitration
(an "Arbitration") shall be persons who are expert in the subject matter of the
dispute. Both the foregoing agreement of the parties to arbitrate any and all
such claims, and the results, determination, finding, judgment and/or award
rendered through such Arbitration, shall be final and binding on the parties
thereto and may be specifically enforced by legal proceedings.
(b) Selection of Arbitrators. Licensor shall appoint one (1)
arbitrator, and License one (1) arbitrator within a term of thirty (30) calendar
days from the date of any claim hereunder, and the two (2) arbitrators so
appointed shall appoint the third arbitrator, within a term of thirty (30)
calendar days from the date in which the last of the two (2) arbitrators have
been selected.
If either Licensor or Licensee fails to select its arbitrator within
the term mentioned above, or in the event that the two (2) selected arbitrators
are unable or unwilling to select a third arbitrator within fourteen (14)
calendar days following the selection of the last of them, then AAA shall select
the arbitrator that was not selected by either of Licensor or Licensee or the
third arbitrator as the case may be, in accordance with the procedure set forth
below, and the three (3) arbitrators shall constitute the arbitration panel for
purposes of the dispute.
(c) Procedure. Each party shall bear separately the cost of
their respective attorneys, witnesses and experts in connection with such
arbitration. Time is of the essence in this
20
<PAGE> 21
arbitration procedure, and the arbitrators shall be instructed and required to
render their decision within ten (10) days following completion of the
Arbitration.
(d) Exclusive Remedy. Any and all legal proceedings to enforce
this Agreement (except for any action to compel arbitration hereunder or any
action to enforce any award or judgment rendered thereby), shall be governed in
accordance with this Section 24.
25. UPC Codes. Licensee shall be permitted to use the current UPC
codes for the current Licensed Articles during the term of
this License Agreement. Licensee shall obtain new UPC numbers
for new Licensed Articles and such new UPC numbers shall not
incorporate the Gerber code numbers (i.e., the first 4 numbers
of any such UPC code shall not indicate Gerber).
* * *
21
<PAGE> 22
IN WITNESS WHEREOF, the parties hereto have caused this instrument
to be duly executed as of the day and year first above written.
GERBER PRODUCTS COMPANY GERBER CHILDRENSWEAR, INC.
By: /s/ Fred K. Schomer By: /s/ David J. Jones
--------------------------- ---------------------------
22
<PAGE> 23
EXHIBIT A-1
Gerber Products Company Owned U.S. Trademark Registrations:
<TABLE>
<CAPTION>
Trademark Reg. No. Class Expiration
- --------- -------- ----- ----------
<S> <C> <C> <C>
BABY HEAD 964,221 25 07/17/03
GERBER 963,676 25 07/10/03
GERBER 1,144,282 25 12/23/00
GERBER & BABY HEAD 767,237 25 03/24/04
GERBER & BABY HEAD 964,222 25 07/17/03
GERBER & BABY HEAD 1,473,270 25 01/19/08
BABIES ARE OUR 770,871 25 06/02/04
BUSINESS...
BABIES ARE OUR 968,706 25 09/18/03
BUSINESS...
</TABLE>
A-1-1
<PAGE> 24
EXHIBIT A-2
Gerber Products Company's Common Law Trademarks:
Trademark
- ---------
BABIES ARE OUR BUSINESS. . .
GERBER
GERBER & BABY HEAD
GERBER BEAR
SAFARI PALS
TROPICAL TESOROS
GRADUATES
GERBER SUPREME
DIPPY DUCK
CHAMBRAY BEAR
SIGNATURE COLLECTION BY GERBER
A-2-1
<PAGE> 25
EXHIBIT C - ADVERTISING GUIDELINES
IV. CREATIVE GUIDELINES - PHOTOGRAPHY
General Photography Guidelines
The following standards should be maintained in all photographs produced for use
in advertising, packaging and promotional materials:
o All props or related items shown in the photograph are to be those
produced by Licensor or Licensee or their subsidiaries. Products
competitive with products manufactured or sold by Licensor are not
to be used.
o Mothers, or models posing as mothers, shall wear wedding rings.
o Care must be taken that packages shown are current designs and that
the products shown are generally available in the area the
photograph is to be used.
o Where use of a product is shown, the photograph is to depict the
acceptable, proper method.
o Photographers must reflect quality, decency, and a "Gerber concern"
for propriety.
C-1
<PAGE> 26
CONTENT, CARE OF PROPS AND MODELS
Special considerations for a photograph shoot:
o Babies shall be clothed. (Minimum clothing would include a Gerber t-shirt
and vinyl pants or diaper cover covering a diaper.) Clothing should be in
unisex colors such as green, yellow, orange or white.
o Babies should not be depicted in a negative or overly exaggerated way. For
example, (1) babies should not be shown crying or fussing; (2) they should
not be shown with mouth wide open and/or with inappropriate amounts of
baby food on their faces; (3) they should not be shown in adult-looking
clothes; (4) they should not be overweight; (5) they should not look
character-like or distinctly unusual. However, some discretionary judgment
should be considered for appropriate, but different message formats.
"Gerber babies" are naturally cute and rather trim.
o Babies should never be depicted in a potentially unsafe situation (e.g.,
unattended in a high chair or in a position where the child could possibly
fall, get burned, etc.).
o Agency should ensure that babies are handled in the proper way by the
photographer, cast and crew, complying with legal jurisdictions or
presence of specialists (e.g., nurses, social workers, home economists)
and equipment (e.g., food warmers, cribs).
C-2
<PAGE> 27
EXHIBIT D
D-1
<PAGE> 28
EXHIBIT E
Gerber Products Company
445 State Street
Fremont, Michigan 49413
Attention: ____________
This letter will serve as notice to you that we have been engaged as the
manufacturer for Gerber Childrenswear, Inc. ("GCI") in connection with the
manufacture of the Licensed Articles as defined in the aforesaid License
Agreement. We hereby acknowledge that GCI has supplied us with a copy of those
parts of the Agreement consistent with our obligations and we are cognizant of
the terms and conditions of said Agreement and hereby agree to observe those
provisions of said License Agreement which are applicable to our function as
manufacturer of the Licensed Articles. We further agree that we shall have no
right to manufacture, sell or utilize Licensed Articles except as manufacturer
for GCI and further agree not to utilize any of the Licensed Articles or the
name of Gerber Products Company, or any other indicia relating to Gerber
Products Company, to advertise, promote or publicize ourselves with respect to
such manufacture in any manner or form. Our engagement as subcontractor is on a
royalty-free basis.
We understand that our engagement as the subcontractor for GCI is subject to
your written approval which will not be unreasonably withheld. We request,
therefore, that you sign in the space below, thereby showing your acceptance of
our engagement as manufacturer, subject to our agreements and representations
set forth in this letter, and return this agreement of acceptance to __________.
Very truly yours,
By: ________________________________________
AGREED AND ACCEPTED:
By:___________________
Name:_________________
Title:________________
Date:_________________
E-1
<PAGE> 1
Exhibit 10.14
LICENSE AGREEMENT
AGREEMENT, effective the 31st day of July, 1986, by and between THE
KENDALL COMPANY, a Delaware corporation, having its principal place of business
at One Federal Street, Boston, Massachusetts 02101 (hereinafter "Kendall"); and
GERBER PRODUCTS COMPANY, a Michigan Corporation, and its wholly owned subsidiary
SOFT CARE APPAREL, INC., a Delaware Corporation, having their principal place of
business at 445 State Street Fremont, Michigan 49412 (hereinafter "Gerber").
WITNESSETH:
WHEREAS, Kendall has manufactured and sold in the United States of America
and certain export territories, CURITY-branded infants and toddler's cloth
diapers, knitwear, bedding, sleepers and hosiery products and is the owner of
the trademark CURITY, in singular and repeating form, and of a certain packaging
trade dress pertaining to the foregoing products, and
WHEREAS, Gerber will be manufacturing, promoting and selling in the United
States of America and certain other territories the products set forth in
Schedule A attached hereto and desires to acquire a license to use the CURITY
trademark, in singular and repeating form, and the certain packaging trade dress
for these products, and Kendall is willing to grant such license under suitable
conditions as set forth herein;
NOW, THEREFORE, in consideration of the premises and the mutual covenants
herein contained, the parties hereto agree as follows:
<PAGE> 2
1. DEFINITIONS
"Licensed Products" shall mean the products sold under the Licensed
Trademarks as listed and described in Schedule A attached hereto.
"Licensed Territory" shall mean the United States of America, its
territories and possessions, including Puerto Rico and the countries specified
in Schedule B for which License Agreements, a sample copy of which is attached,
are to be executed at the same time as this Agreement.
"Licensable Territory" shall mean the countries specified in Schedule C
attached hereto, provided, however, that the countries specified in Schedule C
shall become part of the "Licensed Territory" when Kendall verifies, at Gerber's
written request, that the Licensed Trademarks (as herein defined) may be
licensable for the Licensed Products, or any of them, therein.
"Licensed Trademarks" shall mean the trademarks of words and/or devices
and the art work or copy for packaging trade dress as listed and described in
Schedule D attached hereto, to the extent such trademarks relate to the Licensed
Products.
"Quality Standards" shall mean the samples, instructions, specifications
and other quality standards relating to each of the Licensed Products and the
packaging, advertising and promotional materials used in connection therewith as
furnished or approved by Kendall from time to time during the course of the
agreement. None of the foregoing will be arbitrary or unreasonable or
arbitrarily or unreasonably applied by Kendall.
-2-
<PAGE> 3
2. GRANT
(a) Kendall hereby grants to Gerber and Gerber hereby accepts from
Kendall, a non-transferable exclusive right and license, without the right to
grant sublicenses except as expressly approved herein, in the Licensed
Territory, to use the Licensed Trademarks and any copyright Kendall owns
relating to packaging, packaging trade dress and/or advertising and promotional
materials used in connection with the Licensed Trademarks at the date of this
Agreement during the term of this Agreement on and in connection with Gerber's
manufacture, advertising, promotion, distribution and sale of the Licensed
Products, but only to the extent that Kendall has the Licensed Trademarks
registered for the Licensed Products or verifies that the Licensed Trademarks
are licensable for the Licensed Products on a country by country basis in the
Licensed Territory. Kendall further grants to Gerber, a non-transferable
exclusive right and license, without the right to grant sublicenses, in the
United States it territories and possessions only, to use the Licensed
Trademarks on and in connection with reusable and disposable nursing systems
including bottles and nipples for a term of three years, and Kendall agrees that
after this term for a period of two years it will not license a third party to
use the Licensed Trademarks for such products.
(b) This Grant includes the limited right of Gerber to sublicense certain
companies as specified in Schedule E attached hereto, and such further companies
in which Gerber acquires at least a 51% ownership control, or if less than 51%
ownership control, then such degree of control as Kendall approves as being
adequate. Gerber agrees to enter into an Agreement with each such sublicensee in
substantially the same form and under the same conditions as this Agreement, and
will immediately notify Kendall of each such Agreement. Gerber shall be
responsible for collection of royalty payments and for payment to Kendall.
Gerber further agrees that it will not enter into
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<PAGE> 4
sublicenses with any company listed in Schedule F or any further company as
provided above, until Kendall determines that such agreement is legally
enforceable in the applicable country and only if Kendall or Gerber, as the case
may be, first has the opportunity to file all documents necessary to protect the
Licensed Trademarks in the country. Kendall will make the determination of the
enforceability of each such sublicense and, Kendall or Gerber, as the case may
be, will file such documents necessary to protect the Licensed Trademarks in
each such country, with due diligence.
(c) While this agreement and grant relate to the Licensed Territory,
Kendall and Gerber mutually agree that when and if any country in the Licensable
Territory becomes a country in the Licensed Territory as provided in the
aforesaid definitions, they will execute for each such country an agreement in
the same form and under the same conditions as the License Agreement referred to
in the definition of Licensed Territory in Section 1. If it is deemed necessary
or desirable for recordal or other purposes, Kendall and Gerber agree to execute
any other form of License Agreement which is not incompatible with the License
Agreement referred to in the definition of Licensed Territory in Section 1.
(d) If the Licensed Products are to be manufactured by a third party,
prior to such manufacture, Kendall must be provided with a letter in the form
shown in Schedule F attached hereto for a subsidiary, and in the form shown in
Schedule G attached hereto for other manufacturers. Current manufacturers used
by Kendall, as listed in Schedule I shall be deemed already approved and no
letter shall be required.
(e) Gerber shall not have the right to manufacture or sell any products
combining the Licensed Trademarks with the name or logo of another company,
except that Gerber shall have the right to use the composite mark of Gerber and
Baby Head so long as said composite mark is not used
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or displayed on labels and packaging in such a way as to detract from or
dominate in any way the Licensed Trademarks. Should Gerber decide to phase out
the Licensed Trademarks to another mark (transitional mark) Gerber agrees to
submit a written plan to Kendall which will include products involved, samples
of transitional mark labels and packages and timing for transition to be
completed for approval by Kendall.
3. TERM
The term of this Agreement shall commence on execution of this Agreement
by both parties and shall run for a first term of ten (10) years. At the end of
this first term and each ten (10) year period thereafter, this Agreement shall
be automatically renewed for a successive ten year term, unless earlier
terminated pursuant to the provisions of this Agreement.
4. ROYALTY
(a) Gerber agrees to pay to Kendall a royalty during the first seven (7)
years of this Agreement in an amount equal to one percent (1%) for the first
three (3) years and, one-half percent (1/2%) for the succeeding four (4) years,
on the Net sales of the Licensed Products. "Net Sales" shall mean gross sales of
the Licensed Products less ordinary trade quantity discounts, and cash
discounts, promotional allowances and returns actually taken. If any Licensed
Products are sold intercompany, royalty will be paid on the Net Sales price that
the intercompany seller regularly offers to its customers for such Licensed
Products. If the intercompany seller has no Net Sales price that it regularly
offers to its customers royalty will be based on the Net Sales of the Licensed
Products as sold by the intercompany buyer to its customers.
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(b) For the first seven (7) years of this Agreement Gerber agrees to pay
to Kendall for the first three (3) years the amount of one-hundred sixty
thousand dollars ($160,000) per year and for the next four (4) years the amount
of eighty thousand dollars ($80,000) per year and such amounts are not to be
considered a payment against royalty but a payment in addition thereto. In
addition Gerber guaranties to Kendall a minimum royalty for the first three (3)
years of this Agreement of six-hundred forty thousand dollars ($640,000) per
year and for the succeeding four (4) years three-hundred twenty thousand dollars
($320,000) per year. lf, at the expiration of any year of the first seven (7)
years of this Agreement or on termination of this Agreement, the total non
royalties and royalties paid and/or payable by Gerber to Kendall are less than
those guaranteed hereunder, Gerber shall immediately pay the difference to
Kendall together with its next quarterly royalty payment.
(c) If any tax is payable, due or owing by Kendall on a royalty payment
due hereunder by or to any state and/or foreign country, Gerber shall withhold
and pay the tax on behalf of Kendall and will deduct the amount from the royalty
payment, provided that Gerber furnish Kendall with copies of such tax receipts.
(d) During the first seven (7) years of this Agreement Gerber agrees to
reimburse Kendall for all reasonable fees and costs of filing for, obtaining and
maintaining trademark registrations in the countries set forth in Schedule C,
where Kendall does not presently have any trademark registrations for the
Licensed Trademarks covering any of the Licensed Products. During the first
seven (7) years of this Agreement Kendall agrees, at its sole expense, to
maintain those trademark registrations it now has covering the Licensed
Trademarks for the Licensed Products in the Licensed Territory (as presently
constituted) and, to the extent such trademark registrations do not cover all
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of the Licensed Products, Kendall will file (if it has not already done so),
obtain and maintain new trademark registrations to cover all of the Licensed
Products if it can possibly do so. After the first seven (7) years of this
Agreement, Gerber shall reimburse Kendall for all of its reasonable costs
relating to Licensed Trademarks hereunder and its administrative activities
relating to this Agreement (including Kendall's legal and quality control
administrative costs incurred with respect to Licensed Trademarks and Licensed
Products), recordal of the License Agreements and any other expenses incurred in
order to permit use by Gerber of the Licensed Trademarks in the Licensed
Territories. Gerber shall reimburse Kendall as follows:
1. The full amount of associates bills, including their fees and any
disbursements including governmental fees.
2. The reasonable cost of Quality Control inspections of manufacturing
facilities. Travel to be in accordance with Kendall policy. After initial
problems have been corrected it is agreed that Kendall will not inspect a
plant more than once a year unless an inspection discloses problems and
additional inspections are required.
3. The reasonable administrative costs to be paid shall be based on time
sheets kept by the Trademark Department. Charges will be two thirds of the
going rate for such work charged by law firms in Boston.
5. STATEMENTS AND PAYMENTS
(a) Within thirty (30) days after the end of the third calendar-year
quarter of 1986, and promptly by the thirtieth day of the month following each
calendar-year quarter thereafter, Gerber
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shall furnish to Kendall, accurate statements showing the Net Sales of the
Licensed Products sold by Gerber during the preceding calendar-year quarter.
(b) Royalty payments due hereunder shall be due on the thirtieth day of
the month following the calendar-year quarter in which earned (a "Royalty
Period"), and payments shall accompany the appropriate statement furnished as
required above. Such statements shall be complete in all respects, and shall
reflect all sales and shipments as to each of the Licensed Products and all
returns and all discounts. The amounts set forth in the first sentence of Clause
4(b) above will be paid in calendar-year quarterly installments. If this
Agreement commences on any day other than the first day of a calendar-year
quarter, the first calender-year quarterly installment will be prorated to
reflect only the number of days in the calendar-year quarter in which this
Agreement is in effect and the last such calendar-year quarterly payment will
similarly be prorated to reflect only the days in the calendar quarter to the
date of termination.
(c) All payments shall be in the currency of the United States except when
Gerber cannot make such payments in United States currency because, through no
fault of its own, it cannot obtain United States currency for local currency, in
which case Kendall shall have the right to request Gerber to make the royalty
payments on such amounts in local currency to whomever Kendall shall designate.
The statement shall be broken down by countries and all Net Sales shall be
stated in the currency reflected on the sales invoice, followed by the
equivalent amount for such Net Sales in United States currency, followed by the
exchange rate applied. The exchange rate applied will be the exchange rate
available on the date the payment in U.S. currency is made.
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6. AUDIT
(a) Gerber agrees to keep accurate and complete records of all
transactions relating to this Agreement, to determine the royalties payable
hereunder and to permit Kendall with reasonable frequency, full access to said
records to examine them and make copies thereof during regular business hours
whenever such inspection is requested by Kendall. Such examination will not
unreasonably disrupt Gerber's normal business activities and shall encompass all
records including Quality Control records of any sublicensees.
(b) In the event that any such audit reveals an overpayment or
underpayment by Gerber, Gerber, if an underpayment and Kendall, if an
overpayment, shall immediately remit payment to the other party the amount of
such underpayment or overpayment plus interest calculated at the rate of one and
one-half (1 1/2%) percentage points above the prime rate charged by The Bank of
Boston per annum, compounded daily, calculated from the date such payment was
actually due until the date when such payment is, in fact, actually made.
Further, in the event that any such underpayment is greater than $10,000 for the
United States or $5,000 for each foreign country for any royalty period, Gerber
shall reimburse Kendall for the costs and expenses of such audit for the
applicable country.
(c) Gerber acknowledges that for the protection of the Licensed
Trademarks, Kendall must be informed of all Licensed Products being sold under
the Licensed Trademarks and the countries in which they are being sold. Gerber
agrees, when royalty payments are no longer to be paid, it shall continue to
keep accurate and complete records of all transactions, submit quarterly
statements to Kendall and permit inspection of the books as provided for in 6(a)
above.
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7. QUALITY CONTROL, NOTICES, APPROVALS AND SAMPLES
(a) Gerber agrees to use the Licensed Trademarks only in relation to the
Licensed Products manufactured in accordance with the Quality Standards. Kendall
will not require Gerber to meet Quality Standards, higher than the standards of
quality of similar products presently being manufactured and shipped by Kendall
Consumer Baby Products Division and Gerber will maintain in such similar
products that it sells under the Licensed Trademarks at least the same standards
as the products presently being shipped by Kendall Consumer Baby Products
Division. Such quality will be measured against the written Standards of Quality
currently being used by Kendall.
(b) Gerber agrees that the Licensed Trademarks will appear in the Kendall
alphabet, a copy of which is attached hereto, and should it desire to change the
same it must obtain Kendall's written approval to do so. Gerber further agrees
it will use the Kendall alphabet only for the Licensed Trademarks and will not
use it with respect to any other trademark or printed material.
(c) As soon as practicable prior to the commencement of the manufacture of
a new Licensed Product, Gerber shall submit to Kendall at Gerber's cost, for
approval by Kendall, the specifications for the proposed new Licensed Product
and complete layouts of proposed advertising, promotional and packaging
materials showing exactly how the Licensed Trademarks and wording will be used
including such notices as may be required by sections 8(d) and (e) herein.
Kendall reserves the right to disapprove of any advertising and/or labeling
which it deems in its reasonable discretion to be harmful to its business or
reputation. It is understood and agreed that Licensed Products and advertising,
promotional and packaging material therefor which Kendall Baby Products Division
is using as of the date of this Agreement listed in Schedule H attached hereto,
are deemed previously approved with the exception of such that may display
Curity as a tradename. It
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is further understood that this material will be changed to indicate CURITY is a
Licensed Trademark and such change is subject to approval by Kendall.
(d) Gerber agrees that upon execution of this Agreement all use of Curity
as a tradename shall cease, including such practices as answering the telephone
CURITY, in television commercials, and all other tradename usage. Kendall agrees
that for a period of two years, from the date of this Agreement television
commercials that are made and have been shown, may continue the use of CURITY as
a tradename but, there will be no further tradename use in future television
commercials. Gerber further agrees not to use such terminology as appears on
current packaging of Kendall such as "from the Makers of Curity diapers" and
"from the Makers of Curity products". It will cease this and similar use
references on packaging and in promotional and other materials except it may
continue to sell current packaging containing The Kendall Company name and such
uses as set forth in the preceding sentence. Kendall agrees Gerber may use the
terminology "from the Makers (Manufacturers) of CURITY gauze diapers,
childrenswear, children's apparel, or children's bedding" on packaging for
Schedule A products, subject to such products meeting the Quality Standards, and
may also use the same in advertising and promotional material used in connection
with the sale of Schedule A products. Further, subject to proper usage, Gerber
may use the terminology of the preceding sentence on stationery, invoices, and
the like of Soft Care Apparel, Inc.
(e) Any approvals or consents are to be given in writing by Kendall under
this Agreement, and if not given within fourteen (14) working days after receipt
by Kendall shall automatically constitute approval by Kendall. Such approvals
and consents will not be unreasonably or arbitrarily withheld.
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(f) Gerber agrees that if it no longer is making more than token sales of
all Licensed Products under the Licensed Trademarks, it will so notify Kendall
and if in a period of five (5) years, sales have not resumed Kendall shall have
the right to cancel this Agreement at the end of such five year period.
Notwithstanding anything to the contrary in this Agreement, Kendall shall have
the right to sell such Licensed Products in such quantity as may be necessary to
maintain in any of the Licensed Territory the Licensed Trademarks, or take any
other action required to protect the integrity of the Licensed Trademarks.
(g) Except with respect to any work or services performed by Kendall,
Gerber warrants the Licensed Products shall be suitable for their intended
purpose; that no injurious, poisonous, deleterious or toxic substance, material,
paint or dye will be used in or on the Licensed Products; that the Licensed
Products will not be inherently dangerous to the users thereof; and that the
Licensed Products will be manufactured, sold and distributed in strict
compliance with all applicable laws and regulations.
(h) Upon commencement of its manufacture of any Licensed Products not
being sold at the effective date of this Agreement, Gerber agrees to furnish to
Kendall for final written approval samples (one size and color for each style
only) not to exceed six (6) each of the Licensed Products, together with proofs
of the containers, labels, advertising, publicity and display material, except
for such Licensed Products as are deemed approved pursuant to Section 7(c) and
7(e) above. Gerber shall not depart in any material respect without the prior
written approval of Kendall, from the samples and proofs previously approved by
Kendall. Gerber will furnish additional samples (one size and color for each
style only) to Kendall upon reasonable request but it is understood that these
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additional samples will be limited to six (6) in any calendar quarter. Kendall
agrees not to sell any samples submitted to it by Gerber.
(i) If Kendall needs additional samples of Licensed Products for Quality
Control purposes, Gerber agrees to sell to Kendall at the current list price
upon receipt of a written purchase order therefor (which Licensed Products sold
to Kendall hereunder shall not be resold).
(j) To assure that the provisions of this Agreement are being observed,
Kendall shall have the right, at all reasonable times, to inspect the finished
Licensed Products in relation to which the said Licensed Trademarks are to be
used, as well as the methods of manufacture of such Licensed Products, on the
premises of Gerber, and elsewhere as Kendall considers necessary to carry out
the purposes of inspection as part of appropriate quality control and so long as
such inspections are made during Gerber's normal business hours and do not
unreasonably disrupt or interfere with Gerber's normal business routines. Gerber
agrees to provide in any sublicenses that Kendall shall have this right to go on
the premises of Gerber sublicensees. Kendall's request to make such inspections
shall not be unreasonably or arbitrarily rejected.
(k) In the event that the Quality Standards and/or trademark, usage and
notice requirements herein referred to are not met or, in the event that said
Quality Standards or trademark usage and notice requirements are not maintained
throughout the period of manufacture, promotion, and sale of any Licensed
Products hereunder, then, upon receipt of written notice from Kendall, Gerber
shall immediately discontinue any and all manufacture, promotion and sale, of
the Licensed Products in connection with which the said Quality Standards and/or
trademark usage and notice requirements have not been met until the reason such
standard or requirement is not met has been corrected. Kendall will not
arbitrarily or unreasonably exercise its right under this provision.
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(l) Gerber agrees to immediately notify Kendall of any possible material
defect in Licensed Products. Gerber further agrees to furnish Kendall with
written reports (computer printouts) of all consumer complaints received with
respect to the Licensed Products. All such written reports that relate to
serious injury or death shall be reported by Gerber to Kendall within
forty-eight (48) hours of receipt by Gerber of notice of such serious injury or
death.
(m) If Gerber fails to provide satisfactory quality control over a
sublicensee and the quality of its Licensed Products, Kendall may give written
notice to Gerber of such failure, and if Gerber fails to cure it within thirty
(30) days after the date of receipt of the notice, or in the case of a failure
that cannot reasonably be expected to be cured within thirty (30) days fails
within thirty (30) days of the notice to initiate steps reasonably calculated to
cure such breach, Kendall shall have the right to request cancellation of the
sublicense, and Gerber will immediately upon written notice by Kendall cancel
any such sublicense.
(n) Gerber shall have the right to use Kendall's current inventory of
labels and packaging materials and promotional materials for the Licensed
Products until such inventories are exhausted or until one year from the
execution of this Agreement, whichever event occurs first. For such purposes,
Gerber shall be deemed a contract manufacturer for Kendall and a distributor of
the Licensed Products for Kendall at no cost to either party. Such inventory
will contain some form of identification to distinguish it over inventory sold
by Kendall prior to the date of this Agreement.
8. TRADEMARK PROTECTION
(a) The License granted hereunder is conditioned upon Gerber's full and
complete compliance with all provisions of the trademark laws of the Licensed
Territory relating to the
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Licensed Products being advertised, promoted or sold therein. Gerber agrees it
will not sell Licensed Products in a foreign country of the Licensed Territory
until such time as Kendall has filed all necessary documents with the Ministry
of Public Health, Patent and Trademark Office and other governmental
authorities, necessary tor full protection of the Licensed Trademarks and
Kendall and Gerber have fully executed a corresponding License Agreement for
such foreign country. Kendall agrees to use due diligence in taking all steps
necessary for such full protection of the Licensed Trademarks before a License
Agreement is executed. Full protection does not necessarily mean Kendall must
have the Licensed Trademarks registered for the applicable Licensed Products in
the applicable foreign country. It will suffice that Kendall has verified that
it has licensable rights thereto. Gerber further agrees to keep records of and
advise Kendall as and when each of the Licensed Products is first sold in each
country in the Licensed Territory and to furnish promptly proof of such use when
requested by Kendall.
(b) Gerber agrees when requested by Kendall to execute Registered User
Applications and/or other documents locally required to be filed in connection
with this License Agreement.
(c) Except as permitted by an executed license agreement between Kendall
and Gerber, Gerber shall not sell to any jobber, wholesaler, distributor or
retail outlet if Gerber has reason to believe, or is on notice, that such
purchaser intends to export the Licensed Products outside the Licensed
Territory. If any such shipments are made, Kendall will have the right to
terminate immediately any and all Agreements relating to the Licensed Territory.
(d) Gerber agrees to affix to all Licensed Products, packages therefore,
and advertising and promotional material for the Licensed Products, notices in
compliance with applicable trademark laws. Gerber further agrees to place
required trademark notices and an ownership
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statement, as illustrated in Section 8(e) hereof, upon garments, labels and
tags, and advertising, sales promotional and other literature used with, or
devoted to, the Licensed Products or such other substantially similar statement
as shall be satisfactory to Kendall.
(e) CURITY is the trademark of The Kendall Company and is used, under
license, by Gerber Products Company.
9. OWNERSHIP OF RIGHTS
(a) It is understood and agreed that Kendall and/or its Licensor is the
sole and exclusive owner of all right, title and interest in and to the Licensed
Trademarks.
(b) Nothing contained in this Agreement shall be construed as an
assignment to Gerber of any right, title or interest in and to the Licensed
Trademarks, it being understood that all right, title and interest relating
thereto are expressly retained by Kendall except for the rights being licensed
hereunder.
(c) No license as to any products other than the Licensed Products or as
to any territory other than the Licensed Territory is being granted hereunder,
and Kendall reserves for its own use as it may determine all rights of any kind
other than the rights herein licensed to Gerber.
(d) Gerber shall not use Kendall's name or the Licensed Trademarks other
than as permitted hereunder and, in particular, shall not incorporate the
Licensed Trademark or any of them in Gerber's corporate name or a trade name in
any manner whatsoever. Gerber agrees that in using the Licensed Trademarks, it
will in no way represent that it has any right, title or interest in or to the
Licensed Trademarks other than those expressly granted under the terms of this
Agreement. Gerber
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further agrees that it will not use or authorize the use, either during or after
the term of this Agreement, of any configuration, trademark, trade name or other
designation confusingly similar to the Licensed Trademarks and the package trade
dress.
10. GOODWILL
Gerber recognizes that all proprietary rights and goodwill in the Licensed
Trademarks shall inure to the benefit of Kendall and not Gerber. Gerber shall
acquire no property rights in said Licensed Trademarks or packaging trade dress
by reason of its use thereof, and if, by operation of law, or otherwise, Gerber
is deemed to or appears to own any property rights in said Licensed Trademarks
or trade dress, Gerber shall, at Kendall's request, execute any and all
documents necessary to confirm or otherwise establish Kendall's rights therein.
11. INDEMNIFICATION
Gerber hereby agrees to indemnify and hold harmless Kendall, from and
against any and all liability, claims, causes of action, suits, costs and
damages (including reasonable attorneys fees incident thereto) for which Kendall
may become liable or may incur or be compelled to pay arising out of the
manufacture, distribution, advertising, promotion and/or sale of the Licensed
Products and/or the promotional and packaging material, provided however, that
the indemnification provided by Gerber shall not apply to any such liability,
claims, causes of action, suits, costs and damages which are related solely to
any work and services performed by Kendall on behalf of Gerber. Kendall shall
have the right to defend any such action or proceeding with attorneys of its own
selection.
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12. INFRINGEMENTS
(a) Kendall and Gerber shall cooperate to protect the Licensed Trademarks
and Kendall packaging trade dress if used pursuant to this Agreement. Each shall
promptly notify the other of any apparently unauthorized use or infringement of
any rights granted to Gerber. Gerber shall have no right to make any demands or
claims, bring suit, effect any settlements or take any other action, without the
prior written consent of Kendall, in respect of such an infringement. Kendall
will not unreasonably or arbitrarily withhold its consent.
(b) Unless the parties otherwise agree in writing, monetary damages
recovered by a party hereto in connection with an infringement of any rights
granted by Kendall to Gerber hereunder shall first be applied to the recoupment
of expenses, including reasonable legal expenses, incurred by the party
prosecuting the action or otherwise terminating the infringement, and the
balance of such damages shall be divided, two thirds to the party prosecuting
the action or otherwise terminating the infringement and one third to the other
party hereto. If the party prosecuting such action considers that it is legally
necessary or desirable to do so, it may join the other party hereto as a party
plaintiff and plead the damages of such party.
(c) In the event that either party elects to prosecute a legal action
pursuant to this Section 12, such party agrees, to the extent procedurally
practicable, to furnish to the other party copies of all pleadings, motions and
briefs and other papers proposed to be served or filed in connection with such
action not less than ten (10) working days prior to the contemplated date of
service or filing.
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13. ASSIGNABILITY AND SUBLICENSING
(a) The License granted hereunder is and shall be personal to Gerber and
shall not be assigned by any act of Gerber or by operation of law except that in
the first seven (7) years of this Agreement, it may be assigned by Gerber upon
the written consent of Kendall. Except as expressly provided for in this
Agreement any manufacture by a third party or sublicense or assignment to a
third party by Gerber of its rights under this Agreement without Kendall's prior
written consent shall constitute a material breach of this Agreement.
(b) Kendall shall have the right to assign its rights and obligations
under this Agreement without the approval of Gerber, provided that the assignee
agrees to take such assignment subject to said obligations.
14. BREACH AND TERMINATION
The following termination rights are in addition to termination rights
provided elsewhere in this Agreement:
(a) If either party hereto is in breach of any of the terms and conditions
of this Agreement, and fails to cure the breach within thirty (30) days after
the date of receipt of written notice from the other party advising it of the
nature of such breach, or in the case of a breach that cannot reasonably be
expected to be cured within thirty (30) days fails within thirty (30) days of
such notice to use its best efforts and proceed with due diligence to cure such
breach, the party not in breach shall have the right to terminate this Agreement
forthwith by written notice to the party in breach. The parties agree that
following the receipt of written notice of a breach of this Agreement all due
diligence will be used to cure such breach.
