<PAGE> 1
AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON AUGUST 20, 1998
REGISTRATION NO. 333-
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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM S-4
REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933
---------------------
TROPICAL SPORTSWEAR INT'L CORPORATION
(Exact name of registrant as specified in its charter)
<TABLE>
<S> <C> <C>
FLORIDA 2325 59-3424305
(State or other (Primary Standard Industrial (I.R.S. Employer
jurisdiction of incorporation) Classification Code Number) Identification No.)
</TABLE>
SAVANE INTERNATIONAL CORP.
(Exact name of registrant as specified in its charter)
(AS GUARANTOR)
<TABLE>
<S> <C> <C>
TEXAS 2325 74-1061146
(State or other (Primary Standard Industrial (I.R.S. Employer
jurisdiction of incorporation) Classification Code Number) Identification No.)
</TABLE>
APPAREL NETWORK CORPORATION
(Exact name of registrant as specified in its charter)
(AS GUARANTOR)
<TABLE>
<S> <C> <C>
FLORIDA 2325 59-3331447
(State or other (Primary Standard Industrial (I.R.S. Employer
jurisdiction of incorporation) Classification Code Number) Identification No.)
</TABLE>
TROPICAL SPORTSWEAR COMPANY, INC.
(Exact name of registrant as specified in its charter)
(AS GUARANTOR)
<TABLE>
<S> <C> <C>
DELAWARE 2325 52-2062097
(State or other (Primary Standard Industrial (I.R.S. Employer
jurisdiction of incorporation) Classification Code Number) Identification No.)
</TABLE>
4902 WEST WATERS AVENUE
TAMPA, FLORIDA 33634-1302
(813) 249-4900
(Address, including zip code, and telephone number, including area code, of
registrant's principal executive offices)
MICHAEL KAGAN
EXECUTIVE VICE PRESIDENT,
CHIEF FINANCIAL OFFICER
AND SECRETARY
TROPICAL SPORTSWEAR INT'L CORPORATION
4902 WEST WATERS AVENUE
TAMPA, FLORIDA 33634-1302
(813) 249-4900
(Name, address, including zip code, and telephone number, including area code,
of agent for service)
COPY TO:
MICHAEL R. MCALEVEY, ESQ.
ALSTON & BIRD LLP
ONE ATLANTIC CENTER
1201 WEST PEACHTREE STREET
ATLANTA, GEORGIA 30309-3424
(404) 881-7000
APPROXIMATE DATE OF COMMENCEMENT OF PROPOSED SALE TO THE PUBLIC: As soon as
practicable after this registration statement becomes effective.
If the securities being registered on this Form are being offered in
connection with the formation of a holding company and there is compliance with
General Instruction G, check the following box. [ ]
CALCULATION OF REGISTRATION FEE
<TABLE>
<CAPTION>
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PROPOSED PROPOSED
TITLE OF EACH CLASS AMOUNT MAXIMUM MAXIMUM AMOUNT OF
OF SECURITIES TO BE OFFERING PRICE AGGREGATE REGISTRATION
TO BE REGISTERED REGISTERED PER NOTE(1) OFFERING PRICE(1) FEE(1)
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<S> <C> <C> <C> <C>
11% Senior Subordinated Notes due 2008 of Tropical
Sportswear Int'l Corporation...................... $100,000,000 100% $100,000,000 $29,500
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Guarantee of Tropical Sportswear Company, Inc..... None(2)
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Guarantee of Apparel Network Corporation.......... None(2)
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Guarantee of Savane International Corp............ None(2)
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</TABLE>
(1) Estimated solely for the purpose of calculating the registration fee
pursuant to Rule 457(f), based upon the book value (aggregate outstanding
principal amount) of such securities.
(2) No further fee is payable pursuant to Rule 457(n).
---------------------
THE REGISTRANT HEREBY AMENDS THIS REGISTRATION STATEMENT ON SUCH DATE OR
DATES AS MAY BE NECESSARY TO DELAY ITS EFFECTIVE DATE UNTIL THE REGISTRANT SHALL
FILE A FURTHER AMENDMENT WHICH SPECIFICALLY STATES THAT THIS REGISTRATION
STATEMENT SHALL THEREAFTER BECOME EFFECTIVE IN ACCORDANCE WITH SECTION 8(A) OF
THE SECURITIES ACT OF 1933 OR UNTIL THE REGISTRATION STATEMENT SHALL BECOME
EFFECTIVE ON SUCH DATE AS THE COMMISSION, ACTING PURSUANT TO SAID SECTION 8(A),
MAY DETERMINE.
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<PAGE> 2
INFORMATION CONTAINED HEREIN IS SUBJECT TO CHANGE, COMPLETION OR AMENDMENT
WITHOUT NOTICE. A REGISTRATION STATEMENT RELATING TO THESE SECURITIES HAS BEEN
FILED WITH THE SECURITIES AND EXCHANGE COMMISSION. THESE SECURITIES MAY NOT BE
SOLD NOR MAY OFFERS TO BUY BE ACCEPTED PRIOR TO THE TIME THE REGISTRATION
STATEMENT BECOMES EFFECTIVE. THIS PROSPECTUS SHALL NOT CONSTITUTE AN OFFER TO
SELL OR THE SOLICITATION OF AN OFFER TO BUY NOR SHALL THERE BE ANY SALE OF THESE
SECURITIES IN ANY STATE IN WHICH SUCH OFFER, SOLICITATION OR SALE WOULD BE
UNLAWFUL PRIOR TO REGISTRATION OR QUALIFICATION UNDER THE SECURITIES LAWS OF ANY
SUCH STATE.
SUBJECT TO COMPLETION, DATED AUGUST 20, 1998
PROSPECTUS
TROPICAL SPORTSWEAR INT'L CORPORATION
OFFER TO EXCHANGE A NEW SERIES OF ITS
11% SENIOR SUBORDINATED NOTES DUE 2008
WHICH HAVE BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933
FOR ANY AND ALL OUTSTANDING
11% SENIOR SUBORDINATED NOTES DUE 2008
THE EXCHANGE OFFER WILL EXPIRE AT 5:00 P.M., NEW YORK CITY TIME, ON
, 1998,
UNLESS EXTENDED BY THE COMPANY IN ITS SOLE DISCRETION
Tropical Sportswear Int'l Corporation, a Florida corporation ("TSI" or the
"Company"), is hereby offering, upon the terms and subject to the conditions set
forth in this Prospectus and the accompanying Letter of Transmittal (the "Letter
of Transmittal," which together with this Prospectus constitutes the "Exchange
Offer"), to issue $100,000,000 aggregate principal amount of its 11% Senior
Subordinated Notes due 2008 (the "Exchange Notes"), in exchange for a like
principal amount of its issued and outstanding 11% Senior Subordinated Notes due
2008 (the "Old Notes," and together with the Exchange Notes, the "Notes").
The current offer and sale of the Exchange Notes are being registered under
the Registration Statement of which this Prospectus forms a part in order to
satisfy certain obligations of the Company contained in the Exchange and
Registration Rights Agreement dated as of June 24, 1998 (the "Registration
Rights Agreement") between the Company and the Initial Purchaser. Based on
existing interpretations of the Securities Act by the staff of the Securities
and Exchange Commission (the "Commission") set forth in several "no-action"
letters issued to third parties and unrelated to the Company and the Exchange
Offer, the Company believes that Exchange Notes issued pursuant to the Exchange
Offer in exchange for Old Notes may be offered for resale, resold and otherwise
transferred by holders thereof (other than any such holder which is an
"affiliate" of the Company within the meaning of Rule 405 under the Securities
Act), without further compliance with the registration and prospectus delivery
provisions of the Securities Act, provided that such Exchange Notes are acquired
in the ordinary course of such holders' business and such holders have no
arrangement or understanding with any person to participate in the distribution
(within the meaning of the Securities Act) of such Exchange Notes. See "The
Exchange Offer -- Procedures for Tendering Old Notes." Each holder of Old Notes
wishing to accept the Exchange Offer must represent to the Company, among other
things, that it is not an affiliate of the Company and that such conditions have
been satisfied. A broker-dealer (a "Participating Broker-Dealer") holding Old
Notes may participate in the Exchange Offer provided that it acquired the Old
Notes for its own account as a result of market-making or other trading
activities. In connection with any resales of Exchange Notes, any Participating
Broker-Dealer who receives Exchange Notes for Old Notes pursuant to the Exchange
Offer may be an "underwriter" (within the meaning of the Securities Act) and
must deliver a prospectus meeting the requirements of the Securities Act in
connection with any resale of the Exchange Notes. The Commission has taken the
position that Participating Broker-Dealers may fulfill their prospectus delivery
requirements with respect to the Exchange Notes (other than a resale of an
unsold allotment from the original sale of the Old Notes) with this Prospectus,
as it may be amended or supplemented from time to time. Under the Registration
Rights Agreement, the Company is required to allow Participating Broker-Dealers
and other persons, if any, subject to similar prospectus delivery requirements,
to use this Prospectus, as it may be amended or supplemented from time to time,
in connection with the resale of such Exchange Notes for a period of 180 days.
See "The Exchange Offer -- Purpose and Effect of the Exchange Offer" and "Plan
of Distribution."
The Company will not receive any cash proceeds from the Exchange Offer.
Pursuant to the Registration Rights Agreement, the Company will pay all the
expenses incident to the Exchange Offer (other than agency fees and commissions,
underwriting discounts and commissions and the fees and disbursements of counsel
and other advisors and experts retained by the holders). In the event the
Company terminates the Exchange Offer and does not accept for exchange any Old
Notes, the Company will promptly return the Old Notes to the holders thereof.
The net proceeds of the Offering, together with borrowings under the New Credit
Facility, were used to repay all debt of the Company outstanding under the
Bridge Facility (as defined herein), which was incurred to finance the
acquisition of Farah Incorporated, a Texas corporation now known as Savane
International Corp. ("Farah"), pursuant to a tender offer for all outstanding
shares of Farah's common stock (the "Tender Offer"). The Tender Offer was
consummated on June 10, 1998. See "Use of Proceeds" and "Plan of Distribution."
(Continued on following page)
------------------
SEE "RISK FACTORS" BEGINNING ON PAGE 14 FOR A DISCUSSION OF CERTAIN
MATERIAL FACTORS THAT SHOULD BE CONSIDERED IN CONNECTION WITH AN INVESTMENT IN
THE EXCHANGE NOTES OFFERED HEREBY.
THE EXCHANGE OFFER IS NOT BEING MADE TO, NOR WILL THE COMPANY ACCEPT
SURRENDERS FOR EXCHANGE FROM, HOLDERS OF OLD NOTES IN ANY JURISDICTION IN WHICH
THE EXCHANGE OFFER OR THE ACCEPTANCE THEREOF WOULD NOT BE IN COMPLIANCE WITH THE
SECURITIES OR BLUE SKY LAWS OF SUCH JURISDICTION.
THE SECURITIES OFFERED HEREBY HAVE NOT BEEN APPROVED, DISAPPROVED OR RECOMMENDED
BY THE COMMISSION OR ANY STATE SECURITIES COMMISSION. FURTHERMORE, THE FOREGOING
AUTHORITIES HAVE NOT REVIEWED THIS PROSPECTUS OR CONFIRMED OR DETERMINED THE
ADEQUACY OR ACCURACY OF THIS PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS A
CRIMINAL OFFENSE.
------------------
The Company will accept for exchange Old Notes validly tendered prior to
5:00 p.m., New York City time, on , 1998, as such date and time may be
extended by the Company in its sole discretion (the "Expiration Date"). Tenders
of Old Notes may be withdrawn at any time prior to the Expiration Date. The
Exchange Offer is subject to certain customary conditions, but is not
conditioned upon any minimum aggregate principal amount of Old Notes being
tendered for exchange. See "The Exchange Offer -- Conditions."
THE DATE OF THIS PROSPECTUS IS , 1998
<PAGE> 3
(Continued from previous page)
The Old Notes were sold by the Company on June 24, 1998 to Prudential
Securities Incorporated (the "Initial Purchaser") in a transaction not
registered under the Securities Act of 1933, as amended (the "Securities Act"),
in reliance upon exemptions under the Securities Act. The Initial Purchaser
subsequently placed the Old Notes (i) with Qualified Institutional Buyers (as
defined in Rule 144A ("Rule 144A") under the Securities Act) in reliance upon
Rule 144A and (ii) outside of the United States in compliance with Regulation S
("Regulation S") under the Securities Act (the "Offering"). Accordingly, the Old
Notes may not be reoffered, resold, pledged or otherwise transferred except
pursuant to an exemption from, or in a transaction not subject to, the
registration requirements of the Securities Act. The Old Notes sold in reliance
on Rule 144A are designated eligible for trading in the Private Offerings,
Resales and Trading through Automated Linkages ("PORTAL") Market. After the
Exchange Offer, the Old Notes that remain outstanding will continue to be
subject to the restrictions on transfer contained in the legend thereon and may
not be reoffered, resold, pledged or otherwise transferred except pursuant to an
exemption from, or in a transaction not subject to, the registration
requirements of the Securities Act.
The Exchange Notes are a new issuance of securities for which there is
currently no trading market. The Exchange Notes will not be listed on any
securities exchange. The Company has been advised by the Initial Purchaser that
it intends to make a market in the Exchange Notes; however, the Initial
Purchaser is not obligated to do so, and any such market making activities may
be discontinued at any time without notice. Accordingly, there can be no
assurance that an active trading market for the Exchange Notes will develop or
as to the liquidity of any such market. See "Risk Factors -- Absence of
Established Trading Market."
The form and terms of the Exchange Notes will be identical in all material
respects to the form and terms of the Old Notes, except that (i) the Exchange
Notes will bear a different CUSIP Number from the Old Notes, (ii) the issuance
of the Exchange Notes will be registered under the Securities Act and,
therefore, the Exchange Notes will not bear legends restricting the transfer
thereof, and (iii) holders of the Exchange Notes will not be entitled to certain
rights under the Registration Rights Agreement (as defined herein). The Exchange
Notes will evidence the same debt as the Old Notes (which they replace) and will
be issued under and be entitled to the benefits of the Indenture dated as of
June 24, 1998 (the "Indenture") among the Company, the Subsidiary Guarantors (as
defined herein) named therein and SunTrust Bank, Atlanta, as trustee (the
"Trustee"). See "The Exchange Offer" and "Description of the Notes."
Interest on the Exchange Notes will accrue from the date of original
issuance of the Old Notes, i.e., June 24, 1998 (the "Closing Date"), and be
payable semiannually in arrears on June 15 and December 15 of each year,
commencing December 15, 1998. Holders whose Old Notes are accepted for exchange
will be deemed to have waived the right to receive any interest accrued on the
Old Notes.
The Exchange Notes will be redeemable, in whole or in part, at the option of
TSI at any time on or after June 15, 2003, at the redemption prices set forth
herein, plus accrued and unpaid interest to the date of redemption. In addition,
at any time on or prior to June 15, 2001, TSI may redeem up to 35% of the
original aggregate principal amount of the Notes with the net proceeds of one or
more Public Equity Offerings (as defined herein) at a redemption price equal to
111% of the principal amount thereof, plus accrued and unpaid interest to the
date of redemption; provided that immediately after giving effect to any such
redemption, at least $65.0 million aggregate principal amount of Notes remains
outstanding. Upon a Change of Control (as defined herein), each holder of the
Notes may require TSI to repurchase all or a portion of such holder's Notes at a
price equal to 101% of the principal amount thereof, plus accrued and unpaid
interest to the date of repurchase. See "Description of the Notes."
The Exchange Notes will be, and the Old Notes are, general unsecured
obligations of TSI, subordinated in right of payment to all existing and future
senior debt of TSI, including debt incurred pursuant to the New Credit Facility
(as defined herein). The Exchange Notes will rank, and the Old Notes rank,
senior in right of payment to all existing and future subordinated debt of TSI,
if any. The Exchange Notes will be, and the Old Notes are, guaranteed on a
senior subordinated basis by the domestic subsidiaries of the Company (the
"Subsidiary Guarantors"). The Exchange Notes will be, and the Old Notes are,
effectively subordinated in right of payment to all debt and other liabilities
(including trade payables) of TSI's subsidiaries that are not Subsidiary
Guarantors. As of July 4, 1998, TSI and the Subsidiary Guarantors had an
aggregate of approximately $83.4 million of debt outstanding ranking senior to
the Exchange Notes, and TSI's subsidiaries that are not Subsidiary Guarantors
had an aggregate of approximately $3.8 million of accounts payable and
third-party debt outstanding. See "Description of the Notes -- Subordination."
<PAGE> 4
AVAILABLE INFORMATION
The Company is and, prior to the consummation of the Transactions (as
defined herein) Farah was, subject to the informational requirements of the
Securities Exchange Act of 1934, as amended (the "Exchange Act"), and in
accordance therewith the Company files and, prior to the consummation of the
Transactions Farah filed, reports and other information with the Commission.
Such reports and other information can be inspected and copied at the public
reference facilities maintained by the Commission at Room 1024, 450 Fifth
Street, N.W., Washington, D.C. 20549, and at the Commission's regional offices
in Suite 1400, Northwest Atrium Center, West Madison Street, Chicago, Illinois
60661, and 7 World Trade Center (13th floor), New York, New York 10048 and at
the offices of the Nasdaq National Market, 1735 K Street, N.W., Washington, D.C.
20006. Copies of such material can be obtained from the Commission at prescribed
rates through its Public Reference Section at 450 Fifth Street, N.W.,
Washington, D.C. 20549. The Commission also maintains a site on the World Wide
Web, the address of which is http://www.sec.gov, that contains reports, proxy
and information statements and other information regarding issuers, such as the
Company, that file electronically with the Commission.
The Company has filed with the Commission, 450 Fifth Street, N.W.,
Washington, D.C. 20549, a Registration Statement on Form S-4 under the
Securities Act and the rules and regulations thereunder, for the Exchange Notes
offered pursuant to the Exchange Offer. For purposes hereof, the term
"Registration Statement" means the original Registration Statement and any and
all amendments thereto. In accordance with the rules and regulations of the
Commission, this Prospectus does not contain all of the information set forth in
the Registration Statement and the exhibits and schedules thereto. For further
information concerning the Company and the Exchange Notes, reference is made to
the Registration Statement and the exhibits and schedules filed therewith, which
may be examined without charge at, or copies obtained upon payment of prescribed
fees from, the Commission and its regional offices at the locations set forth
above. Any statements contained herein concerning the provisions of any document
are not necessarily complete, and, in each instance, reference is made to the
copy of such document filed as an exhibit to the Registration Statement or
otherwise filed with the Commission. Each such statement is qualified in its
entirety by such reference.
The Indenture provides that if the Company is not subject to the periodic
reporting and informational requirements of the Exchange Act, it will, to the
extent such filings are accepted by the Commission and whether or not the
Company has a class of securities registered under the Exchange Act, submit to
the Commission all reports and other information that would be required to be
filed with the Commission if the Company were subject to such periodic reporting
and informational requirements.
ii
<PAGE> 5
PROSPECTUS SUMMARY
The following summary is qualified in its entirety by, and should be read
in conjunction with, the more detailed financial and other information,
including the consolidated financial statements and the notes thereto, included
elsewhere in this Prospectus. Unless the context otherwise requires, references
herein to (i) "TSI" or the "Company" are to Tropical Sportswear Int'l
Corporation and its subsidiaries; and (ii) "Farah" are to Farah Incorporated and
its subsidiaries. Unless the context otherwise requires, the unaudited pro forma
combined financial data contained herein gives effect to the Transactions as if
they had been consummated on September 29, 1996 in the case of statement of
operations data for fiscal 1997 and on September 28, 1997 in the case of
statement of operations data for the forty weeks ended July 4, 1998. References
herein to "fiscal" years are references to fiscal years of TSI (which end on the
Saturday nearest September 30th of each year) or to fiscal years of Farah (which
end on the first Sunday following October 31st of each year), as the context
requires.
THE COMPANY
On May 1, 1998, TSI entered into an agreement and plan of merger (the
"Merger Agreement") with Farah and Foxfire Acquisition Corp., a wholly-owned
subsidiary of TSI ("Foxfire"), pursuant to which Foxfire commenced the Tender
Offer to purchase all of the outstanding shares of common stock of Farah (the
"Shares"). The Tender Offer was consummated on June 10, 1998 and immediately
thereafter Foxfire was merged into Farah (the "Merger" and, together with the
Tender Offer, the "Farah Acquisition").
TSI is a leading producer and marketer of high quality casual and dress
apparel principally for men, which it markets under proprietary, licensed and
private brand names to major apparel retailers such as Costco, Dayton Hudson,
Dillard's, Eddie Bauer, Federated Department Stores (including Bloomingdale's
and Macy's), J.C. Penney, May Co., Nordstrom, Phillips-Van Heusen, Sam's Club (a
division of Wal-Mart) and Sears. Farah is a leading manufacturer of branded
apparel, principally for men and boys, which it markets to major apparel
retailers such as Belks, Dillard's, Federated Department Stores, Frederick
Atkins, May Co., Proffitt's, Sears and Wal-Mart. On a pro forma basis after
giving effect to the Transactions, the Company would have had net sales, EBITDA
(as defined herein) and a net loss of approximately $335.6 million, $23.1
million and $3.7 million, respectively, for the forty weeks ended July 4, 1998.
The Company was founded in 1927. Pursuant to a tax-free reorganization, the
Company was merged into a newly-formed corporation organized under the laws of
the State of Florida on January 27, 1997. The Company's executive offices are
located at 4902 West Waters Avenue, Tampa, Florida 33634-1302, and its telephone
number is (813) 249-4900.
TSI
TSI produces and markets high quality casual pants, jeans, shorts and dress
pants principally for men, which are marketed under TSI brands, private brands
and licensed brand names. In addition, in fiscal 1998 TSI introduced lines of
women's sportswear and men's and women's shirts marketed under its existing
brands and private brands. TSI's major brands include private brands such as
Flyers(TM), TSI brands such as Bay to Bay(R), Banana Joe(TM), Two Pepper(R) and
Texas Jeans(TM) and licensed brands such as Bill Blass(R) and Van Heusen(R). TSI
markets its apparel to leading apparel retailers in most major retail
distribution channels, including department and specialty stores, catalog
retailers, discount merchants and wholesale clubs.
TSI distinguishes itself from traditional private label and branded apparel
manufacturers by offering apparel retailers complete merchandise management
programs. Key features of these programs include consumer, product and market
analysis; design of individual styles and differentiated merchandise
assortments; inventory planning and sales forecasting by stock-keeping-unit (an
individual style, color and size, or "SKU"); retail pricing strategy; quick
response electronic order execution; and automatic replenishment by SKU of store
level inventories. These features result from TSI's sophisticated information
and production systems and technology and adherence to innovative standard
operating policies and procedures throughout its operations.
1
<PAGE> 6
TSI's merchandise strategy focuses on basic, recurring styles that TSI
believes are less susceptible to fashion obsolescence and less seasonal in
nature than fashion styles. All of TSI's products are derived from six
production platforms, or "chassis," each of which incorporates basic features
requiring distinct manufacturing processes. The six basic "chassis" are modified
to produce separate styles through variations in cut, fabric and finish. This
process enables TSI to efficiently produce a wide variety of products. All
finished goods receive customer-specific labeling and packaging only upon
receipt of a customer order confirmation. As a result, a common SKU,
differentiated only by labeling and packaging, can be sold by both a high-end
department store and a mass merchant at very different retail prices. This
merchandise strategy offers quick-response execution of customer orders without
the associated risk of carrying customer specific inventories. During fiscal
1997, 16 styles marketed under approximately 80 labels accounted for over 90.0%
of TSI's net sales.
TSI's production strategy focuses on low-cost, flexible and
capital-efficient operations. The Company operates its fabric cutting, finished
goods processing and distribution facilities in Tampa, Florida, which employ
sophisticated technology and systems to enhance product quality and
productivity. For labor intensive garment assembly and finishing operations, TSI
uses independent manufacturers located primarily in the Dominican Republic,
which adhere to TSI's strict operating procedures and standards.
FARAH
Farah is a leading manufacturer and marketer of high quality casual and
dress pants, shorts, sportcoats, suit separates (matching pants and sportcoats),
skirts and shirts principally marketed under the well-known Savane(R), Farah(R)
and John Henry(R) brands. Farah operates three divisions: Farah U.S.A., Farah
International and Savane Direct. Farah U.S.A., which accounted for approximately
75.7% of Farah's fiscal 1997 net sales, produces branded and private label
casual and dress apparel marketed to retailers throughout the United States.
Farah International, which accounted for approximately 18.1% of Farah's fiscal
1997 net sales, manufactures, sources and markets apparel primarily in the
United Kingdom, Australia and New Zealand. Savane Direct, which accounted for
approximately 6.2% of Farah's fiscal 1997 net sales, operates 32 United States
retail stores.
The Company believes that retailer and consumer loyalty to the well known
Savane(R), Farah(R) and John Henry(R) brands represents Farah's key competitive
strength. Savane(R) products are marketed primarily to major department stores,
including Belks, Dillard's, Federated Department Stores, Frederick Atkins, May
Co. and Proffitt's. Farah(R) brand products are marketed primarily through the
mass merchant distribution channel. In fiscal 1997, Farah granted Wal-Mart a
non-exclusive license to sell Farah(R) brand products produced by other
manufacturers, for which Farah receives a royalty. Farah has an exclusive
license to produce and market men's pants, coats and shorts under the John
Henry(R) brand within the United States and Canada and, in fiscal 1996, Farah
began selling John Henry(R) brand products to Sears.
EXPECTED BENEFITS OF THE FARAH ACQUISITION
The Company believes that the combination of TSI and Farah will position it
to offer major retailers complete private label and branded merchandise
management programs in core apparel lines featuring both Farah's well-known
brands and TSI's brands and private brand programs. The Company intends to apply
TSI's proven production technology, comprehensive planning, control and customer
service systems and innovative operating policies and procedures to integrate
and substantially improve the profitability of Farah's operations. Anticipated
benefits of the Farah Acquisition include the following:
Complementary Branded and Private Label Product Line. TSI believes
the Savane(R), Farah(R) and John Henry(R) brands complement TSI's brands
and private brands, positioning the Company to offer differentiated branded
and private label programs in core apparel lines. The Company believes that
it can leverage its strength in these categories to develop customized
merchandise management programs featuring branded and private brand men's
shirts, women's basic sportswear and products in other core apparel
categories.
2
<PAGE> 7
Expanded Customer Base and Increased Customer Penetration. The
Company believes that its customized merchandise management programs and
customer service capabilities, together with the strength of the Farah
brands, will enable the Company to increase sales to existing accounts and
establish new accounts. The Company believes that substantial cross selling
opportunities exist to market TSI brand products to Farah's customers and
Farah brand products to TSI's customers. The Company intends to market
merchandise management programs to increase sales to these existing
customers and generate sales to new customers.
Greater Critical Mass. The Farah Acquisition will significantly
increase the Company's revenue base. On a pro forma basis after giving
effect to the Transactions, the Company's net sales for the forty weeks
ended July 4, 1998 would have been approximately $335.6 million. The
Company believes that its increased size, marketing resources, production
capacity and product offerings will enhance its relationships with key
suppliers and retailers and strengthen its competitive position in the
apparel industry.
Cost Savings. As part of its integration plan for the Farah
Acquisition, the Company believes that it can achieve at least $23.2
million of annual cost savings by the end of fiscal 1999. These cost
savings include (i) a reduction of selling, general and administrative
expenses (including distribution expenses) resulting in approximately $2.5
million of annual cost savings, (ii) the realization of production
efficiencies resulting in approximately $15.2 million of annual cost
savings and (iii) improvements in inventory management resulting in
approximately $5.5 million of annual cost savings.
Potential Divestiture Opportunities. Following the Farah Acquisition,
the Company intends to evaluate Farah's assets in light of TSI's strategic
and financial objectives and, to the extent such assets do not fit within
those objectives, dispose of or discontinue operating such assets. The
Company is currently considering its alternatives with respect to the Farah
International and Savane Direct businesses. Following the closing of the
Farah Acquisition, the Company closed the remainder of Farah's sewing
operations in San Jose, Costa Rica, and is currently seeking a buyer for
the facilities which housed such operations. There can be no assurance that
any such disposition or that additional closures will be consummated. See
"Business -- Integration Plan -- Potential Divestiture Opportunities."
BUSINESS AND GROWTH STRATEGY
The Company believes that the Farah Acquisition will position it to take
advantage of key industry trends including: (i) an increasing emphasis by major
apparel retailers on outsourced merchandise management programs for core apparel
lines; (ii) a reduction by major retailers in the number of brands offered in
favor of a few of the most well-recognized consumer brands; (iii) an increase in
retailer and consumer demand for high-quality private brand apparel; (iv) a
shift in consumer preference toward casual dress; and (v) a shift in trade
policy which favors the manufacture of products in Mexico, the Caribbean and
Latin America. The key elements of the Company's business and growth strategies
include:
Advanced Planning and Control Systems and Procedures. The Company
employs advanced technology and comprehensive operating systems and
procedures which integrate and monitor each operation to reduce
inefficiencies, increase productivity and enhance customer service.
High-Quality Products. The Company applies stringent quality
standards throughout its operations, from the design of its products
through the shipment of customer orders. In fiscal 1997, the application of
these standards resulted in a rate of production of second quality finished
goods of 1.1% of total production.
Low-Cost and Flexible Operations. The Company is organized to effect
a short production cycle from the receipt of raw materials through the
shipment of a customer order. TSI believes its "chassis" production concept
allows it to execute more cost-effective production runs than those of its
competitors. The Company outsources labor intensive garment assembly and
finishing operations to independent manufacturers on a fixed cost per unit
basis. This strategy reduces the personnel and capital resources invested
in the production process and enables TSI to vary production levels with
changes in customer demand.
3
<PAGE> 8
Minimized Inventory Risk. The Company believes that it minimizes its
inventory risk by (i) producing focused lines of core apparel products,
(ii) minimizing the production cycle and maximizing production flexibility
and (iii) tracking customer demand trends by SKU on a per store basis. In
fiscal 1997, TSI's production cycle averaged 38 days and average inventory
turnover was approximately five times.
Customer Service. The Company provides customer satisfaction through
high-quality products and customized merchandise management programs. These
programs serve to increase retailer margins by outsourcing traditional
retailer merchandising functions and reducing inventory risk and excessive
markdowns.
Expand Private Brand Programs for Major Retailers. The Company
believes its high-quality and low-cost products, strong customer service
and merchandise management capabilities position it to increase private
brand market share as retailers consolidate and outsource private brand
programs.
New Product Introductions. The Company intends to develop and market
products that complement existing core product lines. Targeted product
categories include lines of men's casual shirts and women's sportswear. All
new product lines will employ the Company's "chassis" production concept.
Acquisitions. The Company will consider the acquisition of additional
established brands as well as the acquisition of producers of complementary
new product lines. The Company regularly evaluates acquisition
opportunities, but currently has no agreements, arrangements or
understandings with respect to any acquisitions, and there can be no
assurance that any acquisitions will be consummated.
THE TRANSACTIONS
Pursuant to the Merger Agreement, on May 8, 1998 Foxfire commenced the
Tender Offer to purchase all of the Shares at a purchase price of $9.00 per
Share. Consummation of the Tender Offer was subject to certain conditions
including, among others, that 66 2/3% of the outstanding Shares be validly
tendered, and not withdrawn, pursuant to the Tender Offer (the "Minimum Tender
Condition"). The Tender Offer was consummated on June 10, 1998 and immediately
thereafter Foxfire was merged into Farah in the Merger. Farah was the surviving
corporation in the Merger and is a wholly-owned subsidiary of TSI. The aggregate
consideration paid to the shareholders and optionholders of Farah was
approximately $95.8 million. See "The Transactions -- Farah Acquisition."
To finance the purchase price for the Farah Acquisition, the repayment of
approximately $5.9 million and $57.9 million of debt outstanding under TSI's
then existing credit facility and Farah's then existing credit facility,
respectively (together, the "Terminated Credit Facilities"), and the redemption
of approximately $1.7 million of Farah's 8.50% convertible subordinated
debentures due 2004 (the "Convertible Debentures"), concurrently with the
consummation of the Tender Offer the Company entered into (i) a $100.0 million
bridge financing facility (the "Bridge Facility") with Prudential Securities
Credit Corp. (the "Bridge Lender"), an affiliate of the Initial Purchaser, and
(ii) a new $85.0 million revolving credit facility (the "New Credit Facility")
arranged by Fleet Capital Corporation ("Fleet"). Following the closing of the
Offering, the borrowing availability under the New Credit Facility was increased
to $110.0 million, subject to borrowing base limitations. The Company used the
net proceeds from the Offering, together with borrowings under the New Credit
Facility, to repay all debt outstanding under the Bridge Facility. See "Use of
Proceeds."
The Farah Acquisition, the borrowings under the Bridge Facility and the New
Credit Facility to finance the Farah Acquisition, the repayment of the
Terminated Credit Facilities, the redemption of the Convertible Debentures and
the Offering and the application of the net proceeds therefrom, are collectively
referred to herein as the "Transactions."
4
<PAGE> 9
THE INITIAL OFFERING
Old Notes.................. The Old Notes were sold by the Company on June 24,
1998 to the Initial Purchaser pursuant to a
Purchase Agreement dated June 18, 1998 (the
"Purchase Agreement") between the Company and the
Initial Purchaser. The Initial Purchaser
subsequently placed the Old Notes (i) with
Qualified Institutional Buyers in reliance upon
Rule 144A and (ii) outside of the United States in
compliance with Regulation S.
Registration Rights
Agreement................ Pursuant to the Purchase Agreement, the Company and
the Initial Purchaser entered into the Registration
Rights Agreement, which grants the holders of the
Old Notes certain exchange and registration rights.
The Exchange Offer is intended to satisfy such
rights which will, subject to limited exceptions,
terminate upon the consummation of the Exchange
Offer.
THE EXCHANGE OFFER
Securities Offered......... $100,000,000 aggregate principal amount of the
Company's 11% Senior Subordinated Notes due 2008.
The Exchange Offer......... $1,000 principal amount of Exchange Notes in
exchange for each $1,000 principal amount of Old
Notes. As of the date hereof, $100,000,000
aggregate principal amount of Old Notes are
outstanding. The Company will issue the Exchange
Notes to registered holders on or promptly after
the Expiration Date.
Based on existing interpretations of the Securities
Act by the staff of the Commission set forth in
several "no action" letters issued to third parties
and unrelated to the Company and the Exchange
Offer, the Company believes that Exchange Notes
issued pursuant to the Exchange Offer in exchange
for Old Notes may be offered for resale, resold and
otherwise transferred by holders thereof (other
than any such holder which is an "affiliate" of the
Company within the meaning of Rule 405 under the
Securities Act), without further compliance with
the registration and prospectus delivery provisions
of the Securities Act, provided that such Exchange
Notes are acquired in the ordinary course of such
holders' business and such holders have no
arrangement or understanding with any person to
participate in the distribution (within the meaning
of the Securities Act) of such Exchange Notes. Each
holder of Old Notes wishing to accept the Exchange
Offer must represent to the Company, among other
things, that it is not an affiliate of the Company
and that such conditions have been satisfied. See
"-- Procedures for Tendering Old Notes."
A Participating Broker-Dealer holding Old Notes may
participate in the Exchange Offer provided that it
acquired the Old Notes for its own account as a
result of market-making or other trading
activities. In connection with any resales of
Exchange Notes, any Participating Broker-Dealer who
receives Exchange Notes for Old Notes pursuant to
the Exchange Offer may be an "underwriter" (within
the meaning of the Securities Act) and must deliver
a prospectus meeting the requirements of the
Securities Act in connection with any resale of the
Exchange Notes. The Letter of Transmittal states
that any acknowledgment by a Participating
Broker-Dealer that it will deliver a prospectus in
connec-
5
<PAGE> 10
tion with any resale of Exchange Notes, and any
such delivery of a prospectus, shall not be deemed
an admission by such Participating Broker-Dealer
that it is an underwriter. The Commission has taken
the position that Participating Broker-Dealers may
fulfill their prospectus delivery requirements with
respect to the Exchange Notes (other than a resale
of an unsold allotment from the original sale of
the Old Notes) with this Prospectus, as it may be
amended or supplemented from time to time. Under
the Registration Rights Agreement, the Company is
required to allow Participating Broker-Dealers and
other persons, if any, subject to similar
prospectus delivery requirements, to use this
Prospectus, as it may be amended or supplemented
from time to time, in connection with the resale of
such Exchange Notes for a period of 180 days. See
"The Exchange Offer -- Purpose and Effect of the
Exchange Offer" and "Plan of Distribution."
Any holder who is an affiliate of the Company or
who intends to participate in the Exchange Offer
for the purpose of distributing the Exchange Notes
(i) will not be able to rely on the interpretation
by the staff of the Commission set forth in the
above-mentioned "no-action" letters, (ii) will not
be able to tender its Old Notes in the Exchange
Offer and (iii) must comply with the registration
and prospectus delivery requirements of the
Securities Act in connection with any sale or
transfer transaction unless such sale or transfer
is made pursuant to an exemption from such
requirements. Failure to comply with such
requirements may result in such holder incurring
liability under the Securities Act for which the
holder is not indemnified by the Company.
Expiration Date............ 5:00 p.m., New York City time, on , 1998,
unless the Company, in its sole discretion, extends
the Exchange Offer, in which case the term
"Expiration Date" means the latest date and time to
which the Exchange Offer is extended.
Accrued Interest on the
Exchange Notes and the
Old Notes................ Interest on each Exchange Note will accrue from the
Closing Date, i.e., June 24, 1998. Holders whose
Old Notes are accepted for exchange will be deemed
to have waived the right to receive any interest
accrued on the Old Notes.
Conditions to the Exchange
Offer.................... The Exchange Offer is subject to certain customary
conditions, which may be waived by the Company, but
it is not conditioned upon any minimum aggregate
principal amount of Old Notes being tendered for
exchange. See "The Exchange Offer -- Conditions."
Procedures for Tendering
Old Notes................ Only a registered holder of Old Notes may tender
such Old Notes in the Exchange Offer. Each such
holder wishing to accept the Exchange Offer must
complete, sign and date the accompanying Letter of
Transmittal, or a facsimile thereof, in accordance
with the instructions contained herein and therein,
have the signatures thereon guaranteed if required
by the Letter of Transmittal, and mail or otherwise
deliver such Letter of Transmittal or such
facsimile, together with the Old Notes and any
other required documents, to SunTrust Bank,
Atlanta, as exchange agent for the Exchange Offer
(the "Exchange Agent"), prior to 5:00 p.m., New
6
<PAGE> 11
York City time, on the Expiration Date at the
address and in the manner set forth herein under
"The Exchange Offer -- Exchange Agent" and on the
back cover of this Prospectus. Any delivery not
made in accordance with the requirements set forth
in this Prospectus and the accompanying Letter of
Transmittal will not constitute a valid delivery.
By executing the Letter of Transmittal, each holder
will represent to the Company (i) that any Exchange
Notes to be received by it will be acquired in the
ordinary course of such holder's business, (ii)
that it is not an "affiliate" of the Company within
the meaning of Rule 405 under the Securities Act,
(iii) that it has no arrangement with any person to
participate in the distribution (within the meaning
of the Securities Act) of the Exchange Notes and
(iv) if such holder is a Participating
Broker-Dealer that will receive Exchange Notes for
its own account in exchange for Old Notes that were
acquired as a result of market-making or other
trading activities, that it will deliver a
prospectus meeting the requirements of the
Securities Act in connection with any resale of
such Exchange Notes. See "The Exchange
Offer -- Purpose and Effect of the Exchange Offer"
and "-- Procedures for Tendering Old Notes."
Certain Provisions of the
Registration Rights
Agreement Applicable to
Participating
Broker-Dealers........... Upon consummation of the Exchange Offer certain
provisions of the Registration Rights Agreement
shall continue to apply to Participating
Broker-Dealers holding Exchange Notes.
Consequences of Failure to
Exchange................. The Old Notes that are not exchanged pursuant to
the Exchange Offer will remain restricted
securities. Accordingly, such Old Notes may not be
reoffered, resold, pledged or otherwise transferred
except in accordance with applicable securities
laws of states of the United States and (i) to a
person whom the transferor reasonably believes is a
Qualified Institutional Buyer in a transaction
meeting the requirements of Rule 144A, (ii) in an
offshore transaction meeting the requirements of
Rule 903 or Rule 904 of Regulation S, (iii) to an
institution that is an "accredited investor" within
the meaning of Rule 501(a)(1), (2), (3) or (7) of
Regulation D under the Securities Act in a
transaction exempt from the registration
requirements of the Securities Act (if available),
(iv) pursuant to an exemption from registration
under the Securities Act provided by Rule 144
thereunder (if available) or (v) pursuant to an
effective registration statement under the
Securities Act. See "The Exchange
Offer -- Consequences of Failure to Exchange."
Shelf Registration
Statement................ In the event that any changes in law or the
applicable interpretations of the staff of the
Commission do not permit the Company to effect the
Exchange Offer, or upon the request of the Initial
Purchaser under certain circumstances, the Company
will, in lieu of effecting the registration of the
Exchange Notes pursuant to the registration
statement for the Exchange Offer and at its cost,
(i) as promptly as practicable, file with the
Commission a shelf registration statement covering
resales of the Old Notes (the "Shelf Registration
Statement"), (ii) use its best efforts to cause the
Shelf Registration Statement to be declared
effective under the Securities Act by the 180th day
after the Closing Date (or promptly in the event of
a request by the Initial Purchaser) and (iii) use
its best
7
<PAGE> 12
efforts to keep the Shelf Registration Statement
effective until two years after the Closing Date
(or until one year after the Closing Date if such
Shelf Registration Statement is filed at the
request of the Initial Purchaser) or such shorter
period ending when all of the Old Notes registered
pursuant to such Shelf Registration Statement have
been sold or are otherwise eligible for resale
pursuant to Rule 144(k) under the Securities Act.
The Company will, in the event of the filing of the
Shelf Registration Statement, provide to each
holder of the Old Notes copies of the prospectus
which is a part of the Shelf Registration
Statement, notify each such holder when the Shelf
Registration Statement for the Old Notes has become
effective and take certain other actions as are
required to permit unrestricted resales of the Old
Notes. A holder of Old Notes that sells such Old
Notes pursuant to the Shelf Registration Statement
generally will be required to be named as a selling
securityholder in the related prospectus and to
deliver a prospectus to purchasers, will be subject
to certain of the civil liability provisions of the
Securities Act in connection with such sales and
will be bound by the provisions of the Registration
Rights Agreement which are applicable to such a
holder (including certain indemnification
obligations). In addition, each holder of the Old
Notes will be required to deliver information to be
used in connection with the Shelf Registration
Statement and to provide comments thereon, if any,
within the time periods set forth in the
Registration Rights Agreement in order to have
their Old Notes included in the Shelf Registration
Statement and to receive certain other benefits
provided by the Registration Rights Agreement. See
"The Exchange Offer -- Purpose and Effect of the
Exchange Offer."
Special Procedures for
Beneficial Owners........ Any beneficial owner whose Old Notes are registered
in the name of a broker, dealer, commercial bank,
trust company or other nominee and who wishes to
tender should instruct such registered holder to
tender on such beneficial owner's behalf. If such
beneficial owner wishes to tender on its own
behalf, such beneficial owner must, prior to
completing and executing the Letter of Transmittal
and delivering its Old Notes, either make
appropriate arrangements to register ownership of
the Old Notes in such beneficial owner's name or
obtain a properly completed bond power from the
registered holder. Any such transfer of registered
ownership may take considerable time. The Company
will keep the Exchange Offer open for not less than
20 business days after the date on which notice of
the Exchange Offer is mailed to the holders of the
Old Notes in order to provide for any necessary
transfer of registered ownership.
Guaranteed Delivery
Procedures............... Holders of Old Notes who wish to tender their Old
Notes but who cannot, prior to 5:00 p.m., New York
City time, on the Expiration Date (i) deliver their
Old Notes, the Letter of Transmittal or any other
documents required by the Letter of Transmittal to
the Exchange Agent or (ii) deliver a confirmation
of the book-entry tender of their Old Notes into
the Exchange Agent's account at The Depository
Trust Company ("DTC") and otherwise complete the
procedures for book-entry transfer, must provide a
properly completed and duly executed Notice of
Guaranteed Delivery (a "Notice of Guaranteed
Delivery") to the Exchange Agent and otherwise
comply with the guaranteed delivery
8
<PAGE> 13
procedures set forth under "The Exchange
Offer -- Guaranteed Delivery Procedures."
Withdrawal Rights.......... Tenders may be withdrawn at any time prior to 5:00
p.m., New York City time, on the Expiration Date.
Acceptance of Old Notes and
Delivery of Exchange
Notes.................... Subject to certain conditions, the Company will
accept for exchange any and all Old Notes which are
properly tendered in the Exchange Offer prior to
5:00 p.m., New York City time, on the Expiration
Date. The Exchange Notes issued pursuant to the
Exchange Offer will be delivered promptly following
the Expiration Date. See "The Exchange Offer --
Terms of the Exchange Offer."
Certain Federal Income Tax
Considerations........... It is anticipated that the exchange of Old Notes
for Exchange Notes pursuant to the Exchange Offer
will not be a taxable event for United States
federal income tax purposes, because under existing
Treasury regulations, the Exchange Notes will not
differ materially in kind or extent from the Old
Notes. See "Certain Federal Income Tax
Considerations."
Accounting Treatment....... The Exchange Notes will be recorded at the same
carrying value as the Old Notes, which is face
value, as reflected in the Company's accounting
records on the date of exchange. Accordingly, no
gain or loss for accounting purposes will be
recognized by the Company in connection with the
Exchange Offer. The expenses of the Exchange Offer
will be amortized over the term of the Exchange
Notes.
Use of Proceeds............ The Company will not receive any cash proceeds from
the issuance of the Exchange Notes offered hereby.
In consideration for issuing the Exchange Notes as
contemplated in this Prospectus, the Company will
receive a like principal amount of Old Notes. The
form and terms of the Exchange Notes will be
identical in all material respects to the form and
terms of the Old Notes, except as described herein.
The Old Notes surrendered in exchange for the
Exchange Notes will be retired and canceled and
cannot be reissued. The net proceeds of the
Offering of approximately $95.6 million, together
with borrowings of approximately $4.4 million under
the New Credit Facility, were used to repay all
debt of the Company outstanding under the Bridge
Facility. Borrowings of $100.0 million under the
Bridge Facility and approximately $70.4 million
under the New Credit Facility were incurred to
finance the purchase price for the Farah
Acquisition, the repayment of the Terminated Credit
Facilities and the redemption of the Convertible
Debentures. See "Use of Proceeds."
Exchange Agent............. SunTrust Bank, Atlanta.
THE EXCHANGE NOTES
General.................... The form and terms of the Exchange Notes will be
identical in all material respects to the form and
terms of the Old Notes, except that (i) the
Exchange Notes will bear a different CUSIP Number
from the Old Notes, (ii) the issuance of the
Exchange Notes will be registered under the
Securities Act and, therefore, the Exchange Notes
will not bear legends restricting the transfer
thereof, and (iii) holders of Ex-
9
<PAGE> 14
change Notes will not be entitled to certain rights
under the Registration Rights Agreement, including
the provisions thereof which provide for an
increase in the interest rate on the Old Notes in
certain circumstances relating to the timing of the
Exchange Offer, which rights will terminate when
the Exchange Offer is consummated. The Exchange
Notes will evidence the same debt as the Old Notes
(which they replace) and will be issued under and
be entitled to the benefits of the Indenture. See
"The Exchange Offer -- Purpose and Effect of the
Exchange Offer."
Exchange Notes Offered..... $100,000,000 aggregate principal amount of 11%
Senior Subordinated Notes due 2008.
Maturity Date.............. June 15, 2008.
Interest Payment Dates..... June 15 and December 15 of each year, commencing
December 15, 1998.
Subsidiary Guarantees...... The Company's payment obligations under the
Exchange Notes will be jointly and severally
guaranteed on a senior subordinated basis (the
"Subsidiary Guarantees") by the Subsidiary
Guarantors. The Subsidiary Guarantees will be
subordinated to all senior debt of the Subsidiary
Guarantors. See "Description of the
Notes -- Subsidiary Guarantees."
Optional Redemption........ The Exchange Notes will be redeemable, in whole or
in part, at the option of the Company, at any time
on or after June 15, 2003, at the redemption prices
set forth herein, plus accrued and unpaid interest
to the date of redemption. In addition, at any time
on or prior to June 15, 2001, the Company may, at
its option, redeem up to 35% of the original
aggregate principal amount of the Notes with the
net proceeds of one or more Public Equity
Offerings, at a redemption price equal to 111% of
the principal amount thereof, plus accrued and
unpaid interest to the date of redemption; provided
that immediately after giving effect to any such
redemption, at least $65.0 million aggregate
principal amount of Notes remains outstanding. See
"Description of the Notes -- Optional Redemption."
Change of Control.......... Upon a Change of Control, each holder of Exchange
Notes will have the right to require the Company,
subject to certain conditions, to repurchase such
holder's Exchange Notes at a purchase price equal
to 101% of the principal amount thereof, plus
accrued and unpaid interest, if any, to the date of
repurchase. See "Description of the
Notes -- Repurchase at the Option of Holders Upon
Change of Control."
Ranking.................... The Exchange Notes will be, and the Old Notes are,
general unsecured obligations of the Company,
subordinated in right of payment to all existing
and future senior debt of the Company, including
debt incurred pursuant to the New Credit Facility.
The Exchange Notes will rank, and the Old Notes
rank, pari passu in right of payment with all
future senior subordinated debt of the Company, if
any, and the Exchange Notes will rank, and the Old
Notes rank, senior in right of payment to all
future subordinated debt of the Company, if any.
The Exchange Notes will be, and the Old Notes are,
guaranteed, on a senior subordinated basis, by the
Subsidiary Guarantors and effectively subordinated
in right of payment to all debt and other
liabilities (including trade payables) of the
Company's subsidiaries that are not Subsidiary
Guarantors. As of July 4, 1998, the Company and the
Subsidiary Guarantors had an aggregate of
10
<PAGE> 15
approximately $83.4 million of Debt (as defined
herein) outstanding ranking senior to the Notes,
and the Company's subsidiaries that are not
Subsidiary Guarantors had approximately $3.8
million of accounts payable and third-party debt
outstanding. The Indenture permits the Company and
its subsidiaries to incur additional Debt,
including Senior Debt (as defined herein), subject
to certain limitations. See "Description of the
Notes -- Subordination" and "Description of Other
Indebtedness."
Certain Covenants.......... The Indenture contains certain covenants that,
among other things, restrict the Company and its
Restricted Subsidiaries (as defined herein) with
respect to: (i) the incurrence of additional debt;
(ii) restricted payments; (iii) asset sales; (iv)
transactions with affiliates; (v) dividend and
other payment restrictions affecting Restricted
Subsidiaries; (vi) issuing stock of subsidiaries to
third parties; (vii) certain liens; and (viii)
certain consolidations, mergers or sales of assets.
All of these restrictions are subject to a number
of significant limitations and qualifications. See
"Description of the Notes -- Certain Covenants."
RISK FACTORS
See "Risk Factors" for a discussion of certain factors that should be
considered in evaluating an investment in the Exchange Notes.
11
<PAGE> 16
SUMMARY UNAUDITED PRO FORMA COMBINED FINANCIAL DATA
The summary unaudited pro forma combined financial data give effect to the
Transactions as if they had been consummated on September 29, 1996 and September
28, 1997, in the case of the summary unaudited pro forma combined statement of
operations data for fiscal 1997 and the forty weeks ended July 4, 1998,
respectively. The summary unaudited pro forma combined financial data is
presented for illustrative purposes only and is not necessarily indicative of
what the Company's actual results of operations would have been had the
Transactions been consummated as of the above-referenced dates or of the results
of operations of the Company for any future period. See "Unaudited Pro Forma
Combined Financial Data."
<TABLE>
<CAPTION>
PRO FORMA
-----------------------
FORTY
WEEKS
FISCAL ENDED
1997 JULY 4, 1998
-------- ------------
(IN THOUSANDS,
EXCEPT RATIOS)
<S> <C> <C>
STATEMENT OF OPERATIONS DATA:
Net sales................................................... $425,411 $335,598
Cost of goods sold.......................................... 315,427 251,272
-------- --------
Gross profit................................................ 109,984 84,326
Selling, general and administrative expenses................ 87,279 66,614
Termination of foreign operations........................... 5,106 5,229
Production conversion expenses.............................. 2,061 642
Relocation expenses......................................... 904 3,262
-------- --------
Operating income............................................ 14,634 8,579
Interest expense, net(1).................................... 18,750 13,760
Bridge loan funding fee..................................... -- 500
Other expense, net.......................................... 231 637
-------- --------
Loss before income tax...................................... (4,347) (6,318)
Income tax benefit.......................................... (3,802) (2,652)
-------- --------
Net loss.......................................... $ (545) $ (3,666)
======== ========
OTHER DATA:
Depreciation and amortization(1)............................ $ 6,973 $ 5,815
EBITDA(2)................................................... 30,199 23,141
Adjusted EBITDA(3).......................................... 53,399 40,541
Cash interest expense(4).................................... 17,433 12,647
Ratio of Adjusted EBITDA to cash interest expense........... 3.1x 3.2x
Ratio of earnings to fixed charges(5)....................... -- --
</TABLE>
- ---------------
(1) Interest expense, net, and depreciation and amortization include
amortization of debt issuance costs of $1.3 million and $1.1 million for
fiscal 1997 and the forty weeks ended July 4, 1998, respectively. Interest
expense, net also includes interest income of $752,000 and $251,000 for
fiscal 1997 and the forty weeks ended July 4, 1998, respectively.
(2) EBITDA represents loss before income tax plus, without duplication, (i)
depreciation and amortization, (ii) interest expense, and (iii) special
charges incurred by Farah during the periods presented relating to the
termination of foreign operations, production conversions and/or relocation
expenses (the "Farah Charges"). EBITDA is presented because it provides
useful information regarding the Company's ability to service debt. EBITDA
should not be considered as an alternative measure of operating results or
cash flows from operations (as determined in accordance with generally
accepted accounting principles).
(3) Adjusted EBITDA represents EBITDA plus $23.2 million of annual cost savings
(or $17.4 million for the forty weeks ended July 4, 1998) that the Company
expects to achieve in connection with the Farah Acquisition assuming that
all cost savings were achieved at the beginning of the applicable period.
See "-- Expected Benefits of the Farah Acquisition -- Cost Savings."
12
<PAGE> 17
(4) Cash interest expense reflects, for the applicable period, aggregate
interest expense during such period minus non-cash interest expense during
such period attributable to the amortization of debt issuance costs. On a
pro forma basis after giving effect to the Transactions, non-cash interest
expense would have been $1.3 million and $1.1 million for fiscal 1997 and
the forty weeks ended July 4, 1998, respectively.
(5) In calculating the ratio of earnings to fixed charges, earnings consist of
income before income taxes plus fixed charges (excluding capitalized
interest). Fixed charges consist of interest expense (which includes
amortization of deferred financing costs), whether expensed or capitalized,
and the portion of rental expense that is representative of the interest
factor. On a pro forma basis after giving effect to the Transactions,
earnings would have been insufficient to cover fixed charges by $4.4 million
and $6.4 million for fiscal 1997 and the forty weeks ended July 4, 1998,
respectively.
13
<PAGE> 18
RISK FACTORS
Prospective investors should carefully consider the following factors in
addition to the other information set forth in this Prospectus before making an
investment in the Exchange Notes offered hereby.
Certain of the matters discussed in this Prospectus may constitute
forward-looking statements for purposes of the Securities Act and the Exchange
Act. All statements, other than statements of historical facts, included in this
Prospectus that address activities, events or developments that TSI expects or
anticipates will or may occur in the future, including the successful
implementation of TSI's and Farah's new management information systems, the
amount and nature of future capital expenditures, business strategies and
measures to implement such strategies, competitive strengths, expansion and
growth of TSI's business and operations, references to future success, the
realization of cost savings and business synergies resulting from the Farah
Acquisition and other such matters are forward-looking statements. Such
forward-looking statements may involve uncertainties and other factors that may
cause the actual results and performance of TSI to be materially different from
future results or performance expressed or implied by such statements.
Cautionary statements regarding the risks associated with such forward-looking
statements include, without limitation, those statements set forth below and
elsewhere herein. Among others, factors that could adversely affect actual
results and performance include failure to successfully integrate Farah's
operations into those of the Company in a timely and efficient manner, the loss
of a significant customer, delays in installing or malfunctions of the Company's
or Farah's new management information systems, disruption in the operations of
independent manufacturers, political or social instability in geographic areas
in which the Company's independent manufacturers operate, changes in import and
export regulations and sudden increases in raw material or labor prices. All
written or oral forward-looking statements attributable to TSI are expressly
qualified in their entirety by the foregoing cautionary statement.
INTEGRATION OF FARAH
The Farah Acquisition will result in a significant increase in the scope of
the Company's business. Farah's net sales for fiscal 1997 were approximately
$273.7 million, while TSI's net sales for fiscal 1997 were approximately $151.7
million. Specifically, as a result of the Farah Acquisition, the Company will
significantly increase (i) the number of its branded and private brand apparel
offerings, (ii) the number of its manufacturing and other operating locations,
(iii) the number of its employees, (iv) the geographical scope of its operations
and (v) the total scale of its operations. The integration of the operations of
Farah with those of the Company, the coordination of purchasing, distribution,
manufacturing and warehousing for the combined companies, the coordination of
Farah's sales and marketing operations with those of the Company and the
implementation of appropriate financial and management systems in connection
with the Farah Acquisition will require significant financial resources and
substantial attention from the Company's management. Any inability of the
Company to successfully integrate Farah in a timely and efficient manner could
have a material adverse affect on the Company's business, results of operations
and financial condition. In addition, the Company expects to realize certain
cost savings and business synergies as a result of the Farah Acquisition.
Realization of such cost savings and business synergies could be affected by a
number of factors beyond the Company's control, such as general economic
conditions, increased operating costs, the response of competitors, customers or
employees and regulatory developments. There can be no assurance that the
Company will achieve the expected cost savings and business synergies.
SUBSTANTIAL LEVERAGE
As a result of the consummation of the Transactions, the Company is highly
leveraged. As of July 4, 1998, the Company's consolidated debt was approximately
$183.4 million and its shareholders' equity was approximately $47.7 million. In
addition, on a pro forma basis after giving effect to the Transactions, the
Company's earnings would have been insufficient to cover fixed charges by
approximately $6.4 million for the forty weeks ended July 4, 1998. See
"Capitalization," "Description of the Notes" and "Description of Other
Indebtedness."
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The Indenture and the New Credit Facility permit the Company and its
subsidiaries to incur additional debt, subject to certain limitations. The
degree to which the Company is leveraged will have important consequences for
the holders of the Notes, including, but not limited to, the following: (i) a
substantial portion of the Company's cash flow from operations will be dedicated
to the payment of principal and interest on its debt and will not be available
for other purposes; (ii) the Company's ability to obtain additional financing in
the future for working capital, capital expenditures, acquisitions or other
purposes may be impaired; (iii) the Company's leverage may increase its
vulnerability to economic downturns and limit its ability to withstand
competitive pressures; (iv) the Company's ability to capitalize on significant
business opportunities may be limited; and (v) the Company's leverage may place
the Company at a competitive disadvantage in relation to less leveraged
competitors.
The ability of the Company to meet its debt service obligations will depend
on the future operating performance and financial results of the Company, which
will be subject in part to factors beyond the control of the Company. Although
the Company believes that its cash flow will be adequate to meet its interest
and principal payments, there can be no assurance that the Company will generate
earnings in the future sufficient to cover its fixed charges. If the Company is
unable to generate earnings in the future sufficient to cover its fixed charges
and is unable to borrow sufficient funds under either the New Credit Facility or
from other sources, it may be required to refinance all or a portion of its
existing debt (including the Notes) or to sell all or a portion of its assets.
There can be no assurance that a refinancing would be possible, nor can there be
any assurance as to the timing of any asset sales or the proceeds that the
Company could realize therefrom. In addition, the terms of the New Credit
Facility and the Indenture restrict the Company's ability to sell assets and the
use of the proceeds therefrom. See "Management's Discussion and Analysis of
Financial Condition and Results of Operations -- Liquidity and Capital
Resources -- Liquidity and Capital Resources of TSI" and "Description of Other
Indebtedness -- New Credit Facility."
If for any reason, including a shortfall in anticipated operating results
or proceeds from asset sales, the Company were unable to meet its debt service
obligations, it would be in default under the terms of the New Credit Facility.
In the event of such a default, the lenders under the New Credit Facility could
elect to declare all debt thereunder to be immediately due and payable,
including accrued and unpaid interest, and to terminate their commitments
thereunder to provide funding. In addition, such lenders could proceed against
their collateral, which consists of substantially all of the current and future
personal property of the Company and certain of its subsidiaries. Any default
under the New Credit Facility could result in a default under the Company's
other debt or result in a bankruptcy of the Company. Such defaults would delay
or preclude payment of principal of, premium, if any, and interest on, the
Notes. See "Description of the Notes -- Subordination."
ACQUISITIONS
The Company intends to pursue acquisitions as part of its business
strategy. The Company regularly evaluates acquisition opportunities that would
complement its ongoing operations. There can be no assurance that the Company
will be able to successfully identify suitable acquisition candidates, obtain
sufficient financing on acceptable terms to fund acquisitions, complete
acquisitions, integrate acquired operations into its existing operations or
profitably manage acquired businesses. Once integrated, acquired operations may
not achieve levels of revenues, profitability or productivity comparable to
those achieved by the Company's existing operations, or otherwise perform as
expected. Acquisitions may also involve a number of special risks, including,
among others, possible adverse effects on the Company's operating results,
diversion of management's attention and the Company's resources, and dependence
on retaining, hiring and training key personnel, some or all of which could have
a material adverse effect on the Company's business, results of operations and
financial condition. In addition, the Company competes for acquisition and
expansion opportunities with companies that have substantially greater resources
than the Company. Although the Company regularly evaluates acquisition
opportunities, it currently has no agreements, arrangements or understandings
with respect to any acquisitions.
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RELIANCE ON KEY CUSTOMERS
On a pro forma basis after giving effect to the Transactions, sales to the
Company's five largest customers would have represented approximately 47.2% of
net sales for the forty weeks ended July 4, 1998. On a pro forma basis after
giving effect to the Transactions, sales to Wal-Mart, Dillard's and Federated
Department Stores would have accounted for approximately 20.0%, 8.0% and 7.0%,
respectively, of net sales for the forty weeks ended July 4, 1998. The Company
does not have long-term contracts with any of its customers, and sales to
customers generally occur on an order-by-order basis and are subject to certain
rights of cancellation and rescheduling by the customer or by the Company.
Accordingly, the level of unfilled orders at any given time may not be
indicative of eventual actual shipments. In addition, the Company's inability to
timely fulfill customer orders may materially and adversely affect the Company's
relationships with its customers. Any deterioration in the Company's
relationship with any key customers could have a material adverse effect on the
Company's business, results of operations and financial condition.
The Company's future financial condition and results of operations will
depend to a significant extent upon the commercial success of its major
customers and their continued willingness to purchase the Company's products.
Any significant downturn in the business of the Company's major customers or
their commitment to the Company's programs or brands could cause those customers
to reduce or discontinue their purchases from the Company, which could have a
material adverse effect on the Company's business, results of operations and
financial condition. See "Business -- Customers and Customer Service."
APPAREL INDUSTRY
The apparel industry has historically been subject to cyclical variations,
and a recession in the general economy or uncertainties regarding future
economic prospects that affect consumer spending habits could have a material
adverse effect on the Company's business, results of operations and financial
condition. The Company believes that its success depends in large part upon its
ability to anticipate, gauge and respond to changing consumer demands and
fashion trends in a timely manner. Failure by the Company to identify and
respond appropriately to changing consumer demands and fashion trends could
adversely affect consumer acceptance of the Company's products and may have a
material adverse effect on the Company's business, results of operations and
financial condition.
Additionally, a number of apparel retailers have experienced significant
changes and difficulties over the past several years, including consolidation of
ownership, increased centralization of buying decisions, restructurings,
bankruptcies and liquidations. During past years, various apparel retailers,
including some of the Company's customers, have experienced financial problems
that have increased the risk of extending credit to such retailers. Financial
problems with respect to any of the Company's customers could cause the Company
to reduce or discontinue business with such customers or require the Company to
assume more credit risk relating to such customers' receivables, either of which
could have a material adverse effect on the Company's business, results of
operations and financial condition. See "Business -- Industry."
COMPETITION
The apparel industry is highly competitive and TSI and Farah compete with
numerous apparel manufacturers, including brand name and private brand
producers, and retailers which have established, or may establish, internal
product development and sourcing capabilities. TSI's and Farah's products also
compete with a substantial number of designer and non-designer product lines.
Many of TSI's and Farah's competitors and potential competitors have greater
financial, manufacturing and distribution resources than TSI and Farah. Any
increased competition from manufacturers or retailers, or any increased success
by existing competition, could have a material adverse effect on the Company's
business, results of operations and financial condition. See
"Business -- Competition."
DEPENDENCE ON INTELLECTUAL PROPERTY; RISK OF INFRINGEMENT CLAIMS
TSI and Farah use a number of trademarks, certain of which TSI and Farah
have registered with the United States Patent and Trademark Office. The Company
believes these registered and common law
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<PAGE> 21
trademarks and other proprietary rights are important to its success and its
competitive position. TSI and Farah experience, from time to time, challenges to
the use or registration of certain of their trademarks and use of their trade
dress. Levi Strauss & Co. recently brought suit against TSI alleging, among
other things, that a TSI trademark and the trade dress used in the labeling and
packaging of certain TSI products infringe upon certain of Levi Strauss & Co.'s
proprietary trademark and trade dress rights. The outcome of the litigation
cannot be determined at this time. Nevertheless, in an attempt to limit TSI's
liability, if any, with respect to such alleged infringement, TSI has
unilaterally altered the trademark and trade dress which are currently the
subject of this lawsuit. There can be no assurance, however, that the
modifications made to the subject trademark and trade dress do not infringe upon
Levi Strauss & Co.'s rights or that Levi Strauss & Co. will not continue to seek
to recover damages and attorneys' fees from TSI with respect to the use of this
modified trademark and trade dress, or with respect to the trademark and trade
dress prior to modification. See "Business -- Legal Proceedings." Additionally,
there can be no assurance that TSI's and Farah's other trademarks and
proprietary rights do not or will not violate the proprietary rights of others,
that they would be upheld if challenged or that TSI or Farah would not be
prevented, in any such event, from using its trademarks or other proprietary
rights, any of which could have a material adverse effect on the Company's
business, results of operations and financial condition. In the event of
litigation arising from alleged infringement, any claiming party may have
significantly greater resources than the Company to pursue such litigation, and
the Company could be forced to incur substantial costs to defend such
litigation. In addition, if any such party is successful in challenging the
Company's or Farah's trademarks or use of trade dress, the Company could be
forced to pay significant damages or required to enter into expensive royalty or
licensing arrangements with such third party. Accordingly, any such litigation
could have a material adverse effect on the Company's business, results of
operations and financial condition.
In addition, TSI and Farah use various trademarks owned by other companies
in the promotion, distribution and sale of their products pursuant to licensing
agreements. From time to time, the Company has been engaged in litigation
regarding its licensing arrangements. There can be no assurance that any of the
licensing agreements will not be terminated or will be renewed in the future. In
the event TSI and Farah are unable to use the trademarks of such other companies
in the future, the Company's business, results of operations and financial
condition may be materially adversely affected. See "Business -- Trademarks and
Licenses."
DEPENDENCE ON KEY PERSONNEL
The Company's continued success is dependent upon its ability to retain its
senior management as well as its ability to attract and retain qualified
management, administrative and sales personnel to support its existing
operations and future growth. The loss of the services of any members of its
senior management, or the inability to attract and retain other qualified
personnel, could have a material adverse effect on the Company's business,
results of operations and financial condition. See "Management."
PRICE AND AVAILABILITY OF RAW MATERIALS
The principal fabrics used in the Company's and Farah's apparel consist of
cotton, wool, synthetic and blended fabrics. These fabrics, with the quality the
Company and Farah require, are available from a limited number of suppliers. The
prices paid by the Company and Farah for such fabrics are largely dependent on
the market prices for the raw materials used to produce them, namely cotton,
wool, rayon and polyester. The price and availability of such raw materials and,
in turn, the fabrics used in the Company's and Farah's apparel may fluctuate
significantly, depending on a variety of factors, including crop yields and
weather patterns. In the event that the Company is required to obtain fabrics
from sources other than its current suppliers, the quality of available fabrics
also may fluctuate significantly. Fluctuations in the price, availability and
quality of the fabrics or other raw materials used by the Company could have a
material adverse effect on the Company's cost of sales or its ability to meet
its customers' demands and, as a result, could have a material adverse effect on
the Company's business, results of operations and financial condition. There
also can be no assurance that the Company will be able to pass along to its
customers all, or any portion of, any future increases in the prices paid for
the fabrics used in the manufacture of the Company's products. See
"Business--Production."
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DEPENDENCE ON INDEPENDENT MANUFACTURERS
TSI and Farah use independent manufacturers to assemble or produce a
substantial portion of their respective products. The Company and Farah are
dependent upon the ability of their independent manufacturers to adequately
finance the assembly or production of goods ordered and maintain sufficient
manufacturing capacity. The use of independent manufacturers to assemble or
produce finished goods and the resulting lack of direct control could subject
the Company to difficulty in obtaining timely delivery of products of acceptable
quality. Neither the Company nor Farah generally has long-term contracts with
any independent manufacturers. Alternative manufacturers, if available, may not
be able to provide the Company with products or services of a comparable
quality, at an acceptable price or on a timely basis. There can be no assurance
that there will not be a disruption in the supply of the Company's products from
its independent manufacturers or, in the event of a disruption, that the Company
would be able to substitute in a timely manner suitable alternative
manufacturers. The failure of any independent manufacturer to perform or the
loss of any independent manufacturer could have a material adverse effect on the
Company's business, results of operations and financial condition. See
"Business -- Production."
INTERNATIONAL SOURCING AND MANUFACTURING
During fiscal 1997 and the forty weeks ended July 4, 1998, all of TSI's
products were assembled or produced by independent manufacturers operating
outside the United States, primarily in the Dominican Republic and, to a lesser
extent, Mexico. In addition, substantially all of Farah's products have
historically been assembled outside the United States, with a significant
portion of such production occurring in Mexico and Costa Rica. Accordingly, the
Company expects that after the Farah Acquisition almost all of its products will
be assembled or produced outside the United States. Generally, neither the
Company nor Farah has any long-term contracts with its independent
manufacturers. There can be no assurance that the Company will not experience
difficulties with such manufacturers, which could include a reduced availability
of production capacity, failure to meet production deadlines or increases in
manufacturing costs. In addition, the use of foreign manufacturers requires the
Company to order products further in advance to account for additional
transportation time. If the Company overestimates customer demand, it may be
required to hold goods in inventory which it may be unable to sell at historical
margins; if it underestimates customer demand, the Company may not be able to
fill orders on a timely basis.
International manufacturing is subject to a number of other risks including
work stoppages, transportation delays and interruptions, delays and
interruptions resulting from natural disasters, political instability, economic
disruptions, expropriation, nationalization, the imposition of tariffs and
import and export controls, changes in governmental policies and other events.
Any such event could have a material adverse effect on the Company's business,
results of operations and financial condition. In addition, a significant
portion of Farah's manufacturing operations are located in a number of countries
outside the United States. As a consequence, following the Farah Acquisition,
the Company will be subject to additional risks associated with owning and
operating manufacturing facilities abroad. These include, among others, the
risks of becoming subject to labor laws and other government regulations imposed
by the countries in which the Company operates. Any such adverse change could
result in loss of revenues, customer orders and customer goodwill and could have
a material adverse effect on the Company's business, results of operations and
financial condition.
The Company and Farah are also exposed to foreign currency risk. Although
TSI and, to a lesser extent Farah, have historically contracted to assemble or
produce substantially all of their goods in United States dollars, reductions in
the value of the United States dollar could increase the prices that the Company
pays for its products, which increases the Company may not be able to pass on to
its customers. Any such price increases could have a material adverse effect on
the Company's business, results of operations and financial condition. See
"Business -- Production."
IMPORTS AND IMPORT RESTRICTIONS
Substantially all of TSI's and Farah's import operations are subject to the
terms of bilateral textile agreements between the United States and a number of
countries, which agreements impose quotas on the
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amount and type of goods that can be imported into the United States from these
countries. Pursuant to international agreements and/or United States laws, these
bilateral textile agreements allow, and any future bilateral textile agreement
may allow, the United States, under certain circumstances, to impose restraints
at any time on the importation of additional or new categories of merchandise.
The Company's imported products are also subject to United States customs
duties. On a pro forma basis after giving effect to the Transactions, such
duties would have represented approximately 4.3% of the Company's cost of goods
sold for the forty weeks ended July 4, 1998.
The United States and the countries in which TSI's and Farah's products are
manufactured may from time to time impose new quotas, duties, tariffs or other
restrictions or adversely adjust presently prevailing quotas, duties or tariffs.
In addition, the United States may bar imports of products that are found to
have been manufactured by convict, forced or indentured labor and may withdraw
the "most favored nation" status of certain countries, which could result in the
imposition of higher tariffs on products imported from such countries. Any such
new or adjusted restrictions could have a material adverse effect on the
Company's business, results of operations and financial condition. See
"Business -- Imports and Import Regulations."
MANAGEMENT INFORMATION SYSTEMS
TSI and Farah rely upon the accuracy and proper utilization of their
respective management information systems to provide timely distribution
services and to properly track their respective operating results. The Company
began implementation of a new, integrated management information system in the
second quarter of fiscal 1998 and continues to integrate additional functions.
The Company expects that it will need to modify its management information
systems as a result of the Farah Acquisition. Further modification and
refinement will be required as the Company grows and its business needs change.
The occurrence of a significant system failure or the Company's inability to
modify its management information systems to respond to the Farah Acquisition
and other changes in its business needs could have a material adverse effect on
the Company's business, results of operations and financial condition. See
"Business -- Management Information Systems."
CONTROL BY PRINCIPAL SHAREHOLDERS
As of August 17, 1998, William W. Compton, the Company's Chairman of the
Board and Chief Executive Officer, and Michael Kagan, the Company's Executive
Vice President and Chief Financial Officer, owned or controlled approximately
12.5% and 7.5%, respectively, of the outstanding shares of TSI's common stock
(the "Common Stock"). As of such date, Accel, S.A. de C.V., a Mexican
corporation ("Accel"), owned approximately 21.1% of the outstanding shares of
the Common Stock. In addition, pursuant to TSI's Amended and Restated Articles
of Incorporation, Accel currently has the right to nominate two persons to stand
for election to TSI's seven-member Board of Directors, and separate family
limited partnerships controlled by Messrs. Compton and Kagan, respectively, each
currently has the right to nominate one person to stand for election to TSI's
seven-member Board of Directors. Moreover, Accel and Messrs. Compton and Kagan
and their respective family limited partnerships have entered into a
shareholders' agreement pursuant to which, among other things, each of them has
agreed to vote the shares of Common Stock owned or controlled by them to elect
the nominees of the other parties to the shareholders' agreement to TSI's Board
of Directors. In light of the foregoing, such persons will effectively have the
ability to significantly influence the election of TSI's directors and the
outcome of all other issues submitted to TSI's shareholders. See "Management"
and "Principal Shareholders."
SEASONALITY
Historically, TSI's and Farah's businesses have been seasonal, with
slightly higher sales and income in their respective second and fourth fiscal
quarters, just prior to and during the two peak retail selling seasons for
spring and fall merchandise. In addition, certain of TSI's and Farah's products,
such as shorts and corduroy pants, tend to be seasonal in nature. In the event
such products represent a greater percentage of the Company's sales in the
future, the seasonality of the Company's sales may be increased.
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RANKING OF THE NOTES AND THE SUBSIDIARY GUARANTEES
The Exchange Notes will be, and the Subsidiary Guarantees are, general
unsecured obligations of the Company and the Subsidiary Guarantors,
respectively, subordinated in right of payment to all existing and future senior
debt of the Company and the Subsidiary Guarantors, including Debt under the New
Credit Facility. As of July 4, 1998, the Company and the Subsidiary Guarantors
had an aggregate of approximately $83.4 million of Debt outstanding ranking
senior to the Notes, and the Company had $46.4 million of additional borrowing
availability under the New Credit Facility (subject to borrowing base
limitations), all of which would be Senior Debt. In the event of a bankruptcy,
liquidation or reorganization of the Company or a Subsidiary Guarantor, the
assets of the Company or such Subsidiary Guarantor would be available to pay
obligations on the Notes only after all senior debt of the Company or such
Subsidiary Guarantor, as the case may be, has been repaid in full. Consequently,
sufficient assets may not exist to pay amounts due on the Notes. In addition,
the subordination provisions of the Indenture provide that no cash payments may
be made with respect to the Notes during the continuance of a payment default
under certain Senior Debt of the Company. Furthermore, if certain nonpayment
defaults exist with respect to certain Senior Debt, the holders of such Senior
Debt would be able to prevent payments of principal of, premium, if any, and
interest on, the Notes for certain periods of time. See "Description of the
Notes -- Subordination."
None of TSI's or Farah's non-United States subsidiaries will be Subsidiary
Guarantors, and the Notes are, and the Exchange Notes will be, effectively
subordinated in right of payment to all debt and other liabilities (including
trade payables) of these subsidiaries. As of July 4, 1998, TSI's subsidiaries
that are not Subsidiary Guarantors had approximately $3.8 million of accounts
payable and third party debt outstanding. The right of the Company to receive
assets of any of its subsidiaries that are not Subsidiary Guarantors upon
liquidation or reorganization of such subsidiary will be subordinated to the
claims of that subsidiary's creditors (including trade creditors), except to the
extent the Company itself is recognized as a creditor of such subsidiary. See
"Description of the Notes -- Subordination."
RESTRICTIONS IMPOSED BY THE NEW CREDIT FACILITY AND THE INDENTURE
The New Credit Facility and the Indenture contain a number of significant
covenants which, among other things, restrict the ability of the Company to
dispose of assets, incur additional debt, repay other debt, pay dividends, make
certain investments or acquisitions, repurchase or redeem capital stock, engage
in mergers or consolidations, or engage in certain transactions with
subsidiaries and affiliates and otherwise restrict corporate activities. There
can be no assurance that such restrictions will not adversely affect the
Company's ability to finance its future operations or capital needs or engage in
other business activities that may be in the best interest of the Company. In
addition, the New Credit Facility also requires the Company to maintain
compliance with certain financial ratios. The ability of the Company to comply
with such ratios may be affected by events beyond the Company's control. A
breach of any of these covenants or the inability of the Company to comply with
the required financial ratios could result in a default under the New Credit
Facility. In the event of such a default, the lenders under the New Credit
Facility could elect to declare all debt thereunder to be immediately due and
payable, including accrued and unpaid interest, and to terminate their
commitments thereunder to provide funding. In addition, such lenders could
proceed against their collateral, which consists of substantially all of the
current and future personal property of the Company and certain of its
subsidiaries. Any default under the New Credit Facility could result in a
default under the Company's other debt or result in a bankruptcy of the Company.
Such defaults would delay or preclude payment of principal of, premium, if any,
and interest on, the Notes. See "Description of the Notes" and "Description of
Other Indebtedness -- New Credit Facility."
LIMITATION ON SUBSIDIARY GUARANTEES; FRAUDULENT CONVEYANCE CONCERNS
The issuance of a Subsidiary Guarantee by a Subsidiary Guarantor may be
subject to review under federal or state fraudulent conveyance laws in the event
of the bankruptcy or other financial difficulty of such Subsidiary Guarantor.
Depending upon the standard applied in connection with such review, such review
could result in the debt evidenced by a Subsidiary Guarantee being voided or
subordinated to all other debt of such Subsidiary Guarantor (in addition to the
Senior Debt of such Subsidiary Guarantor to which such
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Subsidiary Guarantee is expressly subordinated), and could result in payments
previously made in respect of such Subsidiary Guarantee being returned to such
Subsidiary Guarantor.
For example, under applicable law, if a court, in a lawsuit by an unpaid
creditor or representative of creditors of a Subsidiary Guarantor, were to find
that when such Subsidiary Guarantor incurred the debt evidenced by its
Subsidiary Guarantee, such Subsidiary Guarantor (a)(i) was insolvent or was
rendered insolvent by reason of such incurrence, (ii) was engaged in a business
or transaction for which the assets remaining with such Subsidiary Guarantor
constituted unreasonably small capital or (iii) intended to incur, or believed
(or reasonably should have believed) that it would incur, debt beyond its
ability to pay such debt as it matures and (b) received less than reasonably
equivalent value or fair consideration for the incurrence of such debt, then the
Subsidiary Guarantee could be voided, or claims in respect of the Subsidiary
Guarantee could be subordinated to all other debt of such Subsidiary Guarantor.
In addition, any amounts previously paid by a Subsidiary Guarantor pursuant to a
Subsidiary Guarantee could be voided and required to be returned to such
Subsidiary Guarantor, or to a fund for the benefit of the creditors of such
Subsidiary Guarantor. The measure of insolvency for purposes of the foregoing
considerations will vary depending upon the law of the jurisdiction being
applied. Generally, however, a Subsidiary Guarantor would be considered
insolvent if (i) the sum of its debts, including contingent liabilities, is
greater than the saleable value of all of its assets at a fair valuation or if
the present fair saleable value of its assets is less than the amount that would
be required to pay its probable liability on its existing debts, including
contingent liabilities, as they become absolute and matured or (ii) it could not
pay its debts as they become due.
A court will likely find that a Subsidiary Guarantor did not receive fair
consideration or reasonably equivalent value for its guarantee to the extent
that its liability thereunder exceeds any direct benefit it received from the
issuance of the Old Notes. Each Subsidiary Guarantee will limit the liability of
the Subsidiary Guarantor thereunder to the maximum amount that it could pay
without the guarantee being deemed a fraudulent transfer. There can be no
assurance that this limitation will be effective. If this limitation is not
effective, the issuance of a Subsidiary Guarantee by a Subsidiary Guarantor
could be deemed to render insolvent such Subsidiary Guarantor. If this
limitation is effective, there can be no assurance that the limited amount so
guaranteed would be sufficient to pay amounts owed under the Notes and the
Indenture in full.
LIMITATION ON CHANGE OF CONTROL
The Indenture requires the Company, in the event of a Change of Control, to
make an offer to purchase all outstanding Notes at a price equal to 101% of the
principal amount thereof, plus accrued and unpaid interest to the date of
repurchase. The New Credit Facility restricts such a purchase and such an offer
would require the approval of the lenders thereunder. In addition, certain
events involving a change of control may be an event of default under the New
Credit Facility or other debt of the Company that may be incurred in the future.
Accordingly, the right of the holders of the Notes to require the Company to
repurchase the Notes may be of limited value if the Company cannot obtain the
required approval under the New Credit Facility. In addition, even if such
approval were obtained, there can be no assurance that the Company will have the
financial resources necessary to purchase the Notes upon a Change of Control.
Failure to offer to repurchase the Notes under such circumstances, however,
would constitute an event default under the Indenture. See "Description of the
Notes -- Repurchase at the Option of Holders Upon Change of Control."
CONSEQUENCES OF FAILURE TO EXCHANGE OLD NOTES
Holders of Old Notes who do not exchange their Old Notes for Exchange Notes
pursuant to the Exchange Offer will continue to be subject to the provisions in
the Indenture regarding transfer and exchange of the Old Notes and the
restrictions on transfer of such Old Notes set forth in the legend thereon as a
consequence of the issuance of the Old Notes pursuant to an exemption from, or
in transactions not subject to, the registration requirements of the Securities
Act and applicable state securities laws. In general, the Old Notes may not be
offered or sold, unless registered under the Securities Act and applicable state
securities laws. The Company does not currently anticipate that it will register
Old Notes under the Securities Act. See "The Exchange Offer."
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FAILURE TO FOLLOW EXCHANGE OFFER PROCEDURES COULD ADVERSELY AFFECT HOLDERS
Issuance of the Exchange Notes in exchange for the Old Notes pursuant to
the Exchange Offer will be made only after a timely receipt by the Company of
such Old Notes, a properly completed and duly executed Letter of Transmittal and
all other required documents. Therefore, holders of the Old Notes desiring to
tender such Old Notes in exchange for Exchange Notes should allow sufficient
time to ensure timely delivery. The Company is under no duty to give
notification of defects or irregularities with respect to the tenders of Old
Notes for exchange. Old Notes that are not tendered or are tendered but not
accepted will, following the consummation of the Exchange Offer, continue to be
subject to the existing restrictions upon transfer thereof, and, upon
consummation of the Exchange Offer certain registration rights under the
Registration Rights Agreement will terminate. In addition, any holder of Old
Notes who tenders in the Exchange Offer for the purpose of participating in a
distribution of the Exchange Notes may be deemed to have received restricted
securities, and if so, will be required to comply with the registration and
prospectus delivery requirements of the Securities Act in connection with any
resale transaction. Each Participating Broker-Dealer that receives Exchange
Notes for its own account in exchange for Old Notes, where such Old Notes were
acquired by such Participating Broker-Dealer as a result of market-making
activities or other trading activities, must acknowledge that it will deliver a
prospectus in connection with any resale of such Exchange Notes. To the extent
that Old Notes are tendered and accepted in the Exchange Offer, the trading
market for untendered and tendered but unaccepted Old Notes could be adversely
affected. See "The Exchange Offer" and "Plan of Distribution."
ABSENCE OF ESTABLISHED TRADING MARKET
The Exchange Notes are a new issuance of securities for which there is
currently no trading market. The Exchange Notes will not be listed on any
securities exchange. The Company has been advised by the Initial Purchaser that
it intends to make a market in the Exchange Notes; however, the Initial
Purchaser is not obligated to do so, and any such market making activities may
be discontinued at any time without notice. Accordingly, there can be no
assurance that an active trading market for the Exchange Notes will develop or
as to the liquidity of any such market. In addition, if the Exchange Notes are
traded after their initial issuance, they may trade at a discount from their
initial offering price, depending upon prevailing interest rates, the market for
similar securities, the performance of the Company and other factors.
YEAR 2000
The "Year 2000 Issue" is the result of computer programs and systems having
been designed and developed to use two digits, rather than four, to define the
applicable year. As a result, these computer programs and systems may recognize
a date using "00" as the year 1900 rather than the year 2000. This could result
in a system failure or miscalculations causing disruptions of operations,
including, among other things, a temporary inability to process transactions,
send invoices or engage in similar normal business activities.
The new or upgraded management information systems which TSI began
implementing in the second quarter of fiscal 1998 will, among other things,
address problems resulting from the Year 2000 Issue. The Year 2000 Issue impacts
TSI's main operating system which includes subsystems related to customer
analysis, order processing, planning, procurement, production and sales. While
the new management information system, which is Year 2000 compliant, will not be
operational until approximately the third quarter of fiscal 1999, TSI plans to
have all existing systems Year 2000 compliant by the first quarter of fiscal
1999 and plans to spend up to $500,000 for this portion of its systems upgrade.
Based on assessments made during fiscal 1996 and 1997, Farah decided to
replace its entire inventory management, warehouse distribution and order
processing systems so that those systems will be Year 2000 compliant. Farah will
utilize both internal and external resources to reprogram or replace and test
the software for Year 2000 modifications. The Company plans to complete the
inventory management and order processing portions of Farah's Year 2000 project
no later than December 31, 1998 and plans to complete the remainder of the
project by June 30, 1999. Farah incurred $1.0 million in costs attributable to
Year 2000 compliance in fiscal 1997 and expects to incur an additional $2.6
million in fiscal 1998. The majority of these costs have been and will continue
to be capitalized, as they relate to software purchases and development.
22
<PAGE> 27
The Company and Farah are currently communicating with all significant
suppliers and large customers to determine the extent to which the Company and
Farah are vulnerable to those third parties' failure to remediate their own Year
2000 Issues. The Company believes that the modifications and conversions that it
and Farah are making and plan to make will allow it to mitigate problems
resulting from the Year 2000 Issue. However, if such modifications and
conversions are not made or are not completed timely, the Year 2000 Issue could
have a material adverse effect on the Company's business, results of operations
and financial condition.
USE OF PROCEEDS
The Exchange Offer is intended to satisfy certain of the Company's
obligations under the Registration Rights Agreement. The Company will not
receive any cash proceeds from the issuance of the Exchange Notes offered
hereby. In consideration for issuing the Exchange Notes as contemplated in this
Prospectus, the Company will receive a like principal amount of Old Notes. The
form and terms of the Exchange Notes will be identical in all material respects
to the form and terms of the Old Notes, except as described herein. The Old
Notes surrendered in exchange for Exchange Notes will be retired and canceled
and cannot be reissued. Accordingly, issuance of the Exchange Notes will not
result in any increase or decrease in the debt of the Company. As such, no
effect has been given to the Exchange Offer in the capitalization table set
forth in this Prospectus under "Capitalization."
The net proceeds of the Offering of approximately $95.6 million, together
with borrowings of approximately $4.4 million under the New Credit Facility,
were used to repay all debt of the Company outstanding under the Bridge
Facility. Borrowings of $100.0 million under the Bridge Facility and
approximately $70.4 million under the New Credit Facility were incurred to
finance the purchase price for the Farah Acquisition, the repayment of the
Terminated Credit Facilities and the redemption of the Convertible Debentures.
For a description of certain terms of the Bridge Facility and the New Credit
Facility, see "Description of Other Indebtedness -- Bridge Facility" and "-- New
Credit Facility."
The following table sets forth the approximate sources and uses of funds
for the Transactions (assuming that the Transactions occurred concurrently (and
consequently no borrowings were necessary under the Bridge Facility) on June 10,
1998).
<TABLE>
<CAPTION>
AMOUNT
--------------
(IN THOUSANDS)
<S> <C>
SOURCES OF FUNDS:
11% Senior Subordinated Notes due 2008.................... $100,000
New Credit Facility(1).................................... 70,397
--------
Total sources..................................... $170,397
========
USES OF FUNDS:
Farah Acquisition......................................... $ 95,848
Repayment of Terminated Credit Facilities(2).............. 63,821
Redemption of Convertible Debentures(3)................... 1,728
Estimated fees and expenses(4)............................ 9,000
--------
Total uses........................................ $170,397
========
</TABLE>
- ---------------
(1) As of July 4, 1998, the Company had approximately $46.4 million of
additional borrowing availability under the New Credit Facility, subject to
borrowing base limitations. See "Description of Other Indebtedness -- New
Credit Facility."
(2) TSI's Terminated Credit Facility, which was terminated in connection with
the consummation of the Transactions, would have expired by its terms in
January 1999 and, as of June 10, 1998, debt outstanding thereunder accrued
interest at a weighted average interest rate of approximately 9.75% per
annum. Farah's Terminated Credit Facility, which was terminated in
connection with the consummation of the
23
<PAGE> 28
Transactions, would have expired by its terms in July 2001 and, as of
February 1, 1998, debt outstanding thereunder accrued interest at a weighted
average interest rate of approximately 8.7% per annum.
(3) The Convertible Debentures, which were redeemed in connection with the
consummation of the Transactions, would have matured by their terms in
February 2004 and accrued interest at a fixed rate of 8.5% per annum.
(4) Includes (i) an aggregate of $1.0 million of fees paid to the Initial
Purchaser in its capacity as dealer manager in connection with the Tender
Offer and as financial advisor in connection with the Farah Acquisition,
(ii) the discount of $2.8 million paid to the Initial Purchaser in
connection with the Offering, (iii) fees of $500,000 paid to the Bridge
Lender in connection with the Bridge Facility, (iv) fees of $1.1 million
paid to Fleet and the other lenders in connection with the New Credit
Facility, (v) a fee of $198,000 paid under Farah's Terminated Credit
Facility as a prepayment premium and (vi) estimated legal, accounting and
other fees and expenses aggregating $3.4 million paid in connection with the
Transactions.
24
<PAGE> 29
CAPITALIZATION
The following table sets forth the actual capitalization (in thousands) of
TSI as of July 4, 1998. This table should be read in conjunction with the
Condensed Consolidated Financial Statements of TSI, including the notes thereto,
appearing elsewhere in this Prospectus.
<TABLE>
<S> <C>
Short-term debt(1):
Current portion of long-term debt and capital leases...... $ 3,714
Long-term debt(1):
New Credit Facility(2).................................... 63,578
Real estate loan.......................................... 9,316
11% Senior Subordinated Notes due 2008.................... 100,000
Other long-term debt and obligations under capital
leases................................................. 6,762
--------
Total long-term debt................................... 179,656
--------
Total debt........................................ 183,370
Shareholders' equity:
Preferred Stock, $.01 par value; 10,000,000 shares
authorized; no shares issued or outstanding............ --
Common Stock, $.01 par value; 50,000,000 shares
authorized; 7,600,000 shares issued and
outstanding(3)......................................... 76
Additional paid-in capital................................ 17,270
Retained earnings......................................... 30,376
--------
Total shareholders' equity............................. 47,722
--------
Total capitalization.............................. $231,092
--------
</TABLE>
- ---------------
(1) See Note 3 to the Condensed Consolidated Financial Statements of the Company
at July 4, 1998 for a discussion of the Company's and Farah's outstanding
debt, respectively.
(2) As of July 4, 1998, the Company had approximately $46.4 million of
additional borrowing availability under the New Credit Facility, subject to
borrowing base limitations. See "Description of Other Indebtedness -- New
Credit Facility."
(3) Excludes an aggregate of 470,200 shares of Common Stock issuable upon the
exercise of outstanding stock options.
25
<PAGE> 30
THE TRANSACTIONS
FARAH ACQUISITION
On June 10, 1998, the Farah Acquisition was consummated in accordance with
the Merger Agreement among TSI, Foxfire and Farah. Pursuant to the Merger
Agreement, on May 8, 1998 Foxfire commenced the Tender Offer to purchase all of
the Shares at a purchase price of $9.00 per Share. The aggregate consideration
paid to the shareholders and optionholders of Farah was approximately $95.8
million. The Board of Directors of Farah unanimously approved the Farah
Acquisition, determined that the purchase price was fair to the shareholders of
Farah and recommended that all shareholders of Farah tender their Shares
pursuant to the Tender Offer.
Consummation of the Tender Offer was conditioned upon, among other things,
(i) satisfaction of the Minimum Tender Condition and (ii) the expiration or
termination of the waiting period imposed by the Hart-Scott-Rodino Antitrust
Improvements Act of 1976, as amended, applicable to the purchase of Shares
pursuant to the Tender Offer (which waiting period expired on June 4, 1998). The
Tender Offer expired at 12:00 Midnight, New York City time, on June 5, 1998. The
Tender Offer was consummated on June 10, 1998 and immediately thereafter Foxfire
was merged into Farah in the Merger. Farah was the surviving corporation in the
Merger and is a wholly-owned subsidiary of TSI. Certain customary covenants of
the Company contained in the Merger Agreement survived consummation of the
Merger.
BRIDGE FACILITY AND NEW CREDIT FACILITY
To finance the Farah Acquisition, the repayment of the Terminated Credit
Facilities and the redemption of the Convertible Debentures, concurrently with
the consummation of the Tender Offer the Company entered into the Bridge
Facility and the New Credit Facility. The Bridge Facility provided for aggregate
borrowing availability of $100.0 million and was fully drawn upon consummation
of the Tender Offer. All debt thereunder was repaid in connection with the
consummation of the Transactions. For a description of certain terms of the
Bridge Facility, see "Description of Other Indebtedness -- Bridge Facility."
The New Credit Facility, which replaced the Terminated Credit Facilities,
was arranged by Fleet and permits revolving borrowings and letter of credit
issuances in an aggregate principal amount of $110.0 million, subject to
borrowing base limitations. The New Credit Facility has a term of five years.
For a description of certain terms of the New Credit Facility, see "Description
of Other Indebtedness -- New Credit Facility."
26
<PAGE> 31
UNAUDITED PRO FORMA COMBINED FINANCIAL DATA
The following Unaudited Pro Forma Combined Financial Data give effect to
the Transactions as if they had been consummated: (i) on September 29, 1996 with
respect to the Unaudited Pro Forma Combined Statement of Operations for fiscal
1997 and (ii) on September 28, 1997 with respect to the Unaudited Pro Forma
Combined Statement of Operations for the forty weeks ended July 4, 1998. The
Unaudited Pro Forma Combined Statement of Operations for fiscal 1997 has been
derived from the audited statement of operations of TSI and Farah for their
respective 1997 fiscal years. The Unaudited Pro Forma Combined Statement of
Operations for the forty weeks ended July 4, 1998 has been derived from TSI's
unaudited statement of income for the forty weeks ended July 4, 1998 and Farah's
unaudited statement of operations for the thirty-nine weeks ended May 3, 1998.
The Farah Acquisition has been accounted for using the purchase method of
accounting. The total purchase price for the Farah Acquisition has been
allocated to tangible and intangible assets and liabilities based upon
management's preliminary estimates of their fair market values with the excess
of cost over the fair market value of the net assets acquired allocated to
goodwill. Each of the allocations is subject to revision when additional
information concerning asset and liability valuations is obtained. The Company
believes, based upon currently available information, that the asset and
liability valuation for the Farah Acquisition will not be materially different
from that reflected in the Unaudited Pro Forma Combined Financial Data.
The Company believes that it can achieve at least $23.2 million of annual
cost savings in connection with the Farah Acquisition by the end of fiscal 1999
through a reduction of selling, general and administrative expenses (including
distribution expenses), the realization of production efficiencies and
improvements in inventory management. The Unaudited Pro Forma Combined Financial
Data do not give effect to these cost savings.
The Unaudited Pro Forma Combined Financial Data is presented for
illustrative purposes only and is not necessarily indicative of what the
Company's actual results of operations would have been had the Transactions been
consummated as of the above-referenced dates or of the results of operations of
the Company for any future period. The Unaudited Pro Forma Combined Financial
Data should be read in conjunction with the Consolidated Financial Statements of
TSI and Farah, including the notes thereto, appearing elsewhere in this
Prospectus.
27
<PAGE> 32
UNAUDITED PRO FORMA COMBINED STATEMENT OF OPERATIONS
FOR THE YEAR ENDED SEPTEMBER 27, 1997
<TABLE>
<CAPTION>
HISTORICAL PRO FORMA
------------------- -----------------------
TSI FARAH(1) ADJUSTMENTS COMBINED
-------- -------- ----------- --------
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<S> <C> <C> <C> <C>
Net sales.............................................. $151,692 $273,719 $ -- $425,411
Cost of goods sold..................................... 115,637 199,790 -- 315,427
-------- -------- -------- --------
Gross profit........................................... 36,055 73,929 -- 109,984
Selling, general and administrative expenses........... 19,443 66,436 1,400(2) 87,279
Termination of foreign operations...................... -- 5,106 -- 5,106
Production conversion expenses......................... -- 2,061 -- 2,061
Relocation expenses.................................... -- 904 -- 904
-------- -------- -------- --------
Operating income (loss)................................ 16,612 (578) (1,400) 14,634
Other (income) expense:
Interest expense..................................... 2,899 4,108 12,495(3) 19,502
Interest income...................................... (36) (716) -- (752)
Other (income) expense, net.......................... 573 (342) -- 231
-------- -------- -------- --------
Total other expense........................... 3,436 3,050 12,495 18,981
-------- -------- -------- --------
Income (loss) before income taxes...................... 13,176 (3,628) (13,895) (4,347)
Income taxes (benefit)................................. 4,907 (3,898) (4,811)(4) (3,802)
-------- -------- -------- --------
Net income (loss)............................. $ 8,269 $ 270 $ (9,084) $ (545)
======== ======== ======== ========
Earnings per share, basic and diluted.................. $ 1.37 $ (0.09)
======== ========
Basic and diluted weighted average number of common
shares outstanding................................... 6,000 6,000
</TABLE>
UNAUDITED PRO FORMA COMBINED STATEMENT OF OPERATIONS
FOR THE FORTY WEEKS ENDED JULY 4, 1998
<TABLE>
<CAPTION>
HISTORICAL PRO FORMA
------------------- --------------------------
TSI FARAH(5) ADJUSTMENTS COMBINED
-------- -------- ----------- --------
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<S> <C> <C> <C> <C>
Net sales........................................... $152,290 $201,928 $(18,620)(6) $335,598
Cost of goods sold.................................. 114,570 150,648 (13,946)(6) 251,272
-------- -------- -------- --------
Gross profit........................................ 37,720 51,280 (4,674) 84,326
Selling, general and administrative expenses........ 22,136 47,345 1,050(2) 66,614
(3,917)(6)
Termination of foreign operations................... -- 5,229 -- 5,229
Production conversion expenses...................... -- 642 -- 642
Relocation expenses................................. -- 3,262 -- 3,262
-------- -------- -------- --------
Operating income (loss)............................. 15,584 (5,198) (1,807) 8,579
Other (income) expense:
Interest expense.................................. 2,238 3,907 9,496(3) 14,011
(1,630)(6)
Interest income................................... (64) (194) 7(6) (251)
Bridge loan funding fee........................... 500 -- -- 500
Other (income) expense, net....................... 731 (144) 50(6) 637
-------- -------- -------- --------
Total other expense........................ 3,405 3,569 7,923 14,897
-------- -------- -------- --------
Income (loss) before income taxes................... 12,179 (8,767) (9,730) (6,318)
Income taxes (benefit).............................. 4,531 (3,779) (3,404)(4) (2,652)
-------- -------- -------- --------
Net income (loss).......................... $ 7,648 $ (4,988) $ (6,326) $ (3,666)
======== ======== ======== ========
Earnings (loss) per share, basic and diluted........ $ 1.02 $ (0.49)
======== ========
Basic weighted average number of common shares
outstanding....................................... 7,465 7,465
Diluted weighted average number of shares
outstanding....................................... 7,517 7,465
</TABLE>
See accompanying notes.
28
<PAGE> 33
NOTES TO UNAUDITED PRO FORMA COMBINED FINANCIAL DATA
(1) Represents Farah's results of operations for fiscal 1997.
(2) Represents amortization of intangibles of $42.0 million over a 30 year
period.
(3) Represents the additional interest expense that would have been incurred if
the Notes and borrowings under the New Credit Facility incurred in
connection with the Farah Acquisition had been outstanding for the entire
period less interest recognized by Farah during the twenty-four days ended
July 4, 1998.
<TABLE>
<CAPTION>
FORTY
WEEKS ENDED
FISCAL 1997 JULY 4, 1998
----------- ------------
(IN THOUSANDS)
<S> <C> <C>
Interest expense on the New Credit Facility................. $ 4,810 $ 3,607
Interest expense on the Notes............................... 11,000 8,250
Interest expense on the Existing Credit Facilities and
Convertible Debentures.................................... (4,632) (3,474)
Bridge Facility funding fee................................. 500 500
Debt issuance cost amortization............................. 817 613
-------- --------
Net increase in interest expense.................. $ 12,495 $ 9,496
======== ========
</TABLE>
(4) Reflects the income tax effect of the pro forma adjustments (excluding the
non-deductible amortization of intangibles (see Note 2)) based upon an
assumed combined effective income tax rate of 38.5%.
(5) Represents Farah's results of operations for the thirty-nine weeks ended May
3, 1998.
(6) Represents actual results of operations for Farah from the date of the Farah
Acquisition to July 4, 1998, which are included in TSI's statement of
operations for the forty weeks ended July 4, 1998.
29
<PAGE> 34
SELECTED HISTORICAL FINANCIAL INFORMATION OF TSI
The selected consolidated financial data of TSI set forth below for, and as
of the end of, fiscal 1993, 1994, 1995, 1996 and 1997, and for, and as of the
end of, the thirty-nine weeks ended June 28, 1997 and the forty weeks ended July
4, 1998, have been derived from the consolidated financial statements of TSI, of
which (i) the consolidated financial statements of TSI for, and as of the end
of, fiscal 1995, 1996 and 1997, the thirty-nine weeks ended June 28, 1997 and
the forty weeks ended July 4, 1998 are included elsewhere in this Prospectus,
(ii) the consolidated financial statements for, and as of the end of, fiscal
1993, 1994, 1995, 1996 and 1997 were audited by Ernst & Young LLP, independent
auditors, and (iii) the consolidated financial statements for, and as of the end
of, the thirty-nine weeks ended June 28, 1997 and the forty weeks ended July 4,
1998 are unaudited. In the opinion of management, the consolidated financial
statements for, and as of the end of, the thirty-nine weeks ended June 28, 1997
and the forty weeks ended July 4, 1998 include all adjustments, consisting only
of normal recurring adjustments, necessary for a fair presentation of the
results of operations for, and the financial position at the end of, each of
such periods. The results of operations for the forty weeks ended July 4, 1998
are not necessarily indicative of the results to be expected for fiscal 1998 or
any future period. The selected consolidated financial data below is qualified
in its entirety by, and should be read in conjunction with, "Management's
Discussion and Analysis of Financial Condition and Results of Operations" and
the Company's Consolidated Financial Statements, including the notes thereto,
appearing elsewhere in this Prospectus.
<TABLE>
<CAPTION>
THIRTY-NINE
WEEKS FORTY WEEKS
FISCAL YEAR ENDED ENDED
--------------------------------------------------- JUNE 28, JULY 4,
1993 1994 1995 1996 1997 1997 1998
------- -------- -------- -------- -------- ----------- -----------
(IN THOUSANDS, EXCEPT RATIOS)
<S> <C> <C> <C> <C> <C> <C> <C>
STATEMENT OF OPERATIONS DATA:
Net sales........................... $74,271 $100,359 $110,064 $117,355 $151,692 $115,608 $152,290
Cost of sales....................... 57,726 75,677 87,858 91,132 115,637 88,327 114,570
------- -------- -------- -------- -------- -------- --------
Gross profit........................ 16,545 24,682 22,206 26,223 36,055 27,281 37,720
Selling, general and administrative
expenses.......................... 11,071 14,291 15,060 15,189 19,443 14,745 22,136
------- -------- -------- -------- -------- -------- --------
Operating income.................... 5,474 10,391 7,146 11,034 16,612 12,536 15,584
Interest expense, net(1)............ 1,644 2,115 3,160 2,498 2,899 2,233 2,174
Bridge loan funding fee............. -- -- -- -- -- -- 500
Factoring expense................... 463 668 708 373 505 589 620
Other expense (income), net......... 1,053 (983) 293 247 32 29 111
------- -------- -------- -------- -------- -------- --------
Income before income taxes.......... 2,314 8,591 2,985 7,916 13,176 9,685 12,179
Income taxes........................ 946 3,613 825 2,745 4,907 3,518 4,531
------- -------- -------- -------- -------- -------- --------
Net income.................. $ 1,368 $ 4,978 $ 2,160 $ 5,171 $ 8,269 $ 6,167 $ 7,648
======= ======== ======== ======== ======== ======== ========
Net income per common share, basic
and diluted(2):................... $ 0.23 $ 0.83 $ 0.36 $ 0.86 $ 1.37 $ 1.03 $ 1.02
======= ======== ======== ======== ======== ======== ========
Weighted average number of shares
used in the calculation:.......... 6,015 6,015 6,015 6,015 6,015 6,015 7,517
OTHER DATA:
Depreciation and amortization....... $ 589 $ 953 $ 1,226 $ 1,431 $ 2,121 $ 1,541 $ 2,314
EBITDA(3)........................... 4,554 11,670 7,382 11,885 18,232 13,489 17,231
Cash interest expense............... 1,644 2,115 3,160 2,498 2,899 2,233 2,087
Ratio of earnings to fixed
charges(4)........................ 2.2x 4.5x 1.9x 3.7x 5.2x 5.0x 5.3x
BALANCE SHEET DATA:
Working capital..................... $ 4,714 $ 23,600 $ 31,655 $ 25,483 $ 30,234 $ 33,904 $115,452
Total assets........................ 41,522 52,023 55,237 63,415 69,658 71,412 298,170
Long-term debt and obligations under
capital leases.................... 1,677 20,973 27,175 24,162 24,055 29,740 179,656
Shareholders' equity................ 6,073 11,050 13,211 18,382 26,651 24,549 47,722
</TABLE>
- ---------------
(1) Includes interest income of approximately $7,000, $11,000, $11,000, $40,000,
$36,000, $30,000 and $64,000 for fiscal 1993, 1994, 1995, 1996, 1997, the
thirty-nine weeks ended June 28, 1997 and the forty weeks ended July 4,
1998, respectively.
(2) Computed on the basis described in the Notes to the Consolidated Financial
Statements.
(3) EBITDA represents income before income taxes plus, without duplication, (i)
depreciation and amortization and (ii) interest expense. EBITDA is presented
because it provides useful information regarding the Company's ability to
service debt. EBITDA should not be considered as an alternative measure of
operating results or cash flows from operations (as determined in accordance
with generally accepted accounting principles).
(4) In calculating the ratio of earnings to fixed charges, earnings consist of
income before income taxes plus fixed charges (excluding capitalized
interest). Fixed charges consist of interest expense (which includes
amortization of debt issuance costs), whether expensed or capitalized, and
the portion of rental expense that is representative of the interest factor.
30
<PAGE> 35
SELECTED HISTORICAL FINANCIAL INFORMATION OF FARAH
The selected consolidated financial data of Farah set forth below for, and
as of the end of, fiscal 1993, 1994, 1995, 1996 and 1997, and for, and as of the
end of, the twenty-six weeks ended May 4, 1997 and May 3, 1998, have been
derived from the consolidated financial statements of Farah, of which (i) the
consolidated financial statements of Farah for, and as of the end of, fiscal
1995, 1996 and 1997 and the twenty-six weeks ended May 4, 1997 and May 3, 1998
are included elsewhere in this Prospectus, (ii) the consolidated financial
statements for, and as of the end of, fiscal 1993, 1994 and 1995 were audited by
Arthur Andersen LLP, independent public accountants, (iii) the consolidated
financial statements for, and as of the end of, fiscal 1996 and 1997 were
audited by PricewaterhouseCoopers LLP, independent accountants, and (iv) the
consolidated financial statements for, and as of the end of, the twenty-six
weeks ended May 4, 1997 and May 3, 1998 are unaudited. In the opinion of
management, the financial statements for, and as of the end of, the twenty-six
weeks ended May 4, 1997 and May 3, 1998 include all adjustments, consisting only
of normal recurring adjustments, necessary for a fair presentation of the
results of operations for, and the financial position at the end of, each of
such periods. The results of operations for the twenty-six weeks ended May 3,
1998 are not necessarily indicative of the results to be expected for fiscal
1998 or any future period. The selected consolidated financial data below is
qualified in its entirety by, and should be read in conjunction with,
"Management's Discussion and Analysis of Financial Condition and Results of
Operations" and Farah's Consolidated Financial Statements, including the notes
thereto, appearing elsewhere in this Prospectus.
<TABLE>
<CAPTION>
TWENTY-SIX WEEKS
ENDED
FISCAL YEAR -------------------
---------------------------------------------------- MAY 4, MAY 3,
1993 1994 1995 1996 1997 1997 1998
-------- -------- -------- -------- -------- -------- --------
(IN THOUSANDS, EXCEPT RATIOS)
<S> <C> <C> <C> <C> <C> <C> <C>
STATEMENT OF OPERATIONS DATA:
Net sales.......................... $180,114 $242,775 $240,797 $247,598 $273,719 $132,709 $125,174
Cost of sales...................... 127,020 172,300 185,822 183,540 199,790 95,113 93,504
-------- -------- -------- -------- -------- -------- --------
Gross profit....................... 53,094 70,475 54,975 64,058 73,929 37,596 31,670
Selling, general and administrative
expenses......................... 47,372 58,294 68,002 62,189 66,436 32,882 30,336
Termination of foreign
operations....................... -- -- -- -- 5,106 2,462 2,585
Production conversion expenses..... 4,000 -- -- -- 2,061 849 --
Relocation expenses................ -- -- -- -- 904 -- 2,696
-------- -------- -------- -------- -------- -------- --------
Operating income (loss)............ 1,722 12,181 (13,027) 1,869 (578) 1,403 (3,947)
Interest expense, net(1)........... 1,452 1,756 3,726 3,231 3,392 1,232 2,451
Other (income), net................ (166) (680) (1,477) (11,099) (342) (248) (328)
-------- -------- -------- -------- -------- -------- --------
Income (loss) before income
taxes............................ 436 11,105 (15,276) 9,737 (3,628) 419 (6,070)
Income taxes (benefit)............. 304 300 (2,335) 2,981 (3,898) (837) (1,665)
-------- -------- -------- -------- -------- -------- --------
Net income (loss)......... $ 132 $ 10,805 $(12,941) $ 6,756 $ 270 $ 1,256 $ (4,405)
======== ======== ======== ======== ======== ======== ========
Earnings per Share:
Basic............................ $ .02 $ 1.18 $ (1.28) $ .66 $ .03 $ .31 $ (.43)
Diluted.......................... $ .02 $ 1.16 $ (1.28) $ .66 $ .03 $ .31 $ (.43)
OTHER DATA:
Depreciation and amortization...... $ 654 $ 934 $ 1,988 $ 864 $ 2,135 $ 193 $ 2,278
EBITDA(2).......................... 6,542 13,795 (9,562) 13,832 9,970 5,155 3,940
Ratio of earnings to fixed
charges(3)....................... 1.1x 3.2x -- 2.4x -- -- --
BALANCE SHEET DATA:
Working capital.................... $ 33,979 $ 67,384 $ 49,008 $ 58,531 $ 56,063 $ 53,205 $ 45,233
Total assets....................... 118,891 158,051 173,827 153,863 175,592 163,476 171,781
Long-term debt..................... 1,179 5,170 12,568 4,706 13,771 5,549 13,900
Shareholders' equity............... 43,425 85,961 73,970 82,140 82,714 83,043 78,011
</TABLE>
- ---------------
(1) Includes interest income of approximately $723,000, $723,000, $901,000,
$834,000, $716,000, $396,000 and $67,000 for fiscal 1993, 1994, 1995, 1996,
1997 and the twenty-six weeks ended May 4, 1997 and May 3, 1998,
respectively.
(2) EBITDA represents income (loss) before income taxes plus, without
duplication, (i) depreciation and amortization, (ii) interest expense and
(iii) the Farah Charges for the periods presented. EBITDA is presented
because it provides useful information regarding Farah's ability to service
debt. EBITDA should not be considered as an alternative measure of operating
results or cash flows from operations (as determined in accordance with
generally accepted accounting principles).
(3) In calculating the ratio of earnings to fixed charges, earnings consist of
income before income taxes plus fixed charges (excluding capitalized
interest). Fixed charges consist of interest expense (which includes
amortization of debt issuance costs), whether expensed or capitalized, and
the portion of rental expense that is representative of the interest factor.
For fiscal 1995, fiscal 1997 and the twenty-six weeks ended May 4, 1997 and
May 3, 1998, earnings were insufficient to cover fixed charges by $15.3
million, $3.6 million, $1.3 million and $4.4 million, respectively.
31
<PAGE> 36
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
The following discussion and analysis should be read in conjunction with
the Consolidated Financial Statements of TSI and Farah, including the notes
thereto, appearing elsewhere in this Prospectus.
GENERAL
On May 1, 1998, TSI entered into the Merger Agreement with Farah and
Foxfire, a wholly-owned subsidiary of TSI, pursuant to which Foxfire commenced
the Tender Offer to purchase all of the outstanding Shares. The Tender Offer was
consummated on June 10, 1998 and immediately thereafter Foxfire was merged into
Farah in the Merger. Farah was the surviving corporation in the Merger and is a
wholly-owned subsidiary of the Company. The combination of TSI and Farah has
created one of the largest marketers and manufacturers of apparel in the United
States. The Company will operate the existing businesses of TSI and Farah on a
combined basis under a new capital structure. Accordingly, the financial
condition and results of operations of the Company after consummation of the
Farah Acquisition will not be directly comparable to the historical financial
condition or results of operations of TSI or Farah on a stand alone basis.
As part of its integration plan for the Farah Acquisition, the Company
believes that it can achieve at least $23.2 million of annual cost savings by
the end of fiscal 1999. These cost savings include (i) a reduction of selling,
general and administrative expenses resulting in approximately $2.5 million of
annual cost savings (including distribution expenses), (ii) the realization of
production efficiencies resulting in approximately $15.2 million of annual cost
savings and (iii) improvements in inventory management resulting in
approximately $5.5 million of annual cost savings. In addition, the Company is
evaluating Farah's assets in light of TSI's strategic and financial objectives
and, to the extent such assets do not fit within those objectives, intends to
dispose of or discontinue operating such assets. The Company is currently
considering its alternatives with respect to the Farah International and Savane
Direct businesses. Following the consummation of the Farah Acquisition, the
Company closed the remainder of Farah's sewing operations in San Jose, Costa
Rica, and is currently seeking a buyer for the facility which housed such
operations. There can be no assurance that any such disposition or that
additional closures will be consummated. See "Business -- Integration Plan --
Potential Divestiture Opportunities."
The retail market experienced a down cycle during calendar 1995. Like many
other categories of retail products during this period, the apparel industry
suffered from weak customer demand and many apparel manufacturers incurred
higher than normal order cancellations. This weak apparel retail environment
caused TSI and Farah to offer products below normal selling prices and, in some
cases, below cost. This resulted in only small sales increases from fiscal 1995
to fiscal 1996 for both TSI and Farah. In addition, both TSI's and Farah's gross
margins weakened in fiscal 1995 but improved during fiscal 1996. A recovery in
the retail market began early in calendar 1996, and the Company believes that
market conditions returned to historical levels in calendar 1997.
In response to these difficult market conditions and their negative impact
on the Company's business, the Company initiated a capital investment program
and operating system and procedure enhancements designed to improve production
efficiencies, lower production costs and reduce inventory risks. As a result,
TSI has reduced its production cycle from 43 days in fiscal 1995 to 38 days in
fiscal 1997, and has reduced average inventory from 94 days of net sales in
fiscal 1995 to 70 days in fiscal 1997, while improving customer service and
customer order execution.
TSI and Farah produce similar products and use similar production
operations. Because Farah principally markets branded products, the Company
expects that it will realize higher average unit selling prices and higher gross
margins on sales of Farah products than sales of TSI's private brands. However,
Farah's branded programs generally require higher selling, marketing,
advertising and customer service costs as a percentage of net sales to generate
retailer and consumer awareness of, and demand for, its brands. Because of the
similarity of TSI's and Farah's product lines, the Company believes that cost of
goods sold for Farah products will generally be comparable to TSI's.
32
<PAGE> 37
RESULTS OF OPERATIONS FOR TSI
The following table sets forth, for the periods indicated, selected items
in the Company's consolidated statements of operations expressed as a percentage
of net sales:
<TABLE>
<CAPTION>
THIRTY-NINE FORTY
FISCAL YEAR WEEKS ENDED WEEKS ENDED
----------------------- JUNE 28, JULY 4,
1995 1996 1997 1997 1998
----- ----- ----- ----------- -----------
<S> <C> <C> <C> <C> <C>
Net sales................................ 100.0% 100.0% 100.0% 100.0% 100.0%
Cost of goods sold....................... 79.8 77.7 76.2 76.4 75.2
----- ----- ----- ----- -----
Gross profit............................. 20.2 22.3 23.8 23.6 24.8
Selling, general and administrative
expenses............................... 13.7 12.9 12.8 12.9 14.5
----- ----- ----- ----- -----
Operating income......................... 6.5 9.4 11.0 10.7 10.3
Interest expense......................... 2.9 2.1 1.9 1.9 1.5
Factoring expense........................ 0.6 0.3 0.3 0.4 0.4
Bridge loan funding fee.................. -- -- -- -- 0.3
Other expense, net....................... 0.3 0.3 0.1 -- 0.1
----- ----- ----- ----- -----
Income before income taxes............... 2.7 6.7 8.7 8.4 8.0
Provision for income taxes............... 0.7 2.3 3.2 3.1 3.0
----- ----- ----- ----- -----
Net income............................... 2.0% 4.4% 5.5% 5.3% 5.0%
===== ===== ===== ===== =====
</TABLE>
Forty Weeks Ended July 4, 1998 Compared to Thirty-Nine Weeks Ended June 28,
1997
Net Sales. Net sales increased 31.7% to $152.3 million in the forty weeks
ended July 4, 1998 from $115.6 million in the thirty-nine weeks ended June 28,
1997. This increase was primarily due to an increase in units sold and higher
average selling prices per unit caused primarily by the inclusion of Farah's
results of operations in the results of operations of the Company from June 10,
1998, the date of the closing of the Farah Acquisition (the "Acquisition Closing
Date").
Gross Profit. Gross profit increased 38.3% to $37.7 million in the forty
weeks ended July 4, 1998, or 24.8% of net sales, from $27.3 million in the
thirty-nine weeks ended June 28, 1998, or 23.6% of net sales. The dollar
increase was primarily due to the increase in sales volume caused mainly by the
inclusion of Farah's results of operations of the Company from the Acquisition
Closing Date. The increase in the gross profit percentage was primarily due to a
change in mix of products sold to higher margin products.
Selling, General and Administrative Expenses. Selling, general and
administrative expenses increased 49.0% to $22.1 million in the forty weeks
ended July 4, 1998, or 14.5% of net sales, from $14.9 million in the thirty-nine
weeks ended June 28, 1997, or 12.9% of net sales. The dollar increase was
primarily due to an increase in overall volume as a result of including Savane's
results of operations in the results of operations of the Company from the
Acquisition Closing Date. The increase in selling, general and administrative
expenses as a percentage of net sales was primarily due to higher advertising
and other brand support related expenses covered by the inclusion of Farah's
operations from the Acquisition Closing Date.
Interest Expense. Interest expense decreased slightly to $2.2 million in
the forty weeks ended July 4, 1998 from $2.3 million in the thirty-nine weeks
ended June 28, 1997. Interest expense decreased due to a reduction in
outstanding indebtedness as a result of the application of the proceeds from the
Company's October 1997 initial public offering to repay outstanding borrowings,
offset in part by the Company's incurrence of indebtedness in connection with
the Farah Acquisition.
Bridge Loan Funding Fee. As part of the Transactions, the Company entered
into the $100 million Bridge Facility. In connection therewith, the Company paid
a fee to the Bridge Lender of $500,000.
Income Taxes. The Company's effective income tax rate for the forty weeks
ended July 4, 1998 was 37.2% compared to 36.3% in the thirty-nine weeks ended
June 28, 1997. These rates are based on the Company's expected effective annual
tax rate. The increase was due to the Company's receipt of the
33
<PAGE> 38
remaining benefit, in fiscal 1997, of previously non-deductible losses from a
foreign subsidiary. Additionally, in fiscal 1998, more of the Company's income
is expected to be taxed at a higher statutory rate.
Net Income. As a result of the above factors, net income increased 24.0%
to $7.6 million in the forty weeks ended July 4, 1998, or 5.0% of net sales,
from $6.2 million in the thirty-nine weeks ended June 28, 1997, or 5.3% of net
sales.
Fiscal 1997 Compared to Fiscal 1996
Net Sales. Net sales increased 29.3% to $151.7 million in fiscal 1997 from
$117.4 million in fiscal 1996. This increase was attributable to a 27.0%
increase in the number of units shipped and a 2.0% increase in the average
selling price per unit. These increases were primarily the result of increased
market penetration and brand acceptance.
Gross Profit. Gross profit increased 37.5% to $36.1 million in fiscal
1997, or 23.8% of net sales, from $26.2 million in fiscal 1996, or 22.3% of net
sales. The increase in gross margin resulted primarily from a significant
reduction in the level of markdowns. During the first several weeks of fiscal
1996, a significant number of orders were canceled due to the soft retail market
experienced by most major retailers. In an effort to control the cost of rising
inventories and in anticipation of a continued weak retail market, the Company
sold products below its normal selling prices and, in some cases, below its
cost. Also, the Company recorded additional markdown allowances for any
remaining excess inventory. During the latter part of fiscal 1996, the retail
market strengthened and the level of markdowns decreased significantly. This
trend continued during fiscal 1997 and the gross margin returned to historical
levels. Concurrent with the improvement in the retail market, the Company
initiated a capital investment program and operating system and procedure
enhancements designed to improve production efficiencies, lower production costs
and reduce inventory risks.
Selling, General and Administrative Expenses. Selling, general and
administrative expenses increased 28.0% to $19.4 million in fiscal 1997, or
12.8% of net sales, from $15.2 million in fiscal 1996, or 12.9% of net sales.
The increase in selling, general and administrative expenses was principally due
to the overall increase in the level of operations of the Company. The principal
components of the increase included $590,000 in distribution center labor,
$370,000 in depreciation and occupancy costs related to the Company's new
distribution center, $520,000 in commissions and selling costs, $450,000 in
information technology costs, $515,000 in merchandising costs, $330,000 in
certain legal expenses and $330,000 in bad debts related to a customer
bankruptcy.
Interest Expense. Interest expense increased 16.1% to $2.9 million in
fiscal 1997 from $2.5 million in fiscal 1996. The increase in interest expense
was the result of higher average outstanding borrowings during fiscal 1997 to
support greater working capital needs attributable to increased sales volume and
to finance capital expenditures, offset in part by a lower average interest rate
due to a renegotiation of the Company's Terminated Credit Facility in November
1996.
Factoring Expense. Factoring expense increased 35.4% to $505,000 in fiscal
1997 from $373,000 in fiscal 1996, or 0.3% of net sales for both fiscal years.
Income Taxes. The Company's effective income tax rate for fiscal 1997 was
37.2% compared to 34.7% in fiscal 1996. The increase in the effective rate for
fiscal 1997 was primarily due to the Company receiving in fiscal 1996 a benefit
for previously unrecognized losses of an international subsidiary, which was
closed in fiscal 1995.
Net Income. As a result of the above factors, net income increased 59.9%
to $8.3 million in fiscal 1997, or 5.5% of net sales, from $5.2 million fiscal
1996, or 4.4% of net sales.
Fiscal 1996 Compared to Fiscal 1995
Net Sales. Net sales increased 6.6% to $117.4 million in fiscal 1996 from
$110.1 million in fiscal 1995. This increase was primarily the result of a 5.8%
increase in the average selling price per unit. The provision for returns and
allowances was $3.0 million in fiscal 1996 and $3.1 million for fiscal 1995.
During the last three
34
<PAGE> 39
quarters of fiscal 1996, the retail market strengthened and the Company was able
to significantly reduce the level of markdowns and close out sales experienced
during fiscal 1995 and the first quarter of fiscal 1996.
Gross Profit. Gross profit increased 18.1% to $26.2 million in fiscal
1996, or 22.3% of net sales, from $22.2 million in fiscal 1995, or 20.2% of net
sales. The increase in gross margin was primarily attributable to an increase in
the average selling price per unit without a corresponding increase in the
average cost per unit. As a result of a progressive weakening of the retail
market in 1995, the Company sold selected products at selling prices below
normal sales prices. These markdowns were concentrated in the first quarter of
fiscal 1996 when a significant number of orders was canceled. In limited cases,
to control the costs of rising inventories, the Company sold products at prices
that were below its costs. Also, the Company recorded additional markdown
allowances for any remaining excess inventory. The provision recorded by the
Company for such losses increased from $468,000 in fiscal 1995 to $798,000 in
fiscal 1996. In addition, during fiscal 1995, the Company incurred increased
labor expense, including significant overtime, due to a shift toward smaller
individual orders from customers seeking to minimize retail inventories during
the industry down cycle. During the latter part of fiscal 1996, order sizes
returned to historical levels, which increased the average order size and led to
a favorable impact on gross profit.
Selling, General and Administrative Expenses. Selling, general and
administrative expenses increased to $15.2 million in fiscal 1996, or 12.9% of
net sales, from $15.1 million in fiscal 1995, or 13.7% of net sales. Selling,
general and administrative expenses as a percentage of net sales decreased
slightly due to the Company's ability to leverage certain fixed overhead costs
against the increased level of sales.
Interest Expense. Interest expense decreased 20.9% to $2.5 million in
fiscal 1996 from $3.2 million in fiscal 1995. The decrease was due principally
to lower average outstanding borrowings resulting from the reduction of working
capital requirements, caused primarily by the reduction in average inventory
levels throughout the year.
Factoring Expense. Factoring expense decreased 47.3% to $373,000 in fiscal
1996, or 0.3% of net sales, from $708,000 in fiscal 1995, or 0.6% of net sales.
The decrease was primarily the result of a more favorable factoring arrangement
entered into in October 1995.
Income Taxes. The Company's effective income tax rate for fiscal 1996 was
34.7% compared to 27.6% in fiscal 1995. The lower effective rate during fiscal
1995 was primarily the result of the Company receiving the benefit of previously
unrecognized losses of an international subsidiary. The company decided to cease
the operations of this subsidiary in September 1995. Prior to this decision,
these losses were not deductible for United States income tax purposes.
Net Income. As a result of the above factors, net income increased 139.4%,
to $5.2 million in fiscal 1996, or 4.4% of net sales, from $2.2 million fiscal
1995, or 2.0% of net sales.
35
<PAGE> 40
RESULTS OF OPERATIONS FOR FARAH
The following table sets forth, for the periods indicated, selected items
in Farah's consolidated statements of operations expressed as a percentage of
net sales:
<TABLE>
<CAPTION>
TWENTY-SIX
WEEKS ENDED
FISCAL YEAR ---------------
--------------------- MAY 4, MAY 3,
1995 1996 1997 1997 1998
----- ----- ----- ------ ------
<S> <C> <C> <C> <C> <C>
Net sales:
Farah U.S.A........................................ 73.5% 73.8% 75.7% 77.2% 76.8%
Farah International................................ 19.7 19.4 18.1 17.0 16.7
Savane Direct...................................... 6.8 6.8 6.2 5.8 6.5
----- ----- ----- ----- -----
Total net sales............................ 100.0 100.0 100.0 100.0 100.0
===== ===== ===== ===== =====
Cost of sales........................................ 77.2 74.1 73.0 71.7 74.7
----- ----- ----- ----- -----
Gross profit......................................... 22.8 25.9 27.0 28.3 25.3
Selling, general and administrative expenses......... 28.2 25.1 24.3 24.8 24.2
Termination of foreign operations.................... -- -- 1.8 1.9 2.0
Production conversion expenses....................... -- -- 0.8 0.6 --
Relocation expenses.................................. -- -- 0.3 -- 2.2
----- ----- ----- ----- -----
Operating income (loss).................... (5.4) 0.8 (0.2) 1.0 (3.1)
Other expense (income), net.......................... (0.9) 3.1 (1.1) (0.7) (1.7)
----- ----- ----- ----- -----
Income (loss) before income taxes.................... (6.3) 3.9 (1.3) 0.3 (4.8)
Income tax expense (benefit)......................... (0.9) 1.2 (1.4) (0.6) (1.3)
----- ----- ----- ----- -----
Net income (loss).......................... (5.4)% 2.7% 0.1% 0.9% (3.5)%
===== ===== ===== ===== =====
</TABLE>
Six Months Ended May 3, 1998 Compared to Six Months Ended May 4, 1997
Net Sales. Net sales decreased 5.7% to $125.2 million in the first six
months of fiscal 1998 from $132.7 million in the first six months of fiscal
1997. Sales of Farah U.S.A. decreased 6.2%, to $96.1 million in the first six
months of fiscal 1998 from $102.5 million in the first six months of fiscal
1997. This decrease was primarily a result of a 5.8% decrease in unit sales due
to production delays, lower than normal orders following a poor Christmas retail
selling season and start-up problems incurred at Farah's new distribution center
which resulted in canceled orders, late deliveries and corresponding price
concessions. On a comparative basis from the first six months of fiscal 1997 to
the first six months of fiscal 1998, sales of Savane products decreased 8.0%,
sales of John Henry products increased 12.5%, sales of Farah label products
increased 32.4% and sales of private label products decreased 24.2%.
Net sales of Farah International decreased 7.3% to $20.8 million in the
first six months of fiscal 1998 from $22.5 million in the first six months of
fiscal 1997. This decrease was primarily due to an 8.4% decrease in average unit
sale prices in the first six months of fiscal 1998, which was partially offset
by a 1.2% increase in unit sales. The decrease in the average unit sales prices
was due to a decrease in concession sales in the United Kingdom (which typically
generate higher per unit sales prices) and a weakening of the United Kingdom,
Australian and New Zealand currencies in relation to the United States dollar.
Net sales of Savane Direct increased 6.2% to $8.2 million in the first six
months of fiscal 1998 from $7.8 million in the first six months of fiscal 1997.
This increase was primarily due to a 4.8% increase in same store sales in the
first six months of fiscal 1998, as well as a 7.4% increase in average selling
price per unit. The increase in average price per unit was generated by the
closing of unprofitable stores, the opening of new stores in more attractive
retail locations and a shift in the Savane Direct product mix to a higher
proportion of first quality merchandise.
Gross Profit. Gross profit decreased 15.8% to $31.7 million in the first
six months of fiscal 1998, or 25.3% of net sales, from $37.6 million in the
first six months of fiscal 1997, or 28.3% of net sales. Gross profit
36
<PAGE> 41
of Farah U.S.A. decreased 21.7%, to $20.5 million in the first six months of
fiscal 1998, or 21.4% of net sales, from $26.3 million in the first six months
of fiscal 1997, or 25.6% on net sales. This decrease in gross profit at Farah
U.S.A. was primarily due to an increase in the percentage of Farah label
products included in total unit sales, which are typically sold for lower prices
than other Farah products. Gross profit also decreased during the first six
months of fiscal 1998 as a result of higher markdown expenses and price
concessions given due to late deliveries resulting from start-up problems at
Farah's new distribution center.
Gross profit of Farah International decreased 5.3% to $7.3 million in the
first six months of fiscal 1998, or 34.9% of net sales, from $7.7 million in the
first six months of fiscal 1997, or 34.1% of net sales. This decrease was
primarily due to lower net sales. The increase in gross profit as a percentage
of net sales in the first six months of fiscal 1998 was due to the shift in
production of Farah International products to outside contractors and the
corresponding reduction in production expenses, which reduced the average cost
of sales per unit.
Gross profit of Savane Direct increased 5.2% to $3.9 million in the first
six months of fiscal 1998, or 46.9% of net sales, from $3.7 million in the first
six months of fiscal 1997, or 47.3% of net sales. The increase in gross profit
was due primarily to an increase in sales of first quality Savane merchandise,
which typically has a higher sales price per unit than other Savane Direct
merchandise.
Selling, General and Administrative Expenses. Selling, general and
administrative expenses decreased 7.7% to $30.3 million in the first six months
of fiscal 1998, or 24.2% of net sales, from $32.9 million in the first six
months of fiscal 1997, or 24.8% of net sales. This decrease was primarily
attributable to a decrease in advertising and other selling costs, partially
offset by higher labor costs and freight chargebacks incurred due to start-up
problems incurred at Farah's new distribution center.
Termination of Foreign Operations. During the first quarter of fiscal
1998, Farah decided to close its finishing facility in Cartago, Costa Rica, and
reduce sewing operations in its San Jose, Costa Rica facility. Farah recorded a
charge of $4.0 million in the first quarter of fiscal 1998 on the write-down of
its Costa Rican assets to expected realizable value and to reflect the accrual
of severance payments and other closing expenses.
On January 5, 1997, certain inventory and manufacturing equipment at
Farah's Galway, Ireland facility were either destroyed or damaged by fire. As a
result of the fire and its related impact, Farah recorded a charge of $2.5
million (net of insurance proceeds) in the first quarter of fiscal 1997. The
Company recognized an additional loss of $2.6 million in the fourth quarter of
fiscal 1997 in connection with the sale of its Irish facilities. As a term of
the sale, the purchaser (the "Irish Purchaser") agreed to assume certain
liabilities of Farah and, in exchange therefor, Farah and the Irish Purchaser
entered into a long-term supply contract which required the Irish Purchaser to
produce and sell, and Farah to purchase at prices favorable to the Irish
Purchaser, minimum quantities of merchandise. In the second quarter of fiscal
1998, the contract was amended to lower the required minimum production levels
as a result of the Irish Purchaser's failure to meet the production levels
originally required under the contract. As a result of this amendment, the loss
of $2.6 million referred to above was reduced by $1.4 million in the second
quarter of fiscal 1998.
Relocation Expenses. Farah recently completed the move of its finished
goods inventory to its new distribution center which resulted in duplicate
operating costs, moving expenses, costs associated with the testing and
modification of systems and procedures and professional fees of $2.7 million in
the first six months of fiscal 1998.
Income Taxes. Farah recorded a tax benefit resulting from a loss in the
first six months of fiscal 1998. A tax benefit was also recorded in the first
six months of 1997, resulting mainly from the recognition of $1.1 million of
deferred tax assets that were generated but not recognized in prior years.
Farah's effective tax rates for the first six months of fiscal 1998 and the
first six months of fiscal 1997 were 27.4% and (200.0%), respectively. Farah's
effective tax rate varies due to the different tax rates in countries in which
Farah conducts its business.
Net Income. As a result of the above factors, net income decreased to a
net loss of $4.4 million in the first six months of 1998 from net income of $1.3
million in the first six months of 1997.
37
<PAGE> 42
Fiscal 1997 Compared to Fiscal 1996
Net Sales. Net sales increased 10.5% to $273.7 million in fiscal 1997 from
$247.6 million in fiscal 1996. Net sales of Farah U.S.A. increased 13.4%, to
$207.2 million in fiscal 1997 from $182.8 million in fiscal 1996. This increase
was primarily due to a 12.1% increase in unit sales and a 1.1% increase in
average sales price per unit. On a comparative basis from fiscal 1996 to fiscal
1997, sales of Savane@ products increased 18.0%, sales of John Henry@ products
increased 54.1%, sales of Farah@ label products increased 25.0% and sales of
private label products decreased 15.4%.
Net sales of Farah International increased 3.4% to $49.7 million in fiscal
1997 from $48.0 million in fiscal 1996. Unit sales and the average selling price
per unit increased 2.4% and 1.0%, respectively, at Farah International in fiscal
1997.
Net sales of Savane Direct remained flat at $16.8 million in both fiscal
1997 and fiscal 1996. Same store sales increased 4.1% in fiscal 1997 compared to
fiscal 1996. The average sales price per unit at Savane Direct increased 20.1%
in fiscal 1997, while unit sales decreased 16.7%. These changes were primarily
due to the relocation of unprofitable stores in better locations and the
inclusion of a higher proportion of first quality products in such stores.
Gross Profit. Gross profit increased 15.4% to $73.9 million in fiscal
1997, or 27.0% of net sales, from $64.0 million in fiscal 1996, or 25.9% of net
sales. Gross profit of Farah U.S.A. increased 22.8%, to $49.3 million in fiscal
1997, or 23.8% of net sales, from $40.1 million in fiscal 1996, or 22.0% of net
sales. This increase in gross profit at Farah U.S.A. was a result of an increase
in the average selling price per unit, as well as the continued effort to reduce
production costs. Gross profit increases were partially offset by returns and
markdown allowances which resulted from quality problems in selected product
lines.
Gross profit of Farah International increased 2.4% to $16.7 million in
fiscal 1997, or 33.6% of net sales, from $16.3 million in fiscal 1996, or 33.9%
of net sales. The decrease in gross margin was due primarily to increased
production costs, which offset a slight increase in the average price per unit
sold. The weakness of the Australian dollar, relative to the United States
dollar, also contributed to the decrease in gross margin, as a portion of Farah
Australia's raw materials are purchased from the United States.
Gross profit of Savane Direct increased 4.3% to $8.0 million in fiscal
1997, or 47.5% of net sales, from $7.7 million in fiscal 1996, or 45.5% of net
sales. The increase was due to sales of more first quality merchandise as a
percentage of net sales, the closing of stores with low margin contribution and
improvements in inventory management.
Selling, General and Administrative Expenses. Selling, general and
administrative expenses increased 6.8% to $66.4 million in fiscal 1997, or 24.3%
of net sales, from $62.2 million in fiscal 1996, or 25.1% of net sales. The
decrease of selling, general and administrative expenses as a percentage of net
sales was primarily due to sales increases and reduced expenses at Farah U.S.A.,
as well as a reduction in overhead costs at Savane Direct. The improvement in
selling, general and administrative expenses as a percentage of net sales was
partially offset by increased concession, exhibition and personnel expenses at
Farah International.
Termination of Foreign Operations. The loss on the disposal of Farah's
Irish facilities resulted from a fire that occurred at a facility leased by
Farah in Galway, Ireland, in January 1997. The subsequent reevaluation by Farah
of its Irish operations resulted in the decision to terminate manufacturing
activity in Ireland and in the sale of its Irish facility in Kiltimagh. The
pre-tax charge of $5.1 million (net of insurance proceeds) recorded in
connection with the disposal of those facilities consisted primarily of the
write-down of equipment, severance payments, and legal and professional fees.
Production Conversion Expenses. Production conversion expenses aggregated
$2.0 million during fiscal 1997. Farah opened two new laundry facilities and
expanded a finishing facility in Mexico during fiscal 1997. Due to start-up
costs, the facilities incurred higher production costs and produced more
irregular units than expected under normal production conditions.
As a result of the sale of its Piedras Negras facility in fiscal 1996,
Farah relied more heavily on outside contractors as sources of production. The
establishment of new relationships with contractors in fiscal 1997
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resulted in production of irregular units at rates which were higher than
expected. The markdown of these excess irregular units resulted in selling
prices which were below production costs.
Relocation Expenses. In the third quarter of fiscal 1997, Farah completed
its move to new corporate headquarters. In addition, in fiscal 1997 Farah
incurred costs in connection with the relocation of its distribution center.
These relocations resulted in duplicate operating costs, moving expenses and
professional fees of approximately $900,000.
Other Income (Expense). Net interest expense increased 5.0% to
approximately $3.4 million in fiscal 1997 from interest expense of $3.2 million
in fiscal 1996 as a result of a number of significant capital expenditures by
Farah in fiscal 1997, including an expansion of a manufacturing facility, a move
to new corporate headquarters and a transition to a new distribution facility.
Also during fiscal 1997, Farah continued to modify its computer systems with the
goal of enabling those systems to use dates beyond December 31, 1999.
Farah established its Terminated Credit Facility during the third quarter
of fiscal 1997. The new agreement reduced the interest rate on Farah's line of
credit. Increases in the prime interest rate earlier in the year, combined with
higher interest rates on the financing of some capital expenditures, offset the
interest rate reduction obtained in Farah's Terminated Credit Facility. Interest
income in fiscal 1997 was derived primarily from a note receivable that was
scheduled to mature in 2007. In the fourth quarter of fiscal 1997, the note was
prepaid by the borrower.
Income Tax Expense (Benefit). Farah's effective tax rate was 107.4% in
fiscal 1997 compared with 30.6% in fiscal 1996. Farah recorded a tax benefit of
$3.9 million in fiscal 1997. The recognition of $3.2 million of deferred tax
assets that were generated but not recognized in prior years comprised the
largest portion of Farah's fiscal 1997 tax benefit.
Net Income. As a result of the above factors, net income decreased 96.2%,
to $270,000 in fiscal 1997, or 0.1% of net sales, from $6.8 million in fiscal
1996, or 2.7% of net sales.
Fiscal 1996 Compared to Fiscal 1995
Net Sales. Net sales increased 2.8% to $247.6 million in fiscal 1996 from
$240.8 million in fiscal 1995. Net sales of Farah U.S.A. increased 3.2%, to
$182.8 million in fiscal 1996 from $177.0 million in fiscal 1995. On a
comparative basis from fiscal 1995 to fiscal 1996, sales of Savane@ products
increased approximately 9.8%, sales of John Henry@ products decreased by 28.3%
sales of Farah@ label products decreased 31.8% and sales of private label
product increased 22.7%.
Net sales of Farah International increased 1.1% to $48.0 million in fiscal
1996 from $47.5 million in fiscal 1995. Unit sales and the average unit sales
price both increased by 0.5% in fiscal 1996.
Net sales of Savane Direct increased 3.6% to $16.8 million in fiscal 1996
from $16.2 million in fiscal 1995. Same store sales decreased approximately 3.0%
in fiscal 1996 compared to fiscal 1995. The average unit sales price increased
by 13.4% during fiscal 1996 as the mix of sales of first quality product
improved. Unit sales decreased by 8.7% as competition in the retail outlet
market increased.
Gross Profit. Gross profit increased 16.5% to $64.1 million in fiscal
1996, or 25.9% of net sales, from $55.0 million in fiscal 1995, or 22.8% of net
sales. Gross profit of Farah U.S.A. increased 29.0%, to $40.1 million in fiscal
1996, or 22.0% of net sales, from $31.1 million in fiscal 1995, or 17.6% of net
sales. Gross margin improved at Farah U.S.A. as a result of a cost containment
program initiated in the latter part of fiscal 1995, including increasing
factory efficiencies, reducing overhead and improving first quality production
percentages, factory deliveries and work-in-process turns. There were also
significant reductions in the production work force, particularly in the United
States. Farah also improved product quality and reduced the number of irregulars
and second quality products in fiscal 1996. Finally, Farah recorded fewer
reserves for inventory markdowns in fiscal 1996 resulting from significantly
reduced inventory levels.
Gross profit of Farah International increased 3.8% to $16.3 million in
fiscal 1996, or 33.9% of net sales, from $15.7 million in fiscal 1995, or 33.0%
of net sales. Gross profit of Savane Direct decreased 6.5%, to $7.7
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million in fiscal 1996, or 45.5% of net sales, from $8.2 million in fiscal 1995,
or 50.5% of net sales. Gross margin at Savane Direct was down compared to the
prior year, as a result of higher promotional sales, combined with a lower mix
of irregulars and closeout goods.
Selling, General and Administrative Expenses. Selling, general and
administrative expenses decreased 8.5% to $62.2 million in fiscal 1996, or 25.1%
of net sales, from $68.0 million in fiscal 1995, or 28.2% of net sales. This
decrease was primarily attributable to lower advertising expenses at Farah
U.S.A. as well as reductions in personnel, professional fees and insurance at
Farah U.S.A. and Farah International. These decreases were partially offset by
costs associated with the planned realignment of store operations, including
labor costs and depreciation expense associated with opening new stores in the
United States and increased advertising.
Other Income (Expense). Net interest expense decreased 13.3% to $3.2
million in fiscal 1996, or 1.3% of net sales, from net interest expense of $3.7
million in fiscal 1995, or 1.5% of net sales. Other income in fiscal 1996
included a pre-tax gain of approximately $9.3 million realized on the sale of
Farah's Piedras Negras, Mexico facility.
Income Tax Expense (Benefit). Farah's effective tax rate was 30.6% in
fiscal 1996 compared with 15.3% in fiscal 1995.
Net Income. As a result of the above factors, net income increased to $6.8
million in fiscal 1996, or 2.7% of net sales, from a loss of $12.9 million in
fiscal 1995, or 5.4% of net sales.
LIQUIDITY AND CAPITAL RESOURCES
Liquidity and Capital Resources of TSI
The Company's principal liquidity needs have historically been funding
growth in operations and capital expenditures. The Company has financed these
needs through cash flow from operations, borrowings under its credit facilities
and the net proceeds from its October 1997 initial public offering. Following
consummation of the Transactions, the Company expects that its principal needs
for liquidity will be to fund working capital and meet debt service
requirements, and expects that these needs will be funded primarily through cash
flow from operations and borrowings under the New Credit Facility.
As of July 4, 1998, the Company's consolidated debt was approximately
$183.4 million. In addition, on a pro forma basis after giving effect to the
Transactions, the Company's earnings would have been insufficient to cover fixed
charges by approximately $6.4 million for the forty weeks ended July 4, 1998.
The Company's significant debt service obligations following consummation of the
Transactions could, under certain circumstances, have material adverse
consequences to security holders of the Company. See "Risk Factors --
Substantial Leverage."
During fiscal 1997, the Company generated $7.0 million of cash from
operations. This was primarily the result of net income of $8.3 million and a
decrease in inventories of $1.9 million, offset by an increase in accounts
receivable of $5.1 million and a decrease in accounts payable of $1.1 million.
The increase in accounts receivable was primarily the result of a 17.0% increase
in net sales in the fourth quarter of fiscal 1997 as compared to the fourth
quarter of fiscal 1996. The decreases in accounts payable and inventories were
primarily due to a seasonal reduction in production activity. During the forty
weeks ended July 4, 1998, the Company used $15.9 million of cash in operations,
primarily due to seasonal increases in inventory of $12.8 million and the
payment of $5.9 million to Farah's former lender as a deposit for letters of
credit outstanding under Farah's Terminated Credit Facility. These were offset
in part by net income of $7.6 million (which includes non-cash expenses of $2.3
million).
The Company's Terminated Credit Facility consisted of a $40.0 million
revolving credit line ($5.5 million of which could have been used for letters of
credit), a $3.0 million term note and a $5.0 million equipment loan facility. As
of June 10, 1998, debt outstanding thereunder accrued interest at a weighted
average rate of approximately 9.75% per annum. Although TSI's Terminated Credit
Facility was scheduled to expire by its terms in January 1999, both it and
Farah's $75.0 million Terminated Credit Facility were replaced by the New
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Credit Facility in connection with the consummation of the Transactions. The New
Credit Facility provides availability for revolving borrowings and letters of
credit in an aggregate principal amount of $110.0 million, subject to borrowing
base limitations. The borrowing base is defined to include the value of the
Company's inventory and accounts receivable, subject to customary limitations.
Borrowings under the New Credit Facility may be made by, or for the account of,
the Company and certain of its subsidiaries. As of July 4, 1998, approximately
$63.6 million of debt was outstanding under the New Credit Facility and, after
giving effect to borrowing base limitations, TSI had approximately $27.9 million
of additional borrowing availability thereunder. Revolving loans under the New
Credit Facility accrue interest at specified floating rates and, as of July, 4,
1998, debt outstanding thereunder accrued interest at a rate of approximately
9.2% per annum. The New Credit Facility has a five year term. See "Description
of Other Indebtedness -- New Credit Facility."
In addition, on June 10, 1998, the Company closed the Bridge Facility.
Borrowings of $100.0 million under the Bridge Facility and approximately $70.4
million under the New Credit Facility were incurred to finance the purchase
price for the Farah Acquisition, the repayment of the Terminated Credit
Facilities and the redemption of the Convertible Debentures. The Bridge Facility
was repaid on June 24, 1998, as discussed below. A funding fee of $500,000 was
paid to the Bridge Lender, which was amortized to expense over the 14 day life
of the loan.
On June 24, 1998, the Company closed the issuance and sale of $100 million
aggregate principal amount of the Notes. The net proceeds of the Offering of
approximately $95.6 million, together with borrowings of approximately $4.4
million under the New Credit Facility, were used to repay all debt of the
Company outstanding under the Bridge Facility. Under the terms of the Indenture,
the Company is obligated to pay interest on the Notes at a rate of 11% per
annum, payable semiannually in arrears on June 15 and December 15 of each year,
commencing December 15, 1998. The Notes mature on June 15, 2008. See
"Description of the Notes."
Capital expenditures were $5.2 million and $3.8 million for fiscal 1997 and
the forty weeks ended July 4, 1998, respectively. During fiscal 1996 the Company
spent $6.2 million to acquire the building and land in Tampa, Florida which
houses its distribution and administration functions as well as additional
adjacent property for the purpose of constructing an approximately 110,000
square foot cutting facility. During fiscal 1997, the Company's cutting facility
was completed at a cost of $5.4 million, a portion of which was incurred in
fiscal 1996. The building and land acquisitions and construction of the new
cutting facility were financed primarily through a loan (the "Real Estate Loan")
obtained from SouthTrust Bank of Alabama, National Association ("SouthTrust")
pursuant to the Construction and Term Loan Agreement dated as of May 7, 1996, as
amended (the "Real Estate Loan Agreement"). During fiscal 1997, the Company
converted the Real Estate Loan into a ten-year term loan. As of July 4, 1998,
the outstanding principal amount of the Real Estate Loan was $9.6 million and
the Real Estate Loan accrued interest at a rate of 7.38% per annum. See
"Description of Other Indebtedness -- Real Estate Loan."
Capital expenditures are expected to approximate $7.0 million for the
balance of fiscal 1998. The expenditures for the forty weeks ended July 4, 1998
and expected expenditures for the remainder of fiscal 1998 primarily relate to
the upgrade or replacement of the Company's existing computer systems. During
fiscal 1999, the Company plans to spend up to $12.0 million for capital
expenditures to upgrade or replace various equipment and systems of the combined
companies. These expenditures will be funded through a combination of cash flow
from operations, borrowings under the New Credit Facility or purchase money
financing. Capital expenditure plans of the Company are frequently reviewed and
are modified from time to time depending on cash availability and other economic
factors.
Pursuant to the Factoring Agreement dated October 1, 1995 (the "TSI
Factoring Agreement") between the Company and Heller Financial, Inc. (the "TSI
Factor"), the Company factors substantially all of its accounts receivable,
other than accounts receivable of Farah. The TSI Factoring Agreement provides
that the TSI Factor will pay the Company an amount equal to the gross amount of
the Company's accounts receivable from customers reduced by certain offsets,
including, among other things, discounts, returns and a commission payable by
the Company to the TSI Factor. The commission equals 0.30% of the gross amount
of the accounts receivable factored. For fiscal 1997 and the forty weeks ended
July 4, 1998, the Company paid commissions to
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the TSI Factor aggregating $504,000 and $620,000, respectively. The TSI
Factoring Agreement expires on September 30, 1998. The Company intends to
replace the TSI Factoring Agreement with a similar arrangement following such
expiration.
Following the closing of the Farah Acquisition, Farah entered into the
Factoring Agreement dated as of June 9, 1998 (the "Savane Factoring Agreement")
with NationsBanc Commercial Corporation (the "Savane Factor"), pursuant to which
Farah factors substantially all of its accounts receivable. The Savane Factoring
Agreement provides that the Savane Factor will pay Farah an amount equal to the
gross amount of Farah's accounts receivable from customers reduced by certain
offsets, including, among other things, discounts, returns and a commission
payable by Farah to the Savane Factor. The commission is equal to (i) for
accounts receivable having payment terms equal to or less than 90 days, 0.28% of
the gross amount of the receivables factored (the "Standard Commission") or (ii)
for accounts receivable having payment terms of more than 90 days, the sum of
(A) the Standard Commission and (B) an additional 0.15% of the gross amount of
the accounts receivable factored for each 30 day period (or part thereof) by
which the payment terms of such accounts receivable exceed 90 days (such
additional amount being referred to as the "Long Term Commission"). However, no
Standard Commission is payable by Farah until the day after the aggregate amount
of the factored accounts receivable exceeds $125.0 million. The Factoring
Agreement expires on June 9, 2001, but it may be terminated at any time by the
Savane Factor upon 60 days prior written notice to Farah. See "Description of
Other Indebtedness -- Factoring Arrangements."
As of September 27, 1997 and July 4, 1998, the Company had working capital
of $30.2 million and $115.5 million, respectively. The increase in working
capital was due primarily to the addition of Farah's working capital of $74.2
million and, to a lesser extent, seasonal and volume related increases in
accounts receivable and inventory, offset in part by a seasonal and volume
related increase in accounts payable. The Company expects its working capital
needs will continue to fluctuate based on seasonal increases in sales and
accounts receivable and seasonal decreases in trade accounts payable.
The Company received $17.3 million in net proceeds from its October 1997
initial public offering. Of the net proceeds, $3.9 million were used to redeem
the Company's preferred stock, $10.6 million were used to reduce amounts
outstanding under the Company's Terminated Credit Facility and the remainder was
used for other working capital purposes.
The ability of the Company to fund working capital needs and meet debt
service requirements will depend on the future operating performance and
financial results of the Company, which will be subject in part to factors
beyond the control of the Company. In addition, the Company's future performance
will depend upon its ability to successfully integrate Farah's operations into
those of the Company in a timely and efficient manner and to achieve estimated
cost savings and business synergies resulting therefrom. Although the Company
believes that cash flow from operations and borrowing availability under the New
Credit Facility will be adequate to fund its short-term and long-term liquidity
needs, there can be no assurance that the Company will generate sufficient cash
flow from operations or that borrowing availability under the New Credit
Facility will be sufficient to fund working capital needs and meet debt service
requirements. See "Risk Factors -- Substantial Leverage."
Liquidity and Capital Resources of Farah
Farah's principal liquidity needs have historically been funding growth in
operations and capital expenditures. Farah has financed its liquidity needs
through cash flow from operations, borrowings under its credit facilities and
borrowings under long-term debt arrangements.
During fiscal 1997, Farah used $17.0 million of cash in its operations.
This primarily resulted from increases in inventories and receivables and a
decrease in trade payables. The growth in inventories resulted from expanding
the number of products Farah offers and increasing shelf stock to meet customer
demand. During the twenty-six weeks ended May 3, 1998, Farah generated $5.4
million of cash from operations, primarily resulting from a decrease in trade
receivables. The decrease in trade receivables was consistent with the normal
seasonality of Farah's business. The decrease in trade payables in fiscal 1997
resulted mainly from a decrease in payables for piece goods.
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Farah's working capital decreased by $2.5 million to $56.1 million in
fiscal 1997 from $58.6 million in fiscal 1996. Increases in short-term
borrowings and the current portion of long-term debt, partially offset by
increased inventory and decreased accounts payable, were the primary factors
reducing Farah's working capital. Farah's working capital decreased $8.0 million
to $45.2 million in the twenty-six weeks ended May 3, 1998 from $53.2 million in
the twenty-six weeks ended May 4, 1997. This resulted primarily from increases
in short-term debt and the current portion of long-term debt, offset in part by
increased inventory levels.
Net cash from financing activities was $27.1 million in fiscal 1997.
Short-term borrowings increased by $14.8 million during fiscal 1997, driven
primarily by Farah's use of $11.6 million in cash to purchase property and
equipment, a $12.8 million increase in inventories and a $3.4 million decrease
in accounts payable. The growth in inventories resulted from expanding the
number of products Farah offers and increasing shelf stock to meet customer
demand. Farah used $7.2 million of proceeds from the early retirement of a note
receivable and related certificate of deposit that was previously pledged to
reduce the outstanding revolving loans under its Existing Credit Agreement.
Approximately $5.0 million of the note receivable was previously classified as
non-current. In addition, Farah received a $10.0 million term loan under its
Terminated Credit Facility which was also used to reduce the outstanding
revolving loans under its Terminated Credit Facility. Net cash used in financing
activities was $976,000 for the twenty-six weeks ended May 3, 1998. This
resulted primarily from the repayment of long-term debt.
During fiscal 1997, Farah established its Terminated Credit Facility, which
was comprised of (i) a revolving credit facility which provided availability for
borrowings and letters of credit in an aggregate principal amount of $75.0
million, subject to borrowing base limitations, and (ii) a term loan payable in
monthly installments of $208,333, with the remaining balance due at the end of a
48 month period. As of May 3, 1998, (i) outstanding debt under the revolving
credit facility was $39.8 million and (ii) the outstanding balance of the term
loan was and $7.9 million. In addition, as of May 3, 1998, Farah had
approximately $10.1 million available for additional borrowings under the
revolving credit facility. No additional borrowings were available under the
term loan. As of May 3, 1998, debt outstanding under Farah's Terminated Credit
Facility accrued interest at a weighted average interest rate of approximately
8.6% per annum. Although Farah's Terminated Credit Facility was scheduled to
expire by its terms in July 2001, it was replaced by the New Credit Facility in
connection with the consummation of the Transactions.
Capital expenditures for fiscal 1997 were $18.3 million, primarily
consisting of $7.2 million for manufacturing equipment and plant improvements,
$3.9 million for new shelving, equipment and other leasehold improvements at its
new distribution facility and $3.5 million in leasehold improvements and
furnishings for its new corporate headquarters. Capital expenditures for the
twenty-six weeks ended May 3, 1998 were approximately $6.9 million, primarily
for additional leasehold improvements at the new distribution facility and
expenditures for replacement of the Company's enterprise-wide computer systems.
Most of Farah U.S.A.'s major fabric suppliers provide 60-day payment terms,
subject to certain limits. During fiscal 1997 and the twenty-six weeks ended May
3, 1998, Farah's maximum outstanding balance at any month-end under these
payment terms was $9.4 million. Inflation did not materially effect Farah in
fiscal 1997 or the twenty-six weeks ended May 3, 1998.
BACKLOG
As of May 3, 1998 and July 4, 1998, Farah and TSI had unfilled customer
orders of approximately $140.7 million and $86.5 million, respectively. All such
orders are scheduled for shipment within the next 12 months. As of May 4, 1997
and June 28, 1997, Farah and TSI had unfilled customer orders of approximately
$137.1 million and $81.2 million, respectively. Fulfillment of orders is
affected by a number of factors, including revisions in the scheduling of
manufacture and shipment of the product which, in some instances, depends on the
demands of the retail customer. Accordingly, a comparison of unfilled orders
from period to period is not necessarily meaningful, and the level of unfilled
orders at any given time may not be indicative of eventual actual shipments. See
"Risk Factors -- Reliance on Key Customers."
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IMPACT OF NEW ACCOUNTING PRONOUNCEMENTS
In June 1997, the Financial Accounting Standards Board issued Statement of
Financial Accounting Standards No. 130 (SFAS 130), "Reporting Comprehensive
Income." This statement establishes standards for the reporting and display of
comprehensive income and its components. This statement will require additional
disclosures and the Company intends to adopt it in fiscal 1999.
In June 1997, the Financial Accounting Standards Board issued Statement of
Financial Accounting Standards No. 131 (SFAS 131), "Disclosures about Segments
of an Enterprise and Related Information." This Statement requires that public
business enterprises report certain information about operating segments in
complete sets of financial statements of the enterprise and in condensed
financial statements of interim periods issued to shareholders. It also requires
that public business enterprises report certain information about their product
and services, the geographic areas in which they operate, and their major
customers. Upon adoption of this pronouncement, additional disclosures will be
required by the Company. This statement is effective for fiscal years beginning
after December 15, 1997. Earlier application is encouraged. The Company intends
to adopt this statement for fiscal 1998.
In February 1998, the Financial Accounting Standards Board issued Statement
of Financial Accounting Standards No. 132 (SFAS 132), "Employers Disclosure
About Pension and Other Postretirement Benefits." SFAS 132 revises employers
disclosures about pensions and other post-retirement benefit plans. This
statement is effective for fiscal years beginning after December 15, 1997,
although earlier application is encouraged. The Company intends to adopt this
statement in fiscal 1998.
INFLATION
To date, the Company believes inflation has not had a material impact on
its operations.
IMPACT OF THE YEAR 2000 ISSUE
The "Year 2000 Issue" is the result of computer programs and systems having
been designed and developed to use two digits, rather than four, to define the
applicable year. As a result, these computer programs and systems may recognize
a date using "00" as the year 1900 rather than the year 2000. This could result
in a system failure or miscalculations causing disruptions of operations,
including, among other things, a temporary inability to process transactions,
send invoices or engage in similar normal business activities.
The new or upgraded management information systems which TSI began
implementing in the second quarter of fiscal 1998 will, among other things,
address problems resulting from the Year 2000 Issue. The Year 2000 Issue impacts
TSI's main operating system which includes subsystems related to customer
analysis, order processing, planning, procurement, production and sales. While
the new management information system, which is Year 2000 compliant, will not be
operational until approximately the third quarter of fiscal 1999, TSI plans to
have all existing systems Year 2000 compliant by the first quarter of fiscal
1999 and plans to spend up to $500,000 for this portion of its systems upgrade.
Based on assessments made during fiscal 1996 and 1997, Farah decided to
replace its entire inventory management, warehouse distribution and order
processing systems so that those systems will be Year 2000 compliant. Farah will
utilize both internal and external resources to reprogram or replace and test
the software for Year 2000 modifications. The Company plans to complete the
inventory management and order processing portions of Farah's Year 2000 project
no later than December 31, 1998 and plans to complete the remainder of the
project by June 30, 1999. Farah incurred $1.0 million in costs attributable to
Year 2000 compliance in fiscal 1997 and expects to incur an additional $2.6
million in fiscal 1998 (including the periods before and after the Farah
Acquisition). The majority of these costs have been and will continue to be
capitalized, as they relate to software purchases and development.
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The Company and Farah are currently communicating with all significant
suppliers and large customers to determine the extent to which the Company and
Farah are vulnerable to those third parties' failure to remediate their own Year
2000 Issues. The Company believes that the modifications and conversions that it
and Farah are making and plan to make will allow it to mitigate problems
resulting from the Year 2000 Issue. However, if such modifications and
conversions are not made or are not completed timely, the Year 2000 Issue could
have a material adverse effect on the Company's business, results of operations
and financial condition.
EURO CONVERSION ISSUE
On January 1, 1999, 11 of the 15 member countries of the European Union are
scheduled to establish fixed conversion rates between their existing currencies
and the euro and to adopt the euro as their common legal currency (the "Euro
Conversion"). The Company has begun consideration of the effects of the Euro
Conversion on its operations, but it is currently unsure of the potential impact
that the Euro Conversion will have on its business, financial condition and
results of operations, particularly as the Euro Conversion relates to the
Company's European operations.
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BUSINESS
GENERAL
TSI
TSI produces and markets high quality casual pants, jeans, shorts and dress
pants principally for men, which are marketed under TSI brands, private brands
and licensed brand names. In addition, in fiscal 1998 TSI introduced lines of
women's sportswear and men's and women's shirts marketed under its brands and
private brands. TSI's major brands include private brands such as Flyers(TM),
TSI brands such as Bay to Bay(R), Banana Joe(TM), Two Pepper(R) and Texas
Jeans(TM) and licensed brands such as Bill Blass(R) and Van Heusen(R). TSI
markets its apparel to leading apparel retailers in most major retail
distribution channels, including department and specialty stores, catalog
retailers, discount merchants and wholesale clubs. Key customers include Costco
Companies, Inc. ("Costco"), Dayton Hudson Corporation ("Dayton Hudson"),
Dillard's Department Stores, Inc. ("Dillard's"), Eddie Bauer Int'l ("Eddie
Bauer"), Federated Department Stores, Inc. (including Bloomingdale's and Macy's)
("Federated Department Stores"), J.C. Penney Company, Inc. ("J.C. Penney"), May
Department Stores Company ("May Co."), Nordstrom, Inc. ("Nordstrom"),
Phillips-Van Heusen Corporation ("Phillips-Van Heusen"), Sam's Club (a division
of Wal-Mart Stores, Inc. ("Wal-Mart")) ("Sam's Club") and Sears, Roebuck and Co.
("Sears").
Farah
Farah is a leading manufacturer and marketer of high quality casual and
dress pants, shorts, sportcoats, suit separates (matching pants and sportcoats),
skirts and shirts principally marketed under the well-known Savane(R), Farah(R)
and John Henry(R) brands. Farah operates three divisions: Farah U.S.A., Farah
International and Savane Direct. Farah U.S.A., which accounted for approximately
75.7% of Farah's fiscal 1997 net sales, produces branded and private label
casual and dress apparel marketed to retailers throughout the United States.
Farah International, which accounted for approximately 18.1% of Farah's fiscal
1997 net sales, manufactures, sources and markets apparel primarily in the
United Kingdom, Australia and New Zealand. Savane Direct, which accounted for
approximately 6.2% of Farah's fiscal 1997 net sales, operates 32 United States
retail stores that sell first quality, close-out and second quality Farah
apparel and a limited amount of merchandise purchased from third parties. Key
customers include Belks Stores Services, Incorporated ("Belks"), Dillard's,
Federated Department Stores, Frederick Atkins Incorporated ("Frederick Atkins"),
May Co., Proffitt's, Inc. ("Proffitt's"), Sears and Wal-Mart.
INDUSTRY
The United States apparel industry (including soft-line home furnishings)
totaled approximately $181.0 billion in retail sales in 1997. Of this amount,
the men's apparel business represented 28.1%, while the women's apparel business
represented 49.4%. In 1996 and 1997, the apparel industry grew approximately
5.8% and 3.5%, respectively. Over the same period, the men's bottoms (i.e.,
pants and shorts) business, representing approximately 7.4% of the total apparel
market, grew approximately 10.5% and 3.4%, respectively, and the women's bottoms
(i.e., pants and shorts) business, representing 8.1% of the total apparel
market, grew approximately 5.0% and 8.0%, respectively. TSI believes that the
apparel industry is characterized by the following trends:
Trend Toward Retail Merchandise Management Programs. The Company
believes that major apparel retailers are increasingly outsourcing apparel
merchandise management programs to minimize inventory risks and increase
profitability. In addition, the Company believes that major apparel
retailers are consolidating their suppliers to increase profitability by
improving customer service and enhancing economies of scale. The Company
believes that its ability to offer leading brands, including those acquired
in the Farah Acquisition, combined with TSI's private brand programs,
position it well to capitalize on these trends.
Retail Consolidation of Branded Merchandise. The Company believes
that major apparel retailers are reducing the number of brands they offer
in favor of a few of the most well-recognized consumer
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brands. Department, chain and discount store retailers have allocated
increasing retail space to "in-store" apparel shops featuring individual
brands merchandised with custom fixturing supplied by the branded
producers. The Company believes that Farah's Savane(R), Farah(R) and
licensed John Henry(R) brands are favored by their respective customers and
are well-positioned to gain market share by investing in enhanced
point-of-sale merchandising.
Trend Toward High Quality Private Brand Apparel. The Company believes
that there is a trend toward using high quality, private brand apparel to
complement branded programs. Private brand apparel bears the retailer's own
name or a proprietary brand name exclusive to the retailer. Producers are
able to sell these garments at lower wholesale prices due to certain
economies, including lower advertising and promotional costs, lack of brand
name license fees and royalties, and reduced markdown and other risks and
expenses inherent in the brand-name apparel industry. As a result of the
lower wholesale prices, private brand apparel generally provides higher
margins for the retailer than brand name products. TSI believes that this
shift is due primarily to the education of consumers and retailers as to
the quality and value of private brand products. TSI believes consumers
increasingly regard private brand products as less expensive than brand
name products, but of equal or better quality. This increase in consumer
demand for private brand garments, coupled with retailers' demands for
higher margins, has resulted in retailers allocating more space to private
brand products.
Trend Toward Casual Dress. TSI believes that there is a growing trend
in the United States toward casual dress, as reflected in the
implementation of policies such as "casual Fridays." In addition, TSI
believes that the number of people who work at home is increasing
substantially and that outside of the workplace, people's social activities
are focusing on a more casual lifestyle.
Expansion of Caribbean, Mexican and Latin American Production. Until
recently, most apparel was produced domestically or in Pacific Rim
countries. Since the passage of Section 807 of the Harmonized Tariff
Schedule ("HTS") of the United States (now found under tariff subheading
9802.00.80, but herein referred to as "Section 807"), United States apparel
companies have increasingly used production facilities located in the
Caribbean Basin, including the Dominican Republic. TSI believes that the
Dominican Republic offers certain competitive advantages, including
favorable pricing and better quality production, a long-standing and
relatively stable production network, and shorter transportation periods as
compared to goods assembled in the Pacific Rim. Under Section 807, customs
duties on apparel products assembled in the Caribbean Basin may be offset
by the costs incurred in the production of components in the United States
(plus freight and insurance). More recently, the North American Free Trade
Agreement ("NAFTA"), effective in 1994, has permitted Mexican manufacturers
to ship finished apparel products into the United States duty-free or at
reduced duties. 1996 marked the first year in which apparel products
exported to the United States from Mexico exceeded products exported from
any other country, including China.
EXPECTED BENEFITS OF THE FARAH ACQUISITION
The Company believes that the combination of TSI and Farah will position it
to offer major retailers complete private label and branded merchandise
management programs in core apparel lines featuring both Farah's well-known
brands and TSI's brands and private brand programs. The Company intends to apply
TSI's proven production technology, comprehensive planning, control and customer
service systems and innovative operating policies and procedures to integrate
and substantially improve the profitability of Farah's operations. Anticipated
benefits of the Farah Acquisition include the following:
Complementary Branded and Private Label Product Line. TSI believes
the Savane(R), Farah(R) and John Henry(R) brands complement TSI's brands
and private brands, positioning the Company to offer differentiated branded
and private label program in core apparel lines. The Company believes that
it can leverage its strength in these categories to develop customized
merchandise management programs featuring branded and private brand men's
shirts, women's basic sportswear and products in other core apparel
categories.
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<PAGE> 52
Expanded Customer Base and Increased Customer Penetration. The
Company believes that its customized merchandise management programs and
customer service capabilities, together with the strength of the Farah
brands, will enable the Company to increase sales to existing accounts and
establish new accounts. The Company believes that substantial cross selling
opportunities exist to market TSI brand products to Farah's customers and
Farah brand products to TSI's customers. The Company intends to market
merchandise management programs to increase sales to these existing
customers, as well as generate sales to new customers.
Greater Critical Mass. The Farah Acquisition will significantly
increase the Company's revenue base. On a pro forma basis after giving
effect to the Transactions, the Company's net sales for the forty weeks
ended July 4, 1998 would have been approximately $335.6 million. The
Company believes that its increased size, marketing resources, production
capacity and product offerings will enhance its relationships with key
suppliers and retailers and strengthen its competitive position in the
apparel industry.
Cost Savings. As part of its integration plan for the Farah
Acquisition, the Company believes that it can achieve at least $23.2
million of annual cost savings by the end of fiscal 1999. These cost
savings include (i) a reduction of selling, general and administrative
expenses (including distribution expenses) resulting in approximately $2.5
million of annual cost savings, (ii) the realization of production
efficiencies resulting in approximately $15.2 million of annual cost
savings and (iii) improvements in inventory management resulting in
approximately $5.5 million of annual cost savings.
Potential Divestiture Opportunities. Following the Farah Acquisition,
the Company intends to evaluate Farah's assets in light of TSI's strategic
and financial objectives and, to the extent such assets do not fit within
those objectives, dispose of or discontinue operating such assets. The
Company is currently considering its alternatives with respect to the Farah
International and Savane Direct businesses. Following the closing of the
Farah Acquisition, the Company closed the remainder of Farah's sewing
operations in San Jose, Costa Rica, and is currently seeking a buyer for
the facility which housed such operations. There can be no assurance that
any disposition or that additional closures will be consummated.
BUSINESS AND GROWTH STRATEGY
The Company believes that the Farah Acquisition will position it to take
advantage of key industry trends including: (i) an increasing emphasis by major
apparel retailers on outsourced merchandise management programs for core apparel
lines; (ii) a reduction by major retailers in the number of brands offered in
favor of a few of the most well-recognized consumer brands; (iii) an increase in
retailer and consumer demand for high-quality private brand apparel; (iv) a
shift in consumer preference toward casual dress; and (v) a shift in trade
policy which favors the manufacture of products in Mexico, the Caribbean and
Latin America. The key elements of the Company's business and growth strategies
include:
Advanced Planning and Control Systems and Procedures. The Company
employs advanced technology and comprehensive operating systems and
procedures which integrate and monitor each operation to reduce
inefficiencies, increase productivity and enhance customer service.
High-Quality Products. The Company applies stringent quality
standards throughout its operations, from the design of its products
through the shipment of customer orders. In fiscal 1997, the application of
these standards resulted in a rate of production of second quality finished
goods of 1.1% of total production.
Low-Cost and Flexible Operations. The Company is organized to effect
a short production cycle from the receipt of raw materials through the
shipment of a customer order. TSI believes its "chassis" production concept
allows it to execute more cost-effective production runs than those of its
competitors. The Company outsources labor intensive garment assembly and
finishing operations to independent manufacturers on a fixed cost per unit
basis. This strategy reduces the personnel and capital resources invested
in the production process and enables TSI to vary production levels with
changes in customer demand.
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<PAGE> 53
Minimized Inventory Risk. The Company believes that it minimizes its
inventory risks by (i) producing focused lines of core apparel products,
(ii) minimizing the production cycle and maximizing production flexibility
and (iii) tracking customer demand trends by SKU on a per store basis. In
fiscal 1997, TSI's production cycle averaged 38 days and average inventory
turnover was approximately five times.
Customer Service. The Company provides customer satisfaction through
high-quality products and customized merchandise management programs. These
programs serve to increase retailer margins by outsourcing traditional
retailer merchandising functions and reducing inventory risk and excessive
markdowns.
Expand Private Brand Programs for Major Retailers. The Company
believes its high-quality and low-cost products, strong customer service
and merchandise management capabilities position it to increase private
brand market share as retailers consolidate and outsource private brand
programs.
New Product Introductions. The Company intends to develop and market
products that complement existing core product lines. Targeted product
categories include lines of men's casual shirts and women's sportswear. All
new product lines will employ the Company's "chassis" production concept.
Acquisitions. The Company will consider the acquisition of additional
established brands as well as the acquisition of producers of complementary
new product lines. The Company regularly evaluates acquisition
opportunities, but currently has no agreements, arrangements or
understandings with respect to any acquisitions, and there can be no
assurance that any acquisitions will be consummated. See "Risk
Factors -- Acquisitions."
INTEGRATION PLAN
TSI and Farah produce similar products and use similar production
operations. Because Farah principally markets branded products, the Company
expects that it will realize higher average unit selling prices and higher gross
margins on sales of Farah products than sales of products generated by TSI's
private label programs. Because of the similarity of TSI's and Farah's product
lines, the Company believes that operations and unit production costs will
generally be comparable for TSI's and Farah's products.
Following the Farah Acquisition, TSI intends to implement a comprehensive
plan to integrate Farah's products and operations into its existing systems. As
part of this integration strategy, TSI intends to take the following actions:
Rationalize Farah Product Offerings. TSI intends to reduce the number
of styles and SKU's of Farah branded products to concentrate on only those
products which TSI believes generate appropriate levels of sales and
profitability. TSI believes that this reduction of Farah's product line
will reduce inventory levels and costly markdown and close-out sales and
improve customer service. The Company also intends to integrate Farah's
private label programs with those of TSI. In addition, the Company intends
to develop new products to merchandise under the Farah brands, which will
conform to TSI's "chassis" production concept.
Develop Independent Brand Strategies. TSI intends to manage the TSI
brands and each of the Farah owned Savane(R) and Farah(R) brands and the
licensed John Henry(R) brand as separate businesses with distinct brand
management programs. The Savane(R) brand will continue to be marketed to
the department store channel with key targeted customers including
Federated Department Stores, May Co., Dillard's and Proffitt's. The John
Henry(R) brand will continue to be marketed exclusively through Sears, and
Farah(R) brand pants, shorts and jeans will continue to be marketed through
the mass merchant channel. TSI intends to invest in cooperative advertising
and merchandising programs with certain key customers to enhance demand for
the Farah brands. The Company plans to apply TSI's proven merchandise
management and customer service capabilities to improve Farah's
partnerships with its key accounts.
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<PAGE> 54
Focus on Market Analysis and Sales Forecasting. Farah has
historically forecasted sales based on customer-specific and market data on
a monthly basis. TSI generally forecasts sales once per week. TSI intends
to initiate semi-weekly sales forecasting for the Farah businesses and
integrate the resulting sales forecasts with TSI's purchasing and
production planning and control systems. TSI believes that the application
of TSI's sales forecasting systems and procedures to Farah's businesses
will reduce the amount of excess, slow moving and obsolete Farah inventory.
Joint Sales and Marketing. The Company intends to consolidate TSI's
and Farah's sales management and market Farah's branded products to TSI's
customers and TSI's private brand programs to Farah's customers. TSI's
sales mix is concentrated in the wholesale clubs and mass merchant channels
with modest penetration of chain stores and department stores. Farah's
sales mix is strongest with department stores through its Savane(R) line of
products. The Company believes that it can increase net sales through
focused joint sales and marketing programs targeting the entire TSI and
Farah customer base.
Rationalize Production. The Company intends to apply TSI's
sophisticated production planning and control systems and procedures,
integrated with its sales forecasting system, to manage Farah's production.
TSI intends to integrate and consolidate Farah's cutting, assembly and
finishing operations to realize economies of scale, balance production
operations and reduce unit production costs. The Company also intends to
convert Farah's assembly and finishing operations to modular work teams to
reduce work in process inventories and increase productivity. The Company
also intends to apply TSI's production planning and control systems to
reduce shipping costs and improve customer order execution.
Consolidate Purchasing. The Company intends to combine TSI's and
Farah's raw materials purchasing to realize economies of scale, improve raw
materials quality and reduce raw materials inventories. The Company expects
to consolidate raw materials suppliers, institute its just-in-time
inventory management programs with its leading suppliers and inspect raw
materials at supplier mills before receipt.
Distribution. Farah recently opened its new distribution facility and
has experienced difficulties in processing orders which has led to
substantial customer order cancellations. The Company intends to apply its
comprehensive operating systems and procedures to Farah's distribution
system. The Company believes these changes will be implemented by the end
of fiscal 1999.
Reduce General and Administrative Expenses. TSI intends to
consolidate Farah into TSI's general and administrative infrastructure,
which TSI believes will result in cost savings by eliminating redundancies
and nonrecurring activities associated with Farah's public company
reporting and administrative costs, insurance coverages and professional
fees. Farah's financial reporting and internal control procedures will be
integrated with TSI's systems. TSI's chief financial officer and controller
will assume supervisory responsibility for Farah's accounting, financial
reporting and internal controls.
Integrate MIS Functions. TSI intends to operate Farah's information
systems in parallel with TSI's, evaluate the best practices of both systems
and integrate systems functions as appropriate on an
application-by-application basis. The separate information systems staffs
will be supervised by TSI's chief information officer.
Potential Divestiture Opportunities. Following the Farah Acquisition,
the Company intends to evaluate Farah's assets in light of TSI's strategic
and financial objectives and, to the extent such assets do not fit within
those objectives, dispose of or discontinue operating such assets. The
Company is currently considering its alternatives with respect to Farah
International and Savane Direct businesses. During the first quarter of
fiscal 1998, Farah decided to close its finishing facility in Cartago,
Costa Rica and reduce its sewing operations in San Jose, Costa Rica.
Following the closing of the Farah Acquisition, the Company closed the
remainder of Farah's sewing operations in San Jose, Costa Rica, and is
currently seeking a buyer for the facility which housed such operations.
There can be no assurance that any such disposition or that additional
closures will be consummated.
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Farah International sells apparel primarily in the United Kingdom,
Australia and New Zealand, under the Savane(R) and Farah(R) labels. Farah
International's product lines include principally dress and casual slacks,
and shirts and sweaters manufactured by third parties and made from
polyester fabrics or polyester blended fabrics. The United Kingdom is Farah
International's principal market and in fiscal 1997 accounted for
approximately 63.0% of its sales. Farah Australia and Farah New Zealand
accounted for approximately 36.0% of Farah International's sales in fiscal
1997. Farah sells most of its products in the Australian and New Zealand
markets under the Savane(R) and Farah(R) labels. In fiscal 1997, net sales
and EBITDA attributable to Farah International were $49.7 million and $1.9
million, respectively. Farah's retail store division, Savane Direct,
currently operates 34 stores in the United States, most of which are
located in outlet malls. In fiscal 1997, net sales and EBITDA attributable
to Savane Direct were $16.8 million and $86,000, respectively.
PRODUCTS
TSI
TSI produces and markets high quality casual pants, jeans, shorts and dress
pants principally for men, which are marketed under TSI brands, private brands
and licensed brand names. Most of TSI's apparel line focuses on basic, recurring
styles that TSI believes are less susceptible to fashion obsolescence and less
seasonal in nature than fashion styles. Key fabrics include 100% cotton and
synthetic blends using rayon, wool and polyester. Key fabric constructions
include twill, denim, corduroy and wrinkle-free fabrications. The table below
sets forth sales mix, expressed as a percentage of net sales, and retail price
points per product category:
<TABLE>
<CAPTION>
THIRTY-NINE FORTY
FISCAL YEAR WEEKS ENDED WEEKS ENDED
--------------------- JUNE 28, JULY 4, CURRENT RETAIL
1995 1996 1997 1997 1998 PRICE RANGE
----- ----- ----- ----------- ------------ ---------------
<S> <C> <C> <C> <C> <C> <C>
Casual pants......... 48.5% 56.8% 53.9% 42.8% 49.4% $17.99 - $39.99
Shorts (including
denim)............. 42.8 34.4 32.1 45.8 41.4 11.99 - 24.99
Dress casual pants... 0.9 1.7 8.6 7.7 4.8 24.99 - 39.99
Denim jeans.......... 7.8 7.1 5.4 3.7 4.4 16.99 - 24.99
----- ----- ----- ----- -----
100.0% 100.0% 100.0% 100.0% 100.0%
===== ===== ===== ===== =====
</TABLE>
TSI's design staff examines domestic and international trends in the
apparel industry as well as industries completely outside the sphere of clothing
manufacture, including the automobile, grocery and home furnishings industries,
to determine trends in consumer preferences for styling, color, labeling and
packaging, quality and general lifestyle. Virtually all of TSI's products are
designed by its in-house staff using CAD technology, which enables TSI to
produce computer simulated samples that display how a particular style will look
in a given color and fabric. The use of CAD technology reduces the time and
costs associated with producing actual sewn samples prior to customer approval
and allows TSI to create custom designed products meeting the specific needs of
a customer. Product design and development is integrated with production
planning and control operations to ensure that individual garment construction
specifications are consistent with TSI's "chassis" production strategy and its
product quality and production efficiency standards.
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<PAGE> 56
Farah
Farah U.S.A. manufactures and markets high quality, medium priced, branded
and private label apparel for men, boys and women. Products include casual and
dress pants, sportcoats, suit separates, skirts and shirts consisting of 100%
cotton and blended fabrics that emphasize comfort, fit and performance. The
table below sets forth sales mix, expressed as a percentage of net sales, and
retail price points per product category:
<TABLE>
<CAPTION>
TWENTY-SIX
WEEKS ENDED
FISCAL YEAR ---------------
--------------------- MAY 4, MAY 3, CURRENT RETAIL
1995 1996 1997 1997 1998 PRICE RANGE
----- ----- ----- ------ ------ -----------------
<S> <C> <C> <C> <C> <C> <C>
Casual pants............... 72.1% 70.5% 68.3% 60.8% 60.7% $ 17.96 - $ 55.00
Dress pants................ 17.7 19.1 20.0 19.7 18.7 19.96 - 60.00
Suit coats/sportcoats...... 6.3 5.2 3.6 3.7 2.7 125.00 - 150.00
Shirts..................... -- 0.8 3.6 4.1 3.5 30.00 - 48.00
Shorts..................... 3.8 3.2 3.5 11.5 13.4 19.99 - 35.00
Denim jeans................ 0.1 1.2 0.6 0.2 0.4 17.99 - 24.99
Skirts..................... -- -- 0.4 -- 0.6 30.00 - 32.00
----- ----- ----- ----- -----
100.0% 100.0% 100.0% 100.0% 100.0%
===== ===== ===== ===== =====
</TABLE>
Farah U.S.A.'s products are sold under three primary labels: Savane(R),
Farah(R) and John Henry(R). Farah owns the Savane(R) and Farah(R) labels and
licenses the John Henry(R) label.
Farah has positioned products marketed under the Savane(R) label as high
quality garments using better fabrics and finer workmanship. Savane(R) casuals
include pants and shorts for men and boys and pants, shorts, shirts and skirts
for women made primarily from 100% cotton fabrics. Savane(R) dress wear includes
men's pants, sportcoats and suit separates made primarily of polyester/wool and
polyester/wool/lycra blend fabrics. Products sold under its Farah(R) label
include men's casual and dress pants. Dress pants are made from blended fabrics,
while casual pants are mainly 100% cotton. The John Henry(R) label is primarily
used for dress pants, suit separates and sportcoats produced from blended
fabrics.
CUSTOMERS AND CUSTOMER SERVICE
TSI
TSI markets its products to approximately 75 department and specialty
stores, catalog retailers, discount merchants and wholesale clubs. TSI's
products are sold at over 6,000 outlets throughout the United States, Canada,
Mexico and Central America. Sales to TSI's five largest customers represented
69.8% and 65.5% of net sales during fiscal 1997 and the forty weeks ended July
4, 1998, respectively. Sales to Wal-Mart (substantially all of which represent
sales to Sam's Club), Costco and Phillips-Van Heusen accounted for approximately
28.7%, 17.0%, and 11.0% respectively, of net sales for fiscal 1997 and
approximately 28.7%, 14.8% and 8.3%, respectively, of net sales for the forty
weeks ended July 4, 1998. TSI also sells its products to other major retailers,
including Dayton Hudson, Federated Department Stores, J.C. Penney, May Co. and
Nordstrom, none of which accounted for more than 10.0% of the Company's net
sales in fiscal 1997 or the forty weeks ended July 4, 1998. TSI believes that
its innovative business strategies, customer service capabilities and focus on
aggressive inventory management have resulted in large part from servicing the
quick response merchandise management demands of Sam's Club and Costco. See
"Risk Factors -- Reliance on Key Customers."
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<PAGE> 57
Set forth below are comparative sales mix data, expressed as a percentage
of net sales, by marketing channel:
<TABLE>
<CAPTION>
THIRTY-NINE FORTY
FISCAL YEAR WEEKS ENDED WEEKS ENDED
--------------------- JUNE 28, JULY 4,
CHANNEL 1995 1996 1997 1997 1998
- ------- ----- ----- ----- ----------- -----------
<S> <C> <C> <C> <C> <C>
Wholesale club........................... 29.8% 42.3% 46.1% 48.5% 45.5%
Discount and mass merchant............... 31.3 21.4 21.1 22.9 20.4
National chain........................... 20.9 14.5 12.3 11.3 15.3
Department store......................... 8.8 14.4 10.9 10.9 10.7
Specialty store.......................... 4.9 4.7 5.4 4.4 6.0
Catalog.................................. 2.5 1.1 0.2 .1 .3
Other.................................... 1.8 1.6 4.0 1.9 1.8
----- ----- ----- ----- -----
100.0% 100.0% 100.0% 100.0% 100.0%
===== ===== ===== ===== =====
</TABLE>
TSI offers its customers comprehensive merchandise management programs,
which include: (i) product development and design; (ii) customized planning of
store-level merchandise assortments and inventories by SKU; (iii) consistently
high quality and high value products; (iv) custom labeling and packaging design;
(v) quick response electronic order execution and automatic store-level
merchandise replenishment programs; (vi) real time analysis of store-level sales
by SKU to predict consumer demand trends; (vii) retail profitability analysis by
style and overall assortment; and (viii) access to sophisticated sales
forecasting and inventory management systems. The Company intends to continue to
promote these capabilities aggressively to increase sales.
Farah
Farah U.S.A. markets its brands in three distinct markets. Savane(R)
products are sold to major department stores, John Henry(R) products are sold
exclusively to Sears and Farah(R) products are sold to mass-merchants,
principally Wal-Mart. During fiscal 1997, Farah's ten largest customers
accounted for approximately 66.0% of Farah's net sales. Sales to Federated
Department Stores, Dillard's and Wal-Mart accounted for approximately 13.1%,
12.8% and 10.0% respectively, of net sales for fiscal 1997 and approximately
11.1%, 13.8% and 16.2% of net sales for the twenty-six weeks ended May 3, 1998.
See "Risk Factors -- Reliance on Key Customers."
Set forth below are comparative sales mix data, expressed as a percentage
of net sales, by marketing channel:
<TABLE>
<CAPTION>
TWENTY-SIX
WEEKS ENDED
FISCAL YEAR ---------------
--------------------- MAY 4, MAY 3,
1995 1996 1997 1997 1998
----- ----- ----- ------ ------
<S> <C> <C> <C> <C> <C>
Department store............................ 64.5% 62.7% 63.1% 65.4% 60.9%
Discount and mass merchant.................. 10.7 15.6 20.7 22.2 19.0
Wholesale club.............................. -- -- 1.1 -- 7.3
National chain.............................. 7.6 7.5 7.2 6.2 7.3
Specialty store............................. 13.4 11.4 6.0 4.3 4.9
Other....................................... 3.8 2.8 1.9 1.9 0.6
----- ----- ----- ----- -----
100.0% 100.0% 100.0% 100.0% 100.0%
===== ===== ===== ===== =====
</TABLE>
MARKETING AND SALES
TSI
TSI employs sales representatives located in eight states having an average
of over 16 years of experience in the apparel industry. TSI also maintains a
sales and marketing support staff in Tampa dedicated to
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<PAGE> 58
analyzing sales and marketing data. Using its market data and industry
experience, TSI offers each of its existing and prospective customers a
marketing plan tailored to the customer's market niche, which details by SKU
optimal product assortments and inventory levels, retail sales performance and
trends, pricing strategies and profit margins. TSI operates a sophisticated
electronic data interchange ("EDI") system to execute customer orders on a quick
response basis. In fiscal 1997, TSI processed substantially all of its customer
orders via its EDI system and typically shipped customer orders within 72 hours
of receiving the purchase order.
Farah
Farah U.S.A.'s sales force consists of regional corporate account
executives who are directly responsible for certain major retail accounts,
including Federated Department Stores, May Co., Dillard's, Sears and Wal-Mart,
and regional sales representatives who report to the corporate account
executives and assist them with the major retail accounts. The regional sales
representatives are also responsible for sales to smaller retailers. Farah
U.S.A. employs merchandise coordinators who visit retail stores that carry
Farah's branded products to train store personnel to sell Farah products, ensure
proper point-of-sale merchandising and presentation of the Farah products, and
enhance customer satisfaction with the Farah brands. Farah U.S.A.'s marketing
and advertising program consists of point-of-sale merchandising fixtures and
materials, national print advertising and participation in cooperative
advertising programs with retailers.
Farah U.S.A. fills retailers' orders from inventory at its distribution
center and ships orders directly to retailers' stores or their distribution
centers. During the first quarter of fiscal 1998, Farah opened its new
distribution center in Santa Teresa, New Mexico. Farah has implemented an EDI
system with selected large retailers and, in fiscal 1997, substantially all of
its customer orders were processed through its EDI system.
PRODUCTION
TSI
Overview. TSI inventories, spreads, marks and cuts virtually all of the
fabric used in the manufacture of its products at its owned facility in Tampa,
Florida. The components are then assembled by independent manufacturers outside
the United States, principally in the Dominican Republic, and shipped back to
TSI's Tampa facilities for labeling, packaging and distribution. TSI also
imports finished goods, principally denim jeans, shorts and shirts from Mexico,
the Pacific Rim and the Middle East. TSI believes that the use of independent
garment assembly and finishing contractors enables it to provide customers with
high quality goods at significantly lower prices than if it operated its own
assembly facilities. In fiscal 1997, products originating from TSI's Tampa
cutting facility and imported finished goods represented approximately 83.4% and
16.6%, respectively, of the products sourced by TSI. In fiscal 1997, the
production cycle from receipt of raw materials through the availability for
shipping of finished goods averaged 38 days compared to 43 days in fiscal 1996
and 52 days in fiscal 1995. In fiscal 1997, TSI's average finished goods
inventories, expressed as days of net sales, were 45 days, compared to 57 days
in fiscal 1996 and 50 days in fiscal 1995. TSI believes that it is organized to
maximize manufacturing productivity and minimize inventory risk. See "Risk
Factors -- International Sourcing and Manufacturing."
Production Planning and Control. TSI applies stringent production planning
and control systems and procedures throughout the production process to increase
productivity, reduce unit production costs and mitigate inventory risk. Detailed
production plans by SKU are developed based on individual long-range customer
merchandise plans and are reset twice per week based on TSI's retail sales
demand forecasting and market trend analysis. The production plan governs each
stage of garment fabrication to enhance high-quality and low-cost production. In
fiscal 1997, TSI's average work-in-process inventories, expressed as days of net
sales, were 18 days, compared to 25 days in fiscal 1996 and 35 days in fiscal
1995.
Raw Materials Sourcing. Based on its production plan, TSI purchases raw
materials, including fabrics, thread, trim and labeling and packaging materials,
on virtually a just-in-time basis from domestic sources based on quality,
pricing and availability. TSI's personnel inspect raw materials quality at
suppliers' facilities to avoid the handling costs and production plan disruption
of receiving off-quality materials. TSI has no long-term contracts with any of
its suppliers and maintains multiple sources of supply for key raw materials,
which
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include generally available fabric constructions and trim components. In fiscal
1997 and 1996, TSI's average raw materials inventories, expressed as days of net
sales, were 10 days in each fiscal year, compared to 7 days in fiscal 1995. See
"Risk Factors -- Price and Availability of Raw Materials."
Cutting. Since 1989, TSI has invested in computerized equipment for
spreading, marking and cutting fabric to ensure color consistency and maximize
fabric utilization. In fiscal 1997, TSI's fabric utilization averaged
approximately 92.0% compared with an industry average of approximately 87.0%.
TSI has also invested in state-of-the-art fabric handling and cutting
technology, including 12 air table handling systems, 11 Niebuhr spreaders, and
three Gerber computerized cutting systems. TSI has organized its cutting
facility with utilities and infrastructure located outside the cutting room to
permit conversion of the facility to a distribution center as off-shore cutting
capabilities develop.
Assembly and Finishing. Cut fabric and components (buttons, zippers, etc.)
are shipped by common carrier to independent manufacturers, principally in the
Dominican Republic, for garment assembly and finishing. TSI currently uses
approximately 15 manufacturers in the Dominican Republic that specialize in
assembling and finishing products on one or more "chassis" and adhere to TSI's
specific operating procedures. TSI has converted all of its contractors to
modular work teams from the traditional assembly line production, which TSI
believes has improved productivity. In addition, TSI's production planning and
control system tracks production at each assembly and finishing stage to
identify production difficulties as they occur and thereby increase efficiency
and minimize costly rework and off-quality finished goods. TSI's team of 14
quality control personnel inspects production by the independent manufacturers
on a daily basis to ensure strict adherence to operating procedures and quality
standards. TSI has used these manufacturers for an average of more than three
years and enjoys, in effect, exclusive relations with 10 of them.
TSI believes that manufacturing in the Dominican Republic offers TSI
certain competitive advantages, including favorable pricing and better quality
production, a long-standing and relatively stable production network, and much
shorter transportation periods than goods assembled in the Pacific Rim. In
addition, United States customs duties programs, such as Section 807, facilitate
assembly in the Caribbean Basin by completely eliminating or substantially
reducing the customs duties on the import of assembled United States components.
TSI arranges for assembly and finishing on a per unit basis and does not have
any long-term contracts with any of its independent contractors. TSI is able to
shift its sources of supply depending upon production and delivery requirements
and cost, while at the same time reducing the need for significant capital
expenditures, work-in-process inventory and a large production work force. TSI
believes that its relations with its contractors are generally good.
Labeling, Packaging and Shipping. Finished goods are shipped from the
Dominican Republic and other sources via common carrier to TSI's Tampa
distribution center. Quality inspections occur both before shipment to Tampa and
when the finished garments are received by the distribution center. TSI
currently employs 20 full-time quality control personnel in its Tampa
facilities. Upon confirmation of a customer order, TSI picks the appropriate
items from its common inventory, applies customer-specific tags, labels and
packaging, and prepares shipments in accordance with the customer's
specifications. TSI's advanced finished goods processing and distribution
systems enable TSI to process a customer order in less than 12 hours, if
necessary, and TSI generally ships orders within three days of receipt. The
customer pays the applicable freight charges. See "Risk Factors -- Dependence on
Independent Manufacturers."
TSI has implemented comprehensive customer order processing and shipping
procedures to enhance customer service and reduce costly customer chargebacks
for order execution deficiencies. Cartons containing garments are bar coded,
weighed and electronically sorted based on weight standards for each individual
garment. Cartons not meeting specifications are removed from order processing
for review. Approved cartons are shrink-wrapped together for delivery to
customers. As a result of these quality control procedures, customer returns
were approximately 1.2% in fiscal 1997.
Farah
Farah U.S.A.'s operations are organized similarly to TSI's with domestic
cutting and finished goods distribution and foreign garment assembly and
finishing. Farah operates one cutting facility in the United
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<PAGE> 60
States, one sewing/finishing and one finishing facility in Mexico, and one
sewing/finishing facility in Costa Rica. Farah also has a long-term joint
venture arrangement in a Mexican finishing facility with a third party Mexican
corporation. In fiscal 1998, Farah announced its intention to close its
finishing facility in Cartago, Costa Rica, reduce its sewing operations in its
San Jose, Costa Rica facility, and move production to its Mexican facilities and
independent manufacturers. Finished products are delivered to Farah's United
States distribution center for storage, customer order execution, and
distribution to Farah customers in the United States. In fiscal 1997, the
production cycle from receipt of raw materials through the availability for
shipping of finished goods averaged 60 days compared with 51 days in fiscal 1996
and 64 days in fiscal 1995. For fiscal 1997, Farah U.S.A.'s average finished
goods inventories, expressed as days of net sales, were 61 days compared to 66
days for fiscal 1996 and 82 days for 1995. In fiscal 1997, Farah U.S.A.'s
average work-in-process inventories, expressed as days of net sales, were 40
days compared to 32 days in fiscal 1996 and 41 days in fiscal 1995. In fiscal
1997, Farah U.S.A.'s average raw materials inventories, expressed as days of net
sales, were 20 days compared to 19 days in fiscal 1996 and 23 days in fiscal
1995.
IMPORTS AND IMPORT REGULATIONS
Each of TSI and Farah presently imports garments under three separate
scenarios having distinct customs and trade consequences: (i) imports of
finished goods (mostly from the Pacific Rim and the Middle East); (ii) imports
from the Caribbean Basin and Central America; and (iii) imports from Mexico. See
"Risk Factors -- International Sourcing and Manufacturing" and "-- Imports and
Import Restrictions."
For direct imports (mostly from the Pacific Rim and the Middle East),
duties on imported garments are normally imposed at most favored nation ("MFN")
tariffs rates and are subject to a series of bilateral quotas that regulate the
number of garments that may be imported annually into the United States. The
tariffs for most of the countries from which TSI and Farah currently import or
intend to import have been set by international negotiations under the auspices
of the World Trade Organization ("WTO"). These tariffs generally range between
17.0% and 35.0%, depending upon the nature of the garment (e.g., shirt, pant),
its construction and its chief weight by fiber. The principal sourcing
alternatives that do not enjoy MFN rates in the Far East are Vietnam and Laos.
In addition to these tariff rates, merchandise from virtually all the
countries from which TSI and Farah import is also subject to bilateral quota
restraints pursuant to United States domestic law or the multi-lateral Agreement
on Textile and Clothing, which is under the auspices of the WTO. Bilateral
quotas are implemented on a calendar year basis. After the United States and a
particular country agree to a particular level of exports in a particular quota
category (for instance, cotton men's bottoms (category 347)), the country that
receives the quota has the right to determine the method by which such quota is
assigned to its manufacturers. Some jurisdictions, such as Hong Kong, have a
free market under which quotas are bought and sold. Most countries, however,
assign it to the factories that actually produce the garments. Shipments which
are exported to the United States must, in addition to the usual commercial
documentation, have appropriate and official textile visas, in either an
electronic or paper format, which confirm their quota status. This documentation
must be filed prior to the admission and clearance of the merchandise into the
United States. Accordingly, TSI and Farah usually demand that this paperwork be
submitted prior to payment.
TSI and Farah also import garments from countries in the Caribbean Basin
and Central America. Although much merchandise imported from these jurisdictions
is subject to the identical tariff and quota consequences described above for
Pacific Rim imports, there are special circumstances which provide a unique
tariff and quota preference for some merchandise sourced from the Caribbean
Basin or Central America. The principal tariff advantage is the so-called "807"
program. Under this program, merchandise produced under tariff subheading
9802.00.80, HTS, is admitted into the United States with a substantial tariff
reduction. Specifically, this tariff provision provides a reduction in duty
based on the value of exported United States components assembled into a product
in a foreign jurisdiction which is subsequently reimported into the United
States. In essence, the duty reduction is equal to the value of United States
components incorporated into these assembled goods plus southbound international
freight and insurance. For apparel products, such United States components
normally consist of cut-to-shape United States fabric parts, finishing and trim
(buttons, thread, etc.). In addition, if the fabric which is cut to create the
cut component parts is also knitted,
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<PAGE> 61
woven or formed in the United States, there is a special quota provision which
provides for more liberalized access to the United States marketplace. This
special quota provision is applicable only to certain Caribbean Basin, Central
American and northern Latin American countries which have signed special
agreements with the United States. Under the terms of these agreements, such
products, known in the trade as "807A" or "Super 807" or "Guaranteed Access
Level" products, are controlled through a much more liberal quota system.
Accordingly, a country such as the Dominican Republic would have a regular quota
for men's cotton bottoms produced through a normal cut, make and trim operation
or through the traditional 807 process; at the same time, it would have a much
larger and, therefore, more liberal quota for merchandise produced from United
States cloth under this Super 807 or 807A program. TSI and Farah produce
significant garments under one or both of these programs. In those circumstances
where garments qualify for both preferences, "807" and "807A," the merchandise
is accorded both quota and tariff advantage over Pacific Rim, Middle Eastern or
non-qualifying Western hemisphere goods.
TSI and Farah also import finished goods from Mexico under the North
American Free Trade Agreement, commonly known as NAFTA. Under NAFTA, merchandise
which qualifies is accorded reduced or duty-free access, depending upon the type
of merchandise selected. The key requirement for NAFTA qualification for such
garments is that the yarn, cloth, cut, sew and finish of the garments all take
place within North America. This is commonly known as the "yarn-forward rule."
Merchandise produced pursuant to these rules enters the United States at a
preferential or at a zero rate and is not subject to any quota.
In addition to the regular NAFTA program, certain imports made by the
Company are also subject to a tariff preference which was created and enacted as
part of the NAFTA-enabling legislation. This tariff provision, subheading
9802.00.90, HTS, provides for immediate duty-free and quota-free entry into the
United States from Mexico of garments made from components which are cut to
shape in the United States from United States knit, woven or formed cloth. This
duty-free, quota-free entry would be available for pant products sourced from
United States components cut from United States knitted/woven fabric. This
merchandise, therefore, has an even more favorable treatment than merchandise
being imported from the Caribbean Basin. The Company currently imports a limited
amount of such merchandise from Mexico, but Farah imports a more significant
amount from Mexico.
Finally, non-NAFTA qualifying goods may be imported from Mexico. Such
merchandise could be imported at reduced duty rates under the 807 (9802.00.80)
program (cut in the United States), or special tariff rate quotas called "TPLs."
Otherwise, it is subject to full duty. Such merchandise may also be subject to
Mexican quotas which are effective for some products until 2004.
PERSONNEL
At August 1, 1998, TSI had approximately 3,403 employees (2,640 of which
were employees of Farah and its subsidiaries), including 16 in the Dominican
Republic, 1,560 in Mexico, 42 in Costa Rica, 39 in Australia and New Zealand,
and 126 in the United Kingdom. Of the remainder, approximately 190 are employed
in the Company's retail stores, 283 hold executive and administrative positions,
approximately 25 are engaged in design and merchandising, approximately 612 are
engaged in production (e.g., marking, cutting and labeling), approximately 94
are engaged in sales, approximately 344 are engaged in distribution and
approximately 72 are engaged in quality control. Approximately 125 of Farah's
United States employees are members of the Union of Needletrades, Industrial and
Textile Employees (formerly, Amalgamated Clothing and Textile Union) and
approximately 780 of its employees are members of a union in Mexico. The
collective bargaining agreement with Farah's United States employees expires in
February 2000. The collective bargaining agreement for Farah's employees in
Mexico expires in December 1998. The Company considers its relations with its
employees to be generally good.
MANAGEMENT INFORMATION SYSTEMS
TSI
TSI believes that advanced information processing is important to maintain
its competitive position. The Company began implementation of a new, integrated
management information system in the second quarter of fiscal 1998 and continues
to integrate additional functions. The Company's new management information
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system, which will cost approximately $5.0 million, will include client server
based hardware and the implementation of the latest version of SAP. The SAP
software, which will include the apparel specific "AFS" component, will allow
the Company to fully integrate functions such as finance, manufacturing,
distribution and inventory management. The new system will enable TSI to
streamline information entry, enhance analytical and inventory management
capabilities, strengthen customer service capabilities and provide a better flow
of information throughout its operations.
The Company's management information systems facilitate inventory and
operating controls by providing, among other things, comprehensive order
processing, production, accounting and management information for the marketing,
manufacturing, importing and distribution functions of TSI's business. TSI has
also purchased and implemented a software program that enables TSI to track,
among other things, orders, manufacturing schedules, inventory and unit sales of
its products. In addition, to support TSI's flexible inventory replenishment
program, TSI has an EDI system through which customer inventories can be tracked
and orders automatically placed by the retailer with TSI. See "Risk
Factors -- Management Information Systems" and "-- Year 2000" and "Management's
Discussion and Analysis of Financial Condition and Results of
Operations -- Impact of the Year 2000 Issue."
Farah
Farah has implemented programs to ensure technical competence in the areas
of information systems, financial reporting, electronic commerce, order
processing, inventory control, computer controlled/assisted warehousing,
distribution, manufacturing and Year 2000 compliance. Farah is currently
migrating the business systems from an IBM ES 9000 mainframe (operating an
enterprise wide software program known as CAMP -- Comprehensive Apparel
Manufacturing Package), to an IBM A/S 400 RISC mid-range system (operating an
enterprise wide system known as ACS -- Apparel Computing System). The A/S 400
offers operational stability, responsiveness, flexibility, reduced operational
costs, increased integration for internet, data warehousing, and electronic
commerce technologies and an advanced system security. ACS offers an integrated
suite of tools to support EDI, order processing, operations planning, sales,
marketing, inventory management, and accounts receivable. The new system will
also provide interfaces with other key business systems such as the JD Edwards
financial reporting and accounting system and the PkMS warehouse management
system. See "Management's Discussion and Analysis of Financial Condition and
Results of Operations -- Impact of the Year 2000 Issue."
COMPETITION
The apparel industry is highly competitive and TSI and Farah compete with
numerous apparel manufacturers, including brand name and private label
producers, and retailers which have established, or may establish, internal
product development and sourcing capabilities. TSI's and Farah's products also
compete with a substantial number of designer and non-designer product lines.
Many of TSI's and Farah's competitors and potential competitors have greater
financial, manufacturing and distribution resources than TSI. TSI believes that
it competes favorably on the basis of quality and value of its programs and
products, price, the production flexibility that it enjoys as a result of its
"chassis" production concept, cutting and labeling capabilities, sourcing
network and the long-term customer relationships it has developed. The Company
believes that producers of apparel generally compete on the basis of quality,
price and service. Nevertheless, any increased competition from manufacturers or
retailers, or any increased success by existing competition, could result in
reductions in unit sales or prices, or both, which could have a material adverse
effect on the Company's business, results of operations and financial condition.
See "Risk Factors -- Competition."
SEASONALITY
Historically, TSI's and Farah's businesses have been seasonal, with
slightly higher sales and income in their respective second and fourth fiscal
quarters, just prior to and during the two peak retail selling seasons for
spring and fall merchandise. In addition, certain of TSI's and Farah's products,
such as shorts and corduroy pants, tend to be seasonal in nature. In the event
such products represent a greater percentage of the Company's sales in the
future, the seasonality of the Company's sales may be increased. See "Risk
Factors -- Seasonality."
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TRADEMARKS AND LICENSES
TSI
TSI holds or has applied for over 75 United States trademark registrations
covering its various brands. TSI believes that its Flyers(TM) and Bay to Bay(R)
trademarks are material to its business. Bay to Bay(R) is registered with the
United States Patent and Trademark Office. This registration expires in 2001 and
is subject to renewal. There are applications pending with the United States
Patent and Trademark Office for trademarks which include the Flyers(TM) name.
Two of these applications have been opposed. Pursuant to separate license
agreements, TSI has the exclusive rights to use (i) the Bill Blass(R) trademark
with respect to casual pants and shorts, jeans and prehemmed dress pants
distributed or sold in the United States, Mexico and Canada, (ii) the Van
Heusen(R) trademark with respect to men's pants, jeans and shorts distributed or
sold in the United States and its possessions and territories and (iii) the
Generra(R) trademark with respect to the design, manufacture and wholesale in
the United States and Canada of men's casual pants, shorts and dress slacks
(excluding open bottom construction) and men's jean-constructed bottoms made of
denim or heavy weight fabrics (excluding open bottom construction). The Bill
Blass(R) license expires in calendar 2000, and the Van Heusen(R) license expires
in calendar 1999. The license agreement with respect to the Generra(R) trademark
is subject to two renewal options that expire September 30, 2002 and 2005,
respectively. TSI believes that it has the exclusive use of all of its owned and
licensed trademarks. See "Risk Factors -- Dependence on Intellectual Property;
Risk of Infringement Claims."
Farah
Farah owns many United States and foreign trademark registrations,
including Savane(R), Savane Elements(R), PROCESS 2000(R), Farah(R) and Farah
Clothing Company(R), and has several other trademark applications pending in the
United States and foreign countries. The John Henry(R) trademark is licensed
from Zodiac International Trading Corporation, an affiliate of Salant
Corporation, with respect to the manufacture, advertisement, promotion and sale
in the United States and Canada of men's slacks and trousers, blazers,
sportcoats and jackets, shorts and jeans. The John Henry(R) license is renewable
by Farah through 2038. See "Risk Factors -- Dependence on Intellectual Property;
Risk of Infringement Claims."
FACILITIES
TSI
TSI's corporate headquarters, cutting and warehouse facilities are located
in Tampa, Florida and are owned by TSI. In fiscal 1997, TSI completed an
approximately 110,000 square foot state-of-the-art cutting facility designed to
provide an environment that would increase efficiencies and accommodate TSI's
increasing volume. The new facility is located adjacent to TSI's administration
and distribution facility (approximately 190,000 square feet). During fiscal
1997, TSI's cutting and labeling, packaging and shipping facilities operated at
approximately 65.0% of capacity. TSI's facilities are subject to a mortgage
securing the debt outstanding under the Real Estate Loan Agreement, which had an
outstanding balance of $9.6 million as of July 4, 1998. TSI also leases
approximately 4,000 square feet of showroom offices in New York City. This lease
expires in April 2004. TSI believes that its existing facilities are adequate to
meet its current and foreseeable needs. TSI also believes its existing
facilities are well maintained and in good operating condition. See "Description
of Other Indebtedness -- Real Estate Loan" and Note 6 to TSI's Consolidated
Financial Statements.
Farah
Farah's principal executive offices and United States distribution facility
are located in El Paso, Texas. Farah considers both its domestic and
international facilities to be suitable and adequate and to have sufficient
productive capacity for current operations. Farah leases its corporate
headquarters in El Paso, Texas. Farah also leases a new distribution warehouse
located in Santa Teresa, New Mexico. Relocation to the new warehouse was
completed during the second quarter of fiscal 1998.
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The following table reflects the general location, use and approximate size
of Farah's significant real properties currently in use:
<TABLE>
<CAPTION>
APPROXIMATE SQUARE
FOOTAGE
LOCATION USE OWNED/LEASED
-------- --- ------------------
<S> <C> <C>
El Paso, Texas...................... Warehouse 116,000 Owned(1)
Chihuahua, Mexico................... Garment manufacturing plant 73,800 Owned
San Jose, Costa Rica................ Garment manufacturing plant 124,000 Owned
Cartago, Costa Rica................. Garment manufacturing plant 77,000 Owned
Auckland, New Zealand............... Office/Warehouse 9,000 Owned
El Paso, Texas...................... Corporate offices 43,500 Leased
El Paso, Texas...................... Garment manufacturing plant 201,000 Leased
Sydney, Australia................... Office/Warehouse 29,000 Leased
Suva, Fiji.......................... Two garment manufacturing plants 35,000 Leased(2)
Witham, United Kingdom.............. Office/Warehouse 57,000 Leased
Santa Teresa, New Mexico............ Distribution Warehouse 250,000 Leased
Juarez, Mexico...................... Garment manufacturing plant 73,500 Leased
Queretaro, Mexico................... Warehouse 32,700 Leased
Torreon, Mexico..................... Garment manufacturing plant 25,000 Leased(3)
</TABLE>
- ---------------
(1) The facility was formerly a garment manufacturing plant. The underlying land
is leased through February 2002.
(2) The facilities are leased by a joint venture in which Farah is a 50%
participant.
(3) The facilities are leased by Farah and a co-lessee.
LEGAL PROCEEDINGS
TSI
On March 21, 1997, Levi Strauss & Co. brought suit against TSI in United
States District Court for the Northern District of California. The complaint
alleges, among other things, that TSI's Flyers(TM) trademark and certain trade
dress used in the labeling and packaging of TSI's Flyers(TM) and Bay to Bay(R)
products infringe upon certain of plaintiff's proprietary trademark and trade
dress rights in violation of the federal Lanham Act and California law. The
complaint seeks injunctive relief, as well as treble damages and attorneys'
fees. Levi Strauss & Co. has filed opposition proceedings in the United States
Patent and Trademark Office against TSI's trademark applications for two marks
in the Flyers(TM) family of marks. These oppositions proceeding have been
suspended pending resolution of the litigation. In addition, plaintiff has
indicated that it believes that certain trade dress used in the labeling and
packaging of TSI's licensed Bill Blass(R) brand slacks also infringes upon
certain of plaintiff's proprietary trade dress rights. Although the outcome of
the litigation cannot be determined at this time, TSI has engaged in settlement
discussions with Levi Strauss & Co. Nevertheless, in an attempt to limit TSI's
liability, if any, with respect to such alleged infringement, TSI has
unilaterally altered the trademark and trade dress which are currently the
subject of this litigation.
On July 3, 1997, Out-of-Mexico Apparel, Ltd. brought suit against TSI in
California Superior Court for, among other things, breach of contract, breach of
a noncircumvention agreement, and violation of the California Unfair Business
Practices Act. The complaint alleges that TSI entered into contracts for the
manufacture of apparel with certain manufacturers in contravention of a customer
non-disclosure and non-circumvention agreement between Out-of-Mexico Apparel,
Ltd. and TSI. The complaint seeks compensatory damages and prejudgment interest,
and the costs of suit. Although the outcome of the litigation cannot be
determined at this time, TSI would consider reasonable settlement opportunities.
TSI is vigorously defending the lawsuit.
On December 30, 1997, TSI brought suit against Bremen Trouser's, Inc.
("Bremen") in the State Circuit Court in Tampa, Florida seeking a declaratory
judgment that TSI has the right to manufacture and
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sell casual pants with "busted seams" using the Bill Blass label pursuant to a
license agreement (the "Pincus License Agreement") between the Company and
Pincus Bros., Inc. ("Pincus"). Bremen is a licensee of Pincus under a separate
license agreement. In March 1998, TSI filed an amended complaint, which added
Pincus as a defendant, alleging breach of contract against Pincus and tortious
interference with business relations against Bremen. Also in March 1998, Pincus
and Bremen filed a separate complaint against TSI, alleging, among other things,
that TSI violated the terms of the Pincus License Agreement by manufacturing
"busted seam" pants. Pincus and Bremen have sought unspecified damages and other
non-monetary relief. TSI's state claim has been removed to the United States
District Court for the Middle District of Florida and consolidated with Pincus
and Bremen's complaint. Pincus has taken the position that the Pincus License
Agreement gives it the authority to resolve disputes between the Company and
Pincus' other licensees, and it claims to have resolved the dispute which is the
subject of the litigation in favor of Bremen. Although the outcome of the
litigation cannot be determined at this time, TSI intends to vigorously pursue
the litigation. The Company does not believe that this litigation will have a
material adverse effect on its business, results of operations or financial
condition.
TSI is not involved in any other legal proceedings which TSI believes could
reasonably be expected to have a material adverse effect on TSI's business,
results of operations or financial condition.
Farah
Farah is involved in certain legal proceedings in the normal course of
business. Farah does not believe that the outcome of such legal proceedings
could reasonably be expected to have a material adverse effect on Farah's
business, results of operations or financial condition.
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MANAGEMENT
DIRECTORS AND EXECUTIVE OFFICERS
TSI's Board of Directors consists of nine members divided into three
classes, with the members of each class serving three-year terms. The following
table sets forth information, as of August 17, 1998, regarding the directors and
executive officers of TSI.
<TABLE>
<CAPTION>
TERMS AS
DIRECTOR
NAME AGE POSITION EXPIRES
- ---- --- -------- --------
<S> <C> <C> <C>
William W. Compton(1)................. 55 Chairman of the Board, Chief Executive 2000
Officer and Director
Richard J. Domino..................... 50 President --
Michael Kagan......................... 60 Executive Vice President, Chief 2001
Financial Officer, Secretary and
Director
N. Larry McPherson.................... 34 Executive Vice President -- Finance --
and Operations and Treasurer
Richard C. Allender(2)(3)............. 52 Executive Vice President -- Global 1999
Affairs and Director
Eloy S. Vallina-Laguera(1)(4)......... 60 Director 1999
Jesus Alvarez-Morodo(5)............... 51 Director 2000
Leslie J. Gillock(1)(4)(5)............ 42 Director 1999
Donald H. Livingstone(5).............. 55 Director 1999
Leon H. Reinhart(1)(4)................ 56 Director 2001
Charles J. Smith(3)................... 71 Director 1999
</TABLE>
- ---------------
(1) Member of the Compensation Committee of the Company's Board of Directors.
(2) In connection with the consummation of the Farah Acquisition, Mr. Allender
became the Executive Vice President -- Global Affairs of the Company.
(3) In connection with the consummation of the Farah Acquisition, Messrs.
Allender and Smith were elected by expansion to the Company's Board of
Directors and will serve as directors until the next annual meeting of TSI's
shareholders.
(4) Member of the Stock Option Committee of the Company's Board of Directors.
(5) Member of the Audit Committee of the Company's Board of Directors.
William W. Compton has served as Chairman of the Board, Chief Executive
Officer and a Director of TSI since November 1989. He also served as President
of TSI from November 1989 to November 1994. Mr. Compton has over 28 years of
experience in the apparel industry. Prior to joining TSI, he served as President
and Chief Operating Officer of Munsingwear, Inc., an apparel manufacturer and
marketer, President/Executive Vice President of Corporate Marketing for five
apparel divisions of McGregor/Faberge Corporation and President, U.S.A. and a
director of Farah, a men's apparel manufacturer. Mr. Compton currently serves on
the Board of Directors of the Brigham Young University Marriott School of
Management, and on the Board of Directors of the American Apparel Manufacturers
Association.
Richard J. Domino joined TSI in 1988 and has served as President of TSI
since November 1994. Mr. Domino served as Senior Vice President of Sales and
Marketing from January 1994 to October 1994 and Vice President of Sales from
December 1989 to December 1993. He has over 23 years experience in apparel-
related sales and marketing. Before joining TSI, Mr. Domino was employed by
Thomson Sportswear, Inc., a men's apparel manufacturer and marketer, as its
Sales Manager for the Northwest Territory, and by Haggar Corp., a men's apparel
manufacturer and marketer, as its New Jersey Salesman.
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Michael Kagan has served as Executive Vice President, Chief Financial
Officer, Secretary and a Director of TSI since November 1989. He was also
Treasurer of TSI from November 1989 to January 1998. Mr. Kagan has more than 30
years experience in the apparel industry. Prior to joining TSI, Mr. Kagan served
as Senior Vice President of Finance for Munsingwear, Inc. and as Executive Vice
President and Chief Operating Officer of Flexnit Company, Inc., a manufacturer
of women's intimate apparel.
N. Larry McPherson joined TSI in January 1998 as Executive Vice
President -- Finance and Operations and Treasurer. Prior to joining TSI, Mr.
McPherson spent ten years as an independent auditor and financial consultant
with Ernst & Young LLP while earning his M.B.A. and license as a C.P.A.
Richard C. Allender has served as the Chief Executive Officer of Farah
since July 1990, the Chairman of its Board of Directors since March 1993 and has
served as a Director of Farah since June 1988. In connection with the
consummation of the Farah Acquisition, Mr. Allender became the Executive Vice
President -- Global Affairs and a Director of the Company.
Eloy S. Vallina-Laguera has served as a Director of TSI since November
1989. He has been Chairman of the Board of Accel, and its predecessor, Grupo
Chihuahua S.A. de C.V. ("Grupo Chihuahua"), since its inception in 1979. Accel
is a publicly traded Mexican holding company having subsidiaries engaged in
warehousing, distribution and manufacturing. He has been Chairman of the Board
of Elamex, S.A. de C.V. ("Elamex"), a manufacturing company controlled by Accel,
since 1990. He is also Chairman of Kleentex Corp., and an advisory director of
Norwest Bank El Paso. Mr. Vallina-Laguera was Chairman of Banco Commercial
Mexicano, later Multibanco Comermex, one of Mexico's largest commercial banks at
that time, from 1971 until its expropriation in 1982.
Jesus Alvarez-Morodo has served as a Director of TSI since November 1989.
He has been Vice Chairman of the Board of Elamex since 1995 and President and
Chief Executive Officer of Accel since 1992. Mr. Alvarez-Morodo has been a
director of Elamex since 1990, and has held various positions with Accel and its
predecessor, Grupo Chihuahua and its subsidiaries since 1982, including Vice
President from 1989 to 1992.
Leslie J. Gillock has served as a Director of TSI since August 1997. She
has served in various capacities with Fruit of the Loom, Inc. since 1978,
including Vice President of Marketing since March 1995, Director of Marketing
from January 1993 through February 1995, and Marketing Manager for Intimate
Apparel from January 1989 through December 1992. She has over 19 years
experience in the apparel industry.
Donald H. Livingstone has served as a Director of TSI since August 1997. He
has been a Teaching Professor at the Brigham Young University Marriott School of
Management and the Director of its Center for Entrepreneurship since September
1994. Mr. Livingstone is also a member of the Board of Trustees of the Eureka
Funds. From 1976 through March 1995, he was a partner with Arthur Andersen LLP.
He joined Arthur Andersen LLP in 1966.
Leon H. Reinhart has served as a Director of TSI since August 1997. Mr.
Reinhart has been President, Chief Executive Officer and a director of First
National Bank based in San Diego, California since May 1996. Prior to such time,
he served as Chief Credit Officer and Deputy General Manager of Citibank Mexico
from 1988 through April 1996. Mr. Reinhart's experience includes more than
twenty years as a financial executive with Citibank, N.A. and its affiliates in
a variety of domestic and international positions.
Charles J. Smith has been a director of Farah since March 1994. For more
than five years prior to his retirement in 1994, Mr. Smith served in various
capacities with Crystal Brands, Inc., an apparel manufacturer and marketer, most
recently as an Executive Vice President. Since then, Mr. Smith has served as a
consultant to various apparel companies. In May, 1995, Mr. Smith became a
partner and director of Phoenix Apparel Group, Inc., a privately-held apparel
sourcing and consulting company. In connection with the Farah Acquisition, Mr.
Smith became a Director of the Company.
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<PAGE> 68
EXECUTIVE COMPENSATION
The following table sets forth certain information concerning compensation
paid to or earned by TSI's Chief Executive Officer and each of TSI's two other
most highly compensated executive officers who earned more than $100,000 for
fiscal years 1996 and 1997.
SUMMARY COMPENSATION TABLE
<TABLE>
<CAPTION>
SECURITIES
ANNUAL COMPENSATION UNDERLYING ALL
FISCAL ------------------- OPTIONS/ OTHER
NAME AND PRINCIPAL POSITION YEAR SALARY BONUS SAR'S(#) COMPENSATION
- --------------------------- ------ -------- -------- ---------- ------------
<S> <C> <C> <C> <C> <C>
William W. Compton........................... 1997 $390,000 $429,000 23,500 $32,640(1)(2)
Chairman of the Board and 1996 336,985 387,200 -- 31,522(1)(2)
Chief Executive Officer
Richard J. Domino............................ 1997 $225,000 $225,000 8,000 --
President 1996 191,346 200,000 -- --
Michael Kagan................................ 1997 $215,000 $172,000 13,800 $19,343(2)(3)
Executive Vice President, 1996 192,000 153,600 -- 19,343(2)(3)
Chief Financial Officer
and Secretary
</TABLE>
- ---------------
(1) Includes $25,000 in director's fees for each of fiscal 1997 and fiscal 1996
and $7,640 and $6,522 in grossed up premiums for term life insurance for
fiscal 1997 and fiscal 1996, respectively, for the benefit of Mr. Compton
and his family.