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(b) Either party hereto shall have the right to terminate this Agreement
forthwith by written notice to the other party in the event that such other
party shall be adjudicated bankrupt, becomes insolvent, makes any assignment for
the benefit of its creditors, has its assets placed in the hands of a receiver,
files or has filed against it a petition in bankruptcy, or be dissolved or
liquidated. In the event that Kendall terminates this Agreement pursuant to this
Section 14(b), Gerber, its receivers, representatives, trustees, agents, or
successors shall have no right to sell, exploit or in any way deal with the
Licensed Products, except in accordance with the written consent and
instructions of Kendall.
(c) Gerber may terminate this Agreement by two years' prior written notice
to Kendall and with such notice will submit to Kendall for its approval a
detailed plan as to the phasing out of the two year use of the Licensed
Trademarks so that at the end of the period, Gerber shall have ceased all use of
the Licensed Trademarks.
(d) Except as provided in Section 14(g) below, upon the termination of
this Agreement, Gerber agrees to immediately and permanently discontinue the
manufacture, sale and distribution of the Licensed Products, and to immediately
and permanently discontinue use of the Licensed Trademarks, its special logo and
any packaging trade dress, including any adaptations thereof, which it is
granted the right to use by virtue of this Agreement and Gerber shall not
register or use the Licensed Trademarks for any goods whatsoever.
(e) Termination of this Agreement pursuant to any of the provisions hereof
shall be without prejudice to any rights which either party may have against the
other party hereto.
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(f) Gerber hereby acknowledges that its failure to cease the manufacture,
sale or distribution of the Licensed Products upon the termination or expiration
of this Agreement will result in irreparable damage to Kendall for which there
is no adequate remedy at law, accordingly, in the event of such failure, Kendall
shall be entitled to equitable relief by way of temporary and permanent
injunctions and such other relief as any court of competent jurisdiction may
deem just and proper.
(g) Anything herein to the contrary notwithstanding, subject to the
payment of royalties as provided in Section 4 above, in the event of expiration
or termination of this Agreement, excepting termination by Kendall pursuant to
Sections 14(a) or (b) hereof, for a period of six (6) months after the date of
expiration or termination, Gerber may continue to sell any Licensed Products
previously packaged and on hand at the time notice of termination is received,
provided royalties, if applicable, with respect to that period are paid and
statements are furnished for that period.
(h) Upon the expiration or termination of this Agreement for whatever
reason, or the expiration of any sell-off provided in Section 14(g) to which
Gerber may be entitled under the circumstances, Gerber shall immediately either
return to Kendall or destroy its remaining inventory of the Licensed Products
containing the Licensed Trademarks or remove the Licensed Trademarks therefrom.
Gerber will also return, destroy or remove from any dyes, molds, negatives,
plates, or other articles or implements from which any of the packaging has been
produced the Licensed Trademarks and packaging trade dress. In the event of
destruction or removal, Gerber shall furnish to Kendall evidence of such
destruction or removal, and Kendall shall have the right, at its election, to
have a representative selected by it observe any such destruction or removal.
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(i) Notwithstanding anything to the contrary, Gerber shall have the
obligation to continue to pay to Kendall the non-royalty and minimum royalty
payments as provided for in Section 4(a) hereof in the event this Agreement is
terminated prior to the end of the first seven years.
15. NO JOINT VENTURE
Nothing herein contained shall be construed to place the parties in the
relationship of partners or joint venturers, and neither Gerber nor Kendall
shall become bound by any representation, act or omission of the other.
16. WAIVERS
None of the terms of this Agreement can be waived or modified except by an
express agreement in writing signed by both parties hereto. There are no
representations, promises, warranties, covenants, or undertaking other than
those contained in this Agreement which represents the entire understanding of
the parties. The failure of either party to enforce, or the delay by either
party in enforcing, any of its rights under this Agreement shall not be deemed a
continuing waiver or a modification thereof and either party may, within the
time provided by applicable law, commence appropriate legal proceeding to
enforce any and all such rights.
17. CONFIDENTIAL INFORMATION
Kendall agrees to maintain in strict confidence, and not to disclose to
others any technical and financial information it obtains from Gerber pursuant
to this Agreement except to the extent Kendall is required to disclose such
information to the government or makes use of such information
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in any dispute with Gerber over the terms or performance of this agreement in
any court of law or equity and then only under a protective order of the court.
18. SEVERABILITY
In the event that any term or provision of this Agreement shall for any
reason be held to be invalid, illegal or unenforceable in any respect, such
invalidity, illegality or unenforceability shall not affect any other term or
provision and this Agreement shall be interpreted and construed as if such term
or provision, to the extent the same shall have been held to be invalid, illegal
or unenforceable, had never been contained herein.
19. INTEGRATION
This Agreement represents the entire understanding between the parties
hereto with respect to the subject matter hereof and this Agreement supersedes
all previous representations, understandings or agreements, oral or written,
between the parties with respect to the subject matter hereof and cannot be
modified except by a written instrument signed by the parties hereto.
20. NOTICES
Any notice or other communication required or permitted to be given by
either party hereto shall be mailed by first class, United States mail,
addressed as follows:
If to Kendall:
Mr. John Kuchta, Vice President and General Counsel
The Kendall Company
1 Federal Street
Boston, MA 02101
-23-
<PAGE> 24
If to Gerber:
General Counsel
Gerber Products Company
445 State Street
Fremont, III 49412
Notices or other communications mailed as herein provided shall be deemed
to have been given when received or when an attempt to deliver same was made as
evidenced by a duly executed return receipt.
21. TAXES
Gerber shall withhold the amount of income or other taxes, if any, payable
by Kendall and levied by governmental agencies in the Licensed Territory outside
the United States on payments payable by Gerber to Kendall pursuant to this
Agreement, and shall promptly effect payment thereof to the appropriate
authority. Gerber shall transmit to Kendall within thirty (30) calendar days
after such payment, or receipt by Gerber of such official tax receipt, a copy of
the official tax receipts or other documentary evidence issued by said tax
authority sufficient to enable Kendall to support a claim for United States
income tax credits, if any, in respect of any such taxes so paid. Gerber shall
make its best effort to obtain tax receipts. Gerber agrees to indemnify and hold
Kendall harmless to the extent it is permissible under law from any governmental
claim regarding tax withholding due to Gerber's failure to perform in accordance
with this Section 21. Kendall shall be responsible for notifying Gerber of any
exemptions, treaty provisions, exclusive claims, special tax rates or other
adjustments available or claimed by Kendall.
22. CAPTIONS
-24-
<PAGE> 25
The captions used in connection with the paragraphs and subparagraphs of
this Agreement are inserted only for purpose of reference. Such captions shall
not be deemed to govern, limit, modify or in any other manner affect the scope,
meaning or intent of the provisions of this Agreement or any part thereof, nor
shall such captions otherwise be given any legal effect.
23. GOVERNING LAW
This Agreement shall be governed by the laws of the Commonwealth of
Massachusetts.
IN WITNESS WHEREOF, the parties hereto have caused this instrument to be
duly executed as of the day and year first above written.
THE KENDALL COMPANY
By /s/ John Kolb [sic]
--------------------------------------
Title Vice President
--------------------------------------
GERBER PRODUCTS COMPANY
By /s/ Kenneth B. Pierce [sic]
--------------------------------------
Title Executive Vice President
--------------------------------------
SOFT CARE APPAREL, INC.
By /s/ Raymond Mayson [sic]
--------------------------------------
Title President
--------------------------------------
-25-
<PAGE> 26
SCHEDULE A
Licensed Products
Categories Licensed to Gerber
These categories consist of products to be worn by or used for infants and small
children who wear sizes up to 6X/7.
CLOTH DIAPERS AND DIAPER LINERS
UNDERWEAR such as shirts, one-piece underwear, two-piece underwear, vinyl pants,
nylon pants, training pants, underpants, briefs, thermal knit shirts, hip
huggers, bikini and diaper shirts.
OUTERWEAR such as bonnets, bibs, vests, sweaters, gloves coats, jackets, hats
and snowsuits.
PLAYWEAR such as vests, slacks, pants, shirts, dresses, blouses, swimsuits,
overalls, rompers, creepers, tank tops, pramsuits, halters, swimwear, coverups
and culottes.
HOSIERY such as booties, tights, socks and leotards.
SLEEPWEAR such as gowns, kimonos, pajamas, blanket sleepers, dorm shirts, night
gowns, coveralls, sacques, sleep 'n play sets, robes and baby dolls.
LINENS such as towels, washcloths and hooded towels for infants and children.
BEDDING
This category includes crib sheets, comforters, pillows, dust ruffles, bassinet
sheets, port-a-crib sheets, blankets, receiving blankets, mattresses, crib pads,
quilts, pillow covers bunting bags and bumper pads.
OTHER PRODUCTS
This category includes diaper stackers, wall hangings, diaper receptacles,
fabric baby carriers and infant car seat cover.
-26-
<PAGE> 27
SCHEDULE B
Licensed Territory
Argentina Japan
Austria Malawi
Barbados Mexico
Benelux Netherland Antilles
Brazil New Zealand
Canada Nicaragua
Colombia Panama
Costa Rica Peru
Denmark Philippines
Dominican Republic Singapore
Ecuador South Africa
Egypt Spain
El Salvador Sweden
Finland Switzerland
France Taiwan
Germany W. Transkei
Greece Trinidad
Guatemala United Kingdom
Guyana Uruguay
Hong Kong Venezuela
Italy Zambia
Jamaica
-27-
<PAGE> 28
SCHEDULE C
Licensable Territory
<TABLE>
<CAPTION>
COUNTRY COUNTRY COUNTRY
<S> <C> <C>
Abu Dhabi Iraq Poland
African & Malagasy Union Ireland Portugal
Algeria Israel Rhodesia
Angola Jordan Sabah
Australia Kenya Sarawak
Bahamas Korea Saudi Arabia
Bahrain Kuwait Sierra Leone
Belize Lebanon Sudan
Belgium Lesotho Surinam
Bermuda Liberia Swaziland
Bolivia Libya Syria
Botswana Luxembourg Tangiers
Chile Malaya Thailand
China Malaysia Tobago
Cyprus Mali Togo
Ethiopia Malta Tunisia
Fiji Islands Monaco Turkey
Haiti Morocco USSR
Honduras Newfoundland Viet Nam
Iceland Nigeria Yemen
India Norway Virgin Islands
Indonesia Pakistan Yugoslavia
Iran Paraguay
</TABLE>
-28-
<PAGE> 29
January 19, 1996
Mr. David Siskind
The Kendall Company
15 Hampshire Street
Mansfield, Massachusetts 02048
Re: Curity Trademark License Agreement
Dear Mr. Siskind:
This letter sets forth the terms and conditions pursuant to which The Kendall
Company (Kendall) consents for all purposes under the terms of the License
Agreement, dated July 31, 1996 (License Agreement), among Kendall, Gerber
Products Company ("GPC"), and Gerber Childrenswear, Inc. (GCI) (successor to
Soft Care Apparel, Inc., and collectively with GPC under the License Agreement
"Gerber") to the transfer of the stock of GCI to GCIH, Inc. and the assignment
of the License Agreement from Gerber to GCI:
1. GPC, GCI and GCIH, Inc. agree that all the worldwide rights int eh Curity
mark under the License Agreement for the Licensed Products of "outerwear"
and "playwear" as those Licensed Products are more fully described in
Schedule A to the License Agreement, shall immediately revert to Kendall
and that GPC, GCI and GCIH, Inc. shall retain no rights in the Curity mark
to those categories.
2. GCI and GCIH, Inc. agree to provide to Kendall within four months of the
date of this letter, a business plan setting forth in reasonable detail
use of the CURITY mark on hosiery, linens, bedding and other products as
those Licensed Products are more fully described in Schedule A of the
License Agreement. GCI, GCIH, Inc. and Kendall agree to negotiate in good
faith to mutually determine whether the Curity license for all or any of
these categories will remain with GCI under the terms of the License
Agreement or whether the Curity trademark rights for all or any of these
Licensed Products will revert to Kendall, it being understood that the
parties intend that such right shall revert in full to Kendall if the
aforesaid plan fails to provide for "use in commerce" of the CURITY mark
with respect to all or any of the Licensed Products, or -- if such plan
does so provide -- if GCI fails at any time thereafter to "use in
commerce" the CURITY mark on any of the aforesaid Licensed Products for a
consecutive period of six (6) months. The phrase "use in commerce" shall
have the meaning set forth at 15 USC 1127, Title X, Section 45.
-29-
<PAGE> 30
Mr. David Siskind
January 19, 1996
3. GPC, GCI and GCIH, Inc. agree that, without in any way narrowing Kendall's
rights under Section 13(a) of the License Agreement, any subsequent
transfer of the rights in the License Agreement to any third party who
does business in competition with k\at the time of such transfer shall
require Kendall's prior written consent.
4. Kendall acknowledges that, to its knowledge as of the date hereof, (i)
neither GPC nor GCI is in breach of the License Agreement and (ii) the
operation of GCI's business as currently conducted does not give rise to a
right of termination of the License Agreement by Kendall under paragraph
14 thereof.
5. GPC, GCI and GCIH acknowledge and agree that in connection with the sale
of GCI and the execution of this License Agreement, GPC's rights under the
License Agreement shall herewith cease and hereafter be null and void, and
that GCI shall hereafter be the sole licensee under the License Agreement.
The parties below have each, by the signatures of their respective duly
authorize representatives accepted the terms and conditions set forth herein.
Please evidence your agreement to the above by signing below and returning, via
facsimile, a signed copy to the attention of Kirk A. Radke at Kirkland & Ellis,
fax number (212) 446-4900.
* * * *
-30-
<PAGE> 31
Mr. David Siskind
January 19, 1996
Sincerely,
GERBER PRODUCTS COMPANY
By: /s/ Fred K. Schomer
---------------------------------
Title:
GERBER CHILDRENSWEAR, INC.
By: /s/ David H. Jones
---------------------------------
Title:
GCIH, INC.
By: /s/ Richard Solar
---------------------------------
Title:
Agreed:
THE KENDALL COMPANY
By: /s/ David Siskind
---------------------------------
Title: Secretary and Associate
General Counsel
-31-
<PAGE> 1
Exhibit 10.15
SUPPLEMENT TO
TRADEMARK LICENSE AGREEMENT
STANDARD TERMS
A. Licensee: Auburn Hosiery Mills, Inc.
124 East 38th Street
New York, New York 10016-2693
Attn: Mr. Kevin Angliss
Phone: 212-532-0404
Fax: 212-689-3874
B. Wilson: Wilson Sporting Goods Co.
8700 W. Bryn Mawr Ave.
Chicago, IL 60631
Attn: GM, Team Sports
Phone: 773-714-6868
Fax: 773-714-4590
C. Trademarks: Wilson (script), "W" (script) (see
Exhibit A)
D. Authorized Goods: Sport socks
E. Territory - Countries: In North America ---- the fifty United
States (specifically excluding
territories and possessions);
In Europe ---- Austria, Belgium,
Denmark, Finland,
France, Germany,
Greece, Ireland,
Italy, Luxembourg,
Netherlands, Norway,
Portugal, Spain,
Sweden, Switzerland,
and the United
Kingdom (See Part
T.3 below)
Territory - Trade Channels: All, except the golf and tennis pro
and specialty markets
F. Term: January 1, 1998 - December 31, 2002
Option to Renew: If Licensee's Net
Sales over the first 4 years of the
Term meet or exceed 110% of the
aggregate Target Sales for such 4
years, and if Licensee is in
compliance with the remaining Terms of
this Agreement, then Licensee shall
have the right
<PAGE> 2
to extend the Term for an additional 5
years by giving Wilson written notice
of Licensee's election to renew by
January 1, 2002 (along with the
evidence which demonstrates that
Licensee has met the renewal
conditions).
G. Exclusivity/Non-Exclusivity: This license is exclusive in the
Territory.
H. Contract Years: Calendar Years; See Paragraph 4
I. Percentage Royalty: In each Contract Year, the Percentage
Royalty shall be:
<TABLE>
<CAPTION>
Annual Sales Percentage
------------ ----------
<S> <C>
$0 - $15,000,000: 6.0%, plus
$15,000,001 - $20,000,000: 5.5%, plus
$20,000,001 - $25,000,000: 5.0%, plus
$25,000,001 and up: 4.0%
</TABLE>
For example: If Licensee's Net Sales of Authorized Goods in a Contract Year are
$50,000,000, then the royalty due Wilson on such $50,000,000 of sales shall be
$2,425,000. Each royalty percentage applies only to the increment of sales as
indicated.
J. Target Sales and Target Royalty:
<TABLE>
<CAPTION>
Target Sales Target Royalty
------------ --------------
<S> <C> <C>
Contract Year 1998 $48,000,000 $2,345,000
Contract Year 1999 $50,000,000 $2,425,000
Contract Year 2000 $52,000,000 $2,505,000
Contract Year 2001 $54,000,000 $2,585,000
Contract Year 2002 $56,000,000 $2,665,000
Extension Years (if applicable):
Contract Year 2003 $60,000,000 $2,825,000
Contract Year 2004 $62,000,000 $2,905,000
Contract Year 2005 $64,000,000 $2,985,000
Contract Year 2006 $66,000,000 $3,065,000
Contract Year 2007 $68,000,000 $3,145,000
</TABLE>
K. Guaranteed Royalty: The Guaranteed Royalty shall be 60% of
the Target Royalty for a Contract
Year:
-2-
<PAGE> 3
<TABLE>
<CAPTION>
Guaranteed Royalty
------------------
<S> <C>
Contract Year 1998 $1,407,000
Contract Year 1999 $1,455,000
Contract Year 2000 $1,503,000
Contract Year 2001 $1,551,000
Contract Year 2002 $1,559,000
Extension Years (if applicable):
Contract Year 2003 $1,695,000
Contract Year 2004 $1,743,000
Contract Year 2005 $1,791,000
Contract Year 2006 $1,839,000
Contract Year 2007 $1,887,000
</TABLE>
L. Quarters (for payments and reports): Calendar Quarters
M. Key-Man (Par. 9[c]): Mr. Kevin Angliss and Mr.
Donald J. Murphy
N. Advertising Percentage (Par. 12[b]): N/A
O. Sales Meeting Participation (Par. 12[e]): N/A
P. Trade Show Booth Space (Par. 12[f]): Applicable
Q. Non-Compete Restrictions (Par. 19): The non-competition
restrictions stated in Paragraph 19 of the Standard Terms shall apply to
Licensee and any of Licensee's affiliated who utilize in their operations
any of the resources (e.g., manufacturing facilities, management
personnel, sales personnel, service personnel or functions, etc.) which
Licensee utilized under this license. In other words, Licensee and Wilson
have agreed that Wilson shall have a right of termination if Licensee's
operation under this license is not wholly separate and distinct (as if it
were a non-affiliate) from the operation of any affiliated entity which
makes or distributes socks or other sporting goods under a sports brand
name. The sole exceptions to this non-competition clause are: [1]
Licensee's ability to continue to make and distribute sport socks under
the Converse(R)name; [2] Licensee's ability to sell, in Europe only,
Dunlop(R)sport socks at price points and in trade channels which are not
competitive with Licensee's current Wilson-brand socks business in Europe.
This non-competition between the Wilson and Dunlop sock lines shall be a
material condition of Licensee's ability to maintain the right to
distribute Wilson-branded socks in Europe under this license; and [3]
Licensee's ability to supply private label sport socks to retailers, so
long as the private label line is not offered, sold or positioned by
Licensee in a way which competes against the offer, sale and positioning
the Wilson-brand sock line.
-3-
<PAGE> 4
R. Copies of Notices (Par. 20[b]):
If to Wilson: Addressed to Wilson (as above)
Attention: General Counsel
Fax: 312-714-4557
If to Licensee: Same as above address
S. Jurisdiction (Par. 20[d]): State of Illinois
T. Other Supplemental Provisions:
1. Rights of Termination for Failure to Meet Certain Sales Levels.
This paragraph amends Paragraph 9[d] of the Standard Terms. Wilson and Licensee
acknowledge that the Guaranteed Royalty figure has been set at a significantly
discounted percentage of the Target Royalty set forth above, in light of the
current level of Licensee's business with Wilson-brand product. The parties also
acknowledge that if actual annual sales of Authorized Goods were significantly
below the Target Sales, then Wilson should have an option to terminate this
relationship. Therefore, Wilson shall have the right to terminate this Agreement
within 60 days after receiving an annual report of sales from Licensee, which
reports that Licensee's sales for that Contract Year were less than 60% of the
Target Sales figure set forth in Part J above. In addition, Wilson shall have
the right to terminate the Agreement within 60 days after receiving an annual
report of sales from Licensee, which ---- when combined with Licensee's two
immediately preceding annual reports of sales ---- reports that Licensee's
aggregate sales of the three-year period are less than 75% of the aggregate
Target Sales for that three-year period. Nothing in this paragraph shall
restrict Wilson's right to receive full payments of Guaranteed and Percentage
Royalties under Paragraph 6 of the Standard Terms and the other provisions of
this Agreement; Provided, that if Wilson exercises its right of termination
under this Part T.1, then in this case only Licensee's obligation for Guaranteed
Royalties under this Agreement shall extend for a period of 9 months following
termination and the amount owed shall be pro-rated over such 9-month period.
Licensee's failure to provide accurate and timely reports of sales under this
paragraph shall create for Wilson a right of termination under Paragraph 7 of
the Standard Terms.
2. Territorial Allocation of Licensee's Sales. Licensee has been
granted United States and European territories under this Agreement. The parties
have agreed not to assign minimum royalties by country, but have agreed instead
to a percentage allocation of sales. Wilson shall have the right to terminate
this Agreement, within 60 days after receiving an annual report of sales from
Licensee, which reports that less than 65% of Licensee's sales of Authorized
Goods for that Contract Year were for distribution in the United States.
Alternatively, Wilson shall have the right to terminate Licensee's ability to
distribute and sell the Authorized Goods in the countries of Europe listed in
Part E above in this Supplement as part of the Territory (the "European
countries"), within 60 days after receiving an annual report of sales from
Licensee, which reports that less than 15% of Licensee's sales of Authorized
Goods for that Contract Year were for distribution in the European countries.
Licensee's failure to provide accurate and timely reports of sales under this
paragraph shall create for Wilson a right of termination under Paragraph 7 of
the Standard Terms.
-4-
<PAGE> 5
3. European Distributor Issues. Licensee agrees to work in good
faith with Wilson's distributors in the European countries listed in Part E
above, as follows: If the Wilson distributor calls on accounts within the
Territory not called on by Licensee (the "Incremental Accounts"), and if such
distributor would like to offer Licensee's Authorized Goods to such Incremental
Accounts, then Licensee shall sell Authorized Goods to the distributor for
distribution. Licensee's price to the distributor shall be competitive with
Licensee's prices to its other accounts in the European countries. Wilson and
Licensee shall work in good faith towards an agreement on a minimum order figure
which accommodates the distributors' needs without unreasonably interfering with
Licensee's business operations. If Licensee shall fail to uphold its obligations
in this paragraph, or if the particular Incremental Account is in a country
where Licensee made no sales in the prior Contract Year, then such distributors
may offer and sell a sports sock bearing the Wilson name, made by a party other
than Licensee, to the Incremental Accounts. To the extent that Wilson might
replace its distributor network with a sales force, or another distribution
system, this paragraph shall apply to such any sales force or other distribution
system.
4. Branding Issues. Licensee agrees to cooperate reasonably with
Wilson on Wilson's branding strategies in the markets where Licensee distributes
the Authorized Goods. To the extent that Licensee is permitted to use any
sub-brands of Wilson on the Authorized Goods, Licensee agrees that its use will
be consistent with Wilson's strategies for such sub-brands.
5. Trade Channel Development Issues. Licensee agrees to use
reasonable efforts to develop sales of Authorized Goods in the sporting goods
store trade channel. In 1996, Licensee reported that its sales of Authorized
Goods in "quality" outlets amounted to 12.3% of its aggregate sales of
Authorized Goods. Licensee agrees that it must increase sales of Authorized
Goods to quality outlets in the U.S. to 20% of its U.S. sales of Authorized
Goods within the next 3 years, and to reasonably maintain such level of sales
thereafter during the Term.
6. Special Market Sport Socks. Licensee agrees to cooperate
reasonably with Wilson to develop sport sock products which are suitable and
salable in the golf and tennis pro and specialty markets. Wilson acknowledges
that Licensee's recent efforts in this area are reasonable efforts. Wilson
agrees to use best efforts to use Licensee as its first-choice supplier of socks
to the golf and tennis specialty market.
7. Issues Related to Foreign Sales Reports. Currency Translations.
In preparing and filing its sales reports, Licensee agrees to list sales
separately for each country so that Wilson can properly allocate the royalties
to the applicable Wilson market centers. All royalties shall be payable in US
dollars. Foreign sales shall be converted into US dollars at the exchange rate
in effect (from a mutually acceptable bank) on the last day of the quarter to
which the report and payment pertain.
8. Specific Disclaimer of Rights to the Wilson Sports Socks Name.
Licensee has from time to time utilized a d/b/a name of Wilson Sports Socks.
Licensee expressly disclaims any ownership of such name, and agrees to
discontinue all use of such name upon Wilson's direction or upon termination of
this agreement. Licensee agrees to secure similar disclaimers and agreements
from Licensee's foreign distributors. The costs related to any steps which must
be taken by Wilson to enforce the terms of this provision against Licensee or
its foreign distributors shall be subject to indemnification by Licensee.
-5-
<PAGE> 6
9. Continuity of Operations under the Licensee. In addition to the
provisions of the Standard Terms regarding a change in control of licensee,
Wilson and Licensee specifically agree that Wilson shall have the right of
approval of any proposed successor to the ownership of Licensee. Without
limiting Wilson's rights of approval, it is agreed that Wilson shall be entitled
to reject any proposed successor which markets a line of socks or sporting goods
which is competitive with Wilson, or which maintains a material interest in any
such competitor ---- whether as a manufacturer, distributor or retailer of
sporting goods. Wilson has previously listed Mr. Kevin Angliss as a "key man."
In addition, any approved successor must agree to maintain Wilson as a key
sporting goods brand in its sock business, and a key brand overall in its
business, and to create a seamless transition in the change in ownership
respecting the Wilson sock business in the eyes and minds of the trade.
10. Representation regarding Lack of any Default Upon Execution.
Licensee represents that it has read the terms of the agreement, including the
Standard Terms, and that there shall be no condition which exists upon execution
which would constitute a violation of the agreement. Licensee agrees that, as of
the date of execution, Wilson is in full compliance with all obligations owed to
Licensee and its affiliated Sales and Marketing Hosiery corporation under the
predecessor license dated October 12, 1987, as amended.
11. Conditions of Effectiveness. This Agreement shall not become
effective until: (a) it is executed by all parties; and (b) the agreement has
been approved by the Wilson Board of Directors. Licensee acknowledges that
Wilson has not, cannot, and does not make any representations as to whether or
not the Wilson Board of Directors will approve this Agreement, as executed. If
the Agreement is not approved, then neither party shall have any obligation to
the other, except under the existing agreement described in the following
sentence. Wilson shall have the unilateral right to terminate this Agreement if,
as of December 31, 1997, Licensee is not in full compliance with its obligations
under the agreement between Wilson and Sales and Marketing Hosiery Corporation
dated October 12, 1987, as amended.
12. Licensee's Status. Licensee represents that it is a duly
incorporated organization in good standing in the state of its incorporation.
The signatory for Licensee and Wilson each represent that he/she is authorized
to bind Licensee and Wilson, respectively, to the terms of this Agreement.
Licensee represents that it is capable of fully performing its obligations under
this Agreement.
13. Licensee's European Distributor. Wilson acknowledges that
Licensee may distribute Authorized Goods in Europe (as defined) through its
affiliate, Sport Socks Co. (Ireland) Ltd., Cahirciveen, Co. Kerry, Ireland, on
the conditions that: (a) Licensee provides Wilson with a copy of the sub-license
agreement with such affiliate and Wilson approves the same (not to be
unreasonably withheld or delayed), (b) the royalty paid by Licensee on sales by
the affiliate is based upon the sales prices by the affiliate to the trade (or
the distributors approved by Wilson) and not upon the sales prices between
Licensee and its affiliate (if any), and (c) Licensee agrees to provide access
to affiliate's books and records as if such were Licensee's, as required by the
Standard Terms of this license agreement.
-6-
<PAGE> 7
U. Signatures: This Agreement between Wilson Sporting Goods Co. and Licensee,
consists of the following incorporated parts ---- this
Supplement, Exhibit A, and the Standard Terms ---- and is
executed this 29th day of April, 1997.
WILSON SPORTING GOODS CO. AUBURN HOSIERY MILLS INC.
By: /s/ Chris Carradine [sic] By: /s/ James P. Manning
--------------------------- -------------------------------
Title: 05/28/97 Title: Chief-Executive Officer
--------------------------- -------------------------------
and Chairman of the Board
-------------------------------
-7-
<PAGE> 8
Exhibit A
TRADEMARK LICENSE AGREEMENT
STANDARD TERMS
All capitalized terms not defined in these Trademark License Agreement
Standard Terms are defined in the Supplement (and its Exhibit(s)), into which
these terms are incorporated.
1. Grant. Wilson hereby grants to Licensee a license to use the
Trademarks, in the forms set forth in Exhibit A (as may be updated) for the
manufacture, purchase for resale, and distribution of the Authorized Goods
bearing the Trademarks in the Territory, subject to the terms and conditions of
this Agreement. The licensee granted hereby shall be non-transferable,
non-assignable and indivisible. The Supplement or the Exhibits shall specify
whether, or the extent to which, this license is exclusive in the Territory.
2. Territorial Restrictions on Grant. Licensee shall not utilize the
Trademarks on goods other than the Authorized Goods. Licensee shall make no
sales of Authorized Goods outside of the geographic (and, if applicable, the
trade channel) limits of the Territory. Licensee shall not export, and shall use
best efforts to restrict any authorized independent sales agents or distributors
from exporting, Authorized Goods outside the Territory. All independent sales
agents and distributors of Licensee must be approved by Wilson, which approval
may be withheld in Wilson's discretion. Licensee shall not continue to sell
Authorized Goods to accounts in the Territory which then distribute such goods
outside of the Territory.
3. Reservation of Rights not Granted. All rights in the Trademarks other
than those specifically granted herein are reserved by Wilson for its own
exclusive use and benefit, including but not limited to, the right to use the
Trademarks: (a) on all goods except the Authorized Goods and (b) on Authorized
Goods, to the extent the license granted hereby is non-exclusive within the
Territory, and to the extent sales of Authorized Goods are made by Wilson or a
licensee or distributor outside the Territory.
4. Term and Contract Years. The Term of this Agreement shall be as
indicated in the Supplement. The Term may be terminated prior to its scheduled
conclusion pursuant to the provisions of paragraph 9 of this Agreement. The Term
may be extended through one or more Option Contract Years if: (a) the Supplement
provides for any such Option Contract Years and (b) Licensee is in full
compliance with all of the terms of this Agreement, including the terms of the
option, at the time such option is exercised. Any such dates of conclusion of
the Term shall hereafter be referred to as the "expiration of the Term." The use
of the term "Contract Year" shall refer also to "Option Contract Years," if any
are applicable. Unless otherwise indicated in the Supplement, Contract Year One
shall be the first 12 months of the Term, and all subsequent Contract Years
shall be the succeeding 12-month periods during the Term.
5. Royalties.
(a) Percentage Royalty. In consideration of and for the grant of the
License, Licensee shall pay to Wilson the Percentage Royalty indicated in the
Supplement on Net Sales of
A - 1
<PAGE> 9
Authorized Goods during the Term. Such royalties may be referred to in this
Agreement as "Percentage Royalties."
(b) Guaranteed Royalty. Licensee guarantees to Wilson that it will
pay Wilson during the Term royalties in amounts not less than the Guaranteed
Royalty indicated in the Supplement for each Contract Year.
(c) "Net Sales" and "Sales," defined. "Net Sales" shall mean the
aggregate invoice price of all Authorized Goods sold by Licensee, its agents, or
distributors, bearing one or more of the Trademarks (including close-outs), less
freight, sales taxes and returns actually credited. Authorized Goods which are
distributed, but not sold, by Licensee for purposes other than the promotion of
sales of Authorized Goods (e.g., as premiums or barters) shall be deemed for
royalty purposes to have been sold at the normal dealer price of such goods.
Authorized Goods shall be deemed "sold" when title transfers to a purchaser not
directly or indirectly affiliated with Licensee in any way.
6. Payments. Licensee shall pay royalties on a quarterly basis. The
quarterly payment schedule is designed so that, at the end of each Quarter's
payment, Licensee will have paid to Wilson the greater of: Licensee's
year-to-date Percentage Royalties, or a sum equal to one-fourth of the
Guaranteed Royalty multiplied by the number of Quarters which have elapsed in
the Contract Year. The procedure shall be as follows: Within thirty (30) days
following the end of each Quarter of a Contract Year, Licensee shall conduct an
accounting, showing the Percentage Royalties payable for the Quarter and paid or
payable year-to-date. Within the 30-day period, Licensee shall pay to Wilson the
greater of:
(a) the cumulative total of the Percentage Royalties payable
year-to-date for the Contract Year, less any Percentage Royalties and Guaranteed
Royalties paid for prior Quarters in the same Contract Year; or
(b) one-fourth of the Guaranteed Royalty for the Contract Year,
multiplied by the number of completed Quarters in the Contract Year, less any
Percentage Royalties and Guaranteed Royalties paid for prior Quarters in the
same Contract Year.
As of the final payment for a Contract Year, Licensee shall have
paid to Wilson the greater of the Percentage Royalties or the Guaranteed Royalty
due for that Contract Year.
All payments of Percentage Royalties or Guaranteed Royalties shall
accompany the Reports which Licensee shall submit pursuant to Paragraph 7.
Unless otherwise indicated in the Supplement, all late payments shall bear
interest at the prime rate of the Chase Manhattan Bank of New York City as of
the date of default, as published in the Wall Street Journal in its section
which regularly contains this information.
7. Reports and Records.
(a) Quarterly Reporting. Licensee shall render Reports to Wilson for
each Quarter throughout the Term and any additional period thereafter during
which Authorized Goods are sold by Licensee. Unless otherwise indicated in the
Supplement, "Quarter" shall be defined as
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the calendar quarters ending March 31, June 30, September 30 and December 31.