(2) Directors who are executive officers of TSI no longer receive compensation
as such for service as members of either the Board of Directors or
committees thereof.
(3) Includes $15,000 in director's fees for each of fiscal 1997 and fiscal 1996
and $4,343 in grossed up premiums for term life insurance for each of fiscal
1997 and fiscal 1996, respectively, for the benefit of Mr. Kagan and his
family.
The following table sets forth information with respect to grants of stock
options during fiscal 1997 to the executive officers named in the Summary
Compensation Table and the year-end value of unexercised options held by such
executive officers. No options were outstanding prior to such fiscal year and no
options were exercised during such fiscal year.
OPTION GRANTS IN FISCAL 1997 AND YEAR-END OPTION VALUES
<TABLE>
<CAPTION>
POTENTIAL
REALIZABLE VALUE
AT ASSUMED
PERCENT OF ANNUAL RATES OF
TOTAL STOCK PRICE VALUE OF
NUMBER OF OPTIONS APPRECIATION FOR UNEXERCISABLE
SECURITIES GRANTED TO OPTION TERM UNEXERCISABLE IN-THE-MONEY
UNDERLYING EMPLOYEES EXERCISE ----------------- OPTIONS OPTIONS AT
OPTIONS IN FISCAL PRICE PER EXPIRATION 5% 10% AT YEAR YEAR END
NAME GRANTED(#) 1997 SHARE DATE ($)(2) ($)(2) END(3) ($)(3)(4)
- ---- ---------- ---------- --------- ---------- ------- ------- ------------- -------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
William W. Compton......... 23,500 39.2 $10.50 12/18/06 155,100 393,155 23,500 35,250
Richard J. Domino.......... 8,000 13.3 10.50 12/18/06 52,800 133,840 8,000 12,000
Michael Kagan.............. 13,800 23.0 10.50 12/18/06 91,080 230,874 13,800 20,700
</TABLE>
- ---------------
(1) Options granted under TSI's 1996 Stock Option Plan are exercisable by the
named executive officer to the extent of 33 1/3% of the shares subject to
such options each year beginning one year after the date of grant subject to
certain conditions.
(2) Assumes rates of Common Stock price appreciation that are prescribed by the
Commission.
(3) All options issued were unexercisable at fiscal 1997 year-end.
(4) Represents the number of shares of Common Stock that may be acquired upon
the exercise of options, multiplied by the difference between (i) the
initial public offering price of the Common Stock on October 28, 1997
($12.00) and (ii) the exercise price per share.
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<PAGE> 69
EMPLOYMENT AGREEMENTS
TSI has employment agreements with each of Messrs. Compton, Kagan and
Domino, which became effective as of the completion of the initial public
offering in October 1997. The employment agreement with Mr. Compton provides for
an initial term ending in 2002, with automatic renewals beginning at the end of
the third year such that there shall remain at all times thereafter a rolling
two-year term of employment. Notwithstanding the foregoing, in the event the
agreement has not otherwise been terminated, it will terminate automatically at
the end of TSI's fiscal year in which Mr. Compton reaches age 65. The agreement
provides for an annual base salary (currently $448,500) subject to a minimum
annual increase equal to the increase in the Consumer Price Index for all Urban
Consumers -- All Items Index for Tampa, Florida ("CPI") for the immediately
preceding twelve months. Mr. Compton is also entitled to an annual performance
bonus of up to 110% of his base salary based on a comparison of TSI's average
return on total capital employed over a four-year period as compared to an
average target return on total capital as calculated for a select group of
publicly traded apparel companies over the same period. To the extent authorized
by the Company's Board of Directors, Mr. Compton also shall be entitled to
participate in such bonus programs and other benefit plans as are generally made
available to other executive officers of TSI.
The agreement may not be terminated by TSI prior to January 1, 1999 for any
reason other than cause (as defined therein) or Mr. Compton's death or
disability. If the agreement is terminated by TSI on or after January 1, 1999,
for any reason other than cause or Mr. Compton's death or disability, TSI shall
pay Mr. Compton a one-time, lump sum severance payment equal to the product of
(i) the greater of two and the number of years (rounded to the nearest 1/12 of a
year) remaining in the initial five-year term and (ii) the sum of Mr. Compton's
average annual base salary and average annual bonus for the preceding three
years. During the two-year period following termination of employment other than
as a result of disability, Mr. Compton shall not engage in or have any
impermissible financial interest in any business that is engaged in the
merchandising, manufacturing, distribution or marketing of men's casual pants,
shorts or jeans.
The agreement also provides for a one-time, lump sum severance payment, in
lieu of any other severance payment, if Mr. Compton elects to terminate his
employment with TSI either for "good reason" (as defined therein) or upon a
"change of control" of TSI. Upon termination for "good reason," the severance
payment will equal the product of (i) the greater of two and the number of years
(rounded to the nearest 1/12th of a year) remaining in the initial five-year
term and (ii) the sum of Mr. Compton's average annual base salary and average
annual bonus for the preceding three years. Upon termination upon a "change of
control," the severance payment will equal, depending on the extent of the
change of control, either (a) two times Mr. Compton's average annual base salary
for the preceding three years or (b) two times the sum of Mr. Compton's average
annual base salary and average annual bonus for the preceding three years. Under
the agreement, a "change of control" shall be deemed to have occurred if (i) any
person (other than certain exempt persons, including Messrs. Compton and Kagan,
Accel, TSI and their respective affiliates and associates) beneficially owns 25%
(or, in certain cases, 33%) or more of the outstanding shares of voting capital
stock or (ii) immediately following the sale or transfer of substantially all of
TSI's assets, or the merger or consolidation of TSI with or into another person,
any person (other than certain exempt persons) shall beneficially own 25% (or,
in certain cases, 33%) or more of the surviving or acquiring person.
TSI's employment agreement with Mr. Kagan is substantially the same as Mr.
Compton's except that Mr. Kagan's current annual base salary is $247,250 and his
maximum annual performance bonus equals 80% of his base salary.
TSI's employment agreement with Mr. Domino provides for an initial term
ending in 2000, with automatic renewals beginning at the end of the second year
such that there shall remain at all times thereunder a rolling one-year term of
employment. Notwithstanding the foregoing, in the event the agreement has not
been otherwise terminated, it will terminate automatically at the end of TSI's
fiscal year in which Mr. Domino reaches age 65. The agreement provides for an
annual base salary (currently $258,750) subject to a minimum annual increase
equal to the increase in the CPI for the immediately preceding twelve months.
Mr. Domino is also entitled to an annual performance bonus of up to 100% of his
base salary.
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<PAGE> 70
The agreement provides that, if Mr. Domino's employment is terminated
without cause (as defined therein) by TSI, he shall be entitled to severance
payments, payable biweekly, at his annual base salary rate at the time of
termination until the end of the remaining term under the employment agreement.
The agreement further provides that, if Mr. Domino is terminated by TSI for
cause, Mr. Domino will not be entitled to any separation benefits and Mr.
Domino's salary, bonus, benefits and business expense reimbursements shall cease
as of the date of termination, except that payments due to Mr. Domino and not
paid up to the date of such termination will be paid to Mr. Domino within
forty-five (45) days of such termination.
In connection with the Farah Acquisition, TSI and Richard C. Allender
entered into an Employment Agreement (the "Employment Agreement") to provide for
the employment of Mr. Allender following the consummation of the Tender Offer.
The term of the Employment Agreement commenced at the effective time of the
Merger, and will continue for a three (3) year term (the "Initial Term"), after
which the Employment Agreement will be renewed automatically on a daily basis so
that the term after the Initial Term will continue for a twelve (12) month term.
During each year that the Employment Agreement is in effect, TSI and/or its
subsidiaries will pay to Mr. Allender a minimum annual salary of $300,000 ("Base
Salary"). The Employment Agreement also provides that during each year that the
Employment Agreement is in effect, TSI will pay to Mr. Allender an annual bonus
of at least $100,000. On the first day of the Initial Term, TSI will grant to
Mr. Allender options to purchase 15,000 shares of Common Stock at an exercise
price equal to the fair market value of the shares on the date of grant of such
option. The options will be vested and immediately exercisable. During each year
that the Employment Agreement is in effect, TSI will grant additional options to
Mr. Allender upon such terms as are generally available to senior executive
officers of TSI or its subsidiaries.
During the term of his employment, Mr. Allender is entitled to participate
in or receive all benefits under TSI's employee benefit plans and arrangements,
including, without limitation, TSI's 401(k) plan and all benefits which are
available to senior executive officers of TSI or its subsidiaries. TSI will pay
the cost of premiums for Mr. Allender's existing split-dollar life insurance
policy, not to exceed $121,000 per annum unless otherwise agreed by TSI. Except
as otherwise provided in the Employment Agreement, TSI will be obligated from
and after the date of the Employment Agreement to pay a minimum of three annual
premium payments of $121,000, or an aggregate amount of premiums of $363,000,
including any payments made during the Initial Term or any term after the
Initial Term (the "Minimum Premium Commitment").
On the first day of the Initial Term and as an inducement to surrender his
rights under his existing employment contract and to remain with the Company
following the closing, TSI paid Mr. Allender a bonus of $600,000. In addition,
if Mr. Allender is employed by TSI or any of its subsidiaries on the last day of
the Initial Term, TSI will pay to Mr. Allender on such date an additional bonus
of $500,000 (the "Final Bonus"). During the term of his employment, Mr. Allender
will be entitled to receive all perquisites which are available to senior
executive officers of TSI or its subsidiaries including, without limitation,
country club membership dues of approximately $350 per month; a car allowance of
$1,000 per month; and a gas allowance of $250 per month.
TSI may terminate Mr. Allender's employment at any time for "cause," and
Mr. Allender may terminate his employment at any time for "good reason" (each as
defined in the Employment Agreement) by giving written notice to TSI which sets
forth in reasonable detail the facts and circumstances constituting good reason.
If Mr. Allender's employment is terminated by reason of death, his estate will
be paid all salary, bonus or other benefits, otherwise payable to Mr. Allender
through the end of the month in which his death occurred, and TSI and its
subsidiaries will have no further obligations to Mr. Allender under the
Employment Agreement. If Mr. Allender's employment is terminated for cause, TSI
or its subsidiaries will pay Mr. Allender his Base Salary and benefits through
the date of termination specified in the notice of termination, and TSI and its
subsidiaries will have no further obligations to Mr. Allender under the
Employment Agreement, including, but not limited to, any obligations in respect
of the Minimum Premium Commitment.
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<PAGE> 71
If Mr. Allender's employment is terminated (i) by TSI other than as a
result of death or for cause, or (ii) by Mr. Allender for good reason, Mr.
Allender will be entitled to the following: (a) Mr. Allender's earned but unpaid
Base Salary through the date of termination; (b) the Base Salary in effect
immediately prior to the date of termination for the remainder of the current
term of the Employment Agreement; (c) an annual bonus for the current fiscal
year prorated through the date of termination equal to the greater of (x) the
annual bonus awarded to Mr. Allender with respect to TSI's most recent fiscal
year ending prior to the date of termination or (y) $100,000; (d) the amount of
the Minimum Premium Commitment which has not been paid as of the date of
termination; and (e) the Final Bonus; and (ii) after such termination, TSI will
continue to provide Mr. Allender with those benefits he was entitled to
immediately prior to his termination, for thirty-six months.
To the extent Mr. Allender is an optionee under any of TSI's stock option
plans (the "Plans"), if Mr. Allender's employment is terminated without cause or
Mr. Allender terminates his employment for good reason, all options held by Mr.
Allender will automatically vest and become exercisable in accordance with the
Plans.
DIRECTOR COMPENSATION
Directors who are executive officers of TSI receive no compensation as such
for service as members of either the Company's Board of Directors or committees
thereof. Directors who are not executive officers of TSI receive $1,000 per
Board and/or committee meeting attended, plus reimbursement of reasonable
expenses. The outside directors are also eligible to receive options to purchase
Common Stock under TSI's Non-Employee Director Stock Option Plan.
PRINCIPAL SHAREHOLDERS
The following table sets forth certain information regarding the beneficial
ownership of Common Stock as of August 17, 1998 with respect to: (i) each of
TSI's directors and the executive officers named in the Summary Compensation
Table; (ii) all directors and officers of TSI as a group; and (iii) each person
known by TSI to own beneficially more than 5% of the Common Stock. Unless
otherwise indicated, each of the shareholders listed below has sole voting and
investment power over the shares beneficially owned.
<TABLE>
<CAPTION>
NUMBER OF SHARES PERCENT
NAME BENEFICIALLY OWNED OF CLASS
- ---- ------------------ --------
<S> <C> <C>
William W. Compton(1)....................................... 946,233 12.4%
Richard J. Domino(2)........................................ 4,767 *
Michael Kagan(3)............................................ 567,100 7.5
N. Larry McPherson(4)....................................... -- *
Jesus Alvarez-Morodo(4)(5).................................. 1,600,450 21.1
Eloy S. Vallina-Laguera(4)(5)............................... 1,600,450 21.1
Leslie J. Gillock(4)........................................ 200 *
Donald H. Livingstone(4).................................... 1,000 *
Leon H. Reinhart(4)......................................... 2,000 *
Richard C. Allender(6)...................................... 15,000 *
Charles J. Smith............................................ -- *
Accel, S.A. de C.V.(5)...................................... 1,600,450 21.1
All directors and officers as a group (11 persons).......... 3,136,750 41.0
</TABLE>
- ---------------
* Less than 1%.
(1) Includes 216,000 shares held by the Compton Family Limited Partnership and
7,833 shares of Common Stock issuable upon the exercise of vested stock
options. Does not include 120,067 shares of Common Stock issuable upon the
exercise of nonvested stock options. The business address of Mr. Compton is
4902 W. Waters Avenue, Tampa, Florida 33634.
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<PAGE> 72
(2) Includes 2,667 shares of Common Stock issuable upon the exercise of vested
stock options. Does not include 40,633 shares of Common Stock issuable upon
the exercise of nonvested stock options. Includes 100 shares held as
custodian for the benefit of his minor children.
(3) Includes 562,500 shares held by the Kagan Family Limited Partnership and
4,600 shares of Common Stock issuable upon the exercise of vested stock
options. Does not include 70,300 shares of Common Stock issuable upon the
exercise of nonvested stock options. The business address of Mr. Kagan is
4902 W. Waters Avenue, Tampa, Florida 33634.
(4) Does not include 10,000 shares of Common Stock issuable upon the exercise of
nonvested stock options.
(5) Consists of shares held by Accel. Mr. Vallina-Laguera owns directly
130,862,957 shares, or 37.6%, of the outstanding common stock of Accel, and
he controls companies that hold an additional 46,414,851 shares, or 13.3%,
of the outstanding common stock of Accel. Mr. Alvarez-Morodo is the
President and Chief Executive Officer of Accel. The business address of Mr.
Vallina-Laguera is Ave. Zarco No. 2401, Chihuahua, Chih., Mexico 31020, and
the business address of Mr. Alvarez-Morodo and Accel is Virginia Fabregas
No. 80, Col. San Rafael, 06470 Mexico, D.F. 06470.
(6) Includes 15,000 shares of Common Stock issuable upon the exercise of vested
stock options.
CERTAIN TRANSACTIONS
The Audit Committee of the Company's Board of Directors is responsible for
reviewing all transactions between TSI and any officer or director of TSI or any
entity in which an officer of director has a material interest. Any such
transactions must be on terms no less favorable than those that could be
obtained on an arms-length basis from independent third parties.
Pursuant to an underwriting agreement (the "IPO Underwriting Agreement")
among TSI, Accel and Shakale International, S.A., as selling shareholders (the
"Selling Shareholders"), and certain underwriters which was entered into in
connection with TSI's initial public offering in October 1997, TSI and the
Selling Shareholders jointly and severally agreed to indemnify such underwriters
or to contribute to losses arising out of certain liabilities, including
liabilities under the Securities Act. TSI and the Selling Shareholders entered
into a separate agreement which allocates between them certain liabilities which
may arise under the IPO Underwriting Agreement or otherwise in connection with
TSI's initial public offering. Such liabilities have been allocated to TSI,
except to the extent that such liabilities arise out of certain information
supplied by the Selling Shareholders or their affiliates in writing in
connection with the initial public offering or out of certain representations
and warranties or covenants and agreements made by them in the IPO Underwriting
Agreement.
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<PAGE> 73
DESCRIPTION OF THE NOTES
GENERAL
The Exchange Notes offered hereby will be issued under the Indenture dated
as of June 24, 1998 among the Company, the Subsidiary Guarantors named therein
and SunTrust Bank, Atlanta, as Trustee, a copy of the form of which is available
upon receipt from the Company. The form and terms of the Exchange Notes will be
identical in all material respects to the form and terms of the Old Notes,
except that (i) the Exchange Notes will bear a different CUSIP Number from the
Old Notes, (ii) the issuance of the Exchange Notes will be registered under the
Securities Act and, therefore, the Exchange Notes will not bear legends
restricting the transfer thereof, and (iii) holders of the Exchange Notes will
not be entitled to certain rights of holders of Old Notes under the Registration
Rights Agreement, including the provisions thereof which provide for an increase
in the interest rate on the Old Notes in certain circumstances relating to the
timing of the Exchange Offer, which rights will terminate when the Exchange
Offer is consummated. The Exchange Notes will evidence the same debt as the Old
Notes (which they replace). Upon the issuance of the Exchange Notes or the
effectiveness of the Shelf Registration Statement, as the case may be, the
Indenture will be subject to and governed by the Trust Indenture Act of 1939, as
amended (the "Trust Indenture Act"). The following summary of the material
provisions of the Indenture does not purport to be complete and is subject to,
and qualified in its entirety by, reference to the provisions of the Indenture,
including the definitions of certain terms contained therein and those terms
made part of the Indenture by reference to the Trust Indenture Act. For
definitions of certain capitalized terms used in the following summary, see
"-- Certain Definitions" below.
PRINCIPAL, MATURITY AND INTEREST
The Notes will mature on June 15, 2008, will be limited initially in
aggregate principal amount to $100,000,000 and will be unsecured senior
subordinated obligations of the Company. The Indenture provides for the issuance
of up to $40,000,000 million aggregate principal amount of additional Notes
having identical terms and conditions to the Notes offered hereby (the
"Additional Notes"), subject to compliance with the covenants contained in the
Indenture. Any Additional Notes will be part of the same issue as the Notes
offered hereby and in the Offering and will vote on all matters with the Notes
offered hereby and in the Offering. Unless otherwise indicated, references
herein to the Notes do not include the Additional Notes. No offering of any such
Additional Notes is being or shall be deemed to be made by this Prospectus. In
addition, there can be no assurance as to when or whether the Company will issue
any such Additional Notes or as to the aggregate principal amount of such
Additional Notes.
Each Note will bear interest at the rate set forth on the cover page hereof
from June 24, 1998 or from the most recent interest payment date to which
interest has been paid or duly provided for, payable semiannually in arrears on
June 15 and December 15 of each year, commencing December 15, 1998, until the
principal thereof is paid or duly provided for, to the person in whose name the
Note (or any predecessor Note) is registered at the close of business on the
June 1 or December 1 next preceding such interest payment date. Interest will be
computed on the basis of a 360-day year comprised of twelve 30-day months.
The principal of and premium, if any, and interest on the Notes will be
payable, and the Notes will be exchangeable and transferable, at the office or
agency of the Company in The City of New York maintained for such purposes
(which initially will be the office of the Trustee located at SunTrust Bank,
Atlanta, c/o First Chicago Trust Company, 14 Wall Street, Suite 4607, New York,
New York 10005); provided, however, that, at the option of the Company, interest
may be paid by check mailed to the address of the Person entitled thereto as
such address appears in the security register. The Old Notes have been, and the
Exchange Notes will be, issued only in registered form without coupons, and only
in denominations of $1,000 or an integral multiple of $1,000 in excess thereof.
No service charge will be made for any registration of transfer or exchange or
redemption of Notes, but the Company may require payment in certain
circumstances of a sum sufficient to cover any tax or other governmental charge
that may be imposed in connection therewith.
As of the Closing Date, all of the Company's Subsidiaries were Restricted
Subsidiaries. However, under certain circumstances, the Company will be able to
designate current and future Subsidiaries as Unrestricted
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<PAGE> 74
Subsidiaries, subject to certain limitations. Unrestricted Subsidiaries will not
be subject to any of the restrictive covenants set forth in the Indenture.
Any Old Notes that remain outstanding after the consummation of the
Exchange Offer and Exchange Notes issued in connection with the Exchange Offer
will be treated as a single class of securities under the Indenture.
The Notes will not be entitled to the benefit of any sinking fund.
SUBSIDIARY GUARANTEES
Payment of the principal of and premium, if any, and interest on the Old
Notes, when and as the same become due and payable, have been, and the payment
thereof on the Exchange Notes, when and as the same become due and payable, will
be, guaranteed, jointly and severally, on an unsecured senior subordinated basis
by the Subsidiary Guarantors referred to below. The Subsidiary Guarantees are
and shall be, to the extent set forth in the Indenture, subordinated in right of
payment to the prior payment in full of all Senior Debt of the Subsidiary
Guarantors, upon terms substantially comparable to the subordination of the
Notes to all Senior Debt. The obligations of each Subsidiary Guarantor under its
Subsidiary Guarantee are and will be limited so as not to constitute a
fraudulent conveyance under applicable law. See "Risk Factors -- Limitation on
Subsidiary Guarantees; Fraudulent Conveyance Concerns."
The Indenture requires that each Domestic Restricted Subsidiary (other than
a Receivables Subsidiary) be a Subsidiary Guarantor, as well as each other
Restricted Subsidiary that guarantees any other Debt of the Company or of a
Domestic Restricted Subsidiary.
Subject to the provisions of the following paragraph, the Indenture
provides that no Subsidiary Guarantor may consolidate with or merge with or into
any other Person or convey, sell, assign, transfer, lease or otherwise dispose
of its properties and assets substantially as an entirety to any other Person
unless: (a) the Person formed by or surviving such consolidation or merger (if
other than such Subsidiary Guarantor) or to which such properties and assets are
transferred assumes all of the obligations of such Subsidiary Guarantor under
the Indenture and its Subsidiary Guarantee, pursuant to a supplemental indenture
in form and substance reasonably satisfactory to the Trustee, (b) immediately
after giving effect to such transaction, no Default or Event of Default has
occurred and is continuing and (c) immediately after giving effect to such
transaction, the Person formed by or surviving such consolidation or merger (if
other than such Subsidiary Guarantor) or to which such properties and assets are
transferred could incur at least $1.00 of additional Debt (other than Permitted
Debt) pursuant to the first paragraph of the covenant described under
"-- Certain Covenants -- Limitation on Debt and Issuance of Disqualified Stock."
The Indenture provides that, in the event of (a) a conveyance, sale,
assignment, transfer or other disposition of all of the Capital Stock of a
Subsidiary Guarantor to any Person (by way of merger, consolidation or
otherwise), (b) a conveyance, sale, assignment, transfer or other disposition of
all or substantially all of the assets of such Subsidiary Guarantor to any
Person (by way of merger, consolidation or otherwise), (c) the designation of
such Subsidiary Guarantor as an Unrestricted Subsidiary, in any such case in
compliance with the terms of the Indenture, then such Subsidiary Guarantor will
be deemed automatically and unconditionally released and discharged from all of
its obligations under its Subsidiary Guarantee without any further action on the
part of the Trustee or any Holder of the Notes or (d) the release or discharge
of the guarantee that resulted in the creation of such guarantee of the Notes,
except a discharge or release by or as a result of payment under the guarantee;
provided that the Net Cash Proceeds of such conveyance, sale, assignment,
transfer or other disposition (if any) are applied in accordance with the
covenant described under "-- Certain Covenants -- Limitation on Asset Sales."
SUBORDINATION
The Old Notes are, and the Exchange Notes will be, unsecured senior
subordinated obligations of the Company. The Old Notes are, and the Exchange
Notes will be, to the extent set forth in the Indenture, subordinate in right of
payment to the prior payment in full of all Senior Debt, whether outstanding on
the
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<PAGE> 75
Closing Date or thereafter incurred. Upon any payment or distribution of assets
of the Company to creditors upon any liquidation, dissolution, winding up,
reorganization, assignment for the benefit of creditors, marshalling of assets
or any bankruptcy, insolvency or similar proceedings of the Company, whether
voluntary or involuntary (except in connection with the consolidation or merger
of the Company or its liquidation or dissolution following the conveyance,
transfer or lease of its properties and assets substantially as an entirety,
upon the terms and conditions described under "-- Consolidation, Merger and Sale
of Assets"), the holders of Senior Debt will first 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 such Senior Debt (including interest accruing after the
commencement of any such proceeding at the rate specified in the applicable
Senior Debt whether or not such interest is an allowed claim in such proceeding)
before the Holders of Notes are entitled to receive any payment of principal of
and premium, if any, and interest on the Notes or on account of the purchase or
redemption or other acquisition of Notes by the Company or any Subsidiary of the
Company. In the event that, notwithstanding the foregoing, the Trustee or the
Holder of any Note receives any payment or distribution of assets of the Company
of any kind or character (excluding equity or subordinated securities of the
Company provided for in a plan of reorganization or readjustment that, in the
case of subordinated securities, are subordinated in right of payment to all
Senior Debt to at least the same extent as the Notes are so subordinated),
before all the Senior Debt is paid in full, then such payment or distribution
will be held in trust for the holders of Senior Debt and will be required to be
paid over or delivered forthwith to the trustee in bankruptcy or other Person
making payment or distribution of assets of the Company for application to the
payment of all Senior Debt remaining unpaid, to the extent necessary to pay the
Senior Debt in full. Notwithstanding the foregoing, following the commencement
of a proceeding under the Bankruptcy Code and if the holders of Senior Debt
receive less than payment in full, the Holders may retain any payment or
distribution paid by the Company with respect to the Notes pursuant to a plan of
reorganization if
(a) the holders of claims for Designated Senior Debt (who are entitled
to vote for such plan in accordance with the Bankruptcy Code) approve such
plan by a vote which equals at least (x) 66 2/3% in principal amount of
such claims and (y) one-half in number of such claims or
(b) in the event that there is more than one class of Designated
Senior Debt in such proceeding, the holders of claims for each such class
(who are entitled to vote for such plan in accordance with the Bankruptcy
Code) approve such plan by a vote which equals at least (x) 66 2/3% in
principal amount of such claims of such class and (y) one-half in number of
such claims of such class.
The Company may not make any payments on account of the Notes or on account
of the purchase or redemption or other acquisition of Notes if a default in the
payment of principal of (or premium, if any) or interest on Designated Senior
Debt has occurred and is continuing or a default in the payment when due of any
other obligation under Designated Senior Indebtedness has occurred and is
continuing (a "Senior Payment Default"). In addition, if any default (other than
a Senior Payment Default) has occurred and is continuing with respect to any
Designated Senior Debt permitting the holders thereof (or a trustee or agent on
behalf thereof) to accelerate the maturity thereof (a "Senior Nonmonetary
Default") and the Company and the Trustee have received written notice thereof
from the agent under the New Credit Facility or from an authorized Person on
behalf of any holder of Designated Senior Debt, then the Company may not make
any payments on account of the Notes or on account of the purchase or redemption
or other acquisition of Notes for a period (a "blockage period") commencing on
the date the Company and the Trustee receive such written notice (a "Blockage
Notice") and ending on the earliest of (x) 179 days after the date on which the
applicable Blockage Notice is received unless a Senior Payment Default has
occurred and is continuing at the end of such 179-day period, (y) the date, if
any, on which the Designated Senior Debt to which such default relates is
discharged or such default is waived or otherwise cured and (z) the date, if
any, on which such blockage period has been terminated by written notice to the
Company or the Trustee from the agent under the New Credit Facility or from the
Person who gave the Blockage Notice. However, the Company may make payments on
the Notes without regard to the foregoing if the Company and the Trustee receive
written notice approving such payment from a representative of the Designated
Senior Debt affected by such Senior Payment Default or Senior Nonmonetary
Default. In any event, not more than one blockage period may be commenced during
any period of 360 consecutive days, and there must be a period of at least 181
consecutive
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days in each period of 360 consecutive days when no blockage period is in
effect. No Senior Nonmonetary Default that existed or was continuing on the date
of the commencement of any blockage period with respect to the Designated Senior
Debt initiating such blockage period will be, or can be, made the basis for the
commencement of a subsequent blockage period, unless such default has been cured
or waived for a period of not less than 90 consecutive days. In the event that,
notwithstanding the foregoing, the Company makes any payment to the Trustee or
the Holder of any Note prohibited by these blockage provisions, then such
payment will be held in trust for the holders of Senior Debt and will be
required to be paid over and delivered forthwith to the holders of the Senior
Debt remaining unpaid, to the extent necessary to pay in full all the Senior
Debt.
Whenever the Company is prohibited from making any payment on or in respect
of the Notes, the Company will also be prohibited from making, directly or
indirectly, any legal defeasance or covenant defeasance of the Notes as
described under "-- Legal Defeasance or Covenant Defeasance" and from making any
payment of any kind on account of the redemption, purchase or other acquisition
of the Notes.
The Subsidiary Guarantees are and will be, to the extent set forth in the
Indenture, subordinated in right of payment to the prior payment in full of all
Senior Debt of the Subsidiary Guarantors upon terms substantially comparable to
the subordination of the Notes to all Senior Debt.
The subordination provisions described above will cease to be applicable to
the Notes upon any defeasance or covenant defeasance of the Notes as described
under "-- Legal Defeasance or Covenant Defeasance."
As a result of the subordination provisions described above, in the event
of an insolvency, bankruptcy, reorganization or liquidation of the Company,
creditors of the Company who are holders of Senior Debt may recover more,
ratably, than the holders of the Notes, and assets which would otherwise be
available to pay obligations in respect of the Notes will be available only
after all Senior Debt has been paid in full, and there may not be sufficient
assets remaining to pay amounts due on any or all of the Notes. See "Risk
Factors -- Ranking of Notes and the Subsidiary Guarantees."
As of July 4, 1998, the Company and the Subsidiary Guarantors had an
aggregate of approximately $83.4 million of Debt outstanding ranking senior to
the Notes, and the Company had borrowing availability of $46.4 million under the
New Credit Facility (subject to borrowing base limitations), all of which would
be Senior Debt, if borrowed. The terms of the Indenture permit the Company and
its Restricted Subsidiaries to incur additional Senior Debt, subject to certain
limitations, including Debt that may be secured by Liens on property of the
Company and its Restricted Subsidiaries. See the discussion below under
"-- Certain Covenants -- Limitation on Debt and Issuance of Disqualified Stock"
and "-- Certain Covenants -- Limitation on Liens." In addition, the Old Notes
are, and the Exchange Notes will be, effectively subordinated to all existing
and future Debt and other liabilities (including trade payables) of the
Company's subsidiaries that are not Subsidiary Guarantors (the "Non-Guarantor
Subsidiaries"). As of July 4, 1998, the Non-Guarantor Subsidiaries had an
aggregate of approximately $3.8 million of accounts payable and third-party debt
outstanding. See "Risk Factors -- Ranking of the Notes and the Subsidiary
Guarantees."
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OPTIONAL REDEMPTION
Except as provided below, the Old Notes are not, and the Exchange Notes
will not be, redeemable at the Company's option prior to June 15, 2003.
Thereafter, the Notes will be redeemable at the option of the Company, as a
whole or from time to time in part, on not less than 30 nor more than 60 days'
prior notice to the Holders at the redemption prices (expressed as percentages
of principal amount) set forth below, together with accrued and unpaid interest,
if any, to the redemption date (subject to the right of Holders of record on the
relevant record date to receive interest due on the relevant interest payment
date), if redeemed during the 12-month period beginning on June 15 of the years
indicated below:
<TABLE>
<CAPTION>
REDEMPTION
YEAR PRICE
- ---- ----------
<S> <C>
2003........................................................ 105.500%
2004........................................................ 103.667
2005........................................................ 101.833
2006 and thereafter......................................... 100.000%
</TABLE>
Notwithstanding the foregoing, at any time or from time to time prior to
June 15, 2001, the Company may redeem, on one or more occasions, up to 35% of
the sum of (i) the initial aggregate principal amount of the Notes and (ii) the
initial aggregate principal amount of any Additional Notes with the net proceeds
of one or more Public Equity Offerings at a redemption price equal to 111% of
the principal amount thereof, plus accrued and unpaid interest, if any, to the
redemption date (subject to the right of Holders of record on the relevant
record date to receive interest due on the relevant interest payment date);
provided that, immediately after giving effect to any such redemption at least
$65.0 million aggregate principal amount of the Notes (including any Additional
Notes) remains outstanding; provided further that such redemptions occur within
90 days of the date of closing of the related Public Equity Offering.
If less than all the Notes or Additional Notes are to be redeemed, the
particular Notes to be redeemed will be selected not more than 60 days prior to
the redemption date by the Trustee by lot or such other method as the Trustee
deems fair and appropriate.
REPURCHASE AT THE OPTION OF HOLDERS UPON CHANGE OF CONTROL
If a Change of Control occurs at any time, then each Holder will have the
right to require that the Company purchase such Holder's Notes and Additional
Notes, if any, in whole or in part at a purchase price in cash equal to 101% of
the principal amount of such Notes and Additional Notes, if any, plus accrued
and unpaid interest, if any, to the date of purchase, pursuant to the offer
described below (the "Change of Control Offer") and the other procedures set
forth in the Indenture.
Within 30 days following any Change of Control, the Company will notify the
Trustee thereof and give written notice of such Change of Control to each Holder
of Notes and Additional Notes by first-class mail, postage prepaid, at its
address appearing in the security register, stating, among other things, (i) the
purchase price and the purchase date, which will be a Business Day no earlier
than 30 days nor later than 60 days from the date such notice is mailed or such
later date as is necessary to comply with requirements under the Exchange Act;
(ii) that any Note not tendered will continue to accrue interest; (iii) that,
unless the Company defaults in the payment of the purchase price, any Notes or
Additional Notes accepted for payment pursuant to the Change of Control Offer
will cease to accrue interest after the Change of Control purchase date; and
(iv) certain other procedures that a Holder must follow to accept a Change of
Control Offer or to withdraw such acceptance.
If a Change of Control Offer is made, there can be no assurance that the
Company will have available funds sufficient to pay the purchase price for all
of the Notes and Additional Notes that might be tendered by Holders of the Notes
and Additional Notes seeking to accept the Change of Control Offer. The New
Credit Facility restricts such a purchase of Notes and Additional Notes by the
Company prior to repayment in full of Debt outstanding under the New Credit
Facility and a Change of Control Offer would require the approval of the lenders
thereunder. In addition, certain events involving a Change of Control may be an
event of default
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under the New Credit Facility or other Debt of the Company that may be incurred
in the future. Accordingly, the right of the Holders of the Notes and Additional
Notes, if any, to require the Company to repurchase the Notes and Additional
Notes, if any, may be of limited value if the Company cannot obtain the required
approval under the New Credit Facility. There can be no assurance that in the
event of a Change in Control the Company will be able to obtain the necessary
consents from the lenders under the Credit Facility to consummate a Change of
Control Offer. The failure of the Company to make or consummate the Change of
Control Offer or pay the applicable Change of Control purchase price when due
would result in an Event of Default and would give the Trustee and the Holders
of the Notes and Additional Notes, if any, the rights described under "-- Events
of Default and Remedies."
The existence of a Holder's right to require the Company to purchase such
Holder's Notes upon a Change of Control may deter a third party from acquiring
the Company in a transaction that constitutes a Change of Control.
The definition of "Change of Control" in the Indenture is limited in scope.
The provisions of the Indenture may not afford Holders of Notes or Additional
Notes, if any, the right to require the Company to repurchase such Notes or
Additional Notes, if any, in the event of a highly leveraged transaction or
certain transactions with the Company's management or its affiliates, including
a reorganization, restructuring, merger or similar transaction involving the
Company (including, in certain circumstances, an acquisition of the Company by
management or its affiliates) that may adversely affect Holders of the Notes or
Additional Notes if such transaction is not a transaction defined as a Change of
Control. See "-- Certain Definitions" below for the definition of "Change of
Control."
The Company will comply with the applicable tender offer rules including
Rule l4e-l under the Exchange Act, and any other applicable securities laws and
regulations in connection with a Change of Control Offer.
CERTAIN DEFINITIONS
"Acquired Debt" means Debt of a Person (a) existing at the time such Person
is merged with or into the Company or becomes a Restricted Subsidiary or (b)
assumed in connection with the acquisition of assets from such Person.
"Affiliate" means, with respect to any specified Person, (a) any other
Person directly or indirectly controlling or controlled by or under direct or
indirect common control with such specified Person or (b) any other Person that
owns, directly or indirectly, 10% or more of such specified Person's Capital
Stock or any executive officer or director of any specified Person or other
Person or, with respect to any natural Person, any Person having a relationship
with such Person by blood, marriage or adoption no more remote than first
cousin. For the purposes of this definition, "control," when used with respect
to any specified Person, means the power to direct the management and policies
of such Person, directly or indirectly, whether through the ownership of voting
securities, by contract or otherwise; and the terms "controlling" and
"controlled" have meanings correlative to the foregoing.
"Asset Sale" means any sale, issuance, conveyance, transfer, lease or other
disposition (including, without limitation, by way of merger, consolidation or
sale and leaseback transaction) (collectively, a "transfer") by the Company or a
Restricted Subsidiary, directly or indirectly, in one transaction or a series of
related transactions, of (a) any Capital Stock of any Restricted Subsidiary
(other than directors' qualifying shares or shares required by applicable law to
be held by a Person other than the Company or a Restricted Subsidiary), (b) all
or substantially all of the properties and assets of the Company and its
Restricted Subsidiaries representing a division or line of business or (c) any
other properties or assets of the Company or any Restricted Subsidiary, other
than in the ordinary course of business. For the purposes of this definition,
the term "Asset Sale" does not include any transfer of properties or assets (i)
that is governed by the provisions of the Indenture described under
"-- Consolidation, Merger and Sale of Assets," (ii) between or among the Company
and its Restricted Subsidiaries pursuant to transactions that do not violate any
other provision of the Indenture, (iii) to any Person to the extent it
constitutes a Restricted Payment that is permitted under the covenant described
under "-- Certain Covenants -- Limitation on Restricted Payments," (iv)
consisting of inventory or wornout, obsolete or permanently retired equipment
and facilities, (v) consisting of Receivables
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and Related Assets transferred pursuant to a Receivables Program, (vi)
consisting of Receivables and Related Assets transferred pursuant to a Factoring
Agreement provided that such transfer is non-recourse to the Company or any
Restricted Subsidiary with respect to not less than 99.85% of the face amount of
such Receivables and Related Assets, (vii) the gross proceeds of which do not
exceed $1.0 million in connection with any transfer or $2.0 million in the
aggregate for any fiscal year of the Company or (viii) that constitutes a
Permitted Investment.
"Bankruptcy Code" means Title 11, United States Code, as amended.
"Banks" means the banks and other financial institutions that from time to
time are lenders under the New Credit Facility.
"Board of Directors" means, as the context requires, either the board of
directors of the Company or a Subsidiary Guarantor, as the case may be, or any
duly authorized committee of that board.
"Borrowing Base" means, as of any date, an amount equal to the sum of (a)
75% of the aggregate book value of the accounts receivable of the Company and
its Restricted Subsidiaries (net of bad debt reserves) and (b) 50% of the
aggregate net book value of the inventory of the Company and its Restricted
Subsidiaries, all calculated on a consolidated basis in accordance with GAAP as
of the last day of the immediately preceding fiscal quarter for which internal
financial statements are available.
"Business Day" means each Monday, Tuesday, Wednesday, Thursday and Friday
that is not a day on which banking institutions in New York are authorized or
obligated by law or executive order to close.
"Capital Lease Obligation" means, at the time any determination thereof is
to be made, the amount of the liability in respect of a capital lease that would
at such time be required to be capitalized on a balance sheet in accordance with
GAAP.
"Capital Stock" of any Person means any and all shares, partnership
interests, participations, rights in or other equivalents of, or interests in,
the equity of such Person, but excluding any debt securities convertible into
such equity.
"Cash Equivalents" means (a) any evidence of Debt with a maturity of 180
days or less issued or directly and fully guaranteed or insured by the United
States of America or any agency or instrumentality thereof (provided that the
full faith and credit of the Untied States of America is pledged in support
thereof); (b) certificates of deposit or acceptances or Eurodollar time deposits
with a maturity of 180 days or less of, and overnight bank deposits and demand
accounts with, any financial institution that is a member of the Federal Reserve
System having combined capital and surplus and undivided profits of not less
than $500 million; (c) commercial paper with a maturity of 180 days or less
issued by a corporation that is not an Affiliate of the Company and is organized
under the laws of any state of the United States or the District of Columbia and
rated at least A-1 by S&P or at least P-1 by Moody's; and (d) funds which invest
in any of the foregoing.
"Change of Control" means the occurrence of any of the following events:
(a) Any Person or "group" (as such term is used in Sections 13(d) and
14(d) of the Exchange Act), other than one or more Permitted Holders, is or
becomes the "beneficial owner" (as defined in Rules 13d-3 and 13d-5 under
the Exchange Act, except that a Person will be deemed to have "beneficial
ownership" of all securities that such Person has the right to acquire,
whether such right is exercisable immediately or only after the passage of
time), directly or indirectly, of more than 50% of the voting power of all
classes of Voting Stock of the Company;
(b) During any consecutive two-year period, individuals who at the
beginning of such period constituted the Board of Directors of the Company
(together with any new directors whose election to such Board of Directors,
or whose nomination for election by the stockholders of the Company, was
approved by a vote of 66 2/3% of the directors then still in office who
were either directors at the beginning of such period or whose election or
nomination for election was previously so approved) cease for any reason to
constitute a majority of the Board of Directors of the Company then in
office; or
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(c) The Company is liquidated or dissolved or adopts a plan of
liquidation or dissolution, other than a transaction that complies with the
provisions of the covenant described under "-- Consolidation, Merger and
Sales of Assets."
"Closing Date" means June 24, 1998, the date on which the Notes were
originally issued under the Indenture.
"Consolidated EBITDA" means, for any period, the sum of, without
duplication, (a) cash dividends paid on Disqualified Stock by the Company or any
Restricted Subsidiary (to any Person other than the Company and its Restricted
Subsidiaries) plus (b) Consolidated Net Income for such period, plus (or, in the
case of clause (iv) below, plus or minus) the following items to the extent
included in computing Consolidated Net Income for such period (i) Fixed Charges
for such period, plus (ii) the federal, state, local and foreign income tax
expense of the Company and its Restricted Subsidiaries for such period, plus
(iii) the depreciation and amortization expense of the Company and its
Restricted Subsidiaries for such period, plus (iv) any other non-cash charges
for such period and minus non-cash credits for such period, other than non-cash
charges or credits resulting from changes in prepaid assets or accrued
liabilities in the ordinary course of business; provided that income tax
expense, depreciation and amortization expense and non-cash charges and credits
of a Restricted Subsidiary will be included in Consolidated EBITDA only to the
extent (and in the same proportion) that the net income of such Restricted
Subsidiary was included in calculating Consolidated Net Income for such period.
"Consolidated Net Income" means, for any period, the net income (or net
loss) of the Company and its Restricted Subsidiaries for such period as
determined on a consolidated basis in accordance with GAAP, adjusted to the
extent included in calculating such net income or loss by excluding (a) any net
after-tax extraordinary gains or losses (less all fees and expenses relating
thereto), (b) any net after-tax gains or losses (less all fees and expenses
relating thereto) attributable to Asset Sales, (c) the net income (but not the
net loss) of any Person (other than the Company or a Restricted Subsidiary), in
which the Company or any Restricted Subsidiary has an equity interest, except
that the aggregate amount of dividends or other distributions actually paid to
the Company or any Restricted Subsidiary in cash during such period will be
included in such Consolidated Net Income, (d) the net income (or loss) of any
Person acquired by the Company or any Restricted Subsidiary in a "pooling of
interests" transaction attributable to any period prior to the date of such
acquisition, and (e) the net income (but not the net loss) of any Restricted
Subsidiary to the extent that the declaration or payment of dividends or similar
distributions by such Restricted Subsidiary of such net income is at the date of
determination restricted, directly or indirectly, except that the aggregate
amount of such net income that could be paid to the Company or a Restricted
Subsidiary thereof by loans, advances, intercompany transfers, principal
repayments or otherwise will be included in such Consolidated Net Income.
"Consolidated Net Worth" means, at any date of determination, the
stockholders' equity of the Company and its Restricted Subsidiaries as set forth
on the most recently available quarterly or annual consolidated balance sheet of
the Company and its Restricted Subsidiaries, less any amounts attributable to
Disqualified Stock or any equity security convertible into or exchangeable for
Debt, the cost of treasury stock and the principal amount of any promissory
notes receivable from the sale of the Capital Stock of the Company or any of its
Restricted Subsidiaries and less, to the extent included in calculating such
stockholders' equity of the Company and its Restricted Subsidiaries, the
stockholders' equity attributable to Unrestricted Subsidiaries, each item to be
determined in conformity with GAAP (excluding the effects of foreign currency
adjustments under Financial Accounting Standards Board Statement of Financial
Accounting Standards No. 52).
"Currency Agreements" means, with respect to any Person, any spot or
forward foreign exchange agreements and currency swap, currency option or other
similar financial agreements or arrangements entered into by such Person or any
of its Restricted Subsidiaries in the ordinary course of business and designed
to protect against or manage exposure to fluctuations in foreign currency
exchange rates.
"Debt" means (without duplication), with respect to any Person, whether
recourse is to all or a portion of the assets of such Person and whether or not
contingent, (a) every obligation of such Person for money borrowed, (b) every
obligation of such Person evidenced by bonds, debentures, notes or other similar
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instruments, (c) every reimbursement obligation of such Person with respect to
letters of credit, bankers' acceptances or similar facilities issued for the
account of such Person, (d) every obligation of such Person issued or assumed as
the deferred purchase price of property or services, (e) every Capitalized Lease
Obligation of such Person, (f) all Disqualified Stock of such Person valued at
its maximum fixed repurchase price (including, without duplication, accrued and
unpaid dividends), (g) all obligations of such Person under or in respect of
Hedging Obligations to the extent such Hedging Obligations would appear as a
liability on the balance sheet of such Person prepared in accordance with GAAP
and (h) every obligation of the type referred to in clauses (a) through (g) of
another Person and all dividends of another Person the payment of which, in
either case, such Person has guaranteed. For purposes of this definition, the
"maximum fixed repurchase price" of any Disqualified Stock that does not have a
fixed repurchase price will be calculated in accordance with the terms of such
Disqualified Stock as if such Disqualified Stock were repurchased on any date on
which Debt is required to be determined pursuant to the Indenture, and if such
price is based upon, or measured by, the fair market value of such Disqualified
Stock, such fair market value will be determined in good faith by the board of
directors of the issuer of such Disqualified Stock. Notwithstanding the
foregoing, trade accounts payable and accrued liabilities arising in the
ordinary course of business and any liability for federal, state or local taxes
or other taxes owed by such Person will not be considered Debt for purposes of
this definition.
"Default" means any event that is, or after notice or passage of time or
both would be, an Event of Default.
"Designated Assets" means the properties and assets used in Farah's
European, Far East and South Pacific operations identified in Note 10 to the
Consolidated Financial Statements of Farah for its fiscal year ended November 2,
1997 included elsewhere in this Prospectus.
"Designated Senior Debt" means (i) all Senior Debt under the New Credit
Facility and (ii) any other issue of Senior Debt or refinancing thereof
permitted by the definition of Senior Debt, having a principal amount of at
least $25.0 million and which has been designated by the Company as Designated
Senior Debt in the instrument evidencing or governing such Senior Debt.
"Disinterested Director" means, with respect to any transaction or series
of transactions in respect of which the Board of Directors is required to
deliver a resolution of the Board of Directors, to make a finding or otherwise
take action under the Indenture, a member of the Board of Directors who does not
have any material direct or indirect financial interest in or with respect to
such transaction or series of transactions.
"Disqualified Stock" means any class or series of Capital Stock that,
either by its terms, or by the terms of any security into which it is
convertible or exchangeable or by contract or otherwise (a) is, or upon the
happening of an event or passage of time would be, required to be redeemed prior
to one year after the final Stated Maturity of the Notes, (b) is redeemable at
the option of the holder thereof at any time prior to one year after such final
Stated Maturity or (c) at the option of the holder thereof, is convertible into
or exchangeable for debt securities at any time prior to one year after such
final Stated Maturity; provided that any Capital Stock that would not constitute
Disqualified Stock but for provisions therein giving holders thereof the right
to cause the issuer thereof to repurchase or redeem such Capital Stock upon the
occurrence of an "asset sale" or "change of control" occurring prior to the
Stated Maturity of the Notes will not constitute Disqualified Stock if the
"asset sale" or "change of control" provisions applicable to such Capital Stock
are no more favorable to the holders of such Capital Stock than the provisions
contained in the covenants described under "-- Certain Covenants -- Limitation
on Asset Sales" and "-- Repurchase at the Option of Holders Upon Change of
Control" and such Capital Stock specifically provides that the issuer will not
repurchase or redeem any of such stock pursuant to such provision prior to the
Company's repurchase of such of the Notes as are required to be repurchased
pursuant to the covenants described under "-- Certain Covenants -- Limitation on
Asset Sales" and "Repurchase at the Option of Holders Upon Change of Control."
"Domestic Subsidiary" means any Subsidiary whose jurisdiction of
incorporation, organization or formation is the United States, any state thereof
or the District of Columbia.
"Exchange Act" means the Securities Exchange Act of 1934, as amended.
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"Factoring Agreement" means (i) the Factoring Agreement dated October 1,
1995 between the Company and Heller Financial, Inc. or (ii) any other factoring
agreement between the Company and/or one or more Restricted Subsidiaries, on the
one hand, and a financial institution, on the other hand, on substantially
similar terms to the factoring agreement referred to in the foregoing clause (i)
pursuant to which the Company and/or such Restricted Subsidiaries factor
Receivables and Related Assets.
"Fixed Charges" means, for any period, without duplication, the sum of (a)
the amount that, in conformity with GAAP, would be set forth opposite the
caption "interest expense" (or any like caption) on a consolidated statement of
operations of the Company and its Restricted Subsidiaries for such period,
including, without limitation, (i) amortization of debt discount, (ii) the net
cost of Interest Rate Agreements (including amortization of discounts), (iii)
the interest portion of any deferred payment obligation, (iv) amortization of
debt issuance costs and (v) the interest component of Capitalized Lease
Obligations, plus (b) cash dividends paid on Preferred Stock and Disqualified
Stock by the Company and any Restricted Subsidiary (to any Person other than the
Company and its Restricted Subsidiaries), plus (c) all interest on any Debt of
any Person guaranteed by the Company or any of its Restricted Subsidiaries;
provided, however, that Fixed Charges will not include (i) any gain or loss from
extinguishment of debt, including the write-off of debt issuance costs and (ii)
the fixed charges of a Restricted Subsidiary to the extent (and in the same
proportion) that the net income of such Subsidiary was excluded in calculating
Consolidated Net Income pursuant to clause (e) of the definition thereof for
such period.
"Fixed Charge Coverage Ratio" means, for any period, the ratio of (a)
Consolidated EBITDA for such period to (b) Fixed Charges for such period.
"Generally Accepted Accounting Principles" or "GAAP" means generally
accepted accounting principles in the United States, consistently applied, that
are in effect on the date of determination.
"guarantee" means, as applied to any obligation, (a) a guarantee (other
than by endorsement of negotiable instruments for collection in the ordinary
course of business), direct or indirect, in any manner, of all or any part of
such obligation and (b) an agreement, direct or indirect, contingent or
otherwise, the practical effect of which is to assure in any way the payment or
performance (or payment of damages in the event of non-performance) of all or
any part of such obligation, including, without limitation, the payment of
amounts drawn down under letters of credit.
"Hedging Obligations" means the obligations of any Person under (i)
Interest Rate Agreements and (ii) Currency Agreements.
"Holder" means the Person in whose name a Note is, at the time of
determination, registered on the Registrar's books.
"Interest Rate Agreements" means any interest rate protection agreements
and other types of interest rate hedging agreements (including, without
limitation, interest rate swaps, caps, floors, collars and similar agreements)
and other related agreements entered into in the ordinary course of business and
designed to protect against or manage exposure to fluctuations in interest
rates.
"Investment" in any Person means (a) any direct or indirect advance, loan
or other extension of credit or capital contribution (by means of any transfer
of cash or other property to others or any payment for property or services for
the account or use of others) to, or any purchase, acquisition or ownership of
any Capital Stock, Debt or other securities issued by such Person, the
acquisition (by purchase or otherwise) of all or substantially all of the
business or assets of such Person, or the making of any investment of cash or
other property in such Person, (b) the designation of any Restricted Subsidiary
as an Unrestricted Subsidiary, (c) the transfer of any assets or properties from
the Company or a Restricted Subsidiary to an Unrestricted Subsidiary, other than
the transfer of assets or properties made in the ordinary course of business and
(d) the fair market value of the Capital Stock (or any other Investment), held
by the Company or any of its Restricted Subsidiaries, of (or in) any Person that
has ceased to be a Restricted Subsidiary. Investments exclude extensions of
trade credit on commercially reasonable terms in accordance with normal trade
practices.
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"Lien" means any mortgage, pledge, security interest, encumbrance, lien or
charge of any kind (including any conditional sale or other title retention
agreement or lease in the nature thereof).
"Net Cash Proceeds" means, with respect to any Asset Sale, the proceeds
thereof in the form of cash or Cash Equivalents, including payments in respect
of deferred payment obligations, but only as and when received, in the form of,
or stock or other assets when disposed of for, cash or Cash Equivalents (except
to the extent that such obligations are financed or sold with recourse to the
Company or any Restricted Subsidiary), net of (a) brokerage commissions and
other fees and expenses (including fees and expenses of legal counsel,
accountants and investment banks) related to such Asset Sale, (b) provisions for
all taxes payable or required to be accrued in accordance with GAAP as a result
of such Asset Sale, (c) payments made to retire Debt where payment of such Debt
is secured by a Lien on the assets that are the subject of such Asset Sale, (d)
amounts required to be paid to any Person (other than the Company or any
Restricted Subsidiary) owning a beneficial interest in the assets that are
subject to the Asset Sale and (e) appropriate amounts to be provided by the
Company or any Restricted Subsidiary, as the case may be, as a reserve required
in accordance with GAAP against any liabilities associated with such Asset Sale
and retained by the seller after such Asset Sale, including pension and other
post-employment benefit liabilities, liabilities related to environmental
matters and liabilities under any indemnification obligations associated with
such Asset Sale.
"New Credit Facility" means the credit agreement dated as of June 10, 1998
among the Company, the Banks and Fleet Capital Corporation, as agent, as such
agreement may be amended, renewed, extended, substituted, replaced, restated,
refinanced, restructured, supplemented or otherwise modified from time to time
(including, without limitation, any successive amendments, renewals, extensions,
substitutions, replacements, restatements, refinancings, restructuring,
supplements or other modifications of the foregoing); provided that with respect
to any agreement providing for the refinancing, substitution or replacement of
Debt under the New Credit Facility (including any such agreement which increases
the principal amount thereof), such agreement shall be the New Credit Facility
for the purposes of this definition only if a notice to that effect is delivered
by the Company to the Trustee and there shall be at any time only one credit
agreement that is the New Credit Facility under the Indenture.
"Pari Passu Debt" means any Debt of the Company or any Subsidiary
Guarantor, whether outstanding at the date of the Indenture or incurred
thereafter, that ranks pari passu in right of payment with the Notes or any
Subsidiary Guarantee, as the case may be.
"Permitted Debt" means:
(i) Debt of the Company or any Restricted Subsidiary under the New
Credit Facility in an aggregate principal amount at any one time
outstanding not to exceed the greater of (x) $110.0 million or (y) the
amount of the Borrowing Base, less in either case (A) any amounts applied
to the permanent reduction of the New Credit Facility pursuant to the
covenant described under "-- Certain Covenants -- Limitation on Asset
Sales" and (B) the amount of Debt of all Receivables Subsidiaries then
outstanding under clause (ix).
(ii) Debt of the Company or any Restricted Subsidiary outstanding on
the Closing Date, other than Debt described under clause (i) above.
(iii) Debt owed by the Company to any Wholly Owned Restricted
Subsidiary or owed by any Restricted Subsidiary to the Company or a Wholly
Owned Restricted Subsidiary (provided that such Debt is held by the Company
or such Wholly Owned Restricted Subsidiary); provided, however, that if the
Company is the obligor on such Debt, such Debt is unsecured and
subordinated in all respects to the Company's obligations under the Notes
and provided, further, however, that if any such Wholly Owned Restricted
Subsidiary ceases to be (for any reason) a Wholly Owned Restricted
Subsidiary, then this clause (iii) shall no longer be applicable to Debt
owed by the Company or any Restricted Subsidiary to such Restricted
Subsidiary that was formerly a Wholly Owned Restricted Subsidiary.
(iv) Debt represented by the Notes (other than any Additional Notes)
and the Subsidiary Guarantees.
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(v) Debt of the Company or any Restricted Subsidiary in respect of
Hedging Obligations.
(vi) Capital Lease Obligations of the Company or any Restricted
Subsidiary, provided that the aggregate amount of Debt under this clause
(vi) does not exceed $5.0 million at any one time outstanding.
(vii) Debt of the Company or any Restricted Subsidiary under purchase
money mortgages or secured by purchase money security interests so long as
(x) such Debt is not secured by any property or assets of the Company or
any Restricted Subsidiary other than the property and assets so acquired
and (y) such Debt is created within 90 days of the acquisition of the
related property; provided that the aggregate amount of Debt under this
clause (vii) does not exceed $5.0 million at any one time outstanding.
(viii) guarantees by the Company or any Restricted Subsidiary of Debt
that was permitted to be incurred by the provisions of the covenant
described under "-- Certain Covenants -- Limitation on Debt and Issuance of
Disqualified Stock" and, with respect to guarantees by any Restricted
Subsidiary, made in accordance with the provisions of the covenant
described under "-- Certain Covenants -- Guarantees of Debt by Restricted
Subsidiaries."
(ix) Debt incurred by a Receivables Subsidiary, other than Debt
described in clause (iii) above, in an amount not exceeding 95% of the
aggregate unpaid balance of the Receivables and Related Assets of such
Receivables Subsidiary at the time of such incurrence pursuant to a
Receivables Program.
(x) Debt of the Company or any Restricted Subsidiary, not otherwise
permitted by any other clause of this definition, in an aggregate principal
amount not to exceed $12.0 million at any one time outstanding.
(xi) Debt of one or more Foreign Subsidiaries under one or more credit
facilities in an aggregate principal amount not to exceed $7.0 million at
any one time outstanding.
(xii) Debt evidenced by letters of credit securing obligations entered
into in the ordinary course of business in an aggregate principal amount
not to exceed $10.0 million at any one time outstanding to the extent such
letters of credit are not drawn upon or, if and to the extent drawn upon,
such drawing is reimbursed not later than the fifth Business Day following
receipt of a demand for reimbursement following payment on such letter of
credit.
(xiii) Any renewals, extensions, substitutions, refinancings or
replacements (each, for purposes of this clause, a "refinancing") of any
outstanding Debt incurred pursuant to clause (ii) and (iv) above, including
any successive refinancings thereof, so long as (A) the principal amount of
such refinancing Debt does not exceed (1) the principal amount of the Debt
being refinanced, plus (2) the amount of any premium required to be paid in
connection with such refinancing pursuant to the terms of the Debt
refinanced or the amount of any premium reasonably determined by the
Company as necessary to accomplish such refinancing, plus (3) the amount of
the expenses of the Company reasonably estimated to be incurred in
connection with such refinancing, (B) in the case of any refinancing of
Subordinated Debt of the Company or any Subsidiary Guarantors, such
refinancing Debt is subordinated to the Notes or the Subsidiary Guarantees,
as the case may be, at least to the same extent as the Debt being
refinanced and (C) such refinancing Debt has a Weighted Average Life equal
to or greater than the Weighted Average Life of the Debt being refinanced
and has a final Stated Maturity no earlier than the final Stated Maturity
of the Debt being refinanced.
"Permitted Holders" means each of William W. Compton, Michael Kagan and
their respective Affiliates.
"Permitted Investments" means any of the following:
(a) Investments in Cash Equivalents.
(b) Investments by the Company or any Restricted Subsidiary in another
Person, if as a result of such Investment such other Person (i) becomes a
Restricted Subsidiary or (ii) is merged or consolidated
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with or into, or transfers or conveys all or substantially all of its
assets to, the Company or a Restricted Subsidiary.
(c) Investments by the Company or any of the Restricted Subsidiaries
in any one of the other of them.
(d) Investments existing on the Closing Date.
(e) Investments made as a result of the receipt of non-cash
consideration in an Asset Sale permitted under the covenant described under
"-- Certain Covenants -- Limitation on Asset Sales."
(f) Investments consisting of loans and advances to officers and
employees of the Company or any Restricted Subsidiary for reasonable
travel, relocation and business expenses in the ordinary course of business
or other loans or advances to officers or employees of the Company or a
Restricted Subsidiary in an aggregate principal amount not to exceed
$500,000 at any one time outstanding.
(g) Investments the payment for which consists exclusively of Capital
Stock (exclusive of Disqualified Stock) of the Company.
(h) Investments by the Company or a Restricted Subsidiary in a
Receivables Subsidiary.
(i) Investments in any Person the primary business of which is
related, ancillary or complementary to the business of the Company and its
Restricted Subsidiaries on the date of such Investment not to exceed $5.0
million at any one time outstanding.
(j) Other Investments by the Company or a Restricted Subsidiary that
do not exceed $5.0 million in the aggregate at any one time outstanding.
"Person" means any individual, corporation, limited or general partnership,
limited liability company, joint venture, association, joint stock company,
trust, unincorporated organization or government or any agency or political
subdivision thereof.
"Preferred Stock" means, with respect to any Person, any and all shares,
interests, participations or other equivalents (however designated) of such
Person's preferred or preference stock, whether now outstanding or issued after
the Closing Date, and including, without limitation, all classes and series of
preferred or preference stock of such Person.
"Public Equity Offering" means an offer and sale of common stock (which is
Qualified Stock) of the Company pursuant to a registration statement that has
been declared effective by the Commission pursuant to the Securities Act (other
than a registration statement on Form S-8 or otherwise relating to equity
securities issuable under any employee benefit plan of the Company).
"Qualified Equity Interest" means any Qualified Stock and all warrants,
options or other rights to acquire Qualified Stock (but excluding any debt
security that is convertible into or exchangeable for Capital Stock).
"Qualified Stock" of any Person means any and all Capital Stock of such
Person, other than Disqualified Stock.
"Receivables and Related Assets" means accounts receivable, instruments,
chattel paper, obligations, general intangibles and other similar assets,
including interests in merchandise or goods, the sale or lease of which give
rise to the foregoing, related contractual rights, guarantees, insurance
proceeds, collections, other related assets and proceeds of all of the
foregoing.
"Receivables Program" means, with respect to any Person, any accounts
receivable securitization program pursuant to which such Person, directly or
indirectly, pledges, sells or otherwise transfers or encumbers its accounts
receivable, including to a trust, limited liability company, special purpose
entity or other similar entity.
"Receivables Subsidiary" means a Wholly Owned Restricted Subsidiary of the
Company (i) created for the purpose of financing receivables created in the
ordinary course of business of the Company and its
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Restricted Subsidiaries and (ii) the sole assets of which consist of Receivables
and Related Assets of the Company and its Restricted Subsidiaries and related
Permitted Investments.
"Restricted Payment" means any of the following:
(a) the declaration or payment of any dividend on, or the making of
any distribution to holders of, any shares of the Capital Stock of the
Company or any Restricted Subsidiary other than (i) dividends or
distributions payable solely in Qualified Equity Interests, (ii) dividends
or distributions by a Restricted Subsidiary payable to the Company or
another Restricted Subsidiary or (iii) pro rata dividends or distributions
on common stock of a Restricted Subsidiary held by minority stockholders,
provided that such dividends do not in the aggregate exceed the minority
stockholders' pro rata share of such Restricted Subsidiary's net income
from the first day of the Company's fiscal quarter during which the Closing
Date occurs;
(b) the purchase, redemption or other acquisition or retirement for
value, directly or indirectly of any shares of Capital Stock (or any
options, warrants or other rights to acquire shares of Capital Stock) of
(i) the Company or any Unrestricted Subsidiary or (ii) any Restricted
Subsidiary held by any Affiliate of the Company (other than, in either
case, any such Capital Stock owned by the Company or any of its Restricted
Subsidiaries);
(c) the making of any principal payment on, or the repurchase,
redemption, defeasance or other acquisition or retirement for value, prior
to any scheduled principal payment, sinking fund payment or maturity, of
any Subordinated Debt; or
(d) the making of any Investment (other than a Permitted Investment)
in any Person.
"Restricted Subsidiary" means any Subsidiary other than an Unrestricted
Subsidiary.
"Senior Debt" means the principal of and premium, if any, and interest on
(including interest accruing after the filing of a petition initiating any
proceeding pursuant to any bankruptcy law, whether or not allowed) and other
amounts due on or in connection with any Debt of the Company (other than the
Notes or Pari Passu Debt), whether outstanding on the date of the Indenture or
thereafter Incurred, unless, in the case of such Debt, the instrument creating
or evidencing the same or pursuant to which the same is outstanding expressly
provides that such Debt will be pari passu with or subordinate in right of
payment to the Notes. Without limiting the generality of the foregoing, "Senior
Debt" includes the principal of and premium, if any, and interest (including
interest accruing after the occurrence of an event of default or after the
filing of a petition initiating any proceeding pursuant to any bankruptcy law,
whether or not allowed) on all obligations of every nature of the Company from
time to time owed to the Banks under the New Credit Facility, provided, however,
that any Debt under any refinancing, refunding or replacement of the New Credit
Facility will not constitute Senior Debt to the extent that the Debt thereunder
is by its express terms subordinate to any other Debt of the Company.
Notwithstanding the foregoing, "Senior Debt" will not include (a) Debt
represented by Disqualified Stock, (b) any trade payables, (c) Debt of or
amounts owed by the Company for compensation to employees or for services
rendered to the Company, (d) any liability for foreign, federal, state, local or
other taxes owed or owing by the Company, (e) Debt of the Company to a
Subsidiary of the Company or any other Affiliate of the Company or any of such
Affiliate's Subsidiaries, (f) that portion of any Debt that, at the time of the
incurrence, is incurred by the Company in violation of the Indenture, (g)
amounts owing under leases (other than Capital Lease Obligations) and (h) Debt
that is without recourse to the Company (regardless of any election under
Section 1111(b) of the Bankruptcy Code).
"Significant Subsidiary" means any Restricted Subsidiary of the Company
that would be a "Significant Subsidiary" of the Company within the meaning of
Rule 1-02 under Regulation S-K promulgated by the Commission as such Rule is in
effect on the date of the Indenture.
"Stated Maturity" means, when used with respect to any Note or any
installment of interest thereon, the date specified in such Note as the fixed
date on which the principal of such Note or such installment of interest is due
and payable and, when used with respect to any other Debt, means the date
specified in the instrument governing such Debt as the fixed date on which the
principal of such Debt or any installment of interest thereon is due and
payable, and will not, in either case, include any contingent obligations to
repay,
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redeem or repurchase any such interest or principal prior to the date originally
scheduled for the payment thereof.
"Subordinated Debt" means Debt of the Company or a Subsidiary Guarantor
that is subordinated in right of payment to the Notes or the Subsidiary
Guarantee issued by such Subsidiary Guarantor, as the case may be.
"Subsidiary" means any Person a majority of the equity ownership or Voting
Stock of which is at the time owned, directly or indirectly, by the Company
and/or one or more Subsidiaries of the Company.
"Subsidiary Guarantee" means a guarantee of the Notes by a Restricted
Subsidiary in accordance with the provisions of the Indenture.
"Subsidiary Guarantor" means any Restricted Subsidiary that issues a
Subsidiary Guarantee.
"Unrestricted Subsidiary" means (a) any Subsidiary that is designated by
the Board of Directors as an Unrestricted Subsidiary in accordance with the
covenant described under "-- Certain Covenants -- Unrestricted Subsidiaries" and
(b) any Subsidiary of an Unrestricted Subsidiary.
"Voting Stock" means any class or classes of Capital Stock pursuant to
which the holders thereof have the general voting power under ordinary
circumstances to elect at least a majority of the board of directors, managers
or trustees of any Person (irrespective of whether or not, at the time, stock of
any other class or classes has, or might have, voting power by reason of the
happening of any contingency).
"Weighted Average Life" means, as of the date of determination with respect
to any Debt or Disqualified Stock, the quotient obtained by dividing (a) the sum
of the products of (i) the number of years from the date of determination to the
date or dates of each successive scheduled principal or liquidation value
payment of such Debt or Disqualified Stock, respectively, multiplied by (ii) the
amount of each such principal or liquidation value payment by (b) the sum of all
such principal or liquidation value payments.
"Wholly Owned Restricted Subsidiary" means any Restricted Subsidiary, all
of the outstanding Capital Stock (other than directors' qualifying shares or
shares of foreign Restricted Subsidiaries required to be owned by foreign
nationals pursuant to applicable law) of which is owned, directly or indirectly,
by the Company.
CERTAIN COVENANTS
Limitation on Debt and Issuance of Disqualified Stock. The Company will
not, and will not permit any Restricted Subsidiary to, create, issue, assume,
guarantee or in any manner become directly or indirectly liable for the payment
of, or otherwise incur (collectively, "incur") any Debt (including Acquired
Debt), other than Permitted Debt, or issue any Disqualified Stock, except that
the Company or a Restricted Subsidiary may incur Debt or issue Disqualified
Stock if, at the time of such incurrence or issuance, the Fixed Charge Coverage
Ratio for the four full fiscal quarters (taken as one accounting period)
immediately preceding the incurrence of such Debt or the issuance of such
Disqualified Stock for which internal financial statements are available would
have been equal to at least 2.0 to 1.0 if such incurrence is on or prior to the
second anniversary of the Closing Date and 2.25 to 1.0 if thereafter.
In making the foregoing calculation for any four-quarter period that
includes the Closing Date, pro forma effect will be given to the Transactions as
if such transactions had occurred at the beginning of such four-quarter period.
In addition (but without duplication), in making the foregoing calculation, pro
forma effect will be given to: (i) the incurrence of such Debt and (if
applicable) the application of the net proceeds therefrom, including to
refinance other Debt, as if such Debt was incurred and the application of such
proceeds occurred at the beginning of such four-quarter period, (ii) the
incurrence, repayment or retirement of any other Debt by the Company or its
Restricted Subsidiaries since the first day of such four-quarter period as if
such Debt was incurred, repaid or retired at the beginning of such four-quarter
period, (iii) the acquisition (whether by purchase, merger or otherwise) or
disposition (whether by sale, merger or otherwise) of any other company, entity
or business acquired or disposed of by the Company or any Restricted Subsidiary,
as the case may be, since the first day of such four-quarter period, as if such
acquisition or disposition occurred at the beginning of such four-quarter
period. In making a computation under the
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foregoing clause (i) or (ii), (A) interest on Debt bearing a floating interest
rate will be computed as if the rate in effect on the date of computation had
been the applicable rate for the entire period (taking into account any Hedging
Obligations applicable to such Debt if such Hedging Obligations have a remaining
term at the date of determination in excess of 12 months), (B) if such Debt
bears, at the option of the Company, a fixed or floating rate of interest,
interest thereon will be computed by applying, at the option of the Company,
either the fixed or floating rate and (C) the amount of Debt under a revolving
credit facility will be computed based upon the average daily balance of such
Debt during such four-quarter period.
Limitation on Restricted Payments. (a) The Company will not, and will not
permit any Restricted Subsidiary to, directly or indirectly, make any Restricted
Payment unless at the time of, and immediately after giving effect to, the
proposed Restricted Payment: (i) no Default or Event of Default has occurred and
is continuing, (ii) the Company could incur at least $1.00 of additional Debt
(other than Permitted Debt) pursuant to the first paragraph of the covenant
described under "-- Certain Covenants -- Limitation on Debt and Issuance of
Disqualified Stock," and (iii) the aggregate amount of all Restricted Payments
declared or made after the Closing Date does not exceed the sum of:
(A) 50% of the Consolidated Net Income of the Company accrued on a
cumulative basis during the period (taken as one accounting period)
beginning on the first day of the Company's fiscal quarter during which the
Closing Date occurs and ending on the last day of the Company's most
recently ended fiscal quarter for which internal financial statements are
available at the time of such proposed Restricted Payment (or, if such
aggregate cumulative Consolidated Net Income is a loss, minus 100% of such
amount), plus
(B) the aggregate net cash proceeds received by the Company after the
Closing Date from the issuance or sale (other than to a Subsidiary) of, or
as a capital contribution in respect of, Qualified Equity Interests of the
Company (excluding from this computation proceeds of a Public Equity
Offering used to redeem Notes as discussed above), plus
(C) the aggregate net proceeds, including the fair market value of
property other than cash (as determined by the Board of Directors, whose
good faith determination will be conclusive), received by the Company after
the Closing Date from the issuance or sale (other than to a Subsidiary) of
debt securities or Disqualified Stock that have been converted into or
exchanged for Qualified Stock of the Company, together with the aggregate
net cash proceeds received by the Company at the time of such conversion or
exchange, plus
(D) $5.0 million.
(b) Notwithstanding paragraph (a) above, the Company and its Restricted
Subsidiaries may take any of the following actions, so long as, with respect to
clauses (ii), (v) and (viii), no Default or Event of Default has occurred and is
continuing or would occur:
(i) The payment of any dividend within 60 days after the date of
declaration thereof, if at the declaration date such payment would not have
been prohibited by the foregoing provision;
(ii) The repurchase, redemption or other acquisition or retirement for
value of any shares of Capital Stock of the Company, in exchange for, or
out of the net cash proceeds of a substantially concurrent issuance and
sale (other than to a Subsidiary) of, Qualified Equity Interests of the
Company;
(iii) The purchase, redemption, defeasance or other acquisition or
retirement for value of any Subordinated Debt in exchange for, or out of
the net cash proceeds of a substantially concurrent issuance and sale
(other than to a Subsidiary) of Qualified Equity Interests of the Company;
(iv) The purchase, redemption, defeasance or other acquisition or
retirement for value of Subordinated Debt in exchange for, or out of the
net cash proceeds of a substantially concurrent issuance or sale (other
than to a Subsidiary) of, new Subordinated Debt, so long as the Company or
a Restricted Subsidiary would be permitted to refinance such original
Subordinated Debt with such new Subordinated Debt pursuant to clause (xiii)
of the definition of Permitted Debt;
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(v) The repurchase of any Subordinated Debt at a purchase price not
greater than 101% of the principal amount of such Subordinated Debt in the
event of a "change of control" in accordance with provisions similar to the
"Change of Control" covenant; provided that, prior to or simultaneously
with such repurchase, the Company has made the Change of Control Offer as
provided in such covenant with respect to the Notes and has repurchased all
Notes validly tendered for payment in connection with such Change of
Control Offer;
(vi) The purchase of any Capital Stock, or options to purchase Capital
Stock, of Farah pursuant to the Merger Agreement;
(vii) The payment of amounts to shareholders of Farah pursuant to
appraisal rights in respect of up to 33 1/3% of the Capital Stock of Farah
required by law in connection with the Merger; and
(viii) The repurchase of, or options to purchase, Qualified Equity
Interests of the Company or any of its Subsidiaries from employees, former
employees, directors or former directors of the Company or any of its
Subsidiaries (or permitted transferees of such employees, former employees,
directors or former directors or their respective estates), pursuant to the
terms of the agreements (including employment agreements) or plans (or
amendments thereto) approved by the Board of Directors of the Company under
which such individuals purchase or sell or are granted the option or right
to purchase or sell such Qualified Equity Interests; provided further,
however, that the aggregate amount of such repurchases shall not exceed
$1.0 million in any calendar year (excluding any such repurchases funded
with the proceeds of any life insurance policy or policies maintained by
the Company or under which the Company is the beneficiary).
The payments described in clauses (ii), (iii), (v) and (viii) of this
paragraph will be Restricted Payments that will be permitted to be taken in
accordance with this paragraph (b) but will reduce the amount that would
otherwise be available for Restricted Payments under the clause (iii) of
paragraph (a) of this covenant and the payments described in clauses (i), (iv),
(vi) and (vii) of this paragraph (b) will be Restricted Payments that will be
permitted to be taken in accordance with this paragraph (b) and will not reduce
the amount that would otherwise be available for Restricted Payments under
clause (iii) of paragraph (a) of this covenant.
(c) For the purpose of making any calculations under the Indenture, (i) if
a Restricted Subsidiary is designated an Unrestricted Subsidiary, the Company
will be deemed to have made an Investment in amount equal to the greater of fair
market value or net book value of the net assets of such Restricted Subsidiary
at the time of such designation as determined by the Board of Directors of the
Company, whose good faith determination will be conclusive, (ii) any property
transferred to or from an Unrestricted Subsidiary will be valued at fair market
value at the time of such transfer, as determined by the Board of Directors of
the Company, whose good faith determination will be conclusive and (iii) subject
to the foregoing, the amount of any Restricted Payment, if other than cash, will
be determined by the Board of Directors of the Company, whose good faith
determination will be conclusive.
If the aggregate amount of all Restricted Payments calculated under
paragraph (a) of this covenant includes an Investment in an Unrestricted
Subsidiary or other Person that thereafter becomes a Restricted Subsidiary, the
aggregate amount of all Restricted Payments calculated under the first paragraph
of this covenant will be reduced by the lesser of (x) the net asset value of
such Subsidiary at the time it becomes a Restricted Subsidiary and (y) the
initial amount of such Investment.
If an Investment resulted in the making of a Restricted Payment, the
aggregate amount of all Restricted Payments calculated under this covenant will
be reduced by the amount of any net reduction in such Investment (resulting from
the payment of interest or dividends, loan repayment, transfer of assets or
otherwise), to the extent such net reduction is not included in the Company's
Consolidated Net Income; provided that the total amount by which the aggregate
amount of all Restricted Payments may be reduced may not exceed the lesser of
(x) the cash proceeds received by the Company and its Restricted Subsidiaries in
connection with such net reduction and (y) the initial amount of such
Investment.
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Limitation on Asset Sales. The Company will not, and will not permit any
Restricted Subsidiary to, engage in any Asset Sale unless (i) the consideration
received by the Company or such Restricted Subsidiary for such Asset Sale is not
less than the fair market value of the assets sold (as determined by the Board
of Directors of the Company, whose good faith determination will be conclusive
and evidenced by a resolution of the Board of Directors) and (ii) the
consideration received by the Company or the relevant Restricted Subsidiary in
respect of such Asset Sale consists of at least 75% cash or Cash Equivalents;
provided that the amount of (x) any liabilities (as shown on the most recent
balance sheet of the Company or such Restricted Subsidiary) of the Company or
any of its Restricted Subsidiaries (other than liabilities that are by their
terms subordinated to the Notes or any guarantee thereof) that are assumed by
the transferee of any such assets pursuant to a customary novation agreement
that releases the Company or such Restricted Subsidiary from further liability
and (y) any securities, notes or other obligations received by the Company or
any such Restricted Subsidiary from such transferee that are promptly converted
by the Company or such Restricted Subsidiary into cash or Cash Equivalents (to
the extent of the cash or Cash Equivalents received), shall be deemed to be cash
or Cash Equivalents, as the case may be, for purposes of this provision.
If the Company or any Restricted Subsidiary engages in an Asset Sale, the
Company may, at its option, within 360 days after such Asset Sale, (i) apply all
or a portion of the Net Cash Proceeds to the permanent reduction of amounts
outstanding under the New Credit Facility or to the repayment of other Senior
Debt of the Company or a Restricted Subsidiary or (ii) invest (or enter into a
legally binding agreement to invest or cause a Restricted Subsidiary to invest
or enter into such agreement to invest) all or a portion of such Net Cash
Proceeds in properties and assets to replace the properties and assets that were
the subject of the Asset Sale or in properties and assets that will be used in
businesses of the Company or its Restricted Subsidiaries, as the case may be, as
such businesses are conducted prior to such Asset Sale. If any such legally
binding agreement to invest such Net Cash Proceeds is terminated, the Company
may, within 90 days of such termination or within 360 days of such Asset Sale,
whichever is later, invest such Net Cash Proceeds as provided in clause (i) or
(ii) (without regard to the parenthetical contained in such clause (ii)) above.
Notwithstanding clause (ii) of the immediately preceding paragraph, if the
Company or a Restricted Subsidiary engages in an Asset Sale of Designated Assets
within 365 days after the Closing Date, the Company or the relevant Restricted
Subsidiary shall be required to receive, with respect to consideration of up to
$11.0 million received in respect of such Asset Sale of Designated Assets, 25%
of such consideration in the form of cash and Cash Equivalents and, with respect
to consideration, if any, in excess of $11.0 million received in respect of such
Asset Sale of Designated Assets, 75% of such consideration in the form of cash
and Cash Equivalents. The amount of such Net Cash Proceeds not so used as set
forth above in this paragraph constitutes "Excess Proceeds."
When the aggregate amount of Excess Proceeds exceeds $5.0 million, the
Company will, within 30 days thereafter, make an offer to purchase from all
Holders of Notes and the Additional Notes, if any, on a pro rata basis, the
maximum principal amount (expressed as a multiple of $1,000) of the Notes and
the Additional Notes, if any, that may be purchased with the Excess Proceeds (an
"Asset Sale Offer"). The offer price as to each Note will be payable in cash in
an amount equal to 100% of the principal amount of such Note, plus in each case
accrued and unpaid interest, if any, to the date of repurchase. To the extent
that the aggregate principal amount of Notes and the Additional Notes, if any,
tendered pursuant to such Asset Sale Offer is less than the Excess Proceeds, the
Company may use the portion of the Excess Proceeds not required to be used to
repurchase the Notes and the Additional Notes, if any, for any other purpose as
determined by the Company which is not prohibited by the Indenture. If the
aggregate principal amount of Notes and the Additional Notes validly tendered
and not withdrawn by holders thereof exceeds the Excess Proceeds, the Notes and
the Additional Notes to be purchased will be selected on a pro rata basis (based
upon the principal amount of Notes). Upon completion of such Asset Sale Offer,
the amount of Excess Proceeds will be reset to zero.
Limitation on Liens. The Company will not, and will not permit any
Restricted Subsidiary to, create, incur, affirm or suffer to exist any Lien of
any kind securing any Pari Passu Debt or Subordinated Debt (including any
assumption, guarantee or other liability with respect thereto by any Restricted
Subsidiary) upon any property or assets (including any intercompany notes) of
the Company or any Restricted Subsidiary now owned or acquired after the Closing
Date, or any income or profits therefrom, unless the Notes are
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directly secured equally and ratably with (or prior to in the case of
Subordinated Debt) the obligation or liability secured by such Lien, and except
for any Lien securing Acquired Debt created prior to the incurrence of such Debt
by the Company or any Restricted Subsidiary, provided that any such Lien only
extends to the assets that were subject to such Lien securing such Acquired Debt
prior to the related acquisition by the Company or the Restricted Subsidiary.
Limitation on Dividends and Other Payment Restrictions Affecting Restricted
Subsidiaries. The Company will not, and will not permit any Restricted
Subsidiary to, directly or indirectly, create or otherwise cause or suffer to
exist or become effective any encumbrance or restriction of any kind on the
ability of any Restricted Subsidiary to (a) pay dividends, in cash or otherwise,
or make any other distributions on or in respect of its Capital Stock, (b) pay
any Debt owed to the Company or any other Restricted Subsidiary, (c) make loans
or advances to the Company or any other Restricted Subsidiary or (d) transfer
any of its properties or assets to the Company or any other Restricted
Subsidiary, except for such encumbrances or restrictions existing under or by
reason of (i) the Indenture, the New Credit Facility, as originally executed and
any other agreement in effect on the Closing Date to the extent listed on a
schedule attached to the Indenture, (ii) applicable law, (iii) customary
non-assignment provisions of any lease governing a leasehold interest of the
Company or any Restricted Subsidiary, (iv) any agreement or other instrument of
a Person acquired by the Company or any Restricted Subsidiary in existence at
the time of such acquisition (but not created in contemplation thereof), which
encumbrance or restriction is not applicable to any Person, or the properties or
assets of any Person, other than the Person, or the property or assets of the
Person, so acquired, (v) any encumbrance or restriction contained in contracts
for sales of Capital Stock or assets permitted by the covenant described under
"-- Certain Covenants -- Limitation on Asset Sales" with respect to the assets
to be sold pursuant to such contract and (vi) any encumbrance or restriction
existing under any agreement that extends, renews, refinances or replaces the
agreements containing the encumbrances or restrictions in the foregoing clauses
(i) and (iv); provided that the terms and conditions of any such encumbrances or
restrictions are not materially less favorable to the Holders of Notes than
those under or pursuant to the agreement so extended, renewed, refinanced or
replaced.
Limitation on Layering Debt. The Company and each Subsidiary Guarantor
will not, directly or indirectly, incur or otherwise permit to exist any Debt
that is subordinate in right of payment to any Debt of the Company or such
Subsidiary Guarantor, as the case may be, unless such Debt is also pari passu
with, or subordinate in right of payment to, the Notes or the Subsidiary
Guarantee issued by such Subsidiary Guarantor, as the case may be, or
subordinate in right of payment to the Notes or such Subsidiary Guarantee, as
the case may be.
Limitation on Transactions with Affiliates. The Company will not, and will
not permit any Restricted Subsidiary to, directly or indirectly, enter into or
suffer to exist any transaction or series of related transactions with, or for
the benefit of, any Affiliate of the Company or any of its Restricted
Subsidiaries, unless (a) such transaction or series of related transactions is
on terms that are no less favorable to the Company or such Restricted
Subsidiary, as the case may be, than those that could have been obtained in an
arm's length transaction with third parties who are not Affiliates and (b)
either (i) with respect to any transaction or series of related transactions
involving aggregate payments in excess of $1.0 million, but less than $5.0
million, the Company delivers a resolution of the Board of Directors of the
Company set forth in an officers' certificate to the Trustee certifying that
such transaction or series of related transactions comply with clause (a) above
and that such transaction or transactions have been approved by the Board of
Directors (including a majority of the Disinterested Directors) of the Company
or (ii) with respect to a transaction or series of related transactions
involving aggregate payments equal to or greater than $5.0 million the Company
delivers to the Trustee (x) an officers' certificate certifying that such
transaction or series of related transactions have been approved by the Board of
Directors (including a majority of the Disinterested Directors) of the Company
and (y) a written opinion from a nationally recognized investment banking firm
to the effect that such transaction or series of related transactions are fair
to the Company or such Restricted Subsidiary from a financial point of view.
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The foregoing covenant will not restrict any of the following:
(A) Transactions among the Company and/or its Restricted Subsidiaries.
(B) The Company from paying reasonable and customary regular
compensation or fees to, or entering into customary expense reimbursement,
indemnification or similar arrangements with, directors of the Company or
any Restricted Subsidiary who are not employees of the Company or any
Restricted Subsidiary.
(C) The issuance of securities or other payments, awards or grants in
cash, securities or otherwise pursuant to, or the funding of, employment
arrangements, stock options and stock ownership plans or incentive plans
approved by the Board of Directors.
(D) Transactions permitted by the provisions of the covenant described
under "-- Certain Covenants -- Limitation on Restricted Payments."
(E) In the case of joint ventures existing on the Closing Date in
which the Company has an interest, so long as other parties to the joint
venture that are not Affiliates of the Company own at least 50% of the
equity of such joint venture, transactions between such joint venture and
the Company or any Restricted Subsidiary.
(F) Transactions between a Receivables Subsidiary and any Person in
which the Receivables Subsidiary has an investment.
Limitation on Issuances and Sales of Capital Stock of Restricted
Subsidiaries. The Company will not, and will not permit any Restricted
Subsidiary, directly or indirectly, to issue, convey, sell, assign, transfer,
lease or otherwise dispose of any shares of Capital Stock of a Restricted
Subsidiary (including options, warrants or other rights to purchase shares of
such Capital Stock) except (a) to the Company or a Wholly Owned Restricted
Subsidiary or (b) in a transaction or series of related transactions consisting
of a sale, provided that immediately after giving effect to such sale neither
the Company nor any of its Subsidiaries owns any shares of Capital Stock of such
Restricted Subsidiary (including options, warrants or other rights to purchase
shares of such Capital Stock) and such sale complies with the covenant described
under "-- Certain Covenants -- Limitation on Asset Sales."
The Company will not permit any Restricted Subsidiary that is a Subsidiary
Guarantor to issue Preferred Stock.
Guarantees of Debt by Restricted Subsidiaries. All of the Company's
Domestic Restricted Subsidiaries (other than any Receivables Subsidiary) are and
will be Subsidiary Guarantors. As described above, the Indenture permits, under
certain circumstances, the release and discharge of the Subsidiary Guarantee
issued by a Subsidiary Guarantor. The Company will not permit any Restricted
Subsidiary that is not a Subsidiary Guarantor, directly or indirectly, to
guarantee, assume or in any other manner become liable for the payment of any
Debt of the Company or any Debt of any other Restricted Subsidiary unless (a)
such Restricted Subsidiary simultaneously executes and delivers a supplemental
indenture providing for a guarantee of payment of the Notes by such Restricted
Subsidiary and (b) with respect to any guarantee of Subordinated Debt by a
Restricted Subsidiary, any such guarantee is subordinated to such Restricted
Subsidiary's guarantee with respect to the Notes at least to the same extent as
such Subordinated Debt is subordinated to the Notes, provided that the foregoing
provision will not be applicable to any guarantee by any Restricted Subsidiary
that existed at the time such Person became a Restricted Subsidiary and was not
incurred in connection with, or in contemplation of, such Person becoming a
Restricted Subsidiary.
Unrestricted Subsidiaries. (a) The Board of Directors of the Company may
designate any Subsidiary (including any newly acquired or newly formed
Subsidiary) to be an Unrestricted Subsidiary so long as (i) neither the Company
nor any Restricted Subsidiary is directly or indirectly liable for any Debt of
such Subsidiary, (ii) no default with respect to any Debt of such Subsidiary
would permit (upon notice, lapse of time or otherwise) any holder of any other
Debt of the Company or any Restricted Subsidiary to declare a default on such
other Debt or cause the payment thereof to be accelerated or payable prior to
its stated maturity, (iii) any Investment in such Subsidiary made as a result of
designating such Subsidiary an
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Unrestricted Subsidiary will not violate the provisions of the covenant
described under "-- Certain Covenants -- Limitation on Restricted Payments,"
(iv) neither the Company nor any Restricted Subsidiary has a contract,
agreement, arrangement, understanding or obligation of any kind, whether written
or oral, with such Subsidiary other than those that might be obtained at the
time from Persons who are not Affiliates of the Company and (v) neither the
Company nor any Restricted Subsidiary has any obligation to subscribe for
additional shares of Capital Stock or other equity interest in such Subsidiary,
or to maintain or preserve such Subsidiary's financial condition or to cause
such Subsidiary to achieve certain levels of operating results.
(b) The Board of Directors of the Company may designate any Unrestricted
Subsidiary as a Restricted Subsidiary; provided that (i) no Default or Event of
Default has occurred and is continuing following such designation and (ii) the
Company could incur at least $1.00 of additional Debt (other than Permitted
Debt) pursuant to the first paragraph of the covenant described under
"-- Certain Covenants -- Limitation on Debt and Issuance of Disqualified Stock"
(treating any Debt of such Unrestricted Subsidiary as the incurrence of Debt by
a Restricted Subsidiary).
Limitation on Conduct of Business. The Company will not, and will not
permit any of its Restricted Subsidiaries to, conduct any business other than
the business the Company and its Restricted Subsidiaries was conducting on the
Closing Date or businesses reasonably related or ancillary thereto, except to
such extent as would not be material to the Company and its Restricted
Subsidiaries taken as a whole.
Reports. The Company is required to file on a timely basis with the
Commission, to the extent such filings are accepted by the Commission and
whether or not the Company has a class of securities registered under the
Exchange Act, the annual reports, quarterly reports and other documents that the
Company would be required to file if it were subject to Section 13 or 15(d) of
the Exchange Act. The Company is also required (a) to supply to the Trustee and
each Holder of Notes, or supply to the Trustee for forwarding to each such
Holder, without cost to such Holder, copies of such reports and documents within
15 days after the date on which the Company files such reports and documents
with the Commission or the date on which the Company would be required to file
such reports and documents if the Company were so required and (b) if filing
such reports and documents with the Commission is not accepted by the Commission
or is prohibited under the Exchange Act, to supply at the Company's cost copies
of such reports and documents to any prospective Holder of Notes promptly upon
written request.
CONSOLIDATION, MERGER AND SALE OF ASSETS
The Company may not consolidate with or merge with or into any other Person
(whether or not the Company is the surviving Person) or, directly or indirectly,
sell, assign, convey, transfer, lease or otherwise dispose of all or
substantially all of its properties or assets (determined on a consolidated
basis for the Company and its Subsidiaries taken as a whole) to any other Person
or Persons, in one transaction or a series of related transactions, unless each
of the following conditions is satisfied:
(a) Either (i) the Company is the surviving corporation or (ii) the
Person (if other than the Company) formed by such consolidation or into
which the Company is merged or the Person that acquires by sale,
assignment, conveyance, transfer, lease or other disposition all or
substantially all of the properties and assets of the Company and its
Restricted Subsidiaries on a consolidated basis (the "Surviving Entity")
(A) is a corporation, partnership limited liability company or trust duly
organized and validly existing under the laws of the United States, any
state thereof or the District of Columbia and (B) expressly assumes, by a
supplemental indenture in form satisfactory to the Trustee, all of the
Company's obligations under the Indenture and the Notes.
(b) Immediately after giving effect to such transaction or series of
transactions on a pro forma basis, no Default or Event of Default has
occurred and is continuing.
(c) Immediately after giving effect to such transaction or series of
transactions on a pro forma basis, the Consolidated Net Worth of the
Company (or of the Surviving Entity if the Company is not the continuing
obligor under the Indenture) is equal to or greater than the Consolidated
Net Worth of the Company immediately prior to such transaction or series of
transactions.
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(d) Immediately after giving effect to such transaction or series of
transactions on a pro forma basis (on the assumption that the transaction
or series of transactions occurred at the beginning of the most recently
ended four full fiscal quarter period for which internal financial
statements are available), the Company (or the Surviving Entity if the
Company is not the continuing obligor under the Indenture) could incur at
least $1.00 of additional Debt (other than Permitted Debt) pursuant to the
first paragraph of the covenant described under "-- Certain
Covenants -- Limitation on Debt and Issuance of Disqualified Stock."
(e) If the Company is not the continuing obligor under the Indenture,
each Subsidiary Guarantor, unless it is the other party to the transaction
described above, has by supplemental indenture confirmed that its
Subsidiary Guarantee applies to the Surviving Entity's obligations under
the Indenture and the Notes.
(f) If any of the property or assets of the Company or its Restricted
Subsidiaries would thereupon become subject to any Lien, the provisions of
the covenant described under "-- Certain Covenants -- Limitation on Liens"
are complied with.
(g) The Company delivers, or causes to be delivered, to the Trustee,
in form and substance reasonably satisfactory to the Trustee, an officers'
certificate and an opinion of counsel, each stating that such transaction
complies with the requirements of the Indenture.
In the event of a merger of a Wholly Owned Restricted Subsidiary into the
Company, the Company need not comply with the foregoing clauses (c) and (d).
For purposes of the foregoing, the transfer (by lease, assignment, sale or
otherwise, in a single transaction or series of related transactions) of all or
substantially all of the properties or assets of one or more Restricted
Subsidiaries that constitutes all or substantially all of the properties and
assets of the Company on a consolidated basis, will be deemed to be the transfer
of all or substantially all of the properties and assets of the Company.
In the event of any transaction or series of related transactions described
in and complying with the conditions listed in the first paragraph of this
covenant in which the Company is not the continuing obligor under the Indenture,
the Surviving Entity will succeed to, and be substituted for, and may exercise
every right and power of, the Company under the Indenture, and thereafter the
Company will, except in the case of a lease, be discharged from all its
obligations and covenants under the Indenture and Notes.
EVENTS OF DEFAULT AND REMEDIES
Each of the following is an "Event of Default" under the Indenture:
(a) Default in the payment of any interest on any Note when it becomes
due and payable, and continuance of such default for a period of 30 days
(whether or not prohibited by the subordination provisions of the
Indenture).
(b) Default in the payment of the principal of or premium, if any, on
any Note when due (whether or not prohibited by the subordination
provisions of the Indenture).
(c) Failure to perform or comply with the Indenture provisions
described under "Consolidation, Merger and Sale of Assets" or to make or
consummate a Change of Control Offer or Asset Sale Offer in accordance with
the provisions of the covenant described under "-- Repurchase at the Option
of the Holders Upon Change of Control" or "-- Certain
Covenants -- Limitation on Asset Sales," respectively.
(d) Default in the performance, or breach, of any covenant or
agreement of the Company or any Subsidiary Guarantor contained in the
Indenture or any Subsidiary Guarantee (other than as contemplated by
clauses (a), (b) and (c) above) and continuance of such default or breach
for a period of 60 days after written notice has been given (x) to the
Company by the Trustee or (y) to the Company and the Trustee by the Holders
of at least 25% in aggregate principal amount of the Notes then
outstanding.
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(e) The occurrence of an event of default under any mortgage, bond,
indenture, loan agreement or other document evidencing Debt of the Company
or any Significant Subsidiary, which Debt has an aggregate outstanding
principal amount of $5.0 million or more, and such default (i) results in
the acceleration of such Debt prior to its Stated Maturity or (ii)
constitutes a failure to make any payment with respect to any such Debt
when due and payable after the expiration of any applicable grace period.
(f) Failure by the Company or any of its Restricted Subsidiaries to
pay one or more final judgments the uninsured portion of which exceeds in
the aggregate $5.0 million, which judgment or judgments are not paid,
discharged or stayed for a period of 60 days.
(g) Any Subsidiary Guarantee ceases to be in full force and effect or
is declared null and void or any Subsidiary Guarantor denies that it has
any further liability under any Subsidiary Guarantee, or gives notice to
such effect (other than by reason of the termination of the Indenture or
the release of any such Subsidiary Guarantee in accordance with the
Indenture), and such condition has continued for a period of 30 days after
written notice of such failure requiring the Subsidiary Guarantor and the
Company to remedy the same has been given (x) to the Company by the Trustee
or (y) to the Company and the Trustee by the Holders of at least 25% in
aggregate principal amount of the Notes then outstanding.
(h) The occurrence of certain events of bankruptcy, insolvency or
reorganization with respect to the Company or any Significant Subsidiary.
If an Event of Default (other than as specified in clause (h) above) occurs
and is continuing, the Trustee or the Holders of at least 25% in aggregate
principal amount of the Notes then outstanding may, and the Trustee at the
request of such Holders will, declare the principal of and premium, if any, and
accrued and unpaid interest on all of the outstanding Notes immediately due and
payable and, upon any such declaration, all such amounts will become due and
payable immediately. If an Event of Default specified in clause (h) above occurs
and is continuing, then the principal and premium, if any, and accrued and
unpaid interest on all the outstanding Notes will ipso facto become and be
immediately due and payable without any declaration or other act on the part of
the Trustee or any Holder of Notes.
At any time after a declaration of acceleration under the Indenture, but
before a judgment or decree for payment of the money due has been obtained by
the Trustee, the Holders of a majority in aggregate principal amount of the
outstanding Notes, by written notice to the Company and the Trustee, may rescind
such declaration and its consequences if (i) the Company has paid or deposited
with the Trustee a sum sufficient to pay (A) all overdue interest on all Notes,
(B) all unpaid principal of (and premium, if any, on) any outstanding Notes that
has become due otherwise than by such declaration of acceleration and interest
thereon at the rate borne by the Notes, (C) to the extent that payment of such
interest is lawful, interest upon overdue interest and overdue principal at the
rate borne by the Notes and, (D) all sums paid or advanced by the Trustee under
the Indenture and the reasonable compensation, expenses, disbursements and
advances of the Trustee, its agents and counsel; and (ii) all Events of Default,
other than the non-payment of amounts of principal of (or premium, if any, on)
or interest on the Notes that have become due solely by such declaration of
acceleration, have been cured or waived. No such rescission will affect any
subsequent default or impair any right consequent thereon.
No Holder has any right to institute any proceeding with respect to the
Indenture or any remedy thereunder, unless the Holders of at least 25% in
aggregate principal amount of the outstanding Notes have made written request,
and offered reasonable indemnity, to the Trustee to institute such proceeding
within 60 days after receipt of such notice and the Trustee, within such 60-day
period, has not received directions inconsistent with such written request by
Holders of a majority in aggregate principal amount of the outstanding Notes.
Such limitations do not apply, however, to a suit instituted by a Holder for the
enforcement of the payment of the principal of, premium, if any, or interest on
such Note on or after the respective due dates expressed in such Note.
The Holders of not less than a majority in aggregate principal amount of
the outstanding Notes may, on behalf of the Holders of all of the Notes, waive
any past defaults under the Indenture, except a default in the payment of the
principal of, premium, if any, or interest on any Note, or in respect of a
covenant or provision
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that under the Indenture cannot be modified or amended without the consent of
the Holder of each Note outstanding.
If a Default or an Event of Default occurs and is continuing and is known
to the Trustee, the Trustee will mail to each Holder of the Notes notice of the
Default or Event of Default within 90 days after the occurrence thereof. Except
in the case of a Default or an Event of Default in payment of principal of and
premium, if any, or interest on any Notes, the Trustee may withhold the notice
to the Holders of the Notes if a committee of its trust officers in good faith
determines that withholding such notice is in the interests of the Holders of
the Notes.
The Company is required to furnish to the Trustee annual statements as to
the performance by the Company and the Subsidiary Guarantors of their respective
obligations under the Indenture and as to any default in such performance. The
Company is also required to notify the Trustee within five days of any Default.
LEGAL DEFEASANCE OR COVENANT DEFEASANCE
The Company may, at its option and at any time, terminate the obligations
of the Company and any Subsidiary Guarantors with respect to the outstanding
Notes ("defeasance"). Such defeasance means that the Company will be deemed to
have paid and discharged the entire Debt represented by the outstanding Notes,
except for (i) the rights of Holders of outstanding Notes to receive payments in
respect of the principal of and premium, if any, and interest on such Notes when
such payments are due, (ii) the Company's obligations to issue temporary Notes,
register the transfer or exchange of any Notes, replace mutilated, destroyed,
lost or stolen Notes, maintain an office or agency for payments in respect of
the Notes and segregate and hold such payments in trust, (iii) the rights,
powers, trusts, duties and immunities of the Trustee and (iv) the defeasance
provisions of the Indenture. In addition, the Company may, at its option and at
any time, elect to terminate the obligations of the Company and any Subsidiary
Guarantor with respect to certain covenants set forth in the Indenture and
described under "-- Repurchase at the Option of the Holders Upon Change of
Control" and "-- Certain Covenants" above, and any omission to comply with such
obligations would not constitute a Default or an Event of Default with respect
to the Notes ("covenant defeasance").
In order to exercise either defeasance or covenant defeasance, (a) the
Company must irrevocably deposit or cause to be deposited with the Trustee, as
trust funds in trust, specifically pledged as security for, and dedicated solely
to, the benefit of the Holders of the Notes, money in an amount, or U.S.
Government Obligations (as defined in the Indenture) that through the scheduled
payment of principal and interest thereon will provide money in an amount, or a
combination thereof, sufficient, in the opinion of a nationally recognized firm
of independent public accountants, to pay and discharge the principal of (and
premium, if any, on) and interest on the outstanding Notes at maturity (or upon
redemption, if applicable) of such principal or installment of interest; (b) no
Default or Event of Default has occurred and is continuing on the date of such
deposit or, insofar as an event of bankruptcy under clause (h) of "Events of
Default" above is concerned, at any time during the period ending on the 91st
day after the date of such deposit; (c) such defeasance or covenant defeasance
may not result in a breach or violation of, or constitute a default under, the
Indenture or any material agreement or instrument to which the Company or any
Subsidiary Guarantor is a party or by which it is bound; (d) in the case of
defeasance, the Company must deliver to the Trustee an opinion of counsel
stating that the Company has received from, or there has been published by, the
Internal Revenue Service a ruling, or since the date hereof there has been a
change in applicable federal income tax law, to the effect, and based thereon
such opinion must confirm that, the Holders of the outstanding Notes will not
recognize income, gain or loss for federal income tax purposes as a result of
such defeasance and will be subject to federal income tax on the same amounts,
in the same manner and at the same times as would have been the case if such
defeasance had not occurred; (e) in the case of covenant defeasance, the Company
must have delivered to the Trustee an opinion of counsel to the effect that the
Holders of the Notes outstanding will not recognize income, gain or loss for
federal income tax purposes as a result of such covenant defeasance and will be
subject to federal income tax on the same amounts, in the same manner and at the
same times as would have been the case if such covenant defeasance had not
occurred; and (f) the Company must have delivered to the Trustee an officers'
certificate and an opinion of counsel, each stating that all conditions
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precedent provided for relating to either the defeasance or the covenant
defeasance, as the case may be, have been complied with.
SATISFACTION AND DISCHARGE
Upon the request of the Company, the Indenture will cease to be of further
effect (except as to surviving rights of registration of transfer or exchange of
the Notes, as expressly provided for in the Indenture) and the Trustee, at the
expense of the Company, will execute proper instruments acknowledging
satisfaction and discharge of the Indenture when (a) either (i) all the Notes
theretofore authenticated and delivered (other than destroyed, lost or stolen
Notes that have been replaced or paid and Notes that have been subject to
defeasance under "-- Legal Defeasance or Covenant Defeasance") have been
delivered to the Trustee for cancellation or (ii) all Notes not theretofore
delivered to the Trustee for cancellation (A) have become due and payable, (B)
will become due and payable at maturity within one year or (C) are to be called
for redemption within one year under arrangements satisfactory to the Trustee
for the giving of notice of redemption by the Trustee in the name, and at the
expense, of the Company, and the Company has irrevocably deposited or caused to
be deposited with the Trustee funds in trust for the purpose in an amount
sufficient to pay and discharge the entire Debt on such Notes not theretofore
delivered to the Trustee for cancellation, for principal and premium, if any,
and interest on the Notes to the date of such deposit (in the case of Notes that
have become due and payable) or to the Stated Maturity or redemption date, as
the case may be; (b) the Company has paid or caused to be paid all sums payable
under the Indenture by the Company; and (c) the Company has delivered to the
Trustee an officers' certificate and an opinion of counsel, each stating that
all conditions precedent provided in the Indenture relating to the satisfaction
and discharge of the Indenture have been complied with.
AMENDMENT, SUPPLEMENT AND WAIVER
Modifications and amendments of the Indenture and any Subsidiary Guarantee
may be made by the Company, any affected Subsidiary Guarantor and the Trustee
with the consent of the Holders of a majority in aggregate outstanding principal
amount of the Notes; provided, however, that no such modification or amendment
may, without the consent of the Holder of each outstanding Note affected
thereby:
(a) change the Stated Maturity of the principal of, or any installment
of interest on, any Note, or reduce the principal amount thereof or the
rate of interest thereon or any premium payable upon the redemption
thereof, or change the place of payment where, or the coin or currency in
which any Note or any premium or the interest thereon is payable, or impair
the right to institute suit for the enforcement of any such payment after
the Stated Maturity thereof (or, in the case of redemption, on or after the
Redemption Date);
(b) reduce the percentage in aggregate principal amount of outstanding
Notes required to consent to any amendment of, or waiver of compliance
with, any provision of or defaults under the Indenture;
(c) waive a Default or Event or Default in the payment of principal of
or premium, if any, or interest on the Notes (except a rescission of
acceleration of Notes by the Holders of at least a majority in aggregate
principal amount of the then outstanding Notes (including Additional Notes
issued under the Indenture, if any);
(d) release any Subsidiary Guarantor from any of its obligations under
its Subsidiary Guarantee or the Indenture, except in accordance with the
terms of the Indenture;
(e) amend, change or modify in any manner adverse to the Holders the
obligation of the Company to make and consummate a Change of Control Offer
or Asset Sale Offer in accordance with the provisions of the covenant
described under "-- Repurchase at the Option of the Holders Upon Change of
Control" and "-- Certain Covenants -- Limitation on Asset Sales,"
respectively.
(f) amend, change or modify any of the provisions of the Indenture
relating to the subordination of the Notes or the Subsidiary Guarantees in
a manner adverse to the Holders; or
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(g) amend, change or modify any of the foregoing modification and
amendment provisions.
The Holders of a majority in aggregate principal amount of the Notes
outstanding may waive compliance with certain restrictive covenants and
provisions of the Indenture.
Without the consent of any Holders, the Company and the Trustee, at any
time and from time to time, may enter into one or more indentures supplemental
to the Indenture for any of the following purposes: (a) to evidence the
succession of another Person to the Company and the assumption by any such
successor of the covenants of the Company in the Indenture and in the Notes or
to add any Subsidiary Guarantor of the Notes; or (b) to add to the covenants of
the Company for the benefit of the Holders, or to surrender any right or power
herein conferred upon the Company; or (c) to add additional Events of Default;
or (d) to provide for uncertificated Notes in addition to or in place of the
certificated Notes; or (e) to evidence and provide for the acceptance of
appointment under the Indenture by a successor Trustee; or (f) to secure the
Notes or any Subsidiary Guarantee; or (g) to cure any ambiguity, to correct or
supplement any provision in the Indenture that may be defective or inconsistent
with any other provision in the Indenture, or to make any other provisions with
respect to matters or questions arising under the Indenture, provided that such
actions pursuant to this clause (g) do not adversely affect the interests of the
Holders; or (h) to comply with any requirements of the Commission in order to
effect and maintain the qualification of the Indenture under the Trust Indenture
Act.
THE TRUSTEE
SunTrust Bank, Atlanta, the Trustee under the Indenture, is the initial
paying agent and registrar for the Notes.
The Indenture provides that, except during the continuance of an Event of
Default, the Trustee will perform only such duties as are specifically set forth
in the Indenture. Under the Indenture, the Holders of a majority in outstanding
principal amount of the Notes have the right to direct the time, method and
place of conducting any proceeding for exercising any remedy available to the
Trustee, subject to certain exceptions. If an Event of Default has occurred and
is continuing, the Trustee will exercise such rights and powers vested in it
under the Indenture and use the same degree of care and skill in its exercise as
a prudent Person would exercise under the circumstances in the conduct of such
Person's own affairs.
The Indenture and provisions of the Trust Indenture Act incorporated by
reference therein contain limitations on the rights of the Trustee thereunder,
should it become a creditor of the Company, to obtain payment of claims in
certain cases or to realize on certain property received by it in respect of any
such claims, as security or otherwise. The Trustee is permitted to engage in
other transactions; provided, however, that, if it acquires any conflicting
interest (as defined), it must eliminate such conflict upon the occurrence of an
Event of Default or else resign.
GOVERNING LAW
The Indenture, the Notes and the Subsidiary Guarantees are governed by, and
construed in accordance with, the laws of the State of New York.
FORM AND DENOMINATION
Except as provided below, the Old Notes offered and sold in the Offering to
Qualified Institutional Buyers in reliance on Rule 144A are represented by a
global note in definitive, fully registered form without interest coupons (the
"Rule 144A Global Note"), which was, on the Closing Date, deposited with the
Trustee, as custodian for DTC, and registered in the name of a nominee of DTC.
The Old Notes offered and sold in the Offering pursuant to Regulation S are
represented by a global note in definitive, fully registered form without
interest coupons (together with the Rule 144A Global Note, the "Restricted
Global Notes"), which was, on the Closing Date, deposited with the Trustee, as
custodian for DTC, for the accounts of the Euroclear System and Cedel Bank,
S.A., and registered in the name of a nominee of DTC. The Exchange Notes will be
issued in the form of one or more global notes in definitive, fully registered
form without interest
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coupons (the "Exchange Global Notes" and, together with the Restricted Global
Notes, the "Global Notes") and will be deposited on the date of the closing of
the Exchange Offer with or on behalf of DTC, or with the Trustee, as custodian
for DTC, and registered in the name of a nominee of DTC.
Except in the limited circumstances described below under "-- Certificated
Notes," owners of beneficial interests in Global Notes will not be entitled to
receive physical delivery of certificated Notes. The Notes are not issuable in
bearer form. The Notes have been and will be issued only in fully registered
form in denominations of $1,000 and integral multiples thereof. No service
charge will be made for any registration of transfer or exchange of Notes, but
the Company may require payment of a sum sufficient to cover any tax or other
government charge payable in connection therewith.
The Company has initially appointed the Trustee at its corporate trust
office as paying agent and registrar for the Notes. In such capacities, the
Trustee is responsible for, among other things, (i) maintaining a record of the
aggregate holdings by Holders of Notes represented by the Global Notes and
accepting Notes for exchange and registration of transfer; (ii) ensuring that
payments of principal, premium, if any, and interest in respect of the Notes
received by the Trustee from the Company are duly paid to DTC or its nominees;
and (iii) transmitting to the Company any notices from Holders.
The Company has agreed in the Indenture to cause to be kept at the office
of the registrar a register in which, subject to such reasonable regulations as
it may prescribe, the Company will provide for the registration of the Notes and
registration of transfers of the Notes. The Company may vary or terminate the
appointment of any paying agent or registrar, or appoint additional or other
such agents or approve any change in the office through which any such agent
acts; provided that there shall at all times be a paying agent and registrar in
the Borough of Manhattan, The City of New York, New York. The Company will cause
notice of any resignation, termination or appointment of the Trustee or any
paying agent or registrar, and of any change in the office through which any
such agent will act, to be provided to Holders of the Notes.