Each Quarter's Report shall be delivered to Wilson no later than thirty (30)
days after the end of the Quarter. A "Report" shall be defined to include the
following information, and in a form reasonably satisfactory to Wilson:
(i) The total number of units of each type of Authorized Goods
sold or distributed by Licensee during the Quarter;
(ii) The Net Sales of each type of Authorized Goods during the
Quarter;
(iii) A computation of the royalties earned by Wilson for the
Quarter;
(iv) The Net Sales of all Authorized Goods sold or distributed
by Licensee during the Quarter, by the top twenty accounts;
(v) The dollar volume of Authorized Goods on order by
customers at the end of the calendar year by the tope twenty account;
(vi) The quantity of defective Authorized Goods returned
during the Quarter by stock number;
(vii) Such other information as may be reasonably requested by
Wilson.
(b) Annual Reporting. Licensee shall also render annual Reports to
Wilson throughout the Term, no later than thirty (30) days following the end of
each Contract Year, showing the dollar volume of Authorized Goods purchased by
each customer of Licensee.
(c) Audits. Licensee shall keep its books of account and business
records in a manner to sufficiently establish inventory of the Authorized Goods,
royalty computations, and Reports related to this Agreement. Licensee's books of
account and business records, which in any way relate to the verification of the
transactions covered by this Agreement, shall be open for audit or inspection by
Wilson's authorized representatives at Wilson's expense during Licensee's
regular business hours for a period of three years after receipt of the Report
such information was drawn from. Upon request, Licensee shall also make
available to Wilson's representatives can determine and verify the production
inventory and factory commitments of the Authorized Goods. If Wilson should
conduct such an audit for any Contract Year, and the Net Sales or Royalties
computed shown by Licensee's statement for any such Contract Year should be
found to be understated by more than six percent (6%) of the amount so stated,
then Licensee shall pay to Wilson the cos of such audit, plus the amount of the
understatement and applicable interest. Wilson will keep such audit information
confidential.
(d) Forecasting. Licensee shall reasonably and promptly comply with
Wilson's requests for forecasts regarding Licensee's sales and royalties. Wilson
may request that such forecasts be updated on a quarterly basis.
8. QUALITY OF AUTHORIZED GOODS. Licensee shall be responsible for the
quality of all Authorized Goods and shall guarantee that all Authorized Goods
sold are free of
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defects and in conformity with the samples of Authorized Goods submitted to
Wilson, except as provided in this Paragraph 8.
If defective Authorized Goods are produced, they shall be dealt with
as follows:
(a) All Authorized Goods that are functionally defective shall not
be sold, but will be destroyed.
(b) Authorized Goods that are cosmetically defective but of an
industry recognized second quality shall be treated as follows: (i) if the
amount of seconds is less than 2% of the total annual production amount during
the Contract Year, Licensee may sell such seconds in the Territory provided all
Wilson identification is removed and the items cannot be identified as Wilson
product; (ii) if the amount of seconds is 2% or greater of the total annual
production amount during the Contract Year, then Licensee shall only dispose of
such seconds over the 2% figure with Wilson's prior approval of the mutually
agreed method of disposal.
9. Termination.
(a) Defaults. In the event either party defaults on its obligations
provided herein, the non-defaulting party may give the other party written
Notice (as defined in Paragraph 20(b)) specifying the default. If the defaulting
party does not cure said default and notify the other party in writing of such
cure within thirty (30) days after receipt of said Notice, the party giving
Notice of default may terminate this Agreement; provided, however, that if the
default relates to the non-payment of royalties, the cure period shall be ten
(10) days.
(b) Insolvency. Either party may terminate this Agreement effective
upon written Notice in the event of the other's insolvency, commission of an
acto of bankruptcy, adjudication of bankruptcy or the filing of a petition for
voluntary or involuntary bankruptcy of or by the other, or the other's making of
an arrangement with or assignment for the benefit of creditors or the
appointment of a receiver or trustee for the assets of the other. In the event
that Wilson shall be prevented by law or otherwise from terminating this
Agreement under this subparagraph, then this license, to the extent that it is
exclusive in any respect, shall automatically convert to a non-exclusive license
in all respects.
(c) Change in Control; Loss of Principal. Wilson may terminate this
Agreement in the event of a material change in the overall management or
ownership of Licensee, whether by organizational changes, or by a sale by
Licensee of all or substantially all of its stock or operating assets. Without
in any way limiting the foregoing. Wilson may indicate in the Supplement the
name of a particular person, whose ongoing and active role as a principal of
Licensee is material to Wilson and was relied upon by Wilson in entering into
this Agreement. The cessation of such "key-man's" ongoing and active role with
Licensee shall create a right of termination for Wilson under this subparagraph.
The decision of Wilson not to include the name of a particular person affiliated
with Licensee in the Supplement shall not be deemed to be a waiver of Wilson's
rights of termination under the first sentence of this subparagraph.
(d) Minimum Sales Goals. Wilson may terminate this Agreement if
Licensee fails to meet its annual minimum sales goal in any given Contract Year.
For purposes of this
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Agreement, the annual minimum sales goal is the Net Sales figure for a Contract
Year necessary to generate the Guaranteed Royalty for that Contract Year when
applying the Percentage Royalty rate set forth in the Supplement.
(e) Required Notice. In order to terminate this Agreement, according
to the events of termination of subparagraphs (b) through and including (d) of
the paragraph 9, Wilson or Licensee, as applicable, must send written Notice (as
defined in paragraph 20(b)) to the other, and the receipt of such Notice shall
act as an immediate termination of the Agreement.
10. Rights After Term.
(a) Sell-Off Period. Following the expiration of the Term or earlier
termination of this Agreement, and on the conditions that Licensee is (and
remains) current in all payments due Wilson, and is (and remains) in compliance
with the other material terms of this Agreement, Licensee may continue to sell,
distribute, advertise and promote for nine months after the expiration of the
Term, subject to all the terms and conditions of this Agreement, as if such
terms and conditions are still in full force and effect, any finished goods or
work-in-process inventories of Authorized Goods in existence at the date of
expiration of the Term. Licensee shall continue to make Reports and pay
Percentage Royalties for all Authorized Goods sold after the Term. The
obligations of Licensee under paragraphs 3, 4, 5, 6, 8, 10, 11, 12, 14, 15, 16,
17, 18 and 19 shall survive the expiration of the Term, or earlier termination
of this Agreement. "Material terms" which, if breached by Licensee, shall not
entitle Licensee to any sell-off rights shall include but not be limited to: the
obligation to timely pay all royalties, the obligation to comply with the
indemnification provisions of paragraph 16, and the obligation to refrain from
selling damaged or defective product under paragraph 8.
(b) Sell-Off Period Initial Report. Within thirty (30) days after
the expiration of the Term, Licensee will provide a Report in a form reasonably
satisfactory to Wilson, containing the following information as of such
termination or expiration date: (i) the quantity of Authorized Goods of each
type in Licensee's finished goods and work-in-process inventories; (ii) the
quantity of Authorized Goods on order from suppliers; and (iii) the quantity of
Authorized Goods on order by customers.
(c) Interim and Final Reports. Within thirty (30) days following the
expiration of each 3-month period within the sell-off period provided in
Paragraph 10(a), Licensee shall file Reports consistent with the terms of
Paragraph 5. In addition, Licensee will make available for review by Wilson all
invoices for sales of Authorized Goods during such period, along with
reconciliation against the Report of finished goods and work-in-process
inventories of Authorized Goods pursuant to 10(b)(i) above. Wilson will keep all
such information confidential. Any inventory of Authorized Goods which exists at
the expiration of such nine-month period shall be destroyed, unless otherwise
agreed in writing by both parties.
11. Use of Trademarks.
(a) Guidelines. Wilson may provide materials and guidelines to
Licensee as to all the artwork and reproductions of the Trademarks, and
Licensee's display of the Trademarks on Authorized Goods. Licensee's uses of
such artwork and reproductions shall absolutely conform with
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precision to the designs approved in advance by Wilson. All artwork or other
materials furnished to Licensee by Wilson for this purpose shall remain the
property of Wilson, and all artwork or other material delivered to Licensee
shall be returned to Wilson upon Wilson's request. Licensee shall follow
Wilson's instructions with regard to proper Trademark usage, including display
of trademark registration symbols and notices. Licensee acknowledges that Wilson
may impose color restrictions on the Trademarks. Wilson and Licensee agree at
the outset that the Trademarks will be used in red, black and white solid
colors. The Trademarks shall not be used in purple or green colors without
Wilson's express written consent.
(b) Approvals. Licensee recognizes that the manner in which Licensee
uses the Trademarks licensed herein could have a significant effect on Wilson's
image and customer goodwill and business reputation; therefore, Licensee shall,
as a condition to the grant of the license, submit at Licensee's expense, for
Wilson's prior written approval, in advance of any dissemination or use by
Licensee:
(i) All prototypes of the artwork which Licensee proposes to
use on the Authorized Goods to be merchandised, including actual samples of the
Trademarks as produced on the Authorized Goods.
(ii) All prototypes of all packaging, labels, advertising and
promotional material or literature which Licensee intends to use in the
merchandising, sale and distribution of the Authorized Goods.
(c) Timing. Licensee warrants that prototype materials submitted
hereunder will accurately represent the usage of the Trademarks by Licensee.
Wilson will use its best efforts to notify Licensee, within fourteen (14)
business days of receipt, of its approval or disapproval of prototype artwork,
actual samples, packaging labels, advertising and promotional literature and
materials. Such approval shall not be unreasonably withheld or delayed. If
Wilson does not notify Licensee within said fourteen (14) business days of its
approval of such artwork, actual samples, packaging labels, advertising and
promotional literature and material submitted to Wilson pursuant to (b) above,
Wilson will be deemed to have disapproved such items unless said request is
resubmitted by Licensee in the form of a written Notice, in which event failure
by Wilson to issue approval or disapproval within an additional seven (7) day
period shall be considered approval unless Wilson notifies Licensee that Wilson
requires a reasonable amount of additional time.
12. Promotion and Sale.
(a) Best Efforts and Focus. Wilson requires that Licensee attempt to
market to all authorized channels, with a particular new focus on developing
sales to sporting goods accounts. Licensee shall use its best efforts, and at
its sole cost and expense, to advertise, promote and support its sale of
Authorized Goods to all appropriate accounts within the Territory. Licensee's
failure to adequately call on or service any particular account within the
Territory shall give Wilson the right to notify licensee of Wilson's desire to
have Licensee provide more effort and attention to such account to maximize
sales opportunities. If Licensee does not reasonably act upon such a request,
and sales opportunities are at risk which if pursued, would not unreasonably
impair existing sales opportunities or relationships, then Wilson shall have the
right to act upon the sales opportunity and fill orders with such account(s),
and to withdraw such account from Licensee's Territory until
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Licensee displays the commitment necessary to prevent the loss of future sales
opportunities with such account. If Licensee fails to use its best efforts to
promote, market or distribute any of the Authorized Goods within six months from
commencement of this license, then such Authorized Goods shall be deemed
stricken from this Agreement and Licensee shall thereafter have no rights, in
perpetuity, to market such goods according to the terms of this Agreement.
Licensee also agrees to maintain the Wilson line of licensed products as a major
focus in its business.
(b) Spending. Licensee hereby guarantees to spend a percentage, as
specified in the Supplement (the "Advertising Percentage"), of Net Sales per
Contract Year to advertise and promote the sale of Authorized Goods. Licensee
shall provide Wilson with quarterly Reports at the same time as the Reports
required in Paragraph 5 hereof, detailing the expenditure of these advertising
funds and providing proof of performance including information such as the media
used, the number of times published or broadcast and the geographic territory
covered.
(c) Sales Staff. Licensee shall maintain a sales staff adequate to
promote and execute the sale of Authorized Goods.
(d) Sales to Wilson. Wilson has the right to tie-in Authorized Goods
with other Wilson products for advertising purposes, and Licensee hereby agrees
to sell to Wilson a reasonable quantity of such Authorized Goods for such
promotional purposes at cost. Such sales will not be included in the definition
of Net Sales.
(e) Sales Meeting Participation. This section shall apply only if so
indicated in the Supplement. Wilson requires that Licensee participate in
Wilson's major sales meetings, currently held 2 times per year. Licensee may
elect, with Wilson's permission, to attend other sales meetings during the year.
Licensee shall bear the costs of its own travel, room, board and other expenses,
including its expenses of presentation at such meetings.
(f) Trade Show Booth Space. This section shall apply only if so
indicated in the Supplement. If Licensee desires to exhibit at any trade show at
which the applicable Wilson division is exhibiting, Wilson requires that
Licensee promote uniformity and cohesiveness by sharing booth space with Wilson.
Upon such sharing, Licensee shall share a portion of Wilson's booth costs, on a
pro rata basis according to the square footage shared. The allocation and
approximate costs to Licensee shall be communicated by Wilson prior to the
sharing arrangement.
(g) Licensee's Evaluation of License. Licensee agrees and
acknowledges that it has not been induced to enter into this Agreement by any
statements made by Wilson, that Licensee has independently evaluated its
business and its ability to utilize this license in its business and to achieve
the goals set by Licensee for its business, and that Wilson is in no way
responsible or liable to Licensee, except for Wilson's obligations as
specifically set forth in this Agreement, for any failure of the Licensee to
fully and properly exploit this license in accordance with Licensee's own
expectations.
13. Samples and Approvals. No Authorized Goods of any type, style, model
or description shall be purchased for resale, sold or distributed prior to
Wilson's approval of samples of each such type, style, model or description and
the packaging and accompanying materials therefor. Samples shall be submitted
far enough in advance of their intended use to that there is
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sufficient time for the samples to be revised in the event Wilson disapproves of
such. Wilson will use its best efforts to notify Licensee within fourteen (14)
business days of receipt of such of its approval or disapproval of samples. Such
approval shall not be unreasonably withheld or delayed. If Wilson does not
notify Licensee of its approval within said fourteen (14) days then such samples
shall be considered disapproved, unless said request is resubmitted by Licensee
in the form of a written Notice, in which event failure by Wilson to issue
approval or disapproval within an additional seven (7) day period shall be
considered approval unless Wilson notifies Licensee that Wilson requires a
reasonable amount of additional time. Licensee shall, upon Wilson's reasonable
request, submit samples of Authorized Goods, purchasing and accompanying
materials from time to time for comparison with approved samples. Submission of
samples shall be at the expense of Licensee. Samples shall be submitted in
quantities requested by Wilson reasonable for evaluation by Wilson. Licensee
shall also provide Wilson with a reasonable quantity of production line samples
of Authorized Goods. All Authorized Goods shall conform to the approved samples
thereof. Wilson's review and approval of samples shall not b in derogation of
Wilson's right to indemnification pursuant to Paragraph 16.
14. Business and Market Practices.
(a) Proper Conduct. Licensee and Wilson each warrant to the other
that their actions and practices and the conduct of their business pursuant to
this Agreement shall not adversely affect the other's name, business reputation
or relationships with their own customers, suppliers, or the public.
(b) Coordination. Licensee and Wilson acknowledge the importance of
coordinating their marketing and sales strategies, plans, policies and practices
with each other so as not to negatively affect the image of the Wilson name and
the goodwill associated therewith. Wilson and Licensee shall meet regularly ,
currently expected to be twice per year, to discuss and agree on plans and
strategies for the promotion and sale of Authorized Goods under this Agreement.
(c) Legality. Licensee shall at all times conduct its business with
respect to the Authorized Goods in an ethical manner and in a manner free of
misconduct and illegality.
15. Protection of Trademarks.
(a) Recognition. Licensee acknowledges that Wilson is the owner of
the Trademarks and that all of Licensee's uses of the Trademarks under this
Agreement shall inure to the benefit of Wilson. Licensee acknowledges that it is
not acquiring any interests or rights in the Trademarks apart from the license
set forth in this Agreement. Licensee will not contest or deny the validity of
the Trademarks or the title of Wilson thereto, register or attempt to register
the Trademarks or in any way assist others in so doing. Upon termination of this
Agreement or expiration of the Term Licensee shall forthwith discontinue
entirely all use of the Trademarks (subject to the provisions of paragraph 10
herein) and all rights granted according to the terms of this Agreement shall
revert to Wilson.
(b) Confusion. Licensee agrees not to use at any time during the
Term of this Agreement any other work, trademark, brand name, trade name,
symbol, design or the like which is similar to or possibly may be confused with
the Trademarks licensed hereunder. Licensee will
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not take any action which will harm or prejudice the Trademarks or Wilson's
rights therein in any way during the Term of this Agreement or any allowed
period of use thereafter. Licensee will take care to identify itself in all
transactions as a licensee of, and separate legal entity from, Wilson, as
opposed to an integrated, divisional or consolidated part of Wilson's sporting
goods business.
(c) Corporate Use. Licensee shall not use the Trademarks in
Licensee's name or in the name of any operating entity formed by Licensee,
without the prior consent of Wilson.
(d) Infringement and Indemnity. Licensee shall at Wilson's request
and Wilson's expense assist Wilson in conforming or registering its rights in
the Trademarks, including as enumerated in this Agreement, with any government
or person and shall execute any required documents in this regard. Licensee will
promptly advise Wilson of any potentially infringing uses by others. Licensee
will promptly advise Wilson in writing of all claims and potential claims of
which it has notice or knowledge and all suits threatened or brought against
Licensee involving the Trademarks themselves. Wilson will indemnify and hold
Licensee harmless (which indemnification shall also extent to Licensee's
insurer(s)) from and against any and all losses, claims, damages, expenses,
judgments, awards, petitions, demands or liabilities of any type, joint or
several, to which Licensee may become subject directly or indirectly on account
of a legal action related to Licensee's use of the Trademarks initially listed
on Exhibit A in a way strictly conforming to this Agreement; provided, Licensee
uses all efforts and corrective action to mitigate the exposure to Wilson.
Wilson reserves the right to settle or compromise any and all such suits on
Wilson's behalf and on behalf of Licensee, provided that Licensee shall not
thereby be obligated to make any payment or be bound by any injunctive decree or
order, without its prior written consent. This undertaking by Wilson shall
survive the expiration of the Term or the termination thereof by either party.
The party receiving notification of any event which may be indemnifiable
according to the terms of this Paragraph 15(d) shall as soon as reasonably
possible notify the other party upon receipt of Notice of any such claim.
Decisions regarding action involving the protection and defense of the
Trademarks shall be solely in the discretion of Wilson and Licensee may not take
any such action without the express written consent of Wilson. At Wilson's
request, Licensee shall cooperate with Wilson with respect to actions described
in this Paragraph 15(d) which are defended by Wilson. The expenses of such
cooperation (including reasonable attorney's fees to the extent Licensee
reasonably requires independent counsel) shall be reimbursed to Licensee. If
Wilson fails, after proper notice from Licensee, to investigate, defend, settle
or compromise actions to which the indemnity in this Paragraph 15(d) relates,
then Licensee may incur such expenses, including attorneys fees, as may be
reasonably necessary or advisable for the investigation, defense, or payment of
any claims, and such amounts shall be included as expenses, as such term is
utilized in this Paragraph 15(d). Licensee shall have the right to set-off
against any financial obligation of Licensee to Wilson, any amount due under
this Paragraph 15(d) to Licensee.
(e) Use of Sub-Brand Names. Licensee agrees that should Licensee
desire to feature on the Authorized Goods additional trademarks, other than
those listed in Exhibit A and other than Licensee's tradename, Licensee will
notify Wilson of those trademarks. If Wilson agrees to the use of those
trademarks on the Authorized Goods (which agreement may be withheld in Wilson's
discretion) and if such trademarks are not already the property of Licensee (as
evidenced by Licensee's prior use of such trademarks apart from the Authorized
Goods), then Wilson shall have the right either to register those trademarks in
Wilson's own name, or to permit Licensee to register those trademarks in
Wilson's name.
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(f) Wilson's Rights. Wilson represents that it owns the sole rights
to the Trademarks for sporting goods products sold by Wilson and has the full
power to license the Trademarks in the United States to Licensee. To the best of
Wilson's knowledge, such license will not infringe the rights of others.
(g) Notification. On the Authorized Goods, packaging and on all
promotional materials of any description, including, but not limited to,
catalogues, brochures, and advertisements, containing the Trademarks, Licensee
shall place the following notice (or such other suitable trademark notice as
applicable):
W(R) and WILSON(R) are registered Trademarks of Wilson Sporting Goods Co.
(h) No Use in Public or Private Offerings. Licensee shall not refer
to this license or Wilson's association with Licensee in any public or private
offering, or other securities or financing documents, without Wilson's prior
review. Wilson may require that no such references be printed or distributed.
16. Indemnification and Insurance Coverage by Licensee. Licensee covenants
and agrees to indemnify and hold Wilson harmless (which indemnification shall
also extend to Wilson's insurer(s)), from and against any and all losses,
claims, damages, expenses, judgments, awards, petitions, demands or liabilities
of any type, joint or several, to which Wilson may become subject directly or
indirectly on account of the purchase for resale, sale, distribution,
advertising or promotion or similar activity related to the Authorized Goods,
this Agreement, or activities related to any of the foregoing by Licensee or out
of any other facts or actions except for the use of the Trademarks themselves in
conformity with this Agreement. The party receiving notification of any event
which may be indemnifiable according to the terms of this Section 16 shall so
soon as reasonably possible notify the other party upon receipt of notice of any
such claim, and Wilson and Licensee shall cooperate in the decision to engage
reputable counsel with experience in the matter to be defended. Wilson shall
have the right, if reasonably necessary or advisable, to separately defend any
action relating to this Agreement in its own name and determine in good faith
whether any claim or suit, on the basis of liability, expediency or otherwise,
shall be paid, compromised, defended or appealed. Wilson may incur such costs,
including attorneys fees, as it may be reasonably necessary or advisable for the
investigation, defense, or payment of any claims, and such amounts shall be
included as expenses, as such term is utilized in the first sentence of this
Paragraph 16. Wilson shall cooperate with Licensee with respect to actions
described in this Paragraph 16 which are defended solely by Licensee. The costs
of Wilson's cooperation shall also be treated as expenses, as described in the
second preceding sentence. Wilson shall have the right to set-off against any
financial obligation of Wilson to Licensee, any amount due under this Paragraph
16 to Wilson.
Licensee shall maintain Broad Form Comprehensive General Liability
Insurance, including Products Liability and Contractual Liability for the
Authorized Goods, naming Wilson as an additional insured in an amount not less
than $5,000,000 (US) on a combined single limit basis for Bodily Injury and
Property Damage Liability.
Licensee shall maintain such coverage through the Term and during
any additional period as indicated herein. The aforesaid insurance shall be from
companies and in form reasonably
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satisfactory to Wilson. The insurance policy shall provide that it is not
subject to cancellation or non-renewal without at least 30 days' prior written
notice to Wilson. The policy shall be written on an "occurrence" and not a
"claims made" basis, and shall be maintained for a period of at least two years
following termination. Wilson shall have the right of subrogation against any
insurance company or guarantor of Licensee with respect to obligations owed to
Wilson pursuant to this Paragraph 16. Licensee shall, upon execution hereof,
provide Wilson with a Certificate of Insurance evidencing this coverage, and
Licensee and/or its representative will mail written notice of any material
change and/or cancellation of coverage within seven (7) days of receipt of same,
and will provide replacement coverage evidenced by a Certificate of Insurance
within thirty (30) days of Licensee's receipt of Notice of insurance
cancellation, non-renewal or material change of coverage. Licensee's obligations
pursuant to this paragraph shall survive termination or expiration of this
Agreement.
In addition, in the event of any actual or seriously threatened
litigation against or involving the Authorized Goods or Licensee's operations
under this license, to which Wilson is made or is seriously threatened to be
made a party, and which poses a realistic and material financial risk to Wilson
that is covered by the foregoing indemnity but not covered (or fully covered) by
Licensee's insurance, Wilson may at its reasonable discretion require Licensee
to put reasonable funds in an escrow account designed to cover any potential
liability of Wilson which is indemnified by Licensee. Licensee shall own all
interest generated on such escrow funds. If Licensee does not comply with
Wilson's request to have Licensee financially support its indemnity of Wilson,
then Wilson shall have the right to notify Licensee that this Agreement shall
terminate in 60 days unless, during the 60-day period, Licensee can
satisfactorily resolve the issue or claim and eliminate Wilson's financial risk
regarding the indemnified liability.
17. Legal Duties of Licensee.
(a) Regulatory Compliance and Non-Infringement. Licensee warrants to
Wilson that (i) the Authorized Goods will be manufactured, purchased for resale,
packaged, advertised, sold and distributed in compliance with all applicable
legal requirements, standards, laws and ordinances in the Territory; and (ii) to
the best of the Licensee's knowledge, the Authorized Goods will not infringe the
patent or intellectual property rights of others, except for those rights
granted to Licensee hereunder.
(b) Quality. Licensee warrants to Wilson that all Authorized Goods
not subject to the defective or damaged goods provisions set forth in Paragraph
8 will be of merchantable quality.
18. Non-Transferability. The Licensee granted hereunder is personal and
each party agrees and undertakes that it cannot and will not sublicense or
assign, directly or indirectly, and of the rights herein granted, and Licensee
agrees that it will not authorize any other person, firm or corporation to use
the Trademarks without the express written consent of Wilson.
19. Covenant Not to Compete. Unless otherwise specified in the Supplement,
Licensee agrees that throughout the Term and within the Territory it will not
manufacture, have manufactured, purchase for resale, sell or distribute goods
which are the same as or substantially similar to the Authorized Goods and other
sporting goods marketed by Wilson, whether under Licensee's own
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brand names or as a distributor for or licensee of a third party's brand
name(s). Licensee, and its officers and directors shall not have an Agreement
with, or own greater than a 5% interest in, directly or indirectly, during the
Term of this Agreement, a company or entity which makes or sells sporting goods
competitive with Wilson, or any major dealer in sporting goods products.
20. Miscellaneous.
(a) Non-Waiver. Failure of Wilson to complain of any act or omission
on the party of Licensee, or failure of Licensee to complain of any act or
omission on the part of Wilson, no matter how long the same may continue or how
many times such shall occur, shall not be deemed to be a waiver of rights, or of
any similar future act or omission under this Agreement.
(b) Notices. All Notices, Reports, payments, prior approvals of
artwork and samples and the like ("Notices") required by this Agreement, or
voluntary requests, shall be sent by U.S. mail or other customary means,
including telex, overnight courier, facsimile, or registered or certified mail.
If Notice is by registered or certified mail then Notice shall be deemed
received upon placement of such Notice with the governmental mail agency,
postage prepaid. If Notice is by other than registered or certified mail, then
Notice shall be deemed received upon confirmation to the sending party that such
Notice has been received by the receiver of such Notice, or the receiver's
actual receipt of the Notice. The addresses for Notices shall be the addresses
of the parties as specified in the Supplement, unless an address is later
changed in writing by the appropriate party. Copies of Notices shall be sent to
the person indicated in the Supplement.
(c) Relationship. This Agreement shall not continue or be considered
as constituting a partnership, employer-employee relationship, joint venture, or
agency between the parties hereto. Neither of the parties hereto nor any of
their employees or agents shall have the power or authority to bind or obligate
the other party, except as agrees to in this Agreement.
(d) Governing Law. This Agreement shall be deemed to have been
executed in the jurisdiction specified in the Supplement (the "Jurisdiction ")
and governed, construed and the legal relations of the parties shall be
determined in accordance with the laws of the Jurisdiction. The parties hereby
agree, for purposes of judicial resolution of disputes concerning this
Agreement, to submit the matter and themselves to the jurisdiction and courts of
the Jurisdiction.
(e) Severability, Entire Agreement and Headings. If any Term,
covenant, condition or provision of this Agreement or the application thereof to
any person or circumstance, shall to any extent be invalid or unenforceable, the
remainder of this Agreement or application of such Term, or provision to any
person or circumstance other than those as to which it is held invalid or
unenforceable shall not be affected thereby, and each Tem, covenant, condition
or provision of this Agreement shall be valid and shall be enforced to the
fullest extent provided by law. This instrument contains the entire and only
Agreement between the parties hereto relating to the subject matter hereof and
no oral statements or representations or prior written material not herein
contained shall have any force or effect. The headings to the paragraphs and
subparagraphs hereof shall not be construed to contravene the language of such
paragraphs.
(f) Confidentiality. This Agreement and information related to its
execution and consent shall be kept confidential by the parties to the
Agreement.
A - 12
<PAGE> 20
(g) No Franchise. This Agreement is a license of a trademark only,
and is not a franchise. The parties intend and acknowledge that their
relationship created by this Agreement or otherwise is not subject to the
franchise laws of any state.
A - 13
<PAGE> 21
TRADEMARK SUBLICENSE AGREEMENT
This Trademark Sublicense Agreement (the "Agreement") is entered into as
of November 14, 1997 by Auburn Hosiery Mills, Inc., a company incorporated under
the laws of Kentucky (hereinafter referred to alternatively as "Sublicensor" or
"Auburn") and Sports Socks Co. (Ireland), Ltd., a company organized under the
laws of Ireland (hereinafter referred to as "Sublicensee").
WHEREAS, Sublicensor possesses certain rights by virtue of a Trademark
License Agreement dated May 28, 1997 (the "Auburn/Wilson" Agreement) between
Auburn and Wilson Sporting Goods Co. ("Wilson") for the use of certain Wilson
trademarks (the "Trademarks") in connection with the sale and distribution of
sports socks affixed or emblazoned with said Trademarks;
WHEREAS, Sublicensee desires to acquire rights from Sublicensor for the
use of the Trademarks in connection with the sale and distribution of sports
socks affixed or emblazoned with said Trademarks (the "Authorized Goods") in the
Territory or hereinafter defined;
NOW, THEREFORE, in consideration of the mutual covenants contained herein
and for other good and valuable consideration, the receipt and sufficiency of
which are hereby acknowledged, the parties hereto agree as follows:
1. GRANT. Sublicensor hereby grants to Sublicensee a license to use the
Trademarks, in the forms set forth in Exhibit A (as may be updated) for the
manufacture, purchase for resale, and distribution of the "Authorized Goods"
bearing the Trademarks in the Territory, subject to the terms and conditions of
this Agreement. The Sublicense granted hereby shall be non-exclusive,
non-transferable, non-assignable and indivisible.
2. TERRITORY. The Territory for this Agreement shall mean Austria, Belgium,
Denmark, Finland, France, Germany, Greece, Ireland, Italy, Luxembourg,
Netherlands, Norway, Portugal, Spain, Sweden, Switzerland, and the United
Kingdom. Trade Channels shall mean all, except the golf and tennis pro and
specialty markets.
3. TERRITORIAL RESTRICTIONS ON GRANT. Sublicensee shall not utilize the
Trademarks on goods other than the Authorized Goods. Sublicensee shall make no
sales of Authorized Goods outside of the Territory. Sublicensee shall not
export, and shall use best efforts to restrict any authorized independent sales
agents or distributors from exporting, Authorized Goods outside the Territory.
All independent sales agents and distributors of Sublicensee must be approved by
Sublicensor, which approval may be withheld at Sublicensor's discretion.
Sublicensee shall not continue to sell Authorized Goods to accounts in the
Territory which then distribute such goods outside of the Territory.
4. RESERVATION OF RIGHTS NOT GRANTED. All rights in the Trademarks other than
those specifically granted herein are reserved either by Wilson or by
Sublicensor as the case may be for their own exclusive use and benefit.
-1-
<PAGE> 22
5. TERM. The term of this Agreement shall be January 1, 1998 to December 31,
2002. The term may be terminated prior to December 31, 2002 pursuant to the
provisions of paragraph 8 of this Agreement or upon termination of the
Auburn/Wilson Agreement.
6. ROYALTIES. (a) Sublicensee shall pay royalties to Sublicensor in accordance
with the royalty rates, terms and conditions of the Auburn/Wilson Agreement.
(b) Sublicensee shall maintain a complete and accurate account of all
sales of Authorized Goods bearing the Trademarks and shall provide such
information to Sublicensor or Wilson, as the case may be, upon request so that
Sublicensor can accurately calculate the royalties which Sublicensor is
obligated to pay to Wilson in accordance with the Auburn/Wilson Agreement.
7. QUALITY OF AUTHORIZED GOODS. Sublicensee shall be responsible for the quality
of all Authorized Goods and shall guarantee that all Authorized Goods sold are
free of defects and in conformity with the samples of Authorized Goods submitted
to Sublicensor and/or Wilson.
8. TERMINATION. (a) Defaults. In the event either party defaults on its
obligations provided herein, the nondefaulting party and/or Wilson may give the
other party written Notice (as defined in Paragraph 16[b]) specifying the
default. If the defaulting party does not cure said default and notify Wilson or
the other party in writing of such cure within thirty (30) days after receipt of
said Notice the party giving Notice of default may terminate this Agreement.
(b) Insolvency. Either party may terminate this Agreement effective upon
written Notice in the event of the other's insolvency, commission of an act of
bankruptcy, adjudication of bankruptcy or the filing of a petition for voluntary
or involuntary bankruptcy of or by the other, or the other's making of an
arrangement with or assignment for the benefit of creditors or the appointment
of a receiver or trustee for the assets of the other.
(c) Change in Control. Sublicensor may terminate this Agreement in the
event of a material change in the overall management or ownership of
Sublicensee, whether by organizational changes, or by a sale by Sublicensee of
all or substantially all of its stock or operating assets.
(d) Required Notice. In order to terminate this Agreement according to the
events of termination of subparagraphs [b] or [c] of this paragraph 8,
Sublicensor or Sublicensee, as applicable, must send written Notice (as defined
in paragraph 16[b]) to the other, and the receipt of such Notice shall act as an
immediate termination of the Agreement.
9. USE OF TRADEMARKS. (a) Guidelines. Sublicensor may provide materials and
guidelines to Sublicensee as to all the artwork and reproductions of the
Trademarks, and Sublicensee's display of the Trademarks on Authorized Goods.
Sublicensee's uses of such artwork and reproductions shall absolutely conform
with precision to the designs approved in advance by Wilson pursuant to the
Auburn/Wilson Agreement. All artwork or other materials furnished to Sublicensee
by Sublicensor for this purpose shall remain the property of Sublicensor and all
artwork or other material delivered to Sublicensee shall be returned to
Sublicensor upon Sublicensor's request. Sublicensee shall follow Sublicensor's
instructions with regard to proper Trademark usage, including display of
trademark registration symbols and notices. Sublicensee acknowledges that
Sublicensor may impose color
-2-
<PAGE> 23
restrictions on the Trademarks. Sublicensee agrees at the outset that the
Trademarks will be used in red, black and white solid colors. The Trademarks
shall not be used in purple or green colors without Sublicensor's express
written consent.
(b) Approvals. Sublicensee recognizes that the manner in which Sublicensee
uses the Trademarks licensed herein could have a significant effect on Wilson's
and Sublicensor's image and customer goodwill and business reputation; therefore
Sublicensee shall, as a condition to the grant of the Sublicense, submit at
Sublicensee's expense; for Sublicensor's prior written approval, in advance of
any dissection or use by Sublicensee:
(i) All prototypes of the artwork which Sublicensee proposes to
use on the Authorized Goods to be merchandised, including
actual samples of the Trademarks as produced on the Authorized
Goods.
(ii) All prototypes of all packaging, labels, advertising and
promotional material or literature which Sublicensee intends
to use in the merchandising, sale and distribution of the
Authorized Goods.
(c) Timing. Sublicensee warrants that prototype materials submitted
hereunder will accurately represent the usage of the Trademarks by Sublicensee.
Sublicensor will use its best efforts to notify Sublicensee, within fourteen
(14) business days of receipt, of its approval or disapproval of prototype
artwork, actual samples, packaging labels, advertising and promotional
literature and materials. Such approval shall not be unreasonably withheld or
delayed. If Sublicensor does not notify Sublicensee within said fourteen (14)
business days of its approval of such artwork, actual samples, packaging labels,
advertising and promotional literature and material submitted to Sublicensor
pursuant to [b] above, Sublicensor will be deemed to have disapproved such items
unless said request is resubmitted by Sublicensee in the form of a written
Notice, in which event failure by Sublicensor to issue approval or disapproval
within an additional seven (7) day period shall be considered approval unless
Sublicensor notifies Sublicensee that Sublicensor requires a reasonable amount
of additional time.
10. SAMPLES AND APPROVALS. No Authorized Goods of any type, style, model or
description shall be purchased for resale, sold or distributed prior to
Sublicensor's approval of samples of each such type, style, model or description
and the packaging and accompanying materials therefor. Samples shall be
submitted far enough in advance of their intended use so that there is
sufficient time for the samples to be revised in the event Sublicensor
disapproves of such. Sublicensor will use its best efforts to notify Sublicensee
within fourteen (14) business days of receipt of such of its approval or
disapproval of samples. Such approval shall not be unreasonably withheld or
delayed. If Sublicensor does not notify Sublicensee of its approval within said
fourteen (14) days then such samples shall be considered disapproved, unless
said request is resubmitted by Sublicensee in the form of a written Notice, in
which event failure by Sublicensor to issue approval or disapproval within an
additional seven (7) day period shall be considered approval unless Sublicensor
notifies Sublicensee that Sublicensor requires a reasonable amount of additional
time. Sublicensee shall, upon Sublicensor's reasonable request, submit samples
of Authorized Goods, purchasing and accompanying materials from time to time for
comparison with approved samples. Submission of samples shall be at the expense
of Sublicensee. Samples shall be submitted in quantities requested by
Sublicensor reasonable for evaluation by Sublicensor. Sublicensee shall also
provide Sublicensor
-3-
<PAGE> 24
with a reasonable quantity of production line samples of Authorized Goods. All
Authorized Goods shall conform to the approved samples thereof. Sublicensor's
review and approval of samples shall not be in derogation of Sublicensor's right
to indemnification pursuant to Paragraph 12.
11. BUSINESS AND MARKET PRACTICES. (a) Proper Conduct. Sublicensee and
Sublicensor each warrant to the other that their actions and practices and the
conduct of their business pursuant to this Agreement shall not adversely affect
the other parties or Wilson's name, business reputation or relationships with
their own customers, suppliers, or the public.
(b) Coordination. Sublicensee and Sublicensor acknowledge the importance
of coordinating their marketing and sales strategies, plans, policies and
practices with each other so as not to negatively affect the image of the Wilson
Trademarks and the goodwill associated therewith. Sublicensor and Sublicensee
shall meet regularly, currently expected to be twice per year, to discuss and
agree on plans and strategies for the promotion and sale of Authorized Goods
under this Agreement.
(c) Legality. Sublicensee shall at all times conduct its business with
respect to the Authorized Goods in an ethical manner and in a manner free of
misconduct and illegality.
12. PROTECTION OF TRADEMARKS. (a) Recognition. Sublicensee acknowledges that
Wilson is the owner of the Trademarks and that all of Sublicensee's uses of the
Trademarks under this Agreement shall inure to the benefit of Wilson.
Sublicensee acknowledges that it is not acquiring any interests or rights in the
Trademarks apart from the Sublicense set forth in this Agreement. Sublicensee
will not contest or deny the validity of the Trademarks or the title of Wilson
thereto, register or attempt to register the Trademarks or in any way assist
others in so doing. Upon termination of this Agreement or expiration of the Term
Sublicensee shall forthwith discontinue entirely all use of the Trademarks and
all rights granted according to the terms of this Agreement shall revert to
Sublicensor.
(b) Confusion. Sublicensee agrees not to use at any time during the Term
of this Agreement any other word, trademark, brand name, trade name, symbol,
design or the like which is similar to or possibly may be confused with the
Trademarks sublicensed hereunder. Sublicensee will not take any action which
will harm or prejudice the Trademarks or Wilson's or Sublicensor's rights
therein in any way during the Term of this Agreement or any allowed period of
use thereafter. Sublicensee will take care to identify itself in all
transactions as a Sublicensee of, and separate legal entity from, Sublicensor
and Wilson, as opposed to an integrated, divisional or consolidated part of
either Wilson's or Sublicensor's sporting goods business.
(c) Corporate Use. Sublicensee shall not use the Trademarks in
Sublicensee's name or in the name of any operating entity formed by Sublicensee
without the prior consent of Sublicensor and Wilson.
(d) Infringement and Indemnity. Sublicensee shall at Sublicensor's request
and Sublicensor's expense assist Sublicensor or Wilson in confirming or
registering Wilson's rights in the Trademarks, including as enumerated in this
Agreement, with any government or person and shall execute any required
documents in this regard. Sublicensee will promptly advise Sublicensor of any
potentially infringing uses by others. Sublicensee will promptly advise
Sublicensor and Wilson in writing of
-4-
<PAGE> 25
all claims and potential claims of which it has notice or knowledge and all
suits threatened or brought against Sublicensee involving the Trademarks
themselves. Sublicensor will indemnify and hold Sublicensee harmless (which
indemnification shall also extend to Sublicensee's insurer(s)) from and against
any and all losses, claims, damages, expenses, judgments, awards, petitions,
demands or liabilities of any type, joint or several, to which Sublicensee may
become subject directly or indirectly on account of a legal action related to
Sublicensee's use of the Trademarks initially listed on Exhibit A in a way
strictly conforming to this Agreement; provided, Sublicensee uses all efforts
and corrective action to mitigate the exposure to Sublicensor and Wilson. This
undertaking by Sublicensor shall survive the expiration of the Term or the
termination thereof by either party. The party receiving notification of any
event which may be indemnifiable according to the terms of this Paragraph 12[d]
shall as soon as reasonably possible notify the other party upon receipt of
Notice of any such claim. Decisions regarding action involving the protection
and defense of the Trademarks shall be solely in the discretion of Wilson and/or
Sublicensor and Sublicensee may not take any such action without the express
written consent of Wilson and/or Sublicensor. At Sublicensor's request,
Sublicensee shall cooperate with Sublicensor and Wilson with respect to actions
described in this Paragraph 12[d] which are defended by Sublicensor or Wilson.
The expenses of such cooperation (including reasonable attorney's fees to the
extent Sublicensee reasonably requires independent counsel) shall be reimbursed
to Sublicensee by Sublicensor. If Sublicensor fails, after proper notice from
Sublicensee to investigate, defend, settle or compromise actions to which the
indemnity in this Paragraph 12[d] relates, then Sublicensee may incur such
expenses, including attorneys fees, as may be reasonably necessary or advisable
for the investigation, defense, or payment of any claims, and such amounts shall
be included as expenses, as such term is utilized in this Paragraph 12[d].
(e) Use of Sub-Brand Names. Sublicensee agrees that should Sublicensee
desire to feature on the Authorized Goods additional trademarks, other than
those listed in Exhibit A and other than Sublicensee's tradename, Sublicensee
will notify Sublicensor and Wilson of those trademarks. If Sublicensor and
Wilson agree to the use of those trademarks on the Authorized Goods (which
agreement may be withheld in either Wilson's or Sublicensor's discretion) and if
such trademarks are not already the property of Sublicensee (as evidenced by
Sublicensee's prior use of such trademarks apart from the Authorized Goods),
then Wilson shall have the right either to register those trademarks in Wilson's
own name, or to permit Sublicensee to register those trademarks in Wilson's
name.
(f) Sublicensor's Right. Sublicensor represents that it has rights to the
Trademarks for use in connection with the sale of Authorized Goods and has, with
Wilson's consent, the power to sublicense the Trademarks in the Territory to
Sublicensee. To the best of Sublicensor's knowledge, such sublicense will not
infringe the rights of others.
(g) Notification. On the Authorized Goods packaging and on all promotional
materials of any description, including but not limited to, catalogues,
brochures, and advertisements, containing the Trademarks, Sublicensee shall
place the following notice (or such other suitable trademark notice as
applicable):
W(TM) and WILSON(TM) are registered Trademarks of Wilson Sporting Goods Co.
-5-
<PAGE> 26
13. LEGAL DUTIES OF LICENSEE. (a) Quality. Sublicensee warrants to Sublicensor
that all Authorized Goods sold pursuant to this Agreement will be of
merchantable quality and shall conform to the quality requirements established
by Wilson in the Auburn/Wilson Agreement.
14. NON-TRANSFERABILITY. The Sublicense granted hereunder is personal and each
party agrees and undertakes that it cannot and will not further sublicense or
assign, directly or indirectly, any of the rights herein granted, and
Sublicensee agrees that it will not authorize any other person, firm or
corporation to use the Trademarks without the express written consent of
Sublicensor.
15. MISCELLANEOUS. (a) Non-Waiver. Failure of Sublicensor to complain of any act
or omission on the part of Sublicensee, or failure of Sublicensee to complain of
any act or omission on the part of Sublicensor, no matter how long the same may
continue or how many times such shall occur, shall not be deemed to be a waiver
of rights, or of any similar future act or omission under this Agreement.
(b) Notices. All Notices and prior approvals of artwork and samples and
the like ("Notices") required by this Agreement, or voluntary requests, shall be
sent by U.S. mail or other customary means, including telex, overnight courier,
facsimile, or registered or certified mail. If Notice is by registered or
certified mail then Notice shall be deemed received upon placement of such
Notice with the governmental mail agency, postage prepaid. If Notice is by other
than registered or certified mail, then Notice shall be deemed received upon
confirmation to the sending party that such Notice has been received by the
receiver of such Notice, or the receiver's actual receipt of the Notice. The
addresses for Notices shall be:
(i) If to Wilson Sporting Goods Co.:
Wilson Sporting Goods Co.
8700 W. Bryn Mawr Avenue
Chicago, Illinois 60631
Attention: Team Sports
Phone: (773) 714-6868
Fax: (773) 714-4590
(ii) If to Auburn Hosiery Mills, Inc.:
Auburn Hosiery Mills, Inc.
P. O. Box 95
Auburn, Kentucky 42206
Phone: (212) 532-0404
Fax: (212) 689-3874
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<PAGE> 27
(iii) If to Sports Socks Co. (Ireland) Ltd.:
Sports Socks Co. (Ireland) Ltd.
IDA Industrial Estate
County Kerry
Cahirciveen, Ireland
Phone: 011-353-667-2676
Fax: 011-353-667-2679
(c) Relationship. This Agreement shall not constitute or be considered as
constituting a partnership, employer-employee relationship, joint venture, or
agency between the parties hereto. Neither of the parties hereto nor any of
their employees or agents shall have the power or authority to bind or obligate
the other party, except as agreed to in this Agreement.
(d) Governing Law. This Agreement shall be governed and construed in
accordance with the laws of the State of New York. The parties hereby agree, for
purposes of judicial resolution of disputes concerning this Agreement, to submit
the matter and themselves to the jurisdiction and courts of the State of New
York or to the Federal District Court for the Southern District of New York.
(e) Severability, Entire Agreement and Headings. If any Term, covenant,
condition or provision of this Agreement or the application thereof to any
person or circumstance, shall to any extent be invalid or unenforceable, the
remainder of this Agreement or application of such Term or provision to any
person or circumstance other than those as to which it is held invalid or
unenforceable shall not be affected thereby, and each Term, covenant, condition
or provision of this Agreement shall be valid and shall be enforced to the
fullest extent provided by law. This instrument contains the entire and only
Agreement between the parties hereto relating to the subject matter hereof and
no oral statements or representations or prior written material not herein
contained shall have any force or effect. The headings to the paragraphs and
subparagraphs hereof shall not be construed to contravene the language of such
paragraphs.
(f) Confidentiality. This Agreement and information related to its
execution and content shall be kept confidential by the parties to the
Agreement.
(g) No Franchise. This Agreement is a Sublicense of a trademark only, and
is not a franchise. The parties intend and acknowledge that their relationship
created by this Agreement or otherwise is not subject to the franchise laws of
any state.
(h) Third-Party Beneficiary. Sublicensee acknowledges that, as the
Trademark owner, Wilson is a third-party beneficiary of this Sublicense
Agreement.
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<PAGE> 28
IN WITNESS WHEREOF, the parties hereto have executed this Agreement on the
date and year first above written.
AUBURN HOSIERY MILLS, INC.
By: /s/ Kew K. Glenn [sic]
--------------------------------------
SPORTS SOCKS CO. (IRELAND) LTD.
By: /s/ James P. Manning
--------------------------------------
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<PAGE> 29
AUBURN HOSIERY MILLS, INC.
December 5, 1997
Mr. Wally Craig
Wilson Sporting Goods Co.
8700 Bryn Mawr Avenue
Chicago, IL 60631
Dear Wally:
As you are aware, Sales and Marketing Hosiery Corp. ("Sales and
Marketing") is affiliated with Auburn Hosiery Mills, Inc. ("Auburn") through
mutual ownership. Sales and Marketing is currently licensed through December 31,
1997 to use certain trademarks owned by Wilson Sporting Goods Co. ("Wilson") in
connection with the sale and distribution of hosiery by virtue of a Trademark
License Agreement between Sales and Marketing and Wilson dated October 12, 1987,
as amended May 11, 1988 and June 28, 1989 (the "Sales and Marketing Licenses").
Wilson also entered into a license agreement with Auburn on May 28, 1997 and
effective January 1, 1998 (the "Auburn License") and Auburn has entered into a
sub-license agreement with Sport Socks Company (Ireland) Ltd. ("Sport Socks
(Ireland)") dated November 14, 1997, and effective January 1, 1998. The
foregoing are collectively referred to hereafter as the Licenses.
As the principal owner of Sales and Marketing as well as both Auburn
and Sport Socks (Ireland), I am currently planning to enter into agreements with
GCIH, Inc./Gerber Childrenswear, Inc. ("GCIH") for the sale of all the shares of
outstanding capital stock of Auburn and Sport Socks (Ireland). In order to
enable a smooth transaction under the Licenses, it is requested that Wilson:
(a) consent to the assignment of the Sales and Marketing Licenses to
Auburn pursuant to the Assignment of Trademark License between Sales and
Marketing and Auburn dated October 1, 1997 (attached hereto as Exhibit 1);
(b) consent to the sublicense of the Sales and Marketing Licenses to
Sport Socks (Ireland) pursuant to a Sublicense Agreement between Auburn
and Sport Socks (Ireland) dated October 1, 1997 (attached hereto as
Exhibit 2) and also the similar agreement entered into as of February 1,
1990 (attached hereto as Exhibit 3). It is acknowledged that the terms of
Exhibit 2 supersede those of Exhibit 3;
(c) consent to the sublicense of the Auburn License to Sport Socks
(Ireland) pursuant to a Sublicense Agreement between Auburn and Sport
Socks (Ireland) dated November 14, 1997 and to be effective as of January
1, 1998 (attached hereto as Exhibit 4); and
<PAGE> 30
Mr. Wally Craig
December 5, 1997
Page 2
(d) consent to the change in ownership of Auburn and Sport Socks
(Ireland) to GCIH, Inc. upon the condition that GCIH, Inc. agrees to
accept all obligations, terms and conditions of the Licenses, including
the following amendments to the Auburn License, to become operative on the
date of the change of ownership to GCIH and not otherwise, as follows:
1. GCIH shall become the owners of "Licenses" under the
Licenses and for purposes of this Item 1, Auburn shall refer to the
current business of auburn Hosiery Mills, Inc., as purchased by
GCIH. Auburn shall remain exclusively focused on the sock business
(as currently is the case); i.e., there will be no consolidation of
the following functions or commingling of product lines with GCIH so
that Auburn can maintain its focus on socks:
o Top Management Team
o Sales Forces/Distributors/Agents
o Customer Service
o Manufacturing
2. The provisions of paragraph K of the Supplement to
Trademark License Agreement Standard Terms entered into by Wilson
and Auburn on May 28, 1997 shall be amended to be, as follows:
K-1. Guaranteed Royalty:
Subject to the provisions of sub-paragraph K-2, the Guaranteed
Royalty shall be for a Contract Year:
<TABLE>
<CAPTION>
Guaranteed Royalty
------------------
<S> <C>
Contract Year 1998 $2,000,000
Contract Year 1999 $2,000,000
Contract Year 2000 $2,000,000
Contract Year 2001 $2,000,000
Contract Year 2002 $2,000,000
</TABLE>
<PAGE> 31
Mr. Wally Craig
December 5, 1997
Page 3
Expansion Years (if applicable)
<TABLE>
<CAPTION>
Guaranteed Royalty
------------------
<S> <C>
Contract Year 2003 $2,300,000
Contract Year 2004 $2,300,000
Contract Year 2005 $2,300,000
Contract Year 2006 $2,300,000
Contract Year 2007 $2,300,000
</TABLE>
K-2 Special Conditions:
(a) The Guaranteed Royalty for Contract Year 1998 and
Contract Year 1999 shall be as specified above.
The Guaranteed Royalties for the Contract Years
2000 through 2002, and, if applicable, Contract
Years 2003 through 2007, shall be subject to
renegotiation to good faith between Licensor and
Licensee under the following conditions: (1)
Licensee's actual sales of Authorized Goods for a
Contract Year will not generate the minimum
Guaranteed Royalty due for a Contract Year will
not generate the minimum Guaranteed Royalty due
for such Contract Year; (2) Licensee notifies
Wilson of such fact no later than October 1 of
that Contract Year; (3) Licensee pays the minimum
Guaranteed Royalty for that Contract Year; and (4)
then, good faith negotiations shall commence
regarding: (i) the causes of such occurrence, (ii)
the likely reoccurrence of such causes, and (iii)
the amount of Guaranteed Royalty payments to be
made in future Contract Years. Such negotiations
in good faith shall take place between Licensor
and Licensee within ninety days of notification of
such occurrence to Licensor and any reduction in
Guaranteed Royalties shall become effective for
the Contract Years following the then current
Contract Year during which such occurrences shall
take place, provided, however, that in no event
will the minimum Guaranteed Royalty for any
subsequent Contract Year be less than the amount
originally specified for any Contract Year in
paragraph K of the Supplement to Trademark License
Agreement Standard Terms of the Auburn License and
nothing herein shall create an obligation on
Wilson to accept such originally specified minimum
Guaranteed Royalty amounts.
(b) During each Calendar Quarter of Contract Year 1998
and Contract Year 1999, Licensee shall pay to
Licensor the greater of the year-to-date
cumulative royalties due on the sales of
Authorized Goods
<PAGE> 32
Mr. Wally Craig
December 5, 1997
Page 4
through Calendar Quarter or the cumulative amount
of $375,000 for each of the first three Calendar
Quarters. (For example: if the amount of Earned
royalties paid in the first Calendar Quarter was
$500,000, the minimum amount to be paid for the
second Calendar Quarter would be $250,000 so that
the cumulative amount to be paid to Wilson would
be $750,000. The balance remaining of the
Guaranteed Royalty due for such Contract Year
shall be paid at the end of the fourth Calendar
Quarter of such Contract Year.
(c) If the royalty payments are modified pursuant to
paragraph K-2(a), the minimum quarterly payments
shall be the cumulative amount of $375,000 or
one-quarter cumulatively of the re-negotiated
annual minimum Guaranteed Royalty, whichever is
less.
It is understood and agreed that the non-transferability clauses of
the license shall remain operative after the change of current ownership of
Auburn and Sport Socks (Ireland) to GCIH as Licensee.
Nothing in the foregoing comments shall modify or restrict the terms
of the Auburn License. Only the amendments listed herein to the Auburn License
are effective to change the terms of such License.
The provisions of Part T.1. of the Supplement to Trademark License
Agreement Standard Terms shall be subject to the foregoing amendments to the
Auburn License as listed herein, and shall be deemed to have been modified
accordingly by the foregoing amendments as listed herein. Paragraph 9(d) of the
Standard Terms of the Auburn License shall be effective. All other terms of the
Auburn License, other than as modified herein, shall remain in full force and
effect.
This letter agreement supersedes my memorandum of November 20, 1997
and constitutes the entire understanding and agreements relating to amendments
to the Auburn License and the consents set forth herein.
* * * * *
<PAGE> 33
Mr. Wally Craig
December 5, 1997
Page 5
If Wilson agrees to the above, kindly so acknowledge by signing
where indicated below, and returning the duplicate of this letter agreement to
us. We greatly appreciate your continuing courtesy and cooperation.
Very truly yours,
SALES AND MARKETING HOSIERY CORP.,
AUBURN HOSIERY MILLS, INC. and SPORT
SOCKS COMPANY (IRELAND) LTD.
By: /s/ James P. Manning
-----------------------------------------
James P. Manning
Dated: December 8, 1997
Acknowledged and Agreed:
WILSON SPORTING GOODS CO.
By:
----------------------------
Dated: December 8, 1997
GCIH hereby acknowledges and agrees to the foregoing and
guarantees the payment obligations of the Auburn License (as
amended) but not the performance obligations under the Auburn
License (as amended).
GCIH, Inc.
By:
----------------------------
<PAGE> 1
Exhibit 10.16
The Subscriber, LIC. ELIZABETH A. MICHELI PABLO, Judicial Interpreter,
duly authorized for the legal exercise of my duties, CERTIFY: That I have
proceeded to the Translation of a Legal Document written in the Spanish
Language, the English version of which reads as follows:
LEASE
BETWEEN:
OPERADORA ZONA FRANCA De LA ROMANA, S.A., a commercial corporation
organized in conformity with the laws of the Dominican Republic, with its
domicile and social seat established in La Romana, Municip and Province of the
same name, Dominican Republic, Corporation this, which is represented by its
Vice-President, Eng. Eduardo Martinez-Lima, Dominican, old in age, married, an
entrepreneur, domiciled and resident in the city of La Romana, Municip and
Province of the same name, Dominican Republic, bearer of the Personal
Identification Card Number 67791, Series 26, with capable seal, Corporation
hereinafter referred to as LA ARRENDADORA.
COSTURA DOMINICANA, INC., a Corporation duly constituted in conformity
with the laws of the State of Carolina, United States of America, with its
social seat at 531 South Main Street, Greenville, South Carolina 29601, which is
represented by Mr. David E. Uren, Northamerican, old in age, married, an
entrepreneur, domiciled and resident at Greenville, S.C., United States of
America, bearer of the northamerican passport No. 043061499, acting as Finance
Vice-President, hereinafter referred to as LA ARRENDATARIA.
ATTENDED: That GULF & WESTERN AMERICAS CORPORATION, nowadays known as
CENTRAL ROMANA CORPORATION LTD., due to a change in its name, subscribed a
contract with the Dominican State on May 9th., 1969, approved by the National
Congress by means of Resolution No. 450 dated May 26th., 1969, published in
Official Gazette No. 9145, in virtue of which the Dominican State granted the
necessary faculties to operate and administrate the LA ROMANA INDUSTRIAL FREE
ZONE, established by means of Decree No. 3461 dated March 26th., 1969, published
in Official Gazette No. 9132.
ATTENDED: That on February 10th., 1971, GULF & WESTERN AMERICAS
CORPORATION, nowadays known as CENTRAL ROMANA CORPORATION, LTD., due to a change
in its name, in conformity with formerly mentioned article twenty first of the
contract dated March 9th., 1969, decided to cede, with the previous consent of
the Dominican State, the rights and obligations derived from such contract to
OPERADORA ZONA FRANCA DE LA ROMANA, S.A. reason due to which, this last one is
conferred the power of Administrator and Operator of the mentioned Industrial
Free Zone.
<PAGE> 2
ATTENDED: That LA ARRENDADORA, within the grounds upon which is found the
La Romana Industrial Free Zone, which have been extensively described in Decree
No. 3461 and its modifications, built the following immovable:
A) A building with a steel portico structure, cement ceiling, block walls
and Type 750 glass windows, with a construction area of One Thousand Three
Hundred and Ninety Three point Fifty Five Square Meters (1,393.55 M2),
equivalent to Fifteen Thousand Square Foot (15,000 P2), which plans duly signed
by both parties are annexed to the present contract in the understanding that
they are a part of it. The formerly described building is situated in ground
plot No 36 of the La Romana's Industrial Free Zone General Plan, raised on
August 27, 1972, by the Engineering and Construction Department of Gulf &
Western Americas Corporation, Division Central Romana, which plans, duly signed
by the parties is annexed to the present contract in the understanding that it
is a part of it, ground plot which has an extension of Four Thousand Two Hundred
Square Meters (4,200 M2), equivalent to Forty Five Thousand Two Hundred and
Eight Square Foot (45,208 P2).
The building is equipped as follows: a) Sanitary installation that
comprehends: Nine (9) lavatories and Eleven (11) toilets and One (1) urinal, of
which 2 of the lavatories, 3 toilets and one urinal, belong to a men bathroom:
b) Space for an office in the interior of the building with an area of Seven
Hundred Square Foot (700 P2), divided up into three sections: One of 150 square
foot, other of 225 square foot and a last one of 300 square foot, with a private
bathroom near the Production Area; c) A normal width and height Cargo Door. The
electric facilities, as well as the installation of transformers, electricity
meters and deposit payment are on behalf of LA ARRENDATARIA.
B) A building with a standard steel portico structure, cement ceiling,
block walls, and Type 750 glass windows, with a construction area of Two
Thousand Ninety Square Meters and Seven Decimeters (2,091.07 M2), equivalent to
Twenty Two Thousand Five Hundred Square Foot (22,500 P2), which plans, duly
signed by both parties are annexed to the present Contract, in the understanding
that they are a part of it. The formerly described building is situated in
ground plot No. 35 of the La Romana's Industrial Free Zone General Plan, raised
on August 27,1972 by the Engineering and Construction Department of Gulf &
Western Americas Corporation, Division Central Romana, which plan, duly signed
by the parties is annexed to the present Contract in the understanding that it
is a part of it, ground plot which has an extension of Four Thousand Two Hundred
Square Meters (4,200 M2), equivalent to Forty Five Thousand Two Hundred and
Eight Square Foot (45,208 P2).
The building is equipped as follows: a) Sanitary Installation that
comprehends: 9 lavatories, 11 toilets and 1 urinal, of which 2 lavatories, 3
toilets and 1 urinal belong to a men bathroom; b) A normal width and height
Cargo Door. The electric facilities, as well as the electric installation,
electricity meters and deposit payment are on behalf of LA ARRENDATARIA.
THEREFORE: In the understanding that the former preamble is part of the
present contract,
-2-
<PAGE> 3
THE PARTIES HAVE AGREED THE FOLLOWING:
FIRST: LA ARRENDADORA agrees in renting to LA ARRENDATARIA, who will
examine it at the time of the turnover of the formerly described immovable,
under the terms and conditions that follow:
TERM: The present contract will last eight (8) years that will be divided
up in two (2) periods of four (4) years each one, term that will begin starting
July 1st., 1992.
SECOND: Rent: Amount- The Price of this rent has been agreed to be of an
amount of Eighteen Dollar Cents (US$ 0.18) per construction Square Foot (P2),
per month, payable in National Currency (RD$) at the Official Exchange Rate
assigned to the Free Zone Industries and established by the Central Bank of the
Dominican Republic at that time for a period of Four (4): in the sum of twenty
two dollar cents (US$ 0.22) per construction Square Foot (P2), per month,
payable in National Currency (RD$) at the Official Exchange Rate assigned to the
Free Zone Industries and established by the Central Bank of the Dominican
Republic at that time, for the second period of Four (4) years.
PAYMENT: LA ARRENDATARIA will monthly pay the agreed price which will be
due on the 1st. day of each month starting with the date in which the present
contract becomes effective. LA ARRENDATARIA will, in case of arrears, pay a
monthly interest rate as the one charged by the Commercial Banks in the
Dominican Republic at the time of the default, plus service charges.
It is understood between the parties that during the inforce of the
present contract LA ARRENDATARIA obliges itself to obtain and maintain: a) An
Insurance Policy of an Insurance Company acceptable to LA ARRENDATARIA which
covers the building for damages resulting from cyclone, earthquake, floods,
etc., for an amount not less than SIX MILLION THREE THOUSAND AND FIFTY HUNDRED
PESOS 00/100 (RD$ 6,350.00). This amount will be reviewed in order to adjust it
to the reinstatement cost, from time to time, in conformity to the periodic
evaluations realized by the Engineering Department of Central Romana
Corporation; b) Extend the actual Insurance Policy that covers the civil
responsibility of LA ARRENDADORA and/or LA ARRENDATARIA, for the damages caused
to third parties due to accidents or any other cause in the rented immovable.
Such policy shall be of an amount of TWO HUNDRED THOUSAND PESOS (RD$
200,000.00), in relation to the accidents that can occur to any person or their
properties, and TWO HUNDRED THOUSAND PESOS (RD$ 200,000.00), for any accident or
catastrophe that could overcome and affect more than one person or their
properties.
This policy shall contain an irrevocable indorsement in favour of LA
ARRENDADORA.
THIRD: Policy Insurance Commitment- LA ARRENDATARIA promises to deliver to
LA ARRENDADORA, within the sixty (60) days of the signatory of the present
contract, the certificates and Insurance Policies that signal LA ARRENDADORA as
the beneficiary of the insurance contracts subscribed in conformity with the
dispositions of the present contract.
FOURTH: Use of the Immovable- The immovable hereby rented, will only and
exclusively be used for the installation and functioning of an industry that
previously obtains the approval of the
-3-
<PAGE> 4
National Council of Exporting Free Zones according to Law 8-90 dated January
15th., 1990 and in conformity with the established proceedings in the
corresponding category.
FIFTH: Alterations- LA ARRENDATARIA will not be able to realize any
alterations or substantial modifications in the rented local without the
previous and written consent of LA ARRENDADORA.
Likewise, LA ARRENDATARIA compromises itself so that in case of any
alterations or modification of the rented locals these are done according to the
laws and regulations both national and municipal that rule the matter.
It is also understood that in case LA ARRENDATARIA orders or carries out
any repairs, alteration, change or improvement of the rented immovables, once
obtained the authorization from LA ARRENDADORA, this one will in no way be
responsible for the payment of materials provided or for the labor employed in
the formerly mentioned works.
LA ARRENDATARIA will have the right, at the term of the contract to
withdraw the equipments and improvements installed with the purpose of leaving
the immovables in the same state that were found, except in the depreciation
that results of normal use of such place.
SIXTH: Repairs and Maintenance- LA ARRENDATARIA will maintain in good
state and at its own expenses the rented local making all gross and rentable
repairs that are necessary for such purposes as well as all operations required
for its maintenance in order to preserve such local and its annex in good state.
For such purpose, LA ARRENDATARIA will save on its behalf and without this
enumeration being a limit:
a) The interior and exterior painting of the immovable;
b) The ceiling filtrations that could appear;
c) The repair of floors/ceilings/doors/windows/sanitary or
electrical installations.
It is understood, however, that LA ARRENDATARIA will not be responsible
for repairs resulting from damages that occurred from hidden or structural
defects in the rented local.
LA ARRENDATARIA will not have the authorization to realize any act or
contract that could create or serve as a source for any mortgage or privilege
upon the rented immovable and/or its improvements or upon any other assets
belonging to the patrimony of LA ARRENDADORA.
If due to any act or omission of LA ARRENDATARIA, any claims or action is
attempted against LA ARRENDADORA, or any assessment is recorded upon the rented
immovable or upon any other assets belonging to LA ARRENDADORA. LA ARRENDATARIA
shall at its own expense, take the necessary measures so that such claims or
actions are withdrawn and such assessments canceled, and grant LA ARRENDADORA an
Insurance Policy that covers this last one against risks resulting from such
claims, actions or assets.
-4-
<PAGE> 5
In case that due to the formerly indicated motives, LA ARRENDADORA
suffered any prejudice, LA ARRENDATARIA shall indemnify for all coats, damages
and prejudices that LA ARRENDADORA has suffered, including the necessary amounts
to reimburse the judicial expenses and reasonable attorney's fees in which this
one has incurred.
SEVENTH: Total or Partial Destruction- In case that the rented building is
totally or partially destroyed, any of which were the reasons of the sinister,
LA ARRENDATARIA shall immediately inform LA ARRENDADORA so that this last one
can present the corresponding claim to the underwriters. When a sinister of this
type occurred LA ARRENDADORA will have the right to decide between repairing the
building or rescinding the contract. In this last eventuality, LA ARRENDATARIA
will not be indebted to pay any more rent than the fraction corresponding to the
time used and effective enjoyment of the immovable.
If partial or total destruction of the immovable should be due to a fault
or negligence of LA ARRENDATARIA, this last one should be responsible for the
damages caused, in the way that these are not covered by the insurance.