GLOBAL NOTES
The following description of the operations and procedures of DTC are
provided solely as a matter of convenience. These operations and procedures are
solely within the control of DTC and are subject to changes by DTC from time to
time. The Company takes no responsibility for these operations and procedures
and urges investors to contact DTC or its participants directly to discuss these
matters.
Upon the issuance of the Restricted Global Notes, DTC credited, and upon
the issuance of the Exchange Global Notes DTC will credit, on its internal
system, the respective principal amount of the individual beneficial interests
represented by such Global Notes to the accounts with DTC ("participants") or
persons who hold interests through participants. Ownership of beneficial
interests in the Global Notes will be shown on, and the transfer of that
ownership will be effected only through, records maintained by DTC or its
nominee (with respect to interests of participants) and the records of
participants (with respect to interests of persons other than participants).
As long as DTC, or its nominee, is the registered holder of a Global Note,
DTC or such nominee, as the case may be, will be considered the sole owner and
Holder of the Notes represented by such Global Note for all purposes under the
Indenture and the Notes. Unless DTC notifies the Company that it is unwilling or
unable to continue as a depositary for a Global Note, or ceases to be a
"Clearing Agency" registered under the Exchange Act, or announces an intention
permanently to cease business or does in fact do so, or an Event of Default
under the Indenture has occurred and is continuing with respect to a Global
Note, owners of beneficial interests in a Global Note will not be entitled to
have any portions of such Global Note registered in their names, will not
receive or be entitled to receive physical delivery of Notes in definitive form
and will not be considered the owners or Holders of the Global Note (or any
Notes represented thereby) under the Indenture or the Notes. In addition, no
beneficial owner of an interest in a Global Note will be able to transfer that
interest except in accordance with DTC's applicable procedures (in addition to
other restrictions set forth in the Indenture). In the event that owners of
beneficial interests in a Global Note become entitled to receive Notes in
certificated form, such Notes will be issued only in registered form in
denominations of $1,000 and integral multiples thereof.
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Investors may hold their interests in the Global Notes directly through DTC
if they are DTC participants, or indirectly through organizations which are
participants in such system. All interests in a Global Note may be subject to
the procedures and requirements of such participants, as well as the procedures
and requirements of DTC.
Payments of the principal of, premium, if any, and interest on Global Notes
will be made to DTC or its nominee as the registered holder thereof. Neither the
Company, the Trustee nor any of their respective agents will have any
responsibility or liability for any aspect of the records relating to or
payments made on account of beneficial ownership interests in the Global Notes
or for maintaining, supervising or reviewing any records relating to such
beneficial ownership interests.
Subject to the following considerations, beneficial interests in the Global
Notes will trade in DTC's Same-Day Funds Settlement System, and secondary market
trading activity in such interests will therefore settle in immediately
available funds. The Company expects that DTC or its nominee, upon receipt of
any payment of principal or interest in respect of a Global Note representing
any Notes held by it or its nominee, will immediately credit participants'
accounts with payments in amounts proportionate to their respective beneficial
interests in the principal amount of such Global Note for such Notes as shown on
the records of DTC or its nominee. The Company also expects that payments by
participants to owners of beneficial interests in such Global Notes held through
such participants will be governed by standing instructions and customary
practices, as is now the case with securities held for the accounts of customers
registered in "street name." Such payments will be the responsibility of such
participants. Transfers between participants in DTC will be effected in
accordance with DTC's procedures, and will be settled in same-day funds.
DTC has advised the Company that it will take any action permitted to be
taken by a holder of Notes (including the presentation of Notes for exchange as
described below) only at the direction of one or more participants to whose
account with DTC interests in the Global Notes are credited and only in respect
of such portion of the aggregate principal amount of the Notes as to which such
participant or participants has or have given such direction. However, if there
is an Event of Default under the Indenture, DTC reserves the right to exchange
the Restricted Global Notes for legended Notes in certificated form and the
Exchange Global Notes for unlegended Notes in certificated form, and to
distribute such notes to its participants.
DTC has advised the Company as follows: DTC is a limited purpose trust
company organized under the laws of the State of New York, a member of the
Federal Reserve System, a "clearing corporation" within the meaning of the
Uniform Commercial Code, as amended, and a "Clearing Agency" registered pursuant
to the provisions of Section 17A of the Exchange Act. DTC was created to hold
securities for its participants and facilitate the clearance and settlement of
securities transactions between participants through electronic book-entry
changes in accounts of its participants, thereby eliminating the need for
physical transfer and delivery of certificates. Participants include securities
brokers and dealers, banks, trust companies and clearing corporations and may
include certain other organizations. Indirect access to the DTC system is
available to other entities such as banks, brokers, dealers and trust companies
that clear through or maintain a custodial relationship with a participant,
either directly or indirectly ("indirect participants").
Although DTC has agreed to the foregoing procedures in order to facilitate
transfers of beneficial ownership interests in the Global Notes among
participants of DTC, it is under no obligation to perform or continue to perform
such procedures, and such procedures may be discontinued at any time. None of
the Company, the Trustee nor any of their respective agents will have any
responsibility for the performance by DTC, its participants or indirect
participants of their respective obligations under the rules and procedures
governing their operations, including maintaining, supervising or reviewing the
records relating to, or payments made on account of, beneficial owner interests
in Global Notes.
CERTIFICATED NOTES
If DTC is at any time unwilling or unable to continue as a depositary for
the reasons set forth above under "-- Global Notes," the Company will issue
certificates for the Notes in definitive, fully registered, non-global form
without interest coupons in exchange for the applicable Global Notes. In all
cases, certificates for Notes
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delivered in exchange for any Global Note or beneficial interests therein will
be registered in the names, and issued in any approved denominations, requested
by DTC.
In the case of certificates for Old Notes in non-global form issued in
exchange for a Restricted Global Note, such certificates will, as provided in
the Indenture, bear legends restricting the transfer thereof (unless the Company
determines otherwise in accordance with applicable law). The holder of a Note in
non-global form may transfer such Note (subject, in the case of Old Notes, to
compliance with the provisions of such legend) by surrendering it at the office
or agency maintained by the Company for such purpose in the Borough of
Manhattan, The City of New York, which initially is the office of the Trustee.
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DESCRIPTION OF OTHER INDEBTEDNESS
The following summary of certain agreements and instruments of the Company
does not purport to be complete and is qualified in its entirety by reference to
the various agreements and instruments described, certain of which have been
included as exhibits to various filings by TSI and Farah with the Commission.
See "Available Information."
BRIDGE FACILITY
The Bridge Facility provided for aggregate borrowing availability of $100.0
million and was fully drawn on June 10, 1998, the date the Tender Offer was
consummated (the "Bridge Closing Date"). The Bridge Facility was an unsecured
senior subordinated obligation of the Company. Payment of all amounts
outstanding under the Bridge Facility was guaranteed, jointly and severally, on
an unsecured senior subordinated basis by each domestic subsidiary of the
Company and Farah. As of June 10, 1998, interest accrued thereunder at a rate of
9.7% per annum. Although the Bridge Facility would have matured by its terms on
the first anniversary of the Bridge Closing Date, it was repaid in full on June
24, 1998 with the net proceeds of the Offering, together with borrowings under
the New Credit Facility. See "Use of Proceeds."
NEW CREDIT FACILITY
In connection with the Farah Acquisition, concurrently with the
consummation of the Tender Offer, the Company entered into the New Credit
Facility, which replaced the Terminated Credit Facilities. The New Credit
Facility provides for revolving borrowings and letters of credit in an aggregate
principal amount of up to $110.0 million (the "Commitment") and permits
borrowings by, or for the account of, TSI, Tropical Sportswear Company, Inc.,
Apparel Network Corporation and Farah (each, a "Borrower"). The total amount of
(i) revolving borrowings, (ii) undrawn amounts of letters of credit and (iii)
reimbursement obligations under letters of credit, may not exceed the lesser of
the Commitment and the borrowing base. The borrowing base is defined to include
the value of the Company's inventory and accounts receivable, subject to
customary limitations. Each Borrower has effectively guaranteed on a senior
basis the obligations of each other Borrower under the New Credit Facility, and
each Borrower has granted a security interest in substantially all of its
current and future personal property to the lenders as collateral for its
obligations thereunder.
The New Credit Facility has a five-year term. In addition, subject to
certain limitations, the New Credit Facility requires that all or a portion of
the outstanding borrowings thereunder be repaid upon (i) certain non-ordinary
course asset sales by any Borrower, (ii) the issuance of any debt or equity
securities by any Borrower or (iii) the receipt by any Borrower of certain
insurance proceeds or condemnation awards.
Revolving loans accrue interest at a variable rate equal, at the option of
the Borrower to which a loan is made, to (i) a LIBOR-based rate plus a margin
which will be determined from time to time based on the Company's financial
performance (not exceeding 2.75% per annum) or (ii) the base rate (defined to
mean the higher of (a) Fleet Bank's publicly announced "prime rate" and (b) a
rate tied to the rates on overnight Federal funds transactions with members of
the Federal Reserve System) plus a margin that will be determined from time to
time based on the Company's financial performance (not exceeding 1.25% per
annum). All drawings under letters of credit which are not promptly reimbursed
will accrue interest at a variable rate equal to the base rate. Interest on base
rate loans and LIBOR loans will be payable monthly in arrears on the first day
of each month and, in the case of LIBOR loans, at the end of each interest
period. Upon the occurrence of an event of default, the rate at which interest
accrues on borrowings outstanding under the New Credit Agreement will increase
by 2.0% per annum. As of July 4, 1998, interest accrued on revolving loans
outstanding thereunder at a rate of 9.2% per annum and there were no
unreimbursed drawings under letters of credit.
The New Credit Facility contains a number of customary affirmative and
negative covenants, including, among others, covenants restricting the Borrowers
and their subsidiaries with respect to the incurrence of debt (including
guarantees); the creation of liens; substantially changing the nature of the
Borrowers' or their subsidiaries' businesses; the consummation of certain
transactions such as dispositions of substantial assets, mergers, acquisitions,
reorganizations and recapitalizations; the making of certain investments and
loans, non-
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ordinary course asset sales and capital expenditures; the making of dividends
and other distributions; and transactions with affiliates. The Borrowers are
also required to comply with certain financial tests and maintain certain
financial ratios. Certain of these financial tests and ratios include: (i)
maintaining a minimum tangible net worth; (ii) maintaining a maximum ratio of
debt to EBITDA; (iii) maintaining a maximum ratio of senior debt to EBITDA; and
(iv) maintaining a minimum ratio of earnings to fixed charges.
The New Credit Facility contains customary events of default. An event of
default under the New Credit Facility will allow the lenders thereunder to
accelerate or, in certain cases, will automatically cause the acceleration of,
the maturity of the debt under the New Credit Facility and will restrict the
ability of the Company and the Subsidiary Guarantors to meet their obligations
to the holders of the Notes.
REAL ESTATE LOAN
Pursuant to the Real Estate Loan Agreement, TSI obtained the Real Estate
Loan from SouthTrust to finance in part TSI's acquisition of the building and
land in Tampa, Florida which houses TSI's distribution and administration
functions, as well as the acquisition of adjacent property and the construction
thereon of an approximately 110,000 square foot cutting facility (collectively,
the "Land and Improvements"). All amounts outstanding under the Real Estate Loan
Agreement are secured by the Land and Improvements.
As of July 4, 1998, $9.6 million principal amount of the Real Estate Loan
was outstanding. The Real Estate Loan accrues interest at 7.38% per annum until
July 18, 2002 and, thereafter, the interest rate will be adjusted in accordance
with the Real Estate Loan Agreement. Accrued interest and principal payments of
$81,280 are payable monthly, with a final payment of $6.8 million due on May 7,
2006. In addition, the Company may, at its option, prepay the Real Estate Loan,
subject to certain prepayment premiums. If TSI fails to make any payment within
ten days of when such payment is due, the interest rate on the Real Estate Loan
will increase to the maximum rate permitted by applicable law.
The Real Estate Loan Agreement contains customary covenants and events of
default. An event of default under the Real Estate Loan Agreement will allow
SouthTrust to accelerate or, in certain cases, will automatically cause the
acceleration of, the maturity of the Real Estate Loan and will restrict the
ability of the Company to meet its obligations to the holders of the Notes.
FACTORING ARRANGEMENTS
Pursuant to the TSI Factoring Agreement between the Company and the TSI
Factor, the Company factors substantially all of its accounts receivable, other
than accounts receivable of Farah. The TSI Factoring Agreement provides that the
TSI Factor will pay the Company an amount (the "TSI Net Amount") equal to the
gross amount of the Company's accounts receivable from customers reduced by
certain offsets, including, among others, discounts, returns, and a commission
payable by the Company to the TSI Factor. The commission equals 0.3% of the
gross amount of the accounts receivable factored. For fiscal 1997 and the forty
weeks ended July 4, 1998, the Company paid commissions to the TSI Factor
aggregating $504,000 and $620,000, respectively. The TSI Factor reviews the
creditworthiness of the Company's customers prior to sales by the Company to
each customer. If the TSI Factor approves of the sale based on its credit
review, it assumes 99.85% of the credit risk for the accounts receivable
factored. If the TSI Factor disapproves of the sale and the Company then
proceeds with the sale, the TSI Factor will not purchase the account receivable
and the Company will bear the credit risk associated with the account
receivable. The TSI Factor will pay the Company the TSI Net Amount of the
factored account receivable upon the earlier of (i) receipt by the TSI Factor of
payment from the Company's customer and (ii) 120 days after the due date of such
account receivable. The TSI Factoring Agreement expires on September 30, 1998.
The Company intends to replace the TSI Factoring Agreement with a similar
arrangement following such expiration.
Following the closing of the Farah Acquisition, Farah entered into the
Savane Factoring Agreement with the Savane Factor, pursuant to which Farah
factors substantially all of its accounts receivable. The Savane Factoring
Agreement provides that the Savane Factor will pay Farah an amount (the "Savane
Net Amount") equal to the gross amount of Farah's accounts receivable from
customers reduced by certain offsets, including, among other things, discounts,
returns and a commission payable by Farah to the Savane Factor. The
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commission is equal to (i) for accounts receivable having payment terms equal to
or less than 90 days, the Standard Commission (i.e., 0.28% of the gross amount
of the receivables factored) or (ii) for accounts receivable having payment
terms of more than 90 days, the sum of (A) the Standard Commission and (B) the
Long Term Commission (i.e., an additional 0.15% of the gross amount of the
accounts receivable factored for each 30 day period (or part thereof) by which
the payment terms of such accounts receivable exceed 90 days). However, no
Standard Commission is payable by Farah until the day after the aggregate amount
of the factored accounts receivable exceeds $125.0 million. The Savane Factor
reviews the creditworthiness of Farah's customers prior to sales by Farah to
each customer. If the Savane Factor approves of the sale based on its credit
review, it assumes 99.90% of the credit risk for the accounts receivable
factored. For any such approved sale, the Savane Factor will pay Farah the
Savane Net Amount of the factored account receivable upon the earlier of (i) two
business days after receipt by the Savane Factor of payment from Farah's
customer and (ii) 120 days after the due date of such account receivable. For
any non-approved sales, Farah will bear the credit risk associated with the
factored account receivable. The Savane Factor will, however, pay Farah the
Savane Net Amount of the factored account receivable two business days after
such account receivable is paid. The Factoring Agreement expires on June 9,
2001, but it may be terminated at any time by the Savane Factor upon 60 days
prior written notice to Farah.
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THE EXCHANGE OFFER
PURPOSE AND EFFECT OF THE EXCHANGE OFFER
The Old Notes were originally sold by the Company on June 24, 1998 to the
Initial Purchaser pursuant to the Purchase Agreement. The Initial Purchaser
subsequently placed the Old Notes (i) with Qualified Institutional Buyers in
reliance upon Rule 144A and (ii) outside the United States in compliance with
Regulation S. In accordance with a condition set forth in the Purchase
Agreement, the Company and the Initial Purchaser entered into the Registration
Rights Agreement on the Closing Date pursuant to which the Company agreed, for
the benefit of the holders of the Old Notes, that it will, at its cost, (i) use
its best efforts to file, within 60 days after the Closing Date, a registration
statement (the "Exchange Offer Registration Statement") with the Commission with
respect to the Exchange Offer for the Exchange Notes and (ii) use its best
efforts to cause the Exchange Offer Registration Statement to be declared
effective under the Securities Act within 150 days after the Closing Date.
Promptly after the Registration Statement of which this Prospectus is a part
(which is the Exchange Offer Registration Statement referred to above) has been
declared effective, the Company will offer the Exchange Notes in exchange for
surrender of the Old Notes. The Company will keep the Exchange Offer open for
not less than 20 business days (or longer if required by applicable law) after
the date on which notice of the Exchange Offer is mailed to the holders of the
Old Notes. For each Old Note validly tendered to the Company pursuant to the
Exchange Offer and not withdrawn by the holder thereof, the holder of such Old
Note will receive an Exchange Note having a principal amount equal to the
principal amount of such surrendered Old Note. Interest on each Exchange Note
will accrue from the last interest payment date on which interest was paid on
the Note surrendered in exchange therefor or, if no interest has been paid on
such Exchange Note, from the Closing Date.
Based on existing interpretations of the Securities Act by the staff of the
Commission set forth in several "no-action" letters to third parties and
unrelated to the Company and the Exchange Offer, the Company believes that the
Exchange Notes issued pursuant to the Exchange Offer in exchange for Old Notes
may be offered for resale, resold and otherwise transferred by the holders
thereof (other than any such holder which is an "affiliate" of the Company
within the meaning of Rule 405 under the Securities Act) without further
compliance with the registration and prospectus delivery provisions of the
Securities Act, provided that such Exchange Notes are acquired in the ordinary
course of such holders' business and such holders have no arrangement or
understanding with any person to participate in the distribution (within the
meaning of the Securities Act) of such Exchange Notes. Any holder who is an
affiliate of the Company or who intends to participate in the Exchange Offer for
the purpose of distributing the Exchange Notes (i) will not be able to rely on
the interpretation by the staff of the Commission set forth in the
above-mentioned "no action" letters, (ii) will not be able to tender its Old
Notes in the Exchange Offer and (iii) must comply with the registration and
prospectus delivery requirements of the Securities Act in connection with any
sale or transfer transaction unless such sale or transfer is made pursuant to an
exemption from such requirements. Failure to comply with such requirements may
result in such holder incurring liability under the Securities Act for which the
holder is not indemnified by the Company.
A Participating Broker-Dealer holding Old Notes may participate in the
Exchange Offer provided that it acquired the Old Notes for its own account as a
result of market-making or other trading activities. In connection with any
resales of Exchange Notes, any Participating Broker-Dealer who receives Exchange
Notes for Old Notes pursuant to the Exchange Offer may be an "underwriter"
(within the meaning of the Securities Act) and must deliver a prospectus meeting
the requirements of the Securities Act in connection with any resale of the
Exchange Notes. The Letter of Transmittal states that any acknowledgment by a
Participating Broker-Dealer that it will deliver a prospectus in connection with
any resale of Exchange Notes, and any such delivery of a prospectus, shall not
be deemed an admission by such Participating Broker-Dealer that it is an
underwriter. The Commission has taken the position that Participating
Broker-Dealers may fulfill their prospectus delivery requirements with respect
to the Exchange Notes (other than a resale of an unsold allotment from the
original sale of the Old Notes) with this Prospectus, as it may be amended or
supplemented from time to time. Under the Registration Rights Agreement, the
Company is required to allow Participating Broker-Dealers and other persons, if
any, subject to similar prospectus delivery requirements, to
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use this Prospectus, as it may be amended or supplemented from time to time, in
connection with the resale of such Exchange Notes for a period of 180 days.
Each holder of Old Notes wishing to accept the Exchange Offer must
represent to the Company (i) that any Exchange Notes to be received by it will
be acquired in the ordinary course of such holder's business, (ii) that it is
not an "affiliate" of the Company within the meaning of Rule 405 under the
Securities Act, (iii) that it has no arrangement with any person to participate
in the distribution (within the meaning of the Securities Act) of the Exchange
Notes and (iv) if such holder is a Participating Broker-Dealer that will receive
Exchange Notes for its own account in exchange for Old Notes that were acquired
as a result of market-making or other trading activities, that it will deliver a
prospectus meeting the requirements of the Securities Act in connection with any
resale of such Exchange Notes. By executing the Letter of Transmittal, each
holder will make the foregoing representations.
In the event that any changes in law or the applicable interpretations of
the staff of the Commission do not permit the Company to effect the Exchange
Offer, or upon the request of the Initial Purchaser under certain circumstances,
the Company will, in lieu of effecting the registration of the Exchange Notes
pursuant to the Exchange Offer Registration Statement and at its cost, (i) as
promptly as practicable, file with the Commission the Shelf Registration
Statement covering resales of the Old Notes, (ii) use its best efforts to cause
the Shelf Registration Statement to be declared effective under the Securities
Act by the 180th day after the Closing Date (or promptly in the event of a
request by the Initial Purchaser) and (iii) use its best efforts to keep the
Shelf Registration Statement effective until two years after the Closing Date
(or until one year after the Closing Date if such Shelf Registration Statement
is filed at the request of the Initial Purchaser) or such shorter period ending
when all of the Old Notes registered pursuant to such Shelf Registration
Statement have been sold or are otherwise eligible for resale pursuant to Rule
144(k) under the Securities Act. The Company will, in the event of the filing of
the Shelf Registration Statement, provide to each holder of the Old Notes copies
of the prospectus which is a part of the Shelf Registration Statement, notify
each such holder when the Shelf Registration Statement for the Old Notes has
become effective and take certain other actions as are required to permit
unrestricted resales of the Old Notes. A holder of Old Notes that sells such Old
Notes pursuant to the Shelf Registration Statement generally will be required to
be named as a selling securityholder in the related prospectus and to deliver a
prospectus to purchasers, will be subject to certain of the civil liability
provisions of the Securities Act in connection with such sales and will be bound
by the provisions of the Registration Rights Agreement which are applicable to
such a holder (including certain indemnification obligations). In addition, each
holder of the Old Notes will be required to deliver information to be used in
connection with the Shelf Registration Statement and to provide comments
thereon, if any, within the time periods set forth in the Registration Rights
Agreement in order to have their Old Notes included in the Shelf Registration
Statement and to benefit from the provisions regarding liquidated damages set
forth in the following paragraph.
In the event that (a) the Exchange Offer is not consummated or a Shelf
Registration Statement with respect to the Old Notes is not declared effective
on or prior to the 180th day following the Closing Date or (b) any registration
statement required by the Registration Rights Agreement is filed and declared
effective but shall thereafter cease to be effective (except as specifically
permitted therein) without being succeeded immediately by an additional
registration statement filed and declared effective, then the interest rate
borne by the Old Notes shall be increased by 0.5% per annum following such
180-day period in the case of clause (a) above and following the date on which
the relevant registration statement ceases to be effective in the case of clause
(b) above (in any such case, a "Registration Default"). The amount of such
additional interest will increase by an additional 0.5% per annum for each
subsequent 90-day period until such Registration Default has been cured. The
aggregate amount of such increase from the original interest rate pursuant to
these provisions will in no event exceed 1.5% per annum. Upon (i) the
consummation of the Exchange Offer or the effectiveness of a Shelf Registration
Statement, as the case may be, after the 180-day period described in clause (a)
above or (ii) the effectiveness of a succeeding registration statement after the
date in clause (b) above, the interest rate borne by the Old Notes from the date
of such consummation or effectiveness, as the case may be, will be reduced to
the original interest rate thereof.
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The summary herein of certain provisions of the Registration Rights
Agreement does not purport to be complete and is subject to, and is qualified in
its entirety by reference to, all the provisions of the Registration Rights
Agreement, a copy of which is available upon request to the Company.
TERMS OF THE EXCHANGE OFFER
Upon the terms and subject to the conditions set forth in this Prospectus
and in the accompanying Letter of Transmittal, the Company will accept any and
all Old Notes validly tendered and not withdrawn prior to 5:00 p.m., New York
City time, on the Expiration Date. The Company will issue $1,000 principal
amount of Exchange Notes in exchange for each $1,000 principal amount of
outstanding Old Notes accepted in the Exchange Offer. Holders may tender some or
all of their Old Notes pursuant to the Exchange Offer. However, tenders of Old
Notes must be in a minimum principal amount of $1,000 or an integral multiple of
$1,000 in excess thereof.
The form and terms of the Exchange Notes will be identical in all material
respects to the form and terms of the Old Notes, except that (i) the Exchange
Notes will bear a different CUSIP Number from the Old Notes, (ii) the issuance
of the Exchange Notes will be registered under the Securities Act and,
therefore, the Exchange Notes will not bear legends restricting the transfer
thereof and (iii) the holders of the Exchange Notes will not be entitled to
certain rights under the Registration Rights Agreement, including the provisions
thereof which provide for an increase in the interest rate on the Old Notes in
certain circumstances relating to the timing of the Exchange Offer, which rights
will terminate when the Exchange Offer is consummated. The Exchange Notes will
evidence the same debt as the Old Notes (which they replace) and will be issued
under and be entitled to the benefits of the Indenture. See "Description of the
Notes."
As of the date of this Prospectus, $100,000,000 aggregate principal amount
of Old Notes were outstanding. This Prospectus and the Letter of Transmittal are
being mailed to persons who were Holders of Old Notes on the close of business
on the date of this Prospectus. Holders of Old Notes do not have any appraisal
or dissenters' rights under the Business Corporation Act of Florida or the
Indenture in connection with the Exchange Offer. The Company intends to conduct
the Exchange Offer in accordance with the applicable requirements of the
Exchange Act and the rules and regulations of the Commission thereunder.
The Company shall be deemed to have accepted validly tendered Old Notes
when, as and if the Company has given written notice thereof to the Exchange
Agent. The Exchange Agent will act as agent for the tendering holders for the
purpose of receiving the Exchange Notes from the Company.
If any tendered Old Notes are not accepted for exchange because of an
invalid tender, the occurrence of certain other events set forth herein or
otherwise, the certificates for any such unaccepted Old Notes will be returned,
without expense, to the tendering holder thereof as promptly as practicable
after the Expiration Date.
Holders who tender Old Notes in the Exchange Offer will not be required to
pay brokerage commissions or fees or, subject to the instructions in the Letter
of Transmittal, transfer taxes with respect to the exchange of Old Notes for
Exchange Notes pursuant to the Exchange Offer. The Company will pay all charges
and expenses, other than transfer taxes in certain circumstances, in connection
with the Exchange Offer. See "-- Fees and Expenses."
EXPIRATION DATE; EXTENSIONS; AMENDMENTS
The term "Expiration Date" shall mean 5:00 p.m., New York City time, on
, 1998, unless the Company in its sole discretion, extends
the Exchange Offer, in which case the term "Expiration Date" means the latest
date and time to which the Exchange Offer is extended.
In order to extend the Exchange Offer, the Company will notify the Exchange
Agent thereof by written notice and will mail to the registered holders an
announcement of such extension, each prior to 9:00 a.m., New York City time, on
the next business day after the previously scheduled expiration date.
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The Company reserves the right, in its sole discretion, (i) to delay
accepting any Old Notes, to extend the Exchange Offer or to terminate the
Exchange Offer if any of the conditions set forth below under "-- Conditions"
shall not have been satisfied, by giving written notice of such delay, extension
or termination to the Exchange Agent or (ii) to amend the terms of the Exchange
Offer in any manner, whether before or after any tender of the Old Notes. Any
such delay in acceptance, extension, termination or amendment will be followed
as promptly as practicable by oral or written notice thereof to the registered
holders.
INTEREST ON EXCHANGE NOTES
Interest on each Exchange Note will accrue from the Closing Date, i.e.,
June 24, 1998, and be payable semiannually in arrears on June 15 and December 15
of each year, commencing December 15, 1998, at the rate of 11% per annum.
Holders whose Old Notes are accepted for exchange will be deemed to have waived
the right to receive any interest accrued on the Old Notes.
PROCEDURES FOR TENDERING OLD NOTES
Only a Holder of Old Notes may tender such Old Notes in the Exchange Offer.
Each such Holder wishing to accept the Exchange Offer must complete, sign and
date the accompanying Letter of Transmittal, or a facsimile thereof, in
accordance with the instructions contained herein and therein, have the
signatures thereon guaranteed if required by the Letter of Transmittal, and mail
or otherwise deliver such Letter of Transmittal or such facsimile, together with
the Old Notes and any other required documents, to the Exchange Agent prior to
5:00 p.m., New York City time, on the Expiration Date. To be tendered
effectively, the Old Notes, the Letter of Transmittal and all other required
documents must be properly completed and received by the Exchange Agent at the
address set forth below under "Exchange Agent" prior to 5:00 p.m., New York City
time, on the Expiration Date. Delivery of the Old Notes may be made by
book-entry transfer in accordance with the procedures described below.
Confirmation of such book-entry transfer must be received by the Exchange Agent
prior to the Expiration Date.
By executing the Letter of Transmittal, each holder will make the
representations set forth above in the fourth paragraph under the heading
"-- Purpose and Effect of the Exchange Offer" to the Company. The tender by a
holder and the acceptance thereof by the Company will constitute an agreement
between such holder and the Company that such holder will participate in the
Exchange Offer in accordance with the terms and subject to the conditions set
forth herein and in the Letter of Transmittal.
THE METHOD OF DELIVERY OF THE OLD NOTES AND THE LETTER OF TRANSMITTAL AND
ALL OTHER REQUIRED DOCUMENTS TO THE EXCHANGE AGENT IS AT THE ELECTION AND SOLE
RISK OF THE HOLDER. AS AN ALTERNATIVE TO DELIVERY BY MAIL, HOLDERS MAY WISH TO
CONSIDER OVERNIGHT OR HAND DELIVERY SERVICE. IN ALL CASES, SUFFICIENT TIME
SHOULD BE ALLOWED TO ASSURE DELIVERY TO THE EXCHANGE AGENT BEFORE THE EXPIRATION
DATE. HOLDERS MAY REQUEST THEIR RESPECTIVE BROKERS, DEALERS, COMMERCIAL BANKS,
TRUST COMPANIES OR NOMINEES TO EFFECT THE ABOVE TRANSACTIONS FOR SUCH HOLDERS.
Any beneficial owner whose Old Notes are registered in the name of a
broker, dealer, commercial bank, trust company or other nominee and who wishes
to tender should contact the registered holder promptly and instruct such
registered holder to tender on such beneficial owner's behalf.
Signatures on a Letter of Transmittal or a notice of withdrawal, as the
case may be, must be guaranteed by a firm which is a member of a registered
national securities exchange or of the National Association of Securities
Dealers, Inc., or is a savings institution, commercial bank or trust company
having an office or correspondent in the United States, or is otherwise an
"eligible guarantor institution" within the meaning of Rule 17Ad-15 under the
Exchange Act, and which is, in each case, a member of a recognized signature
guarantee program (i.e., Securities Transfer Agents Medallion Program, Stock
Exchange Medallion Program or New York Stock Exchange Medallion Signature
Program) (an "Eligible Institution"), unless the Old Notes tendered pursuant
thereto are tendered (i) by a registered holder who has not completed the box
entitled "Special Issuance Instructions" or the box entitled "Special Delivery
Instructions" on the Letter of
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Transmittal or (ii) for the account of an Eligible Institution. In the event
that signatures on a Letter of Transmittal or a notice of withdrawal, as the
case may be, are required to be guaranteed, such guarantees must be by an
Eligible Institution.
If the Letter of Transmittal is signed by a person other than the
registered holder of any Old Notes listed therein, such Old Notes must be
endorsed or accompanied by a properly completed bond power, signed by such
registered holder as such registered holder's name appears on such Old Notes
with the signature thereon guaranteed by an Eligible Institution.
If the Letter of Transmittal or any Old Notes or bond powers are signed by
trustees, executors, administrators, guardians, attorneys-in-fact, offices of
corporations or others acting in a fiduciary or representative capacity, such
persons should so indicate when signing, and evidence satisfactory to the
Company of their authority to so act must be submitted with the Letter of
Transmittal.
The Company understands that the Exchange Agent will make a request
promptly after the date of this Prospectus to establish an account through the
facilities of DTC for receipt of the tender of Old Notes through book-entry
delivery thereof. For the purpose of facilitating the Exchange Offer, any
financial institution that is a DTC participant may participate in the Exchange
Offer through book-entry delivery of Old Notes by causing DTC to transfer such
Old Notes into the Exchange Agent's account for the Old Notes. Although delivery
of the Old Notes may be effected through book-entry transfer into the Exchange
Agent's account at DTC, an appropriate Letter of Transmittal properly completed
and duly executed with any required signature guarantee and all other required
documents must in each case be transmitted to and received or confirmed by the
Exchange Agent at its address and in the manner set forth below under
"-- Exchange Agent" and on the back cover of this Prospectus on or prior to the
Expiration Date, or, if the guaranteed delivery procedures described below are
complied with, within the time period provided under such procedures. Delivery
of documents to DTC does not constitute delivery to the Exchange Agent.
All questions as to the validity, form, eligibility (including time of
receipt), acceptance of tendered Old Notes and withdrawal of tendered Old Notes
will be determined by the Company in its sole discretion, which determination
will be final and binding. The Company reserves the absolute right to reject any
and all Old Notes not properly tendered or any Old Notes the Company's
acceptance of which would, in the opinion of counsel for the Company, be
unlawful. The Company also reserves the right in its sole discretion to waive
any defects, irregularities or conditions of tender as to particular Old Notes.
The Company's interpretation of the terms and conditions of the Exchange Offer
(including the instructions in the Letter of Transmittal) will be final and
binding on all parties. Unless waived, any defects or irregularities in
connection with tenders of Old Notes must be cured within such time as the
Company shall determine. Although the Company intends to notify holders of
defects or irregularities with respect to tenders of Old Notes, neither the
Company, the Exchange Agent nor any other person shall incur any liability for
failure to give such notification. Tenders of Old Notes will not be deemed to
have been made until such defects or irregularities have been cured or waived.
Any Old Notes received by the Exchange Agent that are not properly tendered and
as to which the defects or irregularities have not been cured or waived will be
returned by the Exchange Agent to the tendering holders, unless otherwise
provided in the Letter of Transmittal, as promptly as practicable following the
Expiration Date.
NO LETTER OF TRANSMITTAL, OLD NOTES, NOTICE OF GUARANTEED DELIVERY OR OTHER
DOCUMENTS SHOULD BE SENT TO THE COMPANY OR DTC. DELIVERY THEREOF TO THE COMPANY
OR DTC WILL NOT CONSTITUTE VALID DELIVERY.
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<PAGE> 110
GUARANTEED DELIVERY PROCEDURES
Holders of Old Notes who wish to tender their Old Notes but who cannot,
prior to 5:00 p.m., New York City time, on the Expiration Date (i) deliver their
Old Notes, the Letter of Transmittal or any other documents required by the
Letter of Transmittal to the Exchange Agent or (ii) deliver a confirmation of
the book-entry tender of their Old Notes into the Exchange Agent's account at
DTC and otherwise complete the procedures for book-entry transfer, may effect a
tender of Old Notes if:
(a) the tender is made through an Eligible Institution;
(b) prior to 5:00 p.m., New York City time, on the Expiration Date,
the Exchange Agent receives from such Eligible Institution a properly
completed and duly executed Notice of Guaranteed Delivery (by facsimile
transmission, registered or certified mail or hand delivery) setting forth
the name and address of the holder, the certificate number(s) of such Old
Notes and the principal amount of Old Notes tendered, stating that the
tender is being made thereby and guaranteeing that, within three New York
Stock Exchange trading days after the Expiration Date, the Letter of
Transmittal (or facsimile thereof) together with the certificates(s)
representing the Old Notes (or a confirmation of book-entry transfer of
such Notes into the Exchange Agent's account at DTC), and any other
documents required by the Letter of Transmittal will be deposited by the
Eligible Institution with the Exchange Agent; and
(c) such properly completed and duly executed Letter of Transmittal
(or facsimile thereof), as well as the certificates(s) representing all
tendered Old Notes in proper form for transfer (or a confirmation of
book-entry transfer of such Old Notes into the Exchange Agent's account at
DTC), and all other documents required by the Letter of Transmittal are
received by the Exchange Agent within three New York Stock Exchange trading
days after the Expiration Date.
Upon request to the Exchange Agent, additional copies of the Notice of
Guaranteed Delivery will be sent to holders.
ACCEPTANCE OF OLD NOTES FOR EXCHANGE; DELIVERY OF EXCHANGE NOTES
Upon satisfaction or waiver of all of the conditions to the Exchange Offer,
the Company will accept, promptly after the Expiration Date, all Old Notes
properly tendered and will issue the Exchange Notes promptly after acceptance of
the Old Notes. For a description of certain conditions to the Exchange Offer,
see "-- Conditions" below. For purposes of the Exchange Offer, the Company will
be deemed to have accepted properly tendered Old Notes for exchange when, as and
if the Company has given written notice thereof to the Exchange Agent. For each
Old Note accepted for exchange, the holder of such Old Note will receive an
Exchange Note having a principal amount equal to that of the surrendered Old
Note.
In all cases, issuance of Exchange Notes for Old Notes that are accepted
for exchange pursuant to the Exchange Offer will be made only after timely
receipt by the Exchange Agent of certificates for such Old Notes (or a timely
confirmation that such Old Notes have been transferred into the Exchange Agent's
account at DTC), a properly completed and duly executed Letter of Transmittal
and all other required documents. If any tendered Old Notes are not accepted for
any reason set forth in the terms and conditions of the Exchange Offer or if Old
Notes are submitted for a greater principal amount than the holder desires to
exchange, such unaccepted or non-exchanged Old Notes will be returned without
expense to the tendering holder thereof (or, in the case of Old Notes tendered
by book-entry transfer into the Exchange Agent's account at DTC pursuant to the
applicable book-entry procedures, such non-exchanged Old Notes will be credited
to an appropriate account maintained with DTC) as promptly as practicable after
the expiration or termination of the Exchange Offer.
WITHDRAWAL OF TENDERS
Except as otherwise provided herein, tenders of Old Notes may be withdrawn
at any time prior to 5:00 p.m., New York City time, on the Expiration Date.
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To withdraw a tender of Old Notes in the Exchange Offer, a telegram, telex,
letter or facsimile transmission notice of withdrawal must be received by the
Exchange Agent at its address set forth herein prior to 5:00 p.m., New York City
time, on the Expiration Date. Any such notice of withdrawal must (i) specify the
name of the person having deposited the Old Notes to be withdrawn (the
"Depositor"), (ii) identify the Old Notes to be withdrawn (including the
certificate number(s) and principal amount of such Old Notes, or, in the case of
Old Notes tendered by book-entry transfer into the Exchange Agent's account at
DTC pursuant to the applicable book-entry procedures, the name and number of the
account at DTC to be credited), (iii) be signed by the holder in the same manner
as the original signature on the Letter of Transmittal by which such Old Notes
were tendered (including any required signature guarantees) or be accompanied by
documents of transfer sufficient to have the Trustee register the transfer of
such Old Notes into the name of the person withdrawing the tender and (iv)
specify the name in which any such Old Notes are to be registered, if different
from that of the Depositor. All questions as to the validity, form and
eligibility (including time of receipt) of such notices will be determined by
the Company in its sole discretion, which determination shall be final and
binding. Any Old Notes so withdrawn will be deemed not to have been validly
tendered for purposes of the Exchange Offer and no Exchange Notes will be issued
with respect thereto unless the Old Notes so withdrawn are validly retendered.
Any Old Notes which have been tendered but which are not accepted for exchange
will be returned, without expense, to the holder thereof as promptly as
practicable after withdrawal, rejection of tender or termination of the Exchange
Offer. Properly withdrawn Old Notes may be retendered by following one of the
procedures described above under "-- Procedures for Tendering Old Notes" at any
time prior to the Expiration Date.
CONDITIONS
Notwithstanding any other term of the Exchange Offer, the Company shall not
be required to accept for exchange, or exchange Exchange Notes for, any Old
Notes, and may terminate or amend the Exchange Offer as provided herein before
the acceptance of such Old Notes, if:
(a) any action or proceeding is instituted or threatened in any court
or by any governmental or quasi-governmental agency which might materially
impair the ability of the Company or any Subsidiary Guarantor to proceed
with the Exchange Offer or any material adverse development has occurred in
any existing action or proceeding with respect to the Company or any
Subsidiary Guarantor;
(b) the Exchange Offer violates applicable law or any applicable
interpretation of the staff of the Commission; or
(c) any governmental or quasi-governmental approval has not been
obtained, which approval the Company shall deem necessary for the
consummation of the Exchange Offer as contemplated hereby.
If the Company determines in its sole discretion that any of the foregoing
conditions are not satisfied, the Company may (i) refuse to accept any Old Notes
and return all tendered Old Notes to the tendering holders, (ii) extend the
Exchange Offer and retain all Old Notes tendered prior to the expiration of the
Exchange Offer, subject, however, to the rights of holders to withdraw such Old
Notes (see "-- Withdrawal of Tenders") or (iii) waive such unsatisfied
conditions and accept all properly tendered Old Notes which have not been
withdrawn. In addition, the Company has reserved the right, notwithstanding the
satisfaction or failure of any or all of the foregoing conditions, to terminate
or amend the Exchange Offer in any manner it shall determine in its sole
discretion, which determination shall be binding.
The Exchange Offer is not conditioned upon any minimum aggregate principal
amount of Old Notes being tendered or accepted for exchange.
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EXCHANGE AGENT
SunTrust Bank, Atlanta, which also acts as Trustee under the Indenture, has
been appointed as Exchange Agent for the Exchange Offer. Each holder wishing to
accept the Exchange Offer must deliver (i) a Letter of Transmittal, such
holder's tendered Old Notes and all other required documents or (ii) a Notice of
Guaranteed Delivery and all other documents described under "-- Guaranteed
Delivery Procedures," to the Exchange Agent as follows:
<TABLE>
<S> <C> <C>
By Hand or Registered or Certified Mail: By Facsimile Transmission: By Overnight Courier:
SunTrust Bank, Atlanta SunTrust Bank, Atlanta SunTrust Bank, Atlanta
c/o First Chicago Trust Company (404) 240-2030 Corporate Trust Division
of New York Attention: Susan Knight 3495 Piedmont Road
Corporate Trust Building 10, Suite 810
8th Floor Confirm by Telephone: Atlanta, Georgia 30305
14 Wall Street (404) 240-1952
New York, New York 10005 Attention: Susan Knight
</TABLE>
DELIVERY TO AN ADDRESS OTHER THAN AS SET FORTH ABOVE WILL NOT CONSTITUTE
VALID DELIVERY.
Questions and requests for assistance, and requests for additional copies
of this Prospectus, the Letter of Transmittal or the Notice of Guaranteed
Delivery, should be directed to the Exchange Agent as follows:
For Information Call:
SunTrust Bank, Atlanta
(404) 240-1952
Attention: Susan Knight
FEES AND EXPENSES
The expenses of soliciting tenders will be borne by the Company. The
principal solicitation is being made by mail; however, additional solicitation
may be made by telegraph, telecopy, telephone or in person by officers,
employees or agents of the Company and its affiliates. The Company has not
retained any dealer-manager in connection with the Exchange Offer and will not
make any payments to brokers, dealers or others to solicit acceptances of the
Exchange Offer. The Company, however, will pay the Exchange Agent reasonable and
customary fees for its services and will reimburse it for its reasonable
out-of-pocket expenses in connection with the Exchange Offer. All other expenses
to be incurred in connection with the Exchange Offer will be paid by the
Company. Such expenses include fees and expenses of the Trustee, accounting and
legal fees and printing costs, among others.
ACCOUNTING TREATMENT
The Exchange Notes will be recorded at the same carrying value as the Old
Notes, which is face value, as reflected in the Company's accounting records on
the date of exchange. Accordingly, no gain or loss for accounting purposes will
be recognized by the Company in connection with the Exchange Offer. The expenses
of the Exchange Offer will be amortized over the term of the Exchange Notes.
CONSEQUENCES OF FAILURE TO EXCHANGE
The Old Notes that are not exchanged for Exchange Notes pursuant to the
Exchange Offer will remain restricted securities. Accordingly, such Old Notes
may not be reoffered, resold, pledged or otherwise transferred except in
accordance with applicable securities laws of states of the United States and
(i) to a person whom the transferor reasonably believes is a Qualified
Institutional Buyer in a transaction meeting the requirements of Rule 144A, (ii)
in an offshore transaction meeting the requirements of Rule 903 or Rule 904
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of Regulation S, (iii) to an institution that is an "accredited investor" within
the meaning of Rule 501(a)(1), (2), (3) or (7) of Regulation D under the
Securities Act in a transaction exempt from the registration requirements of the
Securities Act (if available), (iv) pursuant to an exemption from registration
under the Securities Act provided by Rule 144 thereunder (if available) or (v)
pursuant to an effective registration statement under the Securities Act.
Following consummation of the Exchange Offer, holders of the Old Notes who
were eligible to participate in the Exchange Offer but who did not tender their
Old Notes will generally not have any further registration rights under the
Registration Rights Agreement, and such Old Notes will continue to be subject to
restrictions on transfer. Accordingly, the liquidity of the market for such Old
Notes could be adversely affected.
CERTAIN FEDERAL INCOME TAX CONSIDERATIONS
The following discussion describes the material federal income tax
consequences expected to result to holders whose Old Notes are exchanged for
Exchange Notes in the Exchange Offer. The following discussion is based upon
current provisions of the Internal Revenue Code of 1986, as amended, applicable
Treasury regulations, judicial authority and administrative rulings and
practice. There can be no assurance that the Internal Revenue Service (the
"IRS") will not take a contrary view, and no ruling from the IRS has been or
will be sought with respect to the Exchange Offer. Legislative, judicial or
administrative changes or interpretations may be forthcoming that could alter or
modify the statements and conclusions set forth herein. Any such changes or
interpretations may or may not be retroactive and could affect the tax
consequences to holders. Certain holders (including insurance companies,
tax-exempt organizations, financial institutions, broker-dealers, foreign
corporations, and persons who are not citizens or residents of the United
States) may be subject to special rules not discussed below. EACH HOLDER OF OLD
NOTES SHOULD CONSULT ITS OWN TAX ADVISOR AS TO THE PARTICULAR TAX CONSEQUENCES
OF EXCHANGING OLD NOTES FOR EXCHANGE NOTES, INCLUDING THE APPLICABILITY AND
EFFECT OF ANY STATE, LOCAL OR FOREIGN LAWS.
The exchange of Old Notes for Exchange Notes pursuant to the Exchange Offer
will not be considered a taxable exchange for United States federal income tax
purposes because the Exchange Notes will not be considered to differ materially
in kind or extent from the Old Notes. Exchange Notes received by a holder of Old
Notes will be treated as a continuation of the Old Notes. Accordingly, there
will not be any United States federal income tax consequences to holders
exchanging Old Notes for Exchange Notes in the Exchange Offer.
PLAN OF DISTRIBUTION
Except as provided herein, this prospectus may not be used for an offer to
resell, a resale or other transfer of Exchange Notes. Based on existing
interpretations of the Securities Act by the staff of the Commission set forth
in several "no-action" letters to third parties and unrelated to the Company and
the Exchange Offer, the Company believes that the Exchange Notes issued pursuant
to the Exchange Offer in exchange for Old Notes may be offered for resale,
resold and otherwise transferred by the holders thereof (other than any such
holder which is an "affiliate" of the Company within the meaning of Rule 405
under the Securities Act) without further compliance with the registration and
prospectus delivery provisions of the Securities Act, provided that such
Exchange Notes are acquired in the ordinary course of such holders' business and
such holders have no arrangement or understanding with any person to participate
in the distribution (within the meaning of the Securities Act) of such Exchange
Notes. Any holder who is an affiliate of the Company or who intends to
participate in the Exchange Offer for the purpose of distributing the Exchange
Notes (i) will not be able to rely on the interpretation by the staff of the
Commission set forth in the above-mentioned "no action" letters, (ii) will not
be able to tender its Old Notes in the Exchange Offer and (iii) must comply with
the registration and prospectus delivery requirements of the Securities Act in
connection with any sale or transfer transaction unless such sale or transfer is
made pursuant to an exemption from such requirements.
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A Participating Broker-Dealer holding Old Notes may participate in the
Exchange Offer provided that it acquired the Old Notes for its own account as a
result of market-making or other trading activities. In connection with any
resales of Exchange Notes, any Participating Broker-Dealer who receives Exchange
Notes for Old Notes pursuant to the Exchange Offer may be an "underwriter"
(within the meaning of the Securities Act) and must deliver a prospectus meeting
the requirements of the Securities Act in connection with any resale of the
Exchange Notes. The Commission has taken the position that Participating Broker-
Dealers may fulfill their prospectus delivery requirements with respect to the
Exchange Notes (other than a resale of an unsold allotment from the original
sale of the Old Notes) with this Prospectus, as it may be amended or
supplemented from time to time. Under the Registration Rights Agreement, the
Company is required to allow Participating Broker-Dealers and other persons, if
any, subject to similar prospectus delivery requirements, to use this
Prospectus, as it may be amended or supplemented from time to time, in
connection with the resale of such Exchange Notes for a period of 180 days. Each
Participating Broker-Dealer wishing to accept the Exchange Offer must represent
to the Company that it will deliver a prospectus meeting the requirements of the
Securities Act in connection with any resale of Exchange Notes.
The Exchange Offer is intended to satisfy certain of the Company's
obligations under the Registration Rights Agreement. The Company will not
receive any cash proceeds from the issuance of the Exchange Notes offered
hereby. In consideration for issuing the Exchange Notes as contemplated in this
Prospectus, the Company will receive a like principal amount of Old Notes. The
form and terms of the Exchange Notes will be identical in all material respects
to the form and terms of the Old Notes, except as described herein.
Exchange Notes received by broker-dealers for their own account pursuant to
the Exchange Offer may be sold from time to time in one or more transactions in
the over-the-counter market, in negotiated transactions, through the writing of
options on the Exchange Notes or a combination of such methods of resale, at
market prices prevailing at the time of resale, or at prices related to such
prevailing market prices or at negotiated prices. Any such resale may be made
directly to purchasers or to or through broker-dealers who may receive
compensation in the form of commissions or concessions from any such
broker-dealer and/or the purchasers of any such Exchange Notes. Any
broker-dealer that resells Exchange Notes that were received by it for its own
account pursuant to the Exchange Offer and any person that participates in the
distribution of such Exchange Notes may be deemed an "underwriter" (within the
meaning of the Securities Act) and any profit on any such resale of Exchange
Notes and any commissions or concessions received by any such broker-dealers may
be deemed to be underwriting compensation under the Securities Act. The Letter
of Transmittal states that any acknowledgment by a Participating Broker-Dealer
that it will deliver a prospectus in connection with any resale of Exchange
Notes, and any such delivery of a prospectus, shall not be deemed an admission
by such Participating Broker-Dealer that it is an underwriter.
For a period of 180 days after the Expiration Date, the Company will send
additional copies of this Prospectus and any amendment or supplement to this
Prospectus to any Participating Broker-Dealer that requests such documents in
such Participating Broker-Dealer's Letter of Transmittal. By acceptance of the
Exchange Offer, each broker-dealer that receives Exchange Notes for Old Notes
pursuant thereto agrees that, upon receipt of notice from the Company of the
happening of any event which makes any statement in this Prospectus untrue in
any material respect or which requires the making of any changes in this
Prospectus in order to make the statements herein not materially misleading
(which notice the Company has agreed to deliver to such broker-dealer), such
broker-dealer will suspend the use of this Prospectus until the Company has
amended or supplemented this Prospectus to correct such misstatement or omission
and has furnished copies of the amended or supplemented Prospectus to such
broker-dealer.
The Company has agreed, pursuant to the Registration Rights Agreement, to
pay all expenses incident to the Company's performance of and compliance with
the Exchange Offer and the Registration Rights Agreement (other than agency fees
and commissions, underwriting discounts and commissions and the fees and
disbursements of counsel and other advisors and experts retained by the
holders). In addition, the Company has agreed to indemnify the holders of the
Exchange Notes against certain liabilities, including liabilities under the
Securities Act.
110
<PAGE> 115
The Exchange Notes are a new issuance of securities for which there is
currently no trading market. The Exchange Notes will not be listed on any
securities exchange. The Company has been advised by the Initial Purchaser that
it intends to make a market in the Exchange Notes; however, the Initial
Purchaser is not obligated to do so, and any such market making activities may
be discontinued at any time without notice. Accordingly, there can be no
assurance that an active trading market for the Exchange Notes will develop or
as to the liquidity of any such market. In addition, if the Exchange Notes are
traded after their initial issuance, they may trade at a discount from their
initial offering price, depending upon prevailing interest rates, the market for
similar securities, the performance of the Company and other factors.
LEGAL MATTERS
The legality of the Exchange Notes offered hereby will be passed upon for
the Company by Alston & Bird LLP, Atlanta, Georgia. As to matters of Texas law,
Alston & Bird LLP has relied upon the opinion of Haynes and Boone, LLP, Dallas,
Texas. As to matters of Florida law, Alston & Bird LLP has relied upon the
opinion of Mechanik Nuccio Smith & Williams, P.A., Tampa, Florida.
EXPERTS
The Consolidated Financial Statements of Tropical Sportswear Int'l
Corporation at September 27, 1997 and September 28, 1996 and for each of the
three years in the period ended September 27, 1997 included elsewhere in this
Prospectus and Registration Statement have been audited by Ernst & Young LLP,
independent auditors, as set forth in their report thereon appearing elsewhere
herein, and are included in reliance upon such report given upon the authority
of such firm as experts in accounting and auditing.
The Consolidated Financial Statements of Farah at November 2, 1997 and
November 3, 1996 and for each of the two years in the period ended November 2,
1997 included elsewhere in this Prospectus have been audited by
PricewaterhouseCoopers LLP, independent accountants, as set forth in their
report thereon appearing elsewhere herein.
The Consolidated Financial Statements of Farah for the year ended November
3, 1995 included elsewhere in this Prospectus have been audited by Arthur
Andersen LLP, independent public accountants as indicated in their report with
respect thereto, and are included herein in reliance upon the authority of said
firm as experts in giving said reports.
111
<PAGE> 116
INDEX TO FINANCIAL STATEMENTS
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
TROPICAL SPORTSWEAR INT'L CORPORATION
Unaudited Interim Condensed Consolidated Financial
Statements:
Condensed Consolidated Balance Sheets as of July 4, 1998 and
September 27, 1997........................................ F-2
Condensed Consolidated Statements of Income for the Thirteen
Weeks and Forty Weeks Ended July 4, 1998 and for the
Thirteen Weeks and Thirty-Nine Weeks Ended June 28,
1997...................................................... F-3
Condensed Consolidated Statements of Cash Flows for the
Forty Weeks Ended July 4, 1998 and for the Thirty-Nine
Weeks Ended June 28, 1997................................. F-4
Notes to Condensed Consolidated Financial Statements........ F-5
Audited Consolidated Financial Statements:
Report of Independent Certified Public Accountants.......... F-10
Consolidated Balance Sheets as of September 27, 1997 and
September 28, 1996........................................ F-11
Consolidated Statements of Income for the Years Ended
September 27, 1997, September 28, 1996 and September 30,
1995...................................................... F-12
Consolidated Statements of Shareholders' Equity for the
Years Ended September 30, 1995, September 28, 1996 and
September 27, 1997........................................ F-13
Consolidated Statements of Cash Flows for the Years Ended
September 27, 1997, September 28, 1996, and September 30,
1995...................................................... F-14
Notes to Consolidated Financial Statements.................. F-15
FARAH INCORPORATED AND SUBSIDIARIES
Unaudited Interim Condensed Consolidated Financial
Statements:
Condensed Consolidated Statements of Operations and Retained
Earnings for the Quarters and Six Months Ended May 3, 1998
and May 4, 1997........................................... F-25
Condensed Consolidated Balance Sheets as of May 3, 1998 and
November 2, 1997.......................................... F-26
Condensed Consolidated Statements of Cash Flows for the Six
Months Ended May 3, 1998 and May 4, 1997.................. F-27
Notes to Condensed Consolidated Financial Statements........ F-28
Audited Consolidated Financial Statements:
Report of Independent Accountants........................... F-39
Report of Independent Accountants........................... F-40
Consolidated Statements of Operations for the Years Ended
November 2, 1997, November 3, 1996, and November 3,
1995...................................................... F-41
Consolidated Balance Sheets as of November 2, 1997 and
November 3, 1996.......................................... F-42
Consolidated Statements of Shareholders' Equity for the
Years Ended November 2, 1997, November 3, 1996 and
November 3, 1995.......................................... F-43
Consolidated Statements of Cash Flows for the Years Ended
November 2, 1997, November 3, 1996 and November 3, 1995... F-44
Notes to Consolidated Financial Statements.................. F-45
</TABLE>
F-1
<PAGE> 117
TROPICAL SPORTSWEAR INT'L CORPORATION
CONDENSED CONSOLIDATED BALANCE SHEETS
<TABLE>
<CAPTION>
JULY 4,
1998 SEPTEMBER 27,
(UNAUDITED) 1997
----------- -------------
(IN THOUSANDS, EXCEPT
SHARE AND PER SHARE
AMOUNTS)
<S> <C> <C>
ASSETS
Current assets:
Cash...................................................... $ 4,851 $ 116
Accounts receivable....................................... 71,234 24,981
Inventories............................................... 86,049 21,351
Deferred income taxes..................................... 9,865 1,495
Prepaid expenses.......................................... 12,558 812
-------- -------
Total current assets.............................. 184,557 48,755
Property and equipment, net................................. 59,262 20,283
Deferred income taxes....................................... 1,137 --
Intangible assets, including trademarks and goodwill........ 42,380 393
Other assets................................................ 10,834 227
-------- -------
Total assets...................................... $298,170 $69,658
======== =======
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities:
Accounts payable.......................................... $ 33,568 $12,828
Accrued expenses.......................................... 24,184 2,322
Accrued incentive compensation............................ 1,505 1,934
Income taxes payable...................................... 1,261 102
Current portion of long-term debt and capital leases...... 3,714 1,335
Due to Farah shareholders................................. 4,873 --
-------- -------
Total current liabilities......................... 69,105 18,521
Senior subordinated debt.................................... 100,000 --
Long-term debt and noncurrent portion of capital leases..... 79,656 24,055
Deferred income taxes....................................... 431 431
Other noncurrent liabilities................................ 1,256 --
Shareholders' equity:
Preferred stock, $.01 par value; 10,000,000 shares
authorized; 38,630 shares
issued and outstanding at September 27, 1997........... -- 3,863
Common stock $.01 par value; 50,000,000 shares authorized;
7,600,000 and
6,000,000 shares issued and outstanding at July 4, 1998
and September 27,
1997, respectively..................................... 76 60
Additional paid-in capital................................ 17,270 --
Retained earnings......................................... 30,376 22,728
-------- -------
Total shareholders' equity........................ 47,722 26,651
-------- -------
Total liabilities and shareholders' equity........ $298,170 $69,658
======== =======
</TABLE>
See accompanying notes.
F-2
<PAGE> 118
TROPICAL SPORTSWEAR INT'L CORPORATION
CONDENSED CONSOLIDATED STATEMENTS OF INCOME
<TABLE>
<CAPTION>
THIRTY-NINE
THIRTEEN THIRTEEN FORTY WEEKS
WEEKS ENDED WEEKS ENDED WEEKS ENDED ENDED
JULY 4, JUNE 28, JULY 4, JUNE 28,
1998 1997 1998 1997
----------- ----------- ----------- -----------
(UNAUDITED)
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<S> <C> <C> <C> <C>
Net sales...................................... $69,823 $44,249 $152,290 $115,608
Cost of goods sold............................. 51,874 33,737 114,570 88,327
------- ------- -------- --------
Gross profit................................. 17,949 10,512 37,720 27,281
Selling, general and administrative expenses... 10,776 5,272 22,136 14,859
------- ------- -------- --------
Operating income............................. 7,173 5,240 15,584 12,422
Other expense:
Interest..................................... 1,435 819 2,238 2,263
Bridge loan funding fee...................... 500 -- 500 --
Other, net................................... 288 199 667 474
------- ------- -------- --------
2,223 1,018 3,405 2,737
------- ------- -------- --------
Income before income taxes..................... 4,950 4,222 12,179 9,685
Provision for income taxes..................... 1,860 1,547 4,531 3,518
------- ------- -------- --------
Net income................................... $ 3,090 $ 2,675 $ 7,648 $ 6,167
======= ======= ======== ========
Net income per common share
Basic..................................... $ 0.41 $ 0.45 $ 1.02 $ 1.03
======= ======= ======== ========
Diluted................................... $ 0.40 $ 0.44 $ 1.02 $ 1.03
======= ======= ======== ========
</TABLE>
See accompanying notes.
F-3
<PAGE> 119
TROPICAL SPORTSWEAR INT'L CORPORATION
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
FORTY THIRTY-NINE
WEEKS ENDED WEEKS ENDED
JULY 4, JUNE 28,
1998 1997
----------- -----------
(UNAUDITED)
(IN THOUSANDS)
<S> <C> <C>
OPERATING ACTIVITIES
Net income.................................................. $ 7,648 $ 6,167
Adjustments to reconcile net income to net cash used by
operating activities:
Depreciation and amortization............................. 2,314 1,541
Other, net................................................ (583) 533
Changes in operating assets and liabilities:
Accounts receivable.................................... (12,818) (8,428)
Inventories............................................ (678) 3,736
Accounts payable....................................... (1,327) (3,780)
Accrued incentive compensation......................... (429) (513)
Other, net............................................. (4,942) 1,570
--------- -------
Net cash used by operating activities............. (10,815) 826
INVESTING ACTIVITIES
Capital expenditures........................................ (3,766) (4,407)
Acquisition of Farah, Inc., net of cash acquired............ (84,179) --
Other, net.................................................. 121 9
--------- -------
Net cash used by investing activities............. (87,824) (4,398)
FINANCING ACTIVITIES
Proceeds of long-term debt.................................. 100,108 4,246
Proceeds from sale of common stock.......................... 17,286 --
Retirement of preferred stock............................... (3,863) --
Principal payments of long-term debt........................ (56,094) (2,860)
Net change in capital leases................................ (378) (341)
Net change in long-term revolving credit line borrowings.... 51,442 2,768
Payment of debt issuance costs.............................. (5,127) --
--------- -------
Net cash provided by financing activities......... 103,374 3,813
--------- -------
Net increase in cash........................................ 4,735 241
Cash at beginning of period................................. 116 261
--------- -------
Cash at end of period....................................... $ 4,851 $ 502
========= =======
</TABLE>
See accompanying notes.
F-4
<PAGE> 120
TROPICAL SPORTSWEAR INT'L CORPORATION
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
JULY 4, 1998
(IN THOUSANDS, EXCEPT SHARE AND PER SHARE AMOUNTS)
1. BASIS OF PRESENTATION
The accompanying unaudited condensed consolidated financial statements of
Tropical Sportswear Int'l Corporation (the "Company") include the accounts of
Tropical Sportswear Int'l Corporation and its subsidiaries, including Savane
International Corp. (formerly known as Farah Incorporated and referred to herein
as "Savane") which was acquired on June 9, 1998. These financial statements have
been prepared in accordance with the instructions for Form 10-Q and, therefore,
do not include all information and footnotes required by generally accepted
accounting principles for complete financial statements. The unaudited condensed
consolidated financial statements should be read in conjunction with the audited
financial statements and related notes included in the Company's Annual Report
on Form 10-K for the year ended September 27, 1997. In the opinion of
management, the unaudited condensed consolidated financial statements contain
all necessary adjustments (which include only normal, recurring adjustments) for
a fair presentation for the interim periods presented. Operating results for the
forty weeks ended July 4, 1998 are not necessarily indicative of results that
may be expected for the entire fiscal year ending October 3, 1998.
In 1997, the Financial Accounting Standards Board issued Statement of
Financial Accounting Standards Number 128, Earnings per Share. Statement 128
replaced the previously reported primary and fully diluted earnings per share
with basic and diluted earnings per share. Unlike primary earnings per share,
basic earnings per share excludes dilutive effects of options, warrants, and
convertible securities. Diluted earnings per share is very similar to the
previously reported fully diluted earnings per share. All earnings per share
amounts for all periods have been presented to conform to the Statement 128
requirements.
2. INVENTORIES
Inventories consist of the following:
<TABLE>
<CAPTION>
JULY 4, SEPTEMBER 27,
1998 1997
-------- -------------
<S> <C> <C>
Raw materials............................................... $ 12,379 $ 2,255
Work in process............................................. 18,977 5,617
Finished goods.............................................. 54,693 13,479
-------- -------
$ 86,049 $21,351
======== =======
</TABLE>
3. DEBT AND CAPITAL LEASES
Long-term debt and capital leases consists of the following:
<TABLE>
<CAPTION>
JULY 4, SEPTEMBER 27,
1998 1997
-------- -------------
<S> <C> <C>
Revolving credit line....................................... $ 63,578 $12,135
Equipment loan facility..................................... -- 2,354
Real estate loan............................................ 9,583 9,754
Senior Subordinated Notes................................... 100,000 --
Capital leases.............................................. 8,151 1,147
Other....................................................... 2,058 --
-------- -------
183,370 25,390
Less current maturities..................................... 3,714 1,335
-------- -------
$179,656 $24,055
======== =======
</TABLE>
F-5
<PAGE> 121
TROPICAL SPORTSWEAR INT'L CORPORATION
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
On June 10, 1998, the Company closed on a new senior credit facility (the
Facility) which provides for borrowings of up to $110 million, subject to
certain borrowing base limitations. The Facility was obtained in conjunction
with the Company's acquisition of Savane (See Note 6) and was used to refinance
indebtedness then outstanding under the Company's previous senior credit
facility, to refinance indebtedness of Savane, to pay fees incurred in
connection with the acquisition of Savane and with the Facility, and for general
corporate purposes. Borrowings under the Facility bear variable rates of
interest (9.2% at July 4, 1998) and are secured by substantially all of the
Company's domestic assets. The Facility matures in June 2003. Debt issue costs
of $1,358 were incurred to date in connection with the Facility and are included
in other assets. These costs will be amortized to expense over the life of the
Facility using the effective interest method. As of July 4, 1998, an additional
$27,851 was available for borrowings under the Facility.
On June 10, 1998, the Company closed on a $100 million interim financing
facility (the Bridge Facility). The net proceeds from the Bridge Facility were
used to acquire Savane and pay related fees and expenses. The Bridge Facility
was repaid on June 24, 1998 as described below. A funding fee of $500 was
incurred and amortized to expense over the 14 day life of the loan.
On June 24, 1998, the Company closed on the sale of $100 million of Senior
Subordinated Notes (The Notes) through a private placement. Under the terms of
the indenture agreement underlying the Notes, the Company will pay semi-annual
interest at the rate of 11% for ten years, at which time the entire principal
amount is due. The net proceeds from the Notes were used to repay a portion of
the borrowings outstanding under the Bridge Facility. Debt issue costs of $3,769
were incurred to date and are included in other assets. These costs will be
amortized to expense over the life of the Notes using the effective interest
method.
4. SHAREHOLDERS' EQUITY
The Company completed an initial public offering (the "Offering") on
October 28, 1997. The Company sold 1,600,000 shares of its Common Stock at
$12.00 per share and received net proceeds of $17,286 after deducting
underwriters' discounts and offering expenses. Proceeds from the Offering were
used to retire existing Preferred Stock, reduce amounts outstanding under the
Company's revolving credit facility and for other working capital purposes.
5. EARNINGS PER SHARE
The following table sets forth the computation of basic and diluted
earnings per share:
<TABLE>
<CAPTION>
THIRTEEN THIRTEEN FORTY THIRTY-NINE
WEEKS ENDED WEEKS ENDED WEEKS ENDED WEEKS ENDED
JULY 4, JUNE 28, JULY 4, JUNE 28,
1998 1997 1998 1997
----------- ----------- ----------- -----------
<S> <C> <C> <C> <C>
Numerator for basic and diluted
earnings per share:
Net income.......................... $3,090 $2,675 $7,648 $6,167
====== ====== ====== ======
Denominator for basic earnings per
share:
Weighted average shares of common
stock outstanding................ 7,600 6,000 7,465 6,000
Effect of dilutive stock options
using the treasury stock
method........................... 135 15 52 15
------ ------ ------ ------
Denominator for diluted earnings per
share............................... 7,735 6,015 7,517 6,015
====== ====== ====== ======
Earnings per share -- basic........... $ 0.41 $ 0.45 $ 1.02 $ 1.03
====== ====== ====== ======
Earnings per share -- diluted......... $ 0.40 $ 0.44 $ 1.02 $ 1.03
====== ====== ====== ======
</TABLE>
F-6
<PAGE> 122
TROPICAL SPORTSWEAR INT'L CORPORATION
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
6. ACQUISITION OF SAVANE INTERNATIONAL
On June 10, 1998, the Company closed on the acquisition of Savane. Total
purchase price, including amounts paid for common stock acquired, amounts paid
for the value of outstanding stock options, and fees and expenses amounted to
$98,514. Of the total purchase price, $4,873 remains unpaid and represents
amounts due to Savane shareholders who did not submit their shares during the
tender process. The $4,873 will be paid as these shareholders submit their
common stock through a forced merger process.
The acquisition has been accounted for using the purchase method of
accounting. The preliminary fair value of identifiable net assets acquired is
$56,518. Additional appraisals are being obtained and further analysis is
currently being performed which could cause the $56,518 to be adjusted. The
preliminary excess of $41,996 will be allocated to the value of the Savane(R)
and Farah(R) trademarks with the remainder, if any, being allocated to goodwill.
The value of the trademarks and goodwill will be amortized over their estimated
useful lives of 30 years.
The Notes are jointly and severally guaranteed by Tropical's domestic
subsidiaries. The wholly-owned foreign subsidiaries are not guarantors with
respect to the Notes and do not have any credit arrangements senior to the Notes
except for their local overdraft facility and capital lease obligations.
The unaudited pro forma results presented below include the effects of the
acquisition as if it had been consummated at the beginning of the year prior to
acquisition. The unaudited pro forma financial information below is not
necessarily indicative of either future results of operations or results that
might have been achieved had the acquisitions been consummated at the beginning
of the year prior to acquisition.
<TABLE>
<CAPTION>
FORTY WEEKS THIRTY-NINE
ENDED WEEKS ENDED
JULY 4, JUNE 28,
1998 1997
----------- -----------
<S> <C> <C>
Net sales................................................... $335,598 $324,374
Net income (loss)........................................... (3,666) 1,198
Earnings (loss) per share................................... (0.49) 0.20
</TABLE>
7. SUPPLEMENTAL COMBINED FINANCIAL STATEMENTS
The following is the supplemental combining condensed balance sheet as of
July 4, 1998 and the supplemental combining condensed statement of operations
for the thirteen week periods ended July 4, 1998 and June 28, 1997 and the forty
and thirty-nine weeks ended July 4, 1998 and June 28, 1997, respectively, and
the statement of cash flows for the forty and thirty-nine weeks ended July 4,
1998 and June 28, 1997, respectively. The only intercompany eliminations are the
normal intercompany sales, borrowings and investments in wholly-owned
subsidiaries. Separate complete financial statements of the guarantor
subsidiaries are not presented because management has determined that they are
not material to investors.
BALANCE SHEET
<TABLE>
<CAPTION>
NON-
PARENT GUARANTOR GUARANTOR
COMPANY SUBSIDIARIES SUBSIDIARIES ELIMINATIONS CONSOLIDATED
-------- ------------ ------------ ------------ ------------
<S> <C> <C> <C> <C> <C>
ASSETS
Current assets:
Cash.................................... $ 440 $ 1,143 $ 3,268 $ -- $ 4,851
Accounts receivable, net................ 37,343 27,979 6,318 (406) 71,234
Inventories............................. 23,963 50,159 11,927 -- 86,049
Other current assets.................... 61,369 19,813 740 (59,499) 22,423
-------- -------- ------- --------- ------------
Total current assets............. 123,115 99,094 22,253 (59,905) 184,557
Property, plant and equipment, net........ 21,641 28,463 9,158 -- 59,262
Investment in subsidiaries and other
assets.................................. 121,905 98,016 (6,824) (158,746) 54,351
-------- -------- ------- --------- ------------
Total assets..................... $266,661 $225,573 $24,587 $(218,651) $ 298,170
======== ======== ======= ========= ============
</TABLE>
F-7
<PAGE> 123
TROPICAL SPORTSWEAR INT'L CORPORATION
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
<TABLE>
<CAPTION>
NON-
PARENT GUARANTOR GUARANTOR
COMPANY SUBSIDIARIES SUBSIDIARIES ELIMINATIONS CONSOLIDATED
-------- ------------ ------------ ------------ ------------
<S> <C> <C> <C> <C> <C>
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Current portion of long-term debt and
capital leases........................ $ 652 $ 2,751 $ 311 $ -- $ 3,714
Accounts payable and accrued
liabilities........................... 25,656 30,746 9,418 (429) 65,391
-------- -------- ------- --------- ------------
Total current liabilities........ 26,308 33,497 9,729 (429) 69,105
Long-term debt and noncurrent portion of
capital leases.......................... 173,254 9,831 2,919 (6,348) 179,656
Other noncurrent liabilities.............. 19,377 60,627 106 (78,423) 1,687
Stockholders' equity...................... 47,722 121,618 11,833 (133,451) 47,722
-------- -------- ------- --------- ------------
Total liabilities and
stockholders' equity.......... $266,661 $225,573 $24,587 $(218,651) $ 298,170
======== ======== ======= ========= ============
</TABLE>
STATEMENTS OF OPERATIONS
<TABLE>
<CAPTION>
THIRTEEN WEEKS ENDED JULY 4, 1998
--------------------------------------------------------------------
NON-
PARENT GUARANTOR GUARANTOR
COMPANY SUBSIDIARIES SUBSIDIARIES ELIMINATIONS CONSOLIDATED
-------- ------------ ------------ ------------ ------------
<S> <C> <C> <C> <C> <C>
Net sales................................. $ 51,108 $16,577 $3,077 $ (939) $ 69,823
Gross profit.............................. 13,235 4,096 618 -- 17,949
Operating income (loss)................... 6,980 301 (108) -- 7,173
Interest, income taxes and other, net..... 3,247 944 (50) (58) 4,083
Net income (loss)......................... 3,733 (643) (58) 58 3,090
</TABLE>
<TABLE>
<CAPTION>
THIRTEEN WEEKS ENDED JUNE 28, 1997
--------------------------------------------------------------------
NON-
PARENT GUARANTOR GUARANTOR
COMPANY SUBSIDIARIES SUBSIDIARIES ELIMINATIONS CONSOLIDATED
-------- ------------ ------------ ------------ ------------
<S> <C> <C> <C> <C> <C>
Net sales................................. $ 44,270 $ 90 $ -- $ (111) $ 44,249
Gross profit.............................. 10,586 37 -- (111) 10,512
Operating income (loss)................... 5,228 12 -- -- 5,240
Interest, income taxes and other, net..... 2,560 5 -- -- 2,565
Net income (loss)......................... 2,668 7 -- -- 2,675
</TABLE>
<TABLE>
<CAPTION>
FORTY WEEKS ENDED JULY 4, 1998
--------------------------------------------------------------------
NON-
PARENT GUARANTOR GUARANTOR
COMPANY SUBSIDIARIES SUBSIDIARIES ELIMINATIONS CONSOLIDATED
-------- ------------ ------------ ------------ ------------
<S> <C> <C> <C> <C> <C>
Net sales................................. $133,416 $16,860 $3,077 $(1,063) $152,290
Gross profit.............................. 32,937 4,166 617 -- 37,720
Operating income (loss)................... 15,385 308 (109) -- 15,584
Interest, income taxes and other, net..... 7,552 493 (51) (58) 7,936
Net income (loss)......................... 7,833 (185) (58) 58 7,648
</TABLE>
<TABLE>
<CAPTION>
THIRTY-NINE WEEKS ENDED JUNE 28, 1997
--------------------------------------------------------------------
NON-
PARENT GUARANTOR GUARANTOR
COMPANY SUBSIDIARIES SUBSIDIARIES ELIMINATIONS CONSOLIDATED
-------- ------------ ------------ ------------ ------------
<S> <C> <C> <C> <C> <C>
Net sales................................. $155,504 $ 228 $ -- $ (124) $115,608
Gross profit.............................. 27,328 77 -- (124) 27,281
Operating income (loss)................... 12,419 3 -- -- 12,422
Interest, income taxes and other, net..... 6,253 2 -- -- 6,255
Net income (loss)......................... 6,166 1 -- -- 6,167
</TABLE>
F-8
<PAGE> 124
TROPICAL SPORTSWEAR INT'L CORPORATION
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
FORTY WEEKS ENDED JULY 4, 1998
--------------------------------------------------------------------
NON-
PARENT GUARANTOR GUARANTOR
COMPANY SUBSIDIARIES SUBSIDIARIES ELIMINATIONS CONSOLIDATED
-------- ------------ ------------ ------------ ------------
<S> <C> <C> <C> <C> <C>
Net cash used by operating activities... $ (1,098) $(8,818) $ (957) $ 58 $(10,815)
Net cash used by investing activities... (97,018) 5,673 3,372 149 (87,824)
Net cash provided by financing
activities............................ 98,446 4,282 853 (207) 103,374
Net increase in cash.................... 330 1,137 3,268 -- 4,735
Cash, beginning of period............... 110 6 -- -- 116
Cash, end of period..................... 440 1,143 3,268 -- 4,851
</TABLE>
<TABLE>
<CAPTION>
THIRTY-NINE WEEKS ENDED JUNE 28, 1997
--------------------------------------------------------------------
NON-
PARENT GUARANTOR GUARANTOR
COMPANY SUBSIDIARIES SUBSIDIARIES ELIMINATIONS CONSOLIDATED
-------- ------------ ------------ ------------ ------------
<S> <C> <C> <C> <C> <C>
Net cash provided by operating
activities............................ $ 871 $ (45) $ -- $ -- $ 826
Net cash used by investing activities... (4,396) (2) -- -- (4,398)
Net cash provided by financing
activities............................ 3,813 -- -- -- 3,813
Net increase in cash.................... 288 (47) -- -- 241
Cash, beginning of period............... 209 52 -- -- 261
Cash, end of period..................... 497 5 -- -- 502
</TABLE>
F-9
<PAGE> 125
REPORT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS
The Board of Directors
Tropical Sportswear Int'l Corporation
We have audited the accompanying consolidated balance sheets of Tropical
Sportswear Int'l Corporation as of September 27, 1997 and September 28, 1996,
and the related consolidated statements of income, shareholders' equity, and
cash flows for each of the three years in the period ended September 27, 1997.
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
Tropical Sportswear Int'l Corporation at September 27, 1997 and September 28,
1996, and the consolidated results of its operations and its cash flows for each
of the three years in the period ended September 27, 1997, in conformity with
generally accepted accounting principles.
ERNST & YOUNG LLP
Tampa, Florida
November 5, 1997, except for Note 15,
as to which the date is May 1, 1998
F-10
<PAGE> 126
TROPICAL SPORTSWEAR INT'L CORPORATION
CONSOLIDATED BALANCE SHEETS
<TABLE>
<CAPTION>
SEPTEMBER 27, SEPTEMBER 28,
1997 1996
------------- -------------
(IN THOUSANDS, EXCEPT SHARE
AND PER SHARE AMOUNTS)
<S> <C> <C>
ASSETS
Current assets:
Cash...................................................... $ 116 $ 261
Accounts receivable....................................... 24,981 20,197
Inventories............................................... 21,351 23,282
Deferred income taxes..................................... 1,495 1,816
Prepaid income taxes...................................... -- 269
Prepaid expenses.......................................... 812 163
------- -------
Total current assets.............................. 48,755 45,988
Property and equipment...................................... 25,245 20,145
Less accumulated depreciation and amortization.............. 4,962 3,475
------- -------
20,283 16,670
Other assets................................................ 227 350
Excess of cost over fair value of net assets of acquired
subsidiary less accumulated amortization of $82 at
September 27, 1997 and $68 at September 28, 1996.......... 393 407
------- -------
Total assets...................................... $69,658 $63,415
======= =======
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities:
Accounts payable.......................................... $12,828 $13,949
Accrued expenses.......................................... 2,322 1,581
Accrued incentive compensation............................ 1,934 2,365
Income taxes payable...................................... 102 --
Current installments of long-term debt.................... 801 2,155
Current installments of obligations under capital leases.. 534 455
------- -------
Total current liabilities......................... 18,521 20,505
Long-term debt.............................................. 23,442 23,676
Obligations under capital leases............................ 613 486
Deferred income taxes....................................... 431 366
Commitments and contingencies
Shareholders' equity:
Preferred stock, $100 par value; 10,000,000 shares
authorized; 38,630 shares issued and outstanding....... 3,863 3,863
Common stock, $.01 par value; 50,000,000 shares
authorized; 6,000,000 shares issued and outstanding.... 60 60
Retained earnings......................................... 22,728 14,459
------- -------
Total shareholders' equity........................ 26,651 18,382
------- -------
Total liabilities and shareholders' equity........ $69,658 $63,415
======= =======
</TABLE>
See accompanying notes.
F-11
<PAGE> 127
TROPICAL SPORTSWEAR INT'L CORPORATION
CONSOLIDATED STATEMENTS OF INCOME
<TABLE>
<CAPTION>
YEAR ENDED
---------------------------------------------
SEPTEMBER 27, SEPTEMBER 28, SEPTEMBER 30,
1997 1996 1995
------------- ------------- -------------
(IN THOUSANDS, EXCEPT SHARE
AND PER SHARE AMOUNTS)
<S> <C> <C> <C>
Net sales............................................... $151,692 $117,355 $110,064
Cost of goods sold...................................... 115,637 91,132 87,858
-------- -------- --------
Gross profit............................................ 36,055 26,223 22,206
Selling, general and administrative expenses............ 19,443 15,189 15,060
-------- -------- --------
Operating income........................................ 16,612 11,034 7,146
Other expense:
Interest.............................................. 2,899 2,498 3,160
Factoring............................................. 505 373 708
Other, net............................................ 32 247 293
-------- -------- --------
3,436 3,118 4,161
-------- -------- --------
Income before income taxes.............................. 13,176 7,916 2,985
Provision for income taxes.............................. 4,907 2,745 825
-------- -------- --------
Net income.............................................. $ 8,269 $ 5,171 $ 2,160
======== ======== ========
Net income per common share, basic and diluted.......... $ 1.37 $ 0.86 $ 0.36
======== ======== ========
</TABLE>
See accompanying notes.
F-12
<PAGE> 128
TROPICAL SPORTSWEAR INT'L CORPORATION
CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY
<TABLE>
<CAPTION>
PREFERRED STOCK COMMON STOCK
--------------- --------------- RETAINED
SHARES AMOUNT SHARES AMOUNT EARNINGS TOTAL
------ ------ ------ ------ -------- -------
(IN THOUSANDS)
<S> <C> <C> <C> <C> <C> <C>
Balance at October 1, 1994..................... 39 $3,863 6,000 $60 $ 7,128 $11,051
Net income................................... -- -- -- -- 2,160 2,160
-- ------ ----- --- ------- -------
Balance at September 30, 1995.................. 39 3,863 6,000 60 9,288 13,211
Net income................................... -- -- -- -- 5,171 5,171
-- ------ ----- --- ------- -------
Balance at September 28, 1996.................. 39 3,863 6,000 60 14,459 18,382
Net income................................... -- -- -- -- 8,269 8,269
-- ------ ----- --- ------- -------
Balance at September 27, 1997.................. 39 $3,863 6,000 $60 $22,728 $26,651
== ====== ===== === ======= =======
</TABLE>
See accompanying notes.
F-13
<PAGE> 129
TROPICAL SPORTSWEAR INT'L CORPORATION
CONSOLIDATED STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
YEAR ENDED
---------------------------------------------
SEPTEMBER 27, SEPTEMBER 28, SEPTEMBER 30,
1997 1996 1995
------------- ------------- -------------
(IN THOUSANDS)
<S> <C> <C> <C>
OPERATING ACTIVITIES
Net income.............................................. $ 8,269 $ 5,171 $ 2,160
Adjustments to reconcile net income to net cash provided
(used) by operating activities:
(Gain) loss on disposal of property and equipment..... (6) 152 215
Depreciation and amortization......................... 2,121 1,431 1,226
Provision for doubtful accounts....................... 331 -- --
Deferred income taxes................................. 386 (204) 327
Changes in operating assets and liabilities:
(Increase) decrease in assets:
Accounts receivable................................ (5,115) 704 (3,396)
Inventories........................................ 1,931 (848) 1,060
Prepaid income taxes............................... 269 898 (1,167)
Prepaid expenses and other assets.................. (526) (119) 94
Increase (decrease) in liabilities:
Accounts payable................................... (1,121) 3,863 (4,476)
Accrued expenses................................... 741 (73) 689
Accrued incentive compensation..................... (431) 1,576 (758)
Income taxes payable............................... 102 -- (732)
------- -------- -------
Net cash provided (used) by operating activities........ 6,951 12,551 (4,758)
INVESTING ACTIVITIES
Capital expenditures.................................... (5,162) (10,119) (1,467)
Proceeds from sale of property and equipment............ 78 234 39
------- -------- -------
Net cash used by investing activities................... (5,084) (9,885) (1,428)
FINANCING ACTIVITIES
Proceeds of long-term debt.............................. 4,676 7,330 803
Principal payments of long-term debt.................... (3,253) (1,628) (1,750)
Principal payments of capital leases.................... (424) (500) (540)
Net proceeds from (repayment of) long-term revolving
credit line borrowings................................ (3,011) (7,675) 7,333
------- -------- -------
Net cash provided (used) by financing activities........ (2,012) (2,473) 5,846
------- -------- -------
Net increase (decrease) in cash......................... (145) 193 (340)
Cash at beginning of year............................... 261 68 408
------- -------- -------
Cash at end of year..................................... $ 116 $ 261 $ 68
======= ======== =======
</TABLE>
See accompanying notes.
F-14
<PAGE> 130
TROPICAL SPORTSWEAR INT'L CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
THREE YEARS ENDED SEPTEMBER 27, 1997
(IN THOUSANDS)
1. ORGANIZATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
PRINCIPLES OF CONSOLIDATION
The consolidated financial statements include the accounts of Tropical
Sportswear Int'l Corporation (the Company) and its wholly-owned subsidiary,
Apparel Network Corporation. All significant intercompany balances and
transactions have been eliminated in consolidation.
NATURE OF OPERATIONS
The Company's principal line of business is the marketing, design,
manufacture and distribution of men's casual pants and shorts. The principal
markets for the Company include major retailers within the United States. The
Company subcontracts the assembly of substantially all of its products with
independent manufacturers in the Dominican Republic and Mexico and, at any point
in time, a majority of the Company's work-in-process inventory is located in
those countries.
ACCOUNTING PERIOD
The Company operates on a 52/53 week annual accounting period ending on the
Saturday nearest September 30th. Each of the years ended September 27, 1997,
September 28, 1996, and September 30, 1995 contains 52 weeks.
NET INCOME PER SHARE
In February 1997, the Financial Accounting Standards Board issued Statement
of Financial Accounting Standards No. 128, Earnings Per Share (Statement 128).
The overall objective of Statement 128 is to simplify the calculation of
earnings per share (EPS) and achieve comparability with the recently issued
International Accounting Standard No. 33, Earnings Per Share. Statement 128 is
effective for both interim and annual financial statements for periods ending
after December 15, 1997. The new standard has been applied in the accompanying
financial statements with no material impact on the Company's EPS for the
periods presented herein.
Basic and diluted earnings per share has been calculated based on the
weighted average number of shares outstanding for all periods presented (6,000
shares); the number of shares used in the diluted calculation does not
materially differ from the amount used in the basic calculation.
REVENUE RECOGNITION
Based on its terms of F.O.B. shipping point, the Company records sales upon
the shipment of finished product to the customer.
INVENTORIES
Inventories are stated at the lower of cost or market. Cost is determined
using the first-in, first-out method. The Company records provisions for
markdowns and losses on excess and slow-moving inventory to the extent the cost
of inventory exceeds estimated net realizable value.
PROPERTY AND EQUIPMENT
Property and equipment are stated at cost. The Company primarily uses
straight-line depreciation methods over periods that approximate the assets'
estimated useful lives.
F-15
<PAGE> 131
TROPICAL SPORTSWEAR INT'L CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
EXCESS OF COST OVER FAIR VALUE OF NET ASSETS OF ACQUIRED SUBSIDIARY
The excess of cost over fair value of net assets of the acquired subsidiary
is amortized on the straight-line basis over a period of 40 years.
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 amount of assets and liabilities and
disclosure of contingent assets and liabilities at the date of the financial
statements and the reported amount of revenues and expenses during the reporting
period. Actual results could differ from the estimates.
FINANCIAL INSTRUMENTS
The Company's financial instruments include cash, accounts receivable,
accounts payable, long-term debt and obligations under capital leases. The
carrying amounts of these financial instruments approximate their fair values.
STATEMENT OF CASH FLOWS
Supplemental cash flow information:
<TABLE>
<CAPTION>
YEAR ENDED
---------------------------------------------
SEPTEMBER 27, SEPTEMBER 28, SEPTEMBER 30,
1997 1996 1995
------------- ------------- -------------
<S> <C> <C> <C>
Cash paid for:
Interest...................................... $2,937 $2,439 $3,160
Income taxes.................................. 4,150 2,051 2,373
</TABLE>
Supplemental disclosure of non-cash investing and financing activities:
Capital lease obligations of $630 and $349 were incurred when the Company
entered into leases for new equipment in the years ended September 27, 1997 and
September 30, 1995 respectively.
IMPAIRMENT OF LONG-LIVED ASSETS
In March 1995, the Financial Accounting Standards Board issued SFAS No.
121, Accounting for the Impairment of Long-Lived Assets and for Long-Lived
Assets to be Disposed Of (SFAS 121). This standard requires impairment losses to
be recorded on long-lived assets used in operations when impairment indicators
are present and the undiscounted cash flows estimated to be generated by those
assets are less than the assets' carrying amount. The Company adopted the
provisions of SFAS 121 during fiscal 1996 with no impact on the financial
statements.
2. ACCOUNTS RECEIVABLE
Accounts receivable consist of the following:
<TABLE>
<CAPTION>
SEPTEMBER 27, SEPTEMBER 28,
1997 1996
------------- -------------
<S> <C> <C>
Receivable from factor...................................... $24,631 $19,627
Receivable from trade accounts.............................. 997 1,094
Reserve for returns and allowances and bad debts............ (647) (524)
------- -------
$24,981 $20,197
======= =======
</TABLE>
F-16
<PAGE> 132
TROPICAL SPORTSWEAR INT'L CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
On October 1, 1995, the Company entered into a factoring agreement whereby
substantially all of the Company's trade receivables are assigned on an ongoing
basis, without recourse, except for credit losses on the first .15% of amounts
factored. The factoring agreement is with a national company which, in
management's opinion, is highly creditworthy. The purchase price of each
receivable is the net face amount, less a factoring discount of .30%. Prior to
October 1, 1995, the Company factored its trade receivables without recourse and
under this agreement, the purchase price of each receivable was the net face
amount less a factoring discount of .65%.
3. INVENTORIES
Inventories consist of the following:
<TABLE>
<CAPTION>
SEPTEMBER 27, SEPTEMBER 28,
1997 1996
------------- -------------
<S> <C> <C>
Raw materials............................................... $ 2,255 $ 2,399
Work in process............................................. 5,617 5,946
Finished goods.............................................. 13,479 14,937
------- -------
$21,351 $23,282
======= =======
</TABLE>
The Company has made provisions for inventory loss of approximately $2,200,
$2,200 and $1,780 at September 27, 1997, September 28, 1996 and September 30,
1995, respectively, to reflect a write down of excess and slow-moving inventory
to net realizable value.
4. PROPERTY AND EQUIPMENT
Property and equipment consist of the following:
<TABLE>
<CAPTION>
SEPTEMBER 27, SEPTEMBER 28, LIFE
1997 1996 (YEARS)
------------- ------------- -------
<S> <C> <C> <C>
Land................................................ $ 3,976 $ 3,976 --
Land improvements................................... 1,581 6 15
Buildings and improvements.......................... 9,317 6,243 39.5
Machinery and equipment............................. 10,313 7,824 3-7
Leasehold improvements.............................. 58 64 15-39.5
Construction in progress............................ -- 2,032 --
------- -------
$25,245 $20,145
======= =======
</TABLE>
During the years ended September 27, 1997 and September 28, 1996, the
Company capitalized $72 and $71 of interest expense, respectively.
F-17
<PAGE> 133
TROPICAL SPORTSWEAR INT'L CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
5. DEBT
Long-term debt consists of the following:
<TABLE>
<CAPTION>
SEPTEMBER 27, SEPTEMBER 28,
1997 1996
------------- -------------
<S> <C> <C>
Note payable to former owners............................... $ -- $ 1,827
Revolving credit line....................................... 12,135 15,147
Equipment loan facility..................................... 2,354 1,557
Term note................................................... -- 1,000
Construction and term loan.................................. 9,754 6,292
Other notes payable......................................... -- 8
------- -------
24,243 25,831
Less current maturities..................................... 801 2,155
------- -------
$23,442 $23,676
======= =======
</TABLE>
The note payable to former owners (the Acquisition Note) was issued on July
8, 1994 in conjunction with the settlement of the final purchase price to be
paid for the Company. The Acquisition Note bears no interest and is, therefore,
recorded at its net present value using a discount rate of 9%. The outstanding
face value amounted to $2,000 as of September 28, 1996. The Acquisition Note was
repaid on January 31, 1997.
On September 28, 1994, the Company entered into a secured revolving credit
and term loan agreement (the Credit Agreement). The Credit Agreement, as
amended, consists of a $40,000 revolving credit line ($5,500 of which can be
utilized for letters of credit), a $3,000 term note and a $5,000 equipment loan
facility. The Credit Agreement expires on October 31, 1998, at which time any
outstanding balances become due. Borrowings under the revolving credit line are
limited to the lesser of $40,000 or qualifying accounts receivable and eligible
inventory. Available borrowings under the revolving credit line were
approximately $17,056 and $7,233 at September 27, 1997 and September 28, 1996,
respectively. The revolving credit line bears interest at a variable rate of
prime or LIBOR plus an applicable margin (8.70% and 8.75% at September 27, 1997
and September 28, 1996, respectively).
The equipment loan facility is payable in monthly installments of $31 and
bears interest at a variable rate of prime or LIBOR plus an applicable margin
(8.46% and 8.41% at September 27, 1997 and September 28, 1996, respectively).
Available borrowings under the equipment loan facility were approximately $1,990
and $3,400 at September 27, 1997 and September 28, 1996, respectively.
The term note is payable in monthly installments of $83 and bears interest
at prime plus an applicable margin (10.25% and 11.0% at September 27, 1997 and
September 28, 1996, respectively). No additional borrowings are available under
the term note.
On May 7, 1996, the Company entered into a construction and term loan
agreement (the Loan Agreement). The Loan Agreement consists of a $9,600
construction loan, which is secured by a mortgage. The construction loan was
utilized to purchase the Company's previously leased operating facility and to
finance the construction of a new adjacent cutting facility. Interest is payable
monthly at prime plus an applicable margin (8.75% at September 28, 1996). On
July 18, 1997, the construction loan was converted to a $9,800 term loan which
will mature on May 7, 2006. Principal and interest at 8.88% are due monthly
based on a 19-year amortization.
F-18
<PAGE> 134
TROPICAL SPORTSWEAR INT'L CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
The Company's debt agreements contain certain covenants, the most
restrictive of which are as follows: (i) maintenance of consolidated net worth
at specified levels, (ii) achievement of specified adjusted net earnings from
operations, (iii) maintenance of debt service coverage ratio at specified
levels, (iv) limitations on annual capital expenditures, (v) limitations on
liens, and (vi) prohibition of the payment of dividends. The Company is in
compliance with all such covenants. The Credit Agreement is secured by
substantially all of the assets of the Company.
The scheduled maturities of long-term debt as of September 27, 1997 are as
follows:
<TABLE>
<CAPTION>
FISCAL YEAR AMOUNT
- ----------- -------
<S> <C>
1998........................................................ $ 801
1999........................................................ 14,105
2000........................................................ 236
2001........................................................ 261
2002........................................................ 286
Thereafter.................................................. 8,554
</TABLE>
6. LEASES
The Company leases administrative facilities and certain equipment under
non-cancelable leases. Future minimum lease payments under operating leases and
the present value of future minimum capital lease payments as of September 27,
1997 are:
<TABLE>
<CAPTION>
OPERATING CAPITAL
FISCAL YEAR LEASES LEASES
- ----------- --------- -------
<S> <C> <C>
1998........................................................ $ 308 $ 601
1999........................................................ 239 375
2000........................................................ 231 132
2001........................................................ 192 132
2002........................................................ 144 66
Thereafter.................................................. 207 --
------ ------
Total minimum lease payments...................... $1,321 1,306
======
Less amount representing interest........................... 159
------
Present value of minimum capital lease payments............. 1,147
Less current installments................................... 534
------
$ 613
======
</TABLE>
The following summarizes the Company's assets under capital leases:
<TABLE>
<CAPTION>
SEPTEMBER 27, SEPTEMBER 28,
1997 1996
------------- -------------
<S> <C> <C>
Machinery and equipment..................................... $2,893 $2,253
Accumulated amortization.................................... 1,588 1,242
</TABLE>
Amortization of assets under capital leases has been included in
depreciation.
Total rental expense for operating leases for the years ended September 27,
1997, September 28, 1996, and September 30, 1995 was approximately $465, $859,
and $982, respectively.
F-19
<PAGE> 135
TROPICAL SPORTSWEAR INT'L CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
7. CLOSURE OF INTERNATIONAL SUBSIDIARY
In September 1995, a decision was made to close the Company's international
subsidiary, Confecciones Siglo, S.A., and, at September 30, 1995, the Company
had accrued $500 for costs associated with the closing. These costs included
employee severance, relocation of certain equipment and estimated losses on
disposals of property and equipment. During fiscal 1996, the assets of the
subsidiary were liquidated.
8. INCOME TAXES
The provision for income taxes consists of the following:
<TABLE>
<CAPTION>
YEAR ENDED
---------------------------------------------
SEPTEMBER 27, SEPTEMBER 28, SEPTEMBER 30,
1997 1996 1995
------------- ------------- -------------
<S> <C> <C> <C>
Current:
Federal....................................... $4,143 $2,713 $375
State......................................... 378 236 123
------ ------ ----
4,521 2,949 498
Deferred expense (benefit):
Federal....................................... 365 (188) 309
State......................................... 21 (16) 18
------ ------ ----
386 (204) 327
------ ------ ----
$4,907 $2,745 $825
====== ====== ====
</TABLE>
Deferred income taxes reflect the net tax effects of temporary differences
between the carrying amounts of assets and liabilities for financial reporting
purposes and the amounts used for income tax purposes.
A reconciliation of the difference between the effective income tax rate
and the statutory federal tax rate follows:
<TABLE>
<CAPTION>
YEAR ENDED
---------------------------------------------
SEPTEMBER 27, SEPTEMBER 28, SEPTEMBER 30,
1997 1996 1995
------------- ------------- -------------
<S> <C> <C> <C>
Income tax expense at federal statutory rate
(34.0%)....................................... $4,480 $2,691 $1,015
State income taxes, net of federal benefit...... 348 144 90
Losses of international subsidiary.............. -- (162) (312)
Amortization of goodwill........................ 4 48 4
Other items..................................... 75 24 28
------ ------ ------
$4,907 $2,745 $ 825
====== ====== ======
</TABLE>
In fiscal 1996 and 1995, as a result of closing the Company's international
subsidiary, the Company recorded tax benefits for losses of the international
subsidiary which were previously not deductible for income tax purposes.
F-20
<PAGE> 136
TROPICAL SPORTSWEAR INT'L CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
Significant components of the Company's deferred tax assets and liabilities
are as follows:
<TABLE>
<CAPTION>
SEPTEMBER 27, SEPTEMBER 28,
1997 1996
------------- -------------
<S> <C> <C>
Deferred tax assets:
Inventory related......................................... $ 962 $1,060
Accounts receivable related............................... 233 185
Various accrued expenses.................................. 351 599
Deferred tax liabilities:
Depreciation.............................................. (431) (366)
Other items............................................... (51) (28)
------ ------
Net deferred tax asset...................................... $1,064 $1,450
====== ======
Classified as follows:
Current asset............................................. $1,495 $1,816
Non-current liability..................................... (431) (366)
------ ------
$1,064 $1,450
====== ======
</TABLE>
9. SIGNIFICANT CUSTOMERS
In fiscal 1997, three customers accounted for approximately 29%, 19% and
11% of sales. In fiscal 1996, three customers accounted for approximately 26%,
17% and 14% of sales. In fiscal 1995, four customers accounted for approximately
18%, 15%, 15% and 14% of sales.
10. COMMITMENTS AND CONTINGENCIES
As of September 27, 1997 and September 28, 1996, the Company had
approximately $1,004 and $4,704, respectively, of outstanding letters of credit
with various expiration dates through January 1998.
On March 21, 1997, Levi Strauss & Co. brought suit against the Company in
U.S. District Court for the Northern District of California. The complaint
alleges, among other things, that the Company's Flyers(TM) trademark and certain
trade dress used in the labeling and packaging of the Company's Flyers(TM) and
Bay to Bay(R) products infringe upon certain of plaintiff's proprietary
trademark and trade dress rights in violation of the federal Lanham Act and
California law. The complaint seeks injunctive relief, as well as treble damages
and attorneys' fees. The Company has also received notice that the plaintiff
intends to seek to amend its complaint to allege that certain trade dress used
in the labeling and packaging of the Company's licensed Bill Blass(R) brand
dress slack also infringes upon certain of the plaintiff's proprietary trade
dress rights. Although the outcome of the litigation cannot be determined at
this time and the Company would consider reasonable settlement opportunities,
the Company currently intends to vigorously defend against such allegations.
Nevertheless, in an attempt to limit the Company's liability, if any, with
respect to such alleged infringement, the Company has unilaterally altered the
trademark and trade dress which are currently the subject of this litigation.
On July 3, 1997, Out-of-Mexico Apparel, Ltd. brought suit against the
Company in California Superior Court for, among other things, breach of
contract, breach of an implied covenant of good faith and fair dealing, and
violation of the California Unfair Business Practices Act. The complaint alleges
that the Company entered into contracts for the manufacture of apparel with
certain manufacturers in contravention of a customer non-disclosure and
non-circumvention agreement between Out-of-Mexico Apparel, Ltd. and the Company.
The complaint seeks compensatory damages and prejudgment interest, punitive
damages and the costs of suit. Although the outcome of the litigation cannot be
determined at this time, the Company intends to vigorously defend against such
allegations.
F-21
<PAGE> 137
TROPICAL SPORTSWEAR INT'L CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
The Company has not recorded any amounts related to the above two matters.
The Company is not involved in any other legal proceedings which the Company
believes could reasonably be expected to have a material adverse effect on the
Company's business, financial position or results of operations.
11. EMPLOYEE BENEFIT PLAN
The Company has established a 401(k) profit sharing plan under which all
employees are eligible to participate. Employee contributions are voluntary and
subject to Internal Revenue Service limitations. The Company matches, based on
annually determined factors, employee contributions provided the employee
completes 1,000 hours of service annually and is employed as of December 31 of
each plan year. For the years ended September 27, 1997, September 28, 1996, and
September 30, 1995, the Company charged to expense $114, $112, and $86,
respectively, related to this plan.
12. STOCK OPTION PLANS
The Board of Directors has adopted two stock option plans, which became
effective on October 28, 1997. The Employee Stock Option Plan (the Employee
Plan) and the Non-Employee Director Stock Option Plan (the Director Plan)
reserve 700,000 shares of common stock for future issuance under the plans. The
per share exercise price of each stock option granted under the plans will be
equal to the quoted fair market value of the stock on the date of grant. Under
the Employee Plan, on October 28, 1997, the effective date of the initial public
offering, the Board granted options to purchase 300,000 shares of common stock
of the Company to key employees. Under the Director Plan, on October 28, 1997,
the Board also granted options to purchase 60,000 shares of common stock of the
Company to non-employee directors.
In December 1996 and January 1997, The Board of Directors granted to key
members of management, non-qualified options to purchase 60,000 shares of common
stock of the Company at an exercise price of $10.50 per share, its estimated
fair value at the date of grant.
All options granted have 10 year terms and vest and become fully
exercisable at the end of three years of continued employment.
The Company has elected to follow Accounting Principles Board Opinion No.
25, "Accounting for Stock Issued to Employees" (APB 25), and related
interpretations in accounting for its employee stock options because, as
discussed below, the alternative fair value accounting provided for under FASB
Statement No. 123 (Statement 123), "Accounting for Stock Based Compensation,"
requires use of option valuation models that were not developed for use in
valuing employee stock options. Under APB 25, because the exercise price of the
Company's employee stock options equals the market price of the underlying stock
on the date of grant, no compensation expense is recognized.
Pro forma information regarding net income and earnings per share is
required by Statement 123, which also requires that the information be
determined as if the Company has accounted for its employee stock options
granted subsequent to December 31, 1994 under the fair value method of that
Statement. The fair value for these options was estimated at the date of grant
using a Black-Scholes option pricing model with the following weighted-average
assumptions for Fiscal 1997: risk-free interest rate of 5.7%; a dividend yield
of 0%; volatility factor of the expected market price of the Company's common
stock of .31; and a weighted-average expected life of the option of 5 years.
F-22
<PAGE> 138
TROPICAL SPORTSWEAR INT'L CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
The Black-Scholes option valuation model was developed for use in
estimating the fair value of traded options which have no vesting restrictions
and are fully transferable. In addition, option valuation models require the
input of highly subjective assumptions including the expected stock price
volatility. Because the Company's employee stock options have characteristics
significantly different from those of traded options, and because changes in the
subjective input assumptions can materially affect the fair value estimate, in
management's opinion, the existing models do not necessarily provide a reliable
single measure of the fair value of its employee stock options.
For purposes of pro forma disclosures, the estimated fair value of the
options is amortized to expense over the options' vesting period. The Company's
pro forma information for fiscal 1997 is (in thousands except for earnings per
share information):
<TABLE>
<S> <C>
Pro forma net income........................................ $8,230
Pro forma earnings per share (basic and diluted)............ $ 1.37
</TABLE>
A summary of the Company's stock option activity, and related information
for the year ended September 27, 1997 follows:
<TABLE>
<CAPTION>
OPTIONS WEIGHTED AVERAGE
(000) EXERCISE PRICE
------- ----------------
<S> <C> <C>
Outstanding -- beginning of year............................ -- n/a
Granted................................................... 60 $10.50
Exercised................................................. -- n/a
Canceled/expired............................................ -- n/a
-----
Outstanding -- end of year.................................. 60 $10.50
=====
Exercisable at end of year................................ -- n/a
Weighted-average fair value of options granted during the
year................................................... $3.95
</TABLE>
The exercise price for options outstanding as of September 27, 1997 was
$10.50. The weighted-average remaining contractual life of those options is 9
years.
13. QUARTERLY RESULTS OF OPERATIONS (UNAUDITED)
The following is a summary of the unaudited quarterly results of operations
for the years ended September 27, 1997 and September 28, 1996:
<TABLE>
<CAPTION>
NET INCOME
NET GROSS NET (LOSS) PER
SALES PROFIT INCOME COMMON SHARE
------- ------- ------ ------------
<S> <C> <C> <C> <C>
Fiscal year ended September 27, 1997
First Quarter................................ $30,727 $ 6,745 $ 919 $ 0.15
Second Quarter............................... 40,632 10,024 2,573 0.43
Third Quarter................................ 44,249 10,512 2,675 0.45
Fourth Quarter............................... 36,084 8,774 2,102 0.35
Fiscal year ended September 28, 1996
First Quarter................................ $20,396 $ 3,141 $ (481) $(0.08)
Second Quarter............................... 32,389 7,491 1,792 0.30
Third Quarter................................ 33,808 7,994 2,216 0.37
Fourth Quarter............................... 30,762 7,597 1,644 0.27
</TABLE>
F-23
<PAGE> 139
TROPICAL SPORTSWEAR INT'L CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
14. SUBSEQUENT EVENTS
An initial public offering (the Offering) of the Company's common stock was
completed on October 28, 1997 in which the company raised approximately $17,300
(net of offering costs). In connection with the Offering, the Board formed a new
corporation, Tropical Sportswear Int'l Corporation (the Company). Outstanding
common and preferred stock of the predecessor company, Apparel International
Group, Inc. (AIG), was exchanged for an equal amount of common and preferred
stock of the Company. Immediately preceding the closing of the Offering, the
subsidiaries of AIG, Tropical Acquisition Corporation and Tropical Sportswear
International Corporation, were merged into the Company.
The preferred stock of AIG had a par value of $100 per share. These shares
were exchanged for a special class of preferred stock which has a $.01 par value
and a $100 per share liquidation preference. These shares were redeemed upon the
closing of the Offering.
Effective October 23, 1997, the Board of Directors approved a change in the
Company's capital stock to authorize 50,000,000 shares of $.01 par value common
stock and 10,000,000 shares of $.01 par value preferred stock. At this time, the
Board also authorized a 6,000-for-1 stock split for holders of its common stock.
The accompanying consolidated financial statements have been restated to reflect
this change in capitalization.
15. RECENT DEVELOPMENT -- MERGER AGREEMENT AND SUPPLEMENTAL CONDENSED FINANCIAL
INFORMATION
Pursuant to a definitive merger agreement dated May 1, 1998, the Company
formed Foxfire Acquisition Corp. to acquire all of the issued and outstanding
stock of Farah Incorporated. The acquisition will be financed through senior
subordinated notes of the Company (the "Notes"). The Notes will be jointly and
severally guaranteed by the Company's two wholly-owned subsidiaries and Farah
Incorporated's domestic subsidiaries.
The Company's wholly-owned subsidiary, Tropical Sportswear Company, Inc.,
formed on September 25, 1997, is a finance subsidiary with all of its assets and
operations resulting from transactions with its parent. Apparel Network
Corporation is a retail subsidiary. Financial information for Apparel Network
Corporation as of September 27, 1997 and September 28, 1996 and for the three
years in the period ended September 27, 1997 is as follows:
<TABLE>
<CAPTION>
SEPTEMBER 27, SEPTEMBER 28,
1997 1996
------------- -------------
<S> <C> <C>
Current assets.............................................. $ 92 $ 98
Non-current assets.......................................... 21 122
Current liabilities......................................... 153 178
Non-current liabilities..................................... -- --
</TABLE>
<TABLE>
<CAPTION>
YEAR ENDED
---------------------------------------------
SEPTEMBER 27, SEPTEMBER 28, SEPTEMBER 30,
1997 1996 1995
------------- ------------- -------------
<S> <C> <C> <C>
Net sales....................................... $324 $192 $ 2
Gross profit.................................... 118 24 --
Income before income taxes...................... 28 (79) (14)
Net income...................................... 17 (48) (9)
</TABLE>
Separate financial statements of the guarantors are not presented because
management has determined they will not be material to investors.
F-24
<PAGE> 140
FARAH INCORPORATED AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS AND RETAINED EARNINGS
QUARTERS AND SIX MONTHS ENDED MAY 3, 1998 AND MAY 4, 1997
<TABLE>
<CAPTION>
QUARTER ENDED SIX MONTHS ENDED
---------------------------- ----------------------------
MAY 3, 1998 MAY 4, 1997 MAY 3, 1998 MAY 4, 1997
------------ ------------ ------------ ------------
(UNAUDITED) (UNAUDITED)
(THOUSANDS OF DOLLARS EXCEPT (THOUSANDS OF DOLLARS EXCEPT
SHARE AND PER SHARE DATA) SHARE AND PER SHARE DATA)
<S> <C> <C> <C> <C>
Net sales................................. $66,130 $70,771 $125,174 $132,709
Cost of sales............................. 50,364 50,883 93,504 95,113
------- ------- -------- --------
Gross profit.............................. 15,766 19,888 31,670 37,596
Selling, general and administrative
expenses................................ (16,261) (16,881) (30,336) (32,882)
Termination of foreign operations......... 1,395 -- (2,585) (2,462)
Relocation expenses....................... (1,904) -- (2,696) --
Production conversion expenses............ -- (577) -- (849)
------- ------- -------- --------
Operating income (loss)................. (1,004) 2,430 (3,947) 1,403
Other income (expense):
Interest expense........................ (1,319) (921) (2,518) (1,628)
Interest income......................... 37 205 67 396
Foreign currency transaction gains...... 208 13 364 124
Other, net.............................. 47 82 (36) 124
------- ------- -------- --------
Income (loss) before income taxes......... (2,031) 1,809 (6,070) 419
Income tax benefit........................ (696) (1,402) (1,665) (837)
------- ------- -------- --------
Net income (loss)............... (1,335) 3,211 (4,405) 1,256
Retained earnings:
Beginning............................... 5,516 6,361 8,586 8,316
------- ------- -------- --------
Ending.................................. $ 4,181 $ 9,572 $ 4,181 $ 9,572
======= ======= ======== ========
Net income (loss) per
share -- basic and diluted.... $ (0.13) $ 0.31 $ (0.43) $ 0.12
======= ======= ======== ========
</TABLE>
See accompanying notes to condensed consolidated financial statements.