EIGHTH: Immovable Inspection- LA ARRENDATARIA obliges itself to permit the
access of LA ARRENDADORA and/or of its functionaires and its agents from time to
time, in the rented local, with the purpose of realizing the inspection and
verifying that the use adapts to the laws and regulations, as well as to the
terms and conditions in the present contract.
NINTH: Bankruptcy of LA ARRENDATARIA- LA ARRENDATARIA compromises itself
to inform LA ARRENDADORA of any claim, trial, judicial -act or solicitude of
agreement attempt.
At that moment, LA ARRENDADORA will be able to declare to its own
discretion, that the contract be rescinded, without this having to affect its
right of reclaiming the total amount owed by LA ARRENDATARIA, nor its right to
intervene in the bankruptcy procedure.
TENTH: Water Services, Electricity, Trash Withdrawal, Cleaning and
Evacuation of Black Waters and payment of Insurance Premium- The Water,
electricity ,trash withdrawal, cleaning of green areas and black water system
including the septic and well services will be on behalf of LA ARRENDATARIA who
will contract them by means of the public or private entities with the inforce
rates.
In case that LA ARRENDATARIA did not pay all or any of such services or
the insurance premium, according to the terms of this contract, in the
established date, the owed amounts will be immediately demanded by LA
ARRENDADORA with the interests calculated on an annual basis of a Twelve Percent
(12%) per month or fraction of month delay.
In case that a law, decree, ordinance or any legal act or regulation
transfers the services to which the present article refers, to any public or
private entity the obligation of supplying LA ARRENDATARIA with the formerly
mentioned services will automatically cease for LA ARRENDADORA.
-5-
<PAGE> 6
ELEVENTH: Contract Cession- It is expressly convened that LA ARRENDADORA
will be able to cede its rights in virtue of the present contract.
Likewise, it is agreed that LA ARRENDATARIA can not cede its rights owned
in virtue of the present contract nor sublease totally or partially the rented
immovable, without the previous written consent of LA ARRENDADORA. Such consent,
however, will not be denied in an arbitrary or capricious way but due to just
reasons.
TWELFTH: Nonfulfillment- The nonfulfillment from LA ARRENDATARIA of any of
the clauses and conditions of this contract will lead to the rescission of the
same one as a matter of law and after twenty (20) days of a notification from LA
ARRENDADORA to LA ARRENDATARIA by means of an Official notice if within the
formerly mentioned term, the nonfulfillment has not been amended by LA
ARRENDATARIA.
In this case, LA ARRENDADORA will again take possession of the rented
immovable with no need of a judicial procedure or any type of indemnization
twenty (20) days after a notification to vacate the place. Upon any eventuality,
LA ARRENDADORA reserves the right of reclaiming through the corresponding via
the total amount of the rent stipulated in article second of the present
contract.
THIRTEENTH: Contract Termination- The parties agree that the present
contract cannot be renewed by an extension of lease term by operation of law.
FOURTEENTH: Court of Jurisdiction- For all purposes and consequences of
the present contract, the parties select their domiciles to be as follows: LA
ARRENDADORA in its main offices in Dominican Republic located at Batey Principal
of Central Romana in the City of La Romana and LA ARRENDATARIA in the rented
immovable object of this contract.
The parties also agree that, in case of any lawsuits or differences
between them, in what respects the present contract, they will submit the same
one to the Dominican Courts, resigning previously to any other Courts that for
any cause could be empowered of such lawsuits or differences. Likewise. they
agree that all which is not foreseen in this contract will be ruled by the laws
of the Dominican Republic and specially by what is prescribed by Law No. 8-90,
dated January 15th., 1990 and Decree No. 3461 dated March 26th., 1969 that
created the Industrial Free Zone La Romana I.
-6-
<PAGE> 7
Done and signed in two originals, one for each one of the parties,
originals which are composed of _____ (___) pages, all which have been duly
signed by the parties, in La Romana, Dominican Republic, on the _____ (___) day
of the month of ________ of the year One Thousand Nine Hundred ___________
(_____).
FOR: OPERADORA ZONA FRANCA DE LA ROMANA, S.A.
LA ARRENDADORA
---------------------------------
Eng. Eduardo Martinez-Lima
Vice President
FOR: COSTURA DOMINICANA, INC.
LA ARRENDATARIA
---------------------------------
DAVID E. UREN
Finance Vice President
[followed by translator's signature + tax stamps]
-7-
<PAGE> 1
Exhibit 10.17
LEASE
BETWEEN:
ZONA FRANCA ROMANA, S.A., a commercial corporation organized in conformity
with the laws of the Dominican Republic, with its domicile and social seat
established in La Romana, Municipality and Province of the same name, Dominican
Republic, Corporation this, which is represented by its vice-president, Eng.
Eduardo Martinez-Lima, dominican, old in age, married, an entrepreneur,
domiciled and resident in the City of La Romana, Municipality and Province of
the same name, Dominican Republic, bearer of the Personal Identification Card
Number 67791, Series 26, with capable seal, Corporation hereinafter referred to
as LA ARRENDADORA.
COSTURA DOMINICANA, INC., a corporation duly constituted in conformity
with the laws of the State of Delaware, United States of America, with its
social seat at 531 South Main Street, Greenville, South Carolina, 29602, which
is represented by David E. Uren, a citizen of the United States of America, old
in age, married, an entrepreneur, domiciled and resident at Greenville, South
Carolina, United States of America, bearer of the Northamerican Passport No.
043061499, and acting as vice-president of Finance, hereinafter referred to as
LA ARRENDATARIA.
ATTENDED: That ZONA FRANCA ROMANA, S.A. subscribed a contract with the
Dominican State on August 11th, 1986, in virtue of which, the Dominican State
granted the necessary faculties to operate and administrate the La Romana
Industrial Free Zone II, established by Decree No. 700-86, dated August 8th,
1986.
ATTENDED: that LA ARRENDADORA, within the ground plot where the La Romana
Industrial Free Zone is located, which have been fully described in Decree No.
700-86, will build the following immovable:
"A building with a steel structure, luzinc ceiling and reinforced
concrete columns, block walls and aluminum windows, with a
construction area of Forty Thousand Square Foot (40,000 P2)
equivalent to Three Thousand Seven Hundred and Seventeen point Forty
Eight Square Meters (3,717.48 M2), which plans, duly signed by both
parties are annexed to the present contract. The building is
situated in ground plots No. 6 and 7 of the La Romana II Industrial
Free Zone General Plan, ground plot that have an extension of Sixty
One Thousand Four Hundred and Sixty One point Twelve Square Feet
(61,461.12 P2), equivalent to Five Thousand Seven Hundred and Twelve
Square Meters (5,712 M2)."
The building is equipped as follow: (a) Sanitary installation that
comprehends 48 toilets and 48 lavatories; (b) an office in a total area of Two
Thousand Square Feet (2,000 P2).
THEREFORE: In the understanding that the former preamble is part of the
present contract.
<PAGE> 2
THE PARTIES HAVE AGREED THE FOLLOWING:
FIRST: LA ARRENDADORA agrees in renting to LA ARRENDATARIA, who will
examine it at the time of the turnover of the formerly described immovable,
under the terms and conditions that follow:
TERM: The present contract will last eight (8) years, term that will be
divided up into three (3) periods, a first period of one (1) year; a second
period of three (3) years; and a third period of four (4) years, term that will
begin on April 1st, 1996.
SECOND: 1st rent period: Amount - The price of this rent has been agreed
to be of an amount of Twenty Five Dollars Cents (US$ 0.25) per construction
square foot (P2), per month, payable in National Currency (RD$) at the official
exchange rate, assigned to the Industrial Free Zones, and established by the
Central Bank of the Dominican Republic at that time, for the first period of One
(1) year; and the amount of (US$ 0.27) per construction square foot (P2), per
month, payable in National Currency (RD$) at the official exchange rate,
assigned to the Industrial Free Zones, and established by the Central Bank of
the Dominican Republic at that time, for the second period of Three (3) years;
and the amount (US$ 0.29) per construction square foot (P2), per month, payable
in National Currency (RD$) at the official exchange rate, assigned to the
Industrial Free Zones, and established by the Central Bank of the Dominican
Republic at that time, for the third period of Four (4) years.
PAYMENT: LA ARRENDATARIA will pay the agreed price on monthly payments,
due on the 1st day of each month starting with the date in which the present
contract becomes effective. LA ARRENDATARIA will pay interest in the event that
the payment get behind the due date, at a monthly interest rate equal to the
interest rate of Dominican Republic Commercial Banks, plus service charges..
INSURANCE: It is understood between the parties that during the inforce of
the present contract, LA ARRENDATARIA obliges itself to obtain and maintain: a)
An Insurance Policy of an Insurance Company acceptable to LA ARRENDADORA which
covers the building for damages resulting from cyclone, earthquake, floods,
etc., for an amount not less than Two Million Pesos 00/100 (RD$ 2,000,000.00).
This amount will be reviewed in order to adjust it to the replacement cost, from
time to time, in conformity to the periodic evaluations realized by the
Engineering Department of Central Romana Corporation, b) An Insurance Policy
that covers the civil responsibility of LA ARRENDADORA and/or LA ARRENDATARIA
for the damages caused to third parties due to accidents or any other cause in
the rented immovable. Such policy shall be of an amount of Two Hundred Thousand
Pesos (RD$ 200,000.00) in relations to the accidents that can occur to any
person or their properties and Two Hundred Thousand Pesos (RD$ 200,000.00) for
any accident or catastrophe that could overcome and affect more than one person
or their properties.
This policy shall contain an irrevocable endorsement in favor of LA
ARRENDADORA.
THIRD: Use of the Immovable -- The immovable hereby rented will only and
exclusively be used for the installation and functioning of any industry that
previously obtains the approval of
-2-
<PAGE> 3
the Consejo Nacional de Zonas Francas de Exportacion, created by Law No. 8-90,
dated January 15th, 1990 and in conformity with the proceedings established in
the same one, on the correspondent category.
FOURTH: Alterations -- LA ARRENDATARIA will not be able to realize any
alterations or substantial modifications in the rented building without the
previous written consent of LA ARRENDADORA.
Likewise, LA ARRENDATARIA compromises itself so that in case of any
alterations or modifications of the rented building, it will fulfill the laws,
decrees, and regulations, both nationals and municipals that rule the matter.
It is also understood that in case LA ARRENDATARIA orders or carries out
any repairs, alterations, change or improvement of the rented immovable, once
obtained the authorization from LA ARRENDADORA, this one will in no way be
responsible for the payment of materials provided or for the labor employed in
the formerly mentioned works.
LA ARRENDATARIA will have the right to withdraw, at the term of the
contract, the equipment and improvements installed, with the purpose of leaving
the immovable in the same way that was received, except the depreciation as a
result of normal use of such place.
FIFTH: Repairs and Maintenance -- LA ARRENDATARIA will maintain in good
state and at its own expenses the rented building, making all gross and minor
repairs that are necessary for such purposes, as well as all operations required
for its maintenance in order to preserve such building and its annex in good
state. For such purpose, LA ARRENDATARIA will have on its behalf and without
this enumeration being a limit:
a) The interior and exterior painting of the immovable;
b) The ceiling filtrations that could appear;
c) The repair of floors/ceilings/doors/windows/sanitary or electrical
installations.
It is understood, however, that LA ARRENDATARIA will not be responsible
for repairs resulting from damages that occurred or structural defects in the
rented local.
LA ARRENDATARIA will not have the authorization to realize any act or
contract that could create or serve as a source for any mortgage or privilege
upon the rented immovable and/or its improvements or upon any other assets
belonging to the patrimony of LA ARRENDADORA.
If due to any act or omission of LA ARRENDATARIA, any claim or action is
attempted against LA ARRENDADORA, or any assessment is recorded upon the rented
immovable or upon any other assets belonging to LA ARRENDADORA, LA ARRENDATARIA
shall at its own expense, take the necessary precautions so that such claims or
actions are withdrawn and such assessments canceled, or grant LA ARRENDADORA an
Insurance Policy that covers this last one against risks resulting from such
claims, actions or assets.
-3-
<PAGE> 4
In case that, due to the formerly indicated motives, LA ARRENDADORA
suffered any prejudice, LA ARRENDATARIA shall indemnify for all costs, damages
and prejudices that LA ARRENDADORA has suffered, including the necessary amounts
to reimburse the judicial expenses and reasonable attorney's fees in which this
one has incurred.
SIXTH: Total or Partial Destruction -- In case that the rented building is
totally or partially destroyed, any of which were the reasons of the sinister,
LA ARRENDATARIA shall immediately inform LA ARRENDADORA so this one can present
the corresponding claim to the underwriters. When a sinister of this type
occurred, LA ARRENDADORA will have the right to decide between repairing the
building or rescinding the contract. In this last eventuality, LA ARRENDATARIA
will not be indebted to pay any more rent than the fraction corresponding to the
time used and effective enjoyment of the immovable.
If total or partial destruction of the immovable should be due to a fault
or negligence of LA ARRENDATARIA, this last one should be responsible for the
damages caused, in the way that these are not covered by the insurance.
SEVENTH: Immovable Inspection -- LA ARRENDATARIA obliges itself to permit
the access of LA ARRENDADORA and/or any of its functionaries and agents from
time to time, in the rented building, with the purpose of realizing the
inspection and verifying that the use adapts to the laws and regulations, as
well as to the terms and conditions in the present contract.
EIGHTH: Bankruptcy of LA ARRENDATARIA -- LA ARRENDATARIA compromises
itself to inform LA ARRENDADORA of any claim, trial judicial act or solicitude
of agreement attempt.
At that moment, LA ARRENDADORA will be able to declare to its own
discretion, that the contract be rescinded, without this having to affect its
rights of reclaiming the total amount owed by LA ARRENDATARIA, nor its right to
intervene in the bankruptcy procedure.
NINTH: Utilities: Water, Electricity, Trash Removal, Cleaning and
Evacuation of Sewers, Insurance Premium Payment -- The water, electricity, trash
removal, cleaning of green areas and sewer system including the septic and well
services will be on behalf of LA ARRENDATARIA who will contract them by means of
the public or private entities with the inforce rates.
In case that LA ARRENDATARIA did not pay all or any of such services or
the insurance premium, according to the terms of this contract, in the
established dates, the owed amounts will be immediately demanded by LA
ARRENDADORA with the interests calculated on an annual basis of Twelve Percent
(12%) per month or fraction of the month delayed.
In case that a law, decree, ordinance or any legal act or regulation
transfers the services to which the present article refers, to any public or
private entity the obligation of supplying LA ARRENDATARIA with the formerly
mentioned services, will automatically cease for LA ARRENDADORA.
-4-
<PAGE> 5
TENTH: Nonfulfillment -- The Nonfulfillment from LA ARRENDATARIA of any of
the clauses and conditions of this contract will lead to the rescission of the
same one as a matter of law and after twenty (20) days of a written notification
by LA ARRENDADORA to LA ARRENDATARIA, if within the formerly mentioned term, the
Nonfulfillment has not been amended by LA ARRENDATARIA.
In this case, LA ARRENDADORA will again take possession of the rented
immovable with no need of a judicial procedure or any type of indemnification,
twenty (20) days after a notification to vacate the place. Upon any eventuality,
LA ARRENDADORA reserves the right of reclaiming through the corresponding via
the total amount of the rent stipulated in the Second Article of the present
contract.
ELEVENTH: Contract Termination -- The parties agree that the present
contract cannot be renewed by an extension of lease term by operation of law.
In case the contract is not renewed, LA ARRENDATARIA shall turnover the
rented building to LA ARRENDADORA previous inspection of it within twenty (20)
days term after a simple notice has been made as a request of LA ARRENDADORA.
TWELFTH: Court of Jurisdiction -- For all purposes and consequences of the
present contract, the parties select their domiciles to be as follow: LA
ARRENDADORA in its main offices in Dominican Republic located at Batey Principal
of Central Romana in the City of La Romana and LA ARRENDATARIA In the rented
immovable object of this contract.
The parties also agree that, in case of any lawsuits or differences
between them, in what respects the present contract, they will submit the same
one to the Dominican Courts, resigning previously to any other courts that for
any cause could be empowered of such lawsuits or differences. Likewise, they
agree that all which is not foreseen in this contract will be ruled by the laws
of the Dominican Republic and specially by what is prescribed by Law No. 8-90,
dated January 15, 1990 and Decree No. 700-86 dated August 8th, 1986 that created
the La Romana Industrial Free Zone II.
THIRTEENTH: Insurance Policy Turnover -- LA ARRENDATARIA promises to
deliver to LA ARRENDADORA, within the sixth (60) days that follow the signatory
of the present contract, the Certificates and Insurance Policies that point out
LA ARRENDADORA as the beneficiary of the Insurance Contracts subscribed in
conformity with the dispositions of the present contract.
FOURTEENTH: Contract Cession -- It is expressly convened that LA
ARRENDADORA will be able to cede its rights in virtue of the present contract.
Likewise, it is agreed that LA ARRENDATARIA cannot cede its rights owned
in virtue of the present contract nor sublease totally or partially the rented
immovable, without the previous written consent of LA ARRENDADORA. Such consent,
however, will not be denied in an arbitrary or capricious way, but due to fair
reasons.
-5-
<PAGE> 6
Done and signed in two originals, one for each one of the parties,
originals which are composed of _____ (___) pages, all which have been duly
signed (initialized) by the parties, in La Romana, Dominican Republic, on the
__________ (___) day of the month of _____________ of the year One Thousand Nine
Hundred ________ (___).
By: ZONA FRANCA ROMANA, S.A.
LA ARRENDADORA
(Signature)
- ---------------------------------------
Eng. Eduardo Martines-Lima
Vice-president
By: COSTURA DOMINICANA, INC.
LA ARRENDATARIA
(Signature)
- ---------------------------------------
Mr. David E. Uren
Vice-president of Finance
-6-
<PAGE> 1
Exhibit 10.18
The Subscriber, LIC. ELIZABETH A. MICHELI PABLO, Judicial Interpreter, duly
authorized for the legal exercise of my duties, CERTIFY: That I have proceeded
to the Translation of a legal Document written in the Spanish Language, the
English version of which reads as follows:
LEASE
BETWEEN:
ZONA FRANCA ROMANA, S.A., a commercial corporation organized in conformity
with the laws of the Dominican Republic, with its domicile and social seat
established in La Romana, Municip and Province of the same name, Dominican
Republic, Corporation this, which is represented by its Vice-President, Eng.
Eduardo Martinez-Lima, Dominican, old in age, married, an entrepreneur,
domiciled and resident in the City of La Romana, Municip and Province of the
same name, Dominican Republic, bearer of the Personal Identification Card Number
67791, Series 26, with capable seal, Corporation hereinafter referred to as LA
ARRENDADORA.
COSTURA DOMINICANA, INC., a corporation duly constituted in conformity
with the laws of the State of Delaware, United States of America, with its
social seat at 531 South Main Street, Greenville, South Carolina, 29602, which
is represented by its Vice-President, Mr. Jack McCall, North American, old in
age, married, bearer of the American Passport No. 040617549, domiciled and
resident at 402 Brook Wood Dr., Greenville, South Carolina, 29605, hereinafter
referred to as LA ARRENDATARIA.
ATTENDED: That ZONA FRANCA ROMANA, S.A. subscribed a Contract with the
Dominican State on August 11, 1986, in virtue of which, the Dominican State
granted the necessary faculties to operate and administrate the La Romana
Industrial Free Zone II, established by Decree No. 700-86, dated August 8, 1986.
ATTENDED: that LA ARRENDADORA, within the ground plot where the La Romana
Industrial Free Zone is located, which have been fully described in Decree No.
700-86, will build the following immovable:
"A building with a steel portico structure, luzinc ceiling and
reinforced concrete columns, block walls and aluminum windows, with
a construction area of Ten Thousand Square Foot (10,000 P2)
equivalent to Nine Hundred Twenty-Nine Point Thirty Seven Square
Meters (929.37 M2), and an annex to be used as deposit of One
Thousand Four Hundred Square Foot (1,400 F2), for a total of Eleven
Thousand Four Hundred Square Foot (11,400 F2), which plans duly
signed by both parties are annexed to the present contract. The
building is situated in ground plot No. 24 of the La Romana II
Industrial Free Zone General Plan, ground plot that has an extension
of Forty Eight Thousand Six Hundred and Fifty Six Point Seventy Two
Square Foot (48,656.72 P2), equivalent to Four Thousand Five Hundred
and Twenty Two Square Meters (2.522 M2)."
<PAGE> 2
The building is equipped as follows: (a) Sanitary Installation, that
comprehends 12 toilets and 10 lavatories; (b) An office in a total area of One
Thousand Square Foot (1.000 F2).
THEREFORE: In the understanding that the former preamble is part of the
present contract.
THE PARTIES HAVE AGREED THE FOLLOWING:
FIRST: LA ARRENDADORA agrees in renting to LA ARRENDATARIA, who will
examine it at the time of the turnover of the formerly described immovable,
under the terms and conditions that follow:
TERM: The present contract will last two (2) years, term that will begin
starting April 1, 1994.
SECOND: Rent Amount: The price of this rent has been agreed to be of an
amount of Twenty Dollar Cents (US$ 0.20) per construction Square Foot (F2), per
month, payable in National Currency (MDS) at the Official Exchange Rate assigned
to the Free Zone Industries and established by the Central Bank of the Dominican
Republic at the time, for the period of two (2) years.
LA ARRENDATARIA will have the right to renew this contract for a Four (4)
year period, notifying LA ARRENDADORA with a written notice at least One Hundred
and Eighty (180) days before the expiration of the Contract's term, under the
following terms and conditions: The price for the lease will be of Twenty Two
Dollar Cents (US$ 0.22) per construction Square Foot (P2) per month, payable in
National Currency (RDS) at the Official Exchange Rate assigned to the Free Zone
Industries and established by the Central Bank of the Dominican Republic at the
time, for a Four (4) year period.
It is understood between the parties that during the inforce of the
present contract, LA ARRENDATARIA obliges itself to obtain and maintain: a) An
Insurance Policy of an Insurance Company acceptable to LA ARRENDATARIA which
covers the building for damages resulting from cyclone, earthquake, floods,
etc., for an amount not less than THREE MILLION PESOS 00/100 (RD$ 3,000,000.00).
This amount will be reviewed in order to adjust it to reinstatement costs from
time to time, in conformity to the periodic evaluations realized by the
Engineering Department of Central Romana Corporation, b) Extend the Insurance
Policy in force so that it covers the Civil responsibility of LA ARRENDADORA
and/or LA ARRENDATARIA for the damages caused to third parties due to accidents
or any other cause in the rented immovable. Such policy shall be of an amount of
TWO HUNDRED THOUSAND PESOS (RD$ 200,000.00) in relation to the accidents that
can occur to any person or their properties and TWO HUNDRED THOUSAND PESOS (RD$
200,000.00) for any accident or catastrophe that could overcome and affect more
than one person or their properties.
This policy shall contain an irrevocable endorsement in favour of LA
ARRENDADORA.
THIRD: Use of the Immovable -- The immovable hereby rented will only and
exclusively be used for the installation and functioning of any industry that
previously obtains the approval of the Exporting Free Zone's National Council
according to Law No. 8-90 dated January 15, 1990 and in conformity with the
established proceedings in the same one in the corresponding category.
-2-
<PAGE> 3
FOURTH: Alterations -- LA ARRENDATARIA will not be able to realize any
alteration or substantial modifications in the rented local without the previous
and written consent of LA ARRENDADORA.
Likewise, LA ARRENDATARIA compromises itself so that in case of any
alterations or modification of the rented local this is done according to the
laws and regulations both national and municipal that rule the matter.
It is also understood that in case LA ARRENDATARIA orders or carries out
any repairs, alteration, change or improvement of the rented immovables, once
obtained the authorization from LA ARRENDADORA, this one will in no way be
responsible for the payment of materials provided or for the labor employed in
the formerly mentioned works.
LA ARRENDATARIA will have the right, at the term of the contract, to
withdraw the equipments and improvements installed with the purpose of leaving
the immovable in the same state that were found except in the depreciation that
results of normal use of such place.
FIFTH: Repairs and Maintenance -- LA ARRENDATARIA will maintain in good
state and at its own expenses the rented local making all gross and rentable
repairs that are necessary for such purposes as well as all operations required
for its maintenance in order to preserve such local and its annex in good state.
For such purpose, LA ARRENDATARIA will have on its behalf and without this
enumeration being a limit:
a) The interior and exterior painting of the immovable;
b) The ceiling filtrations that could appear;
c) The repair of floors/ceilings/doors/windows/sanitary or electrical
installations.
It is understood, however, that LA ARRENDATARIA will not be responsible
for repairs resulting from damages that occurred or structural defects in the
rented local.
LA ARRENDATARIA will not have the authorization to realize any act or
contract that could create or serve as a source for any mortgage or privilege
upon the rented immovable and/or its improvements or upon any other assets
belonging to the patrimony of LA ARRENDADORA.
If due to any act or omission of LA ARRENDATARIA, any claim or action is
attempted against LA ARRENDADORA, or any assessment is recorded upon the rented
immovable or upon any other assets belonging to LA ARRENDADORA, LA ARRENDATARIA
shall at its own expense, take the necessary measurements so that such claims or
actions are withdrawn and such assessments canceled, and grant LA ARRENDADORA an
Insurance Policy that covers this last one against risks resulting from such
claims, actions or assets.
In case that due to the formerly indicated motives, LA ARRENDADORA
suffered any prejudice, LA ARRENDATARIA shall indemnify for all costs, damages
and prejudices that LA ARRENDADORA has suffered, including the necessary amounts
to reimburse the judicial expenses and reasonable attorney's fees in which this
one has incurred.
-3-
<PAGE> 4
SIXTH: Total or Partial Destruction -- In case that the rented building is
totally or partially destroyed, any of which were the reasons of the sinister,
LA ARRENDATARIA shall immediately inform LA ARRENDADORA so that this last one
can present the corresponding claim to the underwriters. When a sinister of this
type occurred LA ARRENDADORA will have the right to decide between repairing the
building or rescinding the contract. In this last eventuality, LA ARRENDATARIA
will not be indebted to pay any more rent than the fraction corresponding to the
time used and effective enjoyment of the immovable.
If partial or total destruction of the immovable should be due to a fault
or negligence of LA ARRENDATARIA, this last one should be responsible for the
damages caused, in the way that these are not covered by the insurance.
SEVENTH: Immovable Inspection -- LA ARRENDATARIA obliges itself to permit
the access of a ARRENDADORA and/or its functionaries and agencies from time to
time, in the rented local, with the purpose of realizing the inspection and
verifying that the use adapts to the laws and regulations, as well as to the
terms and conditions in the present contract.
EIGHTH: Bankruptcy of LA ARRENDATARIA -- LA ARRENDATARIA compromises
itself to inform LA ARRENDADORA of any claim, trial judicial act or solicited of
agreement attempt.
At that moment, LA ARRENDADORA will be able to declare to its own
discretion, that the contract be rescinded, without this having to effect the
right of reclaiming the total amount owed by LA ARRENDATARIA, nor its right to
intervene in the bankruptcy procedure.
NINTH: Water Services, Electricity, Trash Withdrawal, Cleaning and
Evacuation of Black Waters and Payment of Insurance Premium -- The Water,
Electricity, Trash Withdrawal, Cleaning of Green Areas and Black Water System
including the septic and well services will be on behalf of LA ARRENDATARIA who
will contract them by means of the public or private entities with the inforce
rates.
In case that LA ARRENDATARIA did not pay all or any of such services or
the Insurance Premium, according to the terms of this contract, in the
established dates, the owed amounts will be immediately demanded by LA
ARRENDADORA with the interests calculated on an annual basis of a Twelve Percent
(12%), per month or fraction of month delay.
In case that a law, decree, ordinance or any legal act or regulation
transfers the services to which the present article refers, to any public or
private entity the obligation of supplying LA ARRENDATARIA with the formerly
mentioned services, will automatically cease for LA ARRENDADORA.
TENTH: Nonfulfillment -- The Nonfulfillment from LA ARRENDATARIA of any of
the clauses and conditions of this contract will lead to the rescission of the
same one as a matter of law and after twenty (20) days of a notification from LA
ARRENDADORA to LA ARRENDATARIA by means of an Official notice if within the
formerly mentioned term, the nonfulfillment has not been amended by LA
ARRENDATARIA.
-4-
<PAGE> 5
In this case, LA ARRENDADORA will again take possession of the rented
immovable with no need of a judicial procedure or any type of indemnization
twenty (20) days after a notification to vacate the place. Upon any eventuality,
LA ARRENDADORA reserves the right of reclaiming through the corresponding via
the total amount of the rent stipulated in article second of the present
contract.
ELEVENTH: Contract Termination -- The parties agree that the present
contract cannot be renewed by an extension or lease term by operation of law.
In case the contract is not renewed, LA ARRENDATARIA shall turnover the
rented local to LA ARRENDADORA previous inspection of them by this last one with
in a twenty (20) day term after a simple notification has been made as a request
of LA ARRENDADORA.
TWELFTH: Court of Jurisdiction -- For all purposes and consequences of the
present contract, the parties select their domiciles to be as follows: LA
ARRENDADORA in its main offices in Dominican Republic located at Batey Principal
of Central Romana in the City of La Romana and LA ARRENDATARIA In the rented
immovable object of this contract.
The parties also agree that, in case of any lawsuits or differences
between them, in what respects the present contract, they will submit the same
one to the Dominican Courts, resigning previously to any other Courts that for
any cause could be empowered of such lawsuits or differences. Likewise, they
agree that all which is not foreseen in this contract will be ruled by the laws
of the Dominican Republic and specially by what is prescribed by Law No. 8-90,
dated January 15, 1990 and Decree No. 700-86 dated August 8, 1986 that created
the La Romana Industrial Free Zone II.
THIRTEENTH: Insurance Policy Turnover -- LA ARRENDATARIA compromises to
turnover to LA ARRENDADORA within the thirty (30) days that follow the turnover
of the building, the certificates and insurance policies that signal LA
ARRENDADORA as a beneficiary of the Insurance Contracts subscribed in conformity
with the dispositions of the clauses in the present contract.
FOURTEENTH: Contract Cession -- It is expressly convened that LA
ARRENDADORA will be able to cede its rights in virtue of the present contract.
Likewise, it is agreed that LA ARRENDATARIA cannot cede its rights owned
in virtue of the present contract nor sublease totally or partially the rented
immovable, without the previous written consent of LA ARRENDADORA. Such consent,
however, will not be denied in an arbitrary or capricious way but due to just
reasons.
-5-
<PAGE> 6
Done and signed in two originals, one for each one of the parties,
originals which are composed of _____ (___) pages, all which have been duly
signed by the parties, in La Romana, Dominican Republic, on the __________ (___)
day of the month of _____________ of the year One Thousand Nine Hundred ________
(___).
FOR: OPERADORA ZONA FRANCA ROMANA, S.A.
LA ARRENDADORA
(Signature)
- --------------------------------------------
ENG. EDUARDO MARTINES-LIMA
Vice-President
FOR: COSTURA DOMINICANA, INC.
LA ARRENDATARIA
(Signature)
- --------------------------------------------
R. JACK McCALL
- -----In the City of Santo Domingo de Guzlin, National District, Capital of the
Dominica Republic, this THIRTY FIRST (31st.) day of the month of MARCH of the
year ONE THOUSAND NINE HUNDRED AND NINETY FOUR (1994).--------------------------
LIC. ELIZABETH A. MICHELI PABLO
-6-
<PAGE> 1
EXHIBIT 10.19
AMENDMENT TO LEASES
This Lease Amendment (the "Amendment") is entered into by and between
Gerber Childrenswear, Inc. ("Gerber"), a Delaware corporation, and The
Industrial Development Board of the City of Evergreen, Alabama (the "IDB"), a
public corporation and instrumentality under the laws of the State of Alabama,
as of this 28th day of August, 1997.
WHEREAS, the IDB has solicited Gerber to occupy that certain manufacturing
facility and surrounding real estate located in Evergreen, Alabama (the
"Facility"), a portion of which is the subject of a lease agreement dated
November 1, 1967 (the "1967 Lease") between the IDB and Beatrice Foods Co.
("Beatrice"), which 1967 Lease has been assigned from Beatrice to Max Kahn
Curtain Corporation, and then from Max Kahn Curtain Corporation to Max Kahn
Realty, Inc. (together, "Max Kahn") and the remaining portion of which is the
subject of a lease agreement dated May 1, 1978 between the IDB and Beatrice (the
"1978 Lease") which has also been assigned to Max Kahn; and
WHEREAS, Gerber has agreed to occupy the Facility, and to establish a
portion of its business in the Facility, which business will employ certain of
the residents of Evergreen, Alabama, to the benefit of the IDB; and
WHEREAS, to that end, Gerber has taken an assignment of the 1967 Lease and
of the 1978 Lease from Max Kahn; and
WHEREAS, the 1967 Lease gives Gerber a leasehold interest in a portion of
the Facility (the "1967 Leased Property") through midnight, October 31, 2007
(the "Current Term") at a rental of Two Thousand Dollars ($2.000.00) per year;
and
WHEREAS, the 1978 Lease gives Gerber a leasehold interest in the remaining
portion of the Facility (the "1978 Leased Property") through the Current Term,
at an additional rent of Two Thousand Dollars ($2.000.00) per year; and
WHEREAS, the 1978 Lease gives Gerber the option to purchase both the 1967
Leased Property and the 1978 Leased Property at any time during the Current Term
for the purchase price of One Dollar ($1.00) each; and
WHEREAS, Gerber desires to have the option to extend the Current Term of
the 1967 Lease and the 1978 Lease from October 31, 2007 until October 31, 2012
(the "Revised Term") upon the same terms and conditions set forth in the 1967
and 1978 Leases and in this Amendment; and
WHEREAS, Gerber further desires to have the sole option to extend the
Revised Term for both the 1967 Lease and the 1978 Lease from October 31, 2012 to
October 31, 2022 (the "Extended
<PAGE> 2
Term") upon the same terms and conditions set forth in the 1967 and 1978 Leases
and in this Amendment; and
WHEREAS, Gerber further desires, having paid a significant amount of money
to Max Kahn for the leasehold interest in the 1967 Leased Property under the
1967 Lease, to reduce the rental due under the 1967 Lease for the remainder of
the Current Term, the Revised Term and the Extended Term, if any, from Two
Thousand Dollars ($2,000.00) per annum to One Dollar ($1.00) per annum; and
WHEREAS, Gerber further desires, having paid a significant amount of money
to Max Kahn for the leasehold interest in the 1978 Leased Property under the
1978 Lease, to reduce the rental due under the 1978 Lease for the remainder of
the Current Term, the Revised Term and the Extended Term, if any, from Two
Thousand Dollars ($2,000.00) per annum to One Dollar ($1.00) per annum; and
WHEREAS, the IDB desires to grant Gerber such reductions in rent and
extensions of the Current Term in exchange for Gerber's agreement to locate a
portion of its business in the Facility.
NOW THEREFORE, in exchange for the mutual consideration stated herein, the
value and efficiency of which is hereby acknowledged by both parties, the
parties hereto agree to amend the 1967 Lease and the 1978 Lease as follows:
1. Leases. This Amendment amends the 1967 Lease between Beatrice and
the IDB, and the 1978 Lease between Beatrice and the IDB, as each
have been assigned to Max Kahn and further assigned to Gerber,
copies of which are attached hereto. The IDB hereby represents and
warrants to Gerber that both such leases are valid in accordance
with their terms and sufficient to convey a leasehold interest in
the Facility to Gerber.
2. Term. The Current Term for the 1967 Lease expires on October 31,
2007. The Current Term for the 1978 Lease also expires on October
31, 2007. Pursuant to this Amendment, the Current Term of both
leases is hereby extended until October 31, 2012 (the "Revised
Term"). Furthermore, Gerber is hereby given the sole option to
extend the Revised Term from October 31, 2012 until October 31, 2022
(the "Extended Term"). Gerber may exercise this option by giving
written notice to the IDB prior to the expiration of the Revised
Term.
3. Rent. The rent due from Gerber to the IDB under the 1967 Lease from
the date hereof until the expiration of the Revised Term and the
Extended Term (if any) shall be One Dollar ($1.00) per year (the
"1967 Rent"). The rent due from Gerber to the IDB under the 1978
Lease from the date hereof until the expiration of the Revised Term
and the Extended Term (if any) shall be One Dollar ($1.00) per year
(the "1978 Rent").
4. Option to Purchase. The parties hereto acknowledge and agree that,
pursuant to the terms and conditions of the 1978 Lease, Gerber
currently has the right to purchase the 1967 Leased Property and the
1978 Leased Property for the total purchase price
2
<PAGE> 3
of Two Dollars ($2.00) at any time during the Current Term. The
parties hereby agree that Gerber shall additionally have the option
to purchase the 1967 Leased Property for One Dollar ($1.00) at any
time during the Revised Term or the Extended Term (if any) pursuant
to the terms and conditions set forth in Section 9.7 of the 1978
Lease. Furthermore, Gerber shall have the option to purchase the
1978 Leased Property for One Dollar ($1.00) at any time during the
Revised Term or the Extended Term (if any) pursuant to the terms and
conditions set forth in Section 9.4 of the 1978 Lease.
5. Attorney's Fees. The parties hereto agree that each party shall be
responsible for the payment of its own attorney's fees and expenses
incurred during all negotiations and during the drafting and
execution of all agreements surrounding Gerber's decision to locate
the Facility in Evergreen, Alabama. Notwithstanding the foregoing,
in the event of a dispute between the parties hereto concerning any
provision of this Amendment or of the 1967 Lease or of the 1978
Lease, each as assigned to Gerber, or of any other matter related to
Gerber's relocation of its distribution facility to Evergreen,
Alabama, the prevailing party in such dispute shall pay the other
party's reasonable costs and attorney's fees.
6. Governing Law. This Amendment shall be governed by the laws of the
State of Alabama.
IN WITNESS WHEREOF, Gerber and the IDB have caused this Amendment to be executed
in their respective corporate names, have caused their respective corporate
seals to be hereunto affixed, and have caused this Amendment to be attested, all
by their duly authorized officers.
(Signatures on next page)
3
<PAGE> 4
GERBER CHILDRENSWEAR, INC.
By: /s/ Lee M. Schaeffer
---------------------------------
Name: Lee M. Schaeffer
Its: Vice President
SEAL
Attest: /s/ Raymond R. McManus
------------------------------
Its: Vice President/Human Resources
INDUSTRIAL DEVELOPMENT BOARD OF THE
CITY OF EVERGREEN
By: /s/ Tommy Chapman
---------------------------------
Name: Tommy Chapman
Its: Chairman
SEAL
Attest: /s/ Gerald Salter
------------------------------
Its: Secretary
4
<PAGE> 5
================================================================================
This instrument was prepared by: F. Gerald Burnett, Cabaniss, Johnston,
Gardner, Dumas & O'Neal, Post Office Box 830612,
Birmingham, Alabama 35283-0612, (205) 716-5200
==============================================================================
ASSIGNMENT AND ASSUMPTION AGREEMENT
THIS ASSIGNMENT AND ASSUMPTION AGREEMENT ("this Agreement") is made as of
August ___, 1997, by and among MAX KAHN REALTY, INC., a Delaware corporation
("MKRI"), GERBER CHILDRENSWEAR, INC., a Delaware corporation ("Gerber"), MAX
KAHN CURTAIN CORPORATION, a Delaware corporation ("MKCC"), and THE INDUSTRIAL
DEVELOPMENT BOARD OF THE CITY OF EVERGREEN, a public corporation and
instrumentality of the state of Alabama (the "IDB").
For and in consideration of Ten and No/100 Dollars ($10.00) and other good
and valuable considerations the receipt and sufficiency of which are hereby
acknowledged, the parties hereto agree as follows:
1. MKRI hereby assigns, transfers, sets over and conveys to Gerber all of
MKRI's right, title and interest in, to and under the following described lease
agreements, and the leasehold interests created thereby! including, but not
limited to, the right to exercise any and all options contained therein to
purchase the premises subject to such lease agreements, or any portion thereof,
to-wit:
That certain Lease Agreement made between the IDB, as lessor, and
Beatrice Foods Co., a Delaware corporation ("Beatrice Foods"), as lessee,
dated as of November 1, 1967 (the "1967 Lease"), and filed for record in
the office of the Judge of Probate of Conecuh County, Alabama, on November
27, 1967, and there recorded in Book A-89 of Deeds, Page 761, with the
1967 Lease having been (i) assigned by Beatrice Foods, as assignor, to
MKCC, as assignee, pursuant to that certain Assignment and Assumption
Agreement dated as of May 15, 1981, between Beatrice Foods, as assignor,
and MKCC, as assignee, and filed for record in the office of the Judge of
Probate of Conecuh County, Alabama, on May 19, 1981, and there recorded in
Book A-121 of Deeds, Page 626, and (ii) in turn assigned by MKCC, as
assignor, to MKRI, as assignee, by an Assignment Agreement dated of May
15, 1981, and filed for record in the office of the Judge of Probate of
Conecuh County, Alabama, on May 19, 1981, and there recorded in Book A-121
of Deeds, Page 649;
(and)
That certain Lease Agreement made between the IDB as lessor, and
Beatrice Foods, as lessee, dated as of May 1, 1978, and filed for record
in the office of the Judge of Probate of Conecuh County, Alabama, on July
13, 1978 (the "1978 Lease"), and there recorded in Book A-114 of Deeds,
Page 325, with the 1978 Lease having been (i) assigned by Beatrice
<PAGE> 6
Foods, as assignor, to MKCC, as assignee pursuant to that certain
Assignment and Assumption Agreement dated as of May 15, 1981, between
Beatrice Foods, as assignor, and MKCC, as assignee, and filed for record
in the office of the Judge of Probate of Conecuh County, Alabama, on May
19, 1981, and there recorded in Book A-121 of Deeds, Page 632, and (ii) in
turn, assigned by MKCC, as assignor, to MKRI, as assignee, by an
Assignment Agreement dated May 15, 1981, and filed for record in the
office of Judge of Probate of Conecuh County, Alabama, on May 19, 1981,
and there recorded in Book A-121 of Deeds. Page 649.
TO HAVE AND TO HOLD the same unto Gerber, its successors and assigns, from
and after the date hereof for all the rest and remainder of the term of years
(i) provided for in the 1967 Lease (as to the 1967 Lease) and (ii) provided for
in the 1978 Lease (as to the 1978 Lease), but in each instance subject to the
rents, covenants, conditions and provisions contained in the 1967 Lease and the
1978 Lease, respectively.
2. Anything contained herein to the contrary notwithstanding, MKRI makes
no warranties or representations except as expressly set forth herein and all
rights of MKRI in and to the premises and all improvements, structures and
fixtures thereon, are transferred on an as-is, where-is basis, subject to all
faults.
3. Gerber, in consideration of the foregoing assignment, for itself and
its successors and assigns, hereby accepts the foregoing assignment of the 1967
Lease and the 1978 Lease and hereby expressly agrees and assumes to perform all
obligations and to pay all sums hereafter required to be performed or paid by
MKRI or MKCC pursuant to the respective provisions of the 1967 Lease and the
1978 Lease. Gerber agrees to indemnify and hold MKRI and MKCC, and their
successors and assigns, harmless from any loss, expense or liability (including,
without limitation, legal fees) which MKRI and MKCC incur by reason of a breach
by Gerber of the foregoing covenant. The foregoing covenant of Gerber shall
survive and remain in full force and effect whether or not Gerber remains in
possession of the premises and whether or not Gerber assigns its rights under
either of (or both of) the 1967 Lease and the 1978 .
4. Anything contained herein to the contrary notwithstanding, MKRI shall
be entitled to remove certain property and fixtures located on the premises and
to vacate such premises, in accordance with the provisions of that certain
Closing Statement and Agreement entered into between MKRI and Gerber of even
date wherewith.
5. In order to confirm that MKCC has no interest under either (or both of)
the 1967 Lease and the 1978 Lease, or in the premises, MKCC does hereby remise,
release, quit claim and convey to Gerber all of the right, title, interest and
claim of MKCC, if any, in and to (i) the 1967 Lease and the leasehold interest
created thereby and (ii) the 1978 Lease and the leasehold interest created
thereby. MKCC is entering into this Agreement and making the quit claim
conveyance and assignment set forth in this paragraph to confirm to Gerber that
MKCC has no further interest in such property.
2
<PAGE> 7
TO HAVE AND TO HOLD the same unto Gerber, its successors and assigns, from
and after the day hereof for all the rest and remainder of the term, of years
(i) provided for in the 1967 Lease (as to the 1967 Lease) and (ii) provided for
in the 1978 Lease (as to the 1978 Lease), but in each instance subject to the
rents, covenants, conditions and provisions contained in the 1967 Lease and the
1978 Lease, respectively.
6. The IDB acknowledges that from and after the date hereof neither MKRI
nor MKCC shall continue to have liability for the payment of rent, or any other
amounts, due under the 1967 Lease and the 1978 Lease or for the performance and
observance of the other agreements and covenants to be performed and observed by
either MKRI or MKCC under the 1967 Lease and the 1978 Lease.
IN WITNESS WHEREOF, the parties hereto have executed this Agreement as of
the day and year above written.
MAX KAHN REALTY, INC.
By: /s/ Steven L. Markowitz
---------------------------------
Steven L. Markowitz
President
ATTEST
By: /s/ Steven L. Markowitz
------------------------------
Its: Assistant Secretary
GERBER CHILDRENSWEAR, INC.
By: /s/ Lee M. Schaeffer
---------------------------------
Name: Lee M. Schaeffer
Its: Vice President
ATTEST
By:
------------------------------
Its:
-------------------------
3
<PAGE> 8
MAX KAHN CURTAIN CORP.
By: /s/ Steven L. Markowitz
----------------------------------
Steven L. Markowitz
President
ATTEST
By: /s/ Steven L. Markowitz
------------------------------
Its: Assistant Secretary
INDUSTRIAL DEVELOPMENT BOARD OF
THE CITY OF EVERGREEN
By: /s/ William Thomas Chapman, II
----------------------------------
William Thomas Chapman, II
Chairman of its Board of Directors
ATTEST
By: /s/ Gerald Salter
------------------------------
Its: Secretary
4
<PAGE> 9
RESOLUTION OF THE INDUSTRIAL DEVELOPMENT BOARD
OF THE CITY OF EVERGREEN
WHEREAS, The Industrial Development Board of the City of Evergreen, a
public corporation under the laws of State of Alabama (the //Board"), is the
owner of a parcel of real estate and the improvements located thereon comprising
a manufacturing facility (the "Plant"); and
WHEREAS, the Plant is currently leased under the terms of a Lease
Agreement, dated November 1, 1967, and a Lease Agreement, dated May 1, 1978,
each to Beatrice Foods Co., and each as assigned to Max Kahn Realty, Inc. (the
"Lease Agreements"); and
WHEREAS, the Board proposes to lease another property to Max Kahn Realty,
Inc. and wishes to permit Max Kahn Realty, Inc. to assign the Lease Agreements
to Gerber Childrenswear, Inc. ("Gerber"); and
WHEREAS, in lien of financing Gerber's acquisition through the issuance of
industrial development bonds by the Board, Regions Bank has agreed to lend to
Gerber all or a portion of the price to be paid by Gerber for the assignment of
the Lease Agreements and use of the Plant, which loan will be secured by, inter
alia, a leasehold mortgage from Gerber and a mortgage from the Board; and
WHEREAS, Gerber and the Board wish to extend the term of the Lease
Agreements for an additional term to expire October 31, 2012, and to grant to
Gerber an additional option ~ & extend the Lease Agreements an additional ten
years; and
WHEREAS, in order to meet the requirements of Regions Bank and thereby
permit the transaction to occur, the Board wishes to execute a mortgage covering
the Plant for the benefit Regions Bank;
NOW, THEREFORE, BE IT RESOLVED, by The Industrial Development Board of the
City of Evergreen, as follows:
1. Approval of Assignment and Amendment of Lease Agreements. The Board
hereby acknowledges and approves the assignment of the Lease Agreements by Max
Kahn Realty, Inc. to Gerber, and the Amendment to the Lease Agreements in
substantially the form attached hereto as Exhibit "A." The Chairman or Vice
Chairman and Secretary or any Assistant Secretary of the Board are hereby
authorized and directed to execute any consent or other instrument requested by
the parties in connection with such acknowledgment and approval of the
assignment, and to execute the Amendment[s] in substantially the form attached
hereto, with such minor changes as may be approved by the Chairman or Vice
Chairman of the Board. The Board hereby waives any notice requirements with
respect to such assignments.
2. Delivery of Mortgage. The execution and delivery by the Board of a
Mortgage, in substantially the form attached hereto as Exhibit "B," is hereby
approved. The Chairman or Vice
<PAGE> 10
Chairman and the Secretary or any Assistant Secretary are hereby authorized and
directed to execute such Mortgage in substantially the form attached hereto,
with such minor changes as may be approved by the Chairman or Vice Chairman of
the Board, and to deliver such Mortgage on behalf of the Board to Regions Bank
as security for the loan by Regions Bank to Gerber.
3. Further Documents and Assurances: Limitation of Liability. The Chairman
or Vice Chairman and the Secretary or any Assistant Secretary of the Board are
hereby authorized and directed to execute such other acknowledgments,
certificates, instruments or other documents as shall be necessary and
appropriate to complete the transactions described above; provided, however,
that nothing herein shall be construed to impose a charge against the general
credit of the Board or any personal or pecuniary liability upon the Board, and
no officials or employees of the Board shall have any personal or pecuniary
liability whatever hereunder or under the Mortgage or any other instrument or
other document delivered on behalf of the Board or any liability for the breach
by the Board of any of the agreements on its part herein or therein contained.
Adopted this 28th day of August, 1997.
/s/ William Thomas Chapman, II
--------------------------------------
Chairman
/s/ Gerald Salter
--------------------------------------
Secretary
(SEAL)
2
<PAGE> 11
SECRETARY'S CERTIFICATE
I, Gerald Salter, Secretary of The Industrial Development Board of the
City of Evergreen (the "Board"), DO HEREBY CERTIFY that the foregoing pages of
typewritten matter pertaining to Gerber Childrenswear, Inc., constitute a true
and correct copy of the Resolution duly adopted on August 28, 1997, by the
members of the board of directors of the Board in a meeting duly called and
assembled, and that the original of said Resolution appears of record in the
Minute Book of the Board which is in my custody and control.
GIVEN under my hand and the seal of The Industrial Development Board of
the City of Evergreen, this 28th day of August, 1997.
/s/ Gerald Salter
--------------------------------------
Secretary
(SEAL)
3
<PAGE> 1
EXHIBIT 10.20
PELHAM ROAD LEASE AGREEMENT
<PAGE> 2
STATE OF SOUTH CAROLINA ) FIRST AMENDMENT TO LEASE AGREEMENT
)
COUNTY OF GREENVILLE )
THIS FIRST AMENDMENT TO LEASE AGREEMENT (the "Amendment") is made and
entered into as of this 25th day of November, 1996, by and between Highland
Properties, LLC (the "Lessor") and Gerber Childrenswear, Inc. (the "Lessee"):
W I T N E S S E T H :
WHEREAS hereto, on September 13, 1996, Lessor and Lessee entered into that
certain Lease Agreement wherein the Lessor agreed to let and the Lessee agreed
to rent 33,600 square feet of property in a building to be constructed by Lessor
at 7005 Pelham Road, Greenville, South Carolina, the terms of which are
incorporated herein by reference (the "Lease").
WHEREAS, pursuant to the subsequent request of Lessee, Lessor has agreed
to provide additional space to the Lessee consisting of 4,800 square feet (the
"Additional Space"), which would thereby increase the Premises to 38,400 square
feet.
NOW, THEREFORE, in consideration of the mutual promises and covenants
herein contained, and in consideration of the additional rent to be provided
pursuant to the Amendment, the receipt and sufficiency of which are both hereby
acknowledged, Lessor and Lessee agree as follows:
1. The first paragraph of Article I, GRANT AND TERM, Paragraph 1.1, is
amended by deleting the first sentence thereof in its entirety and substituting
in lieu thereof the following:
1.1 Description of Premises. Lessor hereby leases to Lessee, and
Lessee hereby accepts and rents from Lessor, that certain office space
(known as Suite D) containing a total of approximately 33,600 square feet
(the "Initial Space") plus 4,800 square feet (the "Additional Space"),
(the
<PAGE> 3
Initial Space and the Additional Space being collectively referred to as
the "Premises") located within the building known as Building No. III (the
"Building"), which Building contains a total of approximately 48,000
square feet and is located at 7005 Pelham Road, within Pelham at Hyland
Business Center (the "Project") as shown on the Site Plan marked Exhibit 1
attached hereto, situated in the County of Greenville, State of South
Carolina.
2. Article I, GRANT AND TERM, Paragraph 1.4 Occupancy; Lease Commencement
Date is hereby amended by adding at the end thereof the following:
The Lessor shall, with regard to the Additional Space, complete such space
as the Initial Space is to be completed as shown on Exhibits 2 and 3.
3. Article I, GRANT AND TERM, Paragraph 1.4 Occupancy; Lease Commencement
Date is hereby further amended by deleting from the nineteenth (19th) line the
date "March 17, 1997," and inserting in lieu thereof "March 31, 1997."
4. Article II, RENT, Paragraph 2.1a.(1) Initial Term, is amended by
deleting it in its entirety and substituting in lieu thereof the following:
2.1 Rent
a. Initial Term.
(1) The Minimum Annual Rent during Initial Term shall be Three
Hundred Twenty-Four Thousand Two Hundred Seventy and 00/100
Dollars ($324,270.00), payable in equal monthly installments
of Twenty Seven Thousand Twenty-two and 50/100 Dollars
($27,022.50) (the "Minimum Annual Rent").
5. Article II, RENT, Paragraph 2.2d is amended by deleting it in its
entirety and inserting in lieu thereof the following:
d. Additional Rent for Additional Parking Spaces.
Lessee agrees to pay during the Initial Term of this Lease
additional rent equal to Sixteen and 45/100 Cents (0.1645) per
square foot within only the Initial Space of the Premises to
reimburse Lessor for the cost of 33 additional parking spaces.
Said rent shall be due and
2
<PAGE> 4
payable in the manner and in the same terms and conditions as
the Minimum Annual Rent reserved hereunder.
6. Exhibit 4 is amended by deleting it in its present form and
substituting the Exhibit attached.
7. Except as expressly set forth in the Amendment, all other terms and
conditions of the Lease shall remain in full force and effect and are hereby
ratified and reconfirmed by Lessor and Lessee.
3
<PAGE> 5
IN WITNESS WHEREOF, we have hereunto set our hands and affixed our seals
the date and year first above-written.
LESSOR:
HIGHLAND PROPERTIES, LLC, a South
Carolina limited liability company
/s/ Marshall Bentley [sic] By: /s/ Mark A. Cothran [sic]
- --------------------------------- ---------------------------------
Witness Member
/s/ Dee Parris Date of Execution: 11/25/96
- --------------------------------- -------------------
Witness
LESSEE:
GERBER CHILDRENSWEAR, INC., a Delaware
corporation
/s/ Jay R. Cope By: /s/ David E. Uren
- --------------------------------- ---------------------------------
Witness Its: Vice President, Finance
/s/ Dee Parris Date of Execution: 11/25/96
- --------------------------------- -------------------
Witness
4
<PAGE> 6
EXHIBIT 4
TOTAL ESTIMATED PAYMENTS
Summary for Year 1
<TABLE>
<CAPTION>
Annual Monthly
------ -------
<S> <C> <C> <C>
A. Rent $324,270.00 $ 27,022.50
B. Additional Rent:
1) Operating Expenses (includes real estate $ 26,880.00 $ 2,240.00
taxes, insurance and common area
maintenance charges
2) Additional Rent/Parker 5,525.00 460.42
TOTAL $356,675.00 $ 29,722.92
</TABLE>
5
<PAGE> 7
LEASE AGREEMENT
PELHAM AT HYLAND BUSINESS CENTER
PELHAM ROAD
GREENVILLE, SOUTH CAROLINA
THIS LEASE AGREEMENT (this "Lease") is made and entered into as of the
13th day of September 1996, by and between Highland Properties, LLC, hereafter
called the "LESSOR" and Gerber Childrenswear, Inc., hereafter called the
"LESSEE".
WITNESSETH:
For and in consideration of the rent provided herein and the mutual
covenants and agreements hereinafter set forth, the parties hereto agree for
themselves, their successors and assigns, as follows:
ARTICLE I
GRANT AND TERM
1.1 Description of Premises. Lessor hereby leases to Lessee, and Lessee hereby
accepts and rents from Lessor, that certain office space (known as Suite D)
containing a total of approximately Thirty-three Thousand Six Hundred (33,600)
square feet (the "Premises") located with the building known as Building III
(the "Building") which Building contains a total of approximately 48,000 square
feet and is located at 7005 Pelham Road, within Pelham at Hyland Business Center
(the "Project") as shown on the site plan marked Exhibit 1 attached hereto,
situated in the County of Greenville, South Carolina. The Premises is leased to
Lessee, together with the non-exclusive, irrevocable right to use and occupy, in
common with Lessor and other tenants of the Building and the Project, all
parking areas, driveways, sidewalks and other common facilities designated by
Lessor from time to time in the Project.
It is expressly agreed that the Demised Premises do not include the land
beneath the unit, nor any space above the interior ceiling of such unit;
provided that the Lessee shall have the non-exclusive right to use a portion of
such space for the location of the Lessee's construction and equipment serving
the Demised Premises, subject to the approval of the Lessor as to location and
installation, such right to be in common with the Lessor and all others to whom
the Lessor has or may hereafter grant such rights. The exterior face of exterior
walls, the roof, together with the right to install, maintain, use, repair and
replace such pipes, duct work, conduits, utility lines, tunneling, wires and the
like through ceiling plenum areas, column space, partitions, in or beneath floor
slabs or above or below the Demised Premises as may be reasonably necessary or
advisable for the servicing of the Demised Premises or other portions of the
Building of which the Demised Premises are a part is expressly reserved unto
Lessor.
<PAGE> 8
1.2 Term. The term of this Lease shall commence on the Occupancy Date (the
"Lease Commencement Date") and end on the seventh (7th) anniversary date of the
Lease Commencement Date (the "Initial Term"). Every twelve (12) calendar month
period following the Lease Commencement date shall constitute a lease year. An
Addendum shall be executed by Lessor and Lessee confirming the Lease
Commencement Date and the Initial Term hereof, and shall be attached hereto and
incorporated herein by reference.
1.3 Extension Option. Providing Lessee has not defaulted in the performance of
any condition of this lease, Lessee shall have option to extend the term of this
lease for two (2) additional and consecutive periods of five (5) years each
following the Initial Term, provided however that written notice is given Lessor
by Lessee that it elects to exercise its option to extend the Lease one hundred
eighty (180) days prior to the expiration date of the then-current lease period,
and further provided that all conditions of the Lease, except the rental rate,
which shall be adjusted as provided herein, shall continue in full force and
effect for each such extension. There shall be no privilege to extend the terms
of this lease for any period of time beyond the expiration of the agreed upon
extended terms.
In the event Lessee does not exercise its first (1st) five (5) year
renewal option to extend the Lease as specified above, then Lessee shall pay
Lessor $100,000.00 on or before the ending date of the Initial Term.
1.4 Occupancy; Lease Commencement Date. The Occupancy Date shall be the date
upon which the Building and other improvements erected and to be erected upon
the Premises shall have been substantially completed in accordance with the
Floor Plan and Specifications attached hereto as Exhibits 2 and 3, respectively,
prepared by Marsh/Bell Construction Co., Inc., dated September 12, 1996,
entitled "Hyland at Pelham Business Park Upfit (Gerber)" and prepared by
Marsh/Bell Construction Co., Inc., dated September 13, 1996, entitled "Office
Warehouse Project (48,000 SF), Pelham Road, Greenville, S.C." and incorporated
herein by reference. The scheduled Occupancy Date is March 17, 1997. Lessee may
with the approval of Lessor choose to occupy the premises before March 17, 1997.
Lessor shall notify Lessee in writing as soon as Lessor deems said buildings and
other improvements are completed and ready for occupancy as aforesaid. In the
event that said buildings and other improvements have not in fact been so
completed, Lessee shall notify Lessor in writing of its objections. Lessor shall
have a reasonable time after delivery of such notice within which to take such
corrective action as may be necessary, and shall notify Lessee in writing as
soon as it deems such corrective action has been completed. In the event of any
dispute as to substantial completion of work performed or required to be
performed by Lessor, Earl Gaulden, AIA, shall be mutually engaged to inspect the
work performed versus the standards set forth in Exhibits 2 and 3 and his
certification (the "Certificate of Substantial Completion") shall be conclusive
as to such facts. If the Leased Premises are not ready for occupancy by March
17, 1997, Lessor shall pay a penalty until the date of the Certificate of
Substantial Completion to Lessee which is equal to two (2) times Lessee's
current daily rental rate at its location at Falls Place, South Main Street,
Greenville, South Carolina. If Lessor fails to cause the Leased Premises or any
portion thereof to be ready for occupancy at the time of the scheduled Occupancy
Date, (i) neither Lessor nor Lessor's agent, officers, employees, or contractors
shall be liable for any damage, loss, Liability or expense
2
<PAGE> 9
caused thereby other than described above, (ii) nor shall this Lease become void
or voidable unless such failure continues for more than sixty (60) days, in
which case Lessee may, upon twenty (20) days written notice to Lessor, terminate
this Lease. Prior to occupying the Premises, Lessee shall execute and deliver to
Lessor a letter acknowledging the Occupancy Date and certifying that the
Improvements have been completed and that Lessee has examined and accepted the
Premises.
Provided Lessee does not interfere with the construction of improvements,
Lessee has the right of early possession of the Premises for the installation of
phones, computer equipment and furniture systems.
1.5 Construction of Premises.
a. Construction of Premises.
Immediately upon the execution hereof, Lessor, at Lessor's sole expense,
shall commence construction of improvements to the Premises substantially in
accordance with the mutually approved plans and specifications set forth in
Exhibits 2 and 3. Lessee shall bear any expense in excess of improvements
specified in the within referenced plans and specifications, together with an
additional charge of twenty percent (20%) of such excess, to cover Lessor's
overhead, and pay the same to Lessor prior to commencement of such additional
work. ALL improvements made to the Premises shall be the property of the Lessor
during the term of this Lease and shall remain the property of Lessor upon
termination of this Lease.
Lessor shall construct the Premises in accordance with the Floor Plan and
Specifications attached hereto as E5chibits 2 and 3 respectively. To the best of
Lessor's knowledge, the design and construction of the Premises shall be in
compliance with Title 111 of the Americans With Disabilities Act, Public Law
101-336 on the date Lessor delivers the Premises to Lessee for occupancy.
b. Change Orders by Lessee.
Lessee shall bear any expenses in excess of improvements specified in the
within referenced Plans and Specifications together with an additional charge of
twenty percent (20%) of such excess to cover Lessor's overhead, and pay the same
to Lessor prior to commencement of such additional work. Any change in the
construction or upfitting of the mutually approved Plans and Specifications,
shall be in the form of a written change order. The Change Order shall include
the work to be performed, the additional cost and the additional time extension
of the scheduled Occupancy Date as set forth in 1.4 herein above, if any. Each
change order shall be mutually agreed upon and signed by authorized
representative of the parties prior to commencement. There shall be no delay in
the commencement of the Term of this Lease and/or payment of the rent where
Lessee fails to occupy the Premises when same are ready for occupancy or fails
to make other decisions necessary for preparation of the Premises for occupancy.
For purposes of this article, the Premises shall be deemed substantially
completed and ready for occupancy by Lessee as set forth in Article 1.4 above.
3
<PAGE> 10
ARTICLE II
RENT
2.1 Rent. Beginning on the Rental Commencement Date and continuing throughout
the full term of the Lease, Lessee shall pay to Lessor, without notice, demand,
reduction, abatement, set off or any defense, minimum base rent (the "Minimum
Annual Rent") in equal monthly installments, in advance, on or before the first
day of each month. Lessee's obligation to begin the payment of Minimum Annual
Rent shall be the sixty-first (61st) day following the Occupancy Date (the
"Rental Commencement Date.). If the Rental Commencement Date is a date other
than the first day of calendar month, the Base Rate shall be prorated daily from
such date to the first day of the next calendar month and paid on the Rental
Commencement Date. The rent payable hereunder is as follows:
a. Initial Term.
(1) The Minimum Annual Rent during the Initial Term shall be Two
Hundred Eighty Three Thousand Four Hundred Seventy and no/100 Dollars
($283,470.00) payable in equal monthly installments of Twenty Three Thousand Six
Hundred Twenty-Two and 50/100 Dollars ($23,622.50) (the "Minimum Annual Rent.).
b. Rent During Extension Terms. The Minimum Annual Rent for each Extension
Term shall be adjusted and multiplied by a percentage which shall be the lesser
of:
(1) Fourteen percent (14%) for the first Extension Term and Ten
percent (10%) for the second Extension Term; or
(2) The amount by which there has been a change, if any, in the
Consumer Price Index using the "Consumer Price Index All
Items, All Urban Consumers (1982-84 = 100)" (hereinafter
called the Index), published by the Bureau of Labor Statistics
of the United States Department of Labor between the Rent
Commencement Date and the first day of the first Extension
Term and the second Extension Term.
(i) For the first Extension Term, the Index for the month
during which the Occupancy Date occurs shall be "Base
Index Number" and the corresponding Index for the first
month of the first Extension Term shall be the "Current
Index Number." For the second Extension Term, the Base
Index Number shall be the Index for the first month of
the first Extension Term and the Index for the first
month of the second Extension Term shall be the Current
Index Number.
(ii) For the appropriate Extension Term, the Current Index
Number shall be divided by the Base Index Number. From
the quotient thereof, there shall be subtracted the
integer 1, and any resulting positive
4
<PAGE> 11
number shall be deemed to be the percentage of increase
by which the Minimum Annual Rent is to be adjusted.
(iii) If publication of the Consumer Price Index shall be
discontinued, the parties hereto shall thereafter accept
comparable statistics on the cost of living for the City
of Greenville, South Carolina, as they shall be computed
and published by an agency of the United States or by a
responsible financial periodical of recognized authority
then to be selected by the parties hereto. In the event
of (i) use of comparable statistics in place of the
Consumer Price Index as above mentioned, or (ii)
publication of the Index figure at other than monthly
intervals, there shall be made in the method of
computation herein provided for such revisions as the
circumstances may require to carry out the intent of
this Article.
(iv) The percentage of increase determined as provided above
shall be multiplied by the Minimum Annual debt payable
during the last preceding term shall be due and payable
to the Lessor in the same manner as the rent was payable
for the Initial Term and the First Extension Term, as
appropriate.
2.2 Additional Rent.
a. Operating Expenses. Lessee agrees to pay as Additional Rent its
proportionate share of the amount paid by Lessor during the Term for operation
and maintenance of the Building (collectively "Operating Expenses"). Operating
Expenses shall include, but not be limited to, the following: (i) all expenses
for operation, repair, replacement and maintenance as necessary to keep the
Building and common area of the Project and the grounds, and parking areas
associated therewith in good order, condition and repair, including but not
limited to, utilities for the common areas of and relating to the Project
expenses associated with the driveways and parking areas (including repair of
the asphalt surface and snow, trash and ice removal), lighting facilities,
landscaped areas, walkways, directional sign age, curbs, drainage strips, sewer
lines, all charges assessed against the Project pursuant to any applicable
easements, covenants or development standards, administrative fees (including
property management fees) and (ii) all insurance premiums paid by Lessor with
respect to the Project, including public liability insurance. The cost for all
capital improvements that would be capitalized or depreciated under generally
accepted accounting principles shall not be included in calculating Operating
Expenses; provided, however, notwithstanding the foregoing, that Operating
Expenses shall include amortization of all costs of capital improvements which
are for the purpose of reducing Operating Expenses and which ultimately result
in a reduction in Lessee's proportionate share of Operating Expenses. Operating
Expenses shall not include expenses for the costs of any maintenance and repair
required to be performed by Lessor at its own expense under Paragraph 6.01 of
this Lease. The proportionate share of Operating Expenses to be paid by Lessee
shall be a percentage of the Operating Expenses based upon the proportion that
the square footage of the Premises bears to the total square footage of the
5
<PAGE> 12
Project (such figure referred to as "Lessee's Operating Expense Percentage).