F-25
<PAGE> 141
FARAH INCORPORATED AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS
MAY 3, 1998 AND NOVEMBER 2, 1997
<TABLE>
<CAPTION>
MAY 3, NOVEMBER 2,
1998 1997
------------ -----------
(UNAUDITED)
(THOUSANDS OF DOLLARS
EXCEPT SHARE AND
PER SHARE DATA)
<S> <C> <C>
ASSETS
Current assets:
Cash...................................................... $ 3,121 $ 2,332
Trade receivables, net.................................... 35,804 43,053
Inventories:
Raw materials.......................................... 14,398 12,339
Work in process........................................ 17,369 18,457
Finished goods......................................... 42,752 43,996
-------- --------
Total inventories................................. 74,519 74,792
Other current assets...................................... 10,109 10,851
-------- --------
Total current assets.............................. 123,553 131,028
Property, plant and equipment, net.......................... 34,790 36,033
Other non-current assets.................................... 13,438 8,531
-------- --------
$171,781 $175,592
======== ========
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities:
Short-term debt........................................... $ 39,944 $ 35,572
Current installments of long-term debt.................... 5,438 5,301
Trade payables............................................ 20,828 20,600
Other current liabilities................................. 12,110 13,492
-------- --------
Total current liabilities......................... 78,320 74,965
Long-term debt, excluding current installments.............. 13,900 13,771
Other non-current liabilities............................... 1,381 2,957
Deferred gain on sale of building........................... 169 1,185
Shareholders' equity:
Common stock no par value, $.01 stated value, 20,000,000
shares authorized; issued 10,322,632 in 1998 and
10,315,264 in 1997..................................... 46,026 46,026
Additional paid-in capital................................ 30,804 30,627
Cumulative foreign currency translation adjustment........ (2,891) (2,416)
Retained earnings......................................... 4,181 8,586
-------- --------
78,120 82,823
Less: Treasury stock 36,275 shares in 1998 and 1997, at
cost...................................................... 109 109
-------- --------
Total shareholders' equity........................ 78,011 82,714
-------- --------
$171,781 $175,592
======== ========
</TABLE>
See accompanying notes to condensed consolidated financial statements.
F-26
<PAGE> 142
FARAH INCORPORATED AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
SIX MONTHS ENDED MAY 3, 1998 AND MAY 4, 1997
<TABLE>
<CAPTION>
MAY 3, 1998 MAY 4, 1997
----------- -----------
(UNAUDITED)
(THOUSANDS OF DOLLARS)
<S> <C> <C>
CASH FLOWS FROM (USED IN) OPERATING ACTIVITIES:
Net income (loss)........................................... $(4,405) $ 1,256
Adjustments to reconcile net income (loss) to net cash from
(used in) operating activities:
Depreciation and amortization............................. 3,294 2,531
Amortization of deferred gain on building sale............ (1,016) (1,016)
Amortization of deferred gain on subsidiary sale.......... -- (1,322)
Writedown of property, plant and equipment................ 2,856 1,345
Gain on sale of assets.................................... (18) (19)
Deferred income taxes..................................... (1,807) (1,107)
Decrease (increase) in:
Trade receivables......................................... 7,249 3,028
Inventories............................................... 273 (6,942)
Other current assets...................................... 150 (594)
Increase (decrease) in:
Trade payables............................................ 228 1,663
Other current liabilities................................. (1,382) (839)
------- -------
Net cash from (used in) operating activities...... 5,422 (2,016)
------- -------
CASH FLOWS USED IN INVESTING ACTIVITIES:
Purchases of property, plant and equipment.................. (3,699) (5,761)
Proceeds from sales of property, plant and equipment........ 79 19
------- -------
Net cash used in investing activities............. (3,620) (5,742)
------- -------
CASH FLOWS FROM (USED IN) FINANCING ACTIVITIES:
Net increase in short-term debt............................. 4,372 8,402
Repayment of long-term debt................................. (2,979) (853)
Proceeds from sale of common stock.......................... -- 529
Other....................................................... (2,369) (802)
------- -------
Net cash from (used in) financing activities...... (976) 7,276
------- -------
Effect of exchange rate changes on cash..................... (37) (28)
------- -------
Net increase (decrease) in cash........................... 789 (510)
Cash, beginning of period................................. 2,332 3,777
------- -------
Cash, end of period....................................... $ 3,121 $ 3,267
======= =======
Supplemental cash flow disclosures:
Interest paid............................................. 2,499 1,459
Income taxes paid......................................... 159 275
Assets acquired through direct financing loans or capital
leases................................................. 3,245 2,609
</TABLE>
See accompanying notes to condensed consolidated financial statements.
F-27
<PAGE> 143
FARAH INCORPORATED AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
1. The attached condensed consolidated financial statements have been
prepared pursuant to the rules and regulations of the Securities and Exchange
Commission. As a result, certain information and footnote disclosures normally
included in financial statements prepared in accordance with generally accepted
accounting principles have been condensed or omitted. Farah believes that the
disclosures made are adequate to make the information presented not misleading.
These condensed consolidated financial statements should be read in conjunction
with the consolidated financial statements and related notes included in Farah's
1997 Annual Report on form 10-K.
2. The foregoing financial information reflects all adjustments (which
consist only of normal recurring adjustments) which are, in the opinion of
management, necessary to present a fair statement of the financial position and
the results of operations and cash flows for the interim periods. Certain prior
year amounts have been reclassified to conform with the fiscal 1998
presentation.
3. On May 1, 1998, Farah signed a definitive merger agreement with Tropical
Sportswear Int'l Corporation ("Tropical") pursuant to which Tropical offered to
acquire 100% of the outstanding shares of Farah common stock in a tender offer.
Pursuant to the agreement, Tropical paid $9.00 per share for each of the
approximately 10.3 million outstanding shares of Farah common stock. The
transaction was structured as a cash tender offer followed by a cash merger to
acquire any shares not previously tendered. As a result of the transaction,
Farah became a wholly owned subsidiary of Tropical.
4. During the first quarter of fiscal 1998, Farah decided to close its
finishing facility in Cartago, Costa Rica and reduce sewing operations in
Farah's San Jose, Costa Rica facility. Farah recorded a charge of $4.0 million
in the first quarter of fiscal 1998 on the write-down of its Costa Rican assets
to expected realizable value and the accrual of severance payments and other
closing expenses. This amount has been classified as "Termination of foreign
operations" in the Condensed Consolidated Statement of Operations and Retained
Earnings. The reduction of activity in Costa Rica will result in the termination
of approximately 680 production and 20 administrative employees at the two
facilities. Farah expects the reduction in activity and the termination of the
employees to occur prior to the end of fiscal 1998. Farah will hold the Cartago
facility for sale, as well as some of the manufacturing equipment in both
locations. These assets have an estimated fair value of $2.1 million, after a
write-down for impairment, and are included in "Other non-current assets" on
Farah's May 3, 1998 Condensed Consolidated Balance Sheet. Farah is uncertain as
to the timing of the disposal of the Costa Rican assets held for sale. See
subsequent event discussion in footnote 9.
5. Farah completed the move of its inventory to its new distribution center
in March 1998. In moving to the new distribution center, Farah incurred
duplicate operating costs, moving expenses, costs associated with testing and
modification of systems and procedures, and professional fees of $1,904,000 and
$2,696,000 for the quarter and six months ended May 3, 1998 respectively.
F-28
<PAGE> 144
FARAH INCORPORATED AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
6. On January 5, 1997, a fire occurred at Farah's leased garment
manufacturing plant in Galway, Ireland, in which certain inventory and
manufacturing equipment owned by Farah were either destroyed or damaged. As a
result of the fire and its related impact, Farah recorded a charge (after tax
and net of insurance proceeds) of $2.5 million in the first quarter of fiscal
1997. This amount was classified as "Termination of foreign operations" in the
Condensed Consolidated Statement of Operations and Retained Earnings for the six
months ended May 4, 1997. Farah recognized an additional loss of $2.6 million in
the fourth quarter of fiscal 1997 in connection with the sale of its entire
Irish operations. Losses related to the sale were to be paid pursuant to a
long-term supply contract with the purchaser. The contract required quality
production at stipulated levels. In the second quarter of 1998, the contract was
revised, lowering future required production levels. This revision resulted from
failure on the part of the supplier to produce under the terms of the contract.
As a result of this revision, the loss previously recognized in fiscal 1997, was
reduced by $1.4 million in the second quarter of fiscal 1998. This amount was
classified as "Termination of foreign operations" in the Condensed Consolidated
Statement of Operations and Retained Earnings.
7. In February 1997, the Financial Accounting Standards Board issued
Statement of Financial Accounting Standards No. 128 (SFAS 128) "Earnings Per
Share." SFAS 128 superseded APB Opinion No. 15, "Earnings Per Share." SFAS 128
requires dual presentation of basic and diluted earnings per share for entities
with complex capital structures. SFAS 128 is effective for interim and annual
periods ending after December 15, 1997. Farah implemented SFAS 128 in its first
fiscal quarter of 1998. Prior periods have been restated to conform with the
presentation required by SFAS 128. The implementation of this standard did not
have a material impact of Farah's calculation of earnings per share for the
periods presented in fiscal 1997 or 1998.
Basic earnings per share is computed by dividing income available to common
shareholders by the weighted average number of common shares outstanding during
the period. Diluted earnings per share is computed by including the potential
dilutive effect of securities or contracts that are convertible to common stock
such as options and convertible debt.
Basic and diluted earnings per share has been calculated based on the
weighted average number of shares outstanding for all periods presented
(10,284,090 shares, 10,265,762 shares, 10,281,540 and 10,228,432 shares for the
quarters and six months ended May 3, 1998 and May 4, 1997, respectively); the
number of shares used in the diluted calculation does not materially differ from
the amount used in the basic calculation, therefore no reconciliation of the
basic and diluted loss per share calculations is presented.
In June 1997, the Financial Accounting Standards Board issued Statement of
Financial Accounting Standards No. 130 (SFAS 130), "Reporting Comprehensive
Income." This statement establishes standards for the reporting and display of
comprehensive income and its components. This statement will require additional
disclosures and Farah intends to adopt it in fiscal 1999.
In June 1997, the Financial Accounting Standards Board issued Statement of
Financial Accounting Standards No. 131 (SFAS 131), "Disclosures about Segments
of an Enterprise and Related Information." This statement requires that public
business enterprises report certain information about operating segments in
complete sets of financial statements of the enterprise and in condensed
financial statements of interim periods issued to shareholders. It also requires
that public business enterprises report certain information about their product
and services, the geographic areas in which they operate, and their major
customers. Upon adoption of this pronouncement, additional disclosures will be
required by Farah. This statement is effective for fiscal years beginning after
December 15, 1997. Earlier application is encouraged. Farah intends to adopt
this statement for fiscal 1999 year-end disclosures.
F-29
<PAGE> 145
FARAH INCORPORATED AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
In February 1998, the Financial Accounting Standards Board issued Statement
of Financial Accounting Standards No. 132 (SFAS 132), "Employers Disclosure
About Pension and Other Postretirement Benefits." SFAS 132 revises employers
disclosures about pensions and other post-retirement benefit plans. This
statement is effective for fiscal years beginning after December 15, 1997,
although earlier application is encouraged. Farah intends to adopt this
statement in fiscal 1998 year-end disclosures.
8. Subsequent to the merger discussed in Note 3, the Company closed the
remainder of Farah's sewing operations in San Jose, Costa Rica. All employees of
the corporation were severed effective July 9, 1998. The Company is currently
seeking a buyer for the facility that housed such operations. There can be no
assurance that any such disposition will be consummated.
9. Pursuant to the merger discussed in Note 3, Tropical acquired all of the
issued and outstanding capital stock of Farah Incorporated. The Acquisition was
financed through senior subordinated notes of Tropical (the "Notes"). The Notes
are jointly and severally guaranteed by Tropical's and Farah Incorporated's
domestic subsidiaries. The wholly-owned foreign subsidiaries of Farah
Incorporated will not be guarantors with respect to the Notes and are not
anticipated to have any credit arrangements senior to the Notes except for their
local overdraft facility and capital lease obligations. Among other things,
proceeds from the Notes were used to repay amounts outstanding under Farah
Incorporated's Credit Agreement and to redeem the 8.5% convertible subordinated
debentures.
The following are the supplemental combining condensed balance sheets as of
May 3, 1998 and November 2, 1997, the supplemental combining condensed
statements of operations for the quarters and six months ended May 3, 1998 and
May 4, 1997 and the condensed combining statements of cash flows for the six
months ended May 3, 1998 and May 4, 1997. The only intercompany eliminations are
the normal intercompany eliminations with regards to intercompany sales and
Farah Incorporated's investment in wholly-owned subsidiaries. Separate complete
financial statements of the guarantor subsidiaries are not presented because
management has determined that they are not material to investors.
F-30
<PAGE> 146
FARAH INCORPORATED AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
QUARTER ENDED MAY 3, 1998
(UNAUDITED)
<TABLE>
<CAPTION>
GUARANTOR NON-GUARANTOR
PARENT ONLY SUBSIDIARIES SUBSIDIARIES ELIMINATIONS CONSOLIDATED
------------ ------------ -------------- ------------ ------------
(IN THOUSANDS)
<S> <C> <C> <C> <C> <C>
Net sales........................... $ -- $ 55,107 $15,847 $(4,824) $66,130
Cost of sales....................... -- 42,974 12,214 (4,824) 50,364
------- -------- ------- ------- -------
Gross profit...................... -- 12,133 3,633 -- 15,766
Selling, general and administrative
expenses.......................... -- (12,701) (3,560) -- (16,261)
Termination of foreign operations... -- 1,395 -- -- 1,395
Relocation expenses................. -- (1,904) -- -- (1,904)
------- -------- ------- ------- -------
Operating income (loss)........... -- (1,077) 73 -- (1,004)
Interest, net....................... (35) (1,193) (54) -- (1,282)
Other, net.......................... -- (30) 285 -- 255
Equity in losses from subsidiaries.. (1,300) -- -- 1,300 --
------- -------- ------- ------- -------
Income (loss) before income taxes... (1,335) (2,300) 304 1,300 (2,031)
Income tax provision (benefit)...... -- (749) 53 -- (696)
------- -------- ------- ------- -------
Net income (loss)......... $(1,335) $ (1,551) $ 251 $ 1,300 $(1,335)
======= ======== ======= ======= =======
</TABLE>
F-31
<PAGE> 147
FARAH INCORPORATED AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
QUARTER ENDED MAY 4, 1997
(UNAUDITED)
<TABLE>
<CAPTION>
GUARANTOR NON-GUARANTOR
PARENT ONLY SUBSIDIARIES SUBSIDIARIES ELIMINATIONS CONSOLIDATED
----------- ------------ ------------- ------------ ------------
(IN THOUSANDS)
<S> <C> <C> <C> <C> <C>
Net sales............................ $ -- $58,690 $16,041 $(3,960) $70,771
Cost of sales........................ -- 43,309 11,534 (3,960) 50,883
------ ------- ------- ------- -------
Gross profit....................... -- 15,381 4,507 -- 19,888
Selling, general and administrative
expenses........................... -- (13,046) (3,835) -- (16,881)
Production conversion expenses....... -- (577) -- -- (577)
------ ------- ------- ------- -------
Operating income................... -- 1,758 672 -- 2,430
Interest, net........................ (35) (699) 18 -- (716)
Other, net........................... -- 30 65 -- 95
Equity in earnings from subsidiaries. 3,246 -- -- (3,246) --
------ ------- ------- ------- -------
Income before income taxes........... 3,211 1,089 755 (3,246) 1,809
Income tax provision (benefit)....... -- (1,479) 77 -- (1,402)
------ ------- ------- ------- -------
Net income................. $3,211 $ 2,568 $ 678 $(3,246) $ 3,211
====== ======= ======= ======= =======
</TABLE>
F-32
<PAGE> 148
FARAH INCORPORATED AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
SIX MONTHS ENDED MAY 3, 1998
(UNAUDITED)
<TABLE>
<CAPTION>
GUARANTOR NON-GUARANTOR
PARENT ONLY SUBSIDIARIES SUBSIDIARIES ELIMINATIONS CONSOLIDATED
----------- ------------ ------------- ------------ ------------
(IN THOUSANDS)
<S> <C> <C> <C> <C> <C>
Net sales............................ $ -- $104,327 $29,942 $(9,095) $125,174
Cost of sales........................ -- 79,619 22,980 (9,095) 93,504
------- -------- ------- ------- --------
Gross profit......................... -- 24,708 6,962 -- 31,670
Selling, general and administrative
expenses........................... -- (23,563) (6,773) -- (30,336)
Termination of foreign operations.... -- (256) (2,329) -- (2,585)
Relocation expenses.................. -- (2,696) -- -- (2,696)
------- -------- ------- ------- --------
Operating loss....................... -- (1,807) (2,140) -- (3,947)
Interest, net........................ (70) (2,283) (98) -- (2,451)
Other, net........................... -- (164) 492 -- 328
Equity in losses from subsidiaries... (4,335) -- -- 4,335 --
------- -------- ------- ------- --------
Loss before income taxes............. (4,405) (4,254) (1,746) 4,335 (6,070)
Income tax provision (benefit)....... -- (1,914) 249 -- (1,665)
------- -------- ------- ------- --------
Net loss................... $(4,405) $ (2,340) $(1,995) $ 4,335 $ (4,405)
======= ======== ======= ======= ========
</TABLE>
F-33
<PAGE> 149
FARAH INCORPORATED AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
SIX MONTHS ENDED MAY 4, 1997
(UNAUDITED)
<TABLE>
<CAPTION>
GUARANTOR NON-GUARANTOR
PARENT ONLY SUBSIDIARIES SUBSIDIARIES ELIMINATIONS CONSOLIDATED
----------- ------------ ------------- ------------ ------------
(IN THOUSANDS)
<S> <C> <C> <C> <C> <C>
Net sales............................ $ -- $110,211 $29,536 $(7,038) $132,709
Cost of sales........................ -- 80,417 21,734 (7,038) 95,113
------ -------- ------- ------- --------
Gross profit......................... -- 29,794 7,802 -- 37,596
Selling, general and administrative
expenses........................... -- (25,543) (7,339) -- (32,882)
Termination of foreign operations.... -- -- (2,462) -- (2,462)
Production conversion expenses....... -- (849) -- -- (849)
------ -------- ------- ------- --------
Operating income (loss).............. -- 3,402 (1,999) -- 1,403
Interest, net........................ (70) (1,184) 22 -- (1,232)
Other, net........................... -- 111 137 -- 248
Equity in earnings from subsidiaries. 1,326 -- -- (1,326) --
------ -------- ------- ------- --------
Income (loss) before income taxes.... 1,256 2,329 (1,840) (1,326) 419
Income tax provision (benefit)....... -- (1,057) 220 -- (837)
------ -------- ------- ------- --------
Net income (loss).......... $1,256 $ 3,386 $(2,060) $(1,326) $ 1,256
====== ======== ======= ======= ========
</TABLE>
F-34
<PAGE> 150
FARAH INCORPORATED AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
MAY 3, 1998
(UNAUDITED)
<TABLE>
<CAPTION>
GUARANTOR NON-GUARANTOR
PARENT ONLY SUBSIDIARIES SUBSIDIARIES ELIMINATIONS CONSOLIDATED
----------- ------------ -------------- ------------ ------------
(IN THOUSANDS)
<S> <C> <C> <C> <C> <C>
ASSETS
Cash................................. $ -- $ 396 $ 2,725 $ -- $ 3,121
Accounts receivable, net............. -- 28,977 7,221 (394) 35,804
Inventories.......................... -- 62,362 12,157 -- 74,519
Other current assets................. -- 9,532 577 -- 10,109
------- -------- ------- -------- --------
Total current assets....... -- 101,267 22,680 (394) 123,553
------- -------- ------- -------- --------
Property, plant and equipment, net... -- 30,511 4,279 -- 34,790
Other assets, net.................... 79,674 (41,200) 956 (25,992) 13,438
------- -------- ------- -------- --------
Total assets............... $79,674 $ 90,578 $27,915 $(26,386) $171,781
======= ======== ======= ======== ========
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities:
Short-term debt and current
installments of long-term
debt............................ $ -- $ 41,454 $ 3,928 $ -- $ 45,382
Trade payables and other current
liabilities..................... -- 26,253 7,079 (394) 32,938
------- -------- ------- -------- --------
Total current
liabilities.............. -- 67,707 11,007 (394) 78,320
------- -------- ------- -------- --------
Long-term debt and capital lease
obligations........................ 1,663 12,187 50 -- 13,900
Other noncurrent liabilities......... -- 4,706 217 (3,542) 1,381
Deferred gain on sale of building.... -- 169 -- -- 169
Shareholders' equity................. 78,011 5,809 16,641 (22,450) 78,011
------- -------- ------- -------- --------
Total liabilities and
shareholders' equity..... $79,674 $ 90,578 $27,915 $(26,386) $171,781
======= ======== ======= ======== ========
</TABLE>
F-35
<PAGE> 151
FARAH INCORPORATED AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOVEMBER 2, 1997
<TABLE>
<CAPTION>
GUARANTOR NON-GUARANTOR
PARENT ONLY SUBSIDIARIES SUBSIDIARIES ELIMINATIONS CONSOLIDATED
----------- ------------ ------------- ------------ ------------
(IN THOUSANDS)
<S> <C> <C> <C> <C> <C>
ASSETS
Cash................................. $ -- $ 536 $ 1,796 $ -- $ 2,332
Accounts receivable, net............. -- 36,078 7,490 (515) 43,053
Inventories.......................... -- 60,404 14,388 -- 74,792
Other current assets................. -- 10,371 480 -- 10,851
------- -------- ------- -------- --------
Total current assets....... -- 107,389 24,154 (515) 131,028
------- -------- ------- -------- --------
Property, plant and equipment, net... -- 28,756 7,277 -- 36,033
Other assets, net.................... 84,377 (44,758) (239) (30,849) 8,531
------- -------- ------- -------- --------
Total assets............... $84,377 $ 91,387 $31,192 $(31,364) $175,592
======= ======== ======= ======== ========
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities:
Short-term debt and current
installments of long-term
debt............................ $ -- $ 36,880 $ 3,993 $ -- $ 40,873
Trade payables and other current
liabilities..................... -- 27,078 7,529 (515) 34,092
------- -------- ------- -------- --------
Total current
liabilities.............. -- 63,958 11,522 (515) 74,965
------- -------- ------- -------- --------
Long-term debt and capital lease
obligations........................ 1,663 12,017 91 -- 13,771
Other noncurrent liabilities......... -- 6,159 385 (3,587) 2,957
Deferred gain on sale of building.... -- 1,185 -- -- 1,185
Shareholders' equity................. 82,714 8,068 19,194 (27,262) 82,714
------- -------- ------- -------- --------
Total liabilities and
shareholders' equity..... $84,377 $ 91,387 $31,192 $(31,364) $175,592
======= ======== ======= ======== ========
</TABLE>
F-36
<PAGE> 152
FARAH INCORPORATED AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
SIX MONTHS ENDED MAY 3, 1998
(UNAUDITED)
<TABLE>
<CAPTION>
GUARANTOR NON-GUARANTOR
PARENT ONLY SUBSIDIARIES SUBSIDIARIES ELIMINATIONS CONSOLIDATED
----------- ------------ ------------- ------------ ------------
(IN THOUSANDS)
<S> <C> <C> <C> <C> <C>
CASH FLOWS FROM (USED IN) OPERATING
ACTIVITIES:
Net loss........................... $(4,405) $(2,340) $(1,995) $ 4,335 $(4,405)
Adjustments to reconcile net loss
to net cash from (used in)
operating activities:
Depreciation and amortization... -- 2,997 297 -- 3,294
Other adjustments............... -- (1,425) 1,440 -- 15
Changes in operating assets and
liabilities................... -- 4,565 1,953 -- 6,518
------- ------- ------- ------- -------
Net cash from (used) in
operating activities..... (4,405) 3,797 1,695 4,335 5,422
======= ======= ======= ======= =======
CASH FLOWS USED IN INVESTING
ACTIVITIES:
Purchases of property, plant and
equipment....................... -- (3,426) (273) -- (3,699)
Proceeds from disposition of
property, plant and equipment... -- 79 -- -- 79
------- ------- ------- ------- -------
Net cash used in investing
activities............... -- (3,347) (273) -- (3,620)
======= ======= ======= ======= =======
CASH FLOWS FROM (USED IN) FINANCING
ACTIVITIES:
Net change in debt................. -- 1,498 (105) -- 1,393
Net change in equity............... (261) 81 (521) 440 (261)
Other.............................. 4,703 (2,169) 170 (4,812) (2,108)
------- ------- ------- ------- -------
Net cash from (used in)
financing activities..... 4,442 (590) (456) (4,372) (976)
------- ------- ------- ------- -------
Effect of exchange rate changes on
cash............................... (37) -- (37) 37 (37)
------- ------- ------- ------- -------
Net increase (decrease) in cash...... -- (140) 929 -- 789
Cash beginning of period............. -- 536 1,796 -- 2,332
------- ------- ------- ------- -------
Cash end of period................... $ -- $ 396 $ 2,725 $ -- $ 3,121
======= ======= ======= ======= =======
</TABLE>
F-37
<PAGE> 153
FARAH INCORPORATED AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
SIX MONTHS ENDED MAY 4, 1997
(UNAUDITED)
<TABLE>
<CAPTION>
GUARANTOR NON-GUARANTOR
PARENT ONLY SUBSIDIARIES SUBSIDIARIES ELIMINATIONS CONSOLIDATED
----------- ------------ ------------- ------------ ------------
(IN THOUSANDS)
<S> <C> <C> <C> <C> <C>
CASH FLOWS FROM (USED IN) OPERATING
ACTIVITIES:
Net income (loss).................. $1,256 $3,386 $(2,060) $(1,326) $1,256
Adjustments to reconcile net income
(loss) to net cash from (used
in) operating activities:
Depreciation and amortization... -- 2,163 368 -- 2,531
Other adjustments............... -- (3,447) 1,328 -- (2,119)
Changes in operating assets and
liabilities................... -- (2,973) (711) -- (3,684)
------ ------ ------- ------- ------
Net cash from (used in)
operating activities..... 1,256 (871) (1,075) (1,326) (2,016)
====== ====== ======= ======= ======
CASH FLOWS USED IN INVESTING
ACTIVITIES:
Purchases of property, plant and
equipment....................... -- (5,302) (459) -- (5,761)
Proceeds from disposition of
property, plant and equipment... -- 2 17 -- 19
------ ------ ------- ------- ------
Net cash used in investing
activities............... -- (5,300) (442) -- (5,742)
====== ====== ======= ======= ======
CASH FLOWS FROM (USED IN) FINANCING
ACTIVITIES:
Net change in debt................. -- 6,437 1,112 -- 7,549
Net change in equity............... (325) 50 (1,072) 1,022 (325)
Other.............................. (903) (274) 953 276 52
------ ------ ------- ------- ------
Net cash from (used in)
financing activities..... (1,228) 6,213 993 1,298 7,276
------ ------ ------- ------- ------
Effect of exchange rate changes on
cash............................... (28) -- (28) 28 (28)
------ ------ ------- ------- ------
Net increase (decrease) in cash...... -- 42 (552) -- (510)
Cash beginning of period............. -- 542 3,235 -- 3,777
------ ------ ------- ------- ------
Cash end of period................... $ -- $ 584 $ 2,683 $ -- $3,267
====== ====== ======= ======= ======
</TABLE>
F-38
<PAGE> 154
REPORT OF INDEPENDENT ACCOUNTANTS
TO THE SHAREHOLDERS OF FARAH INCORPORATED:
We have audited the accompanying consolidated balance sheets of Farah
Incorporated (a Texas corporation) and subsidiaries as of November 2, 1997 and
November 3, 1996 and the related consolidated statements of operations,
shareholders' equity, and cash flows for the years then ended. These financial
statements are the responsibility of Farah's management. Our responsibility is
to express an opinion on these financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly,
in all material respects, the financial position of Farah Incorporated and
subsidiaries as of November 2, 1997 and November 3, 1996, and the results of
their operations and their cash flows for the years then ended, in conformity
with generally accepted accounting principles.
PricewaterhouseCoopers LLP
El Paso, Texas
December 17, 1997, except for
the information in Note 13 for
which the date is May 1, 1998.
F-39
<PAGE> 155
REPORT OF INDEPENDENT ACCOUNTANTS
TO THE SHAREHOLDERS OF FARAH INCORPORATED:
We have audited the accompanying consolidated statements of operations,
shareholders' equity, and cash flows of Farah Incorporated (a Texas corporation)
and subsidiaries for the year ended November 3, 1995. These financial statements
are the responsibility of Farah'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 results of Farah Incorporated and their
subsidiaries' operations and cash flows for the year ended November 3, 1995 in
conformity with generally accepted accounting principles.
ARTHUR ANDERSEN LLP
Dallas, Texas
December 15, 1995
(except with respect to the matter
discussed in Note 13, as to which
the date is May 1, 1998).
F-40
<PAGE> 156
FARAH INCORPORATED AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
YEARS ENDED NOVEMBER 2, 1997, NOVEMBER 3, 1996 AND NOVEMBER 3, 1995
<TABLE>
<CAPTION>
1997 1996 1995
-------- -------- --------
(THOUSANDS OF DOLLARS EXCEPT
PER SHARE DATA)
<S> <C> <C> <C>
Net sales................................................... $273,719 $247,598 $240,797
Cost of sales............................................... 199,790 183,540 185,822
-------- -------- --------
Gross profit................................................ 73,929 64,058 54,975
Selling, general and administrative expenses................ 66,436 62,189 68,002
Termination of foreign operations........................... 5,106 -- --
Production conversion expenses.............................. 2,061 -- --
Relocation expenses......................................... 904 -- --
-------- -------- --------
Operating income (loss)..................................... (578) 1,869 (13,027)
Other income (expense):
Interest expense.......................................... (4,108) (4,065) (4,627)
Interest income........................................... 716 834 901
Foreign currency transaction gains........................ 163 374 512
Gain (loss) on sale of assets............................. (24) 10,041 756
Other, net................................................ 203 684 209
-------- -------- --------
(3,050) 7,868 (2,249)
-------- -------- --------
Income (loss) before income taxes........................... (3,628) 9,737 (15,276)
Income tax provision (benefit).............................. (3,898) 2,981 (2,335)
-------- -------- --------
Net income (loss)......................................... $ 270 $ 6,756 $(12,941)
======== ======== ========
Net income (loss) per share -- basic and diluted.......... $ .03 $ .66 $ (1.28)
======== ======== ========
</TABLE>
See accompanying notes to consolidated financial statements.
F-41
<PAGE> 157
FARAH INCORPORATED AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
NOVEMBER 2, 1997 AND NOVEMBER 3, 1996
<TABLE>
<CAPTION>
1997 1996
--------- ---------
(THOUSANDS OF DOLLARS
EXCEPT SHARE DATA)
<S> <C> <C>
ASSETS
Current assets:
Cash...................................................... $ 2,332 $ 3,777
Trade receivables, net of allowance of $746 in 1997 and
$662 in 1996........................................... 43,053 41,671
Inventories:
Raw materials.......................................... 12,339 11,404
Work-in-process........................................ 18,457 15,251
Finished goods......................................... 43,996 35,378
-------- --------
Total inventories................................. 74,792 62,033
Other current assets...................................... 10,851 10,857
-------- --------
Total current assets.............................. 131,028 118,338
Note receivable............................................. -- 5,260
Property, plant and equipment, net.......................... 36,033 25,370
Other non-current assets.................................... 8,531 4,895
-------- --------
$175,592 $153,863
======== ========
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities:
Short-term debt........................................... $ 35,572 $ 20,744
Current installments of long-term debt.................... 5,301 1,288
Trade payables............................................ 20,600 24,038
Accrued compensation...................................... 2,755 3,101
Other current liabilities................................. 10,737 10,636
-------- --------
Total current liabilities......................... 74,965 59,807
Long-term debt, excluding current installments.............. 13,771 4,706
Other non-current liabilities............................... 2,957 3,992
Deferred gain on sale of building........................... 1,185 3,218
Commitments and contingencies
Shareholders' equity:
Common stock, no par value, $.01 stated value, 20,000,000
shares authorized; issued 10,315,264 in 1997 and
10,209,246 in 1996..................................... 46,026 46,024
Additional paid-in capital................................ 30,627 29,894
Cumulative foreign currency translation adjustment........ (2,416) (742)
Minimum pension liability adjustment...................... -- (1,243)
Retained earnings......................................... 8,586 8,316
-------- --------
82,823 82,249
Less: Treasury stock, 36,275 shares, at cost.............. 109 109
-------- --------
Total shareholders' equity........................ 82,714 82,140
-------- --------
$175,592 $153,863
======== ========
</TABLE>
See accompanying notes to consolidated financial statements.
F-42
<PAGE> 158
FARAH INCORPORATED AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY
YEARS ENDED NOVEMBER 2, 1997, NOVEMBER 3, 1996 AND NOVEMBER 3, 1995
<TABLE>
<CAPTION>
CUMULATIVE
FOREIGN MINIMUM
COMMON STOCK ADDITIONAL CURRENCY PENSION TREASURY STOCK
-------------------- PAID-IN TRANSLATION LIABILITY RETAINED ---------------
SHARES AMOUNT CAPITAL ADJUSTMENT ADJUSTMENT EARNINGS SHARES AMOUNT
---------- ------- ---------- ----------- ---------- -------- ------ ------
(THOUSANDS OF DOLLARS EXCEPT SHARE DATA)
<S> <C> <C> <C> <C> <C> <C> <C> <C>
BALANCE, NOVEMBER 4, 1994............. 10,116,616 $46,018 $28,497 $(1,066) $(1,880) $14,501 36,275 $109
Net loss.............................. -- -- -- -- -- (12,941) -- --
Foreign currency translation
adjustment.......................... -- -- -- (229) -- -- -- --
Minimum pension liability
adjustment.......................... -- -- -- -- 245 -- -- --
Exercise of stock options and other... 64,985 6 928 -- -- -- -- --
---------- ------- ------- ------- ------- ------- ------ ----
BALANCE, NOVEMBER 3, 1995............. 10,181,601 46,024 29,425 (1,295) (1,635) 1,560 36,275 109
Net income............................ -- -- -- -- -- 6,756 -- --
Foreign currency translation
adjustment.......................... -- -- -- 553 -- -- -- --
Minimum pension liability
adjustment.......................... -- -- -- -- 392 -- -- --
Exercise of stock options and other... 27,645 -- 469 -- -- -- -- --
---------- ------- ------- ------- ------- ------- ------ ----
BALANCE, NOVEMBER 3, 1996............. 10,209,246 46,024 29,894 (742) (1,243) 8,316 36,275 109
Net income............................ -- -- -- -- -- 270 -- --
Foreign currency translation
adjustment.......................... -- -- -- (1,674) -- -- -- --
Minimum pension liability
adjustment.......................... -- -- -- -- 1,243 -- -- --
Exercise of stock options and other... 106,018 2 733 -- -- -- -- --
---------- ------- ------- ------- ------- ------- ------ ----
BALANCE, NOVEMBER 2, 1997............. 10,315,264 $46,026 $30,627 $(2,416) $ -- $ 8,586 36,275 $109
========== ======= ======= ======= ======= ======= ====== ====
</TABLE>
See accompanying notes to consolidated financial statements.
F-43
<PAGE> 159
FARAH INCORPORATED AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
YEARS ENDED NOVEMBER 2, 1997, NOVEMBER 3, 1996 AND NOVEMBER 3, 1995
<TABLE>
<CAPTION>
1997 1996 1995
-------- -------- --------
<S> <C> <C> <C>
CASH FLOWS FROM (USED IN) OPERATING ACTIVITIES:
Net income (loss)........................................... $ 270 $ 6,756 $(12,941)
Adjustments to reconcile net income (loss) to net cash from
(used in)
operating activities:
Depreciation and amortization............................. 5,675 5,434 4,020
Amortization of deferred gain on building sale............ (2,033) (2,032) (2,032)
Amortization of deferred gain on subsidiary sale.......... (1,507) (2,538) --
Deferred income taxes..................................... (5,107) 1,654 (1,934)
(Gain) or loss on sale of assets.......................... 24 (10,041) (756)
Write-off of property, plant and equipment................ 1,524 -- --
Loss on discount of note receivable....................... 665 -- --
Decrease (increase) in:
Trade receivables, net.................................... (1,382) (1,847) (2,893)
Inventories............................................... (12,759) 10,730 2,661
Other current assets...................................... 1,326 1,931 (1,016)
Increase (decrease) in:
Trade payables............................................ (3,438) 6,394 (4,662)
Other..................................................... (246) (990) (1,098)
-------- -------- --------
Net cash from (used in) operating activities...... (16,988) 15,451 (20,651)
-------- -------- --------
CASH FLOWS FROM (USED IN) INVESTING ACTIVITIES:
Purchases of property, plant and equipment.................. (11,618) (4,397) (11,756)
Proceeds from disposition of property, plant and
equipment................................................. 85 22,689 1,785
-------- -------- --------
Net cash from (used in) investing activities...... (11,533) 18,292 (9,971)
-------- -------- --------
CASH FLOWS FROM (USED IN) FINANCING ACTIVITIES:
Net increase (decrease) in short-term debt.................. 14,828 (24,035) 26,771
Proceeds from issuance of long-term debt.................... 10,000 4 6,426
Repayment of long-term debt................................. (3,099) (9,371) (1,284)
Proceeds from repayment of note receivable.................. 4,935 -- --
Proceeds from sale of common stock.......................... 566 19 934
Other....................................................... (135) (318) (923)
-------- -------- --------
Net cash from (used in) financing activities...... 27,095 (33,701) 31,924
-------- -------- --------
Effect of exchange rate changes on cash..................... (19) 78 (17)
-------- -------- --------
Net increase (decrease) in cash................... (1,445) 120 1,285
Cash, beginning of year..................................... 3,777 3,657 2,372
-------- -------- --------
Cash, end of year........................................... $ 2,332 $ 3,777 3,657
======== ======== ========
SUPPLEMENTAL CASH FLOW DISCLOSURES:
Interest paid............................................... $ 4,061 $ 4,449 $ 4,116
Income taxes paid........................................... 1,364 1,019 1,625
Assets acquired through direct financing loans or capital
leases.................................................... 6,643 726 3,923
Exchange of non-monetary assets............................. (466) -- --
</TABLE>
See accompanying notes to consolidated financial statements.
F-44
<PAGE> 160
FARAH INCORPORATED AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOVEMBER 2, 1997, NOVEMBER 3, 1996 AND NOVEMBER 3, 1995
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
NATURE OF OPERATIONS
Farah Incorporated is a multinational apparel marketer and manufacturer
headquartered in the United States. Farah's principal business is the sale of
men's and boys' pants, coats and shirts and women's slacks and skirts. The
principal markets for Farah's products are retail customers in the United
States, Europe and the South Pacific.
PRINCIPLES OF PRESENTATION
The consolidated financial statements include the accounts of Farah
Incorporated (the "Parent Company") and its subsidiaries ("Farah"). All
significant intercompany transactions have been eliminated in consolidation.
Certain prior year amounts have been reclassified to conform with the 1997
presentation. The Parent Company's assets consist of investments in and advances
to subsidiaries. The Parent Company does not have any significant amount of
separate debt, credit facilities or other liabilities, except for the 8.5%
convertible subordinated debentures discussed in Note 3.
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,
including inventory markdowns and valuation allowances for deferred taxes. Such
estimates and assumptions also affect the 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.
In June 1997, the Financial Accounting Standards Board issued Statement of
Financial Accounting Standards No. 130 (SFAS 130), "Reporting Comprehensive
Income." This statement establishes standards for reporting and display of
comprehensive income and its components. Farah has several items of other
comprehensive income and will adopt this standard in its 1998 fiscal year.
In June 1997, the Financial Accounting Standards Board issued Statement of
Financial Accounting Standards No. 131 (SFAS 131), "Disclosures about Segments
of an Enterprise and Related Information." This Statement requires that public
business enterprises report certain information about operating segments in
complete sets of financial statements of the enterprise and in condensed
financial statements of interim periods issued to shareholders. It also requires
that public business enterprises report certain information about their product
and services, the geographic areas in which they operate, and their major
customers. Upon adoption of this pronouncement, additional disclosures will be
required by Farah. This statement is effective for fiscal years beginning after
December 15, 1997. Earlier application is encouraged. Farah intends to adopt
this statement for fiscal 1998 year-end disclosures.
CASH EQUIVALENTS
Cash equivalents include demand deposits and short-term investments with
original maturities of three months or less. Farah had no cash equivalents at
November 2, 1997 and November 3, 1996.
INVENTORIES
Inventories are stated at the lower of first-in, first-out (FIFO) cost or
market and include purchased materials, manufacturing labor and overhead. Market
is based upon estimated selling price less costs to sell.
F-45
<PAGE> 161
FARAH INCORPORATED AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
PROPERTY, PLANT AND EQUIPMENT
Property, plant and equipment are recorded at cost. Depreciation is
provided by the straight-line method over the estimated useful lives (Note 2) of
the related classes of assets.
Maintenance and repairs are charged to expense as incurred, and renewals
and betterments are capitalized. The cost and accumulated depreciation of assets
retired or otherwise disposed are removed from the accounts. Generally the
resulting gains and losses are included in operations. Gains on assets sold and
leased back are recognized over the initial lease term, net of any obligations
required by the lease agreements. See Note 7 for further discussion.
INTANGIBLE ASSETS
At November 2, 1997 and November 3, 1996, intangible assets were
approximately $1.0 million and $1.4 million, respectively, and consisted
primarily of goodwill and trademarks. Intangible assets are carried at cost less
accumulated amortization. Most intangible assets are amortized on a
straight-line basis over their estimated useful lives ranging from 2 to 30
years. Amortization expense was $281,000 in 1997, $353,000 in 1996 and $283,000
in 1995.
REVENUE RECOGNITION
Revenue is recognized upon shipment of product.
ADVERTISING AND PROMOTION COSTS
Advertising and promotion costs are expensed in the year incurred.
Advertising expense was $14.0 million in 1997, $10.7 million in 1996 and $17.0
million in 1995.
FOREIGN CURRENCIES
Foreign entities whose functional currency is the U.S. dollar translate
monetary assets and liabilities at year-end exchange rates and non-monetary
items at historical rates. Income and expense accounts are translated at the
average rates in effect during the year, except for depreciation which is
translated at historical rates. Gains and losses from changes in exchange rates
are recognized in consolidated income in the year of occurrence.
Foreign entities whose functional currency is the local currency translate
net assets at year-end rates and income and expense accounts at average exchange
rates. Adjustments resulting from these translations are reflected in the
Shareholders' equity section titled "Cumulative foreign currency translation
adjustment."
Also included in foreign currency transaction gains and losses for 1997 is
a gain of $758,000 due to cumulative translation adjustments transferred from
equity to operations upon the sale of one of Farah's foreign subsidiaries.
INCOME TAXES
Deferred income taxes reflect the tax effect of temporary differences
between the amount of assets and liabilities recognized for financial reporting
and tax purposes and are measured by applying currently enacted tax laws. Future
tax benefits, such as net operating loss carryforwards, are recognized to the
extent that realization of such benefits is more likely than not.
F-46
<PAGE> 162
FARAH INCORPORATED AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
INCOME (LOSS) PER SHARE
In February 1997, the Financial Accounting Standards Board issued Statement
of Financial Accounting Standards No. 128 (SFAS 128), "Earnings Per Share." SFAS
128 supersedes ABP Opinion No. 15, "Earnings Per Share." SFAS 128 requires dual
presentation of basic and diluted earnings per share on the face of the income
statement for entities with complex capital structures. SFAS 128 has been
applied to all years presented. Income per share in 1997 and 1996 is based on
the weighted average number of shares and common stock equivalents outstanding.
Stock options are included as common stock equivalents under the treasury stock
method, where dilutive. The 8.5% convertible subordinated debentures (Note 3),
were not considered common stock equivalents as their effect would be
anti-dilutive. Loss per share in 1995 is based on the weighted average number of
shares outstanding.
Basic and diluted earnings per share has been calculated based on the
weighted average number of shares outstanding for all periods presented
(10,252,969 shares, 10,161,762 shares, and 10,122,308 shares for the years ended
November 2, 1997, November 3, 1996 and November 3, 1995, respectively); the
number of shares used in the diluted calculation does not materially differ from
the amount used in the basic calculation.
2. PROPERTY, PLANT AND EQUIPMENT
Property, plant and equipment is comprised of the following:
<TABLE>
<CAPTION>
ESTIMATED
USEFUL
LIVES (YEARS) 1997 1996
------------- ------- -------
(THOUSANDS OF
DOLLARS)
<S> <C> <C> <C>
Factory machinery and equipment........................ 9-12 $29,594 $27,060
Buildings.............................................. 20-50 5,193 5,479
Building improvements.................................. 3-20 7,418 4,373
Other fixtures and equipment........................... 3-20 16,580 13,813
Land................................................... 770 770
Factory machinery and other fixtures and equipment
under capital lease.................................. 4,170 3,440
Construction in progress............................... 5,378 937
------- -------
Total property, plant and equipment.......... 69,103 55,872
Less accumulated depreciation and amortization......... 33,070 30,502
------- -------
Net property, plant and equipment............ $36,033 $25,370
======= =======
</TABLE>
Accumulated amortization on assets under capital leases totaled $2.1
million at November 2, 1997 and $1.3 million at November 3, 1996.
At November 2, 1997, construction in progress consisted of $3.9 million of
equipment purchased for Farah's new distribution center, and approximately
$800,000 for hardware, software and installation costs incurred related to
replacement of Farah's enterprise wide computer systems. Construction in
progress under capital leases was $2.6 million and $348,000 at November 2, 1997
and November 3, 1996, respectively.
During 1997, Farah closed its manufacturing plant in Galway Ireland and
sold its remaining Irish facility located in Kiltimagh. Assets abandoned or sold
in Ireland approximated $1.5 million. See additional discussion in Note 8.
F-47
<PAGE> 163
FARAH INCORPORATED AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
In June 1996, Farah sold its facility located in Piedras Negras, Mexico for
a purchase price of approximately $22.2 million in cash. Proceeds from the sale,
net of expenses, were used to retire a long-term capital lease obligation of
approximately $7.2 plus other long-term obligations. The balance of the proceeds
of approximately $13.8 million was applied to Farah's Credit Agreement.
Depreciation and amortization of property, plant and equipment approximated
$5.4 million in 1997, $5.1 million in 1996 and $3.7 million in 1995.
3. DEBT AND LIQUIDITY
SHORT-TERM DEBT
Farah's primary Credit Agreement provides up to $75 million of credit
through July 1, 2001, for Farah's United States and United Kingdom operations
for either borrowings or letters of credit. The Credit Agreement includes a term
loan payable in monthly installments over a 48 month period. The balance of the
term loan was $9.2 million as of November 2, 1997. Formulas derived from
accounts receivable and inventory define borrowing capacity under the Credit
Agreement. The Credit Agreement is collateralized by substantially all assets of
Farah U.S.A., Farah U.K. Limited and Savane Direct and is guaranteed by its
parent company and each of Farah U.S.A.'s domestic affiliates. Such guarantees
are collateralized by substantially all of the assets of the related affiliates.
The interest rate for the Credit Agreement and term loan is prime (8 1/2% at
November 2, 1997) plus 1/2% for borrowings and 1/6% per month for letters of
credit. Farah may also from time to time convert all or part of the loans
outstanding under the Credit Agreement or term loan into a loan based on the
LIBOR Rate. Upon conversion, the interest rate is [TO] be the LIBOR Rate, plus
2.75%. The conversion to and continued applicability of the LIBOR Rate is
conditioned upon specific notification requirements, a minimum of $5 million of
LIBOR Rate loans outstanding, and various other requirements. At November 2,
1997, Farah had $33.5 million, including $8.0 million of the term loan balance,
in LIBOR loans outstanding under the Credit Agreement. Interest rates on the
LIBOR contracts outstanding at November 2, 1997 ranged from 8.38% to 8.41%. An
unused credit line fee of 1/2% per annum is charged on the unused portion of
the line when borrowings decrease below $17.5 million. As of November 2, 1997,
usage under the Credit Agreement was $36.5 million (including letters of credit
of $1.3 million) and the excess credit line available was $23.5 million. The
Credit Agreement restricts certain additional indebtedness and requires the
maintenance of minimum tangible net worth, minimum working capital and limits
capital expenditures. As of November 2, 1997, Farah was in compliance with these
covenants. The Credit Agreement prohibits the payment of dividends by Farah, and
except for debt service of Farah's 8.5% convertible subordinated debentures, the
Credit Agreement restricts the subsidiaries from transferring substantially all
net assets to the Parent Company through intercompany loans, advances or
dividends.
The following table reflects short-term debt balances and interest rates in
1997, 1996 and 1995:
<TABLE>
<CAPTION>
1997 1996 1995
------- ------- -------
(THOUSANDS OF DOLLARS)
<S> <C> <C> <C>
Average outstanding balance............................... $31,813 $31,473 $36,842
Maximum month-end balance outstanding..................... 42,899 41,816 47,338
Weighted average interest rate:
During year............................................. 9.4% 9.4% 9.7%
Year-end................................................ 8.5 9.2 9.8
</TABLE>
F-48
<PAGE> 164
FARAH INCORPORATED AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
LONG-TERM DEBT
<TABLE>
<CAPTION>
1997 1996
--------- --------
(THOUSANDS OF DOLLARS)
<S> <C> <C>
Term note, collateralized by substantially all assets of
Company, bearing interest at prime plus .5% and LIBOR plus
2.75% for LIBOR Rate Loans, due July 1, 2001, payable in
monthly installments of $208,333.......................... $ 9,167 $ --
8.5% convertible subordinated debentures due February 1,
2004, convertible into Farah's common stock at $15.2375
per share................................................. 1,663 1,663
Collateralized loan for aircraft purchase................... -- 1,165
Collateralized loan for aircraft purchase bearing interest
at 8.85%, fixed through April 2, 2000, then at prime plus
1%, due in monthly installments through April 2, 2007..... 1,078 --
Various notes, collateralized by property, plant and
equipment, bearing interest at rates ranging from 9.0% to
10.93%, due in monthly installments through 2001.......... 1,288 554
Various obligations under other capital leases.............. 5,876 2,612
------- ------
Total long-term debt...................................... 19,072 5,994
Less current installments................................. 5,301 1,288
------- ------
Net long-term debt................................ $13,771 $4,706
======= ======
</TABLE>
Installments of long-term debt and capital lease obligations mature as
follows:
<TABLE>
<CAPTION>
CAPITAL
LONG-TERM LEASE
DEBT OBLIGATIONS
--------- -----------
(THOUSANDS OF DOLLARS)
<S> <C> <C>
1998........................................................ $ 3,237 $2,490
1999........................................................ 3,040 1,715
2000........................................................ 2,728 957
2001........................................................ 1,771 507
2002........................................................ 104 445
2003 and beyond............................................. 2,316 819
------- ------
13,196 6,933
Less interest portion....................................... -- 1,057
------- ------
$13,196 $5,876
======= ======
</TABLE>
Farah believes that its borrowing availability from its Credit Agreement,
its ability to access other capital markets, if necessary, and its projected
cash from operations will be sufficient to meet anticipated liquidity
requirements for fiscal 1998.
4. EMPLOYEE AND DIRECTOR STOCK OPTIONS AND AWARDS
Farah has several stock-based compensation plans, which are described
below. Farah applies APB Opinion 25 and related Interpretations in accounting
for its employee stock-based compensation plans. In 1995, the Financial
Accounting Standards Board issued Statement of Financial Accounting Standards
No. 123 "Accounting for Stock-Based Compensation" ("SFAS 123") which, if fully
adopted by Farah, would change the methods Farah applies in recognizing the cost
of its stock-based compensation plans. Adoption of the cost recognition
provisions of SFAS 123 is optional and Farah has decided not to elect these
provisions. However, pro forma disclosures as if Farah adopted the cost
recognition provisions of SFAS 123 are presented below.
F-49
<PAGE> 165
FARAH INCORPORATED AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
STOCK OPTION PLAN
The current stock option plan is the Farah Incorporated 1991 Stock Option
and Restricted Stock Plan (the "1991 Plan"). Under the 1991 Plan, Farah is
authorized to issue up to 1,225,000 shares of common stock pursuant to stock
options (or, as described below, as shares of restricted stock). Farah is
authorized under the 1991 Plan to grant stock options as incentive stock options
(intended to qualify under Section 422 of the Internal Revenue Code of 1986, as
amended) and/or as options that are not intended to qualify as incentive stock
options.
The 1991 Plan provides that the exercise price of any stock option shall be
determined by the Stock Option and Compensation Committee in its discretion. All
options granted have an exercise price equal to the per share fair market value
as of the date of the grant. All stock options granted in 1995 have a term of
ten years and vest at the rate of fifty percent (50%) per year on each
anniversary of the date of grant, commencing on the first anniversary of the
date of grant. The options granted in 1996 and 1997 have a term of approximately
ten years, are 50% vested on the date of grant, and fully vest on the first
anniversary of the date of grant.
Farah granted 4,000 options in 1997, 489,000 options in 1996 and 7,000
options in 1995. In accordance with APB 25, Farah has not recognized any
compensation cost for the stock options granted in these years.
NON-EMPLOYEE DIRECTOR STOCK OPTION PLANS
Farah adopted two non-employee director stock option plans, the Farah
Incorporated 1988 Stock Option Plan for Non-Employee Directors and the Farah
Incorporated 1996 Non-Employee Directors Stock Option Plan (collectively, the
"Director Stock Option Plans"). Under the Director Stock Option Plans, Farah is
authorized to issue up to 150,000 and 300,000 shares, respectively, of common
stock pursuant to stock options to selected directors. Farah is authorized under
the Director Stock Option Plans to grant only non-qualified stock options. The
Director Stock Option Plans provide that the exercise price of any stock option
shall be the fair market value as of the date the option is granted.
Farah granted options for 57,500, 31,000 and 9,000 shares under the
Director Stock Option Plans in 1997, 1996 and 1995, respectively. Stock options
granted from the 1988 Stock Option Plan have a term of ten years and are fully
vested as of the date of grant. Stock options granted from the 1996 plan have a
term of five years and vest at the rate of 50% per year on each anniversary of
the date of grant, commencing on the first anniversary of the date of grant. In
accordance with APB 25, Farah has not recognized any compensation cost for the
stock options granted in 1997, 1996 and 1995.
F-50
<PAGE> 166
FARAH INCORPORATED AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
A summary of the status of Farah's stock options as of November 2, 1997,
November 3, 1996 and November 3, 1995 and the changes during the years ended on
those dates is presented below:
<TABLE>
<CAPTION>
1997 STOCK OPTIONS 1996 STOCK OPTIONS 1995 STOCK OPTIONS
--------------------- --------------------- ---------------------
NUMBER OF WEIGHTED NUMBER OF WEIGHTED NUMBER OF WEIGHTED
SHARES OF AVERAGE SHARES OF AVERAGE SHARES OF AVERAGE
UNDERLYING EXERCISE UNDERLYING EXERCISE UNDERLYING EXERCISE
OPTIONS PRICES OPTIONS PRICES OPTIONS PRICES
---------- -------- ---------- -------- ---------- --------
<S> <C> <C> <C> <C> <C> <C>
Outstanding at beginning of
year........................ 949,713 $ 8.21 455,637 $10.87 478,985 $10.68
Granted....................... 61,500 8.05 520,000 5.94 16,000 8.53
Exercised..................... (98,650) 5.74 (3,500) 5.48 (25,514) 5.81
Forfeited..................... (41,000) 14.01 (17,924) 11.08 (10,834) 11.02
Expired....................... (6,063) 7.50 (4,500) 6.96 (3,000) 9.81
-------- -------- -------
Outstanding at end of year.... 865,500 8.21 949,713 8.21 455,637 10.87
======== ======== =======
Exercisable at end of year.... 801,000 8.25 678,463 9.07 448,637 10.91
Weighted-average fair market
value of options granted
during the year............. $ 3.85 $ 2.66 $ 3.78
</TABLE>
As of November 2, 1997, the weighted average remaining term for outstanding
options is 7.17 years. The fair value of each stock option granted is estimated
on the date of grant using the Black-Scholes option-pricing model with the
following weighted-average assumptions for grants in 1997, 1996 and 1995:
dividend yield of 0% for all years; expected volatility of 45.1% in 1997 and
51.3% in 1996 and 1995; risk-free interest rates are different for each grant
and range from 6.1% to 7.1%; and the expected lives of options are different for
each grant and range from 3.6 years to 4.8 years.
RESTRICTED STOCK
Restricted stock may be granted pursuant to the 1991 Plan.
Farah may grant, as restricted common stock, all or a portion of the
1,225,000 shares of common stock reserved under the 1991 Plan. During fiscal
1997, 1996 and 1995 there were no shares of restricted stock granted.
During 1994 and 1993, 104,000 and 80,000 shares, respectively, of Farah's
common stock were awarded to certain officers and directors pursuant to the 1991
Plan. The awards vest over varying periods ending in 1998, of which 12,500
shares vested in 1997, 37,665 shares vested in 1996 and 62,666 shares vested in
1995. Farah recognizes the expense related to these awards over the period of
service specified in the vesting provision of the awards and recorded
compensation expense of $77,000 in 1997, $266,000 in 1996 and $704,000 in 1995
for restricted stock awards.
F-51
<PAGE> 167
FARAH INCORPORATED AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
PRO FORMA NET INCOME (LOSS) AND NET INCOME (LOSS) PER COMMON SHARE
Had the compensation cost for Farah's employee based compensation plans
been determined consistent with SFAS 123, Farah's net income (loss) and net
income (loss) per common share for 1997, 1996 and 1995 would approximate the pro
forma amounts below (in thousands except per share data):
<TABLE>
<CAPTION>
1997 1996 1995
---- ----- -------
<S> <C> <C> <C>
Net income (loss):
As reported............................................... $270 6,756 (12,941)
Pro forma................................................. (78) 5,945 (12,973)
Net income (loss) per share:
Basic and diluted as reported............................. $.03 .66 (1.28)
Basic pro forma........................................... (.01) .59 (1.28)
Diluted pro forma......................................... (.01) .58 (1.28)
</TABLE>
The effects of applying SFAS 123 in this pro forma disclosure are not
indicative of future amounts. SFAS 123 does not apply to awards prior to 1995.
5. INCOME TAXES
The tax effects of temporary differences that give rise to deferred tax
assets and deferred tax liabilities at November 2, 1997 and November 3, 1996 are
as follows:
<TABLE>
<CAPTION>
1997 1996
------- -------
(THOUSANDS OF
DOLLARS)
<S> <C> <C>
DEFERRED TAX ASSETS:
U.S. federal NOL carryforwards............................ $ 3,949 $ 2,062
Foreign NOL carryforwards................................. 1,382 771
Deferred gains............................................ 403 1,871
Foreign tax credit carryforwards.......................... 626 451
Other accrued expenses.................................... 4,031 3,563
Other..................................................... 759 235
------- -------
Total deferred tax assets......................... 11,150 8,953
------- -------
DEFERRED TAX LIABILITIES:
Tax in excess of financial statement depreciation and
amortization........................................... 1,732 1,980
Other..................................................... 699 600
------- -------
Total deferred tax liabilities.................... 2,431 2,580
------- -------
Net deferred tax asset.................................... 8,719 6,373
Valuation allowance....................................... (1,064) (3,825)
------- -------
Deferred income tax asset, net......................... 7,655 2,548
Less current portion................................... (4,207) (2,548)
------- -------
Long-term deferred income tax asset, net............... $ 3,448 $ --
======= =======
</TABLE>
F-52
<PAGE> 168
FARAH INCORPORATED AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
The fiscal 1997 increase in Farah's deferred tax assets was primarily due
to Farah's domestic and foreign net operating losses incurred for the year.
Realization of the deferred tax assets is dependent upon Farah generating future
taxable income from operations in the respective taxing jurisdictions. Farah has
domestic net operating loss carryforwards of $11.6 million, of which $7.1
million expire in 2010. The remaining $4.5 million of domestic net operating
loss carryforwards expire in 2012. Farah does not believe it is more likely than
not that it will generate sufficient taxable income during the carryforward
periods for certain portions of the deferred tax assets and accordingly,
provided a valuation allowance of $1.1 million and $3.8 million at November 2,
1997 and November 3, 1996, respectively.
During fiscal 1997, Farah reevaluated the realizability of its deferred tax
assets pursuant to the criteria of Statement of Financial Accounting Standards
No. 109, and concluded that it is more likely than not that Farah will realize
tax benefits associated with its domestic net operating losses, together with
certain other tax benefits, that were previously subject to valuation allowance.
As a result of this reevaluation, the beginning of the year valuation allowance
was reduced by approximately $3.2 million.
The federal examination of Farah's United States tax returns for fiscal
years 1994 and 1995 was completed during the year without any proposed income or
expense adjustments or modifications to its tax credits. Farah is waiting for
acceptance of the auditor's report from the Joint Committee on Taxation of the
United States Treasury Department.
Income (loss) before taxes and incomes taxes in 1997, 1996 and 1995 are
shown below:
<TABLE>
<CAPTION>
1997 1996 1995
------- ------ --------
(THOUSANDS OF DOLLARS)
<S> <C> <C> <C>
INCOME (LOSS) BEFORE INCOME TAXES:
Domestic operations....................................... $ (855) $6,277 $(16,728)
Foreign operations........................................ (2,773) 3,460 1,452
------- ------ --------
Total consolidated.............................. $(3,628) $9,737 $(15,276)
======= ====== ========
INCOME TAX PROVISION:
Domestic operations
Current................................................. $ 668 $ 450 $ (1,087)
Deferred................................................ (3,956) 1,654 (1,934)
------- ------ --------
Total domestic.................................. (3,288) 2,104 (3,021)
Foreign operations
Current................................................. 541 877 686
Deferred................................................ (1,151) -- --
------- ------ --------
Total foreign................................... (610) 877 686
------- ------ --------
Total consolidated.............................. $(3,898) $2,981 $ (2,335)
======= ====== ========
</TABLE>
F-53
<PAGE> 169
FARAH INCORPORATED AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
The effective tax rate differs from the U.S. statutory rate of 34% as
summarized below:
<TABLE>
<CAPTION>
1997 1996 1995
------- ------ -------
(THOUSANDS OF DOLLARS)
<S> <C> <C> <C>
Expected income taxes at U.S. statutory rate............... $(1,234) $3,311 $(5,194)
Non-deductible expenses.................................. 92 212 87
Permanent differences on assets sold..................... -- 172 --
Effect of differing tax rates in foreign countries....... 191 (91) 46
Unrecognized deferred tax benefits....................... 244 -- 2,633
U.S. taxes on dividends from foreign countries........... 166 -- 93
Recognition of previously unrecognized deferred tax
benefits.............................................. (3,226) (761) --
Other.................................................... (131) 138 --
------- ------ -------
Income taxes, as reported.................................. $(3,898) $2,981 $(2,335)
======= ====== =======
</TABLE>
At November 2, 1997, Farah's foreign subsidiaries had net deferred tax
assets of $2.0 million from net operating loss carryforwards and deferred
charges that are available to offset future foreign taxable income. In addition,
at November 2, 1997, Farah had $626,000 in foreign tax credit carryforwards to
offset any U.S. tax generated by future foreign income repatriated and taxed in
the U.S. These credits expire in the years 1998 through 2001 if not used.
Certain of Farah's foreign subsidiaries have undistributed accumulated
earnings of approximately $25.5 million, as adjusted for U.S. tax purposes at
November 2, 1997. No U.S. tax has been provided on the undistributed earnings
because Farah intends to indefinitely reinvest such earnings in the foreign
operations. The amount of the unrecognized deferred tax liability associated
with the undistributed earnings that have not been previously taxed in the U.S.
was approximately $7.1 million at November 2, 1997. If earnings are repatriated,
foreign tax credits can offset a portion of the U.S. tax on such earnings.
6. EMPLOYEE BENEFIT PLANS
Farah has two retirement plans: (1) a defined contribution plan established
pursuant to Section 401(k) of the Internal Revenue Code which covers all
non-union U.S. employees, and (2) a defined benefit plan which covers
substantially all bargaining unit employees and retirees.
Under the defined contribution plan, each participant may contribute from
1% to 15% of his/her compensation. Farah matches contributions up to 3% of the
participant's compensation. In 1997, 1996 and 1995, Farah's contribution to the
plan was approximately $418,000, $306,000 and $444,000, respectively.
Under the defined benefit plan, the basic monthly pension payable to a
participant upon normal retirement equals the product of the participant's
monthly benefit rate times the number of years of credited service. Assets of
the defined benefit plan are invested primarily in U.S. government obligations,
corporate bonds and equity securities.
F-54
<PAGE> 170
FARAH INCORPORATED AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
Farah's policy is to fund accrued pension cost when such costs are
deductible for tax purposes. Net periodic pension cost for the years ended
November 2, 1997, November 3, 1996 and November 3, 1995, included the following
components:
<TABLE>
<CAPTION>
1997 1996 1995
------- ----- -------
(THOUSANDS OF DOLLARS)
<S> <C> <C> <C>
Service cost-benefits earned during the period.............. $ 60 $ 64 $ 47
Interest cost on projected benefit obligation............... 579 576 577
Actual return on plan assets................................ (1,300) (786) (1,514)
Net amortization and deferral............................... 705 263 1,165
------- ----- -------
Net periodic pension cost................................. $ 44 $ 117 $ 275
======= ===== =======
</TABLE>
The following table sets forth the funded status at November 2, 1997 and
November 3, 1996, of the defined benefit plan:
<TABLE>
<CAPTION>
1997 1996
--------- ---------
(THOUSANDS OF DOLLARS)
<S> <C> <C>
ACTUARIAL PRESENT VALUE OF BENEFIT OBLIGATION:
Vested benefit obligation................................... $(7,694) $(7,601)
Nonvested benefit obligation................................ (129) (174)
------- -------
Accumulated benefit obligation.................... $(7,823) $(7,775)
======= =======
Projected benefit obligation................................ $(7,823) $(7,775)
Plan assets at market value................................. 8,371 7,437
------- -------
Funded status..................................... 548 (338)
Unrecognized transition liability being recognized over
average future
service of plan participants.............................. 335 401
Unrecognized net loss from past experience different from
that assumed
and effects of changes in assumptions..................... 793 1,243
Adjustment required to recognize minimum liability.......... -- (1,644)
------- -------
Prepaid/(Unfunded Reserve)........................ $ 1,676 $ (338)
======= =======
</TABLE>
In determining the benefit obligations and service cost of Farah's defined
benefit plan, weighted average discount rates of 7.5% and 7.75% were used in
1997 and 1996, respectively. The expected long-term rate of return on plan
assets was 9.5% in both years.
7. COMMITMENTS AND CONTINGENCIES
LEASE AND CAPITAL EXPENDITURE COMMITMENTS
During 1988, Farah consummated a sale and leaseback of its main El Paso,
Texas, manufacturing and office facility. In connection with the sale, Farah
entered into a 10 year operating lease of the facility which expires in May
1998. A deferred gain was recognized on the sale, of which $1.2 million remains
to be recognized through 1998. A portion of the sale was paid by delivery of a
$7.5 promissory note to Farah, collateralized by a second mortgage on the
property. In the fourth quarter of 1997, this note receivable was prepaid by the
borrower. In consideration for this prepayment, Farah discounted the note 12.5%.
A loss of approximately $665,000 was recognized in this transaction, and is
reflected in the caption "Other, net" on the Consolidated Statement of
Operations.
F-55
<PAGE> 171
FARAH INCORPORATED AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
Farah and its subsidiaries occupy certain facilities and use certain
equipment under operating leases which expire at various dates from fiscal 1998
to 2016. The following is a summary by year of the noncancelable portion of
future minimum lease payments under operating leases:
<TABLE>
<CAPTION>
THOUSANDS
OF DOLLARS
----------
<S> <C>
1998...................................................... $ 8,640
1999...................................................... 5,096
2000...................................................... 3,965
2001...................................................... 3,179
2002...................................................... 2,951
Later years............................................... 25,185
-------
Lease payments*............................................. $49,016
=======
</TABLE>
- ---------------
* Minimum payments have not been reduced by minimum sublease rental income of
$820,000 due in the future under noncancelable subleases.
Farah has subleased approximately 70% of its El Paso manufacturing
facility. The noncancelable portion of future minimum rental income due in 1998
is $820,000.
Rental expense for all operating leases for 1997, 1996 and 1995 was $8.4
million, $8.2 million and $8.7 million, respectively (net of sublease income of
approximately $1.3 million in 1997, $1.1 million in 1996 and $1.0 million in
1995).
At November 2, 1997, Farah had commitments for capital expenditures of
approximately $4.4 million.
CREDIT RISKS
Financial instruments which potentially expose Farah to concentrations of
credit risk, as defined by Statement of Financial Accounting Standards No. 105,
consist primarily of cash and trade accounts receivable. Farah restricts
investment of cash to financial institutions of high credit standing. In
addition, Farah performs ongoing credit evaluations of its customers' financial
condition. Farah establishes an allowance for doubtful accounts based upon
factors surrounding the credit risk of specific customers, historic trends and
other information. Farah's customers are not concentrated in any specific
geographic region but are concentrated in the retail industry. In 1997, 1996 and
1995, one U.S. customer accounted for $35.9 million (13.1%), $36.3 million
(14.6%) and $30.2 million (12.5%), respectively, of Farah's consolidated sales.
In addition, in 1997 and 1996 another U.S. customer accounted for $35.2 million
(12.8%) and $26.6 million (10.7%) of consolidated sales, respectively. A third
customer accounted for $27.3 million (10.0%) of consolidated sales in 1997.
LEGAL PROCEEDINGS
Farah is involved in certain legal proceedings in the normal course of
business. Based on advice of legal counsel, Farah believes that the outcome of
such litigation will not materially affect its consolidated financial position,
results of operations or cash flows.
F-56
<PAGE> 172
FARAH INCORPORATED AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
8. TERMINATION OF FOREIGN OPERATIONS, PRODUCTION CONVERSION EXPENSES AND
RELOCATION EXPENSES
Termination of foreign operations. During fiscal 1997, Farah incurred a
loss related to a fire and ultimate disposition of its Irish operations. A total
loss of approximately $5.1 million was recognized related to these events. This
loss resulted mainly from the write-down of fixed assets, severance payments and
legal and professional fees incurred. This amount has been classified as
"Termination of foreign operations" in the Consolidated Statement of Operations.
Production conversion expenses. In fiscal 1997, Farah incurred start-up
costs related to two new laundry facilities in Juarez and Torreon, Mexico and
the expansion of Farah's existing facility in Chihuahua, Mexico. Conversion
costs were also incurred as Farah began to source more product from global
contractors. Expenses related to these items totaled approximately $2.1 million,
and have been separately stated in the line item "Production conversion
expenses" in the Consolidated Statement of Operations.
Relocation expenses. In the third quarter of fiscal 1997, Farah completed
its move to new corporate headquarters. In addition, Farah is currently in the
process of relocating its distribution center to a new facility from which it
expects to realize improved distribution and inventory management efficiencies.
Farah anticipates completion of the distribution center relocation in the second
quarter of fiscal 1998. In moving to the new headquarters and distribution
center, Farah incurred duplicate operating costs, moving expenses and
professional fees. These expenses approximated $904,000, and have been
separately stated under the caption "Relocation expenses" in the Consolidated
Statement of Operations.
9. FAIR VALUES OF FINANCIAL INSTRUMENTS
The following methods and assumptions were used by Farah in estimating the
fair value disclosures for its financial instruments. For cash and trade
receivables, the carrying amounts reported in the Consolidated Balance Sheets
approximate fair value because of the short-term maturity of these instruments.
The carrying values of the borrowings under the Credit Agreement approximate
fair value, as interest rates for these instruments approximate current market
rates. The carrying amount of Farah's convertible debentures was $1.7 million at
November 2, 1997 and November 3, 1996. The fair value for these debentures for
the same periods was $1.3 million and $1.2 million respectively. The fair value
of the convertible debentures was based upon quoted market prices at November 2,
1997 and November 3, 1996.
F-57
<PAGE> 173
FARAH INCORPORATED AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
10. GEOGRAPHIC SEGMENT INFORMATION
Farah is engaged in one business segment. This includes the design,
manufacture, distribution and sale of men's, young men's, boys' and women's
apparel in the United States and certain foreign countries, principally in
Europe and the South Pacific. The following table presents information regarding
geographic segments for 1997, 1996 and 1995. Transfers between the United States
and foreign areas are recorded at normal selling prices. Operating profit is
total revenue less operating expenses. In computing operating profit, general
corporate expenses, interest expense and income taxes have been excluded.
<TABLE>
<CAPTION>
1997 1996 1995
-------- -------- --------
(THOUSANDS OF DOLLARS)
<S> <C> <C> <C>
NET SALES:
United States to unaffiliated customers................... $224,051 $199,574 $193,274
Transfers between areas................................... -- -- 266
-------- -------- --------
Total United States............................... 224,051 199,574 193,540
Europe.................................................... 31,752 30,677 32,033
South Pacific............................................. 17,916 17,347 15,490
Adjustments and eliminations.............................. -- -- (266)
-------- -------- --------
Total............................................. $273,719 $247,598 $240,797
======== ======== ========
OPERATING PROFIT (LOSS):
United States............................................. $ 5,180 $ 1,981 $(12,489)
Europe.................................................... (4,801) 3 385
South Pacific............................................. 1,970 2,626 1,549
Adjustments and eliminations.............................. -- -- --
-------- -------- --------
Total............................................. 2,349 4,610 (10,555)
Net gain (loss) on sale of assets........................... (24) 10,041 755
General corporate expenses.................................. (2,561) (1,683) (1,751)
Interest expense, net....................................... (3,392) (3,231) (3,725)
-------- -------- --------
Income (loss) before income taxes........................... $ (3,628) $ 9,737 $(15,276)
======== ======== ========
IDENTIFIABLE ASSETS:
United States............................................. $143,182 $123,520 $146,172
Europe.................................................... 15,513 16,552 17,326
Far East and the South Pacific............................ 21,000 17,645 14,357
Adjustments and eliminations.............................. (4,103) (3,854) (4,028)
-------- -------- --------
Total............................................. $175,592 $153,863 $173,827
======== ======== ========
</TABLE>
Approximately 66% and 26% of all product sold in the United States in 1997
was assembled in Mexico and Costa Rica, respectively, in Farah's owned
facilities or by contractors. Included in Farah's consolidated balance sheet at
November 2, 1997 were net assets located in Mexico and Costa Rica totaling
approximately $6.7 million and $8.3 million respectively.
F-58
<PAGE> 174
FARAH INCORPORATED AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
In June 1997, the Financial Accounting Standards Board issued Statement of
Financial Accounting Standards No. 131 (SFAS 131), "Disclosures about Segments
of an Enterprise and Related Information." This Statement requires that public
business enterprises report certain information about operating segments in
complete sets of financial statements of the enterprise and in condensed
financial statements of interim periods issued to shareholders. It also requires
that public business enterprises report certain information about their product
and services, the geographic areas in which they operate, and their major
customers. Upon adoption of this pronouncement, additional disclosures will be
required by Farah. This Statement is effective for fiscal years beginning after
December 15, 1997. Earlier application is encouraged. Farah intends to adopt
this statement for its 1998 fiscal year.
11. QUARTERLY UNAUDITED INFORMATION
Quarterly unaudited information for fiscal 1997 compared to fiscal 1996 is
as follows:
<TABLE>
<CAPTION>
FIRST SECOND THIRD FOURTH
QUARTER QUARTER QUARTER QUARTER
----------- ----------- ----------- -----------
(THOUSANDS OF DOLLARS EXCEPT SHARE DATA)
<S> <C> <C> <C> <C>
1997
Net sales........................... $ 61,938 $ 70,771 $ 64,256 $ 76,754
Gross profit........................ 17,708 19,888 16,723 19,610
Net income (loss)................... (1,955) 3,211 (403) (583)
Net income (loss) per share -- basic
and diluted....................... (.19) .31 (.04) (.06)
Weighted average shares of common
stock outstanding -- basic........ 10,191,103 10,265,762 10,276,022 10,278,989
Weighted average shares of common
stock and common stock equivalents
outstanding -- diluted............ 10,191,103 10,543,165 10,276,022 10,278,989
1996
Net sales........................... $ 51,510 $ 64,058 $ 55,973 $ 76,057
Gross profit........................ 13,797 16,134 14,562 19,565
Net income (loss)................... (989) (176) 6,887 1,034
Net income (loss) per
share -- basic.................... (.10) (.02) .68 .10
Net income (loss) per
share -- diluted.................. (.10) (.02) .67 .10
Weighted average shares of common
stock outstanding -- basic........ 10,149,070 10,167,647 10,166,594 10,169,739
Weighted average shares of common
stock and common stock equivalents
outstanding -- diluted............ 10,149,070 10,161,647 10,344,513 10,234,442
</TABLE>
In the first quarter of 1997 an after tax loss of $2.5 million was recorded
related to a loss incurred in one of Farah's Irish facilities, as a result of a
fire.
In the fourth quarter of 1997 an additional after tax loss of $1.1 million
was recorded related to the final disposition of Farah's Irish facilities.
In the third quarter of 1996, Farah sold its Piedras Negras, Mexico
facility, resulting in an after-tax gain of approximately $6.9 million.
F-59
<PAGE> 175
FARAH INCORPORATED AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
12. SUBSEQUENT EVENTS
Subsequent to November 2, 1997, Farah's Board of Directors approved the
closure of Farah's finishing facility in Cartago, Costa Rica and a reduction of
sewing operations in Farah's San Jose, Costa Rica facility. The Cartago
facility, as well as some of the manufacturing equipment in both locations will
be held for sale. Farah expects to record a pre-tax charge of $3.5 to $4.0
million in the first quarter of 1998 on the write-down of these assets to
expected realizable value and the accrual of costs related to severance payments
and other closing expenses. Approximately 680 production and 20 administrative
employees will be terminated between the two facilities. Farah expects the
completion of these events to occur prior to the end of fiscal 1998. This
decision will eliminate certain fixed costs and should result in lower product
costs as Farah sources more goods from Mexico and other lower cost suppliers
(See "Management's Discussion and Analysis of Financial Condition and Results of
Operations -- Risk Factors Affecting Farah's Business and Prospects").
13. RECENT DEVELOPMENT -- MERGER AGREEMENT AND SUPPLEMENTAL COMBINED CONDENSED
FINANCIAL STATEMENTS
Pursuant to a definitive merger agreement dated May 1, 1998, Foxfire
Acquisition Corp., a company formed by Tropical Sportswear Int'l Corporation
("Tropical") in contemplation of the acquisition (the "Acquisition") of Farah
Incorporated will, subject to conditions, acquire all of the issued and
outstanding capital stock of Farah Incorporated. The Acquisition will be
financed through senior subordinated notes of Tropical (the "Notes"). The Notes
will be jointly and severally guaranteed by Tropical's and Farah Incorporated's
domestic subsidiaries. The wholly-owned foreign subsidiaries of Farah
Incorporated will not be guarantors with respect to the Notes and are not
anticipated to have any credit arrangements senior to the Notes except for their
local overdraft facility and capital lease obligations. Proceeds from the Notes
will be used to repay amounts outstanding under Farah Incorporated's Credit
Agreement and to redeem the 8.5% convertible subordinated debentures.
The following are the supplemental combining condensed balance sheets as of
November 2, 1997 and November 3, 1996 and the supplemental combining condensed
statements of operations and of cash flows for each of the three years in the
period ended November 2, 1997. The only intercompany eliminations are the normal
intercompany eliminations with regards to intercompany sales and Farah
Incorporated's investment in the wholly-owned subsidiaries. Separate complete
financial statements of the guarantor subsidiaries are not presented because
management has determined that they are not material to investors.
F-60
<PAGE> 176
FARAH INCORPORATED AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
YEAR ENDED NOVEMBER 2, 1997
<TABLE>
<CAPTION>
NON-
PARENT GUARANTOR GUARANTOR
ONLY SUBSIDIARIES SUBSIDIARIES ELIMINATIONS CONSOLIDATED
------ ------------ ------------ ------------ ------------
(IN THOUSANDS)
<S> <C> <C> <C> <C> <C>
Net sales................................. $ -- $224,051 $65,269 $(15,601) $273,719
Cost of sales............................. -- 167,078 48,313 (15,601) 199,790
----- -------- ------- -------- --------
Gross profit............................ -- 56,973 16,956 -- 73,929
Selling, general and administrative
expenses................................ -- 51,100 15,336 -- 66,436
Termination of foreign operations......... -- 3,493 1,613 -- 5,106
Production conversion expenses............ -- 2,061 -- -- 2,061
Relocation expenses....................... -- 904 -- -- 904
----- -------- ------- -------- --------
Operating income (loss)................. -- (585) 7 -- (578)
Interest, net............................. (141) (3,165) (86) -- (3,392)
Other, net................................ -- (201) 543 -- 342
Equity in earnings of subsidiaries........ 411 -- -- (411) --
----- -------- ------- -------- --------
Income (loss) before income taxes......... 270 (3,951) 464 (411) (3,628)
Income tax provision (benefit)............ -- (4,439) 541 -- (3,898)
----- -------- ------- -------- --------
Net income (loss)............... $ 270 $ 488 $ (77) $ (411) $ 270
===== ======== ======= ======== ========
</TABLE>
YEAR ENDED NOVEMBER 3, 1996
<TABLE>
<CAPTION>
NON-
PARENT GUARANTOR GUARANTOR
ONLY SUBSIDIARIES SUBSIDIARIES ELIMINATIONS CONSOLIDATED
-------- ------------ ------------ ------------ ------------
(IN THOUSANDS)
<S> <C> <C> <C> <C> <C>
Net sales............................... $ -- $199,574 $66,103 $(18,079) $247,598
Cost of sales........................... -- 152,107 49,512 (18,079) 183,540
-------- -------- ------- -------- --------
Gross profit.......................... -- 47,467 16,591 -- 64,058
Selling, general and administrative
expenses.............................. -- 48,271 13,918 -- 62,189
-------- -------- ------- -------- --------
Operating income (loss)............... -- (804) 2,673 -- 1,869
Interest, net........................... (141) (3,006) (84) -- (3,231)
Other, net.............................. -- 10,308 791 -- 11,099
Equity in earnings of subsidiaries...... 6,897 -- -- (6,897) --
-------- -------- ------- -------- --------
Income before income taxes.............. 6,756 6,498 3,380 (6,897) 9,737
Income tax provision.................... -- 2,103 878 -- 2,981
-------- -------- ------- -------- --------
Net income.................... $ 6,756 $ 4,395 $ 2,502 $ (6,897) $ 6,756
======== ======== ======= ======== ========
</TABLE>
F-61
<PAGE> 177
FARAH INCORPORATED AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
YEAR ENDED NOVEMBER 3, 1995
<TABLE>
<CAPTION>
NON-
PARENT GUARANTOR GUARANTOR
ONLY SUBSIDIARIES SUBSIDIARIES ELIMINATIONS CONSOLIDATED
-------- ------------ ------------ ------------ ------------
(IN THOUSANDS)
<S> <C> <C> <C> <C> <C>
Net sales............................... $ -- $193,540 $73,225 $(25,968) $240,797
Cost of sales........................... -- 154,235 57,555 (25,968) 185,822
-------- -------- ------- -------- --------
Gross profit.......................... -- 39,305 15,670 -- 54,975
Selling, general and administrative
expenses.............................. -- 53,872 14,130 -- 68,002
-------- -------- ------- -------- --------
Operating income (loss)............... -- (14,567) 1,540 -- (13,027)
Interest, net........................... (141) (3,441) (144) -- (3,726)
Other, net.............................. -- 1,419 58 -- 1,477
Equity in losses of subsidiaries........ (12,800) -- -- 12,800 --
-------- -------- ------- -------- --------
Income (loss) before income taxes....... (12,941) (16,589) 1,454 12,800 (15,276)
Income tax provision (benefit).......... -- (3,021) 686 -- (2,335)
-------- -------- ------- -------- --------
Net income (loss)............. $(12,941) $(13,568) $ 768 $ 12,800 $(12,941)
======== ======== ======= ======== ========
</TABLE>
NOVEMBER 2, 1997
<TABLE>
<CAPTION>
NON-
PARENT GUARANTOR GUARANTOR
ONLY SUBSIDIARIES SUBSIDIARIES ELIMINATIONS CONSOLIDATED
------- ------------ ------------ ------------ ------------
(IN THOUSANDS)
<S> <C> <C> <C> <C> <C>
ASSETS
Cash..................................... $ -- $ 536 $ 1,796 $ -- $ 2,332
Accounts receivable, net................. -- 36,078 7,490 (515) 43,053
Inventories.............................. -- 60,404 14,388 -- 74,792
Other current assets..................... -- 10,371 480 -- 10,851
------- -------- ------- -------- --------
Total current assets........... -- 107,389 24,154 (515) 131,028
------- -------- ------- -------- --------
Property, plant and equipment, net....... -- 28,756 7,277 -- 36,033
Other assets, net........................ 84,377 (44,758) (239) (30,849) 8,531
------- -------- ------- -------- --------
Total assets................... $84,377 $ 91,357 $31,192 $(31,364) $175,592
======= ======== ======= ======== ========
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities:
Short-term debt and current
installments of long-term debt...... $ -- $ 36,880 $ 3,993 $ -- $ 40,873
Trade payables and other current
liabilities......................... -- 27,078 7,529 (515) 34,092
------- -------- ------- -------- --------
Total current liabilities...... -- 63,958 11,522 (515) 74,965
------- -------- ------- -------- --------
Long-term debt and capital lease
obligations............................ 1,663 12,017 91 -- 13,771
Other noncurrent liabilities............. -- 7,344 385 (3,587) 4,142
Shareholders' equity..................... 82,714 8,068 19,194 (27,262) 82,714
------- -------- ------- -------- --------
Total liabilities and
shareholders' equity......... $84,377 $ 91,387 $31,192 $(31,364) $175,592
======= ======== ======= ======== ========
</TABLE>
F-62
<PAGE> 178
FARAH INCORPORATED AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
NOVEMBER 3, 1996
<TABLE>
<CAPTION>
NON-
PARENT GUARANTOR GUARANTOR
ONLY SUBSIDIARIES SUBSIDIARIES ELIMINATIONS CONSOLIDATED
------- ------------ ------------ ------------ ------------
(IN THOUSANDS)
<S> <C> <C> <C> <C> <C>
ASSETS
Cash..................................... $ -- $ 542 $ 3,235 $ -- $ 3,777
Accounts receivable, net................. -- 33,738 8,283 (350) 41,671
------- -------- ------- -------- --------
Inventories.............................. -- 50,044 11,989 -- 62,033
Other current assets..................... -- 7,915 2,942 -- 10,857
------- -------- ------- -------- --------
Total current assets........... -- 92,239 26,449 (350) 118,338
------- -------- ------- -------- --------
Property, plant and equipment, net....... -- 16,712 8,658 -- 25,370
Other assets, net........................ 83,803 (42,522) (344) (30,782) 10,155
------- -------- ------- -------- --------
Total assets................... $83,803 $ 66,429 $34,763 $(31,132) $153,863
======= ======== ======= ======== ========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Short-term debt and current
installments of long-term debt...... $ -- $ 19,959 $ 2,073 $ -- $ 22,032
Trade payables and other current
liabilities......................... -- 30,065 8,060 (350) 37,775
------- -------- ------- -------- --------
Total current liabilities...... -- 50,024 10,133 (350) 59,807
------- -------- ------- -------- --------
Long-term debt and capital lease
obligations............................ 1,663 2,739 304 -- 4,706
Other noncurrent liabilities............. -- 10,238 475 (3,503) 7,210
Shareholders' equity..................... 82,140 3,428 23,851 (27,279) 82,140
------- -------- ------- -------- --------
Total liabilities and
stockholders' equity......... $83,803 $ 66,429 $34,763 $(31,132) $153,863
======= ======== ======= ======== ========
</TABLE>
F-63
<PAGE> 179
FARAH INCORPORATED AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
YEAR ENDED NOVEMBER 2, 1997
<TABLE>
<CAPTION>
PARENT GUARANTOR NON-GUARANTOR
ONLY SUBSIDIARIES SUBSIDIARIES ELIMINATIONS CONSOLIDATED
------ ------------ ------------- ------------ ------------
(IN THOUSANDS)
<S> <C> <C> <C> <C> <C>
CASH FLOWS FROM (USED IN) OPERATING
ACTIVITIES:
Net income (loss)...................... $ 270 $ 488 $ (77) $(411) $ 270
Adjustments to reconcile net income
(loss) to net cash from (used in)
operating activities:
Depreciation and amortization....... -- 4,968 707 -- 5,675
Other adjustments................... -- (7,768) 1,334 -- (6,434)
Changes in operating assets and
liabilities....................... -- (16,824) 325 -- (16,499)
----- -------- ------- ----- --------
Net cash from (used in)
operating activities......... 270 (19,136) 2,289 (411) (16,988)
----- -------- ------- ----- --------
CASH FLOWS USED IN INVESTING ACTIVITIES:
Purchases of property, plant and
equipment........................... -- (11,059) (993) 434 (11,618)
Proceeds from disposition of property,
plant and equipment................. -- 63 456 (434) 85
----- -------- ------- ----- --------
Net cash used in investing
activities................... -- (10,996) (537) -- (11,533)
----- -------- ------- ----- --------
CASH FLOWS FROM (USED IN) FINANCING
ACTIVITIES:
Net change in debt..................... -- 20,249 1,480 -- 21,729
Net change in equity................... 323 4,152 (4,561) 409 323
Other.................................. (574) 5,725 (91) (17) 5,043
----- -------- ------- ----- --------
Net cash from (used in)
financing activities......... (251) 30,126 (3,172) 392 27,095
----- -------- ------- ----- --------
Effect of exchange rate changes on
cash................................... (19) -- (19) 19 (19)
----- -------- ------- ----- --------
Net decrease in cash..................... -- (6) (1,439) -- (1,445)
Cash, beginning of period................ -- 542 3,235 -- 3,777
----- -------- ------- ----- --------
Cash, end of period...................... $ -- $ 536 $ 1,796 $ -- $ 2,332
===== ======== ======= ===== ========
</TABLE>
F-64
<PAGE> 180
FARAH INCORPORATED AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
YEAR ENDED NOVEMBER 3, 1996
<TABLE>
<CAPTION>
PARENT GUARANTOR NON-GUARANTOR
ONLY SUBSIDIARIES SUBSIDIARIES ELIMINATIONS CONSOLIDATED
------- ------------ ------------- ------------ ------------
<S> <C> <C> <C> <C> <C>
CASH FLOWS FROM (USED IN) OPERATING
ACTIVITIES:
Net income........................... $ 6,756 $ 4,395 $ 2,502 $(6,897) $ 6,756
Adjustments to reconcile net income
to net cash from operating
activities:
Depreciation and amortization..... -- 4,483 951 -- 5,434
Other adjustments................. -- (13,505) 213 -- (13,292)
Changes in operating assets and
liabilities..................... -- 20,043 (3,664) 174 16,553
------- -------- ------- ------- --------
Net cash from operating
activities................. 6,756 15,416 2 (6,723) 15,451
------- -------- ------- ------- --------
CASH FLOWS USED IN INVESTING
ACTIVITIES:
Purchases of property, plant and
equipment......................... -- (559) (3,838) -- (4,397)
Proceeds from disposition of
property, plant and equipment..... -- 21,674 1,015 -- 22,689
------- -------- ------- ------- --------
Net cash from (used in)
investing activities....... -- 21,115 (2,823) -- 18,292
------- -------- ------- ------- --------
CASH FLOWS FROM (USED IN) FINANCING
ACTIVITIES:
Net change in debt................... -- (30,791) (2,611) -- (33,402)
Net change in equity................. 1,336 5,517 287 (5,804) 1,336
Other................................ (8,170) (11,417) 5,347 12,605 (1,635)
------- -------- ------- ------- --------
Net cash from (used in)
financing activities......... (6,834) (36,691) 3,023 6,801 (33,701)
------- -------- ------- ------- --------
Effect of exchange rate changes on
cash................................. 78 -- 78 (78) 78
------- -------- ------- ------- --------
Net increase (decrease) in cash........ -- (160) 280 -- 120
Cash, beginning of period.............. -- 702 2,955 -- 3,657
------- -------- ------- ------- --------
Cash, end of period.................... $ -- $ 542 $ 3,235 $ -- $ 3,777
======= ======== ======= ======= ========
</TABLE>
F-65
<PAGE> 181
FARAH INCORPORATED AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
YEAR ENDED NOVEMBER 3, 1995
<TABLE>
<CAPTION>
PARENT GUARANTOR NON-GUARANTOR
ONLY SUBSIDIARIES SUBSIDIARIES ELIMINATIONS CONSOLIDATED
-------- ------------ ------------- ------------ ------------
<S> <C> <C> <C> <C> <C>
CASH FLOWS FROM (USED IN) OPERATING
ACTIVITIES:
Net income (loss)................... $(12,941) $(13,568) $ 768 $ 12,800 $(12,941)
Adjustments to reconcile net income
(loss) to net cash from (used in)
operating activities:
Depreciation and amortization.... -- 3,088 932 0 4,020
Other adjustments................ -- (5,132) 410 0 (4,722)
Changes in operating assets and
liabilities...................... -- (8,172) 1,374 (210) (7,008)
Net cash from (used in)
operating activities...... (12,941) (23,784) 3,484 12,590 (20,651)
-------- -------- ------- -------- --------
CASH FLOWS USED IN INVESTING
ACTIVITIES:
Purchases of property, plant and
equipment........................ -- (9,616) (2,140) -- (11,756)
Proceeds from disposition of
property, plant and equipment.... -- 1,761 24 -- 1,785
-------- -------- ------- -------- --------
Net cash used in investing
activities................ -- (7,855) (2,116) -- (9,971)
-------- -------- ------- -------- --------
CASH FLOWS FROM (USED IN) FINANCING
ACTIVITIES:
Net change in debt.................. -- 29,031 2,882 -- 31,913
Net change in equity................ 967 2,971 (2,940) (31) 967
Other............................... 11,991 (323) (48) (12,576) (956)
-------- -------- ------- -------- --------
Net cash from (used in)
financing activities...... 12,958 31,679 (106) (12,607) 31,924
-------- -------- ------- -------- --------
Effect of exchange rate changes on
cash................................ (17) -- (17) 17 (17)
-------- -------- ------- -------- --------
Net increase in cash.................. -- 40 1,245 -- 1,285
Cash, beginning of period............. -- 662 1,710 -- 2,372
-------- -------- ------- -------- --------
Cash, end of period................... $ -- $ 702 $ 2,955 $ -- $ 3,657
======== ======== ======= ======== ========
</TABLE>
F-66
<PAGE> 182
- ------------------------------------------------------
- ------------------------------------------------------
NO DEALER, SALESPERSON, OR OTHER PERSON HAS BEEN AUTHORIZED TO GIVE ANY
INFORMATION OR TO MAKE REPRESENTATIONS OTHER THAN THOSE CONTAINED OR
INCORPORATED BY REFERENCE IN THIS PROSPECTUS IN CONNECTION WITH THE OFFERING
COVERED BY THIS PROSPECTUS, AND, IF GIVEN OR MADE, SUCH INFORMATION OR
REPRESENTATIONS MUST NOT BE RELIED UPON AS HAVING BEEN AUTHORIZED BY THE
COMPANY. THIS PROSPECTUS DOES NOT CONSTITUTE AN OFFER TO SELL OR THE
SOLICITATION OF AN OFFER TO BUY ANY OF THE SECURITIES IN ANY JURISDICTION WHERE,
OR TO ANY PERSON TO WHOM, IT IS UNLAWFUL TO MAKE ANY 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 A 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>
Available Information................ ii
Prospectus Summary................... 1
Risk Factors......................... 14
Use of Proceeds...................... 23
Capitalization....................... 25
The Transactions..................... 26
Unaudited Pro Forma Combined
Financial Data..................... 27
Selected Historical Financial
Information of TSI................. 30
Selected Historical Financial
Information of Farah............... 31
Management's Discussion and Analysis
of Financial Condition and Results
of Operations...................... 32
Business............................. 46
Management........................... 62
Principal Shareholders............... 67
Certain Transactions................. 68
Description of the Notes............. 69
Description of Other Indebtedness.... 98
The Exchange Offer................... 101
Certain Federal Income Tax
Considerations..................... 109
Plan of Distribution................. 109
Legal Matters........................ 111
Experts.............................. 111
Index to Financial Statements........ F-1
</TABLE>
- ------------------------------------------------------
- ------------------------------------------------------
- ------------------------------------------------------
- ------------------------------------------------------
TROPICAL SPORTSWEAR INT'L
CORPORATION
OFFER FOR ALL OUTSTANDING
11% SENIOR SUBORDINATED NOTES DUE 2008
IN EXCHANGE FOR
11% SENIOR SUBORDINATED NOTES DUE 2008
REGISTERED UNDER THE SECURITIES
ACT OF 1933
---------------------
PROSPECTUS
---------------------
The Exchange Agent for the Exchange
Offer is:
SUNTRUST BANK, ATLANTA
BY FACSIMILE:
(404) 240-2030
Attention: Susan Knight
Confirm by Telephone:
(404) 240-1952
Attention: Susan Knight
BY OVERNIGHT COURIER:
SUNTRUST BANK, ATLANTA
Corporate Trust Division
3495 Piedmont Road
Building 10, Suite 810
Atlanta, Georgia 30305
BY HAND OR REGISTERED OR CERTIFIED MAIL
SUNTRUST BANK, ATLANTA
c/o First Chicago Trust Company of New York
Corporate Trust
8th Floor
14 Wall Street
New York, NY 10005
, 1998
- ------------------------------------------------------
- ------------------------------------------------------
<PAGE> 183
PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
ITEM 20. INDEMNIFICATION OF DIRECTORS AND OFFICERS.
The Florida Business Corporation Act (the "Florida Act") permits a Florida
corporation to indemnify a present or former director or officer of the
corporation (and certain other persons serving at the request of the corporation
in related capacities) for liabilities, including legal expenses, arising by
reason of service in such capacity if such person shall have acted in good faith
and in a manner he reasonably believed to be in or not opposed to the best
interests of the corporation, and in any criminal proceeding if such person had
no reasonable cause to believe his conduct was unlawful. However, in the case of
actions brought by or in the right of the corporation, no indemnification may be
made with respect to any matter as to which such director or officer shall have
been adjudged liable, except in certain limited circumstances.
The Company's Articles of Incorporation ("Articles") and Bylaws provide
that the Company shall indemnify directors and executive officers to the fullest
extent now or hereafter permitted by the Florida Act. In addition, the Company
may enter into Indemnification Agreements with its directors and executive
officers in which the Company agrees to indemnify such persons to the fullest
extent now or hereafter permitted by the Florida Act.
The indemnification provided by the Florida Act and the Company's Articles
and Bylaws is not exclusive of any other rights to indemnification to which a
director or officer may be entitled. The general effect of the foregoing
provisions may be to reduce the number of circumstances in which an officer or
director may be required to bear the economic burden of the foregoing
liabilities and expenses.
The Company may obtain a liability insurance policy for its directors and
officers as permitted by the Florida Act which may extend to, among other
things, liability arising under the Securities Act of 1933, as amended.
ITEM 21. EXHIBITS AND FINANCIAL STATEMENT SCHEDULES.
(a) The following exhibits are filed as part of this Registration
Statement:
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION
- ------- -----------
<C> <C> <S>
1.1 -- Purchase Agreement dated June 18, 1998 between Tropical
Sportswear Int'l Corporation and Prudential Securities
Incorporated (filed herewith).
2.1 -- Agreement and Plan of Merger dated May 1, 1998 among
Tropical Sportswear Int'l Corporation, Foxfire Acquisition
Corp. and Farah Incorporated (incorporated by reference to
Exhibit (c)(1) to Tropical Sportswear Int'l Corporation's
Schedule 14D-1 filed May 8, 1998).
2.2 -- Agreement and Plan of Merger dated as of August 15, 1997
between Tropical Sportswear Int'l Corporation and Apparel
International Group, Inc. (incorporated by reference to
Exhibit 2.1 to Tropical Sportswear Int'l Corporation's
Annual Report on Form 10-K405 filed December 23, 1997).
2.3 -- Agreement and Plan of Merger dated as of October 23, 1997
among Tropical Sportswear Int'l Corporation, Tropical
Acquisition Corporation and Tropical Sportswear
International Corporation (incorporated by reference to
Exhibit 2.2 to Tropical Sportswear Int'l Corporation's
Annual Report on Form 10-K405 filed December 23, 1997).
2.4 -- Asset Purchase Agreement dated May 20, 1996 among Farah
Incorporated, Farah U.S.A, Inc., Galey & Lord, Inc. and
Galey & Lord Industries Inc. (incorporated by reference to
Exhibit 10.57 to Farah Incorporated's Quarterly Report on
Form 10-Q filed May 5, 1996).
3.1 -- Amended and Restated Articles of Incorporation of Tropical
Sportswear Int'l Corporation (incorporated by reference to
Exhibit 3.1 to Tropical Sportswear Int'l Corporation's
Registration Statement on Form S-1 filed August 15, 1997).
</TABLE>
II-1
<PAGE> 184
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION
- ------- -----------
<C> <C> <S>
3.2 -- Amended and Restated By-Laws of Tropical Sportswear Int'l
Corporation (incorporated by reference to Exhibit 3.2 to
Tropical Sportswear Int'l Corporation's Registration
Statement on Form S-1 filed August 15, 1997).
4.1 -- Specimen Certificate for the Common Stock of Tropical
Sportswear Int'l Corporation (incorporated by reference to
Exhibit 4.1 to Amendment No. 1 to Tropical Sportswear Int'l
Corporation's Registration Statement on Form S-1 filed
October 2, 1997).
4.2 -- Shareholders' Agreement dated as of September 29, 1997 among
Tropical Sportswear Int'l Corporation, William W. Compton,
the Compton Family Limited Partnership, Michael Kagan, the
Kagan Family Limited Partnership, Shakale Internacional,
S.A. and Accel, S.A. de C.V. (incorporated by reference to
Exhibit 4.2 to Amendment No. 1 to Tropical Sportswear Int'l
Corporation's Registration Statement on Form S-1 filed
October 2, 1997).
4.3 -- Exchange and Registration Rights Agreement dated as of June
24, 1998 between Tropical Sportswear Int'l Corporation and
Prudential Securities Incorporated (filed herewith).
4.4 -- Indenture dated as of June 24, 1998 among Tropical
Sportswear Int'l Corporation, the Subsidiary Guarantors
named therein, and SunTrust Bank, Atlanta, as trustee (filed
herewith).
5.1 -- Opinion of Alston & Bird LLP.*
5.2 -- Opinion of Haynes and Boone, LLP.*
5.3 -- Opinion of Mechanik Nuccio Smith & Williams.*
10.1 -- Construction and Term Loan Agreement dated as of May 7, 1996
between Tropical Sportswear Int'l Corporation and SouthTrust
Bank of Alabama, National Association, as amended by
Amendment Nos. 1, 2, 3, 4, 5 and 6 (incorporated by
reference to Exhibit 10.2 to Tropical Sportswear Int'l
Corporation's Registration Statement on Form S-1 filed
August 15, 1997 and to Exhibit 10.2.1 to Tropical Sportswear
Int'l Corporation's Quarterly Report on Form 10-Q filed
February 11, 1998).
10.2 -- Retail -- Domestic Collection Factoring Agreement dated
October 1, 1995, between Heller Financial, Inc. and Tropical
Sportswear Int'l Corporation (incorporated by reference to
Exhibit 10.3 of Tropical Sportswear Int'l Corporation's
Registration Statement on Form S-1 filed August 15, 1997).
10.3 -- Factoring Agreement dated as of June 9, 1998 between
NationsBanc Commercial Corporation and Farah Incorporated
(filed herewith).
10.4 -- Loan and Security Agreement dated June 10, 1998 (the "Loan
and Security Agreement") among Tropical Sportswear Int'l
Corporation, Tropical Sportswear Company, Inc., Savane
International Corp. and Apparel Network Corporation, as
borrowers, the Lenders named therein and Fleet Capital
Corporation, as agent (filed herewith).
10.5 -- First Amendment to the Loan and Security Agreement dated
July 9, 1998 (filed herewith).
10.6 -- Senior Subordinated Loan Agreement (Bridge Facility) dated
as of June 10, 1998 between Tropical Sportswear Int'l
Corporation and Prudential Credit Corporation (filed
herewith).
10.7 -- Employment Agreement effective November 3, 1997 between
William W. Compton and Tropical Sportswear Int'l Corporation
(incorporated by reference to Exhibit 10.4 to Tropical
Sportswear Int'l Corporation's Annual Report on Form 10-K405
filed December 23, 1997).
10.8 -- Employment Agreement effective November 3, 1997 between
Michael Kagan and Tropical Sportswear Int'l Corporation
(incorporated by reference to Exhibit 10.5 to Tropical
Sportswear Int'l Corporation's Annual Report on Form 10-K405
filed December 27, 1997).
10.9 -- Employment Agreement effective November 3, 1997 between
Richard J. Domino and Tropical Sportswear Int'l Corporation
(incorporated by reference to Exhibit 10.6 to Tropical
Sportswear Int'l Corporation's Annual Report on Form 10-K405
filed December 27, 1997).
10.10 -- Employment Agreement dated May 1, 1998 between Richard C.
Allender and Tropical Sportswear Int'l Corporation
(incorporated by reference to Exhibit (c)(5) to Tropical
Sportswear Int'l Corporation's Schedule 14D-1 filed May 8,
1998).
</TABLE>
II-2
<PAGE> 185
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION
- ------- -----------
<C> <C> <S>
10.11 -- Employment Agreement dated June 9, 1998 between Russell G.
Gibson and Farah Incorporated (filed herewith).
10.12 -- Employment Agreement dated June 9, 1998 between Gary J.
Kernaghan and Farah Incorporated (filed herewith).
10.13 -- Employment Agreement dated June 9, 1998 between Polly Vaughn
and Farah Incorporated (filed herewith).
10.14 -- Employment Agreement dated June 9, 1998 between Michael R.
Mitchell and Farah Incorporated (filed herewith).
10.15 -- Employment Agreement dated July 9, 1998 between Gilbert
Martinez and Farah Incorporated (filed herewith).
10.16 -- Employment Agreement dated June 9, 1998 between Jackie L.
Boatman and Farah Incorporated (filed herewith).
10.17 -- Employee Stock Option Plan of Tropical Sportswear Int'l
Corporation (incorporated by reference to Exhibit 10.7 to
Tropical Sportswear Int'l Corporation's Registration
Statement on Form S-1 filed August 15, 1997).
10.18 -- Non-Employee Director Stock Option Plan of Tropical
Sportswear Int'l Corporation (incorporated by reference to
Exhibit 10.8 to Tropical Sportswear Int'l Corporation's
Registration Statement on Form S-1 filed August 15, 1998).
10.19 -- Amended and Restated Farah Savings and Retirement Plan as of
January 1, 1991 (incorporated by reference to Exhibit 10.125
to Farah Incorporated's Annual Report on Form 10-K filed
November 6, 1992).
10.20 -- Addendum to Amended and Restated Farah Savings and
Retirement Plan dated August 22, 1997 (filed herewith).
10.21 -- Amended and Restated Farah U.S.A. Bargaining Unit Pension
Plan dated December 31, 1994, effective as of January 1,
1990 (filed herewith).
10.22 -- Amendment to the Amended and Restated Farah U.S.A.
Bargaining Unit Pension Plan dated December 13, 1995 (filed
herewith).
12.1 -- Statement re: Computation of Ratios (filed herewith).
21.1 -- Subsidiaries of the Registrant (filed herewith).
23.1 -- Consent of Alston & Bird, LLP (included in Exhibit 5.1).
23.2 -- Consent of Haynes and Boone, LLP (included in Exhibit 5.2).
23.3 -- Consent of Mechanik Nuccio Smith & Williams, P.A. (included
in Exhibit 5.3).
23.4 -- Consent of Ernst & Young LLP (filed herewith).
23.5 -- Consent of PricewaterhouseCoopers LLP (filed herewith).
23.6 -- Consent of Arthur Andersen LLP (filed herewith).
24.1 -- Power of Attorney (included in Part II of the Registration
Statement).
25.1 -- Statement of Eligibility of Trustee (filed herewith).
99.1 -- Form of Letter of Transmittal (filed herewith).
</TABLE>
- ---------------
* To be filed by amendment
(b) Financial Statement Schedules.
Schedule II -- Valuation and Qualifying Accounts of Tropical Sportswear
Int'l Corporation (incorporated by reference to such schedule to Tropical
Sportswear Int'l Corporation's Annual Report on Form 10-K405 filed December 27,
1997).
Schedule II -- Valuation and Qualifying Accounts of Farah Incorporated
(incorporated by reference to such schedule to Farah Incorporated's Annual
Report on Form 10-K filed January 28, 1998).
II-3
<PAGE> 186
ITEM 22. UNDERTAKINGS.
(a) The Undersigned registrant hereby undertakes:
(1) To file, during any period in which offers or sales are being
made, a post-effective amendment to this Registration Statement:
(i) To include any prospectus required by Section 10(a)(3) of the
Securities Act of 1933 (the "Securities Act");
(ii) To reflect in the prospectus any facts or events arising after
the effective date of the Registration Statement (or the most recent
post-effective amendment thereof) which, individually or in the
aggregate, represent a fundamental change in the information set forth
in the Registration Statement. Notwithstanding the foregoing, any
increase or decrease in the volume of securities offered (if the total
dollar value of securities offered would not exceed that which was
registered) and any deviation from the low or high and of the estimated
maximum offering range may be reflected in the form of prospectus filed
with the Commission pursuant to Rule 424(b) if, in the aggregate, the
changes in volume and price represent no more than 20% change in the
maximum aggregate offering price set forth in the "Calculation of
Registration Fee" table in the effective Registration Statement;
(iii) To include any material information with respect to the plan
of distribution not previously disclosed in the Registration Statement
or any material change to such information in the Registration
Statement;
(2) That, for the purpose of determining any liability under the
Securities Act, each such post-effective amendment shall be deemed to be a
new registration statement relating to the securities offered therein, and
the offering of such securities at that time shall be deemed to be initial
bona fide offering thereof.
(3) To remove from registration by means of a post-effective amendment
any of the securities being registered which remain unsold at the
termination of the offering.
(b) Insofar as indemnification for liabilities arising under the Securities
Act may be permitted to directors, officers and controlling persons of the
registrant pursuant to the foregoing provisions, or otherwise, the registrant
has been advised that in the opinion of the Securities and Exchange Commission
such indemnification is against public policy as expressed in the Securities Act
and is, therefore, unenforceable. In the event that a claim for indemnification
against such liabilities (other than the payment by the registrant of expenses
incurred or paid by a director, officer or controlling person of the registrant
in the successful defense of any action, suit or proceeding) is asserted by such
director, officer or controlling person in connection with the securities being
registered, the registrant will, unless in the opinion of its counsel the matter
has been settled by controlling precedent, submit to a court of appropriate
jurisdiction the question whether such indemnification by it is against public
policy as expressed in the Securities Act and will be governed by the final
adjudication of such issue.
(c) The undersigned registrant hereby undertakes to respond to requests for
information that is incorporated by reference into the prospectus pursuant to
Item 4, 10(b), 11 or 13 of this form, within one business day of receipt of such
request, and to send the incorporated documents by first class mail or other
equally prompt means. This includes information contained in documents filed
subsequent to the effective date of this registration statement through the date
of responding to the request.
(d) The undersigned registrant hereby undertakes to supply by means of a
post-effective amendment all information concerning a transaction, and the
company being acquired involved therein, that was not the subject of and
included in the registration statement when it became effective.
II-4
<PAGE> 187
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 Tampa, State of Florida,
on August 20, 1998.
TROPICAL SPORTSWEAR INT'L
CORPORATION
By: /s/ WILLIAM W. COMPTON
------------------------------------
William W. Compton
Chairman of the Board and
Chief Executive Officer
POWER OF ATTORNEY
Each person whose signature appears below constitutes and appoints Michael
Kagan and N. Larry McPherson, and each of them, as his or her true and lawful
attorneys-in-fact and agents, with full power of substitution and resubstitution
in each of them, for him or her and in his or her name, place and stead, and in
any and all capacities, to sign any and all amendments (including post-effective
amendments) to this Registration Statement, and to file the same, with all
exhibits thereto and other documents in connection therewith, including any
Registration Statement filed pursuant to Rule 462(b) under the Securities Act of
1933 (the "Securities Act"), with the Securities and Exchange Commission,
granting unto said attorneys-in-fact and agents, and each of them, full power
and authority to do and perform each and every act and thing requisite and
necessary to be done in connection therewith, as fully to all intents and
purposes as he or she might or could do in person, hereby ratifying and
confirming all that said attorneys-in-fact and agents, or either of them, or
their or his substitute or substitutes, may lawfully do or cause to be done by
virtue hereof.
Pursuant to the requirements of the Securities Act, this Registration
Statement has been signed below by the following persons in the capacities
indicated and on the dates indicated.
<TABLE>
<CAPTION>
SIGNATURE TITLE DATES
--------- ----- -----
<C> <S> <C>
/s/ WILLIAM W. COMPTON Chairman of the Board, Chief August 17, 1998
- ----------------------------------------------------- Executive Officer and Director
William W. Compton (principal executive officer)
/s/ MICHAEL KAGAN Executive Vice President, Chief August 20, 1998
- ----------------------------------------------------- Financial Officer, Secretary
Michael Kagan and
Director (principal financial
officer)
/s/ N. LARRY MCPHERSON Executive Vice August 20, 1998
- ----------------------------------------------------- President -- Finance
N. Larry McPherson and Operations and Treasurer
(principal accounting officer)
/s/ RICHARD C. ALLENDER Executive Vice August 17, 1998
- ----------------------------------------------------- President -- Global
Richard C. Allender Affairs and Director
/s/ ELOY S. VALLINA-LAGUERA Director August 20, 1998
- -----------------------------------------------------
Eloy S. Vallina-Laguera
</TABLE>
II-5
<PAGE> 188
<TABLE>
<CAPTION>
SIGNATURE TITLE DATES
--------- ----- -----
<C> <S> <C>
Director
- -----------------------------------------------------
Jesus Alvarez-Morodo
/s/ LESLIE J. GILLOCK Director August 14, 1998
- -----------------------------------------------------
Leslie J. Gillock
/s/ DONALD H. LIVINGSTONE Director August 18, 1998
- -----------------------------------------------------
Donald H. Livingstone
/s/ LEON H. REINHART Director August 17, 1998
- -----------------------------------------------------
Leon H. Reinhart
/s/ CHARLES J. SMITH Director August 18, 1998
- -----------------------------------------------------
Charles J. Smith
</TABLE>
II-6
<PAGE> 189
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 Tampa, State of Florida,
on August 20, 1998.