Lessor shall estimate the total amount of Operating Expenses to be paid by
Lessee during each calendar year and promptly after the beginning of each
calendar year or partial calendar year during the term and Lessee shall pay to
Lessor one-twelfth (1/12) of such sum on the first day of each calendar month
during each such calendar year, or part thereof, during the Tenn. Lessor shall
submit to Lessee a statement of the actual amount of Operating Expenses for such
calendar year, and within thirty (30) days after receipt of such statement;
Lessee shall pay any deficiency between the actual amount owed and the estimates
paid during such calendar year, or in the event of overpayment, Lessor shall, at
Lessor's option, credit the amount of such overpayment toward the next
installment of Operating Expenses, or refund the amount of such overpayment to
Lessee. If the Rental Commencement Date of the Base Tenn shall fall on other
than the first day of the calendar year, or if the Expiration Date shall fall on
other than the last day of the calendar year, Lessee's share of the Operating
Expenses for such calendar year hall be apportioned pro rata.
b. Real Estate Taxes. As additional Rent, Lessee shall pay its
proportionate part of any ad valorem taxes assessed and allocable to the real
estate and improvements of which the Demised Premises form a part. The Lessee's
proportionate part of the ad valorem taxes shall be a fraction, the numerator of
which is the number of square feet of floor area in the Premises herein
described and the denominator of which is the total number of square feet in the
Buildings which are existing on the tax parcel of which the Premises is a part.
Lessor shall provide evidence of such ad valorem taxes to the Lessee and the
additional rent shall be paid upon thirty (30) days written notice to Lessee of
the amount due or at Lessor's option the additional rent due hereunder shall be
estimated and paid in advance in equal monthly installments on the first day of
each calendar month and adjusted within sixty (60) days after the close of each
calendar year. If the Rental Commencement Date of this Lease sh 11 begin on
and/or terminate at a time other than the beginning (or ending as the case may
be) of a tax year, a proper apportionment of said real estate taxes for the year
shall be made to cover the fraction of a year included within the term of this
Lease. In addition, should the Lessee conduct any manufacturing activities in or
from the Leased Premises which will cause the Leased Premises to be classified
and taxed by the South Carolina Tax Commission for property tax purposes at a
ten and one half percent assessment ratio, the Lessee will pay the amount of
such increase in tax on the entire building in which the demised premises is
located.
c. Total Estimated Operating Expenses. The total estimated Operating
Expenses (including taxes, insurance, and common area maintenance charges) for
the Premises for the first year are Seventy Cents ($0.70) per square foot within
the Premises.
d. Additional Rent for Additional Parking Spaces. Lessee agrees to pay
during the Initial Term of this Lease additional rent equal to Sixteen and 3/4
Cents ($0.1645) per square foot within the Premises to reimburse Lessor for the
cost of thirty three (33) additional parking spaces. Said rent shall be due and
payable in the same manner and upon the same terms and conditions as the Minimum
Annual Rent reserved hereunder.
e. Other Additional Rent Provisions. Any amounts required to be paid by
lessee under this Paragraph 2.02 and any charges or expenses incurred by Lessor
on behalf of Lessee
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(including any construction costs incurred by Lessor beyond the Lessee
Improvement Allowance and amortized over the Lease Term) shall be considered
"Additional Rent" payable in the same manner and upon the same terms and
conditions as the Base Rent reserved hereunder. Any failure on the part of
Lessee to pay such Additional Rent when and as the same shall become due shall
entitled Lessor to the remedies available to it for nonpayment of Minimum Annual
Rent. Lessee's obligations for payment of Additional Rent shall begin to accrue
on the Rental Commencement Date. As used in this Lease, the term "Rent" shall
include Base Rent and Additional rent, except as otherwise expressly provided to
the contrary.
Lessor reserves the right at any time to separate the Project, consisting
of several buildings, into separate tax parcels. Upon separation into parcels,
Additional Rent for the Project to date shall be allocated to each parcel
according to the respective square footage of improvements for each building as
a percentage of the total building square footage in the Project. Subsequently,
the total square footage of only Building m shall be used to calculate Lessee's
pro rate share of Additional Rent.
2.3 Summary of Total Estimated Payments for Year 1. As summary of the first
year's total annual payments as shown on Exhibit 4, attached hereto.
2.4 Late Payments. If Lessee shall not have paid Rent and Additional Rent within
fifteen (15) days of the due date, Lessee shall pay a late penalty equal to
eight percent (8%) per annum of the late payment. Acceptance by Lessor of any
payment from Lessee hereunder in an amount less than that which is currently due
shall in no way affect Lessor's rights under this Lease and shall not constitute
an accord and satisfaction.
ARTICLE III
PERSONAL PROPERTY TAXES
Lessee shall pay any taxes, documentary stamps or assessments of any
nature imposed or assessed upon Lessee's occupancy of the premises or upon
Lessee's furniture, furnishings, trade fixtures, equipment, machinery,
inventory, merchandise or other personal property located on the Premises and
owned by or in the custody of Lessee promptly as all such taxes or assessments
may become due and payable without any delinquency. If applicable in the
jurisdiction where the Premises are located, Lessee shall pay and be liable for
all rental tax (only to the extent such rental tax is levied in lieu of ad
valorem property taxes against the Premises), sales, use and inventory taxes or
other similar taxes, if any, levied or imposed by any city, state, county or
other governmental body having authority, such payments to be in addition to all
other payments required to be paid by Lessor by Lessee under the terms of this
Lease. Such payment shall be made by Lessee directly to such governmental body
if billed to Lessee, or if billed to Lessor, such payment shall be paid
concurrently with the payment of the Base Rent, Additional rent, or such other
charge upon which the tax is based, all as set forth herein. Notwithstanding the
foregoing, Lessee shall have the right, at its sole cost and expense, to contest
such taxes, and upon contesting the amount of such taxes, Lessee shall deposit
the amount of such taxes into an escrow account reasonably acceptable to Lessor.
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ARTICLE IV
INSURANCE
4.1 Lessee's Required Insurance Coverage. Lessee covenants and agrees that from
and after the date of occupancy by the Lessee, Lessee will carry and maintain,
at its sole cost and expense, the insurance required under Paragraph 4.01(a) and
4.01(b) below. All such policies of the insurance shall be issued inform
acceptable to Lessor by insurance companies with a rating of not less than "A",
if available, in the most current available "Best's Insurance Reports" 7 and
licensed to do business in the state in which the Building is located. The
insurance which Lessee is required to maintain is as follows:
a. Liability insurance in the Commercial General Liability form (or
reasonable equivalent thereto) covering the Premises and Lessee's use thereof
against claims for personal injury or death, property damage and product
liability occurring upon, in or about the Premises, such insurance to be written
on an occurrence basis (not a claims made basis), to be in combined single
limits amounts not less than $1,000,000.00 and to have general aggregate limits
of not less than $1,000,000.00 for each policy year. The insurance coverage
required under this Paragraph 4.01(a) shall, in addition, extend to any
liability of Lessee arising out of the indemnities provided for in Article 5
and, if necessary, the policy shall contain a contractual endorsement to that
effect. The general aggregate limits under the Commercial General Liability
insurance policy or policies must apply separately to the Premises and to
Lessee's use thereof (and not to any other location or use of Lessee) and such
policy shall contain an endorsement to that effect. Notwithstanding the
foregoing, Lessee shall have the right to carry the liability insurance provided
above in the form of a blanket insurance policy, covering additional items or
locations or insureds, provided, however, that: (i) Lessor, and any other
parties in interest designated by Lessor to Lessee, from time to time, shall be
named as additional insureds thereunder as its interests may appear, 0li) the
coverage afforded Lessor and such o&er parties designated by Lessor will not be
reduced or diminished by reason of use of such blanket policy of insurance; and
(iii) any such policy shall provide, at a minimum, for the minimum liability
limitations hereinabove provided in this Article 4 with respect to Lessee's
interests in and to the Premises and the Project.
b. Insurance covering all of Lessee's leasehold improvements, heating,
trade fixtures, merchandise and personal property from time to time in, on or
upon &e Premises, in an amount not less than one hundred percent (100%) of their
full replacement value from time to time during the Term, providing protection
against perils included within the standard form of "all risks" fire and
casualty insurance policy, together with insurance against sprinkler form of
"all risks" fire and casualty insurance policy, together with insurance against
sprinkler damage, vandalism and malicious mischief.
4.2 Policy Requirements. Each of Lessee's insurance policies required above
shall: (i) name Lessor, as well as any mortgagee or ground lessor of Lessor, as
an additional named insured; (ii) provide that a certificate evidencing such
insurance shall be delivered to Lessor prior to possession of the Premises by
Lessee and thereafter within thirty (30) days prior to the expiration of each
such policy, and, as often as any such policy shall expire or terminate; (iii)
contain a provision that the
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insurer will give to Lessor and such other parties in interest at least thirty
(30) days notice in writing in advance of any material change, cancellation,
termination or lapse, or the effective date of any reduction in the amounts of
insurance; and (iv) be written as a primary policy which does not contribute to
and is not in excess of coverage which Lessor may carry. Notwithstanding the
provisions of subparagraph (iii) of the preceding sentence, Lessee shall be
responsible for providing Lessor with at least twenty five (25) days notice in
advance of any material change, cancellation, termination or lapse, or the
effective date of any reduction in the amount of insurance.
4.3 Waiver of Subrogation. Lessor and Lessee hereby mutually waive the rights
each may have against the other of recovery for or arising out of any loss or
damage occasioned to the Premises, its contents or to its portions of the
Building, arising from any risk covered by all insurance coverage required to be
maintained hereunder, and to the extent of recovery under valid and collectible
policies of such insurance, provided that such waiver does not invalidate such
policies or prohibit recovery thereunder. The waiver as herein provided shall be
clearly reflected in all policies required hereunder or by endorsement, rider or
amendment, as appropriate.
4.4 Lessor's Required Insurance Coverage. Lessor shall maintain and pay for fire
insurance with extended coverage, covering the Building and improvements,
including the Premises, in an amount not less than the amount equal to the full
replacement cost thereof; provided, however, such coverage shall not include any
furniture, furnishings, trade fixtures, equipment, machinery, inventory,
merchandise or any other personal property of Lessee in the Premises. Lessor
shall also maintain commercial general liability insurance covering the Building
having general aggregate limits of not less than $1,000,000.00.
ARTICLE V
INDEMNIFICATION
Lessee shall defend, indemnify and hold harmless the Lessor from and
against any and all claims, losses, liabilities, causes of action, damages, or
expenses, whether due to damage to the Premises, claims for injuries to persons
or property, or administration or criminal action by a governmental authority,
where such claims arise out of or from or related to the use or occupancy of the
Premises by Lessee, its agents, employees, invitee, visitors, customers, or
licensees, including costs and attorney fees incurred by Lessor to defend itself
against any such claims, damages or expenses.
Lessor shall not be liable to Lessee for any damages, losses or injuries
to the persons or property of Lessee which may be caused by the acts, neglect,
omissions or faults of any persons, firms or corporations, except when such
injury, loss or damage results from the sole negligence or willful misconduct of
Lessor, his agents or employees. All personal property placed or moved into the
Premises or Building shall be at the risk of Lessee or the owner thereof, and
lessor shall not be liable to lessee for any damage to said personal property.
Lessee shall maintain at all times during the Term of this Lease or and
extensions an insurance policy or policies in any amount or amounts sufficient
to indemnify Lessor or pay Lessor's damages, if any, resulting rom any matters
set forth hereinbefore.
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In case Lessor shall be made a party to any litigation commenced against
Lessee, then Lessee shall protect and hold Lessor harmless and shall promptly
pay all costs, expenses and reasonable attorney's fees incurred or paid by
Lessor in connection with such litigation.
ARTICLE VI
MAINTENANCE AND REPAIRS
6.1 Repairs by Lessor. During the Term of the Lease, Lessor shall be responsible
for repairs, replacement and maintenance to the roof, exterior walls, structural
portions, approved sign age and foundation of the Premises. If the cause of such
repair or replacements is the result of the negligence, misconduct or
intentional acts or omissions of Lessee, its employees or agents, and the
expense of such repairs or replacements are not fully covered and paid by
Lessor's insurance, then Lessee shall pay Lessor the full amount of expenses not
covered. Lessor's duty to maintain, repair and replace as prescribed in this
Paragraph 6.01 shall be Lessee's sole remedy and shall be in lieu of all other
warranties or guaranties of Lessor, express or implied, except to the extent any
damage to Lessee's property is a result of Lessor's negligent failure to repair,
replace or maintain as expressly required under this Paragraph 6.01.
6.2 Repairs by Lessee. Lessee shall be responsible for the repair, replacement
and maintenance in good order and con&lion of all parts and components of the
Premises other than those specified for maintenance by Lessor above, including,
without limitation, the plumbing, wiring, electrical systems, heating systems,
air conditioning systems, glass and plate glass, equipment and machinery
constituting fixtures, unless such repairs or replacements are required solely
as a result of the negligence or willful misconduct of Lessor, its employees,
invitees or licensees or by fire, storm or any other casualty covered by the
insurance policies Lessor is required to maintain and such repairs or
replacements are not fully covered and paid by Lessee's insurance, then Lessee
shall pay the Lessor the full amount of expenses not covered. Lessee's duty to
maintain the heating and air conditioning systems shall specifically include the
duty to enter into and maintain at Lessee's sole expense during the entire Term
of this Lease a contract for the routine and periodic maintenance and regular
inspection of such heating and air conditioning systems, the replacement of
filters as recommended and the performance of other recommended periodic
servicing in accordance with applicable manufacturer's standards and
recommendations. Lessee shall provide Lessor a copy of said HVAC maintenance
contract within thirty (30) days of occupancy and upon each renewal of said
maintenance agreement. Such contract shall (i) be with a reputable contractor
reasonably satisfactory to Lessor, (ii) satisfy the requirements for routine and
periodic maintenance, if any, necessary to keep all applicable manufacturer's
warranties in full force and effect; and (iii) provide that in the event this
Lease expires or is earlier terminated for any reason whatsoever that said
contract shall be immediately terminable by Lessor or Lessee without any cost,
expense or other liability on part of Lessor. In the event Lessee fails to
perform its obligations under this paragraph in a prompt manner, Lessor shall
give Lessee ten (10) days' prior written notice to perform such obligations, and
thereafter, if Lessee fails to perform such obligations within said ten (10) day
period, or if the performance of such obligations will take more than ten (10)
days to complete, and Lessee fails to commence performance of such obligations
within ten (10) days of Lessor's written notice or if Lessee fails to promptly
and diligently pursue the performance of such obligation until
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completion, Lessor shall have the right to perform such obligations on behalf of
Lessee, in which event the cost of such performance, together with a service
charge equal to fifteen percent (15%) of such cost, shall be due and payable by
Lessee to Lessor immediately upon demand as Additional Rent hereunder.
ARTICLE VII
UTILITIES AND SERVICES
As of the Rental Commencement Date, the Premises will be separately
metered for utilities. Except as expressly set forth in this Lease, Lessee shall
pay for all utilities or services related to its use of the Premises including,
but not limited to, electricity, gas, heat, water, sewer, telephone and
janitorial services, together with all deposits and fees in connection
therewith. If Lessee fails to pay any utility bills or charges, Lessor may, at
its option, upon reasonable notice to Lessee pay the same and in such event, the
amount of such payment, together with interest thereon at eighteen percent (18%)
from the date of such payment by Lessor, will be added to Lessee's next due
rental payment. Lessor shall not be responsible for the stoppage of interruption
of utilities services nor shall Lessor be liable to Lessee or any other person
for any damage occasioned by failure in any utility system or by the bursting or
leaking of any vessel or pipe in or about the Premises (except to the extent of
liability or casualty insurance proceeds actually recovered by Lessor on account
of Lessor), or for any damage occasioned by water coming into the Premises
arising from the acts or neglects of occupants of adjacent property to the
Premises, unless the same is caused by the negligence or willful misconduct of
Lessor.
ARTICLE VIII
USE OF PREMISES
Lessee shall use the Premises only for the operation of corporate offices
including office space, showroom, warehousing and distribution purposes and all
use of the Premises shall comply with all laws, ordinances, orders, rules and
regulations (including without limitation, the zoning classifications existing
as of the Rental Commencement Date) of any lawful governmental authority, agency
or other public or private regulatory authority having jurisdiction over the
Premises. Without limiting the generality of the above provision, the Premises
shall not be used for the treatment, storage, use or disposal of toxic or
hazardous waste or substances, or any other substance, that is prohibited,
limited or regulated by any governmental or quasigovernmental authority.
Notwithstanding the foregoing, Lessee shall have the right to use ordinary
cleaning supplies and solvents in the ordinary course of business. Lessee shall
save Lessor harmless from any penalties, fines, costs expenses or damages
resulting from failure so to comply. Lessee or Lessor shall not do any act or
follow any practice relating to the Premises which shall constitute a nuisance
or detract in any way from the reputation of the Project as a first class
office/warehouse development. Lessee's duties in this regard shall include
making arrangements at Lessee's expense for the proper storage and timely
disposition of garbage and refuse, and allowing no noxious of offensive odors,
fumes, gases, smoke, dust, steam or vapors, or any loud or disturbing noise or
vibrations to originate in or emit from the Premises. Lessee shall save Lessor
harmless from any claims, liabilities, penalties,
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fines, costs, expenses or damages resulting from the failure of Lessee to comply
with the provisions of this Article 8.
ARTICLE IX
ALTERATIONS AND IMPROVEMENTS
9.1 Lessor's Alterations. It is further agreed that this Lease is made by the
Lessor and accepted by the Lessee with the distinct understanding and agreement
that the Lessor shall have the right and privilege to make and build additions
to the Building of which the Premises are a part, and make such alterations and
repairs to said Buildings it may deem wise and advisable and construct new
buildings on the Premises without any liability to the Lessee therefor.
9.2 Lessor's Consent Required. Lessee shall not make or permit structural
changes, alterations, additions or improvements to the Premises, ("Lessee
Alteration") without first obtaining the prior written consent of Lessor, which
consent shall not be unreasonably withheld or delayed. Lessee shall not make any
structural changes. If Lessor fails to reject any requested Lessee Alteration
within twenty (20) days after Lessor's receipt of written detailed and final
plans, specifications or drawings depicting the desired Lessee alteration, such
requested Lessee Alteration shall be deemed approved in accordance with the
plans, specifications or drawings submitted by Lessee. Further, Lessor shall
have the right to approve the general contractor to be used by Lessee in
connection with such work, which approval shall not be unreasonably withheld or
delayed. Lessee shall deliver to Lessor a copy of all plans for nonstructural
work and shall comply with the requirements of Paragraphs 9.03 and 9.05.
9.3 Requirements. In the event Lessee desires to make any Lessee Alteration,
Lessee shall prior to the commencement thereof, furnish Lessor with an original
Builder's Risk policy of insurance in form and amount of coverage reasonably
acceptable to Lessor, showing Lessee as named insured and Lessor as loss payee
and additional Insured. All Lessee Alteration in accordance with all legal
requirements applicable thereto and in a good and workmanlike manner with first
class materials.
9.4 Lessor's Property on Expiration. All Lessee Alterations, including, but not
limited to, all walls, railings, carpeting, floor and wall coverings and other
permanent real estate fixtures (excluding, however, Lessee's trade fixtures and
equipment) made by, for, or at the direction of Lessee, shall when made, become
the property of Lessor and shall remain upon the Premises at the expiration or
earlier termination of this Lease; provided, however, that if Lessor at the time
of giving its approval to any Lessee Alteration notifies Lessee that approval is
conditioned upon restoration, then prior to the expiration of the Term of this
Lease, Lessee shall, at its sole cost and expenses, remove such Lessee
Alterations and restore the Premises to its condition prior to the making of
such Lessee Alteration.
9.5 Protection Against Liens. In the event Lessee shall undertake any
improvements following the Occupancy Date, Lessee shall post a large and
conspicuous notice that the Lessor is not responsible for the materials and
labor so furnished to the Lessee and shall otherwise comply with the provisions
of Section 29-5-80, Code of Laws of South Carolina, 1976, as amended to protect
the
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Lessor from liability for any mechanic liens which may result from the Lessee's
work. In the event that a lien is filed against the Premises or the Lessor's
property as a result of labor or material supplied to the Premises, the Lessee
agrees to within thirty (30) days either obtain the release of such mechanic
lien or to discharge same by posting a bond with the Greenville County Clerk of
Court in accordance with applicable provisions of the South Carolina Code of
Laws. In the event that the Lessee shall fail to discharge such lien within such
period of time, the Lessor shall have the right to either discharge or bond such
lien and Lessee shall immediately reimburse Lessor for all costs and expenses
relating thereto. In all events, the Lessee shall be responsible for a11
expenses incurred by the Lessor as a result of the filing of a mechanic's lien
against the Premises, including reasonable attorney fees and expenses.
ARTICLE X
TRADE FIXTURES AND EQUIPMENT
Any trade fixtures or equipment installed by Lessee in the Premises at
Lessee's expense shall remain Lessee's personal property and Lessee shall have
the right at any time during the Term of this Lease to remove such fixtures or
equipment. Upon removal of any fixtures or equipment, Lessee shall immediately
restore the Premises to substantially the same condition as they were then
received by Lessee, ordinary wear and tear and acts of God alone excepted. Upon
termination of this Lease, provided that Lessee is not then in default
hereunder, Lessee shall prior to such termination remove any of Lessee's trade
fixtures and equipment from the Premises and repair all damage to the premises
caused by such removal. If Lessee fails to remove such fixtures or equipment
after the expiration or effective termination date of this Lease and if Lessor
shall have provided Lessee with access to the Premises for purposes of such
removal, Lessor may complete the removal of such items and all reasonable sums
thereby incurred by Lessor shall be the responsibility of Lessee.
ARTICLE XI
LESSOR'S RESERVATION OF RIGHTS
11.1 Name, Signs, Keys and Common Areas. Lessor reserves the right to change the
name or address of the Project; to install and maintain a sign or signs on the
exterior of the Project, but not in such a manner as to obscure any
identification sign which Lessee may have installed, to hold passkeys to the
Premises that are to be maintained and held in a secure capacity for use only by
Lessor's property manager, any offices of Lessor, or any other party authorized
by Lessor of whom Lessee has received prior notice and to whom Lessee has not
objected; to grant to other tenants of the Project a nonexclusive, revocable
license to use and occupy, in common with Lessor and Lessee, the common areas of
the Project, parking facilities, paved areas and drives, landscaping and such
other common facilities as may be designated from time to time by Lessor; and to
designate certain portions of such common areas of the Project adjacent to
Premises leased to individual tenants as being for the exclusive use of that
tenant.
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ARTICLE XII
DAMAGE OR DESTRUCTION OF PREMISES
In the event of total or partial destruction of the Premises by fire or
other casualty insured by Lessor, Lessor agrees to promptly restore and repair
the Premises at Lessor's expense to the extent Lessor receives insurance
proceeds therefor, provided however, that in the event the Premises are (i) so
destroyed that they cannot be repaired or rebuilt within one hundred eighty
(180) days after the commencement of such repair or rebuilding; or (ii)
destroyed by a casualty which is not covered by Lessor's insurance, or if such
casualty is covered by Lessor's insurance but a mortgagee of Lessor or other
party entitled to insurance proceeds fails to make such proceeds available to
Lessor in an amount sufficient for restoration of the Premises (provided,
however, that Lessor agrees to make a good faith effort to have such mortgagee
make such proceeds available for full restoration or rebuilding), then, either
Lessor or Lessee may terminate and cancel this Lease effective as of the
sixtieth (60th) day after such casualty by giving written notice to the other
party within sixty (60) days of the date of such casualty. Upon the effective
date of such termination, all further obligations hereunder shall thereupon
cease. If no such notice is given, Lessor shall make such repair or restoration
of the Premises promptly and in such manner as not to unreasonably interfere
with Lessee's use and occupancy of the Premises. Any proceeds from the fire and
extended coverage insurance policies not utilized by Lessor in restoring or
repairing the Premises shall become the sole property of Lessor. Rent shall
proportionately abate during the time that the Premises or any part thereof are
unusable by reason of such damage thereto. Except as provided herein, damage to
or destruction of all or any portion of the Premises by fire or by any other
cause shall not terminate this Lease, nor entitle Lessee to surrender the
Premises nor in any way affect Lessee's obligation to pay the Rent and other
sums payable hereunder.
ARTICLE XIII
CONDEMNATION
If all of the Premises or the Project is taken or condemned for a public
or quasi-public use, or if a material portion of the Premises is taken or
condemned for a public or quasi-public use and the remaining portion thereof is
not usable by Lessee, in the sole judgment of Lessee, this Lease shall terminate
as of the earlier of the date title to the condemned real estate vests in the
condemnor or the date on which Lessee is deprived of possession of the Premises.
In such event, the Base Rent herein reserved and all Additional Rent and other
sums payable hereunder shall be apportioned and paid in full by Lessee to Lessor
to that date, all Rent and other sums payable hereunder prepaid for periods
beyond that date shall forthwith be repaid by Lessor to Lessee, and neither
party shall thereafter have any liability hereunder, except that any obligation
or liability of either party, actual or contingent, under this Lease which has
accrued on or prior to such termination date shall survive. If only part of the
Premises is taken or condemned for a public or quasi-public use, including the
Designated Parking Spaces and this Lease does not terminate as provided above,
Lessor to the extent of the award it receives, shall restore the Premises to a
condition and to a size as nearly comparable as reasonably possible to the
condition and size thereof immediately prior to the taking, and there shall be
an equitable abatement of the Rent according to the value of the Premises before
and after the taking. Pending such determination, if Lessee is entitled to a
refund because of an overpayment
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of Rent, Lessor shall make the same promptly, or in lieu thereof credit the
amount thereof to future installments of Rent as they become due at Lessee's
option. Lessor shall be entitled to receive the entire award in any proceeding
with respect to any taking, without deduction therefrom for any estate vested in
Lessee by this Lease, and Lessee shall receive no part of such award. Nothing
herein contained shall be deemed to prohibit Lessee from making a separate
claim, against the condemnor, to the extent permitted by law, for the value of
Lessee's leasehold interests, moveable trade fixtures, machinery and moving
expenses.
ARTICLE XIV
GOVERNMENTAL ORDERS
14.1 Lessor's Compliance with Laws. Except to the extent affected by Lessee's
particular use of the Premises, Lessor shall be responsible for compliance, at
Lessor's sole cost and expense with all statutes, rules, ordinances, orders,
codes and regulations, and legal requirements and standards issued thereunder,
as the same may be enacted and amended from time to time and as apply to the
Building and common areas.
Except to the extent affected by Lessee's particular use of the Premises
(as opposed to mere use of the Premises for general office purposes) Lessor
shall be responsible for the compliance of the common area facilities with
applicable Laws relating to architectural barriers to the disabled, specifically
including but not limited to the Americans with Disabilities Act (ADA). Lessor
hereby agrees to indemnify, defend and hold Lessee harmless from any and all
loss, costs, liability or expense, including without limitation reasonable
attorney fees, resulting from Lessor's failure to comply with all Laws relating
to the Premises, the Building, the Land and condition of the common area
facilities.
14.2 Lessee's Compliance with Laws. Lessee shall be responsible for compliance
with all the Laws which are applicable to Lessee's particular use and manner of
use of the Premises and the Common Area Facilities.
In the event that Lessee's particular use of the Premises and the common
area facilities violates any provision of the Laws, including but not limited to
the ADA, Lessee shall bear all expense, cost and liability for compliance with
such Laws. Lessee hereby agrees to indemnify, defend and hold Lessor harmless
from any and all loss, cost, liability or expense, including without limitation
reasonable attorney fees, resulting from Lessee's failure to comply with all the
Laws relating to its particular use and manner of use of the Premises and the
common area facilities.
ARTICLE XV
LESSOR'S ACCESS TO PREMISES
Lessor's property manager and Lessor's officers and authorized employees,
or any other party authorized by Lessor of whom Lessee has received prior notice
shall have the right to enter the Premises at all reasonable times and upon
reasonable notice for the purpose of making repairs, making connections, making
inspections, installing utilities, providing services to the Premises or
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for any other tenant, making connections, installing utilities, providing
services to the Premises or for any other tenant. In the event Lessee shall not
have given Lessor notice that it elects to extend the term of this lease, Lessor
shall have the right, during the last ninety (90) days of the then-current lease
term, to enter the Premises, following reasonable notice, for the purpose of
showing the same to prospective tenants. Provided that it shall not interfere
with Lessee's use of the Premises, Lessor shall have the right to enter the
Premises at reasonable time(s) to access, inspect and maintain pipes, conduits
and/or duct work which pass through walls of the Premises, below the floor of
the Premises and above the ceiling of the Premises and which are for the benefit
of other tenants of the Building.
ARTICLE XVI
ASSIGNMENT AND SUBLETTING
Lessee shall not assign, sublet, mortgage, pledge or encumber this Lease,
the Premises, or any interest in the whole or in any portion thereof, without
the prior written consent of Lessor, in its sole discretion. If Lessee makes any
assignment, mortgage, sublease or pledge of this Lease or the Premises, Lessee u
ill still remain liable for the performance of all terms of this Lease and any
rental or any fees or charges received by Lessee in excess of the Rent payable
to Lessor hereunder shall be also paid to Lessor as Additional Rent under this
Lease.
ARTICLE XVII
HOLDING OVER
Lessee agrees to surrender to Lessor, at the end of the Term of this Lease
and/or upon any cancellation of the Lease, said Premises in as good condition as
said Premises was at the beginning of the Term of this Lease, ordinary wear and
tear, and damage by fire or other casualty not caused by Lessee's negligence,
excepted. Lessee agrees that if Lessee does not surrender said Premises to
Lessor at the end of the Term of this Lease, Lessee's occupancy shall be from
month-to-month and Lessee will pay to Lessor 150% the amount of the then-current
rental for each month or portion thereof that Lessee holds over plus all damages
the Lessor may suffer on account of Lessee's failure to so surrender to Lessor
possession of said Premises, and will indemnify and save Lessor harmless from
and against all claims made by any succeeding Lessee of said Premises against
Lessor on account of delay of Lessor in delivering possession of said Premises
to said succeeding Lessee so far as such delay i occasioned by failure of Lessee
to so surrender said Premises in accordance herewith or otherwise.
No receipt of money by Lessor from Lessee after termination of this Lease
or the service of any notice of commencement of any suit or final judgment for
possession shall reinstate, continue or extend the Term of this Lease or affect
any such notice, demand, suit or judgment.
No agreement to accept a surrender of the Premises shall be valid unless
made in writing and subscribed by a duly authorized officer of agent of Lessor.
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<PAGE> 23
ARTICLE XVIII
COVENANT OF QUIET ENJOYMENT
Lessor represents that it has full right and authority to lease the
Premises and that Lessee shall peacefully and quietly hold and enjoy the
Premises for the full term hereof so long as it does not default in the
performance of any of the terms hereof.
ARTICLE XIX
ENVIRONMENTAL MATTERS
Lessee shall not use, store, release, dispose of or generate any Hazardous
Materials in, or about the property or the premises. Furthermore, Lessee shall
indemnify and hold Lessor harmless from and against any and all claims,
liabilities, and costs, (including reasonable attorney's fees) arising from the
use of the property by the Lessee which is caused by the use, storage, release,
disposal, or generation by Lessee or its agents, employees, contractors, or
invitees of any Hazardous Materials (as hereinafter defined) in, on, or about
the Property or the Premises.
Lessor shall indemnity and hold Lessee harmless for any loss, claim,
injury or damage, whether direct or consequential, arising out of, or in any way
related to, any adverse environmental condition now existing or hereafter
created or, discovered on or about the Premises or the Building, which condition
was created or contributed to by Lessor, its predecessors, agents, employees or
invitees. "Adverse environmental condition" shall mean any use, storage,
release, disposal or generation of any Hazardous Material.
If the Lessee shall become aware of, or have reasonable cause to believe,
that any Hazardous Materials have come to be located on or beneath the Premises
or Property, the Lessee shall give written notice of such condition to the
Lessor. In addition, the Lessee shall immediately notify the Lessor in writing
of: (i) any governmental or regulatory action instituted or threatened relating
to any Hazardous Materials on or about the Premises; (ii) any claim made or
threatened by any person relating to any Hazardous Materials that have come to
be located on or about the Premises or the Property; (iii) any reports made to
any local, state or federal environmental agency arising out of or in connection
with any Hazardous Materials on or about the Premises or the Property, including
any complaints, notices, warnings, or asserted violations in connection
therewith, of which the party becomes aware; and (iv) any presence, use or
disposal of any Hazardous Materials on or about the Premises, even if such
activities are in full compliance of applicable regulations and laws.
As used in this Agreement, the term "Hazardous Materials. means any
substance, material, or waste now or hereafter determined by any federal, state
or local governmental authority to be capable of posing a risk of injury to
health, safety, or property.
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<PAGE> 24
ARTICLE XX
PARKING
The Lessee, its employees, visitors and guests are authorized to make
reasonable use of the parking facilities which form part of the Project, subject
to posted rules and regulations 'end at the sole risk of each driver and user of
said facility. Lessee shall cooperate with the Lessor in limiting the use of
said parking facility by Lessee, its employees, guests and visitors to the
approximate proportionate share in relationship to the Demised premises. The
parking facility shall not be used for the storage of abandoned or defective
vehicles or for any other purpose except transient parking. Lessor may designate
parking spaces to be used by Lessee and other tenants of the Project and their
employees, guests, invitees and Lessor may designate certain areas for parking
of certain vehicles and for parking of vehicles overnight. Lessor shall
designate two hundred seven (207) parking spaces as shown on Exhibit _ for the
sole use of Lessee, its employees, guests, agents and invitees (the "Designated
Parking Spaces") and shall indicate, by appropriate markings, each individual
space which is to be a Designate a Parking Space.