SAVANE INTERNATIONAL CORP.
By: /s/ WILLIAM W. COMPTON
------------------------------------
William W. Compton
Chairman of the Board and
Chief Executive Officer
POWER OF ATTORNEY
Each person whose signature appears below constitutes and appoints Michael
Kagan and N. Larry McPherson, and each of them, as his or her true and lawful
attorneys-in-fact and agents, with full power of substitution and resubstitution
in each of them, for him or her and in his or her name, place and stead, and in
any and all capacities, to sign any and all amendments (including post-effective
amendments) to this Registration Statement, and to file the same, with all
exhibits thereto and other documents in connection therewith, including any
Registration Statement filed pursuant to Rule 462(b) under the Securities Act of
1933 (the "Securities Act"), with the Securities and Exchange Commission,
granting unto said attorneys-in-fact and agents, and each of them, full power
and authority to do and perform each and every act and thing requisite and
necessary to be done in connection therewith, as fully to all intents and
purposes as he or she might or could do in person, hereby ratifying and
confirming all that said attorneys-in-fact and agents, or either of them, or
their or his substitute or substitutes, may lawfully do or cause to be done by
virtue hereof.
Pursuant to the requirements of the Securities Act, this Registration
Statement has been signed below by the following persons in the capacities
indicated and on the dates indicated.
<TABLE>
<CAPTION>
SIGNATURE TITLE DATES
--------- ----- -----
<C> <S> <C>
/s/ WILLIAM W. COMPTON Chairman of the Board, Chief August 17, 1998
- ----------------------------------------------------- Executive Officer and
William W. Compton Director (principal executive
officer)
/s/ MICHAEL KAGAN Executive Vice President, Chief August 20, 1998
- ----------------------------------------------------- Financial Officer, Secretary
Michael Kagan and Director (principal
financial officer)
/s/ N. LARRY MCPHERSON Executive Vice President -- August 20, 1998
- ----------------------------------------------------- Finance and Operations
N. Larry McPherson (principal accounting
officer)
/s/ ELOY S. VALLINA-LAGUERA Director August 20, 1998
- -----------------------------------------------------
Eloy S. Vallina-Laguera
Director
- -----------------------------------------------------
Jesus Alvarez-Morodo
/s/ LESLIE J. GILLOCK Director August 14, 1998
- -----------------------------------------------------
Leslie J. Gillock
</TABLE>
II-7
<PAGE> 190
<TABLE>
<CAPTION>
SIGNATURE TITLE DATES
--------- ----- -----
<C> <S> <C>
/s/ DONALD H. LIVINGSTONE Director August 18, 1998
- -----------------------------------------------------
Donald H. Livingstone
/s/ LEON H. REINHART Director August 17, 1998
- -----------------------------------------------------
Leon H. Reinhart
</TABLE>
II-8
<PAGE> 191
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 Tampa, State of Florida,
on August 20, 1998.
APPAREL NETWORK CORPORATION
By: /s/ WILLIAM W. COMPTON
------------------------------------
William W. Compton
Chief Executive Officer
POWER OF ATTORNEY
Each person whose signature appears below constitutes and appoints Michael
Kagan and N. Larry McPherson, and each of them, as his or her true and lawful
attorneys-in-fact and agents, with full power of substitution and resubstitution
in each of them, for him or her and in his or her name, place and stead, and in
any and all capacities, to sign any and all amendments (including post-effective
amendments) to this Registration Statement, and to file the same, with all
exhibits thereto and other documents in connection therewith, including any
Registration Statement filed pursuant to Rule 462(b) under the Securities Act of
1933 (the "Securities Act"), with the Securities and Exchange Commission,
granting unto said attorneys-in-fact and agents, and each of them, full power
and authority to do and perform each and every act and thing requisite and
necessary to be done in connection therewith, as fully to all intents and
purposes as he or she might or could do in person, hereby ratifying and
confirming all that said attorneys-in-fact and agents, or either of them, or
their or his substitute or substitutes, may lawfully do or cause to be done by
virtue hereof.
Pursuant to the requirements of the Securities Act, this Registration
Statement has been signed below by the following persons in the capacities
indicated and on the dates indicated.
<TABLE>
<CAPTION>
SIGNATURE TITLE DATES
--------- ----- -----
<C> <S> <C>
/s/ WILLIAM W. COMPTON Chief Executive Officer and August 20, 1998
- ----------------------------------------------------- Director (principal executive
William W. Compton officer)
/s/ MICHAEL KAGAN Executive Vice President, August 20, 1998
- ----------------------------------------------------- Secretary, Treasurer and
Michael Kagan Director (principal financial
officer)
/s/ N. LARRY MCPHERSON Executive Vice President -- August 20, 1998
- ----------------------------------------------------- Finance and Operations
N. Larry McPherson (principal accounting
officer)
/s/ RICHARD J. DOMINO President and Director August 17, 1998
- -----------------------------------------------------
Richard J. Domino
</TABLE>
II-9
<PAGE> 192
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 Tampa, State of Florida,
on August 20, 1998.
TROPICAL SPORTSWEAR COMPANY, INC.
By: /s/ WILLIAM W. COMPTON
------------------------------------
William W. Compton
President
POWER OF ATTORNEY
Each person whose signature appears below constitutes and appoints Michael
Kagan and N. Larry McPherson, and each of them, as his or her true and lawful
attorneys-in-fact and agents, with full power of substitution and resubstitution
in each of them, for him or her and in his or her name, place and stead, and in
any and all capacities, to sign any and all amendments (including post-effective
amendments) to this Registration Statement, and to file the same, with all
exhibits thereto and other documents in connection therewith, including any
Registration Statement filed pursuant to Rule 462(b) under the Securities Act of
1933 (the "Securities Act"), with the Securities and Exchange Commission,
granting unto said attorneys-in-fact and agents, and each of them, full power
and authority to do and perform each and every act and thing requisite and
necessary to be done in connection therewith, as fully to all intents and
purposes as he or she might or could do in person, hereby ratifying and
confirming all that said attorneys-in-fact and agents, or either of them, or
their or his substitute or substitutes, may lawfully do or cause to be done by
virtue hereof.
Pursuant to the requirements of the Securities Act, this Registration
Statement has been signed below by the following persons in the capacities
indicated and on the dates indicated.
<TABLE>
<CAPTION>
SIGNATURE TITLE DATES
--------- ----- -----
<C> <S> <C>
/s/ WILLIAM W. COMPTON President and Director August 17, 1998
- ----------------------------------------------------- (principal executive officer)
William W. Compton
/s/ MICHAEL KAGAN Vice President, Secretary, August 20, 1998
- ----------------------------------------------------- Treasurer and Director
Michael Kagan (principal financial officer)
/s/ N. LARRY MCPHERSON Executive Vice President -- August 20, 1998
- ----------------------------------------------------- Finance and Operations
N. Larry McPherson (principal accounting
officer)
/s/ BARBARA STEEN Director August 20, 1998
- -----------------------------------------------------
Barbara Steen
</TABLE>
II-10
<PAGE> 1
EXHIBIT 1.1
EXECUTION COPY
TROPICAL SPORTSWEAR INT'L CORPORATION
$100,000,000
11% Senior Subordination Notes Due 2008
PURCHASE AGREEMENT
June 18, 1998
PRUDENTIAL SECURITIES INCORPORATED
One New York Plaza
New York, New York 10292
Ladies and Gentlemen:
1. Introductory. Tropical Sportswear Int'l Corporation, a Florida
corporation (the "Company"), proposes, subject to the terms and conditions
stated herein, to issue and sell to Prudential Securities Incorporated (the
"Initial Purchaser") $100,000,000 aggregate principal amount of its 11% Senior
Subordinated Notes Due 2008 (the "Notes"). The Notes will be fully and
unconditionally guaranteed on a senior subordinated basis by all existing
domestic subsidiaries of the Company (the "Subsidiary Guarantors"). Each
Subsidiary Guarantor is listed on Schedule I hereto. The Notes are to be issued
under an indenture, to be dated as of June 24, 1998 (the "Indenture"), by and
among the Company, the Subsidiary Guarantors and SunTrust Bank, Atlanta, as
trustee (the "Trustee").
Pursuant to an Agreement and Plan of Merger dated May 1, 1998 (the
"Merger Agreement") by and among the Company, Foxfire Acquisition Corp.
("Foxfire") and Farah Incorporated ("Farah"), Foxfire, a wholly owned
subsidiary of the Company, commenced a tender offer (the "Tender Offer") to
purchase all of the outstanding shares of common stock, no par value per share,
of Farah (the "Shares"). The Tender Offer was consummated on June 10, 1998.
Pursuant to the Merger Agreement, as soon as practicable after the completion
of the Tender Offer, Foxfire will be merged with and into Farah and Farah will
become a wholly owned subsidiary of the Company (the "Merger" and, together
with the Tender Offer, the "Farah Acquisition"). It is acknowledged and agreed
that, unless the context otherwise requires, for purposes of this Agreement,
(i) all references herein to any subsidiary or subsidiaries of the Company
shall include Farah and its subsidiaries and (ii) the term "subsidiary" shall
mean any corporation, partnership, joint venture, unincorporated organization
or other entity a majority of the equity ownership of which is owned or
controlled, directly or indirectly, by the Company and/or one or more
subsidiaries of the Company.
<PAGE> 2
The Notes will be offered and sold without being registered under the
Securities Act of 1933, as amended (the "Securities Act"), in reliance on
exemptions from the registration requirements thereunder. The Company
understands that the Initial Purchaser will resell a portion of the Notes
inside the United States to qualified institutional buyers ("Qualified
Institutional Buyers") in reliance on Rule 144A under the Securities Act ("Rule
144A") and the remaining Notes outside the United States to persons other than
U.S. persons in reliance on Regulation S under the Securities Act ("Regulation
S").
It is understood and acknowledged that the Initial Purchaser and other
holders (including subsequent transferees) of the Notes will have the
registration rights set forth in the Exchange and Registration Rights Agreement
of even date herewith (the "Registration Rights Agreement") between the Company
and the Initial Purchaser. Pursuant to the Registration Rights Agreement, the
Company has agreed to file with the Securities and Exchange Commission (the
"Commission") (i) a registration statement (the "Exchange Offer Registration
Statement") under the Securities Act registering an issue of 11% senior
subordinated notes due 2008 (the "Exchange Securities") identical in all
material respects to the Notes (except that the Exchange Securities will not
contain terms with respect to transfer restrictions) to be offered in exchange
for the Notes (the "Exchange Offer") and (ii) under certain circumstances
specified in the Registration Rights Agreement, a shelf registration statement
pursuant to Rule 415 under the Securities Act (the "Shelf Registration
Statement").
This Agreement, the Indenture and the Registration Rights Agreement are
referred to herein collectively as the "Operative Documents." Capitalized terms
used and not defined herein shall have the meaning given to such terms in the
Offering Memorandum (as defined herein).
The Company hereby agrees with the Initial Purchaser as follows:
2. Representations and Warranties of the Company. The Company
represents and warrants to, and agrees with, Initial Purchaser that:
(a) A preliminary offering memorandum dated May 29, 1998
and an offering memorandum dated June 18, 1998 have been prepared by the
Company in connection with the offering of the Notes (the preliminary
offering memorandum being hereinafter referred to as the "Preliminary
Offering Memorandum" and the offering memorandum being hereinafter
referred to as the "Offering Memorandum"; any reference to the
Preliminary Offering Memorandum or the Offering Memorandum shall be
deemed to refer to and include the Additional Company Information (as
defined in Section 5(f)), if any). The Preliminary Offering Memorandum
and the Offering Memorandum and any amendments or supplements thereto
did not and will not, as of their respective dates and, with respect to
the Offering Memorandum, as of the Closing Date (as defined herein),
contain any untrue statement of a material fact or omit to state a
material fact necessary in order to make the statements therein, in the
light of the circumstances under which they were made, not misleading.
The foregoing provisions of this paragraph shall not apply to statements
or omissions made in the Preliminary Offering Memorandum or the Offering
Memorandum, or any amendments or supplements thereto, in reliance upon
and in conformity with written information furnished to the Company by
or on behalf of the Initial Purchaser specifically for use therein.
(b) The Company and its affiliates (as defined in Rule
501(b) under the Securities Act) have not, directly or indirectly
through any agent, solicited any offer to buy, sold or offered to sell
(or otherwise negotiate in respect of), any security (as defined in the
Securities Act) which is or would be integrated with the sale of the
Notes in a manner that would require the Notes to be registered under
the Securities Act.
(c) The Company is a corporation duly organized, validly
existing and in good standing under the laws of the State of Florida and
has all requisite power and authority (corporate and other) to own,
lease and operate its properties and conduct its business as described
in the Offering Memorandum and to enter into and perform its obligations
under the Operative Documents. The Company is duly qualified to transact
2
<PAGE> 3
business and is in good standing in each other jurisdiction in which
such qualification is required, whether by reason of the ownership or
leasing of property or the conduct of business, except to the extent
that the failure to so qualify or be in good standing would not have a
material adverse effect on the business, condition (financial or
otherwise), results of operations, prospects, assets, properties or
management of the Company and it subsidiaries taken as a whole (a
"Material Adverse Effect").
(d) Each of the subsidiaries of the Company is a
corporation or other entity duly organized, validly existing and in good
standing under the laws of the jurisdiction of its incorporation or
formation and has all requisite power and authority (corporate and/or
other) to own, lease and operate its properties and conduct its business
as described in the Offering Memorandum and, to the extent it is a party
thereto, to enter into and perform its obligations under the Operative
Documents. Each of the subsidiaries of the Company is duly qualified to
transact business and is in good standing in each other jurisdiction in
which such qualification is required, whether by reason of the ownership
or leasing of property or the conduct of business, except to the extent
that the failure to so qualify or be in good standing would not have a
Material Adverse Effect.
(e) The capitalization of the Company, pro forma for the
Transactions, is as set forth in the Offering Memorandum under the
caption "Capitalization" in the "Pro forma" column. All of the issued
and outstanding shares of capital stock of the Company have been duly
authorized and validly issued and are fully paid and non-assessable and
were not issued in violation of any preemptive or similar rights. All of
the issued and outstanding shares of capital stock of each subsidiary of
the Company have been duly authorized and validly issued, are fully paid
and non-assessable, were not issued in violation of any preemptive or
similar rights and are owned directly or indirectly by the Company, free
and clear of all liens, mortgages, pledges, encumbrances, equities or
claims ("Encumbrances"), except for Encumbrances under the New Credit
Facility.
(f) Ernst & Young LLP, which is reporting upon certain
audited financial statements and related notes of the Company included
in the Offering Memorandum, are independent accountants with respect to
the Company and its subsidiaries in accordance with the provisions of
the Securities Act and the rules and regulations of the Commission
thereunder. Coopers & Lybrand LLP, which is reporting upon certain
audited financial statements and related notes of Farah included in the
Offering Memorandum, are independent accountants with respect to Farah
and its subsidiaries in accordance with the provisions of the Securities
Act and the rules and regulations of the Commission thereunder. Arthur
Andersen, LLP, which is reporting upon certain audited financial
statements and related notes of Farah included in the Offering
Memorandum, are independent accountants with respect to Farah and its
subsidiaries in accordance with the provisions of the Securities Act and
the rules and regulations of the Commission thereunder.
(g) The consolidated financial statements of the Company
and its consolidated subsidiaries, together with the related notes and
schedules thereto, included in the Offering Memorandum present fairly
(i) the financial position of the Company and its consolidated
subsidiaries as of the dates indicated and (ii) the results of
operations and cash flows of the Company and its consolidated
subsidiaries for the periods specified. The consolidated financial
statements of Farah and its consolidated subsidiaries, together with the
related notes and schedules thereto, included in the Offering Memorandum
present fairly (i) the financial position of Farah and its consolidated
subsidiaries as of the dates indicated and (ii) the results of
operations and cash flows for the periods specified. Each of the
foregoing financial statements has been prepared in conformity with
generally accepted accounting principles in the United States applied on
a consistent basis throughout the periods involved. The selected
consolidated financial data set forth under the caption "Selected
Consolidated Financial Data" in the Offering Memorandum present fairly
the information shown therein and have been compiled on a basis
consistent with that of the audited consolidated financial statements
included in the Offering Memorandum. The pro forma combined financial
statements and related notes thereto included in the Offering Memorandum
under the caption "Unaudited Pro Forma Combined Financial Data" present
fairly the information shown therein, have been prepared in accordance
with the
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<PAGE> 4
Commission's rules and guidelines with respect to pro forma financial
statements, and have been properly compiled on the pro forma bases
described therein and (x) the assumptions underlying the pro forma
adjustments are reasonable, (y) such adjustments are appropriate to give
effect to the transactions or circumstances referred to therein and have
been properly applied to the historical amounts in the compilation of
such statements and (z) such statements fairly present, with respect to
the Company and its consolidated subsidiaries, the combined pro forma
financial position and results of operations and other information
purported to be shown therein at the respective dates or for the
respective periods therein specified.
(h) Each of the Company and its subsidiaries maintains a
system of internal accounting controls sufficient to provide reasonable
assurances that (i) transactions are executed in accordance with
management's general or specific authorization, (ii) transactions are
recorded as necessary to permit preparation of financial statements in
conformity with generally accepted accounting principles and to maintain
accountability for assets, (iii) access to assets is permitted only in
accordance with management's general or specific authorization, and (iv)
the recorded accountability for assets is compared with the existing
assets at reasonable intervals and appropriate action is taken with
respect to any differences.
(i) Subsequent to the date as of which information is
given in the Offering Memorandum, (i) the Company and its subsidiaries
have not incurred any material liability or obligation, direct or
contingent, nor entered into any material transaction not in the
ordinary course of business, (ii) the Company has not purchased any of
its outstanding capital stock, nor declared, paid or otherwise made any
dividend or distribution of any kind on its capital stock, and (iii)
there has not been any material change in the capital stock, short-term
debt or long-term debt of the Company and its consolidated subsidiaries,
except in each case as described in or contemplated by the Offering
Memorandum.
(j) Subsequent to the date as of which information is
given in the Offering Memorandum, the Company and its subsidiaries have
not sustained any material loss or interference with their business or
properties from fire, flood, hurricane, accident or other calamity,
whether or not covered by insurance, or from any labor dispute or any
legal or governmental proceeding and there has not been any material
adverse change any development involving a prospective material adverse
change, in the business, condition (financial or otherwise), results of
operations, prospects, assets, properties or management of the Company
and its subsidiaries taken as a whole, except in each case as described
in or contemplated by the Offering Memorandum.
(k) This Agreement has been duly authorized, executed and
delivered by the Company.
(l) The execution and delivery of the Indenture has been
duly authorized by the Company and each of the Subsidiary Guarantors,
and, when executed and delivered by the Company and the Subsidiary
Guarantors in accordance with the terms thereof, will constitute a valid
and binding obligation of the Company and each Subsidiary Guarantor,
enforceable against the Company and each Subsidiary Guarantor in
accordance with its terms, subject, as to enforcement, to bankruptcy,
insolvency, reorganization and other laws of general applicability
relating to or affecting creditors' rights and to general equity
principles (regardless of whether enforcement is sought in a proceeding
in equity or at law).
(m) The execution, issuance and delivery of the Notes have
been duly authorized by the Company and, on the Closing Date, will have
been duly executed by the Company. When executed, authenticated, issued
and delivered in the manner provided for in the Indenture and delivered
against payment of the purchase price therefor as provided in this
Agreement, the Notes (A) will constitute valid and binding obligations
of the Company, enforceable against the Company in accordance with their
terms, subject, as to enforcement, to bankruptcy, insolvency,
reorganization and other laws of general applicability relating to or
affecting creditors' rights and to general equity principles (regardless
of whether enforcement is sought in a
4
<PAGE> 5
proceeding in equity or at law) and (B) will be in the form contemplated
by, and entitled to the benefits of, the Indenture.
(n) The execution, issuance and delivery of the Exchange
Notes have been duly authorized by the Company. When executed,
authenticated, issued and delivered in exchange for the Notes in the
manner provided for in the Indenture, the Exchange Notes (A) will
constitute valid and binding obligations of the Company, enforceable
against the Company in accordance with their terms, subject, as to
enforcement, to bankruptcy, insolvency, reorganization and other laws of
general applicability relating to or affecting creditors' rights and to
general equity principles (regardless of whether enforcement is sought
in a proceeding in equity or at law) and (B) will be in the form
contemplated by, and entitled to the benefits of, the Indenture.
(o) The Registration Rights Agreement has been duly
authorized, executed and delivered by the Company and constitutes a
valid and binding obligation of the Company, enforceable against the
Company in accordance with its terms, subject, as to enforcement, to
bankruptcy, insolvency, reorganization and other laws of general
applicability relating to or affecting creditors' rights and to general
equity principles (regardless of whether enforcement is sought in a
proceeding in equity or at law) and except that any rights to indemnity
and contribution may be limited under federal and state securities laws
and public policy considerations.
(p) The Merger and the Merger Agreement have been duly
authorized and approved by all necessary corporate action on the part of
the Company and Farah. The Merger Agreement has been duly authorized,
executed and delivered by the Company and Farah and constitutes a valid
and binding obligation of the Company and Farah, enforceable against the
Company and Farah in accordance with its terms, subject, as to
enforcement, to bankruptcy, insolvency, reorganization and other laws of
general applicability relating to or affecting creditors' rights and
general equitable principles (regardless of whether enforcement is
sought in a proceeding in equity or at law). A certificate of merger
relating to the Merger has been filed with the Secretary of State of the
State of Texas and the Merger has become effective under the laws of the
State of Texas. The Tender Offer was conducted in a manner that complied
with the Exchange Act and the rules and regulations of the Commission
thereunder, and the Tender Offer has been consummated.
(q) To the extent the statements set forth in the Offering
Memorandum under the captions "Risk Factors--Import and Import
Restrictions," "Risk Factors--Limitation on Subsidiary Guarantees and
the Parent Guarantee; Fraudulent Conveyance Concerns," "The
Transactions," "Business--Imports and Import Regulations,"
"Business--Legal Proceedings," "Description of the Notes," "Exchange
Offer; Registration Rights Agreement," "Description of Other
Indebtedness" and "United States Federal Income and Estate Taxation"
constitute summaries of any law, statute, legal proceeding or document
(or provisions thereof) referred to therein, such statements are true
and correct in all material respects. The Notes, the Indenture and the
Registration Rights Agreement, conform to the descriptions thereof in
the Offering Memorandum.
(r) None of the Company or any of its subsidiaries is (i)
in violation of its respective organizational documents or (ii) in
default in the performance or observance of any obligation, agreement,
covenant or condition contained in any contract, indenture, mortgage,
deed of trust, loan or credit agreement, note, lease or other agreement
or instrument to which the Company or any such subsidiary is a party or
by which the Company or any such subsidiary is bound or to which any of
the property or assets of the Company or any such subsidiary is subject
(collectively, "Agreements and Instruments"), except for such violations
or defaults that could not reasonably expected to result in a Material
Adverse Effect. The execution, delivery and performance of the Operative
Documents by the Company and the Subsidiary Guarantors party thereto,
the issuance, sale and delivery of the Notes by the Company and the
consummation of the transactions contemplated by the Operative Documents
do not and will not (with or without the giving of notice or the passage
of time or both) (i) constitute a breach of, or default or Repayment
Event (as defined below) under, or result in the creation or imposition
of any Encumbrance upon any property or assets of the Company or
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<PAGE> 6
any of its subsidiaries pursuant to, the Agreements and Instruments or
(ii) result in any violation of (A) the provisions of the respective
organizational documents of the Company or any of its subsidiaries or
(B) any law, statute, rule or regulation, or any judgment, order, writ
or decree of any court or governmental authority, applicable to the
Company or any of its subsidiaries or any of their respective assets or
properties. As used herein, a "Repayment Event" means any event or
condition which gives the holder of any note, debenture or other
evidence of indebtedness (or any person acting on such holder's behalf)
the right to require the repurchase, redemption or repayment of all or a
portion of such indebtedness by the Company or any of the Subsidiary
Guarantors.
(s) No filing with, or authorization, approval, consent,
license, order, registration, qualification or decree of, any court or
governmental authority or agency or quasi-governmental agency is
necessary or required on behalf of the Company or the Subsidiary
Guarantors for the issuance, sale and delivery of the Notes by the
Company or for the execution, delivery or performance by the Company and
the Subsidiary Guarantors of the Operative Documents except, such as may
be required (A) under the Securities Act, the Exchange Act or the Trust
Indenture Act of 1939, as amended, and the rules and regulations under
such Acts with respect to the Registration Rights Agreement and the
transactions contemplated thereby or (B) by state securities or blue sky
laws.
(t) Except as set forth in the Offering Memorandum, there
are no legal or governmental proceedings or investigations pending or,
to the knowledge of the Company, threatened, to which the Company or any
of its subsidiaries is a party or to which any of their respective
properties is subject that (i) would materially and adversely affect the
subject matter of the Operative Documents or the consummation of the
transactions contemplated thereby or (ii) if determined adversely to the
Company or any such subsidiary, could reasonably be expected to have a
Material Adverse Effect. The aggregate of all pending legal or
governmental proceedings that are not disclosed in the Offering
Memorandum to which the Company or any of its subsidiaries is a party or
which affect any of their respective properties, including ordinary
routine litigation incidental to the business of the Company or any of
its subsidiaries, could not reasonably be expected to have a Material
Adverse Effect.
(u) No labor dispute with the employees of the Company or
any of its subsidiaries exists or, to the knowledge of the Company, is
imminent or threatened that could reasonably be expected to result in a
Material Adverse Effect.
(v) Each of the Company and its subsidiaries has good and
valid title in fee simple to all real property, and title to all
personal property, owned by each of them and necessary to conduct the
business now operated by them, in each case free and clear of all
Encumbrances except such as do not materially and adversely affect the
value of such property and do not materially interfere with the use made
or proposed to be made of such property by the Company or such
subsidiary, and any real property and buildings held under lease by the
Company or such subsidiary and necessary to conduct the business now
operated by them, are held under valid, subsisting and enforceable
leases, with such exceptions as are not material and do not materially
interfere with the use made or proposed to be made of such property and
buildings by the Company or such subsidiary, in each case, other than
those arising pursuant to the New Credit Facility.
(w) The Company and its subsidiaries own or possess, or
can acquire on reasonable terms, all patents, patent rights, licenses,
inventions, copyrights, know-how (including trade secrets and other
unpatented and/or unpatentable proprietary or confidential information,
systems or procedures), trademarks, service marks, trade names or other
intellectual property (collectively, "Intellectual Property") necessary
to carry on the business now carried on by them. Except as disclosed in
the Offering Memorandum, none of the Company or any of its subsidiaries
has received any notice or is otherwise aware of any infringement of or
conflict with asserted rights of others with respect to any Intellectual
Property or of any facts or circumstances which would render any
Intellectual Property invalid or inadequate to protect the interest of
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<PAGE> 7
the Company or its subsidiaries therein, and which infringement or
conflict or invalidity or inadequacy, individually or in the aggregate,
could reasonably be expected to have a Material Adverse Effect.
(x) Each of the Company and its subsidiaries owns or
possesses such permits, licenses, approvals, consents and other
authorizations (collectively, "Governmental Licenses") of the
appropriate federal, state, local or foreign regulatory and
quasi-regulatory agencies or bodies necessary to conduct any business
now conducted by them and as contemplated to be conducted by them upon
consummation of the transactions contemplated under this Agreement,
except where the failure to possess such Governmental Licenses could
not, individually or in the aggregate, reasonably be expected to have a
Material Adverse Effect. Each of the Company and its subsidiaries is in
compliance with the terms and conditions of all such Governmental
Licenses, except where the failure to comply would not, individually or
in the aggregate, have a Material Adverse Effect. All of the
Governmental Licenses are, and upon consummation of the transactions
contemplated under this Agreement will be, valid and in full force and
effect, except where the invalidity of such Governmental Licenses or the
failure of such Governmental Licenses to be in full force and effect
could not reasonably be expected to have a Material Adverse Effect. None
of the Company or any of its subsidiaries has received any notice of
proceedings relating to the revocation or modification of any such
Governmental Licenses which, individually or in the aggregate, could
reasonably be expected to result in a Material Adverse Effect.
(y) Each of the Company, and its subsidiaries has filed
any federal, state, local and foreign tax returns that are required to
be filed or has duly requested extensions thereof (except where the
failure to so file could not reasonably be expected to have a Material
Adverse Effect) and has paid all taxes required to be paid by any of
them and any related assessments, fines or penalties, except for any
such tax, assessment, fine or penalty that is being contested in good
faith and by appropriate proceedings.
(z) Except as described in the Offering Memorandum or
except as could not, individually or in the aggregate, reasonably be
expected to have a Material Adverse Effect, (A) none of the Company, or
the Company's subsidiaries is in violation of any federal, state, local
or foreign statute, law, rule, regulation, ordinance or code, or rule of
common law or any judicial or administrative interpretation thereof,
including any applicable judicial or administrative order, consent,
decree or judgment, regulating, or imposing liability concerning,
pollution, the protection of human health or the environment (including,
without limitation, ambient air, surface water, groundwater, land
surface or subsurface strata) or wildlife, including, without
limitation, laws and regulations relating to the release or threatened
release of chemicals, pollutants, contaminants, wastes, toxic
substances, hazardous substances, petroleum or petroleum products
(collectively, "Hazardous Materials") or to the manufacture, processing,
distribution, use, treatment, storage, disposal, transport or handling
of Hazardous Materials (collectively, "Environmental Laws"), (B) there
is no action, suit, proceeding or investigation (including, without
limitation, a claim for remediation) now pending or, to the knowledge of
the Company, threatened, under any Environmental Laws to which the
Company or any of its subsidiaries is a party, (C) the Company and its
subsidiaries have all permits, authorizations and approvals required
under any applicable Environmental Laws and are in compliance with such
requirements and (D) there are no administrative, regulatory or judicial
actions, suits, demands, demand letters, claims, liens, notices of
noncompliance or violation, investigations or proceedings relating in
any way to Environmental Laws pending or to the knowledge of the
Company, threatened against the Company or any of its subsidiaries.
(aa) Except as described in the Offering Memorandum, there
are no persons with registration rights or other similar rights to have
any securities registered by the Company under the Securities Act upon
the filing of the Exchange Offer Registration Statement or the Shelf
Registration Statement.
(bb) No subsidiary of the Company is currently prohibited,
directly or indirectly, from paying any dividends to the Company, from
making any other distribution on such subsidiary's capital stock, from
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<PAGE> 8
repaying to the Company any loans or advances from the Company, or from
transferring any of such subsidiary's property or assets to the Company
or any subsidiary of the Company, other than those arising pursuant to
the New Credit Facility.
(cc) The Company and each of its subsidiaries carry, or are
covered by, insurance in such amounts and covering such risks as is
customary for companies engaged in similar businesses in similar
industries. Neither the Company nor any of its subsidiaries has been
refused any insurance coverage sought or applied for by reason of loss
experience. Neither the Company nor any of its subsidiaries has any
reason to believe that it will not be able to renew its existing
insurance coverage as and when such coverage expires or to obtain
similar coverage from similar insurers as may be necessary to continue
its business at a cost that could not have a Material Adverse Effect.
(dd) Neither of the Company or any of the Subsidiary
Guarantors is, or upon the issuance and sale of the Notes as herein
contemplated and the application of the net proceeds as described in the
Offering Memorandum will be, an "investment company", as such terms is
defined in the Investment Company Act of 1940, as amended (the
"Investment Company Act").
(ee) The Notes are eligible for resale pursuant to Rule
144A and will not be, on the Closing Date, of the same class (within the
meaning of Rule 144A) as securities of the Company that are listed on a
national securities exchange registered under Section 6 of the Exchange
Act or quoted in a U.S. automated interdealer quotation system.
(ff) None of the Company, any of its affiliates (as defined
in Rule 501 under the Securities Act) or any person acting on its behalf
through any agent (other than the Initial Purchaser and its affiliates
as to which no representation is made) has engaged or will engage in any
form of general solicitation or general advertising (within the meaning
of Rule 502(c) under the Securities Act) in connection with the offering
of the Notes in the United States.
(gg) Assuming (i) that the representations and warranties
of the Initial Purchaser set forth in Section 4 hereof are true and (ii)
the compliance by the Initial Purchasers with the covenants and
agreements set forth in Section 4 hereof, it is not necessary in
connection with the offer, sale and delivery of the Notes to the Initial
Purchaser under, or in connection with the initial resale of such Notes
by the Initial Purchaser in accordance with, this Agreement to register
the Notes under the Securities Act or to qualify any indenture in
respect of the Notes under the Trust Indenture Act of 1939, as amended.
(hh) With respect to those Notes sold in reliance on
Regulation S, (i) none of the Company, any of its affiliates (as defined
in Rule 501 under the Securities Act) or any person acting on its or
their behalf (other than the Initial Purchaser and its affiliates as to
which no representation is made) has engaged or will engage in any
directed selling efforts (within the meaning of Regulation S) in the
United States and (ii) each of the Company, its affiliates and any
person acting on its or their behalf (other than the Initial Purchaser
and its affiliates as to which no representation is made) has complied
and will comply with the offering restrictions requirement of Regulation
S.
(ii) The Company has not, directly or indirectly, (i) taken
any action designed to cause or to result in, or that has constituted or
which might reasonably be expected to constitute, the stabilization or
manipulation of the price of any security of the Company, to facilitate
the sale or resale of the Notes or (ii) except pursuant to this
Agreement (A) sold, bid for, purchased, or paid anyone any compensation
for soliciting purchases of, the Notes or (B) paid or agreed to pay to
any person any compensation for soliciting another to purchase any other
Notes of the Company.
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<PAGE> 9
3. Purchase Sale and Delivery of the Securities.
(a) On the basis of the representations, warranties, agreements and
covenants herein contained and subject to the terms and conditions herein set
forth herein, the Company agrees to issue and sell to the Initial Purchaser,
and the Initial Purchaser agrees to purchase from the Company, the Notes at a
purchase price of 97.25% of the principal amount thereof, plus accrued interest
from June 24, 1998, if any, to the Closing Date.
(b) Notes to be purchased will be represented (i) in the case of
Notes purchased by the Initial Purchaser, by one or more definitive global
Notes in book-entry form which will be deposited by or on behalf of the Company
with The Depository Trust Company ("DTC") or its designated custodian and (ii)
in the case of Notes purchased by an affiliate or agent of the Initial
Purchaser outside the United States (the "International Purchaser"), by one or
more definitive global Notes in book-entry form which will be deposited by or
on behalf of the Company with DTC or its designated custodian for the benefit
of Cedel Bank, Societe Anonyme, as operator of the Euroclear System, for credit
to the account of such International Purchaser unless otherwise directed by
such International Purchaser. The Company will deliver the Notes to Prudential
Securities Incorporated against payment by or on behalf of the Initial
Purchaser of the purchase price therefor by wire transfer to the Company in
Federal (same day) funds, by causing DTC to credit the Notes to the respective
accounts of Prudential Securities Incorporated and the International Purchaser,
as the case may be, at DTC. The Company will cause the certificates
representing the Notes to be made available to Prudential Securities
Incorporated for checking at least twenty-four hours prior to the Closing Date
(as defined below) at the office of DTC or its designated custodian (the
"Designated Office"). The time and date of such delivery and payment shall be,
with respect to the Notes, 9:30 a.m., New York City time, on June 24, 1998 or
such other time and date as Prudential Securities Incorporated and the Company
may agree upon in writing. Such time and date are herein called the "Closing
Date."
(c) The documents to be delivered at the Closing Date by or on behalf
of the parties hereto pursuant to Section 7 hereof, including the cross-receipt
for the Notes and any additional documents requested by the Initial Purchaser
pursuant to Section 7(g) hereof, will be delivered at such time and date at the
offices of King & Spalding, 1185 Avenue of the Americas, New York, NY 10036
(the "Closing Location"), and the Notes will be delivered at the Designated
Office, all at the Closing Date. A meeting will be held at the Closing Location
at 1:00 p.m., New York City time, on the New York Business Day next preceding
the Closing Date, at which meeting the final drafts of the documents to be
delivered pursuant to the preceding sentence will be available for review by
the parties hereto. For the purposes of this Section 3, "New York Business Day"
shall mean each Monday, Tuesday, Wednesday, Thursday and Friday which is not a
day on which banking institutions in New York are generally authorized or
obligated by law or executive order to close.
(d) It is understood and acknowledged that upon original issuance
thereof, and until such time as the same is no longer required under the
applicable requirements of the Securities Act, the Notes (and all securities in
exchange therefor or in substitution thereof), shall bear a legend to the
following effect:
THE SECURITIES EVIDENCED HEREBY HAVE NOT BEEN REGISTERED UNDER
THE U.S. SECURITIES ACT OF 1933 (THE "SECURITIES ACT") AND MAY
NOT BE REOFFERED, RESOLD, PLEDGED OR OTHERWISE TRANSFERRED EXCEPT
(A) (1) TO A PERSON WHOM THE TRANSFEROR REASONABLY BELIEVES IS A
QUALIFIED INSTITUTIONAL BUYER WITHIN THE MEANING OF RULE 144A
UNDER THE SECURITIES ACT IN A TRANSACTION MEETING THE
REQUIREMENTS OF RULE 144A, (2) IN AN OFFSHORE TRANSACTION MEETING
THE REQUIREMENTS OF RULE 903 OR RULE 904 OF REGULATION S UNDER
THE SECURITIES ACT, (3) TO AN INSTITUTION THAT IS AN ACCREDITED
INVESTOR WITHIN THE MEANING OF RULE 501(A)(1), (2), (3) OR (7) OF
REGULATION D UNDER THE SECURITIES ACT IN A TRANSACTION EXEMPT
FROM THE REGISTRATION REQUIREMENTS OF THE SECURITIES ACT, (4)
PURSUANT TO AN
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EXEMPTION FROM REGISTRATION UNDER THE SECURITIES ACT PROVIDED BY
RULE 144 THEREUNDER (IF AVAILABLE) OR (5) PURSUANT TO AN
EFFECTIVE REGISTRATION STATEMENT UNDER THE SECURITIES ACT, AND
(B) IN ACCORDANCE WITH ALL APPLICABLE SECURITIES LAWS OF THE
STATES AND OTHER JURISDICTIONS OF THE UNITED STATES.
Each Note issued in the form of a global certificate shall also bear the
following legend on the face thereof:
UNLESS THIS CERTIFICATE IS PRESENTED BY AN AUTHORIZED
REPRESENTATIVE OF THE DEPOSITORY TRUST COMPANY, A NEW YORK
CORPORATION ("DTC"), TO THE COMPANY OR ITS AGENT FOR REGISTRATION
OF TRANSFER, EXCHANGE OR PAYMENT, AND ANY CERTIFICATE ISSUED IS
REGISTERED IN THE NAME OF CEDE & CO. OR THE NAME OF SUCH OTHER
ENTITY AS IS REQUESTED BY AN AUTHORIZED REPRESENTATIVE OF DTC
(AND ANY PAYMENT HEREON IS MADE TO CEDE & CO. OR TO SUCH OTHER
ENTITY AS IS REQUESTED BY AN AUTHORIZED REPRESENTATIVE OF DTC),
ANY TRANSFER, PLEDGE OR OTHER USE HEREOF FOR VALUE OR OTHERWISE
BY OR TO ANY PERSON IS WRONGFUL SINCE THE REGISTERED OWNER
HEREOF, CEDE & CO., HAS AN INTEREST HEREIN.
TRANSFERS OF THIS GLOBAL SECURITY SHALL BE LIMITED TO TRANSFERS
IN WHOLE, BUT NOT IN PART, TO NOMINEES OF CEDE & CO. OR TO A
SUCCESSOR THEREOF OR SUCH SUCCESSOR'S NOMINEE AND TRANSFERS OF
PORTIONS OF THIS GLOBAL SECURITY SHALL BE LIMITED TO TRANSFERS
MADE IN ACCORDANCE WITH THE RESTRICTIONS SET FORTH IN THE
INDENTURE UNDER WHICH THIS GLOBAL SECURITY IS ISSUED.
4. Representations, Warranties and Covenants of the Initial
Purchaser.
(a) The Initial Purchaser represents and warrants that it is an
institutional accredited investor as defined under Regulation D of the
Securities Act.
(b) The Initial Purchaser understands that no action has been taken
in any jurisdiction by the Company that would permit a public offering of the
Notes in any jurisdiction where action would be required for such purpose. The
Initial Purchaser represents and agrees that it has not offered, sold or
delivered and it will not offer, sell or deliver any of the Notes in any
jurisdiction except under circumstances that will result in compliance with the
applicable laws thereof, and that it will take at its own expense whatever
action is required to permit its purchase and resale of the Notes in any such
jurisdiction (other than in the United States). Each such offer or sale shall
only be made (i) to persons whom the Initial Purchaser reasonably believes to
be Qualified Institutional Buyers into or (ii) to non-U.S. persons outside the
United States (which shall include dealers or other professional fiduciaries in
the United States acting on a discretionary basis for beneficial owners (other
than an estate or trust) that are non-U.S. persons) to whom the Initial
Purchaser reasonably believes offers and sales of the Notes may be made in
reliance upon Regulation S) and applicable securities legislation of the
relevant jurisdiction.
(c) Neither it nor any person acting on its behalf has engaged or
will engage in any form of general solicitation or general advertising (within
the meaning of Rule 502(c)) in connection with the sale of the Notes in the
United States.
(d) The Initial Purchaser will take reasonable steps to inform, and
cause each of its affiliates to take reasonable steps to inform, persons
acquiring Notes from the Initial Purchaser or such affiliate, as the case may
be, in the United States (the "Subsequent Purchasers") that the Notes (i) have
not been and will not be registered under
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<PAGE> 11
the Securities Act, (ii) are being sold to them without registration under the
Securities Act in reliance on Rule 144A or in accordance with another exemption
from registration under the Securities Act, as the case may be, and (iii) may
not be offered, sold or otherwise transferred except (A) to the Company, (B)
outside the United States in accordance with Rule 904 of Regulation S or (C)
inside the United States in accordance with (x) Rule 144A to a person whom the
seller reasonably believes is a Qualified Institutional Buyer that is
purchasing such Notes for its own account or for the account of a Qualified
Institutional Buyer to whom notice is given that the offer, sale or transfer is
being made in reliance on Rule 144A or (y) pursuant to another available
exemption from registration under the Securities Act or (D) pursuant to an
effective registration statement under the Securities Act.
(e) The transfer restrictions set forth under "Notice to Investors"
in the Offering Memorandum, including the legend required thereby, shall apply
to the Notes except as otherwise agreed by the Company and the Initial
Purchaser.
(f) The Initial Purchaser understands that the Notes have not been
and will not be registered under the Securities Act and may not be offered or
sold within the United States or to, or for the account or benefit of, U.S.
persons except in accordance with Regulation S under the Securities Act or
pursuant to an exemption from the registration requirements of the Securities
Act. The Initial Purchaser severally represents, warrants and agrees that it
has offered and sold Notes and will offer and sell Notes (i) as part of its
distribution at any time and (ii) otherwise until forty days after the later of
the date upon which the offering of the Notes commences and the Closing Date,
only (x) outside the United States in accordance with Rule 903 of Regulation S
or (y) to a Qualified Institutional Buyer in transactions that meet the
requirements of Rule 144A under the Securities Act. Accordingly, neither the
Initial Purchaser, its affiliates nor any person acting on its behalf has
engaged or will engage in any directed selling efforts with respect to Notes,
and the Initial Purchaser, its affiliates and any person acting on its behalf
has complied and will comply with the offering restriction requirements of
Regulation S. The Initial Purchaser agrees that, at or prior to confirmation of
a sale of Notes (other than a sale of Notes pursuant to Rule 144A), it will
have sent to each distributor, dealer or person receiving a selling concession,
fee or other remuneration that purchases Notes from it or through it during the
restricted period a confirmation or notice to substantially the following
effect:
"The Notes covered hereby have not been registered
under the United States Securities Act of 1933 (the
"Securities Act") and may not be offered or sold
within the United States or to or for the account or
benefit of U.S. persons (i) as part of their distribution
at any time and (ii) otherwise until forty days after the
later of the date upon which the offering of the Notes
commenced and the date of closing, except in either case
in accordance with Regulation S or another exemption from
the registration requirements of the Securities Act. Terms
used above have the meaning given them by Regulation S."
Terms used in the above paragraph have the meaning given to them by
Regulation S.
(g) The Initial Purchaser severally represents and agrees that it
has not entered and will not enter into any contractual arrangements with
respect to the distribution of the Notes, except with its affiliates or with
the prior written consent of the Company.
(h) The Initial Purchaser represents and agrees that (i) it has not
offered or sold and prior to the date six months after the Closing Date will
not offer or sell any Notes to persons in the United Kingdom except to persons
whose ordinary activities involve them in acquiring, holding, managing or
disposing of investments (as principal or agent) for the purposes of their
businesses or otherwise in circumstances which have not resulted and will not
result in an offer to the public in the United Kingdom within the meaning of
the Public Offers of Securities Regulations 1995, (b) it has complied, and will
comply, with all applicable provisions of the Financial Services Act of 1986 of
Great Britain with respect to anything done by it in relation to the Notes in,
from or otherwise involving the United Kingdom, and (c) it has only issued or
passed on and will only issue or pass on in the United Kingdom any document
received by it in connection with the issuance of the Notes to a person who is
of a kind described in
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Article 11(3) of the Financial Services Act 1986 (Investment Advertisements)
(Exemptions) Order 1996 of Great Britain or is a person to whom the document
may otherwise lawfully be issued or passed on.
5. Covenants of the Company. The Company covenants and agrees with
the Initial Purchaser that:
(a) The Company will, without charge, provide to the
Initial Purchaser as many copies of the Preliminary Offering Memorandum
or the Offering Memorandum or any amendment or supplement thereto as the
Initial Purchaser and its counsel may reasonably request, in each case
as soon as available; without limiting the application of this sentence,
the Company, not later than 10:00 a.m., New York City time, on the
business day following the date of determination of the offering price
(or such other time and/or day mutually agreed upon by the Company and
the Initial Purchaser), will deliver to the Initial Purchaser, without
charge, as many copies of the Offering Memorandum and any amendment or
supplement thereto as the Initial Purchaser may reasonably request for
purposes of confirming orders that are expected to settle on the Closing
Date.
(b) If at any time when the Offering Memorandum is
required to be used in connection with the offer and sale in the United
States of the Notes by the Initial Purchaser as contemplated hereunder,
any event occurs as a result of which the Offering Memorandum as then
amended or supplemented would include an untrue statement of a material
fact or omit to state any material fact necessary in order to make the
statements therein, in the light of the circumstances under which they
were made, not misleading, or if it is necessary at such time to amend
or supplement the Offering Memorandum to comply with any applicable law,
the Company will promptly prepare an amendment or supplement which will
correct such statement or omission or effect such compliance (except
that in case the Initial Purchaser is required to deliver an offering
memorandum under applicable law in connection with the offer or sale of
Notes at any time more than nine months after the Closing Date, the cost
of such preparation and furnishing of such amended or supplemented
offering memorandum shall be borne by the Initial Purchaser of such
Notes), and the Company will not effect any amendment or supplement to
the Offering Memorandum without the consent of the Initial Purchaser,
which consent will not be unreasonably withheld. Neither the Initial
Purchaser's consent to, nor the delivery by the Initial Purchaser of,
any such amendment or supplement shall constitute a waiver of any of the
conditions set forth in Section 7.
(c) The Company will advise the Initial Purchaser promptly
of any proposal to amend or supplement the Offering Memorandum and will
not effect such amendment or supplement without the consent of the
Initial Purchaser (except to the extent any such amendment or supplement
objected to is necessary, in the judgment of counsel to the Company, to
make the statements in the Offering Memorandum, in the light of the
circumstances under which they were made, not misleading), such consent
not to be reasonably withheld. Neither the consent of the Initial
Purchaser, nor the Initial Purchaser's delivery of any such amendment or
supplement, shall constitute a waiver of any of the conditions set forth
in Section 7 hereof
(d) The Company will arrange for the qualification of the
Notes for offering and sale under the securities or blue sky laws of
such jurisdictions as the Initial Purchaser may designate and will
continue such qualifications in effect for as long as may be necessary
to complete the distribution of the Notes, provided that in connection
therewith the Company shall not be required (i) qualify as a foreign
corporation or as a broker or dealer in securities in any jurisdiction
where it would not otherwise be required to so qualify but for this
Section 5(d), (ii) file any general consent to service of process in any
jurisdiction where it is not at the Closing Date then so subject or
(iii) subject to itself to taxation in any such jurisdiction if it is
not so subject. The Company will promptly advise the Initial Purchaser
of the receipt by the Company of any notification with respect to the
suspension of the qualification of the Notes for sale in any
jurisdiction or the initiation or, to the extent the Company has
knowledge thereof, the threatening of any proceeding for such purpose.
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<PAGE> 13
(e) The Company will furnish to the Initial Purchaser, on
the Closing Date, two copies of each of the independent auditors'
reports included in the Offering Memorandum signed by the respective
auditors rendering such reports.
(f) If at any time the Company is not subject to Section
13 or 15(d) of the Exchange Act, the Company will furnish, upon request,
to any holder of the Notes and prospective purchasers of the Notes,
copies of the information required to be delivered to holders pursuant
to Rule 144A(d)(4) to permit compliance with Rule 144A in connection
with resales of the Notes (the "Additional Company Information").
(g) During the period of two years after the later of the
Closing Date, the Company will, upon request, furnish to the Initial
Purchaser and any holder of Notes a copy of the restrictions on transfer
applicable to such Notes.
(h) During the period of two years after the Closing Date,
the Company will not, and will not permit any of its "affiliates" (as
defined in Rule 144 under the Securities Act) to, resell any Notes which
constitute "restricted securities" under Rule 144 that have been
reacquired by any of them.
(i) The Company will apply the net proceeds from the sale
of the Notes in the manner set forth under "Use of Proceeds" in the
Offering Memorandum.
(j) During a period of 180 days from the date of the
Offering Memorandum, the Company shall not, without the prior written
consent of the Initial Purchaser, offer, sell, contract to sell or
otherwise dispose of (or announce any of the foregoing) any
non-convertible debt securities issued or guaranteed by the Company or
securities of the Company that are convertible into, or exchangeable
for, the Notes or such other non-convertible debt securities.
(k) Neither the Company nor any subsidiary of the Company
shall solicit any offer to buy or offer or sell the Notes by means of
any form of general solicitation or general advertising (within the
meaning of Rule 502(c) under the Securities Act) in a manner which would
result in the proposed sale of the Notes in accordance with this
Agreement and the Offering Memorandum failing to be exempt from the
registration requirements of the Securities Act or take any other action
that would have required the registration of the resale by the Initial
Purchaser of the Notes under the Securities Act.
(l) The Company will not, nor will it permit any of its
affiliates (as defined in Rule 501(b) under the Securities Act) to,
sell, offer for sale or solicit offers to buy or otherwise negotiate in
respect of any security (as defined in the Securities Act) the offering
of which security could be integrated with sale of the Notes in a manner
which would require the registration of the Notes under the Securities
Act.
(m) The Company shall use reasonable best efforts in
cooperation with the Initial Purchaser to permit the Notes to be
eligible for clearance and settlement through the Depository Trust
Company, Cedel and Euroclear.
(n) For three years from the date of the Offering
Memorandum, the Company will furnish to the Initial Purchaser, as soon
as practicable after the end of its fiscal year, a copy of its annual
report to stockholders for such year; and the Company will furnish to
the Initial Purchaser as soon as available, a copy of each report or
definitive proxy statement of the Company filed with the Commission
under the Exchange Act or mailed to stockholders.
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<PAGE> 14
(o) The Company will use its best efforts in cooperation
with the Initial Purchaser to permit the Notes to be designated PORTAL
securities in accordance with the rules and regulations adopted by the
National Association of Securities Dealers, Inc. (the "NASD") relating
to trading in the PORTAL market.
(p) Neither the Company nor any of the Subsidiary
Guarantors will be or become, at any time prior to the expiration of two
years after the Closing Date, an open-end investment company, unit
investment trust, closed-end investment company or face-amount
certificate company that is or is required to be registered under
Section 8 of the Investment Company Act.
(q) Until such time as any Note is exchanged for an
Exchange Note pursuant to the Exchange Offer Registration Statement, to
include a legend on the Notes to the effect set forth under "Notice to
Investors" in the Offering Memorandum.
6. Expenses. The Company will pay all costs and expenses incident to
the performance of its obligations under this Agreement, whether or not the
transactions contemplated herein are consummated or this Agreement is
terminated pursuant to Section 11 hereof, including all costs and expenses (i)
incident to the preparation and delivery of the Notes in global and definitive
forms, the preparation and printing of the Preliminary Offering Memorandum and
the Offering Memorandum and all other amendments and supplements thereto and
the mailing and delivering of copies thereof to the Initial Purchaser; (ii) of
the Company's counsel and accountants and listing agents in connection with the
issuing and listing of the Notes, (iii) incurred in connection with the
approval of the Notes for trading in the PORTAL market and the registration or
qualification and determination of eligibility for investment of the Notes
under the laws of such jurisdictions as the Initial Purchaser may designate
(including all counsel fees), (iv) in connection with the preparation, printing
(including word processing and duplication costs) and delivery of this
Agreement, the Operative Documents and any Preliminary and Supplemental Blue
Sky Memoranda, including mailing and shipping, (v) payable to rating agencies
in connection with the rating of the Notes, (vi) the reasonable fees and
expenses of the Trustee, any successor Trustee and any agent of any trustee;
(vii) any "road show" meetings with prospective investors in the Notes (other
than as shall have been specifically approved by the Initial Purchaser to be
paid for by the Initial Purchaser). If the sale of the Notes provided for
herein is not consummated because any condition to the obligations of the
Initial Purchaser set forth in Section 7 hereof is not satisfied, because this
Agreement is terminated pursuant to Section 10 hereof (other than Sections
10(a)(iii), (iv) or (v)) or because of any failure, refusal or inability on the
part of the Company to perform all obligations and satisfy all conditions on
its part to be performed or satisfied hereunder other than by reason of a
default by the Initial Purchaser, the Company will reimburse the Initial
Purchaser upon demand for all out-of-pocket expenses (including counsel fees
and disbursements) that shall have been incurred by them in connection with the
proposed purchase and sale of the Notes. The Company shall not in any event be
liable to the Initial Purchaser for the loss of anticipated profits from the
transactions covered by this Agreement.
7. Conditions of the Obligations of the Initial Purchaser. The
obligations of the Initial Purchaser to purchase and pay for the Notes shall be
subject, in the sole discretion of the Initial Purchaser, to the accuracy of
the representations and warranties of the Company contained herein as of the
date hereof and as of the Closing Date, as if made on and as of the Closing
Date, to the accuracy of the certifications, representations and warranties of
the Company's officers made pursuant to the provisions hereof, to the
performance by the Company of its covenants and agreements hereunder and to the
following additional conditions:
(a) Subsequent to the execution and delivery of this
Agreement, (i) there shall not have occurred any downgrading in the
rating of the Notes or of any debt securities of the Company by any
"nationally recognized statistical rating organization" (as defined for
purposes of Rule 436(g) under the Securities Act), or any public
announcement that any such organization has under surveillance or review
its rating of the Notes or of any debt securities of the Company other
than an announcement with positive implications of a possible upgrading,
and no implication of a possible downgrading, of such rating; (ii) no
order or decree preventing the use of the Offering Memorandum or any
amendment or supplement thereto, or any order of
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<PAGE> 15
any court or governmental agency or quasi-governmental agency asserting
that the transactions contemplated by this Agreement are subject to the
registration requirements of the Securities Act, shall have been issued
and no proceedings by any court, governmental agency or quasi-government
agency for that purpose shall have been commenced or shall be pending
or, to the knowledge of the Company, be contemplated and no stop order
suspending the sale of the Notes in any jurisdiction designated by the
Initial Purchaser shall have been issued and no proceedings for that
purpose shall have been commenced or shall be pending or, to the
knowledge of the Company, shall be contemplated; (iii) the Initial
Purchaser shall not have discovered or disclosed to the Company that the
Offering Memorandum or any amendment or supplement thereto contains an
untrue statement of fact which, in the Initial Purchaser's opinion, is
material or fails to state a fact which is material or is necessary to
make the statements therein, in light of the circumstances under which
they are made, not misleading; or (iv) there shall not have occurred any
invalidation of Rule 144A or Regulation S under the Securities Act by
any court or any withdrawal or proposed withdrawal of any rule or
regulation under the Securities Act or the Exchange Act by the
Commission or any amendment or proposed amendment thereof by the
Commission which in the judgment of the Initial Purchaser would
materially impair the ability of the Initial Purchaser to purchase, hold
or effect resales of the Notes as contemplated hereby.
(b) The Initial Purchaser shall have received an opinion,
dated the Closing Date, of Alston & Bird LLP, counsel for the Company,
to the effect that:
(i) Tropical Sportswear Company, Inc. is a
corporation duly incorporated, validly existing and in good
standing under the laws of the jurisdiction of its incorporation
and has the corporate power and authority to own, lease and
operate its properties and conduct its business as described in
the Offering Memorandum and, to the extent it is a party thereto,
to enter into and perform its obligations under the Operative
Documents. Such counsel shall also confirm that each of the
Company and the Subsidiary Guarantors is qualified to transact
business as a foreign corporation in the states set forth on an
exhibit to such opinion and that such confirmation is based
solely upon certificates provided by agencies of such states,
copies of which the Company shall have delivered to the Initial
Purchaser on the Closing Date, and is limited to the meaning
ascribed to such certificates by each applicable state agency.
(ii) The authorized equity capitalization of the
Company is as set forth in the Offering Memorandum under the
caption "Capitalization."
(iii) This Agreement has been duly authorized,
executed and delivered by the Company.
(iv) The Indenture has been duly authorized,
executed and delivered by the Company and each of the Subsidiary
Guarantors and (assuming due execution and delivery thereof by
the Trustee) constitutes a valid and binding obligation of the
Company and each Subsidiary Guarantor, enforceable against the
Company and each Subsidiary Guarantor in accordance with its
terms, subject, as to enforcement, to bankruptcy, insolvency,
reorganization and other laws of general applicability relating
to or affecting creditors' rights and to general equity
principles (regardless of whether enforcement is sought in a
proceeding in equity or at law).
(v) The execution, issuance and delivery of the
Notes have been duly authorized by the Company and, when
executed, authenticated, issued and delivered in the manner
provided for in the Indenture (assuming due authorization,
execution and delivery of the Indenture by the Trustee) and
delivered against payment of the purchase price therefor as
provided in this Agreement, the Notes (A) will constitute valid
and binding obligations of the Company, enforceable against the
Company in accordance with their terms, subject, as to
enforcement, to bankruptcy, insolvency, reorganization and other
laws of general applicability relating to or affecting creditors'
rights and to general equity
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<PAGE> 16
principles (regardless of whether enforcement is sought in a
proceeding in equity or at law) and (B) are in the form
contemplated by, and entitled to the benefits of, the Indenture.
(vi) The execution, issuance and delivery of the
Exchange Notes have been duly authorized by the Company. When
executed, authenticated, issued and delivered in exchange for the
Notes in the manner provided for in the Indenture, (assuming due
authorization, execution and delivery of the Indenture by the
Trustee), the Exchange Notes (A) will constitute valid and
binding obligations of the Company, enforceable against the
Company in accordance with their terms, subject, as to
enforcement, to bankruptcy, insolvency, reorganization and other
laws of general applicability relating to or affecting creditors'
rights and to general equity principles (regardless of whether
enforcement is sought in a proceeding in equity or at law) and
(B) will be entitled to the benefits of the Indenture.
(vii) The Registration Rights Agreement has been duly
authorized, executed and delivered by the Company and constitutes
a valid and binding obligation of the Company, enforceable
against the Company in accordance with its terms, subject, as to
enforcement, to bankruptcy, insolvency, reorganization and other
laws of general applicability relating to or affecting creditors'
rights and to general equity principles (regardless of whether
enforcement is sought in a proceeding in equity or at law) and
except that any rights to indemnity and contribution may be
limited under federal and state securities laws and public policy
considerations.
(viii) The Merger Agreement has been duly authorized and
approved by all necessary corporate action on the part of the
Company, Foxfire and Farah. The Merger Agreement has been duly
executed and delivered by the Company, Foxfire and Farah and
constitutes a valid and binding obligation of the Company,
Foxfire and Farah, enforceable against the Company and Farah in
accordance with its terms, subject, as to enforcement, to
bankruptcy, insolvency, reorganization and other laws of general
applicability relating to or affecting creditors' rights and
general equitable principles (regardless of whether enforcement
is sought in a proceeding in equity or at law). The Merger has
become effective under the laws of the State of Texas. The Tender
Offer was conducted in a manner that complied with the Exchange
Act and the rules and regulations of the Commission thereunder.
(ix) To the extent the statements set forth in the
Offering Memorandum under the captions "Risk Factors--Limitation
on Subsidiary Guarantees and the Parent Guarantee; Fraudulent
Conveyance Concerns," "The Transactions," "Business--Legal
Proceedings," "Description of the Notes," "Exchange Offer;
Registration Rights Agreement," "Description of Other
Indebtedness" and "United States Federal Income and Estate
Taxation" constitute summaries of any law, statute, legal
proceeding or document (or provisions thereof) referred to
therein, such statements fairly summarize in all material
respects such law, statute, legal proceeding or document (or
provisions thereof) referred to therein. The Notes, the Indenture
and the Registration Rights Agreement, conform in all material
respects to the descriptions thereof in the Offering Memorandum.
(x) The execution, delivery and performance of the
Operative Documents by the Company and the Subsidiary Guarantors
parties thereto, the issuance, sale and delivery of the Notes by
the Company and the consummation of the transactions contemplated
by the Operative Documents do not (i) constitute a breach of, or
default or Repayment Event under, or result in the creation or
imposition of any Encumbrance upon any property or assets of the
Company or any of its subsidiaries pursuant to the Agreements and
Instruments filed as exhibits to the Annual Report on Form 10-K
of the Company or Farah for the fiscal years ended September 27,
1997 and November 2, 1997, respectively, or otherwise set forth
on an exhibit to such opinion or (ii) result in any violation of
(A) the provisions of the respective organizational documents of
the Company or any of its subsidiaries or (B) any law, statute,
rule or regulation, or any judgment, order, writ or decree of any
court or governmental
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<PAGE> 17
authority known to such counsel, applicable to the Company or any
of its subsidiaries or any of their respective assets or
properties.
(xi) No filing with, or authorization, approval,
consent, license, order, registration, qualification or decree
of, any court or governmental authority or agency or
quasi-governmental agency is necessary or required on behalf of
the Company or the Subsidiary Guarantors for the issuance, sale
and delivery of the Notes by the Company or for the execution,
delivery or performance by the Company and the Subsidiary
Guarantors of the Operative Documents except, such as may be
required (A) under the Securities Act, the Exchange Act or the
Trust Indenture Act of 1939, as amended, and the rules and
regulations under such Acts with respect to the Registration
Rights Agreement and the transactions contemplated thereby or (B)
by state securities or blue sky laws.
(xii) To such counsel's knowledge, except as set forth
in the Offering Memorandum, there are no legal or governmental
proceedings or investigations pending or threatened to which the
Company or any of its subsidiaries is a party or to which any of
their respective properties is subject that would be required to
be disclosed in the Offering Memorandum if it was a prospectus
included in a registration statement on Form S-1.
(xiii) Neither the Company or any of the Subsidiary
Guarantors is, or upon the issuance and sale of the Notes as
herein contemplated and the application of the net proceeds as
described in the Offering Memorandum will be, an "investment
company", as such terms is defined in the Investment Company.
(xiv) Assuming (A) that the representations and
warranties of the Initial Purchaser set forth in Section 4 hereof
are true and (B) the compliance by the Initial Purchasers with
the covenants and agreements set forth in Section 4 hereof, it is
not necessary in connection with the offer, sale and delivery of
the Notes to the Initial Purchaser under, or in connection with
the initial resale of such Notes by the Initial Purchaser in
accordance with, this Agreement to register the Notes under the
Securities Act or to qualify any indenture in respect of the
Notes under the Trust Indenture Act of 1939, as amended.
Such counsel shall also state that, although such counsel is not
passing upon and does not assume any responsibility for and has not
verified the accuracy, completeness or fairness of the statements
contained in the Offering Memorandum, and has not made any independent
verification thereof, nothing has come to their attention that causes
them to believe that the Offering Memorandum (other than the financial
statements and notes thereto and other financial and statistical data
included therein, as to which such counsel need express no belief), as
of its date and at the Closing Date, contained or contains any untrue
statement of a material fact or omitted or omits to state a material
fact necessary to make the statements therein, in the light of the
circumstances under which they were made, not misleading.
In rendering any such opinion, such counsel may rely, as to
matters of fact, to the extent such counsel deems proper, on
certificates of responsible officers of the Company and public
officials.
(c) The Initial Purchaser shall have received an opinion,
dated the Closing Date, of Machanik, Nuccio, Smith & Williams, P.A.,
Florida, counsel for the Company, to the effect set forth in clauses
(i), (ii), (iv) and (v) below, and of Haynes and Boone LLP, Texas
counsel to the Company, to the effect set forth in clause (iii) below:
(i) The Company is a corporation duly
incorporated, validly existing and in good standing under the
laws of the State of Florida and has the corporate power and
authority to own, lease and
17
<PAGE> 18
operate its properties and conduct its business as described in
the Offering Memorandum and to enter into and perform its
obligations under the Operative Documents.
(ii) Apparel Network Corporation is a corporation
duly incorporated, validly existing and in good standing under
the laws of the jurisdiction of its incorporation and has the
corporate power and authority to own, lease and operate its
properties and conduct its business as described in the Offering
Memorandum and, to the extent it is a party thereto, to enter
into and perform its obligations under the Operative Documents.
(iii) Savane International Corp. (f/k/a Farah
Incorporated) is a corporation duly incorporated, validly
existing and in good standing under the laws of the jurisdiction
of its incorporation and has the corporate power and authority to
own, lease and operate its properties and conduct its business as
described in the Offering Memorandum and, to the extent it is a
party thereto, to enter into and perform its obligations under
the Operative Documents.
(iv) All of the issued and outstanding shares of
capital stock of each subsidiary of the Company have been duly
authorized and validly issued, are fully paid and non-assessable,
were not issued in violation of any preemptive or similar rights
and are owned directly or indirectly by the Company, free and
clear of all Encumbrances.
(v) To such counsel's knowledge, except as set
forth in the Offering Memorandum, there are no legal or
governmental proceedings or investigations pending or threatened
to which any of the Company or any of its subsidiaries is a party
or to which any of their respective properties is subject that
(i) would materially and adversely affect the subject matter of
the Operative Documents or the consummation of the transactions
contemplated thereby or (ii) would, if determined adversely to
the Company or any of its subsidiaries, have a Material Adverse
Effect.
(d) The Initial Purchaser shall have received an opinion,
dated the Closing Date, of King & Spalding, counsel for the Initial
Purchaser, with respect to the issuance and sale of the Notes, the
Offering Memorandum, and such other related matters as the Initial
Purchaser may reasonably require, and the Company shall have furnished
to such counsel such documents as they may reasonably request for the
purpose of enabling them to pass upon such matters.
(e) The Initial Purchaser shall have received from Ernst &
Young LLP a letter or letters dated, respectively, the date hereof and
the Closing Date, in form and substance satisfactory to the Initial
Purchaser that:
(i) they are independent accountants with
respect to the Company under Rule 101 of the AICPA's Code of
Professional Conduct and its interpretation and rulings;
(ii) in their opinion, the audited financial
statements and schedules of the Company included in the Offering
Memorandum comply as to form in all material respects with the
applicable accounting requirements of the Securities Act and the
related published rules and regulations;
(iii) on the basis of their limited review in
accordance with standards established by the American Institute
of Certified Public Accountants of any interim unaudited
financial statements of the Company included in the Offering
Memorandum, carrying out certain specified procedures (which do
not constitute an examination made in accordance with generally
accepted auditing standards) that would not necessarily reveal
matters of significance with respect to the comments set forth in
this paragraph (iii), a reading of the minute books of the
stockholders, the board of directors and any committees thereof
of the Company, officials of the Company, and inquiries of
certain
18
<PAGE> 19
officials of the Company who have responsibility for financial
and accounting matters, nothing came to their attention that
caused them to believe that:
(A) the unaudited financial statements of the
Company included in the Offering Memorandum do not comply
as to form in all material respects with the applicable
accounting requirements of the Securities Act and the
related published rules and regulations thereunder or are
not in conformity with generally accepted accounting
principles applied on a basis substantially consistent
with that of the audited financial statements included in
the Offering Memorandum;
(B) at a specific date not more than five
business days prior to the date of such letter, there was
any change in the capital stock or increase in long-term
debt of the Company or any decreases in net current assets
or stockholders' equity or other items specified by the
Initial Purchaser, in each case compared with amounts
shown on the April 4, 1998 consolidated balance sheet
included in the Offering Memorandum, or for the period
from April 4, 1998 to such specified date there were any
decreases in the net sales or income before income taxes
or net income of the Company, or any increases in any
items specified by the Initial Purchaser, in each case as
compared with the comparable period of the preceding year,
except in all instances for changes, decreases or
increases set forth in such letter;
(iv) they have carried out certain specified
procedures (as requested by the Initial Purchaser), not
constituting an audit, with respect to certain amounts,
percentages and financial information that are derived from the
general accounting records of the Company and are included in the
Offering Memorandum, and have compared such amounts, percentages
and financial information with such records of the Company or
with information derived from such records and have found them to
be in agreement, excluding any questions of legal interpretation;
and
(v) on the basis of a reading of the unaudited pro
forma financial data included in the Offering Memorandum,
carrying out certain specified procedures that would not
necessarily reveal matters of significance with respect to the
comments set forth in this paragraph (v), inquiries of certain
officials of the Company who have responsibility for financial
and accounting matters and proving the arithmetic accuracy of the
application of the pro forma adjustments to the historical
amounts in the unaudited pro forma financial data, nothing came
to their attention that caused them to believe that the unaudited
pro forma financial data do not comply in form in all material
respects with the applicable accounting requirements of Rule
11-02 of Regulation S-X or that the pro forma adjustments have
not been properly applied to the historical amounts in the
compilation of such date.
In the event that the letters referred to above set forth any
such changes, decreases or increases, it shall be a further condition to
the obligations of the Initial Purchaser that (i) such letters shall be
accompanied by a written explanation of the Company as to the
significance thereof, unless the Initial Purchaser deems such
explanation unnecessary, and (ii) such changes, decreases or increases
do not, in the sole judgment of the Initial Purchaser, make it
impractical or inadvisable to proceed with the purchase and delivery of
the Notes as contemplated by the Offering Memorandum, as amended as of
the date hereof.
References to the Offering Memorandum in this paragraph (e), with
respect to either letter referred to above shall include any amendment
or supplement thereto at the date of such letter.
(f) The Initial Purchaser shall have received from Coopers
& Lybrand LLP a letter or letters dated, respectively, the date hereof
and the Closing Date, in form and substance satisfactory to the Initial
Purchaser that:
19
<PAGE> 20
(i) they are independent accountants with respect to
Farah under Rule 101 of the AICPA's Code of Professional Conduct
and its interpretation and rulings;
(ii) in their opinion, the audited financial
statements and schedules of Farah included in the Offering
Memorandum for the years ended November 3, 1996 and November 2,
1997 comply as to form in all material respects with the
applicable accounting requirements of the Securities Act and the
related published rules and regulations;
(iii) on the basis of their limited review in
accordance with standards established by the American Institute
of Certified Public Accountants of any interim unaudited
financial statements of Farah included in the Offering
Memorandum, carrying out certain specified procedures (which do
not constitute an examination made in accordance with generally
accepted auditing standards) that would not necessarily reveal
matters of significance with respect to the comments set forth in
this paragraph (iii), a reading of the minute books of the
stockholders, the board of directors and any committees thereof
of Farah, officials of Farah, and inquiries of certain officials
of Farah who have responsibility for financial and accounting
matters, nothing came to their attention that caused them to
believe that:
(A) the unaudited financial statements of
Farah included in the Offering Memorandum do not comply as
to form in all material respects with the applicable
accounting requirements of the Act and the related
published rules and regulations thereunder or are not in
conformity with generally accepted accounting principles
applied on a basis substantially consistent with that of
the audited financial statements included or incorporated
by reference in the Offering Memorandum;
(B) at a specific date not more than five
business days prior to the date of such letter, there was
any change in the capital stock or increase in long-term
debt of the Company or any decreases in net current assets
or stockholders' equity or other items specified by the
Initial Purchaser, in each case compared with amounts
shown on the February 1, 1998 consolidated balance sheet
included in the Offering Memorandum, or for the period
from February 1, 1998 to such specified date there were
any decreases in the net sales or total or per share
amounts of income before income taxes or net income of the
Company, or any increases in any items specified by the
Initial Purchaser, in each case as compared with the
comparable period of the preceding year, except in all
instances for changes, decreases or increases set forth in
such letter;
(iv) they have carried out certain specified
procedures (as requested by the Initial Purchaser), not
constituting an audit, with respect to certain amounts,
percentages and financial information that are derived from the
general accounting records of Farah and are included in the
Offering Memorandum, and have compared such amounts, percentages
and financial information with such records of Farah or with
information derived from such records and have found them to be
in agreement, excluding any questions of legal interpretation.
In the event that the letters referred to above set forth any
such changes, decreases or increases, it shall be a further condition to
the obligations of the Initial Purchaser that (i) such letters shall be
accompanied by a written explanation of Farah as to the significance
thereof, unless the Initial Purchaser deems such explanation
unnecessary, and (ii) such changes, decreases or increases do not, in
the sole judgment of the Initial Purchaser, make it impractical or
inadvisable to proceed with the purchase and delivery of the Notes as
contemplated by the Offering Memorandum, as amended as of the date
hereof.
References to the Offering Memorandum in this paragraph (f), with
respect to either letter referred to above shall include any amendment
or supplement thereto at the date of such letter.
20
<PAGE> 21
(g) The Initial Purchaser shall have received from Arthur
Anderson LLP a letter or letters dated, respectively, the date hereof
and the Closing Date, in form and substance satisfactory to the Initial
Purchaser that:
(i) they are independent accountants with respect
to Farah under Rule 101 of the AICPA's Code of Professional
Conduct and its interpretation and rulings;
(ii) in their opinion, the audited financial
statements and schedules of Farah included in the Offering
Memorandum for the year ended November 3, 1995 comply as to form
in all material respects with the applicable accounting
requirements of the Securities Act and the related published
rules and regulations;
(iii) they have carried out certain specified
procedures (as requested by the Initial Purchaser), not
constituting an audit, with respect to certain amounts,
percentages and financial information that are derived from the
general accounting records of Farah and are included in the
Offering Memorandum, and have compared such amounts, percentages
and financial information with such records of Farah or with
information derived from such records and have found them to be
in agreement, excluding any questions of legal interpretation.
In the event that the letters referred to above set forth any
such changes, decreases or increases, it shall be a further condition to
the obligations of the Initial Purchaser that (i) such letters shall be
accompanied by a written explanation of Farah as to the significance
thereof, unless the Initial Purchaser deems such explanation
unnecessary, and (ii) such changes, decreases or increases do not, in
the sole judgment of the Initial Purchaser, make it impractical or
inadvisable to proceed with the purchase and delivery of the Notes as
contemplated by the Offering Memorandum, as amended as of the date
hereof.
References to the Offering Memorandum in this paragraph (g), with
respect to either letter referred to above shall include any amendment
or supplement thereto at the date of such letter.
(h) The Initial Purchaser shall have received a certificate
dated the Closing Date, of the Chief Executive Officer and Chief
Financial Officer of the Company, on behalf of the Company, to the
effect that:
(i) the representations and warranties of the
Company in this Agreement are true and correct as if made on and
as of the Closing Date; the Offering Memorandum, as amended as of
the Closing Date, does not include any untrue statement of a
material fact or omit to state any material fact necessary in
order to make the statements therein, in the light of the
circumstances under which they were made, not misleading; and the
Company has performed all covenants and agreements and satisfied
all conditions on their part to be performed or satisfied at or
prior to the Closing Date;
(ii) no order or decree preventing the use of the
Offering Memorandum or any amendment or supplement thereto, or
any order of any court or governmental agency or
quasi-governmental agency asserting that the transactions
contemplated by this Agreement are subject to the registration
requirements of the Securities Act, have been issued and no
proceedings by any court or governmental agency or
quasi-governmental agency for that purpose have been commenced or
are pending or, to the knowledge of the Company, threatened, and
no stop order suspending the sale of the Notes in any
jurisdiction designated by the Initial Purchaser has been issued
and no proceedings by any court or governmental agency or
quasi-governmental agency for that purpose have been commenced or
are pending or, to the knowledge of the Company, threatened ; and
21
<PAGE> 22
(iii) subsequent to the respective dates as of which
information is given in the Offering Memorandum, neither the
Company nor any of its subsidiaries has sustained any material
loss or interference with their respective businesses or
properties from fire, flood, hurricane, accident or other
calamity, whether or not covered by insurance, or from any labor
dispute or any legal or governmental proceeding, and there has
not been any material adverse change, or any development
involving a prospective material adverse change, in the
business, condition (financial or otherwise), results or
operations, prospects, assets, properties or management of the
Company and its subsidiaries taken as a whole, except in each
case as described in or contemplated by the Offering Memorandum
(exclusive of any amendment or supplement thereto).
(i) On or before the Closing Date, the Initial Purchaser
and counsel for the Initial Purchaser shall have received such further
certificates, documents or other information as they may have reasonably
requested from the Company.
(j) The Notes shall have been approved by the NASD for
trading in the PORTAL market.
(k) The Indenture and the Registration Rights Agreement
shall have been duly executed and delivered and shall be in full force
and effect and the Notes shall have been duly executed and delivered by
the Company and duly authenticated by the Trustee.
(l) The Tender Offer shall have been consummated.
All opinions, certificates, letters and documents delivered
pursuant to this Agreement will comply with the provisions hereof only
if they are reasonably satisfactory in all material respects to the
Initial Purchaser and counsel for the Initial Purchaser. The Company
shall furnish to the Initial Purchaser such conformed copies of such
opinions, certificates, letters and documents in such quantities as the
Initial Purchaser and counsel for the Initial Purchaser shall reasonably
request.
8. Indemnification and Contribution.
(a) The Company agrees to indemnify and hold harmless the Initial
Purchaser and each person, if any, who controls the Initial Purchaser within
the meaning of Section 15 of the Securities Act or Section 20 of the Exchange
Act, against any losses, claims, damages or liabilities, joint or several, to
which they or any of them may become subject under the Securities Act or the
Exchange Act or otherwise, insofar as such losses, claims, damages or
liabilities (or actions in respect thereof) arise out of or are based upon:
(i) any untrue statement or alleged untrue statement made
by the Company in Section 2 of this Agreement;
(ii) any untrue statement or alleged untrue statement of
any material fact contained in (A) the Offering Memorandum or the
Preliminary Offering Memorandum or any amendment or supplement thereto,
(B) any application or other document, or any amendment or supplement
thereto, executed by the Company or based upon written information
furnished by or on behalf of the Company filed in any jurisdiction in
order to qualify the Notes under the securities or blue sky laws thereof
or filed with or any securities association or securities exchange (each
an "Application"), or (C) any Additional Company Information provided by
the Company to any holder or prospective purchaser of Notes pursuant to
Section 5(c);
(iii) the omission or alleged omission to state in the
Offering Memorandum or the Preliminary Offering Memorandum or any
amendment or supplement thereto, any Application or any Additional
Company Information provided by the Company to any holder or prospective
purchaser of Notes pursuant to
22
<PAGE> 23
Section 5(c), a material fact required to be stated therein or necessary
to make the statements therein, in light of the circumstances under
which they were made, not misleading; or
(iv) any untrue statement or alleged untrue statement of
any material fact contained in any audio or visual materials supplied by
the Company in connection with the offering of the Notes, including
without limitation, slides, videos, films and tape recordings;
and will reimburse, as incurred, each indemnified person for any legal or other
expenses reasonably incurred by each indemnified person in connection with
investigating, defending against or appearing as a third-party witness in
connection with any such loss, claim, damage, liability or action; provided
that the Company will not be liable in any such case to the extent that any
such loss, claim, damage or liability arises out of or is based upon any untrue
statement or alleged untrue statement or omission or alleged omission made in
such Offering Memorandum or Preliminary Offering Memorandum or any Application
in reliance upon and in conformity with written information furnished to the
Company by or on behalf of the Initial Purchaser specifically for use therein;
provided, further, that the Company will not be liable to the Initial Purchaser
or any person controlling the Initial Purchaser with respect to any such untrue
statement or omission made in the Preliminary Offering Memorandum that is
corrected in the Offering Memorandum if (A) the person asserting any such loss,
claim, damage or liability purchased Notes from the Initial Purchaser but was
not sent or given a copy of the Offering Memorandum at or prior to the written
confirmation of the sale of such Notes to such person unless such failure to
deliver the Offering Memorandum was a result of the Company's failure to comply
with Section 5(a) of this Agreement, and (B) a court of competent jurisdiction
determines by final nonappealable judgment that the Initial Purchaser or any
such person controlling the Initial Purchaser is liable with respect to such
untrue statement or omission made in the Preliminary Offering Memorandum
notwithstanding that it was corrected in the Offering Memorandum. This
indemnity agreement will be in addition to any liability which the Company may
otherwise have. The Company will not, without the prior written consent of the
Initial Purchaser, settle or compromise or consent to the entry of any judgment
in any pending or threatened claim, action, suit or proceeding in respect of
which indemnification may be sought hereunder (whether or not the Initial
Purchaser or any person who controls the Initial Purchaser within the meaning
of Section 15 of the Securities Act or Section 20 of the Exchange Act is a
party to such claim, action, suit or proceeding), unless such settlement,
compromise or consent includes an unconditional release of the Initial
Purchaser and such directors, officers, employees, agents or controlling
persons from all liability arising out of such claim, action, suit or
proceeding.
(b) The Initial Purchaser will indemnify and hold harmless the
Company, each of its directors, officers, employees and agents and each person,
if any, who controls the Company within the meaning of Section 15 of the
Securities Act or Section 20 of the Exchange Act against any losses, claims,
damages or liabilities, joint or several, to which the Company or any such
director, officer, employee or agent or controlling person may become subject
under the Securities Act, the Exchange Act or otherwise, insofar as such
losses, claims, damages or liabilities (or actions in respect thereof) arise
out of or are based upon (i) any untrue statement or alleged untrue statement
by the Initial Purchaser in Section 4 of this Agreement (ii) any untrue
statement or alleged untrue statement of any material fact contained in the
Offering Memorandum or the Preliminary Offering Memorandum or any amendment or
supplement thereto, or any Application or (iii) the omission or the alleged
omission to state therein a material fact required to be stated in the Offering
Memorandum or the Preliminary Offering Memorandum or any amendment or
supplement thereto, or any Application, or necessary to make the statements
therein, in the light of the circumstances under which they were made, not
misleading, in each case to the extent, but only to the extent, that such
untrue statement or alleged untrue statement or omission or alleged omission
was made in reliance upon and in conformity with written information furnished
to the Company by or on behalf of the Initial Purchaser specifically for use
therein; and, subject to the limitation set forth immediately preceding this
clause, will reimburse, as incurred, any legal or other expenses reasonably
incurred by the Company or any such director, officer, employee or agent or
controlling person in connection with investigating or defending any such loss,
claim, damage, liability or any action in respect thereof. This indemnity
agreement will be in addition to any liability which such Initial Purchaser may
otherwise have. The Initial Purchase will not, without the prior written
consent of the Company, settle or
23
<PAGE> 24
compromise or consent to the entry of any judgment in any pending or threatened
claim, action, suit or proceeding in respect of which indemnification may be
sought hereunder (whether or not the Company or any person who controls the
Company within the meaning of Section 15 of the Securities Act or Section 20 of
the Exchange Act is a party to such claim, action, suit or proceeding), unless
such settlement, compromise or consent includes an unconditional release of the
Company and such directors, officers, employees, agents or controlling persons
from all liability arising out of such claim, action, suit or proceeding.
(c) Promptly after receipt by an indemnified party under this
Section 8 of notice of the commencement of any action, such indemnified party
will, if a claim in respect thereof is to be made against the indemnifying
party under this Section 8, notify the indemnifying party of the commencement
thereof; but the omission so to notify the indemnifying party will not relieve
it from any liability which it may have to any indemnified party otherwise than
under this Section 8. In case any such action is brought against any
indemnified party, and it notifies the indemnifying party of the commencement
thereof, the indemnifying party will be entitled to participate therein and, to
the extent that it may wish, jointly with any other indemnifying party
similarly notified, to assume the defense thereof, with counsel reasonably
satisfactory to such indemnified party; provided, however, that if the
defendants in any such action include both the indemnified party and the
indemnifying party and the indemnified party shall have reasonably concluded
that there may be one or more legal defenses available to it and/or other
indemnified parties which are different from or additional to those available
to the indemnifying party, the indemnifying party shall not have the right to
direct the defense of such action on behalf of such indemnified party or
parties and such indemnified party or parties shall have the right to select
separate counsel to defend such action on behalf of such indemnified party or
parties. After notice from the indemnifying party to such indemnified party of
its election so to assume the defense thereof and approval by such indemnified
party of counsel appointed to defend such action, the indemnifying party will
not be liable to such indemnified party under this Section 8 for any legal or
other expenses, other than reasonable costs of investigation, subsequently
incurred by such indemnified party in connection with the defense thereof,
unless (i) the indemnified party shall have employed separate counsel in
accordance with the proviso to the next preceding sentence (it being
understood, however, that in connection with such action the indemnifying party
shall not be liable for the expenses of more than one separate counsel (in
addition to local counsel) in any one action or separate but substantially
similar actions in the same jurisdiction arising out of the same general
allegations or circumstances, designated by the Initial Purchaser in the case
of paragraph (a) of this Section 8, representing the indemnified parties under
such paragraph (a) who are parties to such action or actions) or (ii) the
indemnifying party does not promptly retain counsel reasonably satisfactory to
the indemnified party or (iii) the indemnifying party has authorized the
employment of counsel for the indemnified party at the expense of the
indemnifying party. After such notice from the indemnifying party to such
indemnified party, the indemnifying party will not be liable for the costs and
expenses of any settlement of such action effected by such indemnified party
without the consent of the indemnifying party.
(d) In circumstances in which the indemnity agreement provided for in
the preceding paragraphs of this Section 8 is unavailable or insufficient, for
any reason, to hold harmless an indemnified party in respect of any losses,
claims, damages or liabilities (or actions in respect thereof) that by the
terms of the preceding paragraphs of this Section 8 could otherwise be the
subject of an indemnity claim, each indemnifying party, in order to provide for
just and equitable contribution, shall contribute to the amount paid or payable
by such indemnified party as a result of such losses, claims, damages or
liabilities (or actions in respect thereof) in such proportion as is
appropriate to reflect (i) the relative benefits received by the indemnifying
party or parties on the one hand and the indemnified party on the other from
the offering of the Notes or (ii) if the allocation provided by the foregoing
clause (i) is not permitted by applicable law, not only such relative benefits
but also the relative fault of the indemnifying party or parties on the one
hand and the indemnified party on the other in connection with the statements
or omissions or alleged statements or omissions that resulted in such losses,
claims, damages or liabilities (or actions in respect thereof) that by the
terms of the preceding paragraphs of this Section 8 could otherwise be the
subject of an indemnity claim, as well as any other relevant equitable
considerations. The relative benefits received by the Company on the one hand
and the Initial Purchaser on the other shall be deemed to be in the same
proportion as the total proceeds from the offering (before deducting expenses)
received by the Company bear to the total discounts
24
<PAGE> 25
and commissions received by the Initial Purchaser. The relative fault of the
parties shall be determined by reference to, among other things, whether the
untrue or alleged untrue statement of a material fact or the omission or
alleged omission to state a material fact relates to information supplied by
the Company or the Initial Purchaser, the parties' relative intents, knowledge,
access to information and opportunity to correct or prevent such statement or
omission, and any other equitable considerations appropriate in the
circumstances. The Company and the Initial Purchaser agree that it would not be
equitable if the amount of such contribution were determined by pro rata or per
capita allocation or by any other method of allocation that does not take into
account the equitable considerations referred to above in this paragraph (d).
Notwithstanding any other provision of this paragraph (d), the Initial
Purchaser shall not be obligated to make contributions hereunder that in the
aggregate exceed the total offering price of the Notes purchased by the Initial
Purchaser under this Agreement, less the aggregate amount of any damages that
the Initial Purchaser has otherwise been required to pay in respect of the same
or any substantially similar claim, and no person guilty of fraudulent
misrepresentation (within the meaning of Section 11(f) of the Securities Act)
shall be entitled to contribution from any person who was not guilty of such
fraudulent misrepresentation. For purposes of this paragraph (d), each person,
if any, who controls the Initial Purchaser within the meaning of Section 15 of
the Securities Act or Section 20 of the Exchange Act shall have the same rights
to contribution as the Initial Purchaser, and each director, officer, employee
and agent of the Company and each person, if any, who controls the Company
within the meaning of Section 15 of the Securities Act or Section 20 of the
Exchange Act, shall have the same rights to contribution as the Company.
9. Survival. The respective representations, warranties,
agreements, covenants, indemnities and other statements of the Company and the
Initial Purchaser set forth in this Agreement or made by or on behalf of them,
respectively, pursuant to this Agreement shall remain in full force and effect,
regardless of (i) any investigation made by or on behalf of the Company, any of
its officers or directors, the Initial Purchaser or any controlling person
referred to in Section 8 hereof and (ii) delivery of and payment for the Notes.
The respective agreements, covenants, indemnities and other statements set
forth in Sections 6 and 8 hereof shall remain in full force and effect,
regardless of any termination or cancellation of this Agreement.
10. Termination.
(a) This Agreement may be terminated with respect to the Notes in
the sole discretion of the Initial Purchaser by notice to the Company given
prior to the Closing Date in the event that the Company shall have failed,
refused or been unable to perform all obligations and satisfy all conditions on
its part to be performed or satisfied hereunder at or prior thereto or, if at
or prior to the Closing Date,
(i) the Company or any of its subsidiaries shall have, in
the sole judgment of the Initial Purchaser, sustained any material loss
or interference with their respective businesses or properties from
fire, flood, hurricane, accident or other calamity, whether or not
covered by insurance, or from any labor dispute or any legal or
governmental proceeding or there shall have been any material adverse
change, or any development involving a prospective material adverse
change (including without limitation a change in management or control
of the Company), in the business, condition (financial or otherwise),
results of operations, prospects, assets, properties or management of
the Company and its subsidiaries, taken as a whole, except in each case
as described in or contemplated by the Offering Memorandum (exclusive of
any amendment or supplement thereto);
(ii) on or after the date hereof, there shall have occurred
any downgrading in the rating of the Notes or of any debt securities of
the Company by any "nationally recognized statistical rating
organization" (as defined for purposes of Rule 436(g) under the
Securities Act), or any public announcement that any such organization
has under surveillance or review its rating of the Notes or of any debt
securities of the Company other than an announcement with positive
implications of a possible upgrading, and no implication of a possible
downgrading, of such rating;
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<PAGE> 26
(iii) trading in securities generally on the New York Stock
Exchange or the Nasdaq National Market shall have been suspended or
minimum or maximum prices shall have been established;
(iv) a banking moratorium shall have been declared by New
York authorities; or
(v) there shall have been (A) an outbreak or escalation of
hostilities between the United States and any foreign power, (B) an
outbreak or escalation of any other insurrection or armed conflict
involving the United States or (C) any other calamity or crisis or
material adverse change in general economic, political or financial
conditions having an effect on the United States financial markets that,
in the sole judgment of the Initial Purchaser, makes it impractical or
inadvisable to proceed with the offering or the delivery of the Notes as
contemplated by the Offering Memorandum, as amended as of the date
hereof.
(b) Termination of this Agreement pursuant to this Section 10 shall
be without liability of any party to any other party except as provided in
Section 9 hereof.
11. Information Supplied by Initial Purchaser. The statements set
forth in the last paragraph on the front cover page and in the third and tenth
paragraphs under the heading "Plan of Distribution" in the Preliminary Offering
Memorandum or the Offering Memorandum constitute the only information furnished
by the Initial Purchaser to the Company for the purposes of Sections 2(a) and 8
hereof. The Initial Purchaser confirms that such statements are correct.
12. Notices. All communications hereunder shall be in writing and,
if sent to the Initial Purchaser, shall be delivered or sent by mail, telex or
facsimile transmission and confirmed in writing to Prudential Securities
Incorporated, One New York Plaza New York, NY 10292 Attention: High Yield
Finance Group; and if sent to the Company, shall be delivered or sent by mail,
telex or facsimile transmission and confirmed in writing to the Company at 4902
West Waters Avenue, Tampa, Florida 33634-1302, Attention: Chief Financial
Officer.
13. Successors. This Agreement shall inure to the benefit of and
shall be binding upon the Initial Purchaser, the Company and their respective
successors and legal representatives, and nothing expressed or mentioned in
this Agreement is intended or shall be construed to give any other person any
legal or equitable right, remedy or claim under or in respect of this
Agreement, or any provisions herein contained, this Agreement and all
conditions and provisions hereof being intended to be and being for the sole
and exclusive benefit of such persons and for the benefit of no other person
except that (i) the indemnities of the Company contained in Section 8 of this
Agreement shall also be for the benefit of any person or persons who control
the Initial Purchaser within the meaning of Section 15 of the Securities Act or
Section 20 of the Exchange Act and (ii) the indemnities of the Initial
Purchaser contained in Section 8 of this Agreement shall also be for the
benefit of the directors, officers, employees and agents of the Company and any
person or persons who control the Company within the meaning of Section 15 of
the Securities Act or Section 20 of the Exchange Act. No purchaser of Notes
from the Initial Purchaser shall be deemed a successor because of such
purchase.
14. Applicable Law. The validity and interpretation of this
Agreement, and the terms and conditions set forth herein, shall be governed by
and construed in accordance with the laws of the State of New York, without
giving effect to any provisions relating to conflicts of laws.
26
<PAGE> 27
15. Consent to Jurisdiction and Service of Process. All judicial
proceedings arising out of or relating to this Agreement 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, the Company accepts for itself and
in connection with its properties, generally and unconditionally, the
nonexclusive jurisdiction of the aforesaid courts and waives any defense of
forum non convenience and irrevocably agrees to be bound by any judgment
rendered thereby in connection with this Agreement. The Company designates and
appoints CT Corporation, and such other persons as may hereafter by selected by
the Company irrevocably agreeing in writing to so 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 the Company to be
effective and binding service in every respect. A copy of any such process so
served shall be mailed by registered mail to the Company at the address
provided in Section 12 hereof; provided, however, that, unless otherwise
provided by applicable law, any failure to mail such copy shall not affect the
validity of service of such process. If any agent appointed by the Company
refuses to accept service, the Company hereby agrees that service of process
sufficient for personal jurisdiction in any action against the Company in the
State of New York may be made by registered or certified mail, return receipt
requested, to the Company at its address provided in Section 12 hereof, and the
Company hereby acknowledges that such service shall be effective and binding in
every respect. Nothing herein shall affect the right to serve process in any
other manner permitted by law or shall limit the right of the Initial Purchaser
to bring proceedings against the Company in the courts of any other
jurisdiction.
16. Counterparts. This Agreement may be executed in two or more
counterparts, each of which shall be deemed an original, but all of which
together shall constitute one and the same instrument. If the foregoing
correctly sets forth our understanding, please indicate your acceptance thereof
in the space provided below for that purpose, whereupon this letter shall
constitute an agreement binding the Company, and the Initial Purchaser.
Very truly yours,
TROPICAL SPORTSWEAR
INT'L CORPORATION
By: /s/ N. Larry McPherson
-------------------------------------------
Name: N. Larry McPherson
Title: Executive Vice President -- Finance
and Operations and Treasurer
The foregoing Agreement is hereby
confirmed and accepted as of the
date first above written.
PRUDENTIAL SECURITIES INCORPORATED
By: /s/ Christopher Barber
---------------------------------
Christopher Barber
Managing Director
27
<PAGE> 28
SCHEDULE I
SUBSIDIARY GUARANTORS
<TABLE>
<CAPTION>
Name State of Incorporation
- ---- ----------------------
<S> <C>
Savane International Corp. Texas
Apparel Network Corporation Florida
Tropical Sportswear Company, Inc. Delaware
</TABLE>
1
<PAGE> 1
EXHIBIT 4.3
EXECUTION COPY
EXCHANGE AND REGISTRATION RIGHTS AGREEMENT
EXCHANGE AND REGISTRATION RIGHTS AGREEMENT, dated as of June 24, 1998,
among Tropical Sportswear Int'l Corporation, a Florida corporation (the
"Company") and Prudential Securities Incorporated (the "Purchaser"), Purchaser
of the 11% Senior Subordinated Notes due June 15, 2008 of the Company, which are
guaranteed by the Company's wholly owned domestic subsidiaries (the
"Guarantors") listed on Schedule I to the Note Purchase Agreement (as defined
herein).
The Company proposes to issue and sell to the Purchaser upon the terms
set forth in the Note Purchase Agreement the Securities (as defined herein). As
an inducement to the Purchaser to enter into the Note Purchase Agreement and in
satisfaction of a condition to the obligations of the Purchaser thereunder, the
Company agrees with the Purchaser for the benefit of holders (as defined herein)
from time to time of the Registrable Securities (as defined herein) as follows:
1. Certain Definitions.
For purposes of this Exchange and Registration Rights Agreement, the
following terms shall have the following respective meanings:
"Base Interest" shall mean the interest, if any, that would
otherwise accrue on the Securities under the terms thereof and the
Indenture, without giving effect to the provisions of this Agreement.
The term "broker-dealer" shall mean any broker or dealer
registered with the Commission under the Exchange Act.
"Closing" shall mean the date of the closing of the issuance and
sale of the Securities pursuant to the Note Purchase Agreement.
"Commission" shall mean the United States Securities and Exchange
Commission, or any other federal agency at the time administering the
Exchange Act or the Securities Act, whichever is the relevant statute
for the particular purpose.
"Effective Time," in the case of (i) an Exchange Registration,
shall mean the time and date as of which the Commission declares the
Exchange Registration Statement effective or as of which the Exchange
Registration Statement otherwise becomes effective and (ii) a Shelf
Registration, shall mean the time and date as of which the Commission
declares the Shelf Registration Statement effective or as of which the
Shelf Registration Statement otherwise becomes effective.
"Electing Holder" shall mean any holder of Registrable Securities
that has returned a completed and signed Notice and Questionnaire to the
Company in accordance with Section 3(d)(ii) or 3(d)(iii) hereof.
"Exchange Act" shall mean the Securities Exchange Act of 1934, or
any successor thereto, as the same shall be amended from time to time.
"Exchange Offer" shall have the meaning assigned thereto in
Section 2(a) hereof.
"Exchange Registration" shall have the meaning assigned thereto
in Section 3(c) hereof.
<PAGE> 2
"Exchange Registration Statement" shall have the meaning assigned
thereto in Section 2(a) hereof.
"Exchange Securities" shall have the meaning assigned thereto in
Section 2(a) hereof.
The term "holder" shall mean the Purchaser and other persons who
acquire Registrable Securities from time to time (including any
successors or assigns), in each case for so long as such person owns any
Registrable Securities.
"Indenture" shall mean the Indenture, dated as of June 24, 1998,
between the Company, the Guarantors and SunTrust Bank, Atlanta, as
Trustee, as the same shall be amended from time to time.
"Note Purchase Agreement" shall mean the Purchase Agreement,
dated as of June 18, 1998, between the Purchaser and the Company
relating to the Securities.
"Notice and Questionnaire" means a Notice of Registration
Statement and Selling Securityholder Questionnaire substantially in the
form of Exhibit A hereto.
The term "person" shall mean a corporation, association,
partnership, organization, business, individual, government or political
subdivision thereof or governmental agency.
"Registrable Securities" shall mean the Securities; provided,
however, that a Security shall cease to be a Registrable Security when
(i) in the circumstances contemplated by Section 2(a) hereof, the
Security has been exchanged for an Exchange Security in an Exchange
Offer as contemplated in Section 2(a) hereof (provided that any Exchange
Security received by a broker-dealer in an Exchange Offer in exchange
for a Registrable Security that was not acquired by the broker-dealer
directly from the Company will also be a Registrable Security through
and including the earlier of the 90th day after the Exchange Offer is
completed or such time as such broker-dealer no longer owns such
Security); (ii) in the circumstances contemplated by Section 2(b)
hereof, a Shelf Registration Statement registering such Security under
the Securities Act has been declared or becomes effective and such
Security has been sold or otherwise transferred by the holder thereof
pursuant to and in a manner contemplated by such effective Shelf
Registration Statement; (iii) such Security is sold pursuant to Rule 144
under circumstances in which any legend borne by such Security relating
to restrictions on transferability thereof, under the Securities Act or
otherwise, is removed by the Company or pursuant to the Indenture; (iv)
such Security is eligible to be sold pursuant to paragraph (k) of Rule
144; or (v) such Security shall cease to be outstanding.
"Registration Default" shall have the meaning assigned thereto
in Section 2(c) hereof.
"Registration Expenses" shall have the meaning assigned thereto
in Section 4 hereof.
"Resale Period" shall have the meaning assigned thereto in
Section 2(a) hereof.
"Restricted Holder" shall mean (i) a holder that is an affiliate
of the Company within the meaning of Rule 405, (ii) a holder who
acquires Exchange Securities outside the ordinary course of such
holder's business, (iii) a holder who has arrangements or understandings
with any person to participate in the Exchange Offer for the purpose of
distributing Exchange Securities and (iv) a holder that is a
broker-dealer, but only with respect to Exchange Securities received by
such broker-dealer pursuant to an Exchange Offer in exchange for
Registrable Securities acquired by the broker-dealer directly from the
Company.
"Rule 144," "Rule 405" and "Rule 415" shall mean, in each case,
such rule promulgated under the Securities Act (or any successor
provision), as the same shall be amended from time to time.
2
<PAGE> 3
"Securities" shall mean, collectively, the 11% Senior
Subordinated Notes due 2008 of the Company to be issued and sold to the
Purchaser, guaranteed as to payment of principal, premium, if any, and
interest by the Guarantors, and securities issued in exchange therefor
or in lieu thereof pursuant to the Indenture.
"Securities Act" shall mean the Securities Act of 1933, or any
successor thereto, as the same shall be amended from time to time.
"Shelf Registration" shall have the meaning assigned thereto in
Section 2(b) hereof.
"Shelf Registration Statement" shall have the meaning assigned
thereto in Section 2(b) hereof.
"Special Interest" shall have the meaning assigned thereto in
Section 2(c) hereof.
"Trust Indenture Act" shall mean the Trust Indenture Act of 1939,
or any successor thereto, and the rules, regulations and forms
promulgated thereunder, all as the same shall be amended from time to
time.
Unless the context otherwise requires, any reference herein to a
"Section" or "clause" refers to a Section or clause, as the case may be, of this
Exchange and Registration Rights Agreement, and the words "herein," "hereof" and
"hereunder" and other words of similar import refer to this Exchange and
Registration Rights Agreement as a whole and not to any particular Section or
other subdivision.
2. Registration Under the Securities Act.
(a) Except as set forth in Section 2(b) below, the Company agrees to
file under the Securities Act, as soon as practicable, but no later than 60 days
after the Closing, a registration statement relating to an offer to exchange
(such registration statement, the "Exchange Registration Statement," and such
offer, the "Exchange Offer") any and all of the Securities for a like aggregate
principal amount at maturity of debt securities issued by the Company, which
debt securities are substantially identical to the Securities, respectively (and
are entitled to the benefits of a trust indenture which is substantially
identical to the Indenture or is the Indenture and which has been qualified
under the Trust Indenture Act), except that they have been registered pursuant
to an effective registration statement under the Securities Act and do not
contain provisions for the additional interest contemplated in Section 2(c)
below (such new debt securities hereinafter called "Exchange Securities"). The
Company agrees to use its best efforts to cause the Exchange Registration
Statement to become effective under the Securities Act as soon as practicable,
but no later than 150 days after the Closing. The Exchange Offer will be
registered under the Securities Act on the appropriate form and will comply with
all applicable tender offer rules and regulations under the Exchange Act. The
Company further agrees to use its best efforts to commence and complete the
Exchange Offer promptly, but no later than 30 business days after such
registration statement has become effective, hold the Exchange Offer open for at
least 20 business days and issue Exchange Securities for all Registrable
Securities that have been properly tendered and not withdrawn on or prior to the
expiration of the Exchange Offer. The Exchange Offer will be deemed to have been
"completed" only if the debt securities received by holders other than
Restricted Holders in the Exchange Offer for Registrable Securities are, upon
receipt, transferable by each such holder without need for further compliance
with Section 5 of the Securities Act and the Exchange Act (except for the
requirement to deliver a prospectus included in the Exchange Registration
Statement applicable to resales by any broker-dealer of Exchange Securities
received by such broker-dealer pursuant to an Exchange Offer in exchange for
Registrable Securities other than those acquired by the broker-dealer directly
from the Company), and without material restrictions under the blue sky or
securities laws of a substantial majority of the States of the United States of
America. The Exchange Offer shall be deemed to have been completed upon the
earlier to occur of (i) the Company having exchanged the Exchange Securities for
all outstanding Registrable Securities pursuant to the Exchange Offer and (ii)
the Company having exchanged, pursuant to the Exchange Offer, Exchange
Securities for all Registrable Securities that have been properly tendered and
not withdrawn before the expiration of the Exchange Offer, which shall be on a
date that is at least 30 days following the commencement of the Exchange Offer.
The Company agrees (x) to include in the
3
<PAGE> 4
Exchange Registration Statement a prospectus for use in connection with any
resales of Exchange Securities by a broker-dealer, other than resales of
Exchange Securities received by a broker-dealer pursuant to an Exchange Offer in
exchange for Registrable Securities acquired by the broker-dealer directly from
the Company, and (y) to keep such Exchange Registration Statement effective for
a period (the "Resale Period") beginning when Exchange Securities are first
issued in the Exchange Offer and ending upon the earlier of the expiration of
the 180th day after the Closing or such time as such broker-dealers no longer
own any Registrable Securities. With respect to such Exchange Registration
Statement, each broker-dealer that holds Exchange Securities received in an
Exchange Offer in exchange for Registerable Securities not acquired by it
directly from the Company shall have the benefit of the rights of
indemnification and contribution set forth in Sections 6(a), (c), (d) and (e)
hereof.
(b) If prior to the time the Exchange Offer is completed existing
Commission interpretations are changed such that the Exchange Securities
received by holders other than Restricted Holders in the Exchange Offer for
Registrable Securities are not or would not be, upon receipt, transferable by
each such holder without need for further compliance with Section 5 of the
Securities Act (except for the requirement to deliver a prospectus included in
the Exchange Registration Statement applicable to resales by broker-dealers of
Exchange Securities received by such broker-dealer pursuant to an Exchange Offer
in exchange for Registrable Securities other than those acquired by the
broker-dealer directly from the Company), in lieu of conducting the Exchange
Offer contemplated by Section 2(a) the Company shall file under the Securities
Act as soon as practicable, but no later than the later of 30 days after the
time such obligation to file arises and 60 days after the Closing, a "shelf"
registration statement providing for the registration of, and the sale on a
continuous or delayed basis by the holders of, all of the Registrable
Securities, pursuant to Rule 415 or any similar rule that may be adopted by the
Commission (such filing, the "Shelf Registration" and such registration
statement, the "Shelf Registration Statement"). In addition, in the event that
the Purchaser shall not have resold all of the Securities initially purchased by
them from the Company pursuant to the Note Purchase Agreement prior to the
consummation of the Exchange Offer, the Company shall file under the Securities
Act as soon as practicable a Shelf Registration Statement. The Company agrees to
use its best efforts (i) to cause the Shelf Registration Statement to become or
be declared effective no later than 180 days after the Closing and to keep such
Shelf Registration Statement continuously effective in order to permit the
prospectus forming a part thereof to be usable by holders for resales of
Registrable Securities for a period ending on the earlier of the second
anniversary of the Closing (or the first anniversary if the Shelf Registration
Statement is filed because the Purchaser has not resold all of the Securities)
or such time as there are no longer any Registrable Securities outstanding,
provided, however, that no holder shall be entitled to be named as a selling
securityholder in the Shelf Registration Statement or to use the prospectus
forming a part thereof for resales of Registrable Securities unless such holder
is an Electing Holder, and (ii) after the Effective Time of the Shelf
Registration Statement, promptly upon the request of any holder of Registrable
Securities that is not then an Electing Holder, to take any action reasonably
necessary to enable such holder to use the prospectus forming a part thereof for
resales of Registrable Securities, including, without limitation, any action
necessary to identify such holder as a selling securityholder in the Shelf
Registration Statement, provided, however, that nothing in this Clause (ii)
shall relieve any such holder of the obligation to return a completed and signed
Notice and Questionnaire to the Company in accordance with Section 3(d)(iii)
hereof. The Company further agrees to supplement or make amendments to the Shelf
Registration Statement, as and when required by the rules, regulations or
instructions applicable to the registration form used by the Company for such
Shelf Registration Statement or by the Securities Act or rules and regulations
thereunder for shelf registration, and the Company agrees to furnish to each
Electing Holder copies of any such supplement or amendment prior to its being
used or promptly following its filing with the Commission. Notwithstanding the
immediately preceding sentence, the Company may postpone, for a period not to
exceed 30 days, supplementing or amending the Shelf Registration Statement if
(i) the Company is in possession of material non-public information related to a
proposed financing, recapitalization, acquisition, business combination or other
material transaction and the Board of Directors of the Company determines (in
good faith in a written resolution) that disclosure of such information would
have a material adverse effect on the business or operations of the Company and
its subsidiaries and disclosure of such information is not otherwise required by
law and (ii) the Company delivers notice (which shall include a copy of the
resolution of the Board of Directors with respect to such determination) to the
Electing Holders and any placement agent or underwriter as contemplated by
Section 3(d)(viii)(F) to the effect that Electing Holders may not make offers or
sales under the Shelf Registration Statement; provided, however, that the
Company may deliver only two such notices within any 12-month period. Promptly
upon the earlier of (x) public disclosure of
4
<PAGE> 5
such material non-public information, (y) the date on which such non-public
information is no longer material and (z) 30 days after the date notice is given
by the Company pursuant to clause (ii) above, the Company shall supplement or
amend the Shelf Registration Statement as required by the immediately preceding
sentence and give notice to the Electing Holders that offers and sales under the
Shelf Registration Statement may be resumed.
(C) In the event that (i) the Company has not filed the Exchange
Registration Statement on or before the date on which such Exchange Registration
Statement is required to be filed pursuant to Section 2(a), or (ii) such
Exchange Registration Statement has not become effective or been declared
effective by the Commission on or before the date on which such Exchange
Registration Statement is required to become or be declared effective pursuant
to Section 2(a), or (iii) the Exchange Offer has not been completed or a Shelf
Registration Statement is not declared effective within 180 days following the
Closing (if the Exchange Offer is then required to be made) or (iv) any Exchange
Registration Statement or Shelf Registration Statement required by Section 2(a)
or 2(b) hereof is filed and declared effective but shall thereafter either be
withdrawn by the Company or shall become subject to an effective stop order
issued pursuant to Section 8(d) of the Securities Act suspending the
effectiveness of such registration statement (except as specifically permitted
herein) without being succeeded immediately by an additional registration
statement filed and declared effective (each such event referred to in clauses
(i) through (iv), a "Registration Default" and each period during which a
Registration Default has occurred and is continuing, a "Registration Default
Period"), then, as liquidated damages for such Registration Default, subject to
the provisions of Section 9(b), special cash interest ("Special Interest"), in
addition to Base Interest, shall accrue and be payable at a rate of 0.5% per
annum following such 60-day period in the case of clause (i) above, following
such 150-day period in the case of clause (ii) above, following such 180-day
period in the case of clause (iii) above and following the date on which the
Exchange Registration Statement or the Shelf Registration Statement, as the case
may be, ceases to be effective in the case of clause (iv) above. The amount of
such additional interest will increase by an additional 0.5% for each subsequent
90-day period until such Registration Default has been cured; provided that the
aggregate amount of such increase in the original interest rate will in no event
exceed 1.50% per annum. Upon (w) the filing of the Exchange Offer Registration
Statement after the 60-day period described in clause (i) above, (x) the
effectiveness of the Exchange Offer Registration Statement after the 150-day
period described in clause (ii) above, (y) the consummation of the Exchange
Offer or the effectiveness of the Shelf Registration Statement, as the case may
be, after the 180-day period described in clause (iii) above or (z) the
effectiveness of a succeeding registration statement after the date in clause
(iv) above, the interest rate borne by the Registrable Securities from the date
of filing, effectiveness or consummation, as the case may be, will be reduced to
the original interest rate.
(d) The Company shall take all reasonable actions necessary or advisable
to be taken by it to ensure that the transactions contemplated herein are
effected as so contemplated.
(e) Any reference herein to a registration statement as of any time
shall be deemed to include any document incorporated, or deemed to be
incorporated, therein by reference as of such time and any reference herein to
any post-effective amendment to a registration statement as of any time shall be
deemed to include any document incorporated, or deemed to be incorporated,
therein by reference as of such time.
2. Registration Procedures.
If the Company files a registration statement pursuant to Section 2(a)
or Section 2(b), the following provisions shall apply:
(a) At or before the Effective Time of the Exchange Offer or the Shelf
Registration, as the case may be, the Company shall qualify the Indenture under
the Trust Indenture Act.
(b) In the event that such qualification would require the appointment
of a new trustee under the Indenture, the Company shall appoint a new trustee
thereunder pursuant to the applicable provisions of the Indenture.
5
<PAGE> 6
(c) In connection with the Company's obligations with respect to the
registration of Exchange Securities as contemplated by Section 2(a) (the
"Exchange Registration"), if applicable, the Company shall, as soon as
practicable (or as otherwise specified):
(i) prepare and file with the Commission, as soon as practicable
but no later than 60 days after the Closing, an Exchange Registration
Statement on any form which may be utilized by the Company and which
shall permit the Exchange Offer and resales of Exchange Securities by
broker-dealers during the Resale Period to be effected as contemplated
by Section 2(a), and use its best efforts to cause such Exchange
Registration Statement to become effective as soon as practicable
thereafter, but no later than 150 days after the Closing;
(ii) as soon as practicable prepare and file with the Commission
such amendments and supplements to such Exchange Registration Statement
and the prospectus included therein as may be necessary to effect and
maintain the effectiveness of such Exchange Registration Statement for
the periods and purposes contemplated in Section 2(a) hereof and as may
be required by the applicable rules and regulations of the Commission
and the instructions applicable to the form of such Exchange
Registration Statement, and promptly provide each broker-dealer holding
Exchange Securities with such number of copies of the prospectus
included therein (as then amended or supplemented), in conformity in all
material respects with the requirements of the Securities Act and the
Trust Indenture Act and the rules and regulations of the Commission
thereunder, as such broker-dealer reasonably may request prior to the
expiration of the Resale Period, for use in connection with resales of
Exchange Securities;
(iii) promptly notify each broker-dealer that has requested or
received copies of the prospectus included in such registration
statement, and confirm such advice in writing, (A) when such Exchange
Registration Statement or the prospectus included therein or any
prospectus amendment or supplement or post-effective amendment has been
filed, and, with respect to such Exchange Registration Statement or any
post-effective amendment, when the same has become effective, (B) of any
comments by the Commission and by the blue sky or securities
commissioner or regulator of any state with respect thereto or any
request by the Commission for amendments or supplements to such Exchange
Registration Statement or prospectus or for additional information, (C)
of the issuance by the Commission of any stop order suspending the
effectiveness of such Exchange Registration Statement or the initiation
or threatening of any proceedings for that purpose, (D) if at any time
the representations and warranties of the Company contemplated by
Section 5 cease to be true and correct in all material respects, (E) of
the receipt by the Company of any notification with respect to the
suspension of the qualification of the Exchange Securities for sale in
any jurisdiction or the initiation or threatening of any proceeding for
such purpose or (F) at any time during the Resale Period when a
prospectus is required to be delivered under the Securities Act, that
such Exchange Registration Statement, prospectus, prospectus amendment
or supplement or post-effective amendment does not conform in all
material respects to the applicable requirements of the Securities Act
and the Trust Indenture Act and the rules and regulations of the
Commission thereunder or contains an untrue statement of a material fact
or omits to state a material fact required to be stated therein or
necessary to make the statements therein not misleading in light of the
circumstances then existing;
(iv) in the event that the Company would be required, pursuant to
Section 3(c)(iii)(F) above, to notify any broker-dealers holding
Exchange Securities, without unreasonable delay prepare and furnish to
each such holder a reasonable number of copies of a prospectus
supplemented or amended so that, as thereafter delivered to purchasers
of such Exchange Securities during the Resale Period, such prospectus
shall conform in all material respects to the applicable requirements of
the Securities Act and the Trust Indenture Act and the rules and
regulations of the Commission thereunder and shall not contain an untrue
statement of a material fact or omit to state a material fact required
to be stated therein or necessary to make the statements therein not
misleading in light of the circumstances then existing;
6
<PAGE> 7
(v) use its reasonable best efforts to obtain the withdrawal of
any order suspending the effectiveness of such Exchange Registration
Statement or any post-effective amendment thereto at the earliest
practicable date;
(vi) use its reasonable best efforts to (A) register or qualify
the Exchange Securities under the securities laws or blue sky laws of
such jurisdictions as are contemplated by Section 2(a), if such
registration or qualification is required by such laws, no later than
the commencement of the Exchange Offer, (B) keep such registrations or
qualifications in effect and comply with such laws so as to permit the
continuance of offers, sales and dealings therein in such jurisdictions
until the expiration of the Resale Period and (C) take any and all other
actions as may be reasonably necessary or advisable to enable each
broker-dealer holding Exchange Securities to consummate the disposition
thereof in such jurisdictions; provided, however, that the Company shall
not be required for any such purpose to (1) qualify as a foreign
corporation in any jurisdiction wherein it would not otherwise be
required to qualify but for the requirements of this Section 3(c)(vi),
(2) consent to general service of process in any such jurisdiction or
(3) make any changes to its articles of incorporation or bylaws or any
agreement between it and its shareholders;
(vii) use its reasonable best efforts to obtain the consent or
approval of each governmental agency or authority, whether federal,
state or local, which may be required to effect the Exchange
Registration, the Exchange Offer and the offering and sale of Exchange
Securities by broker-dealers during the Resale Period;
(viii) provide a CUSIP number for all Exchange Securities, not
later than the applicable Effective Time;
(ix) comply with all applicable rules and regulations of the
Commission, and make generally available to its securityholders as soon
as practicable but no later than eighteen months after the effective
date of such Exchange Registration Statement, an earning statement of
the Company and its subsidiaries complying with Section 11(a) of the
Securities Act (including, at the option of the Company, Rule 158
thereunder).
(d) In connection with the Company's obligations with respect to the
Shelf Registration, if applicable, the Company shall, as soon as practicable (or
as otherwise specified):
(i) prepare and file with the Commission, as soon as practicable
but in any case within the time periods specified in Section 2(b), a
Shelf Registration Statement on any form which may be utilized by the
Company and which shall register all of the Registrable Securities for
resale by the holders thereof in accordance with such method or methods
of disposition as may be specified by such of the holders as, from time
to time, may be Electing Holders and use its reasonable best efforts to
cause such Shelf Registration Statement to become effective as soon as
practicable but in any case within the time periods specified in Section
2(b);
(ii) not less than 30 calendar days prior to the Effective Time
of the Shelf Registration Statement, mail the Notice and Questionnaire
to the holders of Registrable Securities; no holder shall be entitled to
be named as a selling securityholder in the Shelf Registration Statement
as of the Effective Time, and no holder shall be entitled to use the
prospectus forming a part thereof for resales of Registrable Securities
at any time, unless such holder has returned a completed and signed
Notice and Questionnaire to the Company by the deadline for response set
forth therein; provided, however, holders of Registrable Securities
shall have at least 28 calendar days from the date on which the Notice
and Questionnaire is first mailed to such holders to return a completed
and signed Notice and Questionnaire to the Company;
(iii) after the Effective Time of the Shelf Registration
Statement, upon the request of any holder of Registrable Securities that
is not then an Electing Holder, promptly send a Notice and Questionnaire
to
7
<PAGE> 8
such holder; provided that the Company shall not be required to take any
action to name such holder as a selling securityholder in the Shelf
Registration Statement or to enable such holder to use the prospectus
forming a part thereof for resales of Registrable Securities until such
holder has returned a completed and signed Notice and Questionnaire to
the Company;
(iv) as soon as practicable prepare and file with the
Commission such amendments and supplements to such Shelf Registration
Statement and the prospectus included therein as may be necessary to
effect and maintain the effectiveness of such Shelf Registration
Statement for the period specified in Section 2(b) hereof and as may be
required by the applicable rules and regulations of the Commission and
the instructions applicable to the form of such Shelf Registration
Statement, and furnish to the Electing Holders copies of any such
supplement or amendment simultaneously with or prior to its being used
or filed with the Commission;
(v) comply with the provisions of the Securities Act with
respect to the disposition of all of the Registrable Securities covered
by such Shelf Registration Statement in accordance with the intended
methods of disposition by the Electing Holders provided for in such
Shelf Registration Statement;
(vi) provide (A) the Electing Holders, (B) the underwriters
(which term, for purposes of this Exchange and Registration Rights
Agreement, shall include a person deemed to be an underwriter within the
meaning of Section 2(11) of the Securities Act), if any, thereof, (C)
any sales or placement agent therefor, (D) counsel for any such
underwriter or agent and (E) not more than one counsel for all the
Electing Holders, the opportunity to participate in the preparation of
such Shelf Registration Statement, each prospectus included therein or
filed with the Commission and each amendment or supplement thereto;
(vii) for a reasonable period prior to the filing of such Shelf
Registration Statement, and throughout the period specified in Section
2(b), make available at reasonable times at the Company's principal
place of business or such other reasonable place for inspection by the
persons referred to in Section 3(d)(vi) who shall certify to the Company
that they have a current intention to sell the Registrable Securities
pursuant to the Shelf Registration such financial and other information
and books and records of the Company, and cause the officers, employees,
counsel and independent certified public accountants of the Company to
respond to such inquiries, as shall be reasonably necessary, in the
judgment of the respective counsel referred to in such Section, to
conduct a reasonable investigation within the meaning of Section 11 of
the Securities Act; provided, however, that each such party shall be
required to maintain in confidence and not to disclose to any other
person any information or records reasonably designated by the Company
as being confidential, until such time as (A) such information becomes a
matter of public record (whether by virtue of its inclusion in such
registration statement or otherwise), (B) such person shall be required
so to disclose such information pursuant to a subpoena or order of any
court or other governmental agency or body having jurisdiction over the
matter (subject to the requirements of such order, and only after such
person shall have given the Company prompt prior written notice of such
requirement) or (C) such information is required to be set forth in such
Shelf Registration Statement or the prospectus included therein or in an
amendment to such Shelf Registration Statement or an amendment or
supplement to such prospectus in order that such Shelf Registration
Statement, prospectus, amendment or supplement, as the case may be,
complies with applicable requirements of the federal securities laws and
the rules and regulations of the Commission and does not contain an
untrue statement of a material fact or omit to state therein a material
fact required to be stated therein or necessary to make the statements
therein not misleading in light of the circumstances then existing;
(viii) promptly notify each of the Electing Holders, any sales or
placement agent therefor and any underwriter thereof (which notification
may be made through any managing underwriter that is a representative of
such underwriter for such purpose) and confirm such advice in writing,
(A) when such Shelf Registration Statement or the prospectus included
therein or any prospectus amendment or supplement or post-effective
amendment has been filed, and, with respect to such Shelf Registration
Statement or any post-effective amendment, when the same has become
effective, (B) of any comments by
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<PAGE> 9
the Commission and by the blue sky or securities commissioner or
regulator of any state with respect thereto or any request by the
Commission for amendments or supplements to such Shelf Registration
Statement or prospectus or for additional information, (C) of the
issuance by the Commission of any stop order suspending the
effectiveness of such Shelf Registration Statement or the initiation or
threatening of any proceedings for that purpose, (D) if at any time the
representations and warranties of the Company contemplated by Section
3(d)(xvii) or Section 5 cease to be true and correct in all material
respects, (E) of the receipt by the Company of any notification with
respect to the suspension of the qualification of the Registrable
Securities for sale in any jurisdiction or the initiation or threatening
of any proceeding for such purpose or (F) the happening of any event or
the existence of any state of facts that requires the making of any
changes in the Shelf Registration Statement or the prospectus so that,
as of such date, the Shelf Registration Statement and the prospectus do
not contain an untrue statement of a material fact and do not omit to
state a material fact required to be stated therein or necessary to make
the statements therein (in the case of the prospectus, in light of the
circumstances under which they were made) not misleading (which advice
shall be accompanied by an instruction to suspend the use of the
prospectus until the requisite changes have been made).
(ix) use its reasonable best efforts to obtain the withdrawal
of any order suspending the effectiveness of such registration statement
or any post-effective amendment thereto at the earliest practicable
date;
(x) if requested by any managing underwriter or underwriters,
any placement or sales agent or any Electing Holder, promptly
incorporate in a prospectus supplement or post-effective amendment such
information as is required by the applicable rules and regulations of
the Commission and as such managing underwriter or underwriters, such
agent or such Electing Holder specifies should be included therein
relating to the terms of the sale of such Registrable Securities,
including information with respect to the principal amount at maturity
of Registrable Securities being sold by such Electing Holder or agent or
to any underwriters, the name and description of such Electing Holder,
agent or underwriter, the offering price of such Registrable Securities
and any discount, commission or other compensation payable in respect
thereof, the purchase price being paid therefor by such underwriters and
with respect to any other terms of the offering of the Registrable
Securities to be sold by such Electing Holder or agent or to such
underwriters; and make all required filings of such prospectus
supplement or post-effective amendment promptly after notification of
the matters to be incorporated in such prospectus supplement or
post-effective amendment;
(xi) furnish to each Electing Holder, each placement or sales
agent, if any, therefor, each underwriter, if any, thereof and the
respective counsel referred to in Section 3(d)(vi) an executed copy (or,
in the case of an Electing Holder, a conformed copy) of such Shelf
Registration Statement, each such amendment and supplement thereto (in
each case including all exhibits thereto (in the case of an Electing
Holder of Registrable Securities, upon request) and documents
incorporated by reference therein) and such number of copies of such
Shelf Registration Statement (excluding exhibits thereto and documents
incorporated by reference therein unless specifically so requested by
such Electing Holder, agent or underwriter, as the case may be) and of
the prospectus included in such Shelf Registration Statement (including
each preliminary prospectus and any summary prospectus), in conformity
in all material respects with the applicable requirements of the
Securities Act and the Trust Indenture Act and the rules and regulations
of the Commission thereunder, and such other documents, as such Electing
Holder, agent, if any, and underwriter, if any, may reasonably request
in order to facilitate the offering and disposition of the Registrable
Securities owned by such Electing Holder, offered or sold by such agent
or underwritten by such underwriter and to permit such Electing Holder,
agent and underwriter to satisfy the prospectus delivery requirements of
the Securities Act; and the Company hereby consents to the use of such
prospectus (including such preliminary and summary prospectus) and any
amendment or supplement thereto by each such Electing Holder and by any
such agent and underwriter, in each case in the form most recently
provided to such person by the Company, in connection with the offering
and sale of the Registrable Securities covered by the prospectus
(including such preliminary and summary prospectus) or any supplement or
amendment thereto;
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<PAGE> 10
(xii) use its reasonable best efforts to (A) register or qualify
the Registrable Securities to be included in such Shelf Registration
Statement under such securities laws or blue sky laws of such
jurisdictions as any Electing Holder and each placement or sales agent,
if any, therefor and underwriter, if any, thereof shall reasonably
request, (B) keep such registrations or qualifications in effect and
comply with such laws so as to permit the continuance of offers, sales
and dealings therein in such jurisdictions during the period the Shelf
Registration is required to remain effective under Section 2(b) above
and for so long as may be necessary to enable any such Electing Holder,
agent or underwriter to complete its distribution of Securities pursuant
to such Shelf Registration Statement and (C) take any and all other
actions as may be reasonably necessary or advisable to enable each such
Electing Holder, agent, if any, and underwriter, if any, to consummate
the disposition in such jurisdictions of such Registrable Securities;
provided, however, that the Company shall not be required for any such
purpose to (1) qualify as a foreign corporation in any jurisdiction
wherein it would not otherwise be required to qualify but for the
requirements of this Section 3(d)(xii), (2) consent to general service
of process in any such jurisdiction or (3) make any changes to its
articles of incorporation or bylaws or any agreement between it and its
shareholders;
(xiii) use its reasonable best efforts to obtain the consent or
approval of each governmental agency or authority, whether federal,
state or local, which may be required to effect the Shelf Registration
or the offering or sale in connection therewith or to enable the selling
holder or holders to offer, or to consummate the disposition of, their
Registrable Securities;
(xiv) cooperate with the Electing Holders and the managing
underwriters, if any, to facilitate the timely preparation and delivery
of certificates representing Registrable Securities to be sold, which
certificates shall be printed, lithographed or engraved, or produced by
any combination of such methods, and which shall not bear any
restrictive legends; and, in the case of an underwritten offering,
enable such Registrable Securities to be in such denominations and
registered in such names as the managing underwriters may request at
least two business days prior to any sale of the Registrable Securities;
(xv) provide a CUSIP number for all Registrable Securities, not
later than the applicable Effective Time;
(xvi) enter into one or more underwriting agreements, engagement
letters, agency agreements, "best efforts" underwriting agreements or
similar agreements, as appropriate, including customary provisions
relating to indemnification and contribution, and take such other
actions in connection therewith as any Electing Holders aggregating at
least 20% in aggregate principal amount at maturity of the Registrable
Securities at the time outstanding shall reasonably request in order to
expedite or facilitate the disposition of such Registrable Securities;
(xvii) whether or not an agreement of the type referred to in
Section 3(d)(xvi) hereof is entered into and whether or not any portion
of the offering contemplated by the Shelf Registration is an
underwritten offering or is made through a placement or sales agent or
any other entity, (A) make such representations and warranties to the
Electing Holders and the placement or sales agent, if any, therefor and
the underwriters, if any, thereof in form, substance and scope as are
customarily made in connection with an offering of debt securities
pursuant to any appropriate agreement or to a registration statement
filed on the form applicable to the Shelf Registration; (B) obtain an
opinion of counsel to the Company in customary form and covering such
matters, of the type customarily covered by such an opinion, as the
managing underwriters, if any, or as any Electing Holders of at least
20% in aggregate principal amount at maturity of the Registrable
Securities at the time outstanding may reasonably request, addressed to
such Electing Holder or Electing Holders and the placement or sales
agent, if any, therefor and the underwriters, if any, thereof and dated
the effective date of such Shelf Registration Statement (and if such
Shelf Registration Statement contemplates an underwritten offering of a
part or all of the Registrable Securities, dated the date of the closing
under the underwriting agreement relating thereto) (it being agreed that
the
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<PAGE> 11
matters to be covered by such opinion shall include, without limitation,
the compliance as to form in all material respects of such Shelf
Registration Statement and any documents incorporated by reference
therein and of the Indenture with the requirements of the Securities Act
and the Trust Indenture Act and the rules and regulations of the
Commission thereunder, respectively; and, as of the date of the opinion
and of the Shelf Registration Statement or most recent post-effective
amendment thereto, as the case may be, the absence from such Shelf
Registration Statement and the prospectus included therein, as then
amended or supplemented, and from the documents incorporated by
reference therein (in each case other than the financial statements and
other financial information contained therein) of an untrue statement of
a material fact or the omission to state therein a material fact
necessary to make the statements therein not misleading (in the case of
such documents, in the light of the circumstances existing at the time
that such documents were filed with the Commission under the Exchange
Act)); (C) obtain a "cold comfort" letter or letters from the
independent certified public accountants of the Company addressed to the
selling Electing Holders, the placement or sales agent, if any, therefor
or the underwriters, if any, thereof, dated (i) the effective date of
such Shelf Registration Statement and (ii) the effective date of any
prospectus supplement to the prospectus included in such Shelf
Registration Statement or post-effective amendment to such Shelf
Registration Statement which includes unaudited or audited financial
statements as of a date or for a period subsequent to that of the latest
such statements included in such prospectus (and, if such Shelf
Registration Statement contemplates an underwritten offering pursuant to
any prospectus supplement to the prospectus included in such Shelf
Registration Statement or post-effective amendment to such Shelf
Registration Statement which includes unaudited or audited financial
statements as of a date or for a period subsequent to that of the latest
such statements included in such prospectus, dated the date of the
closing under the underwriting agreement relating thereto), such letter
or letters to be in customary form and covering such matters of the type
customarily covered by letters of such type; (D) deliver such documents
and certificates, including officers' certificates, as may be reasonably
requested by any Electing Holders of at least 20% in aggregate principal
amount at maturity of the Registrable Securities at the time outstanding
or the placement or sales agent, if any, therefor and the managing
underwriters, if any, thereof to evidence the accuracy of the
representations and warranties made pursuant to clause (A) above or
those contained in Section 5(a) hereof and the compliance with or
satisfaction of any agreements or conditions contained in the
underwriting agreement or other agreement entered into by the Company;
and (E) undertake such obligations relating to expense reimbursement,
indemnification and contribution as are provided in Section 6 hereof;
(xviii) notify in writing each holder of Registrable Securities
of any proposal by the Company to amend or waive any provision of this
Exchange and Registration Rights Agreement pursuant to Section 9(h)
hereof and of any amendment or waiver effected pursuant thereto, each of
which notices shall contain the text of the amendment or waiver proposed
or effected, as the case may be; and
(xix) comply with all applicable rules and regulations of the
Commission, and make generally available to its securityholders as soon
as practicable but in any event not later than eighteen months after the
effective date of such Shelf Registration Statement, an earning
statement of the Company and its subsidiaries complying with Section
11(a) of the Securities Act (including, at the option of the Company,
Rule 158 thereunder).
(e) In the event that the Company would be required, pursuant to Section
3(d)(viii)(F) above, to notify the Electing Holders, the placement or sales
agent, if any, therefor and the managing underwriters, if any, thereof, the
Company shall without delay prepare and furnish to each of the Electing Holders,
to each placement or sales agent, if any, and to each such underwriter, if any,
a reasonable number of copies of a prospectus supplemented or amended so that,
as thereafter delivered to purchasers of Registrable Securities, such prospectus
shall conform in all material respects to the applicable requirements of the
Securities Act and the Trust Indenture Act and the rules and regulations of the
Commission thereunder and shall not contain an untrue statement of a material
fact or omit to state a material fact required to be stated therein or necessary
to make the statements therein not misleading in light of the circumstances then
existing. Each Electing Holder agrees that upon receipt of any notice from the
Company pursuant to Section 3(d)(viii)(F) hereof, such Electing Holder shall
forthwith discontinue the disposition of
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<PAGE> 12
Registrable Securities pursuant to the Shelf Registration Statement applicable
to such Registrable Securities until such Electing Holder shall have received
copies of such amended or supplemented prospectus, and if so directed by the
Company, such Electing Holder shall deliver to the Company (at the Company's
expense) all copies, other than permanent file copies, then in such Electing
Holder's possession of the prospectus covering such Registrable Securities at
the time of receipt of such notice.
(f) In the event of a Shelf Registration, in addition to the information
required to be provided by each Electing Holder in its Notice and Questionnaire,
the Company may require such Electing Holder to furnish to the Company such
additional information regarding such Electing Holder and such Electing Holder's
intended method of distribution of Registrable Securities as may be required in
order to comply with the Securities Act. Each such Electing Holder agrees to
notify the Company as promptly as practicable of any inaccuracy or change in
information previously furnished by such Electing Holder to the Company or of
the occurrence of any event in either case as a result of which any prospectus
relating to such Shelf Registration contains or would contain an untrue
statement of a material fact regarding such Electing Holder or such Electing
Holder's intended method of disposition of such Registrable Securities or omits
to state any material fact regarding such Electing Holder or such Electing
Holder's intended method of disposition of such Registrable Securities required
to be stated therein or necessary to make the statements therein not misleading
in light of the circumstances then existing, and promptly to furnish to the
Company any additional information required to correct and update any previously
furnished information or required so that such prospectus shall not contain,
with respect to such Electing Holder or the disposition of such Registrable
Securities, an untrue statement of a material fact or omit to state a material
fact required to be stated therein or necessary to make the statements therein
not misleading in light of the circumstances then existing.
(g) Until the expiration of two years after the Closing, the Company
will not, and will not permit any of its "affiliates" (as defined in Rule 144)
to, resell any of the Securities that have been reacquired by any of them except
pursuant to an effective registration statement under the Securities Act.
4. Registration Expenses.
The Company agrees to bear and to pay or cause to be paid promptly all
expenses incident to the Company's performance of or compliance with this
Exchange and Registration Rights Agreement, including (a) all Commission and any
NASD registration, filing and review fees and expenses in connection with such
registration, filing and review, (b) all fees and expenses in connection with
the qualification of the Securities for offering and sale under the State
securities and blue sky laws referred to in Section 3(d)(xii) hereof and
determination of their eligibility for investment under the laws of such
jurisdictions as any managing underwriters or the Electing Holders may
designate, including any fees and disbursements of counsel for the Electing
Holders (subject to the limitations of clause (g) below) or underwriters in
connection with such qualification and determination, (c) all expenses relating
to the preparation, printing, production, distribution and reproduction of each
registration statement required to be filed hereunder, each prospectus included
therein or prepared for distribution pursuant hereto, each amendment or
supplement to the foregoing, the expenses of preparing the Securities for
delivery and the expenses of printing or producing any underwriting agreements,
agreements among underwriters, selling agreements and blue sky or legal
investment memoranda and all other documents in connection with the offering,
sale or delivery of Securities to be disposed of (including certificates
representing the Securities), (d) fees and expenses of the Trustee under the
Indenture, any agent of the Trustee and any counsel for the Trustee and of any
collateral agent or custodian, (e) internal expenses (including all salaries and
expenses of the Company's officers and employees performing legal or accounting
duties), (f) fees, disbursements and expenses of counsel and independent
certified public accountants of the Company (including the expenses of any
opinions or "cold comfort" letters required by or incident to such performance
and compliance), (g) fees, disbursements and expenses of one counsel for the
Electing Holders retained in connection with a Shelf Registration, as selected
by the Electing Holders of at least a majority in aggregate principal amount at
maturity of the Registrable Securities held by Electing Holders (which counsel
shall be reasonably satisfactory to the Company), (h) any fees charged by
securities rating services for rating the Securities, and (i) fees, expenses and
disbursements of any other persons, including special experts, retained by the
Company in connection with such registration (collectively, the "Registration
Expenses"). To the extent that any
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<PAGE> 13
Registration Expenses are incurred, assumed or paid by any holder of Registrable
Securities or any placement or sales agent therefor or underwriter thereof, the
Company shall reimburse such person for the full amount of the Registration
Expenses so incurred, assumed or paid promptly after receipt of a request
therefor. Notwithstanding the foregoing, the holders of the Registrable
Securities being registered shall pay all agency fees and commissions and
underwriting discounts and commissions attributable to the sale of such
Registrable Securities and the fees and disbursements of any counsel or other
advisors or experts retained by such holders (severally or jointly), other than
the counsel and experts specifically referred to above.
5. General Undertaking. Notwithstanding any other provisions hereof, the
Company will ensure that (i) any Exchange Registration Statement or Shelf
Registration Statement and any amendment thereto and any prospectus forming part
thereof and any supplement thereto complies as to form in all material respects
with the Securities Act and the rules and regulations thereunder, (ii) any
Exchange Registration Statement or Shelf Registration Statement and any
amendment thereto does not, when it becomes effective, contain an untrue
statement of a material fact or omit to state a material fact required to be
stated therein or necessary to make the statements therein not misleading and
(iii) any prospectus forming part of any Exchange Registration Statement or
Shelf Registration Statement, and any supplement to such prospectus, does not,
as of its date, include an untrue statement of a material fact or omit to state
a material fact required to be stated therein or necessary in order to make the
statements therein, in the light of the circumstances under which they were
made, not misleading.
6. Indemnification.
(a) Indemnification by the Company. The Company shall indemnify and hold
harmless each of the holders of Registrable Securities included in an Exchange
Registration Statement, each of the Electing Holders of Registrable Securities
included in a Shelf Registration Statement and each person who participates as a
placement or sales agent or as an underwriter in any offering or sale of such
Registrable Securities against any losses, claims, damages or liabilities, joint
or several, to which such holder, agent or underwriter may become subject under
the Securities Act or otherwise, insofar as such losses, claims, damages or
liabilities (or actions in respect thereof) arise out of or are based upon an
untrue statement or alleged untrue statement of a material fact contained in any
Exchange Registration Statement or Shelf Registration Statement, as the case may
be, under which such Registrable Securities were registered under the Securities
Act, or any preliminary, final or summary prospectus contained therein or
furnished by the Company to any such holder, Electing Holder, agent or
underwriter, or any amendment or supplement thereto, or arise out of or are
based upon the omission or alleged omission to state therein a material fact
required to be stated therein or necessary to make the statements therein not
misleading, and the Company shall, and it hereby agrees to, reimburse such
holder, such Electing Holder, such agent and such underwriter for any legal or
other expenses reasonably incurred by them in connection with investigating or
defending any such action or claim as such expenses are incurred; provided,
however, that the Company shall not be liable to any such person in any such
case to the extent that any such loss, claim, damage or liability arises out of
or is based upon an untrue statement or alleged untrue statement or omission or
alleged omission made in such registration statement, or preliminary, final or
summary prospectus, or amendment or supplement thereto, in reliance upon and in
conformity with written information furnished to the Company by such person
expressly for use therein; provided, further, that the Company shall not be
liable pursuant to this Section 6(a) with respect to any preliminary prospectus
to the extent that any such loss, claim, damage or liability arises solely from
the fact that such holder of Registrable Securities, such Electing Holder, such
placement or sales agent or such underwriter sold Securities to a person to whom
there was not sent or given, on or prior to the written confirmation of such
sale, a copy of the final prospectus relating to such Securities, as amended and
supplemented, provided that the Company and previously furnished copies thereof
to such holder of Registrable Securities, such Electing Holder, such placement
or sales agent or such underwriter in accordance with this Agreement and such
final prospectus, as amended and supplemented, would have corrected any such
untrue statement or omission and that such holder of Registrable Securities,
such Electing Holder, such placement or sales agent or such underwriter failed
to deliver such final propsectus to such purchaser.
(b) Indemnification by the Holders and any Agents and Underwriters. The
Company may require, as a condition to including any Registrable Securities in
any registration statement filed pursuant to Section 2(b) hereof and to entering
into any underwriting agreement with respect thereto, that the Company shall
have received an
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<PAGE> 14
undertaking reasonably satisfactory to it from the Electing Holder of such
Registrable Securities and from each underwriter named in any such underwriting
agreement, severally and not jointly, to (i) indemnify and hold harmless the
Company, and all other holders of Registrable Securities, against any losses,
claims, damages or liabilities to which the Company or such other holders of
Registrable Securities may become subject, under the Securities Act or
otherwise, insofar as such losses, claims, damages or liabilities (or actions in
respect thereof) arise out of or are based upon an untrue statement or alleged
untrue statement of a material fact contained in such registration statement, or
any preliminary, final or summary prospectus contained therein or furnished by
the Company to any such Electing Holder, agent or underwriter, or any amendment
or supplement thereto, or arise out of or are based upon the omission or alleged
omission to state therein a material fact required to be stated therein or
necessary to make the statements therein not misleading, in each case to the
extent, but only to the extent, that such untrue statement or alleged untrue
statement or omission or alleged omission was made in reliance upon and in
conformity with written information furnished to the Company by such Electing
Holder or underwriter expressly for use therein, and (ii) reimburse the Company
for any legal or other expenses reasonably incurred by the Company in connection
with investigating or defending any such action or claim as such expenses are
incurred; provided, however, that no such Electing Holder shall be required to
undertake liability to any person under this Section 6(b) for any amounts in
excess of the dollar amount of the proceeds to be received by such Electing
Holder from the sale of such Electing Holder's Registrable Securities pursuant
to such registration.
(c) Notices of Claims, Etc. Promptly after receipt by an indemnified
party under subsection (a) or (b) above of written notice of the commencement of
any action, such indemnified party shall, if a claim in respect thereof is to be
made against an indemnifying party pursuant to the indemnification provisions of
or contemplated by this Section 6, notify such indemnifying party in writing of
the commencement of such action; but the omission so to notify the indemnifying
party shall not relieve it from any liability which it may have to any
indemnified party other than under the indemnification provisions of or
contemplated by Section 6(a) or 6(b) hereof. In case any such action shall be
brought against any indemnified party and it shall notify an indemnifying party
of the commencement thereof, such indemnifying party shall be entitled to
participate therein and, to the extent that it shall wish, jointly with any
other indemnifying party similarly notified, to assume the defense thereof, with
counsel reasonably satisfactory to such indemnified party (who shall not, except
with the consent of the indemnified party, be counsel to the indemnifying
party), and, after notice from the indemnifying party to such indemnified party
of its election so to assume the defense thereof, such indemnifying party shall
not be liable to such indemnified party for any legal expenses of other counsel
or any other expenses, in each case subsequently incurred by such indemnified
party, in connection with the defense thereof other than reasonable costs of
investigation. No indemnifying party shall, without the written consent of the
indemnified party, effect the settlement or compromise of, or consent to the
entry of any judgment with respect to, any pending or threatened action or claim
in respect of which indemnification or contribution may be sought hereunder
(whether or not the indemnified party is an actual or potential party to such
action or claim) unless such settlement, compromise or judgment (i) includes an
unconditional release of the indemnified party from all liability arising out of
such action or claim and (ii) does not include a statement as to or an admission
of fault, culpability or a failure to act by or on behalf of any indemnified
party.
(d) Contribution. If for any reason the indemnification provisions
contemplated by Section 6(a) or Section 6(b) are unavailable to or insufficient
to hold harmless an indemnified party in respect of any losses, claims, damages
or liabilities (or actions in respect thereof) referred to therein, then each
indemnifying party shall contribute to the amount paid or payable by such
indemnified party as a result of such losses, claims, damages or liabilities (or
actions in respect thereof) in such proportion as is appropriate to reflect the
relative fault of the indemnifying party and the indemnified party in connection
with the statements or omissions which resulted in such losses, claims, damages
or liabilities (or actions in respect thereof), as well as any other relevant
equitable considerations. The relative fault of such indemnifying party and
indemnified party shall be determined by reference to, among other things,
whether the untrue or alleged untrue statement of a material fact or omission or
alleged omission to state a material fact relates to information supplied by
such indemnifying party or by such indemnified party, and the parties' relative
intent, knowledge, access to information and opportunity to correct or prevent
such statement or omission. The parties hereto agree that it would not be just
and equitable if contributions pursuant to this Section 6(d) were determined by
pro rata allocation (even if the holders or any agents or underwriters or all of
them were treated as one entity for such purpose) or by any other method of
allocation which
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does not take account of the equitable considerations referred to in this
Section 6(d). The amount paid or payable by an indemnified party as a result of
the losses, claims, damages, or liabilities (or actions in respect thereof)
referred to above shall be deemed to include any legal or other fees or expenses
reasonably incurred by such indemnified party in connection with investigating
or defending any such action or claim. Notwithstanding the provisions of this
Section 6(d), no holder shall be required to contribute any amount in excess of
the amount by which the dollar amount of the proceeds received by such holder
from the sale of any Registrable Securities (after deducting any fees, discounts
and commissions applicable thereto) exceeds the amount of any damages which such
holder has otherwise been required to pay by reason of such untrue or alleged
untrue statement or omission or alleged omission, and no underwriter shall be
required to contribute any amount in excess of the amount by which the total
price at which the Registrable Securities underwritten by it and distributed to
the public were offered to the public exceeds the amount of any damages which
such underwriter has otherwise been required to pay by reason of such untrue or
alleged untrue statement or omission or alleged omission. No person guilty of
fraudulent misrepresentation (within the meaning of Section 11(f) of the
Securities Act) shall be entitled to contribution from any person who was not
guilty of such fraudulent misrepresentation. The holders' and any underwriters'
obligations in this Section 6(d) to contribute shall be several in proportion to
the principal amount at maturity of Registrable Securities registered or
underwritten, as the case may be, by them and not joint.
(e) The obligations of the Company under this Section 6 shall be in
addition to any liability which the Company may otherwise have and shall extend,
upon the same terms and conditions, to each officer, director and partner of
each holder, agent and underwriter and each person, if any, who controls any
holder, agent or underwriter within the meaning of the Securities Act; and the
obligations of the holders and any agents or underwriters contemplated by this
Section 6 shall be in addition to any liability which the respective holder,
agent or underwriter may otherwise have and shall extend, upon the same terms
and conditions, to each officer and director of the Company (including any
person who, with his consent, is named in any registration statement as about to
become a director of the Company) and to each person, if any, who controls the
Company within the meaning of the Securities Act.
7. Underwritten Offerings.
(a) Selection of Underwriters. If any of the Registrable Securities
covered by the Shelf Registration are to be sold pursuant to an underwritten
offering, the managing underwriter or underwriters thereof shall be designated
by Electing Holders holding at least a majority in aggregate principal amount at
maturity of the Registrable Securities to be included in such offering, provided
that such designated managing underwriter or underwriters is or are reasonably
acceptable to the Company.
(b) Participation by Holders. Each holder of Registrable Securities
hereby agrees with each other such holder that no such holder may participate in
any underwritten offering hereunder unless such holder (i) agrees to sell such
holder's Registrable Securities on the basis provided in any underwriting
arrangements approved by the persons entitled hereunder to approve such
arrangements and (ii) completes and executes all questionnaires, powers of
attorney, indemnities, underwriting agreements and other documents reasonably
required under the terms of such underwriting arrangements.
8. Rule 144.
The Company covenants to the holders of Registrable Securities that to
the extent it shall be required to do so under the Exchange Act, the Company
shall timely file the reports required to be filed by it under the Exchange Act
or the Securities Act (including the reports under Section 13 and 15(d) of the
Exchange Act referred to in subparagraph (c)(1) of Rule 144 adopted by the
Commission under the Securities Act) and the rules and regulations adopted by
the Commission thereunder, and shall take such further action as any holder of
Registrable Securities may reasonably request, all to the extent required from
time to time to enable such holder to sell Registrable Securities without
registration under the Securities Act within the limitations of the exemption
provided by Rule 144 under the Securities Act, as such Rule may be amended from
time to time, or any similar or successor rule or regulation hereafter adopted
by the Commission. Upon the request of any holder of Registrable Securities in
15
<PAGE> 16
connection with that holder's sale pursuant to Rule 144, the Company shall
deliver to such holder a written statement as to whether it has complied with
such requirements.
9. Miscellaneous.
(a) No Inconsistent Agreements. The Company represents, warrants,
covenants and agrees that it has not granted, and shall not grant, registration
rights with respect to Registrable Securities or any other securities which
would be inconsistent with the terms contained in this Exchange and Registration
Rights Agreement.
(b) Specific Performance. The parties hereto acknowledge that there
would be no adequate remedy at law if the Company fails to perform any of its
obligations hereunder and that the Purchaser and the holders from time to time
of the Registrable Securities may be irreparably harmed by any such failure, and
accordingly agree that the Purchaser and such holders, in addition to any other
remedy to which they may be entitled at law or in equity, shall be entitled to
compel specific performance of the obligations of the Company under this
Exchange and Registration Rights Agreement in accordance with the terms and
conditions of this Exchange and Registration Rights Agreement, in any court of
the United States or any State thereof having jurisdiction.
(c) Notices. All notices, requests, claims, demands, waivers and other
communications hereunder shall be in writing and shall be deemed to have been
duly given when delivered by hand, if delivered personally or by courier, or
three days after being deposited in the mail (registered or certified mail,
postage prepaid, return receipt requested) as follows: If to the Company, to it
at 4902 W. Waters Avenue, Tampa, Florida 33634; Attention: Executive Vice
President-Chief Financial Officer, with a copy to Alston & Bird LLP, One
Atlantic Center, 1201 W. Peachtree Street, Atlanta, Georgia 30309, Attention:
Mike McAlevey, and if to a holder, to the address of such holder set forth in
the security register or other records of the Company, or to such other address
as the Company or any such holder may have furnished to the other in writing in
accordance herewith, except that notices of change of address shall be effective
only upon receipt.
(d) Parties in Interest. All the terms and provisions of this Exchange
and Registration Rights Agreement shall be binding upon, shall inure to the
benefit of and shall be enforceable by the parties hereto and the holders from
time to time of the Registrable Securities and the respective successors and
assigns of the parties hereto and such holders. In the event that any transferee
of any holder of Registrable Securities shall acquire Registrable Securities, in
any manner, whether by gift, bequest, purchase, operation of law or otherwise,
such transferee shall, without any further writing or action of any kind, be
deemed a beneficiary hereof for all purposes and such Registrable Securities
shall be held subject to all of the terms of this Exchange and Registration
Rights Agreement, and by taking and holding such Registrable Securities such
transferee shall be entitled to receive the benefits of, and be conclusively
deemed to have agreed to be bound by all of the applicable terms and provisions
of this Exchange and Registration Rights Agreement. If the Company shall so
request, any such successor, assign or transferee shall agree in writing to
acquire and hold the Registrable Securities subject to all of the applicable
terms hereof.
(e) Survival. The respective indemnities, agreements, representations,
warranties and each other provision set forth in this Exchange and Registration
Rights Agreement or made pursuant hereto shall remain in full force and effect
regardless of any investigation (or statement as to the results thereof) made by
or on behalf of any holder of Registrable Securities, any director, officer or
partner of such holder, any agent or underwriter or any director, officer or
partner thereof, or any controlling person of any of the foregoing, and shall
survive delivery of and payment for the Registrable Securities pursuant to the
Note Purchase Agreement and the transfer and registration of Registrable
Securities by such holder and the consummation of an Exchange Offer.
(f) LAW GOVERNING. THIS EXCHANGE AND REGISTRATION RIGHTS AGREEMENT SHALL
BE GOVERNED BY AND CONSTRUED IN ACCORDANCE WITH THE LAW OF THE STATE OF NEW
YORK.
(g) Headings. The descriptive headings of the several Sections and
paragraphs of this Exchange and Registration Rights Agreement are inserted for
convenience only, do not constitute a part of this Exchange and
16
<PAGE> 17
Registration Rights Agreement and shall not affect in any way the meaning or
interpretation of this Exchange and Registration Rights Agreement.
(h) Entire Agreement; Amendments. This Exchange and Registration Rights
Agreement and the other writings referred to herein (including the Indenture and
the form of Securities) or delivered pursuant hereto which form a part hereof
contain the entire understanding of the parties with respect to its subject
matter. This Exchange and Registration Rights Agreement supersedes all prior
agreements and understandings between the parties with respect to its subject
matter. This Exchange and Registration Rights Agreement may be amended and the
observance of any term of this Exchange and Registration Rights Agreement may be
waived (either generally or in a particular instance and either retroactively or
prospectively) only by a written instrument duly executed by the Company and the
holders of at least a majority in aggregate principal amount at maturity of the
Registrable Securities at the time outstanding. Each holder of any Registrable
Securities at the time or thereafter outstanding shall be bound by any amendment
or waiver effected pursuant to this Section 9(h), whether or not any notice,
writing or marking indicating such amendment or waiver appears on such
Registrable Securities or is delivered to such holder.
(i) Counterparts. This Agreement may be executed by the parties in
counterparts, each of which shall be deemed to be an original, but all such
respective counterparts shall together constitute one and the same instrument.
Agreed to and accepted as of the date referred to above.
TROPICAL SPORTSWEAR INT'L CORPORATION
By: /s/ N. Larry McPherson
-----------------------------------------------
Name: N. Larry McPherson
Title: Executive Vice President -- Finance
and Operations and Treasurer
PRUDENTIAL SECURITIES INCORPORATED
By: /s/ Christopher Barber
-----------------------------------------------
Name: Christopher Barber
Title: Managing Director
17
<PAGE> 18
EXHIBIT A
TROPICAL SPORTSWEAR INT'L CORPORATION
INSTRUCTION TO DTC PARTICIPANTS
(Date of Mailing)
URGENT - IMMEDIATE ATTENTION REQUESTED
DEADLINE FOR RESPONSE: [DATE](1)
The Depository Trust Company ("DTC") has identified you as a DTC
Participant through which beneficial interests in TROPICAL SPORTSWEAR INT'L
CORPORATION (the "Company") 11% Senior Subordinated Notes due 2008 (the
"Securities") are held.
The Company is in the process of registering the Securities under the
Securities Act of 1933 for resale by the beneficial owners thereof. In order to
have their Securities included in the registration statement, beneficial owners
must complete and return the enclosed Notice of Registration Statement and
Selling Securityholder Questionnaire.
It is important that beneficial owners of the Securities receive a copy
of the enclosed materials as soon as possible as their rights to have the
Securities included in the registration statement depend upon their returning
the Notice and Questionnaire by [DEADLINE FOR RESPONSE]. Please forward a copy
of the enclosed documents to each beneficial owner that holds interests in the
Securities through you. If you require more copies of the enclosed materials or
have any questions pertaining to this matter, please contact Tropical Sportswear
Int'l Corporation, 4902 W. Waters Avenue, Tampa, Florida 33634; Attention:
Executive Vice-President-Chief Financial Officer,
- -----------------
(1) Not less than 28 calendar days from date of mailing.
A-1
<PAGE> 19
Tropical Sportswear Int'l Corporation
Notice of Registration Statement
and
Selling Securityholder Questionnaire
(Date)
Reference is hereby made to the Exchange and Registration Rights
Agreement (the "Exchange and Registration Rights Agreement") between Tropical
Sportswear Int'l Corporation (the "Company") and Prudential Securities
Incorporated. Pursuant to the Exchange and Registration Rights Agreement, the
Company has filed with the United States Securities and Exchange Commission (the
"Commission") a registration statement on Form [___] (the "Shelf Registration
Statement") for the registration and resale under Rule 415 of the Securities Act
of 1933, as amended (the "Securities Act"), of the Company's 11% Senior
Subordinated Notes due 2008 (the "Securities"). A copy of the Exchange and
Registration Rights Agreement is attached hereto. All capitalized terms not
otherwise defined herein shall have the meanings ascribed thereto in the
Exchange and Registration Rights Agreement.
Each beneficial owner of Registrable Securities (as defined below) is
entitled to have the Registrable Securities beneficially owned by it included in
the Shelf Registration Statement. In order to have Registrable Securities
included in the Shelf Registration Statement, this Notice of Registration
Statement and Selling Securityholder Questionnaire ("Notice and Questionnaire")
must be completed, executed and delivered to the Company's counsel at the
address set forth herein for receipt ON OR BEFORE [DEADLINE FOR RESPONSE].
Beneficial owners of Registrable Securities who do not complete, execute and
return this Notice and Questionnaire by such date (i) will not be named as
selling securityholders in the Shelf Registration Statement and (ii) may not use
the Prospectus forming a part thereof for resales of Registrable Securities.
Certain legal consequences arise from being named as a selling
securityholder in the Shelf Registration Statement and related Prospectus.
Accordingly, holders and beneficial owners of Registrable Securities are advised
to consult their own securities law counsel regarding the consequences of being
named or not being named as a selling securityholder in the Shelf Registration
Statement and related Prospectus.
The term "Registrable Securities" is defined in the Exchange and
Registration Rights Agreement.
ELECTION
The undersigned holder (the "Selling Securityholder") of Registrable
Securities hereby elects to include in the Shelf Registration Statement the
Registrable Securities beneficially owned by it and listed below in Item (3).
The undersigned, by signing and returning this Notice and Questionnaire, agrees
to be bound with respect to such Registrable Securities by the terms and
conditions of this Notice and Questionnaire and the Exchange and Registration
Rights Agreement, including, without limitation, Section 6 of the Exchange and
Registration Rights Agreement, as if the undersigned Selling Securityholder were
an original party thereto.
Upon any sale of Registrable Securities pursuant to the Shelf
Registration Statement, the Selling Securityholder will be required to deliver
to the Company and Trustee the Notice of Transfer set forth in Appendix A to the
Prospectus and as Exhibit B to the Exchange and Registration Rights Agreement.
The Selling Securityholder hereby provides the following information to
the Company and represents and warrants that such information is accurate and
complete:
A-2
<PAGE> 20
QUESTIONNAIRE
(i) (A) Full Legal Name of Selling Securityholder:
________________________________________________________________
(B) Full Legal Name of Registered Holder (if not the same as in (a)
above) of Registrable Securities Listed in Item (3) below:
________________________________________________________________
(C) Full Legal Name of DTC Participant (if applicable and if not the
same as (b) above) Through Which Registrable Securities Listed in
Item (3) below are Held:
_________________________________________________________________
(ii) Address for Notices to Selling Securityholder:
________________________________________________________________________
________________________________________________________________________
________________________________________________________________________
Telephone:_________________________
Fax: ______________________________
Contact Person:_________________________________
(iii) Beneficial Ownership of Securities:
Except as set forth below in this Item (3), the undersigned does not
beneficially own any Securities.
(A) Principal amount at maturity of Registrable Securities
beneficially owned:_____________________________________________
CUSIP No(s). of such Registrable Securities:____________________
(B) Principal amount at maturity of Securities other than
Registrable Securities beneficially owned:______________________
CUSIP No(s). of such other Securities:__________________________
(C) Principal amount at maturity of Registrable Securities which the
undersigned wishes to be included in the Shelf Registration
Statement:______________________________________________________
CUSIP No(s). of such Registrable Securities to be included in
the Shelf Registration Statement:_______________________________
(iv) Beneficial Ownership of Other Securities of the Company:
Except as set forth below in this Item (4), the undersigned Selling
Securityholder is not the beneficial or registered owner of any other securities
of the Company, other than the Securities listed above in Item (3).
State any exceptions here:
A-3
<PAGE> 21
(v) Relationships with the Company:
Except as set forth below, neither the Selling Securityholder nor any of
its affiliates, officers, directors or principal equity holders (5% or more) has
held any position or office or has had any other material relationship with the
Company (or its predecessors or affiliates) during the past three years.
State any exceptions here:
(vi) Plan of Distribution:
Except as set forth below, the undersigned Selling Securityholder
intends to distribute the Registrable Securities listed above in Item (3) only
as follows (if at all): Such Registrable Securities may be sold from time to
time directly by the undersigned Selling Securityholder or, alternatively,
through underwriters, broker-dealers or agents. Such Registrable Securities may
be sold in one or more transactions at fixed prices, at prevailing market prices
at the time of sale, at varying prices determined at the time of sale, or at
negotiated prices. Such sales may be effected in transactions (which may involve
crosses or block transactions) (i) on any national securities exchange or
quotation service on which the Registered Securities may be listed or quoted at
the time of sale, (ii) in the over-the-counter market, (iii) in transactions
otherwise than on such exchanges or services or in the over-the-counter market,
or (iv) through the writing of options. In connection with sales of the
Registrable Securities or otherwise, the Selling Securityholder may enter into
hedging transactions with broker-dealers, which may in turn engage in short
sales of the Registrable Securities in the course of hedging the positions they
assume. The Selling Securityholder may also sell Registrable Securities short
and deliver Registrable Securities to close out such short positions, or loan or
pledge Registrable Securities to broker-dealers that in turn may sell such
securities.
State any exceptions here:
By signing below, the Selling Securityholder acknowledges that it
understands its obligation to comply, and agrees that it will comply, with the
provisions of the Exchange Act and the rules and regulations thereunder,
particularly Regulation M (which governs manipulation, stabilization and trading
activity during a distribution of securities).
In the event that the Selling Securityholder transfers all or any
portion of the Registrable Securities listed in Item (3) above after the date on
which such information is provided to the Company, the Selling Securityholder
agrees to notify the transferee(s) at the time of the transfer of its rights and
obligations under this Notice and Questionnaire and the Exchange and
Registration Rights Agreement.
A-4
<PAGE> 22
By signing below, the Selling Securityholder consents to the disclosure
of the information contained herein in its answers to Items (1) through (6)
above and the inclusion of such information in the Shelf Registration Statement
and related Prospectus. The Selling Securityholder understands that such
information will be relied upon by the Company, and any underwriters in an
underwritten offering of such Selling Securityholder's Registrable Securities
listed in Item(3) above, in connection with the preparation of the Shelf
Registration Statement and related Prospectus.
In accordance with the Selling Securityholder's obligation under Section
3(d) of the Exchange and Registration Rights Agreement to provide such
information as may be required by law for inclusion in the Shelf Registration
Statement, the Selling Securityholder agrees to promptly notify the Company of
any inaccuracies or changes in the information provided herein which may occur
subsequent to the date hereof at any time while the Shelf Registration Statement
remains in effect. All notices hereunder and pursuant to the Exchange and
Registration Rights Agreement shall be made in writing, by hand-delivery,
first-class mail, or air courier guaranteeing overnight delivery as follows:
(i) To the Company:
Tropical Sportswear Int'l Corporation
4902 W. Waters Avenue
Tampa, Florida 33634
Attention: Executive Vice-President-Chief
Financial Officer
(813) 249-4900
(ii) With a copy to:
Alston & Bird LLP
1201 West Peachtree Street
Atlanta, Georgia 30309
Attention: Mike McAlevey
(404) 881-7000
Once this Notice and Questionnaire is executed by the Selling
Securityholder and received by the Company's counsel, the terms of this Notice
and Questionnaire, and the representations and warranties contained herein,
shall be binding on, shall inure to the benefit of and shall be enforceable by
the respective successors, heirs, personal representatives, and assigns of the
Company and the Selling Securityholder (with respect to the Registrable
Securities beneficially owned by such Selling Securityholder and listed in Item
(3) above. This Agreement shall be governed in all respects by the laws of the
State of New York.
A-5
<PAGE> 23
IN WITNESS WHEREOF, the undersigned, by authority duly given, has caused
this Notice and Questionnaire to be executed and delivered either in person or
by its duly authorized agent.
Dated: ________________
____________________________________________
Selling Securityholder
(Print/type full legal name of beneficial
owner of Registrable Securities)
By:_________________________________________
Name:
Title:
PLEASE RETURN THE COMPLETED AND EXECUTED NOTICE AND QUESTIONNAIRE FOR RECEIPT ON
OR BEFORE [DEADLINE FOR RESPONSE] TO THE COMPANY'S COUNSEL AT:
Alston & Bird LLP
1201 West Peachtree Street
Atlanta, Georgia 30309
Attention: Mike McAlevey
(404) 881-7000
A-6
<PAGE> 24
EXHIBIT B
NOTICE OF TRANSFER PURSUANT TO REGISTRATION STATEMENT
Tropical Sportswear Int'l Corp.
c/ SunTrust Bank, Atlanta
[ ]
Atlanta, Georgia [ ]
Attention: Trust Officer
Re: Tropical Sportswear Int'l Corporation (the "Company")
11% Senior Subordinated Notes due 2008
--------------------------------------
Dear Sirs:
Please be advised that _____________________ has transferred
$___________ aggregate principal amount at maturity of the above-referenced
Notes pursuant to an effective Registration Statement on Form [___] (File No.
333-____) filed by the Company.
We hereby certify that the prospectus delivery requirements, if
any, of the Securities Act of 1933, as amended, have been satisfied and that the
above-named beneficial owner of the Notes is named as a "Selling Holder" in the
Prospectus dated ___________, 199_ or in supplements thereto, and that the
aggregate principal amount at maturity of the Notes transferred are the Notes
listed in such Prospectus opposite such owner's name.
Dated:
Very truly yours,
------------------------
(Name)
By:
(Authorized Signature)
B-1
<PAGE> 1
EXHIBIT 4.4
EXECUTION COPY
================================================================================
--------------------
INDENTURE
Dated as of June 24, 1998
---------------------
$100,000,000
11% Senior Subordinated Notes due 2008
--------------------
TROPICAL SPORTSWEAR INT'L CORPORATION,
Issuer,
EACH OF THE SUBSIDIARY GUARANTORS
LISTED ON SCHEDULE I HERETO,
Subsidiary Guarantors,
and
SUNTRUST BANK, ATLANTA,
Trustee
================================================================================
<PAGE> 2
TROPICAL SPORTSWEAR INT'L CORPORATION
RECONCILIATION AND TIE BETWEEN TRUST INDENTURE ACT
OF 1939 AND INDENTURE, DATED AS OF JUNE 24, 1998
<TABLE>
<CAPTION>
TRUST INDENTURE
ACT SECTION INDENTURE SECTION
<S> <C> <C>
ss. 310(a)(1) .................................. 607
(a)(2) .................................. 607
(b) .................................. 608
ss. 312(c) .................................. 701
ss. 314(a) .................................. 703
(a)(4) .................................. 1008(a)
(c)(1) .................................. 102
(c)(2) .................................. 102
(e) .................................. 102
ss. 315(b) .................................. 601
ss. 316(a)(last
sentence) .................................. 101 ("Outstanding")
(a)(1)(A) .................................. 502, 512
(a)(1)(B) .................................. 513
(b) .................................. 508
(c) .................................. 105(d)
ss. 317(a)(1) .................................. 503
(a)(2) .................................. 504
(b) .................................. 1003
ss. 318(a) .................................. 111
</TABLE>
<PAGE> 3
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
<S> <C>
PARTIES............................................................................... 1
RECITALS OF THE COMPANY............................................................... 1
ARTICLE I
DEFINITIONS AND OTHER PROVISIONS OF GENERAL APPLICATION
SECTION 101. Definitions..............................................................1
SECTION 102. Compliance Certificates and Opinions....................................17
SECTION 103. Form of Documents Delivered to Trustee..................................18
SECTION 104. Acts of Holders.........................................................18
SECTION 105. Notices, etc., to Trustee, Company or Subsidiary Guarantors.............19
SECTION 106. Notice to Holders; Waiver...............................................20
SECTION 107. Conflict of any Provision of Indenture with Trust Indenture Act.........20
SECTION 108. Effect of Headings and Table of Contents................................20
SECTION 109. Successors and Assigns..................................................21
SECTION 110. Separability Clause.....................................................21
SECTION 111. Benefits of Indenture...................................................21
SECTION 112. Governing Law...........................................................21
SECTION 113. Legal Holidays..........................................................21
SECTION 114. No Recourse Against Others..............................................21
SECTION 115. Counterparts............................................................21
ARTICLE II
SECURITY FORMS
SECTION 201. Forms Generally.........................................................22
SECTION 202. Restrictive Legends.....................................................23
ARTICLE III
THE SECURITIES
SECTION 301. Title and Terms.........................................................24
SECTION 302. Denominations...........................................................25
SECTION 303. Execution, Authentication, Delivery and Dating..........................25
SECTION 304. Temporary Securities....................................................26
SECTION 305. Registration, Registration of Transfer and Exchange.....................26
SECTION 306. Book-Entry Provisions for Restricted Global Security....................27
SECTION 307. Special Transfer Provisions.............................................28
SECTION 308. Mutilated, Destroyed, Lost and Stolen Securities........................30
SECTION 309. Payment of Interest; Interest Rights Preserved..........................31
SECTION 310. Persons Deemed Owners...................................................32
SECTION 311. Cancellation............................................................32
</TABLE>
- --------------------------------
Note: This table of contents shall not, for any purpose, be deemed to be a
part of the Indenture.
(i)
<PAGE> 4
<TABLE>
<S> <C> <C>
SECTION 312. Issuance of Additional Securities.......................................33
SECTION 313. CUSIP and CINS Numbers..................................................33
SECTION 314. Computation of Interest.................................................33
ARTICLE IV
SATISFACTION AND DISCHARGE
SECTION 401. Satisfaction and Discharge of Indenture.................................33
SECTION 402. Application of Trust Money..............................................34
ARTICLE V
REMEDIES
SECTION 501. Events of Default.......................................................34
SECTION 502. Acceleration of Maturity; Rescission and Annulment......................35
SECTION 503. Collection of Debt and Suits for Enforcement by Trustee.................36
SECTION 504. Trustee May File Proofs of Claim........................................37
SECTION 505. Trustee May Enforce Claims Without Possession of Securities.............37
SECTION 506. Application of Money Collected..........................................38
SECTION 507. Limitation on Suits.....................................................38
SECTION 508. Unconditional Right of Holders to Receive Principal,
Premium and Interest.......................................38
SECTION 509. Restoration of Rights and Remedies......................................39
SECTION 510. Rights and Remedies Cumulative..........................................39
SECTION 511. Delay or Omission Not Waiver............................................39
SECTION 512. Control by Holders......................................................39
SECTION 513. Waiver of Past Defaults.................................................39
SECTION 514. Waiver of Stay or Extension Laws........................................40
SECTION 515. Undertaking for Costs...................................................40
ARTICLE VI
THE TRUSTEE
SECTION 601. Notice of Defaults......................................................40
SECTION 602. Certain Rights of Trustee...............................................40
SECTION 603. Trustee Not Responsible for Recitals or Issuance of Securities..........42
SECTION 604. May Hold Securities.....................................................42
SECTION 605. Money Held in Trust.....................................................42
SECTION 606. Compensation and Reimbursement..........................................42
SECTION 607. Corporate Trustee Required; Eligibility.................................43
SECTION 608. Resignation and Removal; Appointment of Successor.......................43
SECTION 609. Acceptance of Appointment by Successor..................................44
SECTION 610. Merger, Conversion, Consolidation or Succession to Business.............45
ARTICLE VII
HOLDERS' LISTS AND REPORTS BY TRUSTEE
SECTION 701. Disclosure of Names and Addresses of Holders............................45
SECTION 702. Reports by Trustee......................................................45
</TABLE>
(ii)
<PAGE> 5
ARTICLE VIII
CONSOLIDATION, MERGER, CONVEYANCE, TRANSFER OR LEASE
<TABLE>
<S> <C> <C>
SECTION 801. Company May Consolidate, etc., Only on Certain Terms....................45
SECTION 802. Successor Substituted...................................................46
ARTICLE IX
SUPPLEMENTS AND AMENDMENTS TO INDENTURE AND SECURITIES GUARANTEES
SECTION 901. Without Consent of Holders..............................................47
SECTION 902. With Consent of Holders.................................................48
SECTION 903. Execution of Supplemental Indentures....................................48
SECTION 904. Effect of Supplemental Indentures.......................................49
SECTION 905. Conformity with Trust Indenture Act.....................................49
SECTION 906. Reference in Securities to Supplemental Indentures......................49
SECTION 907. Notice of Supplemental Indentures.......................................49
ARTICLE X
COVENANTS
SECTION 1001. Payment of Principal, Premium, If Any, and Interest....................49
SECTION 1002. Maintenance of Office or Agency........................................49
SECTION 1003. Money for Security Payments to Be Held in Trust........................50
SECTION 1004. Corporate Existence....................................................51
SECTION 1005. Payment of Taxes and Other Claims......................................51
SECTION 1006. Maintenance of Properties..............................................51
SECTION 1007. Insurance..............................................................51
SECTION 1008. Statement by Officers As to Default....................................52
SECTION 1009. Provision of Reports and Financial Statements..........................52
SECTION 1010. Limitation on Incurrence of Debt and Issuance of Disqualified Stock....52
SECTION 1011. Limitation on Restricted Payments......................................53
SECTION 1012. Purchase of Securities upon a Change of Control........................55
SECTION 1013. Limitation on Certain Asset Sales......................................56
SECTION 1014. Limitation on Transactions with Affiliates.............................57
SECTION 1015. Limitation on Dividends and Other Payment Restrictions Affecting
Restricted Subsidiaries....................................58
SECTION 1016. Limitation on Issuances and Sales of Capital Stock of Restricted
Subsidiaries...............................................59
SECTION 1017. Limitation on Liens....................................................59
SECTION 1018. Unrestricted Subsidiaries..............................................59
SECTION 1019. Limitation on Layering Debt............................................60
SECTION 1020. Limitation on Guarantees of Debt by Restricted Subsidiaries............60
SECTION 1021. Limitation on Conduct of Business......................................60
SECTION 1022. Waiver of Certain Covenants............................................60
ARTICLE XI
REDEMPTION OF SECURITIES
SECTION 1101. Right of Redemption....................................................60
SECTION 1102. Applicability of Article...............................................61
SECTION 1103. Election to Redeem; Notice to Trustee..................................61
SECTION 1104. Selection by Trustee of Securities to Be Redeemed......................61
</TABLE>
(iii)
<PAGE> 6
<TABLE>
<S> <C> <C>
SECTION 1105. Notice of Redemption...................................................61
SECTION 1106. Deposit of Redemption Price............................................62
SECTION 1107. Securities Payable on Redemption Date..................................62
SECTION 1108. Securities Redeemed in Part............................................62
ARTICLE XII
DEFEASANCE AND COVENANT DEFEASANCE
SECTION 1201. Company Option to Effect Defeasance or Covenant Defeasance.............63
SECTION 1202. Defeasance and Discharge...............................................63
SECTION 1203. Covenant Defeasance....................................................63
SECTION 1204. Conditions to Defeasance or Covenant Defeasance........................64
SECTION 1205. Deposited Money and U.S. Government Obligations to Be Held
in Trust; Other Miscellaneous Provisions...................65
SECTION 1206. Reinstatement..........................................................65
ARTICLE XIII
SECURITIES GUARANTEES
SECTION 1301. Subsidiary Guarantees..................................................66
SECTION 1302. Guaranty Absolute......................................................66
SECTION 1303. Waivers................................................................68
SECTION 1304. Subrogation............................................................68
SECTION 1305. No Waiver; Remedies....................................................68
SECTION 1306. Continuing Guaranty; No Right of Set-Off; Independent Obligation.......69
SECTION 1307. Subsidiary Guarantors May Consolidate, Etc., on Certain Terms..........69
SECTION 1308. Additional Guarantors..................................................69
SECTION 1309. Releases...............................................................70
SECTION 1310. Benefits Acknowledged..................................................70
SECTION 1311. Severability...........................................................70
ARTICLE XIV
SUBORDINATION OF SECURITIES AND SECURITIES GUARANTEES
SECTION 1401. Securities and Subsidiary Guarantees Subordinate to Senior Debt........71
SECTION 1402. Payment Over of Proceeds Upon Dissolution, Etc.........................71
SECTION 1403. No Payment When Certain Senior Debt in Default.........................72
SECTION 1404. Payment Permitted If No Default........................................73
SECTION 1405. Subrogation to Rights of Holders of Senior Debt........................73
SECTION 1406. Provisions Solely to Define Relative Rights............................74
SECTION 1407. Trustee to Effectuate Subordination....................................74
SECTION 1408. No Waiver of Subordination Provisions..................................74
SECTION 1409. Notice to Trustee......................................................75
SECTION 1410. Reliance on Judicial Order or Certificate of Liquidation Agent.........75
SECTION 1411. Trustee Not Fiduciary for Holders of Senior Debt.......................75
SECTION 1412. Rights of Trustee as Holder of Senior Debt;
Preservation of Trustee's Rights...........................76
SECTION 1413. Applicability to Paying Agents.........................................76
SECTION 1414. Defeasance of this Article XIV.........................................76
SECTION 1415. Subordination Provisions Controlling...................................76
</TABLE>
(iv)
<PAGE> 7
EXHIBITS
Exhibit A - Form of Security
Exhibit B - Form of Certificate for Exchange or Registration of Transfer
from Restricted Global Security to Regulation S Global
Security
Exhibit C - Form of Certificate for Exchange or Registration of Transfer
from Regulation S Global Security to Restricted Global
Security
Exhibit D - Form of Certificate for Transfer of U.S. Physical Securities
to Regulation S Global Security or Restricted Global Security
Exhibit E - Form of Certificate for Transfer or Exchange after Two Years
(v)
<PAGE> 8
- --------
* Include only for Exchange Securities.
* Include only for Initial Securities.
** Include only for Exchange Securities.
* Include only for Initial Securities.
** Include for Restricted Global Security only.
*** Include for Physical Securities only.
<PAGE> 9
INDENTURE, dated as of June 24, 1998 between Tropical Sportswear Int'l
Corporation, a corporation duly organized and existing under the laws of the
State of Florida (herein called the "Company"), each of the Company's
subsidiaries listed on Schedule I hereto (collectively, the "Subsidiary
Guarantors") and SunTrust Bank, Atlanta, a bank and trust company duly organized
and existing, and authorized to accept and execute trusts of the character
herein set forth, under the laws of the State of Georgia, as trustee (herein
called the "Trustee").
RECITALS OF THE COMPANY
The Company has duly authorized the creation of and issue of 11% Senior
Subordinated Notes due 2008 (herein called the "Initial Securities"), and 11%
Senior Subordinated Notes due 2008 (the "Exchange Securities" and, together with
the Initial Securities, the "Securities") to be issued in exchange for the
Initial Securities of substantially the tenor and amount hereinafter set forth,
and to provide therefor the Company has duly authorized the execution and
delivery of this Indenture.
Each of the Subsidiary Guarantors has duly authorized its guarantee of
the Securities, and to provide therefor each of them has duly authorized the
execution and delivery of this Indenture.
Upon the issuance of the Exchange Securities, if any, or the
effectiveness of the Exchange Registration Statement (as defined herein) or,
under certain circumstances, the effectiveness of the Shelf Registration
Statement (as defined herein), this Indenture will be subject to the provisions
of the Trust Indenture Act of 1939, as amended, that are required to be part of
this Indenture and shall, to the extent applicable, be governed by such
provisions.
The Company has also duly authorized the creation of up to $40,000,000
aggregate principal amount of additional Securities to be issued from time to
time having identical terms and conditions to the Initial Securities offered
hereby.
All things necessary have been done to make the Securities, when
executed by the Company and authenticated by the Trustee and delivered hereunder
and duly issued by the Company, the valid obligations of the Company and to make
this Indenture a valid agreement of the Company and the Subsidiary Guarantors,
each in accordance with their respective terms.
NOW, THEREFORE, THIS INDENTURE WITNESSETH:
For and in consideration of the premises and the purchase of the
Securities by the Holders thereof, it is mutually covenanted and agreed, for the
equal and proportionate benefit of all Holders of the Securities, as follows:
ARTICLE I
DEFINITIONS AND OTHER PROVISIONS
OF GENERAL APPLICATION
SECTION 101. Definitions.
For all purposes of this Indenture, except as otherwise expressly
provided or unless the context otherwise requires:
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<PAGE> 10
(a) the terms defined in this Article have the meanings
assigned to them in this Article, and include the plural as well as the
singular;
(b) all other terms used herein which are defined in the Trust
Indenture Act, either directly or by reference therein, have the
meanings assigned to them therein, and the terms "cash transaction" and
"self-liquidating paper", as used in TIA Section 311, shall have the
meanings assigned to them in the rules of the Commission adopted under
the Trust Indenture Act;
(c) all accounting terms not otherwise defined herein have the
meanings assigned to them in accordance with Generally Accepted
Accounting Principles; and
(d) the words "herein", "hereof" and "hereunder" and other
words of similar import refer to this Indenture as a whole and not to
any particular Article, Section or other subdivision.
"Acquired Debt" means Debt of a Person (a) existing at the time such
Person is merged with or into the Company or becomes a Restricted Subsidiary or
(b) assumed in connection with the acquisition of assets from such Person.
"Act", when used with respect to any Holder, has the meaning specified
in Section 104.
"Additional Securities" has the meaning set forth in Section 301.
"Adjusted Net Assets" has the meaning set forth in Section 1301.
"Affected Obligor" has the meaning set forth in Section 1402.
"Affected Obligor Senior Debt" has the meaning set forth in Section
1402.
"Affiliate" means, with respect to any specified Person, (a) any other
Person directly or indirectly controlling or controlled by or under direct or
indirect common control with such specified Person or (b) any other Person that
owns, directly or indirectly, 10% or more of such specified Person's Capital
Stock or any executive officer or director of any specified Person or other
Person or, with respect to any natural Person, any Person having a relationship
with such Person by blood, marriage or adoption no more remote than first
cousin. For the purposes of this definition, "control", when used with respect
to any specified Person, means the power to direct the management and policies
of such Person, directly or indirectly, whether through the ownership of voting
securities, by contract or otherwise; and the terms "controlling" and
"controlled" have meanings correlative to the foregoing.
"Agent Member" means any member of, or participant in, the Depositary.
"Applicable Procedures" means applicable procedures of the Depositary,
Euroclear System or Cedel Bank S.A., as the case may be.
"Asset Sale" means any sale, issuance, conveyance, transfer, lease or
other disposition (including, without limitation, by way of merger,
consolidation or sale and leaseback transaction) (collectively, a "transfer") by
the Company or a Restricted Subsidiary, directly or indirectly, in one
transaction or a series of related transactions, of (a) any Capital Stock of any
Restricted Subsidiary (other than directors' qualifying shares or shares
required by applicable law to be held by a Person other than the Company or a
Restricted Subsidiary), (b) all or substantially all of the properties and
assets of the Company and its Restricted Subsidiaries representing a division or
line of business or (c) any other properties or assets of the Company or any
Restricted Subsidiary, other than in the ordinary course of business. For the
purposes of this definition, the term "Asset Sale" shall not
2
<PAGE> 11
include any transfer of properties or assets (i) that is governed by the
provisions of Article VIII, (ii) between or among the Company and its Restricted
Subsidiaries pursuant to transactions that do not violate any other provision of
the Indenture, (iii) to any Person to the extent it constitutes a Restricted
Payment that is permitted under Section 1011, (iv) consisting of inventory or
wornout, obsolete or permanently retired equipment and facilities, (v)
consisting of Receivables and Related Assets transferred pursuant to a
Receivables Program, (vi) consisting of Receivables and Related Assets
transferred pursuant to a Factoring Agreement provided that such transfer is
non-recourse to the Company or any Restricted Subsidiary with respect to not
less than 99.85% of the face amount of such Receivables and Related Assets,
(vii) the gross proceeds of which do not exceed $1.0 million in connection with
any transfer or $2.0 million in the aggregate for any fiscal year of the Company
or (viii) that constitutes a Permitted Investment.
"Asset Sale Offer" has the meaning set forth in Section 1013.
"Asset Sale Purchase Date" has the meaning set forth in Section 1013.
"Bankruptcy Code" means Title 11, United States Code, as amended.
"Banks" means the banks and other financial institutions that from time
to time are lenders under the New Credit Facility.
"Blockage Notice" has the meaning set forth in Section 1403.
"Board of Directors" means, as the context requires, either the board
of directors of the Company or a Subsidiary Guarantor, as the case may be, or
any duly authorized committee of that board.
"Board Resolution" means, as the context requires, a copy of a
resolution certified by the Secretary or an Assistant Secretary of the Company
or a Subsidiary Guarantor, as the case may be, to have been duly adopted by the
applicable Board of Directors and to be in full force and effect on the date of
such certification, and delivered to the Trustee.
"Borrowing Base" means, as of any date, an amount equal to the sum of
(a) 75% of the aggregate book value of the accounts receivable of the Company
and its Restricted Subsidiaries (net of bad debt reserves) and (b) 50% of the
aggregate net book value of the inventory of the Company and its Restricted
Subsidiaries, all calculated on a consolidated basis in accordance with GAAP as
of the last day of the immediately preceding fiscal quarter for which internal
financial statements are available.
"Business Day" means each Monday, Tuesday, Wednesday, Thursday and
Friday that is not a day on which banking institutions in New York or Atlanta,
Georgia are authorized or obligated by law or executive order to close.
"Capital Lease Obligation" means, at the time any determination thereof
is to be made, the amount of the liability in respect of a capital lease that
would at such time be required to be capitalized on a balance sheet in
accordance with GAAP.
"Capital Stock" of any Person means any and all shares, partnership
interests, participations, rights in or other equivalents of, or interests in,
the equity of such Person, but excluding any debt securities convertible into
such equity.
"Cash Equivalents" means (a) any evidence of Debt with a maturity of
180 days or less issued or directly and fully guaranteed or insured by the
United States of America or any agency or instrumentality thereof (provided that
the full faith and credit of the United States of America is pledged in support
thereof); (b)
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<PAGE> 12
certificates of deposit or acceptances or Eurodollar time deposits with a
maturity of 180 days or less of, and overnight bank deposits and demand accounts
with, any financial institution that is a member of the Federal Reserve System
having combined capital and surplus and undivided profits of not less than $500
million; (c) commercial paper with a maturity of 180 days or less issued by a
corporation that is not an Affiliate of the Company and is organized under the
laws of any State of the United States or the District of Columbia and rated at
least A-1 by S&P or at least P-1 by Moody's; and (d) funds which invest in any
of the foregoing.
"CEDEL" means Cedel Bank, S.A., or any successor securities clearing
agency.
"Change of Control" means the occurrence of any of the following
events:
(a) Any Person or "group" (as such term is used in Sections
13(d) and 14(d) of the Exchange Act), other than one or more Permitted
Holders, is or becomes the "beneficial owner" (as defined in Rules
13d-3 and 13d-5 under the Exchange Act, except that a Person will be
deemed to have "beneficial ownership" of all securities that such
Person has the right to acquire, whether such right is exercisable
immediately or only after the passage of time), directly or indirectly,
of more than 50% of the voting power of all classes of Voting Stock of
the Company;
(b) During any consecutive two-year period, individuals who at
the beginning of such period constituted the Board of Directors of the
Company (together with any new directors whose election to such Board
of Directors, or whose nomination for election by the stockholders of
the Company, was approved by a vote of 66_% of the directors then still
in office who were either directors at the beginning of such period or
whose election or nomination for election was previously so approved)
cease for any reason to constitute a majority of the Board of Directors
of the Company then in office; or
(c) The Company is liquidated or dissolved or adopts a plan of
liquidation or dissolution, other than a transaction that complies with
the provisions of Article VIII.
"Change of Control Offer" has the meaning set forth in Section 1012.
"Change of Control Payment Date" has the meaning set forth in Section
1012.
"Closing Date" means the date on which the Initial Securities are
originally issued under this Indenture.
"Commission" means the Securities and Exchange Commission, as from time
to time constituted, created under the Exchange Act, or, if at any time after
the execution of this Indenture such Commission is not existing and performing
the duties now assigned to it under the Trust Indenture Act, then the body
performing such duties at such time.
"Company" means the Person named as the "Company" in the first
paragraph of this Indenture, until a successor Person shall have become such
pursuant to the applicable provisions of this Indenture, and thereafter
"Company" shall mean such successor Person.
"Company Request" or "Company Order" means a written request or order
signed in the name of the Company by its Chairman, its President, any Vice
President, its Treasurer or an Assistant Treasurer, and delivered to the
Trustee.
"Consolidated EBITDA" means, for any period, the sum of, without
duplication, (a) cash dividends paid on Disqualified Stock by the Company or any
Restricted Subsidiary (to any person other than the Company and its Restricted
Subsidiaries) plus (b) Consolidated Net Income for such period, plus (or, in the
case of clause (iv) below, plus or minus) the following items to the extent
included in computing Consolidated Net Income for such
4
<PAGE> 13
period (i) Fixed Charges for such period, plus (ii) the federal, state, local
and foreign income tax expense of the Company and its Restricted Subsidiaries
for such period, plus (iii) the depreciation and amortization expense of the
Company and its Restricted Subsidiaries for such period, plus (iv) any other
non-cash charges for such period and minus non-cash credits for such period,
other than non-cash charges or credits resulting from changes in prepaid assets
or accrued liabilities in the ordinary course of business; provided that income
tax expense, depreciation and amortization expense and non-cash charges and
credits of, and cash dividends paid on Disqualified Stock by, a Restricted
Subsidiary shall be included in Consolidated EBITDA only to the extent (and in
the same proportion) that the net income of such Restricted Subsidiary was
included in calculating Consolidated Net Income for such period.
"Consolidated Net Income" means, for any period, the net income (or net
loss) of the Company and its Restricted Subsidiaries for such period as
determined on a consolidated basis in accordance with GAAP, adjusted to the
extent included in calculating such net income or loss by excluding (a) any net
after-tax extraordinary gains or losses (less all fees and expenses relating
thereto), (b) any net after-tax gains or losses (less all fees and expenses
relating thereto) attributable to Asset Sales, (c) the net income (but not the
net loss) of any Person (other than the Company or a Restricted Subsidiary), in
which the Company or any Restricted Subsidiary has an equity interest, except
that the aggregate amount of dividends or other distributions actually paid to
the Company or any Restricted Subsidiary in cash during such period will be
included in such Consolidated Net Income, (d) the net income (or loss) of any
Person acquired by the Company or any Restricted Subsidiary in a "pooling of
interests" transaction attributable to any period prior to the date of such
acquisition, and (e) the net income (but not the net loss) of any Restricted
Subsidiary to the extent that the declaration or payment of dividends or similar
distributions by such Restricted Subsidiary of such net income is at the date of
determination restricted, directly or indirectly, except that the aggregate
amount of such net income that could be paid to the Company or a Restricted
Subsidiary thereof by loans, advances, intercompany transfers, principal
repayments or otherwise will be included in such Consolidated Net Income.
"Consolidated Net Worth" means, at any date of determination, the
stockholders' equity of the Company and its Restricted Subsidiaries as set forth
on the most recently available quarterly or annual consolidated balance sheet of
the Company and its Restricted Subsidiaries, less any amounts attributable to
Disqualified Stock or any equity security convertible into or exchangeable for
Debt, the cost of treasury stock and the principal amount of any promissory
notes receivable from the sale of the Capital Stock of the Company or any of its
Restricted Subsidiaries and less, to the extent included in calculating such
stockholders' equity of the Company and its Restricted Subsidiaries, the
stockholders' equity attributable to Unrestricted Subsidiaries, each item to be
determined in conformity with GAAP (excluding the effects of foreign currency
adjustments under Financial Accounting Standards Board Statement of Financial
Accounting Standards No. 52).
"Corporate Trust Office" means the principal corporate trust office of
the Trustee, at which at any particular time its corporate trust business shall
be administered, which office at the date of execution of this Indenture is
located at 3495 Piedmont Road, Building 10, Suite 810, Atlanta, Georgia
30305-1727, except that with respect to presentation of Securities for payment
or for registration of transfer or exchange, such term shall mean the office or
agency of the Trustee at which, at any particular time, its corporate trust and
agency business shall be conducted.
"Currency Agreements" means, with respect to any Person, any spot or
forward foreign exchange agreements and currency swap, currency option or other
similar financial agreements or arrangements entered into by such Person or any
of its Restricted Subsidiaries in the ordinary course of business and designed
to protect against or manage exposure to fluctuations in foreign currency
exchange rates.
"Debt" means (without duplication), with respect to any Person, whether
recourse is to all or a portion of the assets of such Person and whether or not
contingent, (a) every obligation of such Person for money borrowed, (b) every
obligation of such Person evidenced by bonds, debentures, notes or other similar
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<PAGE> 14
instruments, (c) every reimbursement obligation of such Person with respect to
letters of credit, bankers' acceptances or similar facilities issued for the
account of such Person, (d) every obligation of such Person issued or assumed as
the deferred purchase price of property or services, (e) every Capital Lease
Obligation of such Person, (f) all Disqualified Stock of such Person valued at
its maximum fixed repurchase price (including, without duplication, accrued and
unpaid dividends), (g) all obligations of such Person under or in respect of
Hedging Obligations to the extent such Hedging Obligations would appear as a
liability on the balance sheet of such Person prepared in accordance with GAAP,
and (h) every obligation of the type referred to in clauses (a) through (g) of
another Person and all dividends of another Person the payment of which, in
either case, such Person has guaranteed. For purposes of this definition, the
"maximum fixed repurchase price" of any Disqualified Stock that does not have a
fixed repurchase price shall be calculated in accordance with the terms of such
Disqualified Stock as if such Disqualified Stock were repurchased on any date on
which Debt is required to be determined pursuant to the Indenture, and if such
price is based upon, or measured by, the fair market value of such Disqualified
Stock, such fair market value shall be determined in good faith by the board of
directors of the issuer of such Disqualified Stock. Notwithstanding the
foregoing, trade accounts payable and accrued liabilities arising in the
ordinary course of business and any liability for federal, state or local taxes
or other taxes owed by such Person shall not be considered Debt for purposes of
this definition.
"Default" means any event that is, or after notice or passage of time
or both would be, an Event of Default.
"Defaulted Interest" has the meaning specified in Section 309.
"Depositary" means The Depository Trust Company, its nominees and
successors.
"Designated Assets" means the properties and assets used in Farah's
European, Far East and South Pacific operations identified in Note 10 to the
Consolidated Financial Statements of Farah for its fiscal year ended November 2,
1997 included in the Offering Memorandum.
"Designated Senior Debt" means (i) all Senior Debt under the New Credit
Facility and (ii) any other issue of Senior Debt or refinancing thereof
permitted by the definition of Senior Debt, having a principal amount of at
least $25,000,000 and which has been designated by the Company as Designated
Senior Debt in the instrument evidencing or governing such Senior Debt.
"Disinterested Director" means, with respect to any transaction or
series of transactions in respect of which the Board of Directors is required to
deliver a resolution of the Board of Directors, to make a finding or otherwise
take action under the Indenture, a member of the Board of Directors who does not
have any material direct or indirect financial interest in or with respect to
such transaction or series of transactions.
"Disqualified Stock" means any class or series of Capital Stock that,
either by its terms, or by the terms of any security into which it is
convertible or exchangeable or by contract or otherwise (a) is, or upon the
happening of an event or passage of time would be, required to be redeemed prior
to one year after the final Stated Maturity of the Securities, (b) is redeemable
at the option of the holder thereof at any time prior to one year after such
final Stated Maturity or (c) at the option of the holder thereof, is convertible
into or exchangeable for debt securities at any time prior to one year after
such final Stated Maturity; provided that any Capital Stock that would not
constitute Disqualified Stock but for provisions therein giving holders thereof
the right to cause the issuer thereof to repurchase or redeem such Capital Stock
upon the occurrence of an "asset sale" or "change of control" occurring prior to
the Stated Maturity of the Securities will not constitute Disqualified Stock if
the "asset sale" or "change of control" provisions applicable to such Capital
Stock are no more favorable to the holders of such Capital Stock than the
provisions contained in Sections 1012 and 1013 and such Capital Stock
specifically provides that the issuer will not repurchase or redeem any of such
stock pursuant to such provision prior to the
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<PAGE> 15
Company's repurchase of such of the Securities as are required to be repurchased
pursuant to Sections 1012 and 1013.
"Domestic Restricted Subsidiary" means a Domestic Subsidiary that is a
Restricted Subsidiary.
"Domestic Subsidiary" means any Subsidiary whose jurisdiction of
incorporation, organization or formation is the United States, any state thereof
or the District of Columbia.
"Euroclear" means Morgan Guaranty Trust Company of New York, Brussels
Office, as operator of the Euroclear System, or any successor securities
clearing agency.
"Event of Default" has the meaning specified in Section 501.
"Excess Proceeds" has the meaning set forth in Section 1013.
"Exchange Act" means the Securities Exchange Act of 1934, as amended
from time to time, and the rules and regulations thereunder.
"Exchange Offer" means the exchange offer that may be effected pursuant
to the Registration Rights Agreement.
"Exchange Registration Statement" means the Exchange Registration
Statement as defined in the Registration Rights Agreement.
"Exchange Securities" has the meaning stated in the first recital of
this Indenture and refers to any Exchange Securities containing terms
substantially identical to the Initial Securities (except that such Exchange
Securities shall not contain terms applicable to the Initial Securities with
respect to the interest rate step-up provisions referred to in the last
paragraph of Section 309 and in Section 1 of the Initial Securities and transfer
restrictions in Section 307 of the Initial Securities) that are issued and
exchanged for the Initial Securities pursuant to the Registration Rights
Agreement and this Indenture.
"Factoring Agreement" means (i) the Factoring Agreement dated October
1, 1995 between the Company and Heller Financial, Inc. or (ii) any other
factoring agreement between the Company and/or one or more Restricted
Subsidiaries, on the one hand, and a financial institution, on the other hand,
on substantially similar terms to the factoring agreement referred to in the
foregoing clause (i) pursuant to which the Company and/or such Restricted
Subsidiaries factor Receivables and Related Assets.
"Fair market value" means, with respect to any asset, the price which
could be negotiated in an arm's-length free market transaction, for cash,
between an informed and willing seller and an informed and willing buyer,
neither of which is under pressure or compulsion to complete the transaction.
With respect to subparagraph (b) of the definition of Investment, fair market
value shall be as determined in good faith by the Board of Directors.
"Farah" means Farah Incorporated, a Texas corporation.
"Farah Acquisition" means the Company's acquisition of Farah pursuant
to a tender offer by Foxfire Acquisition Corp., a wholly owned subsidiary of the
Company, for all of the outstanding capital stock of Farah in June 1998 followed
by the Merger.
"Fixed Charges" means, for any period, without duplication, the sum of
(a) the amount that, in conformity with GAAP, would be set forth opposite the
caption "interest expense" (or any like caption) on a
7
<PAGE> 16
consolidated statement of operations of the Company and its Restricted
Subsidiaries for such period, including, without limitation, (i) amortization of
debt discount, (ii) the net cost of Interest Rate Agreements (including
amortization of discounts), (iii) the interest portion of any deferred payment
obligation, (iv) amortization of debt issuance costs and (v) the interest
component of Capital Lease Obligations, plus (b) cash dividends paid on
Preferred Stock and Disqualified Stock by the Company and any Restricted
Subsidiary (to any Person other than the Company and its Restricted
Subsidiaries) plus (c) all interest on any Debt of any Person guaranteed by the
Company or any of its Restricted Subsidiaries; provided, however, that Fixed
Charges shall not include (i) any gain or loss from extinguishment of debt,
including the write-off of debt issuance costs and (ii) the fixed charges of a
Restricted Subsidiary to the extent (and in the same proportion) that the net
income of such Subsidiary was excluded in calculating Consolidated Net Income
pursuant to clause (e) of the definition thereof for such period.
"Fixed Charge Coverage Ratio" means, for any period, the ratio of (a)
Consolidated EBITDA for such period to (b) Fixed Charges for such period.
"Foreign Subsidiary" means any Subsidiary other than a Domestic
Subsidiary.
"Funding Guarantor" has the meaning set forth in Section 1301.
"Generally Accepted Accounting Principles" or "GAAP" means generally
accepted accounting principles in the United States, consistently applied, that
are in effect on the date of determination.
"Global Security" shall have the meaning specified in Section 201.
"guarantee" means, as applied to any obligation, (a) a guarantee (other
than by endorsement of negotiable instruments for collection in the ordinary
course of business), direct or indirect, in any manner, of all or any part of
such obligation and (b) an agreement, direct or indirect, contingent or
otherwise, the practical effect of which is to assure in any way the payment or
performance (or payment of damages in the event of non-performance) of all or
any part of such obligation, including, without limitation, the payment of
amounts drawn down under letters of credit.
"Guarantor Senior Debt" means, as to any Subsidiary Guarantor, the
principal of and premium, if any, and interest on (including interest accruing
after the filing of a petition initiating any proceeding pursuant to any
bankruptcy law, whether or not allowed) and other amounts due on or in
connection with any Debt of such Subsidiary Guarantor (other than the Subsidiary
Guarantee made by such Subsidiary Guarantor or Pari Passu Debt), whether
outstanding on the Closing Date or thereafter incurred, unless, in the case of
any particular Debt, the instrument creating or evidencing the same or pursuant
to which the same is outstanding expressly provides that such Debt will be pari
passu with or subordinate in right of payment to such Subsidiary Guarantor's
Subsidiary Guaranty. Without limiting the generality of the foregoing,
"Guarantor Senior Debt" includes the principal of and premium, if any, and
interest (including interest accruing after the occurrence of an event of
default or after the filing of a petition initiating any proceeding pursuant to
any bankruptcy law, whether or not allowed) on all obligations of every nature
of such Subsidiary Guarantor from time to time owed to the Banks under the New
Credit Facility, provided, however, that any Debt under any refinancing,
refunding or replacement of the New Credit Facility shall not constitute
Guarantor Senior Debt to the extent that the Debt thereunder is by its express
terms subordinate to any other Debt of such Subsidiary Guarantor.
Notwithstanding the foregoing, "Guarantor Senior Debt" shall not include (a)
Debt that is represented by Disqualified Stock, (b) any trade payables, (c) Debt
of or amounts owed by such Subsidiary Guarantor for compensation to employees or
for services rendered to such Subsidiary Guarantor, (d) any liability for
foreign, federal, state, local or other taxes owed or owing by such Subsidiary
Guarantor, (e) Debt of such Subsidiary Guarantor to a Subsidiary of the Company
or any other Affiliate of the Company or any of such Affiliate's Subsidiaries,
(f) that portion of any Debt that, at the time of the incurrence, is incurred by
such Subsidiary Guarantor in violation of the Indenture, (g)
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amounts owing under leases (other than Capital Lease Obligations) and (h) Debt
that is without recourse to such Subsidiary Guarantor (regardless of any
election under Section 1111(b) of the Bankruptcy Code).
"Hedging Obligations" means the obligations of any Person under (a)
Interest Rate Agreements and (b) Currency Agreements.
"Holder" means the Person in whose name a Security is, at the time of
determination, registered on the Security Register.
"Indenture" means this instrument as originally executed and as it may
from time to time be supplemented or amended by one or more indentures
supplemental hereto entered into pursuant to the applicable provisions hereof.
"Indenture Obligations" means the obligations of the Company and any
other obligor hereunder or under the Securities, including the Subsidiary
Guarantors, to pay principal of and premium, if any, and interest on the
Securities when due and payable at Maturity, and all other amounts due or to
become due under or in connection with this Indenture, the Securities and the
performance of all other obligations to the Trustee (including all amounts due
to the Trustee under Section 606 hereof) and the Holders under this Indenture
and the Securities, according to the terms hereof and thereof.
"Initial Period" has the meaning set forth in Section 1403.
"Initial Securities" has the meaning stated in the first recital of
this Indenture.
"Interest Payment Date" means the Stated Maturity of an installment of
interest on the Securities.
"Interest Rate Agreements" means any interest rate protection
agreements and other types of interest rate hedging agreements (including,
without limitation, interest rate swaps, caps, floors, collars and similar
agreements) and other related agreements entered into in the ordinary course of
business and designed to protect against or manage exposure to fluctuations in
interest rates.
"Investment" in any Person means (a) any direct or indirect advance,
loan or other extension of credit or capital contribution (by means of any
transfer of cash or other property to others or any payment for property or
services for the account or use of others) to, or any purchase, acquisition or
ownership of, Capital Stock, Debt or other securities issued by such Person, the
acquisition (by purchase or otherwise) of all or substantially all of the
business or assets of such Person, or the making of any investment of cash or
other property in such Person, (b) the designation of any Restricted Subsidiary
as an Unrestricted Subsidiary, (c) the transfer of any assets or properties from
the Company or a Restricted Subsidiary to an Unrestricted Subsidiary, other than
the transfer of assets or properties made in the ordinary course of business and
(d) the fair market value of the Capital Stock (or any other Investment), held
by the Company or any of its Restricted Subsidiaries, of (or in) any Person that
has ceased to be a Restricted Subsidiary. Investments exclude extensions of
trade credit on commercially reasonable terms in accordance with normal trade
practices.
"Lien" means any mortgage, pledge, security interest, encumbrance, lien
or charge of any kind (including any conditional sale or other title retention
agreement or lease in the nature thereof).
"Maturity", when used with respect to any Security, means the date on
which the principal of such Security or an installment of principal becomes due
and payable as therein or herein provided, whether at the Stated Maturity or by
declaration of acceleration, notice of redemption or otherwise.
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"Merger" means the merger of Foxfire Acquisition Corp. with and into
Farah in connection with the Farah Acquisition.
"Merger Agreement" means the agreement and plan of merger dated May 1,
1998 between the Company, Farah and Foxfire Acquisition Corp.
"Net Cash Proceeds" means, with respect to any Asset Sale, the proceeds
thereof in the form of cash or Cash Equivalents, including payments in respect
of deferred payment obligations, but only as and when received, in the form of,
or stock or other assets when disposed of for, cash or Cash Equivalents (except
to the extent that such obligations are financed or sold with recourse to the
Company or any Restricted Subsidiary), net of (a) brokerage commissions and
other fees and expenses (including fees and expenses of legal counsel,
accountants and investment banks) related to such Asset Sale, (b) provisions for
all taxes payable or required to be accrued in accordance with GAAP as a result
of such Asset Sale, (c) payments made to retire Debt where payment of such Debt
is secured by a Lien on the assets that are the subject of such Asset Sale, (d)
amounts required to be paid to any Person (other than the Company or any
Restricted Subsidiary) owning a beneficial interest in the assets that are
subject to the Asset Sale and (e) appropriate amounts to be provided by the
Company or any Restricted Subsidiary, as the case may be, as a reserve required
in accordance with GAAP against any liabilities associated with such Asset Sale
and retained by the seller after such Asset Sale, including pension and other
post-employment benefit liabilities, liabilities related to environmental
matters and liabilities under any indemnification obligations associated with
such Asset Sale.
"New Credit Facility" means the credit agreement dated as of June 10,
1998 among the Company, the Banks and Fleet Capital Corporation, as agent, as
such agreement may be amended, renewed, extended, substituted, replaced,
restated, refinanced, restructured, supplemented or otherwise modified from time
to time (including, without limitation, any successive amendments, renewals,
extensions, substitutions, replacements, restatements, refinancings,
restructuring, supplements or other modifications of the foregoing); provided
that with respect to any agreement providing for the refinancing, substitution
or replacement of Debt under the New Credit Facility (including any such
agreement which increases the principal amount thereof), such agreement shall be
the New Credit Facility for the purposes of this definition only if a notice to
that effect is delivered by the Company to the Trustee and there shall be at any
time only one credit agreement that is the New Credit Facility under this
Indenture.
"New Credit Facility Agent" means Fleet Capital Corporation as agent
for the Banks under the New Credit Facility or any successor thereto as "agent"
identified in written notice to the Trustee given by the predecessor agent.
"Non-Subsidiary Guarantors" means Subsidiaries which are not Subsidiary
Guarantors.
"Offering Memorandum" means the final offering memorandum dated June
18, 1998 relating to the offer and sale of the Initial Securities by the
Company.
"Officers' Certificate" means a certificate signed by the Chairman, the
President or a Vice President, and by the Treasurer, an Assistant Treasurer, the
Secretary or an Assistant Secretary of the Company, and delivered to the
Trustee.
"Opinion of Counsel" means a written opinion of counsel, who may be
counsel for the Company, including an employee of the Company, and who shall be
reasonably acceptable to the Trustee.
"Outstanding", when used with respect to Securities, means, as of the
date of determination, all Securities theretofore authenticated and delivered
under this Indenture, except:
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(a) Securities theretofore canceled by the Trustee or
delivered to the Trustee for cancellation;
(b) Securities, or portions thereof, for whose payment,
redemption or purchase money in the necessary amount has been
theretofore deposited with the Trustee or any Paying Agent (other than
the Company) in trust or set aside and segregated in trust by the
Company (if the Company shall act as its own Paying Agent) for the
Holders of such Securities; provided that, if such Securities are to be
redeemed, notice of such redemption has been duly given pursuant to
this Indenture or provision therefor satisfactory to the Trustee has
been made;
(c) Securities, except to the extent provided in Sections 1202
and 1203, with respect to which the Company has effected defeasance
and/or covenant defeasance as provided in Article XII; and
(d) Securities which have been paid pursuant to Section 308 or
in exchange for or in lieu of which other Securities have been
authenticated and delivered pursuant to this Indenture, other than any
such Securities in respect of which there shall have been presented to
the Trustee proof satisfactory to it that such Securities are held by a
bona fide purchaser in whose hands the Securities are valid obligations
of the Company;
provided, however, that in determining whether the Holders of the requisite
principal amount of Outstanding Securities have given any request, demand,
authorization, direction, consent, notice or waiver hereunder, and for the
purpose of making the calculations required by TIA Section 313, Securities owned
by the Company or any other obligor upon the Securities or any Affiliate of the
Company or such other obligor shall be disregarded and deemed not to be
Outstanding, except that, in determining whether the Trustee shall be protected
in making such calculation or in relying upon any such request, demand,
authorization, direction, notice, consent or waiver, only Securities which the
Trustee knows to be so owned shall be so disregarded. Securities so owned which
have been pledged in good faith may be regarded as Outstanding if the pledgee
establishes to the satisfaction of the Trustee the pledgee's right so to act
with respect to such Securities and that the pledgee is not the Company or any
other obligor upon the Securities or any Affiliate of the Company or such other
obligor.
"Pari Passu Debt" means any Debt of the Company or any Subsidiary
Guarantor, whether outstanding at the date of this Indenture or incurred
thereafter, that ranks pari passu in right of payment with the Securities or any
Subsidiary Guarantee, as the case may be.
"Paying Agent" means SunTrust Bank, Atlanta, and any successor
(including the Company acting as Paying Agent) authorized by the Company to pay
the principal of and premium, if any, or interest on any Securities on behalf of
the Company.
"Payment Blockage Period" has the meaning set forth in Section 1403.
"Permitted Debt" means:
(i) Debt of the Company or any Restricted Subsidiary
under the New Credit Facility in an aggregate principal amount at any
one time outstanding not to exceed the greater of (x) $110,000,000 or
(y) the amount of the Borrowing Base, less in either case (A) any
amounts applied to the permanent reduction of the New Credit Facility
pursuant to Section 1013 and (B) the amount of Debt of all Receivables
Subsidiaries then outstanding under clause (ix);
(ii) Debt of the Company or any Restricted Subsidiary
outstanding on the Closing Date, other than Debt described under clause
(i) above;
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(iii) Debt owed by the Company to any Wholly Owned
Restricted Subsidiary or owed by any Restricted Subsidiary to the
Company or a Wholly Owned Restricted Subsidiary (provided that such
Debt is held by the Company or such Wholly Owned Restricted
Subsidiary); provided, however, that if the Company is the obligor on
such Debt, such Debt is unsecured and subordinated in all respects to
the Company's obligations under the Securities and provided, further,
however, that if any such Wholly Owned Restricted Subsidiary ceases to
be (for any reason) a Wholly Owned Restricted Subsidiary, then this
clause (iii) shall no longer be applicable to Debt owed by the Company
or any Restricted Subsidiary to such Restricted Subsidiary that was
formerly a Wholly Owned Restricted Subsidiary;
(iv) Debt represented by the Securities (other than any
Additional Securities) and the Subsidiary Guarantees;
(v) Debt of the Company or any Restricted Subsidiary in
respect of Hedging Obligations;
(vi) Capital Lease Obligations of the Company or any
Restricted Subsidiary, provided that the aggregate amount of Debt under
this clause (vi) shall not exceed $5,000,000 at any one time
outstanding;
(vii) Debt of the Company or any Restricted Subsidiary
under purchase money mortgages or secured by purchase money security
interests so long as (x) such Debt is not secured by any property or
assets of the Company or any Restricted Subsidiary other than the
property and assets so acquired and (y) such Debt is created within 90
days of the acquisition of the related property; provided that the
aggregate amount of Debt under this clause (vii) shall not exceed
$5,000,000 at any one time outstanding;
(viii) guarantees by the Company or any Restricted
Subsidiary of Debt that was permitted to be incurred by the provisions
of Section 1010, and, with respect to guarantees by any Restricted
Subsidiary, made in accordance with the provisions of Section 1020;
(ix) Debt incurred by a Receivables Subsidiary, other than
Debt described in clause (iii) above, in an amount not exceeding 95% of
the aggregate unpaid balance of the Receivables and Related Assets of
such Receivables Subsidiary at the time of such incurrence pursuant to
a Receivables Program;
(x) Debt of the Company or any Restricted Subsidiary, not
otherwise permitted by any other clause of this definition, in an
aggregate principal amount not to exceed $12,000,000 at any one time
outstanding;
(xi) Debt of one or more Foreign Subsidiaries under one or
more credit facilities in an aggregate principal amount not to exceed
$7,000,000 at any one time outstanding;
(xii) Debt evidenced by letters of credit securing
obligations entered into in the ordinary course of business in an
aggregate principal amount not to exceed $10,000,000 at any one time
outstanding to the extent such letters of credit are not drawn upon or,
if and to the extent drawn upon, such drawing is reimbursed not later
than the fifth Business Day following receipt of a demand for
reimbursement following payment on such letter of credit; and
(xiii) any renewals, extensions, substitutions, refinancings
or replacements (each, for purposes of this clause, a "refinancing") of
any outstanding Debt incurred pursuant to clause (ii) and (iv) above,
including any successive refinancings thereof, so long as (A) the
principal amount of such refinancing Debt does not exceed (1) the
principal amount of the Debt being refinanced, plus (2) the amount of
any premium required to be paid in connection with such refinancing
pursuant to the terms of the Debt refinanced or the amount of any
premium reasonably determined by the Company as necessary
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to accomplish such refinancing, plus (3) the amount of the expenses of
the Company reasonably estimated to be incurred in connection with such
refinancing, (B) in the case of any refinancing of Subordinated Debt of
the Company or any Subsidiary Guarantors, such refinancing Debt is
subordinated to the Securities or the Subsidiary Guarantees, as the
case may be, at least to the same extent as the Debt being refinanced
and (C) such refinancing Debt has a Weighted Average Life equal to or
greater than the Weighted Average Life of the Debt being refinanced and
has a final Stated Maturity no earlier than the final Stated Maturity
of the Debt being refinanced.
"Permitted Holders" means each of William W. Compton, Michael Kagan and
their respective Affiliates.
"Permitted Investments" means any of the following:
(a) Investments in Cash Equivalents.
(b) Investments by the Company or any Restricted
Subsidiary in another Person, if as a result of such Investment such
other Person (i) becomes a Restricted Subsidiary or (ii) is merged or
consolidated with or into, or transfers or conveys all or substantially
all of its assets to, the Company or a Restricted Subsidiary.
(c) Investments by the Company or any of the Restricted
Subsidiaries in any one of the other of them.
(d) Investments existing on the Closing Date.
(e) Investments made as a result of the receipt of
non-cash consideration in an Asset Sale permitted under Section 1013.
(f) Investments consisting of loans and advances to
officers and employees of the Company or any Restricted Subsidiaries
for reasonable travel, relocation and business expenses in the ordinary
course of business or other loans or advances to officers or employees
of the Company or a Restricted Subsidiary in an aggregate principal
amount not to exceed $500,000 at any one time outstanding.
(g) Investments the payment for which consists
exclusively of Capital Stock (exclusive of Disqualified Stock) of the
Company.
(h) Investments by the Company or a Restricted Subsidiary
in a Receivables Subsidiary.
(i) Investments in any Person the primary business of
which is related, ancillary or complementary to the business of the
Company and its Restricted Subsidiaries on the date of such Investment
not to exceed $5,000,000 at any one time outstanding.
(j) Other Investments by the Company or a Restricted
Subsidiary that do not exceed $5,000,000 in the aggregate at any one
time outstanding.
"Person" means any individual, corporation, limited or general
partnership, limited liability company, joint venture, association, joint-stock
company, trust, unincorporated organization or government or any agency or
political subdivision thereof.
"Predecessor Security" of any particular Security means every previous
Security evidencing all or a portion of the same debt as that evidenced by such
particular Security; and, for the purposes of this definition, any Security
authenticated and delivered under Section 308 in exchange for a mutilated
security or in lieu of a lost,
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<PAGE> 22
destroyed or stolen Security shall be deemed to evidence the same debt as the
mutilated, lost, destroyed or stolen Security.
"Preferred Stock" means, with respect to any Person, any and all
shares, interests, participations or other equivalents (however designated) of
such Person's preferred or preference stock, whether now outstanding or issued
after the Closing Date, and including, without limitation, all classes and
series of preferred or preference stock of such Person.
"Private Placement Legend" has the meaning specified in Section 202.
"Proceeding" has the meaning set forth in Section 1402.
"Public Equity Offering" means an offer and sale of common stock (which
is Qualified Stock) of the Company pursuant to a registration statement that has
been declared effective by the Commission pursuant to the Securities Act (other
than a registration statement on Form S-8 or otherwise relating to equity
securities issuable under any employee benefit plan of the Company).
"Qualified Equity Interest" means any Qualified Stock and all warrants,
options or other rights to acquire Qualified Stock (but excluding any debt
security that is convertible into or exchangeable for Capital Stock).
"Qualified Stock" of any Person means any and all Capital Stock of such
Person, other than Disqualified Stock.
"QIB" means a "Qualified Institutional Buyer" under Rule 144A.
"Receivables and Related Assets" means accounts receivable,
instruments, chattel paper, obligations, general intangibles and other similar
assets, including interests in merchandise or goods, the sale or lease of which
give rise to the foregoing, related contractual rights, guarantees, insurance
proceeds, collections, other related assets and proceeds of all of the
foregoing.
"Receivables Program" means, with respect to any Person, any accounts
receivable securitization program pursuant to which such Person, directly or
indirectly, pledges, sells or otherwise transfers or encumbers its accounts
receivable, including to a trust, limited liability company, special purpose
entity or other similar entity.
"Receivables Subsidiary" means a Wholly Owned Restricted Subsidiary of
the Company (i) created for the purpose of financing receivables created in the
ordinary course of business of the Company and its Restricted Subsidiaries and
(ii) the sole assets of which consist of Receivables and Related Assets of the
Company and its Restricted Subsidiaries and related Permitted Investments.
"Redemption Date" means, when used with respect to any Security to be
redeemed, in whole or in part, the date fixed for such redemption by or pursuant
to this Indenture.
"Redemption Price" means, when used with respect to any Security to be
redeemed, the price at which it is to be redeemed pursuant to this Indenture.
"Registrar" means SunTrust Bank, Atlanta of Georgia and any successor
authorized by the Company to act as registrar of the Securities and transfer
securities as provided herein.
"Registration Rights Agreement" means the Exchange and Registration
Rights Agreement between the Company and Prudential Securities Incorporated,
dated as of June 18, 1998 relating to the Securities.
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"Registration Statement" means the Exchange Registration Statement or
the Shelf Registration Statement, in each case, as defined in the Registration
Rights Agreement.
"Regular Record Date" means, for the interest payable on any Interest
Payment Date, the June 1 or December 1 (whether or not a Business Day), as the
case may be, next preceding such Interest Payment Date.
"Regulation S" means Regulation S under the Securities Act.
"Regulation S Global Security" has the meaning specified in Section
201.
"Restricted Global Security" has the meaning specified in Section 201.
"Restricted Payment" means any of the following:
(a) the declaration or payment of any dividend on, or the
making of any distribution to holders of, any shares of the Capital
Stock of the Company or any Restricted Subsidiary other than (i)
dividends or distributions payable solely in Qualified Equity
Interests, (ii) dividends or distributions by a Restricted Subsidiary
payable to the Company or another Restricted Subsidiary or (iii) pro
rata dividends or distributions on common stock of a Restricted
Subsidiary held by minority stockholders, provided that such dividends
do not in the aggregate exceed the minority stockholders' pro rata
share of such Restricted Subsidiary's net income from the first day of
the Company's fiscal quarter during which the Closing Date occurs;
(b) the purchase, redemption or other acquisition or
retirement for value, directly or indirectly, of any shares of Capital
Stock (or any options, warrants or other rights to acquire shares of
Capital Stock) of (i) the Company or any Unrestricted Subsidiary or
(ii) any Restricted Subsidiary held by any Affiliate of the Company
(other than, in either case, any such Capital Stock owned by the
Company or any of its Restricted Subsidiaries);
(c) the making of any principal payment on, or the
repurchase, redemption, defeasance or other acquisition or retirement
for value, prior to any scheduled principal payment, sinking fund
payment or maturity, of any Subordinated Debt; or
(d) the making of any Investment (other than a Permitted
Investment) in any Person.
"Restricted Period" has the meaning set forth in Section 306.
"Restricted Subsidiary" means any Subsidiary other than an Unrestricted
Subsidiary.
"Rule 144A" means Rule 144A under the Securities Act.
"Securities" has the meaning stated in the first recital of this
Indenture and more particularly means any Securities authenticated and delivered
under this Indenture. For all purposes of this Indenture, the term "Securities"
shall include any Exchange Securities to be issued and exchanged for any Initial
Securities in accordance with the Exchange Offer as provided for in the
Registration Rights Agreement and this Indenture. From and after the issuance of
any Additional Securities pursuant to Section 312 (but, not for purposes of
determining whether such issuance is permitted hereunder), "Securities" shall
include such Additional Securities for purposes of this Indenture, and all
Initial Securities, Exchange Securities and Additional Securities shall vote
together as one series of Securities under this Indenture.
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"Securities Act" means the Securities Act of 1933, as amended from time
to time, and the rules and regulations thereunder.
"Securities Payment" has the meaning set forth in Section 1402.
"Security Register" has the meaning set forth in Section 305.
"Senior Debt" means the principal of and premium, if any, and interest
on (including interest accruing after the filing of a petition initiating any
proceeding pursuant to any bankruptcy law, whether or not allowed) and other
amounts due on or in connection with any Debt of the Company (other than the
Securities or Pari Passu Debt), whether outstanding on the Closing Date or
thereafter incurred, unless, in the case of such Debt, the instrument creating
or evidencing the same or pursuant to which the same is outstanding expressly
provides that such Debt will be pari passu with or subordinate in right of
payment to the Securities. Without limiting the generality of the foregoing,
"Senior Debt" includes the principal of and premium, if any, and interest
(including interest accruing after the occurrence of an event of default or
after the filing of a petition initiating any proceeding pursuant to any
bankruptcy law, whether or not allowed) on all obligations of every nature of
the Company from time to time owed to the Banks under the New Credit Facility,
provided, however, that any Debt under any refinancing, refunding or replacement
of the New Credit Facility shall not constitute Senior Debt to the extent that
the Debt thereunder is by its express terms subordinate to any other Debt of the
Company. Notwithstanding the foregoing, "Senior Debt" shall not include (a) Debt
represented by Disqualified Stock, (b) any trade payables, (c) Debt of or
amounts owed by the Company for compensation to employees or for services
rendered to the Company, (d) any liability for foreign, federal, state, local or
other taxes owed or owing by the Company, (e) Debt of the Company to a
Subsidiary of the Company or any other Affiliate of the Company or any of such
Affiliate's Subsidiaries, (f) that portion of any Debt that, at the time of the
incurrence, is incurred by the Company in violation of the Indenture, (g)
amounts owing under leases (other than Capital Lease Obligations) and (h) Debt
that is without recourse to the Company (regardless of any election under
Section 1111(b) of the Bankruptcy Code).
"Senior Nonmonetary Default" has the meaning set forth in Section 1403.
"Senior Payment Default" has the meaning set forth in Section 1403.
"Shelf Registration Statement" means the Shelf Registration Statement
as defined in the Registration Rights Agreement.
"Significant Subsidiary" means any Restricted Subsidiary of the Company
that would be a "Significant Subsidiary" of the Company within the meaning of
Rule 1-02 under Regulation S-K promulgated by the Commission as such Rule is in
effect on the date of the Indenture.
"Special Record Date" for the payment of any Defaulted Interest means a
date fixed by the Trustee pursuant to Section 309.
"Stated Maturity" means, when used with respect to any Security or any
installment of interest thereon, the date specified in such Security as the
fixed date on which the principal of such Security or such installment of
interest is due and payable and, when used with respect to any other Debt, means
the date specified in the instrument governing such Debt as the fixed date on
which the principal of such Debt or any installment of interest thereon is due
and payable, and shall not, in either case, include any contingent obligations
to repay, redeem or repurchase any such interest or principal prior to the date
originally scheduled for the payment thereof.
"Subordinated Debt" means Debt of the Company or a Subsidiary Guarantor
that is subordinated in right of payment to the Securities or the Subsidiary
Guarantee issued by such Subsidiary Guarantor, as the case may be.