ARTICLE XXI
SUBORDINATION AND ATTORNMENT
This Lease is subject and subordinate to any and all deeds to secure debt,
mortgages, deeds of trust or other security instruments (.Security Instruments.)
now or hereafter placed on the property of which the Premises are a part, and
this clause shall be self operative without any further instrument necessary to
effect such subordination; however, if requested by Lessor, Lessee shall
promptly execute and deliver within ten (10) days to Lessor any such certificate
or certificates requested by holders of security instrument evidencing
subordination of this Lease to or the assignment of this Lease as additional
security for such mortgages or deeds of trust. Provided, however, in each case
the holder of any Security Instrument shall agree that this Lease shall not be
divested by foreclosure or other default proceedings thereunder go long as no
Event of Default by Lessee shall then be subsisting under the terms of this
Lease beyond the applicable cure period specified in this Lease and that such
holder or acquirer shall be bound hereby and responsible to perform all
obligations of Lessor under this Lease. Provided such holder or acquirer shall
so agree as provided in the preceding sentence, Lessee shall continue its
obligations under this Lease in full force and effect notwithstanding any such
default proceedings under a Security Instrument and shall attorn to the
mortgagee, trustee or beneficiary of such Security Instrument, and their
successors or assigns, and to the transferee under any foreclosure or default
proceedings. Lessee will, upon request by Lessor, execute and deliver to Lessor
or to any other person designated by Lessor, any instrument or instruments in
form and content reasonably acceptable to Lessee evidencing its agreement to so
attorn and perform under this Lease.
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<PAGE> 25
ARTICLE XXII
LIABILITY FOR DAMAGE
The Lessor shall not be liable for any damage done or occasioned b or from
the electrical system, the heating or cooling system, the plumbing and sewer
Systems; nor for damage occasioned by water, snow or ice being upon or coming
through the roof, trap door, walls, windows, doors or otherwise, in, upon or
about the Premises or the business Center of which the Premises are a part, nor
for any damage arising from acts of negligence of co-lessees or other occupants
of the Business Center. The Lessor shall not be liable for any damage occasioned
by reason of the constructions of the Premises or for failure to keep the
Premises in repair, unless the Lessor is obligated to make such repairs under
the terms hereof and unless, notice of the need for repairs has been given the
Lessor, a reasonable time has elapsed and the Lessor has failed 'to make such
repairs, in any event the Lessor shall not be liable for any damage to the
Lessee's stock-in-trade, trade fixtures, furniture, furnishings, floor and wall
coverings, ceiling-hung chandeliers and other adornments, special equipment and
all other items of personal property of the Lessee resulting from fire or other
hazards, unless occasioned by action or inaction of the Lessor, and the Lessee
hereby releases the Lessor from' all liability for such damage. The Lessee
agrees to procure a waiver of subrogation endorsement' from its insurer, so long
as the same shall not' void any insurance policy of the Lessee, and to furnish
evidence of such waiver to the Lessor upon request.
ARTICLE XXIII
ESTOPPEL CERTIFICATE
Within ten (10) days after a request by Lessor or any mortgagee or ground
lessor of Lessor, Lessee shall deliver a written estoppel certificate, in form
supplied by or acceptable to Lessor, certifying any facts that are then true
with respect to this Lease, including, but not limited to, that this Lease is in
full force and effect, that no default exists on the part of Lessor or Lessee,
that Lessee is in possession, that Lessee has commenced the payment of Rent, and
that there are no defenses or offsets claimed by Lessee with respect to payment
of Rent under this Lease or, if such defense or offsets exist, setting forth the
same. Likewise, within ten (10) business days after a request by Lessee, Lessor
shall deliver to Lessee a similar estoppel certificate covering such matters as
are reasonably required by Lessee.
ARTICLE XXIV
FORCE MAJEURE
In the event Lessor or Lessee shall be delayed, hindered or prevented from
the performance of any act required hereunder, by reason of governmental
restrictions, scarcity of labor or materials, strikes, fire, or any other
reasons beyond their control, the performance of such act shall be excused for
the period of delay, and the period for performance of any such act shall be
extended as necessary to complete performance after the delay period. However,
the provisions of this Article 26 shall in no way be applicable to the
obligations of Lessee or Lessor to pay, repay or reimburse any sums, monies,
costs, charges or expenses owing from one to the other under this Lease,
including without limitation, Lessee's obligations to pay Rent hereunder.
19
<PAGE> 26
ARTICLE XXV
LESSEE DEFAULT
25.1 Events of Default. The occurrence of any of the following events shall
constitute a default under this Lease:
a. Lessee fails to pay any installment of rent when such installment is
due, and fails to cure such delinquency within fifteen (15) days after receipt
of written notice thereof from Lessor; or
b. Lessee fails to pay any additional item or any other charge or sum
required to be paid by Lessee hereunder within thirty (30) days after actual
receipt of written notice thereof by Lessee from Lessor; or
c. Lessee fails to perform or commence in good faith and proceed with
reasonable diligence to perform any of its covenants under this Lease within
thirty (30) days after actual receipt of written notice thereof by Lessee from
Lessor.
d. Lessee shall become bankrupt or insolvent or file any debtor
proceedings, or file pursuant to any statute or petition in bankruptcy or
insolvency or for reorganization, or file a petition for the appointment of a
receiver or trustee for all or substantially all of its assets, and such
petition or appointment shall not have been set aside within sixty (60) days
from the date of such petition or appointment, or if such party makes an
assignment for the benefit of creditors, or petitions for or enters into such an
arrangement.
e. Lessee vacates the Premises at any time or fails to occupy within
thirty (30) days of the date for occupying as set forth herein.
25.2 Lessor's Remedies. In the event Lessee is in default pursuant to the
conditions set forth in Paragraph 26.1 above, Lessor, during the continuation of
such default, shall have the option of pursuing either of the following
remedies:
a. Lessor may terminate this Lease, in which event Lessee immediately
shall surrender possession of the demised premises. All obligations of Lessee
under the Lease, including Lessee's obligation to pay rent under the Lease,
shall cease upon the date of termination except for Lessee's obligation to pay
rent due and outstanding as of the date of termination.
b. Lessor, without terminating the Lease, may require Lessee to remove all
property from the demised premises within thirty (30) days so that the Lessor
may re-enter and relet the premises to minimize Lessor's damages. In the event
Lessee shall fail to remove all property within thirty (30) days after said
demand, Lessor shall be entitled to remove Lessee's property to a storage
facility, and all reasonable costs of such removal and storage shall be deemed
additional rent under the Lease for which Lessee is responsible for payment.
Lessor may enforce all of its rights and remedies under this Lease, including
the right to recover the rent as it becomes due hereunder,
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<PAGE> 27
provided that Lessor shall have an affirmative obligation to use Lessor's best
efforts to re-let the demised premises and to mitigate its damages under the
Lease.
c. Lessor may accelerate and declare the entire remaining unpaid rent for
the balance of this Lease to be immediately due and payable forthwith and may,
at once, take legal action to recover and collect the same, such amount being
discounted to present value using the prime rate published by a national bank
acceptable to lessee and Lessor and such amount reduced by the amount of rent
Lessor will receive by reletting the premises for the remainder of the term of
portion thereof.
d. If this Lease is terminated as set forth, Lessor may relet the Leases
Premises (or any portion thereof) for such rent and upon such terms as Lessor is
able to obtain (which may be for lower or higher rent, and for a shorter or
longer term), and Lessee shall be liable for all damages sustained by Lessor,
including but not limited to any deficiency in Rent for the duration of the
Lease Term (or for the period of time which would have remained in the Lease
Term in the absence of any termination, leasing fees, attorneys' fees, other
marketing and collection costs and all expenses of placing the Leased Premises
in first class rentable condition).
e. Nothing contained herein diminishes any right Lessor may have under
South Carolina law to sue Lessee for damages in the event of any default by
Lessee under this Lease, or from pursuing any other remedy available to Lessor
at law or in equity.
ARTICLE XXVI
LESSOR DEFAULT
In the event that the Lessor shall breach its obligations under this
Lease, the Lessee shall give the Lessor written notice and thirty (30) days to
cure such default. In the event the Lessor shall fail to cure such default
within the thirty (30) day period, the Lessee shall have the right to exercise
any rights or remedies available in this Lease, at law or in equity unless such
matter would take loner than thirty (30) days to cure and Lessor is reasonably
proceeding to cure the breach.
ARTICLE XXVII
REMEDIES CUMULATIVE -- NON-WAIVER
Unless otherwise specified in this Lease, no remedy of Lessor or Lessee
shall be considered exclusive of any other remedy, but each shall be distinct,
separate and cumulative with other available remedies. Each remedy available
under this Lease or at law or in equity may be exercised by Lessor or Lessee
from time to time as often as the need may arise. No course of dealing between
Lessor and Lessee, or any delay or omission of Lessor or Lessee in exercising
any right arising from the other party's default, shall impair such right or be
construed to be a waiver of default.
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<PAGE> 28
ARTICLE XXVIII
NOTICES
Any notice allowed or required by this Lease shall be in writing, and
shall be deemed effective upon receipt by the addressee thereof when sent by
either (i) United States mail! via certified mail or registered mail, return
receipt requested, with proper postage prepaid, or (ii) nationally recognized
overnight courier (for example, Federal Express). Notices shall be addressed as
follows:
AS TO LESSOR: AS TO LESSEE:
Highland Properties, L.L.C. Gerber Childrenswear, Inc.
207 Parkside Dr. Pelham at Hyland Bus Ctr.
Simpsonville, SC 29681 7005 Pelham Rd., Ste ___
Attn: Mark Cothran Greenville, SC 29607
Attn: Dave Uren
The addresses of Lessor and Lessee and the party, if any, to whose
attention a notice or copy of same shall be directed may be changed or added
from time to time by either party giving notice to the other in the prescribed
manner. Upon request, Lessee shall also send a copy of all notices from Lessee
to any mortgagee or ground Lessor; provided, however, that in no event shall
Lessee be required to send more than two (2) additional notices to any
mortgagees or ground lessors.
ARTICLE XXIX
SURRENDER OF PREMISES
At the expiration of earlier termination of the Term of this Lease, Lessee
shall surrender the Premises and, subject to the terms of this Lease, all
improvements, alterations and additions thereto, and keys therefore to Lessor,
clean and neat, and in the same condition as at the Rental Commencement Date,
normal wear and tear only excepted.
ARTICLE XXX
NO REPRESENTATIONS
Neither Lessor nor Lessor's agent has made any representations or
promises, except such as are contained herein or endorsed hereon, to the Lessee
respecting the condition of the Demised Premises or any other matter or thing
relating to the Demised Premises or the Lease. The taking possession of the
Demised Premises by the Lessee shall be conclusive evidence against the Lessee
or anyone holding under this Lease that the Demised Premises were in good and
satisfactory condition when possession of the Demised Premises was so taken.
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<PAGE> 29
ARTICLE XXXI
LEASING COMMISSION
Lessor and Lessee represent and warrant each to the other that they have
not dealt with any broker or other person claiming any entitlement to any
commission in connection with this transaction except Furman Co., Commercial LLC
(Brokers) and that Lessor is responsible for its broker fee. The Lessor and the
Lessee each respectively represents and warrants to the other that no other real
estate broker or other person is entitled to a fee, commission, or any other
enumeration in respect of the execution or performance of this Agreement of the
Lease created hereby; and each of the Lessor and the Lessee hereby covenants and
agrees to hold the other harmless from any fee, commission, cost or damage
incurred as a result of any breach of the foregoing warranties.
Lessor agrees to pay to The Furman Co., Commercial LLC, Greenville, South
Carolina Agent, as compensation for its service rendered in procuring this lease
a fee equal to six percent (6%) of all rentals scheduled to be paid by Lessee
under this lease. Said fee shall be due and payable as follows: Fifty percent
(50%) upon lease execution and fifty percent (50%) upon occupancy by Lessee.
Lessor agrees that if this lease is extended, or if any new lease is entered
into between Lessor and Lessee covering leased Premises, or any part thereof,
then in either of said events, Lessor in consideration of The Furman Co.,
Commercial LLC having procured Lessee, agrees to pay to The Furman Co.,
Commercial LLC a fee equal to three percent (3 %) of all rentals paid to Lessor
by Lessee under extension of new lease or modification at the time of such
extension, if any.
In the event Lessor sells the leased Premises that upon Lessor's
furnishing the Furman Co., Commercial LLC with an agreement signed by purchaser,
assuming Lessor's obligations to the Furman Co., Commercial LLC under this
lease, the Furman Co., Inc. provided new Lessor has agreed to pay The Furman
Co., Commercial LLC as set forth herein.
In the event the Lessee or a purchaser in privily with the Lessee should
during the term of this lease or tenancy, or within six months after its
expiration date, purchase from the Lessor, the premises herein leased, the
Lessor will at the time of consummating a sale pay to The Furman Co., Commercial
LLC a commission of five percent (5%) of the selling price of the property less
the amortized remaining portion of the lease fee, if any.
The Furman Co., Commercial LLC is named as a party to this contract solely
for the purpose of enforcing its rights under this paragraph and it is
understood by all parties that The Furman Co., Commercial LLC is acting solely
in the capacity as Agent for Lessor to whom Lessee must look in regard to all
covenants, agreements and warranties contained in this lease and that The Furman
Co., Commercial LLC shall not be liable to Lessee in regard to any matter which
may arise by virtue of this lease. Lessee shall not be responsible for Broker's
or Agent's fees.
23
<PAGE> 30
ARTICLE XXXII
MISCELLANEOUS
32.1 Evidence of Authority. If requested by either party, the other party shall
furnish appropriate legal documentation evidencing the valid existence and good
standing of such other party and the authority of any parties signing this Lease
to act for such other party.
32.2 Nature and Extent of Agreement. This Lease, together with all exhibits
hereto, contains the complete agreement of the parties concerning the subject
matter, and there are no oral or written understandings, representations, or
agreement pertaining thereto which have not been incorporated herein. This Lease
creates only the relationship of landlord and tenant between the parties, and
nothing herein shall impose upon either party any powers, obligations or
restrictions not expressed herein. This Lease shall be construed and governed by
the laws of the state in which the Project is located.
32.3 Binding Effect. This Lease shall be binding upon and shall inure to the
benefit of the parties hereto and their respective heirs, successors and
assigns. This Lease may be executed in multiple counterparts, each of which
shall constitute an original, but all of which taken together shall constitute
one and the same agreement. This Lease shall not be binding on Lessor until
executed by Lessor and delivered to Lessee.
32.4 Captions and Headings. The captions and headings in this Lease are for
convenience and reference only, and they shall in no way be held to explain,
modify, or construe the meaning of the terms of this Lease.
32.5 Rules and Regulations. The rules and regulations attached as Exhibit 5
(.Rules and Regulations.) are Lessor's Rules and Regulations for the Project and
Buildings. Lessee shall faithfully observe and comply with such Rules and
Regulations and such changes therein (whether by modification, elimination,
addition or waiver) as Lessor may hereafter make and communicate in writing to
Lessee, which shall be necessary or desirable for the reputation, safety, care
or appearance of the Project and Buildings or the preservation of good order
therein or the operation or maintenance of the Project and Buildings or the
equipment thereof or the comfort of tenants or others in the Project and
Buildings.
32.6 Severability. If any term, covenant, condition or provision of this Lease,
or the application whereof to any person or circumstance, shall ever be held to
be invalid or unenforceable, then in each such event the remainder of this Lease
or the application of such term, covenant, condition or provision to any other
person or any other circumstance (other than those as to which it shall be
invalid or unenforceable) shall remain valid and enforceable to the fullest
permitted by law.
32.7 Governing Law. This Lease shall be construed according to, and be governed
by, the laws of the State of South Carolina.
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<PAGE> 31
32.8 Time of Essence. Time shall be of the essence in the performance of the
terms and conditions of this Lease.
32.9 Recording. It is not intended that this Lease be recorded, but at the
request of either party the other party shall execute a Memorandum or Short Form
Lease and the Lease shall be recorded with the requesting party paying the
recording costs.
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<PAGE> 32
IN WITNESS WHEREOF, the parties have caused this Lease to be duly executed
and sealed pursuant to authority duly given, as of the day and year first above
written.
LESSOR:
HIGHLAND PROPERTIES, LLC, a South
Carolina limited liability company
/s/ Marshall Bentley [sic] By: /s/ Mark A. Cothran [sic]
- --------------------------------- ---------------------------------
Witness Member
/s/ William C. Spear [sic] Date of Execution: 9/13/96
- --------------------------------- -------------------
Witness
LESSEE:
GERBER CHILDRENSWEAR, INC., a Delaware
corporation
/s/ Marshall Bentley [sic] By: /s/ David E. Uren
- --------------------------------- ---------------------------------
Witness Its: Vice President, Finance
/s/ William C. Spear [sic] Date of Execution: 9/13/96
- --------------------------------- -------------------
Witness
<PAGE> 33
STATE OF SOUTH CAROLINA ) FIRST AMENDMENT TO LEASE AGREEMENT
)
COUNTY OF GREENVILLE )
THIS FIRST AMENDMENT TO LEASE AGREEMENT (the "Amendment") is made and
entered into as of this 25th day of November, 1996, by and between Highland
Properties, LLC (the "Lessor") and Gerber Childrenswear, Inc. (the "Lessee"):
W I T N E S S E T H :
WHEREAS hereto, on September 13, 1996, Lessor and Lessee entered into that
certain Lease Agreement wherein the Lessor agreed to let and the Lessee agreed
to rent 33,600 square feet of property in a building to be constructed by Lessor
at 7005 Pelham Road, Greenville, South Carolina, the terms of which are
incorporated herein by reference (the "Lease").
WHEREAS, pursuant to the subsequent request of Lessee, Lessor has agreed
to provide additional space to the Lessee consisting of 4,800 square feet (the
"Additional Space"), which would thereby increase the Premises to 38,400 square
feet.
NOW, THEREFORE, in consideration of the mutual promises and covenants
herein contained, and in consideration of the additional rent to be provided
pursuant to the Amendment, the receipt and sufficiency of which are both hereby
acknowledged, Lessor and Lessee agree as follows:
1. The first paragraph of Article I, GRANT AND TERM, Paragraph 1.1, is
amended by deleting the first sentence thereof in its entirety and substituting
in lieu thereof the following:
1.1 Description of Premises. Lessor hereby leases to Lessee,
and Lessee hereby accepts and rents from Lessor, that certain office
space (known as Suite D) containing a total of approximately 33,600
square feet (the "Initial Space") plus 4,800 square feet (the
"Additional Space"), (the
<PAGE> 34
Initial Space and the Additional Space being collectively referred
to as the "Premises") located within the building known as Building
No. III (the "Building"), which Building contains a total of
approximately 48,000 square feet and is located at 7005 Pelham Road,
within Pelham at Hyland Business Center (the "Project") as shown on
the Site Plan marked Exhibit 1 attached hereto, situated in the
County of Greenville, State of South Carolina.
2. Article I, GRANT AND TERM, Paragraph 1.4 Occupancy; Lease Commencement
Date is hereby amended by adding at the end thereof the following:
The Lessor shall, with regard to the Additional Space, complete such
space as the Initial Space is to be completed as shown on Exhibits 2
and 3.
3. Article I, GRANT AND TERM, Paragraph 1.4 Occupancy; Lease Commencement
Date is hereby further amended by deleting from the nineteenth (19th) line the
date "March 17, 1997," and inserting in lieu thereof "March 31, 1997."
4. Article II, RENT, Paragraph 2.1a.(1) Initial Term, is amended by
deleting it in its entirety and substituting in lieu thereof the following:
2.1 Rent
a. Initial Term.
(1) The Minimum Annual Rent during Initial Term shall be Three
Hundred Twenty-Four Thousand Two Hundred Seventy and 00/100
Dollars ($324,270.00), payable in equal monthly installments
of Twenty Seven Thousand Twenty-two and 50/100 Dollars
($27,022.50) (the "Minimum Annual Rent").
5. Article II, RENT, Paragraph 2.2d is amended by deleting it in its
entirety and inserting in lieu thereof the following:
d. Additional Rent for Additional Parking Spaces.
Lessee agrees to pay during the Initial Term of this Lease
additional rent equal to Sixteen and 45/100 Cents (0.1645) per
square foot within only the Initial Space of the Premises to
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<PAGE> 35
reimburse Lessor for the cost of 33 additional parking spaces.
Said rent shall be due and payable in the manner and in the
same terms and conditions as the Minimum Annual Rent reserved
hereunder.
6. Exhibit 4 is amended by deleting it in its present form and
substituting the Exhibit attached.
7. Except as expressly set forth in the Amendment, all other terms and
conditions of the Lease shall remain in full force and effect and are hereby
ratified and reconfirmed by Lessor and Lessee.
3
<PAGE> 36
IN WITNESS WHEREOF, we have hereunto set our hands and affixed our seals
the date and year first above-written.
LESSOR:
HIGHLAND PROPERTIES, LLC, a South
Carolina limited liability company
/s/ Marshall Bentley [sic] By: /s/ Mark A. Cothran [sic]
- --------------------------------- ---------------------------------
Witness Member
/s/ Dee Parris Date of Execution: 11/25/96
- --------------------------------- -------------------
Witness
LESSEE:
GERBER CHILDRENSWEAR, INC., a Delaware
corporation
/s/ Jay R. Cope By: /s/ David E. Uren
- --------------------------------- ---------------------------------
Witness Its: Vice President, Finance
/s/ Dee Parris Date of Execution: 11/25/96
- --------------------------------- -------------------
Witness
<PAGE> 37
STATE OF SOUTH CAROLINA )
: SECOND AMENDMENT TO LEASE AGREEMENT
COUNTY OF GREENVILLE )
THIS AMENDMENT TO LEASE AGREEMENT (the "Amendment") is made and entered
into as of this 16th day of May, 1997 by and between Highland Properties, LLC
(the "Lessor") and Gerber Childrenswear, Inc. (the "Lessee"):
W I T N E S S E T H :
WHEREAS, on September 13, 1996, Lessor and Lessee entered into that
certain Lease Agreement, as amended by First Amendment thereto, dated November
25, 1996, wherein the Lessor agreed to let and the Lessee agreed to rent 38,400
square feet of property in a building to be constructed by Lessor at 7005 Pelham
Road, Greenville, South Carolina, the terms of which are incorporated herein by
reference (collectively, the "Lease"); and
WHEREAS, pursuant to the subsequent request of Lessee, Lessor has agreed
to provide additional unimproved space to the Lessee consisting of 9,600 square
feet (the "Unimproved Space"), upon the terms and conditions set forth herein.
NOW, THEREFORE, in consideration of the mutual promises and covenants
herein contained, and in consideration of the additional rent to be provided
pursuant to the Amendment, the receipt and sufficiency of which are both hereby
acknowledged, Lessor and Lessee agree as follows:
1. Lease of Unimproved Space: Lessor hereby leases to Lessee, and Lessee
hereby accepts and rents from Lessor, that certain unimproved space containing a
total of approximately 9,600 square feet (the "Unimproved Space") located within
the building known as Building No. III (the "Building"), which Building contains
a total of approximately 48,000 square feet and is located in 7005 Pelham Road,
within Pelham at Hyland Business Center (the "Project") as shown on the Site
Plan marked Exhibit 1 and attached to the Lease, situated in the County of
Greenville, State of South Carolina.
2. Term: The Term for the Unimproved Space shall commence on June 1, 1997.
The term for the Unimproved Space shall expire when the term or any extension or
renewal thereof for the Premises under the Lease expires, or when the Unimproved
Space becomes part of the Additional Space In accordance with Section 5 hereof.
3. Rent: The annual Rent for the Unimproved Space during the Initial Term
shall be Forty Seven Thousand Five Hundred Twenty and OOJ100 Dollars
($47,520.00), payable in equal monthly Installments of Three Thousand Nine
Hundred Sixty and 00/100 Dollars ($3,960.00) (the "Rent").
<PAGE> 38
4. Right to Sublet: Lessee shall have the right to sublet the Unimproved
Space at its sole discretion, without permission from the Lessor. It is
contemplated by the parties that the Unimproved Space will be sublet by Lessee
during the Term.
5. At any time during this Lease or any extension thereof, Lessee may
request Lessor to Improve the Unimproved Space. Lessor shall grant Lessee an
allowance equal to 421.20 per square foot of finished office space for said
improvements, which was the same allowance granted on the original space. Lessor
shall complete said Improvements within sixty (60) days of the full execution of
a Lease Amendment including approved floor plan. Upon completion of the
improvements, the Unimproved Space shall become a part of the Additional Space,
and shall be treated as a part of the Additional Space for all purposes
hereafter including that the rent for the Unimproved Space shall be the same per
square foot as the Additional Space.
This Agreement is binding on the Lessor only if there shall be a minimum
of five {5) years remaining on the Lease Term at the completion of the
Improvements.
6. Except as expressly set forth in the Amendment, all other terms and
conditions of the Lease shall remain in full force and effect and are hereby
ratified and reconfirmed by Lessor and Lessee.
7. The capitalized terms "Premises", "Initial Space", "Initial Term" and
"additional Space" shall have the meanings given to them in the Lease dated
September 13, 1996 and the First Amendment to Lease dated November 25, 1996.
2
<PAGE> 39
IN WITNESS WHEREOF, we have hereunto set our hands and affixed our seals
the date and year first above-written.
LESSOR:
HIGHLAND PROPERTIES, LLC, a South
Carolina limited liability company
/s/ Sylvia M. McVaugh [sic] By: /s/ Mark A. Cothran [sic]
- --------------------------------- ---------------------------------
Witness Member
/s/ Suzy L. Broadert [sic] Date of Execution: 5/16/97
- --------------------------------- -------------------
Witness
LESSEE:
GERBER CHILDRENSWEAR, INC., a Delaware
corporation
/s/ Rebecca A. Graff [sic] By: /s/ David E. Uren
- --------------------------------- ---------------------------------
Witness Its: Vice President, Finance
/s/ Vicky Farragut [sic] Date of Execution: 5/18/97
- --------------------------------- -------------------
Witness
<PAGE> 40
ESTIMATED RENT FOR UNIMPROVED SPACE
PELHAM AT HYLAND BUSINESS CENTER
GERBER CHILDRENSWEAR, INC.
ATTACHMENT TO SECOND AMENDMENT TO LEASE AGREEMENT
<TABLE>
<CAPTION>
Annual Monthly
------ -------
<S> <C> <C> <C>
A. Rent $47,520.00 $ 3,960.00
B. Additional Rent:
1) Operating Expenses (includes real estate $ 6,720.00 $ 560.00
taxes, insurance and common area
maintenance charges
TOTAL $54,240.00 $ 4,520.00
</TABLE>
<PAGE> 1
EXHIBIT 10.21
-------------
March 9, 1995
David E. Uren
214 Providence Square
Greenville, South Carolina 29615
Dear David:
As you are aware, Gerber Products Company ("Gerber") is considering the sale of
all of the issued and outstanding shares (or all or substantially all of the
assets) of its Gerber Childrenswear, Inc. subsidiary ("GCI").
In consideration of; (1) your continuing your employment with GCI through the
date of the completion of the divestiture of GCI, whether this is accomplished
through a single sale of stock or assets or through multiple sales, and (2)
your cooperation and assistance with Gerber and its investment banker in the
sale(s), Gerber agrees that upon completion of the divestiture, Gerber will pay
you a one-time bonus of $175,000.00. This bonus shall be paid to you by Gerber
on the date that Gerber's divestiture of GCI is completed.
This payment is expressly contingent on all of your actions during the sales
process being consistent with the objective of selling GCI on a fair and
equitable basis to the party best able to pay the highest purchase price. All
communications from prospective buyers shall be referred to me; all meetings
with prospective buyers shall be scheduled by me or my designate; and no
meetings or discussions with prospective buyers shall be held without the
presence of a designated Gerber-Corporate representative. Notwithstanding the
above, Gerber recognizes that after a binding agreement is signed, it may be
necessary for you to meet with the buyer to discuss management
responsibilities, compensation, and incentives. Recognizing the above, Gerber
agrees that such meeting(s) can occur after signing the agreement without
violating this provision provided that I approve such meeting(s) in advance. My
approval will not be unreasonably withheld provided the topics are as set forth
above, the meetings are reasonable in number and that the timing of the
meeting(s) related to the sales process is acceptable to Gerber.
The bonus payment shall be subject to reduction by the amount of any federal,
state, or local income, withholding, social security and other taxes, and any
other items which may be required or authorized to be deducted by law, if
applicable. The payment shall not be considered in determining any benefit
calculation or any other payment provided under any plan or program presently
or hereafter maintained by GCI, Gerber or any successor of either. This payment
shall be payable to you only if Gerber's sale of the issued and outstanding
shares (or all or substantially all of the assets) of GCI is completed within
one (1) year of the date of this letter, unless we subsequently extend in
writing the time within which the payment is payable. If the sale is not
consummated as provided above, this bonus arrangement shall automatically
terminate and neither party will have any obligation under this arrangement.
<PAGE> 2
This letter sets forth our entire agreement on the subject of the bonus payment
described herein and it supersedes any other discussions, commitments or
agreements between us with respect to bonuses relating to the sale of GCI. Our
obligation with respect to payment of these bonuses may be modified only by
written instrument signed by an authorized officer of Gerber.
In the event that your employment with GCI or any successor company is
involuntarily terminated without cause (as caused is defined in the Gerber
Products Company Severance Benefits Plan) within three years of the completion
of Gerber's sale of GCI or on or before August 24, 1997, whichever is later,
you will be provided with the following benefits upon your execution of GCI's
Release and Waiver Agreement.
- continuation of your annualized base salary for eighteen (18) months,
- continuation of current medical, dental, and life insurance benefits
for eighteen (18) months, and
- professional outplacement assistance at a firm selected by GCI
(and approved by Gerber).
Nothing contained in this letter shall be construed as creating a contract of
employment between you and GCI or its successor, as providing you with a right
to be continued in the employment of GCI, or as limiting the right of GCI to
discharge you with or without cause.
Please signify your receipt and approval of the terms of this letter by signing
both letters where indicated below and returning one to me. The other original
is for your records.
Sincerely,
/s/ Fred K. Schomer
-------------------
Fred K. Schomer
Agreed to this 18th day of March, 1995.
---- -----
/s/ David E. Uren
- -----------------
David E. Uren
<PAGE> 1
EXHIBIT 21.1
SUBSIDIARIES OF
GERBER CHILDRENSWEAR, INC.
<TABLE>
<CAPTION>
JURISDICTION OF OTHER NAMES UNDER WHICH
SUBSIDIARY INCORPORATION SUCH SUBSIDIARY DOES BUSINESS
---------- --------------- -----------------------------
<S> <C> <C>
Auburn Holdings, Inc. Delaware None
Costura Dominicana, Inc. Delaware [ ]
GCI IP Sub, Inc. Delaware None
Auburn Hosiery Mills, Inc. Kentucky [ ]
GCI Spainco, S.L. Spain None
Sport Socks Co. (Ireland) Ltd. Ireland [ ]
Sport Socks Co. (UK) Limited United Kingdom [ ]
</TABLE>
<PAGE> 1
EXHIBIT 23.1
CONSENT OF ERNST & YOUNG LLP, INDEPENDENT AUDITORS
We consent to the reference to our firm under the caption "Experts" and
"Selected Consolidated Financial Data" and "Summary Historical and Pro Forma
Financial Information" and to the use of our report dated January 30, 1998 with
respect to the consolidated financial statements of GCIH, Inc., and to the use
of our report dated September 12, 1997 with respect to the consolidated
financial statements of Gerber Childrenswear, Inc. ("Predecessor Company") in
the Registration Statement (Form S-1) and related Prospectus for the
registration of shares of its common stock of Gerber Childrenswear, Inc. (the
Successor Company).
Our audits also included the financial statement schedules of GCIH, Inc.
and Gerber Childrenswear, Inc. ("Predecessor Company") listed in Item 16(b).
These schedules are the responsibility of the Company's and the Predecessor
Company's management. Our responsibility is to express an opinion based on our
audits. In our opinion, the financial statement schedules referred to above,
when considered in relation to the basic financial statements taken as a whole,
present fairly in all material respects the information set forth therein.
/s/ ERNST & YOUNG LLP
Greenville, South Carolina
March 2, 1998
<PAGE> 1
EXHIBIT 23.2
CONSENT OF J.C. HOLLAND & CO., PSC, INDEPENDENT AUDITORS
We consent to the reference to our firm under the caption "Experts" and to
the use of our report dated January 16, 1998 with respect to the consolidated
financial statements of Auburn Hosiery Mills, Inc., in the Registration
Statement (Form S-1 No. ) and related Prospectus of Gerber Childrenswear,
Inc. dated March 3, 1998.
J.C. Holland & Co., PSC
Bowling Green, Kentucky
March 3, 1998
<PAGE> 1
EXHIBIT 23.3
CONSENT OF INDEPENDENT ACCOUNTANTS
We hereby consent to the use in the Prospectus constituting part of this
Registration Statement on Form S-1 of our report dated 23 February 1998 relating
to the financial statements of Sport Socks Co (Ireland) Limited, which appears
in such Prospectus. We also consent to the reference to us under the headings
"Experts" in such Prospectus.
PRICE WATERHOUSE
CORK, IRELAND
March 3, 1998
<TABLE> <S> <C>
<ARTICLE> 5
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> DEC-31-1997
<PERIOD-START> JAN-01-1997
<PERIOD-END> DEC-31-1997
<CASH> 536,000
<SECURITIES> 0
<RECEIVABLES> 37,016,000
<ALLOWANCES> 2,510,000
<INVENTORY> 71,041,000
<CURRENT-ASSETS> 112,390,000
<PP&E> 27,867,000
<DEPRECIATION> 3,219,000
<TOTAL-ASSETS> 163,891,000
<CURRENT-LIABILITIES> 46,513,000
<BONDS> 77,233,000
11,645,000
0
<COMMON> 9,000
<OTHER-SE> 19,410,000
<TOTAL-LIABILITY-AND-EQUITY> 163,891,000
<SALES> 202,037,000
<TOTAL-REVENUES> 202,037,000
<CGS> 146,294,000
<TOTAL-COSTS> 146,294,000
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 712,000
<INTEREST-EXPENSE> 5,998,000
<INCOME-PRETAX> 12,483,000
<INCOME-TAX> 4,764,000
<INCOME-CONTINUING> 7,719,000
<DISCONTINUED> 0
<EXTRAORDINARY> 708,000
<CHANGES> 0
<NET-INCOME> 7,011,000
<EPS-PRIMARY> 7.48
<EPS-DILUTED> 5.65
</TABLE>