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"Subsidiary" means any Person a majority of the equity ownership or
Voting Stock of which is at the time owned, directly or indirectly, by the
Company and/or one or more Subsidiaries of the Company.
"Subsidiary Guarantee" means a guarantee of the Securities by a
Restricted Subsidiary in accordance with the provisions of this Indenture.
"Subsidiary Guarantor" means any Restricted Subsidiary that issues a
Subsidiary Guarantee pursuant to or as required by the provisions of this
Indenture.
"Surviving Entity" has the meaning set forth in Section 801.
"Transactions" shall have the meaning set forth in the Offering
Memorandum.
"Trust Indenture Act" or "TIA" means the Trust Indenture Act of 1939,
as amended, as in force at the date as of which this Indenture was executed,
except as provided in Section 905.
"Trustee" means the Person named as the "Trustee" in the first
paragraph of this Indenture until a successor Trustee shall have become such
pursuant to the applicable provisions of this Indenture, and thereafter
"Trustee" shall mean such successor Trustee.
"Unrestricted Subsidiary" means (a) any Subsidiary that is designated
by the Board of Directors as an Unrestricted Subsidiary in accordance with
Section 1018 and (b) any Subsidiary of an Unrestricted Subsidiary.
"U.S. Government Obligations" has the meaning set forth in Section
1204.
"U.S. Physical Securities" has the meaning set forth in Section 201.
"Voting Stock" means any class or classes of Capital Stock pursuant to
which the holders thereof have the general voting power under ordinary
circumstances to elect at least a majority of the board of directors, managers
or trustees of any Person (irrespective of whether or not, at the time, stock of
any other class or classes has, or might have, voting power by reason of the
happening of any contingency).
"Weighted Average Life" means, as of the date of determination with
respect to any Debt or Disqualified Stock, the quotient obtained by dividing (a)
the sum of the products of (i) the number of years from the date of
determination to the date or dates of each successive scheduled principal or
liquidation value payment of such Debt or Disqualified Stock, respectively,
multiplied by (ii) the amount of each such principal or liquidation value
payment by (b) the sum of all such principal or liquidation value payments.
"Wholly Owned Restricted Subsidiary" means any Restricted Subsidiary,
all of the outstanding Capital Stock (other than directors' qualifying shares or
shares of foreign Restricted Subsidiaries required to be owned by foreign
nationals pursuant to applicable law) of which is owned, directly or indirectly,
by the Company.
SECTION 102. Compliance Certificates and Opinions.
Upon any application or request by the Company or any Subsidiary
Guarantor to the Trustee to take any action under any provision of this
Indenture, the Company or such Subsidiary Guarantor, as the case may be, shall
furnish to the Trustee an Officers' Certificate stating that all conditions
precedent, if any, provided for in this Indenture (including any covenant
compliance with which constitutes a condition precedent) relating to the
proposed action have been complied with and an Opinion of Counsel stating that
in the opinion of such counsel all such conditions precedent, if any, have been
complied with, except that in the case of any such application or
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request as to which the furnishing of such documents is specifically required by
any provision of this Indenture relating to such particular application or
request, no additional certificate or opinion need be furnished.
Every certificate or opinion with respect to compliance with a
condition or covenant provided for in this Indenture (other than pursuant to
Section 1008(a)) shall include:
(a) a statement that each individual signing such
certificate or opinion has read such covenant or condition and the
definitions herein relating thereto;
(b) a brief statement as to the nature and scope of the
examination or investigation upon which the statements or opinions
contained in such certificate or opinion are based;
(c) a statement that, in the opinion of each such
individual, he has made such examination or investigation as is
necessary to enable him to express an informed opinion as to whether or
not such covenant or condition has been complied with; and
(d) a statement as to whether, in the opinion of each
such individual, such condition or covenant has been complied with.
SECTION 103. Form of Documents Delivered to Trustee.
In any case where several matters are required to be certified by, or
covered by an opinion of, any specified Person, it is not necessary that all
such matters be certified by, or covered by the opinion of, only one such
Person, or that they be so certified or covered by only one document, but one
such Person may certify or give an opinion with respect to some matters and one
or more other such Persons as to other matters, and any such Person may certify
or give an opinion as to such matters in one or several documents.
Any certificate or opinion of an officer of the Company and/or any
Subsidiary Guarantor may be based, insofar as it relates to legal matters, upon
a certificate or opinion of, or representations by, counsel, unless such officer
knows, or in the exercise of reasonable care should know, that the certificate
or opinion or representations with respect to the matters upon which his
certificate or opinion is based are erroneous. Any such certificate or Opinion
of Counsel may be based, insofar as it relates to factual matters, upon a
certificate or opinion of, or representations by, an officer or officers of the
Company and/or any such Subsidiary Guarantor stating that the information with
respect to such factual matters is in the possession of the Company and/or any
such Subsidiary Guarantors, unless such counsel knows, or in the exercise of
reasonable care should know, that the certificate or opinion or representations
with respect to such matters are erroneous.
Where any Person is required to make, give or execute two or more
applications, requests, consents, certificates, statements, opinions or other
instruments under this Indenture, they may, but need not, be consolidated and
form one instrument.
SECTION 104. Acts of Holders.
(a) Any request, demand, authorization, direction, notice, consent,
waiver or other action provided by this Indenture to be given or taken by
Holders may be embodied in and evidenced by one or more instruments of
substantially similar tenor signed by such Holders in Person or by agents duly
appointed in writing; and, except as herein otherwise expressly provided, such
action shall become effective when such instrument or instruments are delivered
to the Trustee and, where it is hereby expressly required, to the Company or the
Subsidiary Guarantors. Such instrument or instruments (and the action embodied
therein and evidenced thereby) are herein sometimes referred to as the "Act" of
the Holders signing such instrument or instruments. Proof of execution of any
such instrument or of a writing appointing any such agent shall be sufficient
for any purpose of
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this Indenture and conclusive in favor of the Trustee, the Company and the
Subsidiary Guarantors, if made in the manner provided in this Section.
(b) The fact and date of the execution by any Person of any such
instrument or writing may be proved by the affidavit of a witness of such
execution or by a certificate of a notary public or other officer authorized by
law to take acknowledgments of deeds, certifying that the individual signing
such instrument or writing acknowledged to him the execution thereof. Where such
execution is by a signer acting in a capacity other than his individual
capacity, such certificate or affidavit shall also constitute sufficient proof
of authority. The fact and date of the execution of any such instrument or
writing, or the authority of the Person executing the same, may also be proved
in any other manner that the Trustee in its discretion deems sufficient.
(c) The ownership of Securities shall be proved by the Security
Register.
(d) If the Company or any Subsidiary Guarantor shall solicit from
the Holders of Securities any request, demand, authorization, direction, notice,
consent, waiver or other Act, the Company or any such Subsidiary Guarantor (as
the case may be), may, at its option, by or pursuant to a Board Resolution, fix
in advance a record date for the determination of Holders entitled to give such
request, demand, authorization, direction, notice, consent, waiver or other Act,
but the Company or any such Subsidiary Guarantor (as the case may be) shall have
no obligation to do so. Notwithstanding TIA Section 316(c), such record date
shall be the record date specified in or pursuant to such Board Resolution,
which shall be a date not earlier than the date 30 days prior to the first
solicitation of Holders generally in connection therewith and not later than the
date such solicitation is completed. If such a record date is fixed, such
request, demand, authorization, direction, notice, consent, waiver or other Act
may be given before or after such record date, but only the Holders of record at
the close of business on such record date shall be deemed to be Holders for the
purposes of determining whether Holders of the requisite proportion of
Outstanding Securities have authorized or agreed or consented to such request,
demand, authorization, direction, notice, consent, waiver or other Act, and for
that purpose the Outstanding Securities shall be computed as of such record
date; provided that no such authorization, agreement or consent by the Holders
on such record date shall be deemed effective unless it shall become effective
pursuant to the provisions of this Indenture not later than eleven months after
the record date.
(e) Any request, demand, authorization, direction, notice,
consent, waiver or other Act of the Holder of any Security shall bind every
future Holder of the same Security and the Holder of every Security issued upon
the registration of transfer thereof or in exchange therefor or in lieu thereof
in respect of anything done, omitted or suffered to be done by the Trustee, the
Paying Agent, the Company and/or the Subsidiary Guarantors in reliance thereon,
whether or not notation of such action is made upon such Security.
(f) For all purposes of this Indenture, all Initial Securities and
Exchange Securities shall vote together as one series of Securities under this
Indenture.
SECTION 105. Notices, etc., to Trustee, Company or Subsidiary
Guarantors.
Any request, demand, authorization, direction, notice, consent, waiver
or Act of Holders or other document provided or permitted by this Indenture to
be made upon, given or furnished to, or filed with,
(a) the Trustee by any Holder, the Company or any
Subsidiary Guarantor shall be sufficient for every purpose hereunder
(unless otherwise herein expressly provided) made, given, furnished or
filed in writing or mailed, first-class postage prepaid, to or with the
Trustee at its Corporate Trust Office, 3495 Piedmont Road, Building 10,
Suite 810, Atlanta, Georgia 30305, Attention: Corporate Trust
Department, or sent by facsimile to the Trustee at (404) 240-2030 (with
receipt confirmed by telephone at (404) 240-1932 or at any other
address or facsimile number previously furnished in writing to the
Company, the Holders and any Subsidiary Guarantor); or
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(b) the Company by the Trustee, any Holder or any
Subsidiary Guarantor shall be sufficient for every purpose hereunder
(unless otherwise herein expressly provided) if in writing and mailed,
first-class postage prepaid, to the Company addressed to it at 4902
West Waters Avenue, Tampa, Florida 33634, Attention: Chief Financial
Officer, or sent by facsimile to the Company at (813) 249-4904 (with
receipt confirmed by telephone at (813) 249-4900), or at any other
address or facsimile number previously furnished in writing to the
Trustee by the Company; or
(c) any Subsidiary Guarantor by the Company, any other
Subsidiary Guarantor, the Trustee or any Holder shall be sufficient for
any purpose hereunder (unless otherwise herein expressly provided) if
in writing, and mailed, first class postage prepaid, to such Subsidiary
Guarantor addressed to it at c/o Tropical Sportswear Int'l Corporation,
4902 West Waters Avenue, Tampa, Florida 33634, Attention: Chief
Financial Officer, or sent by facsimile to such Subsidiary Guarantor at
(813) 249-4904 (with receipt confirmed by telephone at (813) 249-4900),
or at any other address or facsimile number previously furnished in
writing to the Trustee by such Subsidiary Guarantor.
SECTION 106. Notice to Holders; Waiver.
Where this Indenture provides for notice of any event to Holders by the
Company or the Trustee, such notice shall be sufficiently given (unless
otherwise herein expressly provided) if in writing and mailed, first-class
postage prepaid, to each Holder affected by such event, at his address as it
appears in the Security Register, not later than the latest date, and not
earlier than the earliest date, prescribed for the giving of such notice. In any
case where notice to Holders is given by mail, neither the failure to mail such
notice, nor any defect in any notice so mailed, to any particular Holder shall
affect the sufficiency of such notice with respect to other Holders. Any notice
mailed to a Holder in the manner herein prescribed shall be conclusively deemed
to have been received by such Holder, whether or not such Holder actually
receives such notice. Where this Indenture provides for notice in any manner,
such notice may be waived in writing by the Person entitled to receive such
notice, either before or after the event, and such waiver shall be the
equivalent of such notice. Waivers of notice by Holders shall be filed with the
Trustee, but such filing shall not be a condition precedent to the validity of
any action taken in reliance upon such waiver.
In case by reason of the suspension of or irregularities in regular
mail service or by reason of any other cause, it shall be impracticable to mail
notice of any event to Holders when such notice is required to be given pursuant
to any provision of this Indenture, then any manner of giving such notice as
shall be satisfactory to the Trustee shall be deemed to be a sufficient giving
of such notice for every purpose hereunder.
SECTION 107. Conflict of any Provision of Indenture with Trust
Indenture Act.
If and to the extent that any provision of this Indenture limits,
qualifies or conflicts with the duties imposed by Sections 310 to 318,
inclusive, of the Trust Indenture Act, or conflicts with any provision (an
"incorporated provision") required by or deemed to be included in this Indenture
by operation of such Trust Indenture Act sections, such imposed duties or
incorporated provision shall control.
SECTION 108. Effect of Headings and Table of Contents.
The Article and Section headings herein and the Table of Contents are
for convenience only and shall not affect the construction hereof.
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SECTION 109. Successors and Assigns.
All covenants and agreements in this Indenture by the Company and the
Subsidiary Guarantors shall bind their respective successors and assigns,
whether so expressed or not.
SECTION 110. Separability Clause.
In case any provision in this Indenture or in the Securities shall be
invalid, illegal or unenforceable, the validity, legality and enforceability of
the remaining provisions shall not in any way be affected or impaired thereby.
SECTION 111. Benefits of Indenture.
Nothing in this Indenture or in the Securities, express or implied,
shall give to any Person, other than the parties hereto, any Paying Agent, any
Securities Registrar and their successors hereunder, and the Holders, any
benefit or any legal or equitable right, remedy or claim under this Indenture.
SECTION 112. Governing Law.
This Indenture and the Securities shall be governed by and construed in
accordance with the law of the State of New York. Upon the issuance of the
Exchange Securities, if any, or the effectiveness of the Exchange Registration
Statement or, under certain circumstances, the effectiveness of the Shelf
Registration Statement, this Indenture shall be subject to the provisions of the
Trust Indenture Act, that are required to be part of this Indenture and shall,
to the extent applicable, be governed by such provisions.
SECTION 113. Legal Holidays.
In any case where any Interest Payment Date, Redemption Date, date
established for payment of Defaulted Interest pursuant to Section 309, Stated
Maturity or Maturity, Change of Control Payment Date or Asset Sale Purchase Date
with respect to any Security or other day on which principal, premium or
interest in respect or the Securities is due, shall not be a Business Day, then
(notwithstanding any other provision of this Indenture or of the Securities)
payment of principal (or premium, if any) or interest need not be made on such
date, but may be made on the next succeeding Business Day with the same force
and effect as if made on the Interest Payment Date, Redemption Date, date
established for payment of Defaulted Interest pursuant to Section 309, Stated
Maturity or Maturity, Change of Control Payment Date or Asset Sale Purchase
Date; provided that no interest shall accrue for the period from and after such
Interest Payment Date or other such day, Redemption Date, date established for
payment of Defaulted Interest pursuant to Section 309, Stated Maturity or
Maturity, Change in Control Payment Date or Asset Sale Purchase Date, as the
case may be, to the next succeeding Business Day.
SECTION 114. No Recourse Against Others.
A director, officer, employee or stockholder, as such, of the Company
or of any Subsidiary Guarantor shall not have any liability for any obligations
of the Company or any Subsidiary Guarantor under the Securities, any Subsidiary
Guaranty or this Indenture or for any claim based on, in respect of or by reason
of such obligations or their creation.
SECTION 115. Counterparts.
This Indenture may be executed in any number of counterparts and by
telecopier, each of which shall be an original; but such counterparts shall
together constitute but one and the same instrument.
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ARTICLE II
SECURITY FORMS
SECTION 201. Forms Generally.
The Securities and the Trustee's certificate of authentication shall be
in substantially the form annexed hereto as Exhibit A, with such appropriate
insertions, omissions, substitutions and other variations as are required or
permitted by this Indenture, and may have such letters, numbers or other marks
of identification and such legends or endorsements placed thereon as may be
required to comply with any applicable law or with the rules of the Depositary,
any clearing agency or any securities exchange or as may, consistently herewith,
be determined by the officers executing such Securities, as evidenced by their
execution of the Securities. Any portion of the text of any Security may be set
forth on the reverse thereof, with an appropriate reference thereto on the face
of the Security.
The definitive Securities shall be printed, lithographed or engraved on
steel-engraved borders or may be produced in any other manner, all as determined
by the officers of the Company executing such Securities, as evidenced by their
execution of such Securities.
The terms and provisions contained in the form of the Securities
annexed hereto as Exhibit A shall constitute, and are hereby expressly made, a
part of this Indenture. To the extent applicable, the Company, the Subsidiary
Guarantors and the Trustee, by their execution and delivery of this Indenture,
expressly agree to such terms and provisions and to be bound thereby.
Initial Securities offered and sold in reliance on Rule 144A shall be
issued initially in the form of one or more permanent global Securities without
interest coupons substantially in the form set forth in Exhibit A (collectively
the "Restricted Global Security") deposited with, or on behalf of, the
Depositary or with the Trustee, as custodian for the Depositary, duly executed
by the Company and authenticated by the Trustee as hereinafter provided. The
aggregate principal amount of the Restricted Global Security may from time to
time be increased or decreased by adjustments made on the records of the
Trustee, as custodian for the Depositary or its nominee, as hereinafter
provided.
Initial Securities offered and sold in reliance on Regulation S shall
be issued initially in the form of one or more permanent global Securities in
fully registered form without interest coupons substantially in the form set
forth in Exhibit A (collectively, the "Regulation S Global Security" and,
together with the Restricted Global Security, the "Global Securities" or each
individually, a "Global Security"). The Regulation S Global Security will be
registered in the name of a nominee of Depositary and deposited with the Trustee
on behalf of the purchasers of the Securities evidenced thereby, for the
accounts of Euroclear and CEDEL and duly executed by the Company and
authenticated by the Trustee as hereinafter provided. The aggregate principal
amount of the Regulation S Global Security may from time to time be increased or
decreased by adjustments made on the records of the Depositary or its nominee,
or of the Trustee, as custodian for the Depositary or its nominee, as
hereinafter provided. Until and including the 40th day after the date of this
Indenture, beneficial interests in the Regulation S Global Security may be held
only through Euroclear or CEDEL, unless delivery is made through the Restricted
Global Security in accordance with the certification requirements provided in
this Indenture.
If the Depositary is at any time unwilling or unable to continue as a
depositary for the Global Securities, or if, in the case of the Regulation S
Global Security held for an account of Euroclear or CEDEL, Euroclear or CEDEL,
as the case may be, is closed for business for 14 continuous days or announces
an intention to cease or permanently ceases business and no successor therefor
has been designated, the Company will issue certificates for the Securities in
definitive, fully registered, non-global form without interest coupons in
exchange for the
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Regulation S Global Security or Restricted Global Security, as the case may be.
In all cases, certificates for Securities delivered in exchange for any Global
Security or beneficial interests therein will be registered in the names, and
issued in any approved denominations, requested by the Depositary.
In the case of certificates for Securities in non-global form issued in
exchange for a Global Security, such certificates will bear the first legend
appearing under Section 202 of this Indenture (unless the Company determines
otherwise in accordance with applicable law subject, with respect to such
Securities, to the provisions of such legend). The holder of a Security in
non-global form may transfer such Security, subject to compliance with the
provisions of such legend, by surrendering it at the office or agency maintained
by the Company for such purpose in the Borough of Manhattan, The City of New
York, which initially will be the office of the Trustee.
Initial Securities offered and sold other than as global securities
shall be issued in the form of permanent certificated Securities in registered
form in substantially the form set forth in Exhibit A (the "U.S.
Physical Securities").
SECTION 202. Restrictive Legends.
Unless and until (i) an Initial Security is sold under an effective
Registration Statement or (ii) an Initial Security is exchanged for an Exchange
Security in connection with an effective Registration Statement, in each case
pursuant to the Registration Rights Agreement, each certificate representing a
Security shall contain a legend substantially to the following effect (the
"Private Placement Legend") on the face thereof:
THE SECURITIES EVIDENCED HEREBY HAVE NOT BEEN REGISTERED UNDER THE
SECURITIES ACT OF 1933 (THE "SECURITIES ACT") AND MAY NOT BE REOFFERED,
RESOLD, PLEDGED OR OTHERWISE TRANSFERRED EXCEPT (A) (1) TO A PERSON
WHOM THE TRANSFEROR REASONABLY BELIEVES IS A QUALIFIED INSTITUTIONAL
BUYER WITHIN THE MEANING OF RULE 144A UNDER THE SECURITIES ACT IN A
TRANSACTION MEETING THE REQUIREMENTS OF RULE 144A, (2) IN AN OFFSHORE
TRANSACTION MEETING THE REQUIREMENTS OF RULE 903 OR RULE 904 OF
REGULATION S UNDER THE SECURITIES ACT, (3) TO AN INSTITUTION THAT IS AN
ACCREDITED INVESTOR WITHIN THE MEANING OF RULE 501(a)(1), (2), (3) OR
(7) OF REGULATION D UNDER THE SECURITIES ACT IN A TRANSACTION EXEMPT
FROM THE REGISTRATION REQUIREMENTS OF THE SECURITIES ACT, (4) PURSUANT
TO AN EXEMPTION FROM REGISTRATION UNDER THE SECURITIES ACT PROVIDED BY
RULE 144 THEREUNDER (IF AVAILABLE) OR (5) PURSUANT TO AN EFFECTIVE
REGISTRATION STATEMENT UNDER THE SECURITIES ACT, AND (B) IN ACCORDANCE
WITH ALL APPLICABLE SECURITIES LAWS OF THE STATES AND OTHER
JURISDICTIONS OF THE UNITED STATES.
Each Global Security, whether or not an Initial Security, shall also
bear the following legend on the face thereof:
UNLESS THIS CERTIFICATE IS PRESENTED BY AN AUTHORIZED REPRESENTATIVE OF
THE DEPOSITORY TRUST COMPANY, A NEW YORK CORPORATION ("DTC"), TO THE
COMPANY OR ITS AGENT FOR REGISTRATION OF TRANSFER, EXCHANGE OR PAYMENT,
AND ANY CERTIFICATE ISSUED IS REGISTERED IN THE NAME OF CEDE & CO. OR
THE NAME OF SUCH OTHER ENTITY AS IS REQUESTED BY AN AUTHORIZED
REPRESENTATIVE OF DTC OR SUCH OTHER ENTITY AS IS REQUESTED (AND ANY
PAYMENT HEREON IS MADE TO CEDE & CO. OR TO SUCH OTHER ENTITY AS IS
REQUESTED BY AN AUTHORIZED REPRESENTATIVE OF DTC), ANY TRANSFER, PLEDGE
OR OTHER USE HEREOF FOR VALUE OR
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OTHERWISE BY OR TO ANY PERSON IS WRONGFUL SINCE THE REGISTERED OWNER
HEREOF, CEDE & CO., HAS AN INTEREST HEREIN.
TRANSFERS OF THIS GLOBAL SECURITY SHALL BE LIMITED TO TRANSFERS IN
WHOLE, BUT NOT IN PART, TO NOMINEES OF CEDE & CO. OR TO A SUCCESSOR
THEREOF OR SUCH SUCCESSOR'S NOMINEE AND TRANSFERS OF PORTIONS OF THIS
GLOBAL SECURITY SHALL BE LIMITED TO TRANSFERS MADE IN ACCORDANCE WITH
THE RESTRICTIONS SET FORTH IN THE INDENTURE UNDER WHICH THIS GLOBAL
SECURITY IS ISSUED.
ARTICLE III
THE SECURITIES
SECTION 301. Title and Terms.
The initial aggregate principal amount of Securities which may be
authenticated and delivered under this Indenture is limited to $100,000,000,
except for Securities authenticated and delivered upon registration of transfer
of, or in exchange for, or in lieu of, other Securities pursuant to Section 304,
305, 306, 307, 308, 906, 1012, 1013 or 1108, pursuant to an Exchange Offer or
pursuant to Section 312. The Company may also issue up to $40,000,000 aggregate
principal amount of Additional Securities having identical terms and conditions
to the Initial Securities, subject to compliance with the covenants contained
herein (the "Additional Securities").
The Initial Securities shall be known and designated as the "11% Senior
Subordinated Notes due 2008" and the Exchange Securities shall be known and
designated as the "11% Exchange Senior Subordinated Notes due 2008." Their
Stated Maturity shall be June 15, 2008, and they shall bear interest at the rate
of 11% per annum from June 24, 1998, or from the most recent Interest Payment
Date to which interest has been paid or duly provided for, payable semiannually
in arrears on June 15 and December 15 in each year, commencing December 15,
1998, until the principal thereof is paid or duly provided for, to the Person in
whose name the Security (or any predecessor Security) is registered at the close
of business on the June 1 or December 1 next preceding such Interest Payment
Date.
The principal of and premium, if any, and interest on the Securities
shall be payable, and the Securities shall be exchangeable and transferable, at
the office or agency of the Company in The City of New York, New York maintained
for such purposes, (which initially shall be the office of the Trustee located
at SunTrust Bank, Atlanta c/o First Chicago Trust Company, Attention: Frank
Ballentine, Corporate Trust, 8th Floor, 14 Wall Street, New York, New York
10005), or, at the option of the Company, interest may be paid by check mailed
to the address of the Person entitled thereto as such address shall appear on
the Security Register; provided, however, that all payments with respect to the
Global Securities, as well as U.S. Physical Securities the Holders of which have
given wire transfer instructions to the Trustee (or other Paying Agent) by the
Regular Record Date for such payment, will be required to be made by wire
transfer of immediately available funds to the accounts specified by the Holders
thereof.
Initial Securities that remain outstanding after the consummation of
the Exchange Offer and Exchange Securities issued in connection with the
Exchange Offer will be treated as a single class of securities under this
Indenture.
The Securities shall be redeemable as provided in Article XI.
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The Securities shall not have the benefit of any sinking fund
obligations. The Securities shall be subject to defeasance at the option of the
Company as provided in Article XII. The Securities are guaranteed on an
unsecured, senior subordinated basis by the Subsidiary Guarantors as set forth
in Article XIV of this Indenture.
SECTION 302. Denominations.
The Securities shall be issuable only in registered form without
coupons and only in denominations of $1,000 and any integral multiple thereof.
SECTION 303. Execution, Authentication, Delivery and Dating.
The Securities shall be executed on behalf of the Company by its
Chairman, its President, a Vice President or its Treasurer. The signature of any
of these officers on the Securities may be manual or facsimile signatures of the
present or any future such authorized officer and may be imprinted or otherwise
reproduced on the Securities.
Securities bearing the manual or facsimile signatures of individuals
who were at any time the proper officers of the Company shall bind the Company,
notwithstanding that such individuals or any of them have ceased to hold such
offices prior to the authentication and delivery of such Securities or did not
hold such offices at the date of such Securities.
At any time and from time to time after the execution and delivery of
this Indenture, the Company may deliver Initial Securities executed by the
Company to the Trustee for authentication, together with a Company Order for the
authentication and delivery of such Initial Securities directing the Trustee to
authenticate the Securities and certifying that all conditions precedent to the
issuance of Securities contained herein have been fully complied with, and the
Trustee in accordance with such Company Order shall authenticate and deliver
such Initial Securities. On Company Order, the Trustee shall authenticate for
original issue Exchange Securities in an aggregate principal amount not to
exceed $100,000,000 plus the aggregate principal amount of any Additional
Securities issued; provided that such Exchange Securities shall be issuable only
upon the valid surrender for cancellation of Securities of a like aggregate
principal amount in accordance with Section 305 hereof, an Exchange Offer
pursuant to the Registration Rights Agreement and a Company Order for the
authentication of such securities certifying that all conditions precedent to
the issuance have been complied with (including the effectiveness of a
registration statement related thereto). In each case, the Trustee shall be
entitled to receive an Officers' Certificate and an Opinion of Counsel of the
Company that it may reasonably request in connection with such authentication of
Securities. Such order shall specify the amount of Securities to be
authenticated and the date on which the original issue of Initial Securities or
Exchange Securities is to be authenticated.
Each Security shall be dated the date of its authentication.
No Security shall be entitled to any benefit under this Indenture or be
valid or obligatory for any purpose unless there appears on such Security a
certificate of authentication substantially in the form provided for in Exhibit
A duly executed by the Trustee by manual signature of an authorized officer, and
such certificate upon any Security shall be conclusive evidence, and the only
evidence, that such Security has been duly authenticated and delivered hereunder
and is entitled to the benefits of this Indenture.
In case the Company, pursuant to Article VIII, shall be consolidated or
merged with or into any other Person or shall convey, transfer, lease or
otherwise dispose of its properties and assets substantially as an entirety to
any Person, and the successor Person resulting from such consolidation, or
surviving such merger, or into which the Company shall have been merged, or the
Person which shall have received a conveyance, transfer, lease or other
disposition as aforesaid, shall have executed an indenture supplemental hereto
with the Trustee pursuant to Article VIII, any of the Securities authenticated
or delivered prior to such consolidation, merger, conveyance,
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transfer, lease or other disposition may, from time to time, at the request of
the successor Person, be exchanged for other Securities executed in the name of
the successor Person with such changes in phraseology and form as may be
appropriate, but otherwise in substance of like tenor as the Securities
surrendered for such exchange and of like principal amount; and the Trustee,
upon Company Request of the successor Person, shall authenticate and deliver
Securities as specified in such request for the purpose of such exchange. If
Securities shall at any time be authenticated and delivered in any new name of a
successor Person pursuant to this Section in exchange or substitution for or
upon registration of transfer of any Securities, such successor Person, at the
option of the Holders but without expense to them, shall provide for the
exchange of all Securities at the time Outstanding for Securities authenticated
and delivered in such new name.
SECTION 304. Temporary Securities.
Pending the preparation of definitive Securities, the Company may
execute, and upon Company Order the Trustee shall authenticate and deliver,
temporary Securities which are printed, lithographed, typewritten, mimeographed
or otherwise produced, in any authorized denomination, substantially of the
tenor of the definitive Securities in lieu of which they are issued and with
such appropriate insertions, omissions, substitutions and other variations as
the officers executing such Securities may determine, as conclusively evidenced
by their execution of such Securities.
If temporary Securities are issued, the Company will cause definitive
Securities to be prepared without unreasonable delay. After the preparation of
definitive Securities, the temporary Securities shall be exchangeable for
definitive Securities upon surrender of the temporary Securities at the office
or agency of the Company designated for such purpose pursuant to Section 1002,
without charge to the Holder. Upon surrender for cancellation of any one or more
temporary Securities, the Company shall execute and the Trustee shall
authenticate and deliver in exchange therefor a like principal amount of
definitive Securities of authorized denominations. Until so exchanged, the
temporary Securities shall in all respects be entitled to the same benefits
under this Indenture as definitive Securities.
SECTION 305. Registration, Registration of Transfer and Exchange.
The Company shall cause to be kept at the Corporate Trust Office of the
Trustee a register (the register maintained in such office and in any other
office or agency designated pursuant to Section 1002 being herein sometimes
referred to as the "Security Register") in which, subject to such reasonable
regulations as it may prescribe, the Company shall provide for the registration
of Securities and of transfers and exchanges of Securities. The Security
Register shall be in written form or any other form capable of being converted
into written form within a reasonable time. At all reasonable times, the
Security Register shall be open to inspection by the Trustee. The Trustee is
hereby initially appointed as "Registrar" for the purpose of registering
Securities and transfers of Securities as herein provided.
Subject to the other provisions of this Indenture regarding
restrictions on transfer, upon surrender for registration of transfer of any
Security at the office or agency of the Company designated pursuant to Section
1002, the Company shall execute, and the Trustee shall authenticate and deliver,
in the name of the designated transferee or transferees, one or more new
Securities of any authorized denomination or denominations of a like aggregate
principal amount and bearing such restrictive legends as may be required by this
Indenture.
At the option of the Holder, Securities may be exchanged for other
Securities of any authorized denomination and of a like aggregate principal
amount, upon surrender of the Securities to be exchanged at such office or
agency. Whenever any Securities are so surrendered for exchange (including an
exchange of Initial Securities for Exchange Securities), the Company shall
execute, and the Trustee shall authenticate and deliver, the Securities which
the Holder making the exchange is entitled to receive; provided that no exchange
of Initial Securities for Exchange Securities shall occur until an Exchange
Registration Statement, Shelf Registration
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Statement or other registration statement with respect to such Exchange Security
shall have been declared effective by the Commission and that the Initial
Securities to be exchanged for the Exchange Securities shall be canceled by the
Trustee as provided in this Indenture.
All Securities issued upon any registration of transfer or exchange of
Securities shall be the valid obligations of the Company, evidencing the same
debt, and entitled to the same benefits under this Indenture, as the Securities
surrendered upon such registration of transfer or exchange.
Every Security presented or surrendered for registration of transfer or
for exchange shall (if so required by the Company or the Registrar) be duly
endorsed, or be accompanied by a written instrument of transfer, in form
satisfactory to the Company and the Registrar, duly executed by the Holder
thereof or his attorney duly authorized in writing.
No service charge shall be made for any registration of transfer or
exchange or redemption of Securities, but the Company may require payment of a
sum sufficient to cover any tax or other governmental charge that may be imposed
in connection with any registration of transfer or exchange of Securities, other
than exchanges pursuant to Section 304, 906, 1012, 1013 or 1108 not involving
any transfer.
The Company shall not be required (i) to issue, register the transfer
of or exchange any Security during a period beginning at the opening of 15
Business Days before the selection of Securities to be redeemed under Section
1104 and ending at the close of business on the day of such mailing of the
relevant notice of redemption, or (ii) to register the transfer of or exchange
any Security so selected for redemption in whole or in part, except the
unredeemed portion of any Security being redeemed in part.
Notwithstanding anything to the contrary contained herein, the Trustee
shall have no duty whatsoever to monitor Federal or State securities laws other
than to collect the certificates required herein.
SECTION 306. Book-Entry Provisions for Restricted Global Security.
(a) The Global Security initially shall (i) be registered in the name
of Cede & Co., as nominee of the Depositary, (2) be deposited with, or on behalf
of, the Depositary or with the Trustee, as custodian for such Depositary, and
(iii) bear legends as set forth in Section 202.
The Depositary or its nominee shall be the Holder of the Global
Securities, and owners of beneficial interests in the Securities represented by
the Global Securities shall hold such interests pursuant to the procedures and
practices of the Depositary. Any such owner's beneficial ownership of any such
Securities will be shown only on, and the transfer of such ownership interest
shall be effected only through, records maintained by the Depositary or its
nominee. Investors in the Regulation S Global Security may hold their interests
in Regulation S Global Security through Euroclear or CEDEL, if they are
participants in such systems, or indirectly through organizations which are
participants in such systems. After the expiration of the Restricted Period (but
not earlier), investors in the Regulation S Global Security may also hold such
interests through organizations other than Euroclear or CEDEL that are
participants in the Depositary's system. Euroclear and CEDEL will hold interests
in the Regulation S Global Security on behalf of their participants through
customers' securities accounts in their respective names on the books of their
respective depositaries, which, in turn, will hold such interests in the
Regulation S Global Security in customer's securities accounts in the
depositaries' names on the books of the Depositary. All interests in a Global
Security, including those held through Euroclear or CEDEL, may be subject to the
procedures and requirements of the Depositary. Those interests held through
Euroclear and CEDEL will be subject to the procedures and requirements of such
system. As used herein, the term "Restricted Period" means the period of 40
consecutive days beginning on and including the first day after the later of (i)
the day that Prudential Securities Incorporated advises the Company and the
Trustee of the day on which the Initial Securities
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or Additional Securities, as the case may be, are first offered to persons other
than distributors (as defined in Regulation S) and (ii) the original issue date
of the Initial Securities or Additional Securities, as the case may be.
(b) Transfers of any Global Security shall be limited to transfers of
such Global Security in whole, but not in part, to the Depositary, its
successors or their respective nominees. Interests of beneficial owners in any
Global Security may be transferred in accordance with the rules and procedures
of the Depositary and the provisions of Section 307.
Unless (i) the Depositary notifies the Company that it is unwilling or
unable to continue as depositary for a Global Security or ceases to be a
"Clearing Agency" registered under the Exchange Act or announces an intention
permanently to cease business or does in fact do so and a successor Depositary
is not appointed by the Company within 90 days of such notice, (ii) an Event of
Default has occurred and is continuing with respect to a Global Security or
(iii) in the case of a Global Security held for the account of Euroclear or
CEDEL, Euroclear or CEDEL, as the case may be, is closed for business for 14
continuous Business Days or announces an intention to cease or permanently
ceases business and a successor therefor has not been designated, owners of
beneficial interests in a Global Security will not be entitled to have any
portions of such Global Security registered in their names, will not receive or
be entitled to receive physical delivery of Securities in definitive form and
will not be considered the owners or holders of the Global Security.
(c) Securities issued in exchange for a Global Security or any portion
thereof pursuant to the last sentence of subsection (b) of this Section shall be
issued in definitive, fully registered form, without interest coupons, shall
have an aggregate principal amount equal to that of such Global Security or
portion thereof to be so exchanged, shall be registered in such names and be in
such authorized denominations as the Depositary shall designate and shall bear
any legends required hereunder. Any Global Security to be exchanged in whole
shall be surrendered by the Depositary to the Trustee, as Registrar. With regard
to any Global Security to be exchanged in part, either such Global Security
shall be so surrendered for exchange or, if the Trustee is acting as custodian
for the Depositary or its nominee with respect to such Global Security, the
principal amount thereof shall be reduced, by an amount equal to the portion
thereof to be so exchanged, by means of an appropriate adjustment made on the
records of the Trustee. Upon any such surrender or adjustment, the Trustee shall
authenticate and make available for delivery the Security issuable on such
exchange to or upon the order of the Depositary or an authorized representative
thereof. In the event of the occurrence of any of the events specified in
subsections (b)(i), (ii) or (iii) of this Section 306, the Company will promptly
make available to the Trustee a reasonable supply of certificated Securities in
definitive form.
(d) Except as otherwise set forth in this Indenture or a Global
Security, owners of beneficial interests in the Securities evidenced by a Global
Security will not be entitled to any rights under this Indenture with respect to
such Global Security, and the Depositary or its nominee may be treated by the
Company, the Trustee and any agent of the Company or the Trustee as the owner
and Holder of such Global Security for all purposes whatsoever. Notwithstanding
the foregoing, nothing herein shall prevent the Company, the Trustee or any such
agent from giving effect to any written certification, proxy or other
authorization furnished by the Depositary or its nominee or impair, as between
the Depositary or its nominee and such owners of beneficial interests, the
operation of customary practices governing the exercise of the rights of the
Depositary or its nominee as Holder of any Security.
SECTION 307. Special Transfer Provisions.
Unless and until (i) an Initial Security is sold under an effective
Registration Statement, or (ii) an Initial Security is exchanged for an Exchange
Security in connection with an effective Registration Statement, in each case
pursuant to the Registration Rights Agreement, the following provisions shall
apply:
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(a) Restricted Global Security to Regulation S Global Security. If, at
any time, an owner of a beneficial interest in a Restricted Global Security
deposited with the Depositary (or the Trustee as custodian for the Depositary)
wishes to transfer its interest in such Restricted Global Security to a Person
who is required or permitted to take delivery thereof in the form of an interest
in a Regulation S Global Security, such owner shall, subject to the Applicable
Procedures, exchange or cause the exchange of such interest for an equivalent
beneficial interest in a Regulation S Global Security as provided in this
Section 307(a). Upon receipt by the Trustee of (1) instructions given in
accordance with the Applicable Procedures from an Agent Member directing the
Trustee to credit or cause to be credited a beneficial interest in the
Regulation S Global Security in an amount equal to the beneficial interest in
the applicable Restricted Global Security to be exchanged, (2) a written order
given in accordance with the Applicable Procedures containing information
regarding the participant account of the Depositary and the Euroclear or CEDEL
account (if applicable) to be credited with such increase, and (3) a certificate
substantially in the form of Exhibit B hereto given by the owner of such
beneficial interest, the Trustee, as Registrar, shall instruct the Depositary to
reduce or cause to be reduced the aggregate principal amount of the applicable
Restricted Global Security and to increase or cause to be increased the
aggregate principal amount of the applicable Regulation S Global Security by the
principal amount of the beneficial interest in the Restricted Global Security to
be exchanged, to credit or cause to be credited to the account of the Person
specified in such instructions a beneficial interest in the Regulation S Global
Security equal to the reduction in the aggregate principal amount of the
applicable Restricted Global Security, and to debit, or cause to be debited,
from the account of the Person making such exchange or transfer the beneficial
interest in the Restricted Global Security that is being exchanged or
transferred.
(b) Regulation S Global Security to Restricted Global Security. If, at
any time, an owner of a beneficial interest in a Regulation S Global Security
deposited with the Depositary (or with the Trustee as custodian for the
Depositary) wishes to transfer its interest in such Regulation S Global Security
to a Person who is required or permitted to take delivery thereof in the form of
an interest in a Restricted Global Security, such owner shall, subject to the
Applicable Procedures, exchange or cause the exchange of such interest for an
equivalent beneficial interest in a Restricted Global Security, as provided in
this Section 307(b). Upon receipt by the Trustee of (1) instructions given in
accordance with the Applicable Procedures from an Agent Member, directing the
Trustee, as Registrar, to credit or cause to be credited a beneficial interest
in the Restricted Global Security equal to the beneficial interest in the
Regulation S Global Security to be exchanged, (2) a written order given in
accordance with the Applicable Procedures containing information regarding the
participant account of the Depositary to be credited with such increase and (3)
if such transfer is requested prior to the expiration of the Restricted Period,
a certificate in the form of Exhibit C attached hereto given by the owner of
such beneficial interest, the Trustee, as Registrar, shall instruct the
Depositary to reduce or cause to be reduced the aggregate principal amount of
such Regulation S Global Security and to increase or cause to be increased the
aggregate principal amount of the applicable Restricted Global Security by the
principal amount of the beneficial interest in the Regulation S Global Security
to be exchanged, and the Trustee, as Registrar, shall instruct the Depositary,
concurrently with such reduction, to credit or cause to be credited to the
account of the Person specified in such instructions a beneficial interest in
the applicable Restricted Global Security equal to the reduction in the
aggregate principal amount of such Regulation S Global Security and to debit or
cause to be debited from the account of the Person making such transfer the
beneficial interest in the Regulation S Global Security that is being
transferred. After the expiration of the Restricted Period, the certificate
described in clause (3) above shall no longer be required to effect transfers
pursuant to this Section 307(b).
(c) Transfers of U.S. Physical Securities for Restricted Global
Security or Regulation S Global Security. If the holder of a U.S. Physical
Security wishes at any time to transfer such holder's U.S. Physical Security to
a Person who wishes to take delivery thereof in the form of a beneficial
interest in the Regulation S Global Security or the Restricted Global Security,
such transfer may be effected, subject to the Applicable Procedures, only in
accordance with the provisions of this Section 307(c). Upon receipt by the
Trustee of (1) instructions given in accordance with the Applicable Procedures
from an Agent Member directing the Trustee to credit or cause to be credited a
beneficial interest in the Regulation S Global Security or Restricted Global
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Security, as the case may be, in a principal amount equal to that of the U.S.
Physical Securities to be so transferred, (2) a written order given in
accordance with the Applicable Procedures containing information regarding the
participant account of the Depositary (and the Euroclear or CEDEL account, as
applicable) to be credited with such beneficial interest and (3) a certificate
in substantially the form set forth in Exhibit D, given by the holder of such
U.S. Physical Security, the Trustee, as Security Registrar, shall instruct the
Depositary to increase the principal amount of the Regulation S Global Security
or the Restricted Global Security, as the case may be, by the principal amount
of the U.S. Physical Security to be so transferred, and to cancel or cause to be
canceled such U.S. Physical Security.
(d) Restricted Global Security or U.S. Physical Security to Regulation
S Global Security After Two Years. If the holder of a beneficial interest in a
Restricted Global Security or U.S. Physical Security wishes at any time after
the second anniversary of the date of original issuance of the Securities to (A)
transfer such interest to a Person who wishes to take delivery thereof in the
form of a beneficial interest in the Regulation S Global Security or (B) to
exchange such interest for a beneficial interest in a Regulation S Global
Security, such transfer or exchange may be effected, subject to the Applicable
Procedures, only in accordance with this Section 307(d). Upon receipt by the
Trustee of (1) in the case of a transfer or exchange of an interest in the
Restricted Global Security or a U.S. Physical Security, instructions given in
accordance with the Applicable Procedures from an Agent Member directing the
Trustee to credit or cause to be credited to a beneficial interest in the
Regulation S Global Security in an amount equal to that the beneficial interest
in the Restricted Global Security to be so transferred or exchanged, (2) a
written order given in accordance with the Applicable Procedures containing
information regarding the participant account of the Depositary (and, if
applicable, the Euroclear or CEDEL account, as the case may be) to be credited
with such beneficial interest and (3) a certificate substantially in the form of
Exhibit E hereto given by the holder of such beneficial interest, the Trustee,
as Registrar, shall (i) in the case of a transfer or exchange of an interest in
the Restricted Global Security, instruct the Depositary to reduce the principal
amount of the Restricted Global Security, and to increase the principal amount
of the Regulation S Global Security, by the principal amount of the beneficial
interest in the Restricted Global Security to be so transferred or exchanged,
and to credit or cause to be credited to the account of the Person specified in
such instructions a beneficial interest in the Regulation S Global Security
having a principal amount equal to the amount by which the principal amount of
the Restricted Global Security was reduced upon such transfer or exchange or
(ii) in the case of a transfer or exchange of a U.S. Physical Security, cancel
such U.S. Physical Security and increase the principal amount of the Regulation
S Global Security accordingly.
(e) General. By its acceptance of any Security bearing the Private
Placement Legend, each Holder of such a Security acknowledges the restrictions
on transfer of such Security set forth in this Indenture and in the Private
Placement Legend and agrees that it will transfer such Security only as provided
in this Indenture.
The Registrar shall retain as required by law copies of all letters,
notices and other written communications received pursuant to Section 306 or
this Section 307. The Company shall have the right to inspect and make copies at
its expense of all such letters, notices or other written communications at any
reasonable time upon the giving of reasonable written notice to the Registrar.
The Trustee shall be entitled to rely upon any order, direction or
request of the Depositary or any of its authorized representatives which is
given or made pursuant to this Article III if such order, direction or request
is made or given in accordance with the Applicable Procedures.
SECTION 308. Mutilated, Destroyed, Lost and Stolen Securities.
If (i) any mutilated Security is surrendered to the Trustee or the
Registrar, or (ii) the Company and the Trustee receive evidence to their
satisfaction of the ownership thereof and the destruction, loss or theft of any
Security, and there is delivered to the Company and the Trustee such security or
indemnity as may be required by them to save each of them harmless, then, in the
absence of notice to the Company or the Trustee that such
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Security has been acquired by a bona fide purchaser, the Company shall execute
and upon Company Order the Trustee shall authenticate and deliver, in exchange
for any such mutilated Security or in lieu of any such destroyed, lost or stolen
Security, a new Security of like tenor and principal amount, bearing a number
not contemporaneously outstanding.
In case any such mutilated, destroyed, lost or stolen Security has
become or is about to become due and payable, the Company in its discretion may,
instead of issuing a new Security, pay such Security.
Upon the issuance of any new Security under this Section, the Company
may require the payment of a sum sufficient to cover any tax or other
governmental charge that may be imposed in relation thereto and any other
expenses (including, without limitation, the fees and expenses of the Trustee)
connected therewith.
Every new Security issued pursuant to this Section in lieu of any
mutilated, destroyed, lost or stolen Security shall constitute an original
additional contractual obligation of the Company, whether or not the mutilated,
destroyed, lost or stolen Security shall be at any time enforceable by anyone,
and shall be entitled to all benefits of this Indenture equally and
proportionately with any and all other Securities duly issued hereunder.
The provisions of this Section are exclusive and shall preclude (to the
extent lawful) all other rights and remedies with respect to the replacement or
payment of mutilated, destroyed, lost or stolen Securities.
SECTION 309. Payment of Interest; Interest Rights Preserved.
Interest on any Security which is payable, and is punctually paid or
duly provided for, on any Interest Payment Date shall be paid to the Person in
whose name such Security (or one or more Predecessor Securities) is registered
at the close of business on the Regular Record Date for such interest at the
office or agency of the Company in The City of New York maintained for such
purposes (which initially shall be the office of the Trustee located at SunTrust
Bank, Atlanta c/o First Chicago Trust Company, Attention: Frank Ballentine,
Corporate Trust, 8th Floor, 14 Wall Street, New York, New York 10005) pursuant
to Section 1002 or, at the option of the Company, interest may be paid by check
mailed to the address of the Person entitled thereto pursuant to Section 310 as
such address appears in the Security Register; provided that all payments with
respect to Global Securities the Holders of which have given wire transfer
instructions to the Trustee (or other Paying Agent) by the Regular Record Date
shall be required to be made by wire transfer of immediately available funds to
the accounts specified by the holders thereof.
Any interest on any Security which is payable, but is not punctually
paid or duly provided for, on any Interest Payment Date shall forthwith cease to
be payable to the Holder on the Regular Record Date by virtue of having been
such Holder, and such defaulted interest and (to the extent lawful) interest on
such defaulted interest at the rate borne by the Securities (such defaulted
interest and interest thereon herein collectively called "Defaulted Interest")
may be paid by the Company, at its election in each case, as provided in clause
(a) or (b) below:
(a) The Company may elect to make payment of any Defaulted
Interest to the Persons in whose names the Securities (or their
respective Predecessor Securities) are registered at the close of
business on a Special Record Date for the payment of such Defaulted
Interest, which shall be fixed in the following manner. The Company
shall notify the Trustee in writing of the amount of Defaulted Interest
proposed to be paid on each Security and the date of the proposed
payment, and at the same time the Company shall deposit with the
Trustee an amount of money equal to the aggregate amount proposed to be
paid in respect of such Defaulted Interest or shall make arrangements
satisfactory to the Trustee for such deposit prior to the date of the
proposed payment, such money when deposited to be held in trust for the
benefit of the Persons entitled to such Defaulted Interest as in this
clause provided. Thereupon the Trustee shall fix a Special Record Date
for the payment of such Defaulted Interest which shall be not
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more than 15 days and not less than 10 days prior to the date of the
proposed payment and not less than 10 days after the receipt by the
Trustee of the notice of the proposed payment. The Trustee shall
promptly notify the Company of such Special Record Date, and in the
name and at the expense of the Company, shall cause notice of the
proposed payment of such Defaulted Interest and the Special Record Date
therefor to be given in the manner provided for in Section 106, not
less than 10 days prior to such Special Record Date. Notice of the
proposed payment of such Defaulted Interest and the Special Record Date
therefor having been so given, such Defaulted Interest shall be paid to
the Persons in whose names the Securities (or their respective
Predecessor Securities) are registered at the close of business on such
Special Record Date and shall no longer be payable pursuant to the
following clause (b).
(b) The Company may make payment of any Defaulted Interest in
any other lawful manner not inconsistent with the requirements of any
securities exchange on which the Securities may be listed, and upon
such notice as may be required by such exchange, if, after notice given
by the Company to the Trustee of the proposed payment pursuant to this
clause, such manner of payment shall be deemed practicable by the
Trustee.
Subject to the foregoing provisions of this Section, each Security
delivered under this Indenture upon registration of transfer of or in exchange
for or in lieu of any other Security shall carry the rights to interest accrued
and unpaid, and to accrue, which were carried by such other Security.
If the Company shall be required to pay any additional interest
pursuant to the terms of the Registration Rights Agreement, it shall deliver an
Officers' Certificate to the Trustee setting forth the new interest rate and the
period for which such rate is applicable.
SECTION 310. Persons Deemed Owners.
Prior to the due presentment of a Security for registration of
transfer, the Company, each Subsidiary Guarantor, the Trustee and any agent of
the Company, such Subsidiary Guarantor or the Trustee may treat the Person in
whose name such Security is registered as the owner of such Security for the
purpose of receiving payment of principal of and premium, if any, and (subject
to Sections 305 and 309) interest on such Security and for all other purposes
whatsoever, whether or not such Security be overdue, and none of the Company,
any Subsidiary Guarantors, the Trustee or any agent of the Company, such
Subsidiary Guarantor or the Trustee shall be affected by notice to the contrary.
SECTION 311. Cancellation.
All Securities surrendered for payment, redemption, registration of
transfer or exchange shall, (i) if surrendered to any Person other than the
Trustee, be delivered to the Trustee and shall be promptly canceled by it and
(ii) if delivered to the Trustee, be promptly canceled by it. The Company may at
any time deliver to the Trustee for cancellation any Securities previously
authenticated and delivered hereunder which the Company may have acquired in any
manner whatsoever, and may deliver to the Trustee (or to any other Person for
delivery to the Trustee) for cancellation any Securities previously
authenticated hereunder which the Company has not issued and sold, and all
Securities so delivered shall be promptly canceled by the Trustee. If the
Company shall so acquire any of the Securities, however, such acquisition shall
not operate as a redemption or satisfaction of the Debt represented by such
Securities unless and until the same are surrendered to the Trustee for
cancellation. No Securities shall be authenticated in lieu of or in exchange for
any Securities canceled as provided in this Section, except as expressly
permitted by this Indenture. All canceled Securities held by the Trustee shall
be disposed of by the Trustee in accordance with its customary procedures or as
directed by a Company Order that canceled Securities be returned to the Company.
The Trustee shall provide the Company a list of all Securities that have been
canceled from time to time as requested by the Company.
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SECTION 312. Issuance of Additional Securities. The Company may,
subject to Article X of this Indenture, issue up to $40,000,000 aggregate
principal amount of Additional Securities. Any Additional Securities will be
part of the same issue as the Securities offered hereby and will vote on all
matters with the Securities offered hereby.
SECTION 313. CUSIP and CINS Numbers. The Company in issuing the
Securities may use "CUSIP" and "CINS" numbers (if then generally in use) and, if
so, the Trustee shall use "CUSIP" and "CINS" numbers in notices of redemption as
a convenience to Holders; provided that any such notice may state that no
representation is made as to the correctness of such numbers either as printed
on the Securities or as contained in any notice of a redemption and that
reliance may be placed only on the other identification numbers printed on the
Securities, and any such redemption shall not be affected by any defect in or
omission of such numbers.
SECTION 314. Computation of Interest.
Interest on the Securities shall be computed on the basis of a 360-day
year consisting of twelve 30-day months.
ARTICLE IV
SATISFACTION AND DISCHARGE
SECTION 401. Satisfaction and Discharge of Indenture.
This Indenture shall upon Company Request cease to be of further effect
(except as to surviving rights of registration of transfer or exchange of the
Securities, as expressly provided for herein or pursuant hereto) and the
Trustee, at the expense of the Company, shall execute proper instruments
acknowledging satisfaction and discharge of this Indenture when
(a) either
(i) all the Securities theretofore authenticated
and delivered (other than mutilated, destroyed, lost or stolen
Securities that have been replaced or paid as provided in
Section 308 and Securities that have been subject to
defeasance under Article XII) have been delivered to the
Trustee for cancellation; or
(ii) all Securities not theretofore delivered to
the Trustee for cancellation
(A) have become due and payable,
(B) will become due and payable at Stated
Maturity within one year, or
(C) are to be called for redemption within one
year under arrangements satisfactory to the Trustee for the
giving of notice of redemption by the Trustee in the name, and
at the expense, of the Company,
and the Company, in the case of (A), (B) or (C) above, has
irrevocably deposited or caused to be deposited with the
Trustee funds in trust for the purpose in an amount sufficient
to pay and discharge the entire Debt on such Securities not
theretofore delivered to the Trustee for cancellation, for
principal and premium, if any, on and interest on the
Securities to the date of
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such deposit (in the case of Securities that have become due
and payable) or to the Stated Maturity or Redemption Date, as
the case may be;
(b) the Company has paid or caused to be paid all sums
payable hereunder by the Company; and
(c) the Company has delivered to the Trustee an Officers'
Certificate and an Opinion of Counsel, each stating that all conditions
precedent herein provided for relating to the satisfaction and
discharge of this Indenture have been complied with.
Notwithstanding the satisfaction and discharge of this Indenture, the
obligations of the Company to the Trustee under Section 606 and, if money shall
have been deposited with the Trustee pursuant to subclause (ii) of clause (a) of
this Section, the obligations of the Trustee under Section 402 and the last
paragraph of Section 1003 shall survive.
SECTION 402. Application of Trust Money.
Subject to the provisions of the last paragraph of Section 1003, all
money deposited with the Trustee pursuant to Section 401, 1202 and 1203 shall be
held in trust and applied by it, in accordance with the provisions of the
Securities and this Indenture, to the payment, either directly or through any
Paying Agent (including the Company acting as its own Paying Agent) as the
Trustee may determine, to the Persons entitled thereto, of the principal (and
premium, if any) and interest for whose payment such money has been deposited
with the Trustee; but such money need not be segregated from other funds except
to the extent required by law.
ARTICLE V
REMEDIES
SECTION 501. Events of Default.
"Event of Default", wherever used herein, means any one of the
following events (whatever the reason for such Event of Default and whether it
shall be voluntary or involuntary or be effected by operation of law or pursuant
to any judgment, decree or order of any court or any order, rule or regulation
of any administrative or governmental body):
(a) default in the payment of any interest on any Security
when it becomes due and payable, and continuance of such default for a
period of 30 days (whether or not prohibited by Article XIV);
(b) default in the payment of the principal of or premium, if
any, on any Security when due (whether or not prohibited by Article
XIV);
(c) failure to perform or comply with the provisions described
in Article VIII or to make or consummate a Change of Control Offer or
an Asset Sale Offer in accordance with the provision of Section 1012
and Section 1013, respectively;
(d) default in the performance, or breach, of any covenant or
agreement of the Company or any Subsidiary Guarantor contained in this
Indenture or any Subsidiary Guarantee (other than as contemplated by
clauses (a), (b) and (c) above) and continuance of such default or
breach for a period of 60 days after written notice has been given (x)
to the Company by the Trustee or (y) to the Company and
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the Trustee by the Holders of at least 25% in aggregate principal
amount of the Securities then Outstanding;
(e) the occurrence of an event of default under any mortgage,
bond, indenture, loan agreement or other document evidencing Debt of
the Company or any Significant Subsidiary, which Debt has an aggregate
outstanding principal amount of $5,000,000 or more, and such default
(i) results in the acceleration of such Debt prior to its Stated
Maturity or (ii) constitutes a failure to make any payment with respect
to any such Debt when due and payable after expiration of any
applicable grace period;
(f) failure by the Company or any of its Restricted
Subsidiaries to pay one or more final judgments the uninsured portion
of which exceeds in the aggregate $5,000,000, which judgment or
judgments are not paid, discharged or stayed for a period of 60 days;
(g) any Subsidiary Guarantee ceases to be in full force and
effect or is declared null and void or any Subsidiary Guarantor denies
that it has any further liability under any Subsidiary Guarantee, or
gives notice to such effect (other than by reason of the termination of
this Indenture or the release of any such Subsidiary Guarantee in
accordance with this Indenture), and such condition has continued for a
period of 30 days after written notice of such failure requiring the
Subsidiary Guarantor and the Company to remedy the same has been given
(x) to the Company by the Trustee or (y) to the Company and the Trustee
by the Holders of at least 25% in aggregate principal amount of the
Securities then outstanding;
(h) entry of a decree or order by a court having jurisdiction
in the premises adjudging the Company or any Significant Subsidiary a
bankrupt or insolvent, or approving as properly filed a petition
seeking reorganization, arrangement, adjustments or composition of or
in respect of the Company or any Significant Subsidiary under the
Bankruptcy Code or any other applicable federal or state law, or
appointing a receiver, liquidator, assignee, trustee, sequestrator (or
other similar official) of the Company or any Significant Subsidiary or
of any substantial part of its property, or ordering the winding up or
liquidation of its affairs, and the continuance of any such decree or
order unstayed and in effect for a period of 90 consecutive days; or
(i) the institution by the Company or any Significant
Subsidiary of proceedings to be adjudicated a bankrupt or insolvent, or
the consent by it to the institution of bankruptcy or insolvency
proceedings against it, or the filing by it of a petition or answer or
consent seeking reorganization or relief under the Bankruptcy Code or
any other applicable federal or state law, or the consent by it to the
filing of any such petition or to the appointment of a receiver,
liquidator, assignee, trustee, sequestrator (or other similar official)
of the Company or any Significant Subsidiary or of any substantial part
of its property, or the making by it of an assignment for the benefit
of creditors, or the admission by it in writing of its inability to pay
its debts generally as they become due.
SECTION 502. Acceleration of Maturity; Rescission and Annulment.
If an Event of Default (other than as specified in Section 501(h) or
(i)) occurs and is continuing, the Trustee or the Holders of at least 25% in
aggregate principal amount of the Securities then Outstanding may, and the
Trustee at the request of such Holders shall, declare the principal of and
premium, if any, and accrued and unpaid interest on, all of the Outstanding
Securities immediately due and payable and, upon any such declaration, all such
amounts will become due and payable immediately. If an Event of Default
specified in Section 501(h) or (i) above occurs and is continuing, then the
principal and premium, if any, and accrued and unpaid interest on all of the
Securities Outstanding will ipso facto become and be immediately due and payable
without any declaration or other act on the part of the Trustee or any Holder of
Securities. The Company shall deliver to the Trustee,
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within 10 days after the Company becomes aware of the occurrence thereof, notice
of any default or acceleration referred to the Section 501(e).
At any time after a declaration of acceleration, but before a judgment
or decree for payment of the money due has been obtained by the Trustee, the
Holders of a majority in aggregate principal amount of the Outstanding
Securities, by written notice to the Company and the Trustee, may rescind such
declaration and its consequences if
(i) the Company or any Subsidiary Guarantor has paid or
deposited with the Trustee a sum sufficient to pay,
(A) all overdue interest on all Securities,
(B) all unpaid principal of and premium, if any,
on any Outstanding Securities that has become due otherwise
than by such declaration of acceleration and interest thereon
at the rate borne by the Securities,
(C) to the extent that payment of such interest
is lawful, interest on overdue interest and overdue principal
at the rate borne by the Securities, and
(D) all sums paid or advanced by the Trustee
hereunder and the reasonable compensation, expenses,
disbursements and advances of the Trustee, its agents and
counsel; and
(ii) all Events of Default, other than the non-payment of
amounts of principal of or premium, if any, or interest on the
Securities that have become due solely by such declaration of
acceleration, have been cured or waived as provided in Section 513.
No such rescission shall affect any subsequent default or impair any right
consequent thereon.
Notwithstanding the preceding paragraph, in the event of a declaration
of acceleration in respect of the Securities because of an Event of Default
specified in Section 501(e) shall have occurred and be continuing, such
declaration of acceleration shall be automatically annulled if the Debt that is
the subject of such Event of Default has been discharged or the requisite
holders thereof have rescinded their declaration of acceleration in respect of
such Debt, and written notice of such discharge or rescission, as the case may
be, shall have been given to the Trustee by the Company and countersigned by the
requisite holders of such Debt or a trustee, fiduciary or agent for such
holders, within 30 days after such declaration of acceleration in respect of the
Securities, and no other Event of Default has occurred during such 30-day period
which has not been cured or waived during such period.
SECTION 503. Collection of Debt and Suits for Enforcement by Trustee.
The Company and each of the Subsidiary Guarantors covenants that if an
Event of Default specified in Section 501(a) or (b) shall have occurred and be
continuing, the Company and each Subsidiary Guarantor will, upon demand of the
Trustee, pay to the Trustee for the benefit of the Holders of such Securities,
the whole amount then due and payable on such Securities for principal (and
premium, if any) and interest, and interest on any overdue principal (and
premium, if any) and, to the extent that payment of such interest shall be
legally enforceable, upon any overdue installment of interest, at the rate borne
by the Securities, and, in addition thereto, such further amount as shall be
sufficient to cover the costs and expenses of collection, including the
reasonable compensation, expenses, disbursements and advances of the Trustee,
its agents and counsel.
If the Company or any Subsidiary Guarantor, as the case may be, fails
to pay such amounts forthwith upon such demand, the Trustee, in its own name as
trustee of an express trust, may institute a judicial proceeding for the
collection of the sums so due and unpaid, may prosecute such proceeding to
judgment or final decree and
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may enforce the same against the Company, such Subsidiary Guarantor or any other
obligor upon the Securities and collect the moneys adjudged or decreed to be
payable in the manner provided by law out of the property of the Company, such
Subsidiary Guarantor or any other obligor upon the Securities, wherever
situated.
If an Event of Default occurs and is continuing, the Trustee may in its
discretion proceed to protect and enforce its rights and the rights of the
Holders by such appropriate judicial proceedings as the Trustee shall deem most
effectual to protect and enforce any such rights, whether for the specific
enforcement of any covenant or agreement in this Indenture or in aid of the
exercise of any power granted herein, or to enforce any other proper remedy.
SECTION 504. Trustee May File Proofs of Claim.
In case of the pendency of any receivership, insolvency, liquidation,
bankruptcy, reorganization, arrangement, adjustment, composition or other
judicial proceeding relative to the Company or any other obligor upon the
Securities (including the Subsidiary Guarantors) or the property of the Company
or of such other obligor or their creditors, the Trustee (irrespective of
whether the principal of the Securities shall then be due and payable as therein
expressed or by declaration or otherwise and irrespective of whether the Trustee
shall have made any demand on the Company for the payment of overdue principal,
premium, if any, or interest) shall be entitled and empowered, by intervention
in such proceeding or otherwise,
(a) to file and prove a claim for the whole amount of
principal (and premium, if any) and interest owing and unpaid in
respect of the Securities and to file such other papers or documents as
may be necessary or advisable in order to have the claims of the
Trustee (including any claim for the reasonable compensation, expenses,
disbursements and advances of the Trustee, its agents and counsel) and
of the Holders allowed in such judicial proceeding, and
(b) to collect and receive any moneys or other securities or
property payable or deliverable upon the conversion or exchange of such
securities or upon any such claims and to distribute the same;
and any custodian, receiver, assignee, trustee, liquidator, sequestrator or
similar official in any such judicial proceeding is hereby authorized by each
Holder to make such payments to the Trustee and, in the event that the Trustee
shall consent to the making of such payments directly to the Holders, to pay the
Trustee any amount due it for the reasonable compensation, expenses,
disbursements and advances of the Trustee, its agents and counsel, and any other
amounts due the Trustee under Section 606.
Nothing herein contained shall be deemed to authorize the Trustee to
authorize or consent to or accept or adopt on behalf of any Holder any plan of
reorganization, arrangement, adjustment or composition affecting the Securities
or the rights of any Holder thereof, or to authorize the Trustee to vote in
respect of the claim of any Holder in any such proceeding; provided, however,
that the Trustee on behalf of the Holders may vote for the election of a trustee
in a proceeding under the Bankruptcy Code and be a member of a creditors or
similar committee in such proceeding.
SECTION 505. Trustee May Enforce Claims Without Possession of
Securities.
All rights of action and claims under this Indenture or the Securities
may be prosecuted and enforced by the Trustee without the possession of any of
the Securities or the production thereof in any proceeding relating thereto, and
any such proceeding instituted by the Trustee shall be brought in its own name
and as trustee of an express trust, and any recovery of judgment shall, after
provision for the payment of the reasonable compensation, expenses,
disbursements and advances of the Trustee, its agents and counsel, be for the
ratable benefit of the Holders of the Securities in respect of which such
judgment has been recovered.
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SECTION 506. Application of Money Collected.
Any money collected by or on deposit with the Trustee pursuant to this
Article shall be applied in the following order, at the date or dates fixed by
the Trustee and, in case of the distribution of such money on account of
principal or premium, if any or interest, upon presentation of the Securities
and the notation thereon of the payment if only partially paid and upon
surrender thereof if fully paid:
FIRST: To the payment of all amounts due the Trustee under
Section 606;
SECOND: To the payment of the amounts then due and unpaid for
principal of and premium, if any, and interest on the Securities in
respect of which or for the benefit of which such money has been
collected, ratably, without preference or priority of any kind,
according to the amounts due and payable on such Securities for
principal (and premium, if any) and interest, respectively; and
THIRD: The balance, if any, to the Company and/or the
Subsidiary Guarantors, as the case may be.
SECTION 507. Limitation on Suits.
No Holder of any Securities shall have any right to institute any
proceeding, judicial or otherwise, with respect to this Indenture, or for the
appointment of a receiver or trustee, or for any other remedy hereunder, unless
(a) such Holder has previously given written notice to the
Trustee of a continuing Event of Default;
(b) the Holders of at least 25% in principal amount of the
Outstanding Securities shall have made written request to the Trustee
to institute proceedings in respect of such Event of Default in its own
name as Trustee hereunder;
(c) such Holder or Holders have offered to the Trustee
reasonable indemnity against the costs, expenses and liabilities
(including fees and expenses of its agents and counsel) to be incurred
in compliance with such request;
(d) the Trustee for 60 days after its receipt of such notice,
request and offer of indemnity has failed to institute any such
proceeding; and
(e) no direction inconsistent with such written request has
been given to the Trustee during such 60-day period by the Holders of a
majority or more in principal amount of the Outstanding Securities;
it being understood and intended that no one or more Holders shall have any
right in any manner whatever by virtue of, or by availing of, any provision of
this Indenture to affect, disturb or prejudice the rights of any other Holders,
or to obtain or to seek to obtain priority or preference over any other Holders
or to enforce any right under this Indenture, except in the manner herein
provided and for the equal and ratable benefit of all the Holders.
SECTION 508. Unconditional Right of Holders to Receive
Principal, Premium and Interest.
Notwithstanding any other provision in this Indenture, the Holder of
any Security shall have the right, which is absolute and unconditional, to
receive payment, as provided herein (including, if applicable, Article XII) and
in such Security of the principal of and premium, if any, and (subject to
Section 309) interest on such
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Security on the respective Stated Maturities expressed in such Security (or, in
the case of redemption, on the Redemption Date) and to institute suit for the
enforcement of any such payment, and such rights shall not be impaired without
the consent of such Holder.
SECTION 509. Restoration of Rights and Remedies.
If the Trustee or any Holder has instituted any proceeding to enforce
any right or remedy under this Indenture and such proceeding has been
discontinued or abandoned for any reason, or has been determined adversely to
the Trustee or to such Holder, then and in every such case, subject to any
determination in such proceeding, the Company, the Subsidiary Guarantors, the
Trustee and the Holders shall be restored severally and respectively to their
former positions hereunder and thereafter all rights and remedies of the Trustee
and the Holders shall continue as though no such proceeding had been instituted.
SECTION 510. Rights and Remedies Cumulative.
Except as provided in Section 308, no right or remedy herein conferred
upon or reserved to the Trustee or to the Holders is intended to be exclusive of
any other right or remedy, and every right and remedy shall, to the extent
permitted by law, be cumulative and in addition to every other right and remedy
given hereunder or now or hereafter existing at law or in equity or otherwise.
The assertion or employment of any right or remedy hereunder, or otherwise,
shall not prevent the concurrent assertion or employment of any other
appropriate right or remedy.
SECTION 511. Delay or Omission Not Waiver.
No delay or omission of the Trustee or of any Holder of any Security to
exercise any right or remedy accruing upon any Event of Default shall impair any
such right or remedy or constitute a waiver of any such Event of Default or an
acquiescence therein. Every right and remedy given by this Article or by law to
the Trustee or to the Holders may be exercised from time to time, and as often
as may be deemed expedient, by the Trustee or by the Holders, as the case may
be.
SECTION 512. Control by Holders.
The Holders of not less than a majority in principal amount of the
Outstanding Securities (subject to Section 507 hereof) shall have the right to
direct the time, method and place of conducting any proceeding for any remedy
available to the Trustee, or exercising any trust or power conferred on the
Trustee with respect to the Securities, provided that
(a) such direction shall not be in conflict with any rule of
law or with this Indenture,
(b) the Trustee may take any other action deemed proper by the
Trustee which is not inconsistent with such direction, and
(c) the Trustee need not take any action which might involve
it in personal liability or be unjustly prejudicial to the Holders not
consenting.
SECTION 513. Waiver of Past Defaults.
The Holders of not less than a majority in principal amount of the
Outstanding Securities may, on behalf of the Holders of all of the Securities,
waive any past defaults hereunder, except a default
(a) in the payment of the principal of or premium, if any or
interest on any Security, or
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(b) in respect of a covenant or provision hereof which under
Article IX cannot be modified or amended without the consent of the
Holder of each Security Outstanding.
Upon any such waiver, such default shall cease to exist, and any Event
of Default arising therefrom shall be deemed to have been cured, for every
purpose of this Indenture; but no such waiver shall extend to any subsequent or
other default or Event of Default or impair any right consequent thereon.
SECTION 514. Waiver of Stay or Extension Laws.
The Company and each Subsidiary Guarantor covenant (to the extent that
it may lawfully do so) that it will not at any time insist upon, or plead, or in
any manner whatsoever claim or take the benefit or advantage of, any stay or
extension law wherever enacted, now or at any time hereafter in force, which may
affect the covenants or the performance of this Indenture; and the Company and
each Subsidiary Guarantor (to the extent that it may lawfully do so) hereby
expressly waives all benefit or advantage of any such law and covenants that it
will not hinder, delay or impede the execution of any power herein granted to
the Trustee, but will suffer and permit the execution of every such power as
though no such law had been enacted.
SECTION 515. Undertaking for Costs.
All parties to this Indenture agree, and each Holder of any Security by
his acceptance thereof shall be deemed to have agreed, that any court may in its
discretion require, in any suit for the enforcement of any right or remedy under
this Indenture, or in any suit against the Trustee for any action taken,
suffered or omitted by it as Trustee, the filing by any party litigant in such
suit of an undertaking to pay the costs of such suit, and that such court may in
its discretion assess reasonable costs, including reasonable attorney's fees,
against any party litigant in such suit, having due regard to the merits and
good faith of the claims or defenses made by such party litigant; but the
provisions of this Section shall not apply to any suit instituted by the
Trustee, to any suit instituted by any Holder, or group of Holders, holding in
the aggregate more than 10% in principal amount of the Outstanding Securities,
or to any suit instituted by any Holder for the enforcement of the payment of
the principal (or premium, if any ) or interest on any Security on or after the
respective Stated Maturities expressed in such Security (or, in the case of
redemption, on or after the Redemption Date).
ARTICLE VI
THE TRUSTEE
SECTION 601. Notice of Defaults.
If a Default or an Event of Default occurs and is continuing and is
known to the Trustee, the Trustee shall mail to each Holder of the Securities in
the manner and to the extent provided in TIA Section 313(c) notice of the
Default or Event of Default within 90 days after the occurrence thereof;
provided, however, that, except in the case of a Default or an Event of Default
in the payment of principal of and premium, if any, or interest on any
Securities, the Trustee may withhold the notice to the Holders of the Securities
if a committee of its trust officers in good faith determines that withholding
such notice is in the interests of the Holders of the Securities.
SECTION 602. Certain Rights of Trustee.
Subject to the provisions of TIA Sections 315(a) through 315(d):
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(a) the Trustee may conclusively rely and shall be protected
in acting or refraining from acting, pursuant to the terms of this
Indenture or otherwise, upon any resolution, certificate, statement,
instrument, opinion, report, notice, request, direction, consent,
order, bond, debenture, note, other evidence of Debt or other paper or
document believed by it to be genuine and to have been signed or
presented by the proper Person or Persons;
(b) any request or direction of the Company mentioned herein
shall be sufficiently evidenced by a Company Request or Company Order
with sufficient detail as may be requested by the Trustee and any
resolution of the Board of Directors may be sufficiently evidenced by a
Board Resolution;
(c) whenever in the administration of this Indenture the
Trustee shall deem it desirable that a matter be proved or established
prior to taking, suffering or omitting any action hereunder, the
Trustee (unless other evidence be herein specifically prescribed) may,
in the absence of bad faith on its part, rely upon an Officers'
Certificate or an Opinion of Counsel;
(d) the Trustee may consult with counsel and the written
advice of such counsel or any Opinion of Counsel shall be full and
complete authorization and protection in respect of any action taken,
suffered or omitted by it hereunder in good faith and in reliance
thereon;
(e) the Trustee shall be under no obligation to exercise any
of the rights or powers vested in it by this Indenture at the request
or direction of any of the Holders pursuant to this Indenture, unless
such Holders shall have offered to the Trustee reasonable security or
indemnity against the costs, expenses and liabilities (including fees
and expenses of its agents and counsel) which might be incurred by it
in compliance with such request or direction;
(f) the Trustee shall not be bound to make any investigation
into, and may conclusively rely upon, the facts or matters stated in
any resolution, certificate, statement, instrument, opinion, report,
notice, request, direction, consent, order, bond, debenture, note,
other evidence of Debt or other paper or document, but the Trustee, in
its discretion, may make such further inquiry or investigation into
such facts or matters as it may see fit, and, if the Trustee shall
determine to make such further inquiry or investigation, it shall be
entitled to examine the books, records and premises of the Company and
the Subsidiary Guarantors, personally or by agent or attorney;
(g) the Trustee may execute any of the trusts or powers
hereunder or perform any duties hereunder either directly or by or
through agents or attorneys and the Trustee shall not be responsible
for any misconduct or negligence on the part of any agent or attorney
appointed with due care by it hereunder;
(h) the Trustee shall not be liable for any action taken,
suffered or omitted by it in good faith and believed by it to be
authorized or within the discretion or rights or powers conferred upon
it by this Indenture other than any liabilities arising out of its
gross negligence; and
(i) except during the continuance of an Event of Default, (x)
the Trustee need perform only those duties as are specifically set
forth in this Indenture and (y) in the absence of gross negligence and
bad faith on its part, the Trustee shall not be liable with respect to
any action taken or omitted to be taken by it in good faith in
accordance with the direction of the Holders of a majority in principal
amount of the Outstanding Securities relating to the time, method and
place of conducting any proceeding for any remedy available to the
Trustee, or exercising any trust or power conferred upon the Trustee,
under this Indenture; and
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(j) in the absence of negligence and bad faith on its part,
the Trustee may conclusively rely, as to the truth of the statements
and the correctness of the opinions expressed therein, upon
certificates or opinions furnished to the Trustee and conforming to the
requirements of this Indenture, but, in the case of any such
certificates or opinions which by any provision hereof are specifically
required to be furnished to the Trustee, the Trustee shall be under a
duty to examine the same to determine whether or not they conform to
the requirements of this Indenture.
The Trustee shall not be required to expend or risk its own funds or
otherwise incur any financial liability in the performance of any of its duties
hereunder, or in the exercise of any of its rights or powers if it shall have
reasonable grounds for believing that repayment of such funds or adequate
indemnity against such risk or liability is not reasonably assured to it.
SECTION 603. Trustee Not Responsible for Recitals or Issuance
of Securities.
The recitals contained herein and in the Securities, except for the
Trustee's certificates of authentication, shall be taken as the statements of
the Company and the Subsidiary Guarantors, and the Trustee assumes no
responsibility for their correctness. The Trustee makes no representations as to
the validity or sufficiency of this Indenture, the Securities or any Subsidiary
Guarantee, except that the Trustee represents that it is duly authorized to
execute and deliver this Indenture, authenticate the Securities and perform its
obligations hereunder and, upon the effectiveness of the Registration Statement,
that the statements made by it in a Statement of Eligibility on Form T-1
supplied to the Company are true and accurate, subject to the qualifications set
forth therein. The Trustee shall not be accountable for the use or application
by the Company of Securities or the proceeds thereof.
SECTION 604. May Hold Securities.
The Trustee, any Paying Agent, any Registrar or any other agent of the
Company or of the Trustee, in its individual or any other capacity, may become
the owner or pledgee of Securities and, subject to TIA Sections 310(b) and 311,
may otherwise deal with the Company and the Subsidiary Guarantors with the same
rights it would have if it were not Trustee, Paying Agent, Registrar or such
other agent.
SECTION 605. Money Held in Trust.
Money held by the Trustee in trust hereunder need not be segregated
from other funds except to the extent required by law. The Trustee shall be
under no liability for interest on any money received by it hereunder except as
otherwise agreed in writing with the Company or any Subsidiary Guarantor, as the
case may be.
SECTION 606. Compensation and Reimbursement.
The Company and the Subsidiary Guarantors jointly and severally agree:
(a) to pay to the Trustee (in its capacity as Trustee, Paying
Agent and Registrar) from time to time reasonable compensation for all
services rendered by it hereunder (which compensation shall not be
limited by any provision of law in regard to the compensation of a
trustee of an express trust);
(b) except as otherwise expressly provided herein, to
reimburse the Trustee upon its request for all reasonable expenses,
disbursements and advances incurred or made by the Trustee in
accordance with any provision of this Indenture (including the
reasonable compensation and the expenses and disbursements of its
agents and counsel), except any such expense, disbursement or advance
as may be attributable to its negligence or bad faith; and
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(c) to indemnify the Trustee for, and to hold it harmless
against, any loss, liability or expense incurred without negligence or
bad faith on its part, arising out of or in connection with the
acceptance or administration of this trust, including the costs and
expenses of enforcing this Indenture against the Company or the
Subsidiary Guarantors (including this Section 606) and of defending
itself against any claim (whether asserted by any Holder or the
Company) or liability in connection with the exercise or performance of
any of its powers or duties hereunder.
The obligations of the Company under this Section to compensate the
Trustee, to pay or reimburse the Trustee for expenses, disbursements and
advances and to indemnify and hold harmless the Trustee shall constitute
additional Debt hereunder and shall survive the satisfaction and discharge of
this Indenture and any termination under any bankruptcy law. As security for the
performance of such obligations of the Company, the Trustee shall have a claim
prior to the Securities upon all property and funds held or collected by the
Trustee as such, except funds held in trust for the payment of principal of and
premium, if any, or interest on particular Securities.
When the Trustee incurs expenses or renders services in connection with
an Event of Default specified in Section 501(h) or (i), the expenses (including
the reasonable charges and expenses of its counsel) of and the compensation for
such services are intended to constitute expenses of administration under any
applicable bankruptcy, insolvency or other similar law.
The provisions of this Section shall survive the termination of this
Indenture.
SECTION 607. Corporate Trustee Required; Eligibility.
There shall be at all times a Trustee hereunder which shall be eligible
to act as Trustee under TIA Section 310(a)(1) and shall have a combined capital
and surplus of at least $100,000,000, and have a Corporate Trust Office in The
City of New York, State of New York. If such corporation publishes reports of
condition at least annually, pursuant to law or to the requirements of Federal,
State, territorial or District of Columbia supervising or examining authority,
then for the purposes of this Section, the combined capital and surplus of such
corporation shall be deemed to be its combined capital and surplus as set forth
in its most recent report of condition so published. If at any time the Trustee
shall cease to be eligible in accordance with the provisions of this Section, it
shall resign immediately in the manner and with the effect hereinafter specified
in this Article.
SECTION 608. Resignation and Removal; Appointment of Successor.
(a) No resignation or removal of the Trustee and no appointment of a
successor Trustee pursuant to this Article shall become effective until the
acceptance of appointment by the successor Trustee in accordance with the
applicable requirements of Section 609.
(b) The Trustee may resign at any time by giving written notice thereof
to the Company at least 30 days prior to the date of such proposed resignation.
Upon receiving such notice of resignation, the Company shall promptly appoint a
successor trustee by written instrument executed by authority of the Company's
Board of Directors. If the instrument of acceptance by a successor Trustee
required by Section 609 shall not have been delivered to the Trustee within 30
days after the giving of such notice of resignation, the resigning Trustee may
petition any court of competent jurisdiction for the appointment of a successor
Trustee.
(c) The Trustee may be removed at any time by Act of the Holders of not
less than a majority in principal amount of the Outstanding Securities,
delivered to the Trustee and to the Company.
(d) If at any time:
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(1) the Trustee shall fail to comply with the provisions of
TIA Section 310(b) after written request therefor by the Company or by
any Holder who has been a bona fide Holder of a Security for at least
six months, except when the Trustee's duty to resign is stayed in
accordance with the provisions of TIA Section 310(b), or
(2) the Trustee shall cease to be eligible under Section 607
and shall fail to resign after written request therefor by the Company
or by any Holder who has been a bona fide Holder of a Security for at
least six months, or
(3) the Trustee shall become incapable of acting or shall be
adjudged a bankrupt or insolvent or a receiver of the Trustee or of its
property shall be appointed or any public officer shall take charge or
control of the Trustee or of its property or affairs for the purpose of
rehabilitation, conservation or liquidation,
then, in any such case, (i) the Company, by or pursuant to a Board Resolution,
may remove the Trustee, or (ii) subject to TIA Section 315(e), any Holder who
has been a bona fide Holder of a Security for at least six months may, on behalf
of himself and all others similarly situated, petition any court of competent
jurisdiction for the removal of the Trustee and the appointment of a successor
Trustee.
(e) If the Trustee shall resign, be removed or become incapable of
acting, or if a vacancy shall occur in the office of Trustee for any cause, the
Company, by or pursuant to a Board Resolution, shall promptly appoint a
successor Trustee. If, within one year after such resignation, removal or
incapability, or the occurrence of such vacancy, a successor Trustee shall be
appointed by Act of the Holders of a majority in principal amount of the
Outstanding Securities delivered to the Company and the retiring Trustee, the
successor Trustee so appointed shall, forthwith upon its acceptance of such
appointment, become the successor Trustee and supersede the successor Trustee
appointed by the Company. If no successor Trustee shall have been so appointed
by the Company or the Holders and accepted appointment in the manner hereinafter
provided subject to TIA Section 315(e), any Holder who has been a bona fide
Holder of a Security for at least six months may, on behalf of himself and all
others similarly situated, petition any court of competent jurisdiction for the
appointment of a successor Trustee.
(f) The Company shall give notice of each resignation and each removal
of the Trustee and each appointment of a successor Trustee to the Holders of
Securities in the manner provided for in Section 106. Each notice shall include
the name of the successor Trustee and the address of its Corporate Trust Office.
SECTION 609. Acceptance of Appointment by Successor.
Every successor Trustee appointed hereunder shall execute, acknowledge
and deliver to the Company and to the retiring Trustee an instrument accepting
such appointment, and thereupon the resignation or removal of the retiring
Trustee shall become effective and such successor Trustee, without any further
act, deed or conveyance, shall become vested with all the rights, powers, trusts
and duties of the retiring Trustee; but, on request of the Company or the
successor Trustee, such retiring Trustee shall, upon payment of its charges,
execute and deliver an instrument transferring to such successor Trustee all the
rights, powers and trusts of the retiring Trustee and shall duly assign,
transfer and deliver to such successor Trustee all property and money held by
such retiring Trustee hereunder subject to the retiring Trustee's rights as
provided under the last sentence of Section 606. Upon request of any such
successor Trustee, the Company shall execute any and all instruments for more
fully and certainly vesting in and confirming to such successor Trustee all such
rights, powers and trusts.
No successor Trustee shall accept its appointment unless at the time of
such acceptance such successor Trustee shall be qualified and eligible under
this Article.
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SECTION 610. Merger, Conversion, Consolidation or Succession
to Business.
Any corporation into which the Trustee may be merged or converted or
with which it may be consolidated, or any corporation resulting from any merger,
conversion or consolidation to which the Trustee shall be a party, or any
corporation succeeding to all or substantially all of the corporate trust
business of the Trustee, shall be the successor of the Trustee hereunder,
provided such corporation shall be otherwise qualified and eligible under this
Article, without the execution or filing of any paper or any further act on the
part of any of the parties hereto. In case any Securities shall have been
authenticated, but not delivered, by the Trustee then in office, any successor
by merger, conversion or consolidation to such authenticating Trustee may adopt
such authentication and deliver the Securities so authenticated with the same
effect as if such successor Trustee had itself authenticated such Securities. In
case at that time any of the Securities shall not have been authenticated, any
successor Trustee may authenticate such Securities either in the name of any
predecessor hereunder or in the name of the successor Trustee. In all such cases
such certificates shall have the full force and effect which this Indenture
provides that the certificate of authentication of the Trustee shall have;
provided, however, that the right to adopt the certificate of authentication of
any predecessor Trustee or to authenticate Securities in the name of any
predecessor Trustee shall apply only to its successor or successors by merger,
conversion or consolidation.
ARTICLE VII
HOLDERS' LISTS AND REPORTS BY TRUSTEE
SECTION 701. Disclosure of Names and Addresses of Holders.
Every Holder of Securities, by receiving and holding the same, agrees
with the Company and the Trustee that none of the Company or the Trustee or any
agent of either of them shall be held accountable by reason of the disclosure of
any such information as to the names and addresses of the Holders in accordance
with TIA Section 312, regardless of the source from which such information was
derived, and that the Trustee shall not be held accountable by reason of mailing
any material pursuant to a request made under TIA Section 312(b).
SECTION 702. Reports by Trustee.
Within 60 days after June 15 of each year commencing with the first
June 15 after the first issuance of Securities, the Trustee shall transmit to
the Holders, in the manner and to the extent provided in TIA Section 313(c), a
brief report dated as of such June 15 if required by TIA Section 313(a). At the
time of its mailing to Holders, the Trustee shall file a copy of each such
report with the Company, the Commission and each stock exchange on which the
Securities are listed.
ARTICLE VIII
CONSOLIDATION, MERGER, CONVEYANCE,
TRANSFER OR LEASE
SECTION 801. Company May Consolidate, etc., Only on Certain Terms.
The Company shall not consolidate or merge with or into any other
Person (whether or not the Company is the surviving Person), or directly or
indirectly sell, assign, convey, transfer, lease or otherwise dispose of all or
substantially all of its properties or assets (determined on a consolidated
basis for the Company and its Subsidiaries taken as a whole) to any Person or
Persons, in one transaction or a series of related transactions, unless each of
the following conditions is satisfied:
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(a) either (i) the Company is the surviving corporation or
(ii) the Person (if other than the Company) formed by such
consolidation or into which the Company is merged or the Person that
acquires by sale, assignment, conveyance, transfer, lease or other
disposition of all or substantially all of the properties and assets of
the Company and its Restricted Subsidiaries on a consolidated basis
(the "Surviving Entity") (A) is a corporation, partnership, limited
liability company or trust duly organized and validly existing under
the laws of the United States, any state thereof or the District of
Columbia and (B) expressly assumes, by a supplemental indenture in form
satisfactory to the Trustee, all the obligations of the Company under
this Indenture and the Securities;
(b) immediately after giving effect to such transaction or
series of transactions on a pro forma basis, no Default or Event of
Default has occurred and is continuing;
(c) immediately after giving effect to such transaction or
series of transactions on a pro forma basis, the Consolidated Net Worth
of the Company (or of the Surviving Entity if the Company is not the
continuing obligor under this Indenture) is equal to or greater than
the Consolidated Net Worth of the Company immediately prior to such
transaction or series of transactions;
(d) immediately after giving effect to such transaction or
series of transactions on a pro forma basis (on the assumption that the
transaction or series of transactions occurred at the beginning of the
most recently ended four full fiscal quarter period for which internal
financial statements are available), the Company (or the Surviving
Entity if the Company is not the continuing obligor under this
Indenture) could incur at least $1.00 of additional Debt (other than
Permitted Debt) pursuant to the first paragraph of Section 1010;
(e) if the Company is not the continuing obligor under this
Indenture, each Subsidiary Guarantor, unless it is the other party to
such transaction or series of related transactions, has by supplemental
indenture confirmed that its Subsidiary Guarantee applies to the
Surviving Entity's obligations under this Indenture and the Securities;
(f) if any of the property or assets of the Company or its
Restricted Subsidiaries would thereupon become subject to any Lien, the
provisions of Section 1017 are complied with; and
(g) the Company delivers, or causes to be delivered, to the
Trustee, in form and substance reasonably satisfactory to the Trustee,
an Officers' Certificate and an Opinion of Counsel, each stating that
such transaction complies with the requirements of this Indenture.
In the event of a merger of a Wholly Owned Restricted Subsidiary into the
Company, the Company need not comply with the foregoing clauses (c) and (d).
For purposes of the foregoing, the transfer (by lease, assignment, sale
or otherwise, in a single transaction or series of related transactions) of all
or substantially all of the properties or assets of one or more Restricted
Subsidiaries that constitutes all or substantially all of the properties and
assets of the Company on a consolidated basis, shall be deemed to be the
transfer of all or substantially all of the properties and assets of the
Company.
SECTION 802. Successor Substituted.
In the event of any transaction or series of related transactions
described in and complying with the conditions listed in Section 801 in which
the Company is not the continuing obligor under this Indenture, the Surviving
Entity shall succeed to, and be substituted for, and may exercise every right
and power of, the
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Company under this Indenture with the same effect as if such Surviving Entity
had been named as the Company herein, and thereafter the Company shall, except
in the case of a lease, be discharged of all its obligations and covenants under
this Indenture and the Securities.
ARTICLE IX
SUPPLEMENTS AND AMENDMENTS TO INDENTURE
AND SECURITIES GUARANTEES
SECTION 901. Without Consent of Holders.
Without the consent of any Holders, the Company and any affected
Subsidiary Guarantor, each when authorized by a Board Resolution, and the
Trustee, at any time and from time to time, may enter into one or more
indentures supplemental hereto, for any of the following purposes:
(a) to evidence the succession of another Person to the
Company and the assumption by any such successor of the covenants of
the Company contained herein and in the Securities or to add any
Subsidiary Guarantors of the Securities; or
(b) to add to the covenants of the Company for the benefit of
the Holders or to surrender any right or power herein conferred upon
the Company; or
(c) to add any additional Events of Default; or
(d) to provide for uncertificated Securities in addition to or
in place of the certificated Securities;
(e) to evidence and provide for the acceptance of appointment
hereunder by a successor Trustee pursuant to the requirements of
Section 609; or
(f) to secure the Securities or any Subsidiary Guarantee;
(g) to cure any ambiguity, to correct or supplement any
provision in this Indenture which may be defective or inconsistent with
any other provision herein, or to make any other provision in this
Indenture, or to make any other provisions with respect to matters or
questions arising under this Indenture, provided that such action shall
not adversely affect the interests of the Holders; or
(h) to qualify, or maintain the qualification of, this
Indenture under the Trust Indenture Act.
Upon the request of the Company accompanied by a Board Resolution
authorizing the execution of any such amended or supplemental Indenture,
Security or Subsidiary Guarantee, and upon receipt by the Trustee of the
documents described in Section 602 hereof, the Trustee shall join with the
Company in the execution of any amended or supplemental Indenture or Subsidiary
Guarantee authorized or permitted by the terms of this Indenture and to make any
further appropriate agreements and stipulations that may be therein contained,
but the Trustee shall not be obligated to enter into such amended or
supplemental Indenture or Subsidiary Guarantee that affects its own rights,
duties or immunities under this Indenture or otherwise.
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SECTION 902. With Consent of Holders.
With the consent of the Holders of not less than a majority in
aggregate principal amount of the Outstanding Securities, by Act of said Holders
delivered to the Company, any affected Subsidiary Guarantor and the Trustee, the
Company and the Subsidiary Guarantors, each when authorized by a Board
Resolution, and the Trustee may enter into one or more indentures supplemental
hereto for the purpose of modifying in any manner this Indenture or any
Subsidiary Guarantee; provided, however, that no such indenture supplemental
may, without the consent of the Holder of each Outstanding Security affected
thereby:
(a) change the Stated Maturity of the principal of, or any
installment of interest on, any Security, or reduce the principal
amount thereof or the rate of interest thereon or any premium payable
upon the redemption thereof, or change the place of payment where, or
the coin or currency in which any Security or any premium or the
interest thereon is payable, or impair the right to institute suit for
the enforcement of any such payment after the Stated Maturity thereof
(or, in the case of redemption, on or after the Redemption Date); or
(b) reduce the percentage in aggregate principal amount of the
Outstanding Securities required to consent to any amendment of, or
waiver of compliance with, any provision of or defaults under this
Indenture; or
(c) waive a Default or Event of Default in the payment of
principal of, or premium, if any, or interest on the Securities (except
a rescission of acceleration of Securities by the Holders of at least a
majority in aggregate principal amount of the then Outstanding
Securities (including Additional Securities issued under this
Indenture, if any); or
(d) release any Subsidiary Guarantor from any of its
obligations under its Subsidiary Guarantee or this Indenture, except in
accordance with the terms of this Indenture;
(e) amend, change or modify in any manner adverse to the
Holders the obligation of the Company to make and consummate a Change
of Control Offer or Asset Sale Offer in accordance with the provisions
of Section 1012 on Section 1013, respectively; or
(f) amend, change or modify any of the provisions in Article
XII in a manner adverse to the Holders.
(g) amend, change or modify any of the provisions in this
Section 902.
It shall not be necessary for any Act of Holders under this Section to
approve the particular form of any proposed supplemental indenture, but it shall
be sufficient if such Act shall approve the substance thereof.
SECTION 903. Execution of Supplemental Indentures.
In executing, or accepting the additional trusts created by, any
supplemental indenture permitted by this Article or the modifications thereby of
the trusts created by this Indenture, the Trustee shall be entitled to receive,
and shall be fully protected in relying upon, an Opinion of Counsel stating that
the execution of such supplemental indenture is authorized or permitted by this
Indenture and that such supplemental indenture constitutes the legal, valid and
binding obligation of the Company and the Subsidiary Guarantor subject to the
customary exceptions. The Trustee may, but shall not be obligated to, enter into
any such supplemental indenture which affects the Trustee's own rights, duties
or immunities under this Indenture or otherwise.
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SECTION 904. Effect of Supplemental Indentures.
Upon the execution of any supplemental indenture under this Article,
this Indenture shall be modified in accordance therewith, and such supplemental
indenture shall form a part of this Indenture for all purposes; and every Holder
of Securities theretofore or thereafter authenticated and delivered hereunder
shall be bound thereby.
SECTION 905. Conformity with Trust Indenture Act.
Every supplemental indenture executed pursuant to this Article shall
conform to the requirements of the Trust Indenture Act as then in effect.
SECTION 906. Reference in Securities to Supplemental Indentures.
Securities authenticated and delivered after the execution of any
supplemental indenture pursuant to this Article may, and shall if required by
the Trustee, bear a notation in form approved by the Trustee as to any matter
provided for in such supplemental indenture. If the Company shall so determine,
new Securities so modified as to conform, in the opinion of the Trustee and the
Company, to any such supplemental indenture may be prepared and executed by the
Company and authenticated and delivered by the Trustee in exchange for
Outstanding Securities.
SECTION 907. Notice of Supplemental Indentures.
Promptly after the execution by the Company, any affected Subsidiary
Guarantor and the Trustee of any supplemental indenture pursuant to the
provisions of Section 902, the Company shall give notice thereof to the Holders
of each Outstanding Security affected, in the manner provided for in Section
106, setting forth in general terms the substance of such supplemental
indenture.
ARTICLE X
COVENANTS
SECTION 1001. Payment of Principal, Premium, If Any, and Interest.
The Company covenants and agrees for the benefit of the Holders that it
will duly and punctually pay the principal of and premium, if any and interest
on the Securities in accordance with the terms of the Securities and this
Indenture. Principal and interest shall be considered paid on the date due if on
such date the Trustee or the Paying Agent holds in accordance with this
Indenture money sufficient to pay all principal and interest then due and the
Trustee or the Paying Agent, as the case may be, is not prohibited from paying
such money to the Securityholders on that date pursuant to the terms of this
Indenture.
The Company shall pay interest on overdue principal at the rate
specified therefor in the Securities, and it shall pay interest on overdue
installments of interest at the same rate to the extent lawful.
SECTION 1002. Maintenance of Office or Agency.
The Company will maintain in The City of New York, an office or agency
where Securities may be presented or surrendered for payment, where Securities
may be surrendered for registration of transfer or exchange and where notices
and demands to or upon the Company in respect of the Securities or any
Subsidiary Guarantor in respect of the Subsidiary Guarantees and this Indenture
may be served. The Corporate Trust Office located at SunTrust Bank, Atlanta c/o
First Chicago Trust Company, Attention: Frank Ballentine, Corporate
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Trust, 8th Floor, 14 Wall Street, New York, New York 10005 of the Trustee shall
be such office or agency of the Company, unless the Company shall designate and
maintain some other office or agency for one or more of such purposes. The
Company will give prompt written notice to the Trustee of any change in the
location of any such office or agency. If at any time the Company shall fail to
maintain any such required office or agency or shall fail to furnish the Trustee
with the address thereof, such presentations, surrenders, notices and demands
may be made or served at the Corporate Trust Office of the Trustee and the
Company and each Subsidiary Guarantor hereby appoints the Trustee as its agent
to receive all such presentations, surrenders, notices and demands.
The Company may also from time to time designate one or more other
offices or agencies (in or outside of The City of New York) where the Securities
may be presented or surrendered for any or all such purposes and may from time
to time rescind any such designation; provided, however, that no such
designation or rescission shall in any manner relieve the Company of its
obligation to maintain an office or agency in The City of New York for such
purposes. The Company will give prompt written notice to the Trustee of any such
designation or rescission and any change in the location of any such other
office or agency.
SECTION 1003. Money for Security Payments to Be Held in Trust.
If the Company shall at any time act as its own Paying Agent, it will,
on or before each due date of the principal of or premium, if any, or interest
on any of the Securities, segregate and hold in trust for the benefit of the
Persons entitled thereto a sum sufficient to pay the principal of or premium, if
any, or interest so becoming due until such sums shall be paid to such Persons
or otherwise disposed of as herein provided and will promptly notify the Trustee
of its action or failure so to act.
Whenever the Company shall have one or more Paying Agents for the
Securities, it will, on or before each due date of the principal of or premium,
if any, or interest on any Securities, deposit with a Paying Agent a sum
sufficient to pay the principal (and premium, if any) or interest so becoming
due, such sum to be held in trust for the benefit of the Persons entitled to
such principal, premium or interest, and (unless such Paying Agent is the
Trustee) the Company will promptly notify the Trustee of such action or any
failure so to act.
If the Company is not acting as Paying Agent, the Company will cause
each Paying Agent (other than the Trustee) to execute and deliver to the Trustee
an instrument in which such Paying Agent shall agree with the Trustee, subject
to the provisions of this Section, that such Paying Agent will:
(a) hold all sums held by it for the payment of the principal
of and premium, if any, or interest on Securities in trust for the
benefit of the Persons entitled thereto until such sums shall be paid
to such Persons or otherwise disposed of as herein provided;
(b) give the Trustee notice of any default by the Company (or
any other obligor upon the Securities) in the making of any payment of
principal (and premium, if any) or interest;
(c) at any time during the continuance of any such default,
upon the written request of the Trustee, forthwith pay to the Trustee
all sums so held in trust by such Paying Agent; and
(d) acknowledge, accept and agree to comply in all respects
with the provisions of this Indenture relating to the duties, rights
and obligations of such Paying Agent.
The Company may at any time, for the purpose of obtaining the
satisfaction and discharge of this Indenture or for any other purpose, pay, or
by Company Order direct any Paying Agent to pay, to the Trustee all sums held in
trust by the Company or such Paying Agent, such sums to be held by the Trustee
upon the same trusts as those upon which such sums were held by the Company or
such Paying Agent; and, upon such payment
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by any Paying Agent to the Trustee, such Paying Agent shall be released from all
further liability with respect to such sums.
Any money deposited with the Trustee or any Paying Agent, or then held
by the Company, in trust for the payment of the principal of or premium, if any,
or interest on any Security and remaining unclaimed for two years after such
principal (and premium, if any) or interest has become due and payable shall be
paid to the Company on Company Request, or (if then held by the Company) shall
be discharged from such trust; and the Holder of such Security shall thereafter,
as an unsecured general creditor, look only to the Company for payment thereof,
and all liability of the Trustee or such Paying Agent with respect to such trust
money, and all liability of the Company as trustee thereof, shall thereupon
cease; provided, however, that the Trustee or such Paying Agent, before being
required to make any such repayment, may at the expense of the Company cause to
be published once, in a newspaper published in the English language, customarily
published on each Business Day and of general circulation in the Borough of
Manhattan, The City of New York, notice that such money remains unclaimed and
that, after a date specified therein, which shall not be less than 30 days from
the date of such publication, any unclaimed balance of such money then remaining
will be repaid to the Company.
SECTION 1004. Corporate Existence.
Subject to Article VIII, the Company will do or cause to be done all
things necessary to preserve and keep in full force and effect the corporate
existence and corporate power of the Company and each Restricted Subsidiary;
provided, however, that the Company shall not be required to preserve any such
corporate existence and corporate power if the Board of Directors shall
determine that the preservation thereof is no longer desirable in the conduct of
the business of the Company and its Restricted Subsidiaries taken as a whole and
that the loss thereof is not disadvantageous in any material respect to the
Holders.
SECTION 1005. Payment of Taxes and Other Claims.
The Company will pay or discharge or cause to be paid or discharged,
before the same shall become delinquent, (a) all material taxes, assessments and
governmental charges levied or imposed upon the Company or any Subsidiary or
upon the income, profits or property of the Company or any Subsidiary and (b)
material lawful claims for labor, materials and supplies, which, if unpaid,
might by law become a lien upon the property of the Company or any Subsidiary;
provided, however, that the Company shall not be required to pay or discharge or
cause to be paid or discharged any such tax, assessment, charge or claim whose
amount, applicability or validity is being contested in good faith by
appropriate proceedings.
SECTION 1006. Maintenance of Properties.
The Company will cause all properties owned by the Company or any
Restricted Subsidiary or used or held for use in the conduct of their respective
businesses to be maintained and kept in good condition, repair and working order
and supplied with all necessary equipment and will cause to be made all
necessary repairs, renewals, replacements, betterments and improvements thereof,
all as in the judgment of the Company may be necessary so that the business
carried on in connection therewith may be properly and advantageously conducted
at all times; provided, however, that nothing in this Section shall prevent the
Company from discontinuing the maintenance of any of such properties if such
discontinuance is, in the judgment of the Company, desirable in the conduct of
its business or the business of any Restricted Subsidiary and not
disadvantageous in any material respect to the Holders.
SECTION 1007. Insurance.
The Company will at all times keep all of its and its Restricted
Subsidiaries' properties which are of an insurable nature insured with insurers,
believed by the Company to be responsible, against loss or damage to the
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extent that property of similar character is usually so insured by corporations
similarly situated and owning like properties.
SECTION 1008. Statement by Officers As to Default.
(a) The Company will deliver to the Trustee, within 120 days after the
end of each fiscal year, a brief certificate from the principal executive
officer, principal financial officer or principal accounting officer as to his
or her knowledge of compliance by the Company and the Subsidiary Guarantors with
all conditions and covenants under this Indenture. For purposes of this Section
1008(a), such compliance shall be determined without regard to any period of
grace or requirement of notice under this Indenture.
(b) When any Default has occurred and is continuing under this
Indenture, or if the trustee for or the holder of any other evidence of Debt of
the Company or any Subsidiary Guarantor gives any notice or takes any other
action with respect to a claimed default, the Company shall deliver to the
Trustee by registered or certified mail or by telegram, telex or facsimile
transmission an Officers Certificate specifying such event, notice or other
action (with a copy of any such other notice) within 10 days after the Company
becomes aware of its occurrence.
SECTION 1009. Provision of Reports and Financial Statements.
The Company shall be required to file on a timely basis with the
Commission, to the extent such filings are accepted by the Commission and
whether or not the Company has a class of securities registered under the
Exchange Act, the annual reports, quarterly reports and other documents that the
Company would be required to file if it were subject to Section 13 or 15(d) of
the Exchange Act. The Company shall also be required (a) to supply to the
Trustee and each Holder, or supply to the Trustee for forwarding to each such
Holder, without cost to such Holder, copies of such reports and documents within
15 days after the date on which the Company files such reports and documents
with the Commission or the date on which the Company would be required to file
such reports and documents if the Company were so required and (b) if filing
such reports and documents with the Commission is not accepted by the Commission
or is prohibited under the Exchange Act, to supply at the Company's cost copies
of such reports and documents to any prospective Holder of Securities promptly
upon written request.
SECTION 1010. Limitation on Incurrence of Debt and Issuance of
Disqualified Stock.
The Company shall not, and shall not permit any Restricted Subsidiary
to, create, issue, assume, guarantee or in any manner become directly or
indirectly liable for the payment of, or otherwise incur (collectively,
"incur"), any Debt (including Acquired Debt), other than Permitted Debt, or
issue any Disqualified Stock, except that the Company or a Restricted Subsidiary
may incur Debt or issue Disqualified Stock if, at the time of such incurrence or
issuance, the Fixed Charge Coverage Ratio for the four full fiscal quarters
(taken as one accounting period) immediately preceding the incurrence of such
Debt or the issuance of such Disqualified Stock for which internal financial
statements are available would have been equal to at least 2.0 to 1.0 if such
incurrence is on or prior to the second anniversary of the Closing Date and 2.25
to 1.0 if thereafter.
In making the foregoing calculation for any four-quarter period which
includes the Closing Date, pro forma effect shall be given to the Transactions,
as if such transactions had occurred at the beginning of such four-quarter
period. In addition (but without duplication), in making the foregoing
calculation, pro forma effect will be given to: (i) the incurrence of such Debt
and (if applicable) the application of the net proceeds therefrom, including to
refinance other Debt, as if such Debt was incurred and the application of such
proceeds occurred at the beginning of such four-quarter period, (ii) the
incurrence, repayment or retirement of any other Debt by the Company or its
Restricted Subsidiaries since the first day of such four-quarter period as if
such Debt was incurred, repaid or retired at the beginning of such four-quarter
period, (iii) the acquisition (whether by purchase,
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merger or otherwise) or disposition (whether by sale, merger or otherwise) of
any other company, entity or business acquired or disposed of by the Company or
any Restricted Subsidiary, as the case may be, since the first day of such
four-quarter period, as if such acquisition or disposition occurred at the
beginning of such four-quarter period. In making a computation under the
foregoing clause (i) or (ii), (A) interest on Debt bearing a floating interest
rate shall be computed as if the rate in effect on the dated of computation had
been the applicable rate for the entire period (taking into account any Hedging
Obligations applicable to such Debt if such Hedging Obligations have a remaining
term at the date of determination in excess of 12 months), (B) if such Debt
bears, at the option of the Company, a fixed or floating rate of interest,
interest thereon will be computed by applying, at the option of the Company,
either the fixed or floating rate and (C) the amount of any Debt under a
revolving credit facility will be computed based on the average daily balance of
such Debt during such four-quarter period.
SECTION 1011. Limitation on Restricted Payments. (a) The Company shall
not, and shall not permit any Restricted Subsidiary to, directly or indirectly,
make any Restricted Payment unless at the time of, and immediately after giving
effect to, the proposed Restricted Payment: (i) no Default or Event of Default
has occurred and is continuing, (ii) the Company could incur at least $1.00 of
additional Debt (other than Permitted Debt) pursuant to the first paragraph of
Section 1010 and (iii) the aggregate amount of all Restricted Payments declared
or made after the Closing Date does not exceed the sum of:
(A) 50% of the Consolidated Net Income of the Company accrued
on a cumulative basis during the period (taken as one accounting
period) beginning on the first day of the Company's fiscal quarter
during which the Closing Date occurs and ending on the last day of the
Company's most recently ended fiscal quarter for which internal
financial statements are available at the time of such proposed
Restricted Payment (or, if such aggregate cumulative Consolidated Net
Income is a loss, minus 100% of such amount), plus
(B) the aggregate net cash proceeds received by the Company
after the Closing Date from the issuance or sale (other than to a
Subsidiary) of, or as a capital contribution in respect of, Qualified
Equity Interests of the Company (excluding from this computation
proceeds of a Public Equity Offering used to redeem Securities as
discussed above), plus
(C) the aggregate net proceeds, including the fair market
value of property other than cash (as determined by the Board of
Directors, whose good faith determination will be conclusive), received
by the Company after the Closing Date from the issuance or sale (other
than to a Subsidiary) of debt securities or Disqualified Stock that
have been converted into or exchanged for Qualified Stock of the
Company, together with the aggregate net cash proceeds received by the
Company at the time of such conversion or exchange, plus
(D) $5,000,000.
(b) Notwithstanding paragraph (a) above, the Company and its Restricted
Subsidiaries may take any of the following actions, so long as, with respect to
clauses (ii), (v), and (viii), no Default or Event of Default has occurred and
is continuing or would occur:
(i) The payment of any dividend within 60 days after the date
of declaration thereof, if at the declaration date such payment would
not have been prohibited by the foregoing provision;
(ii) The repurchase, redemption or other acquisition or
retirement for value of any shares of Capital Stock of the Company, in
exchange for, or out of the net cash proceeds of a substantially
concurrent issuance and sale (other than to a Subsidiary) of, Qualified
Equity Interests of the Company;
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(iii) The purchase, redemption, defeasance or other
acquisition or retirement for value of any Subordinated Debt in
exchange for, or out of the net cash proceeds of a substantially
concurrent issuance and sale (other than to a Subsidiary) of Qualified
Equity Interests of the Company;
(iv) The purchase, redemption, defeasance or other acquisition
or retirement for value of Subordinated Debt in exchange for, or out of
the net cash proceeds of a substantially concurrent issuance or sale
(other than to a Subsidiary) of, new Subordinated Debt, so long as the
Company or a Restricted Subsidiary would be permitted to refinance such
original Subordinated Debt with such new Subordinated Debt pursuant to
clause (xiii) of the definition of Permitted Debt;
(v) The repurchase of any Subordinated Debt at a purchase
price not greater than 101% of the principal amount of such
Subordinated Debt in the event of a "change of control" in accordance
with provisions similar to the provisions of Section 1012; provided
that, prior to or simultaneously with such repurchase, the Company has
made the Change of Control Offer as provided in such covenant with
respect to the Securities and has repurchased all Securities validly
tendered for payment in connection with such Change of Control Offer;
(vi) The purchase of any Capital Stock, or options to purchase
Capital Stock, of Farah pursuant to the Merger Agreement;
(vii) The payment of amounts to shareholders of Farah pursuant
to appraisal rights in respect of up to 33-1/3% of the Capital Stock of
Farah required by law in connection with the Merger; and
(viii) The repurchase of, or options to purchase, Qualified
Equity Interests of the Company or any of its Subsidiaries from
employees, former employees, directors or former directors of the
Company or any of its Subsidiaries (or permitted transferees of such
employees, former employees, directors or former directors or their
respective estates), pursuant to the terms of the agreements (including
employment agreements) or plans (or amendments thereto) approved by the
Board of Directors of the Company under which such individuals purchase
or sell or are granted the option or right to purchase or sell such
Qualified Equity Interests; provided further, however, that the
aggregate amount of such repurchases shall not exceed $1,000,000 in any
calender year (excluding any such repurchases funded with the proceeds
of any life insurance policy or policies maintained by the Company or
under which the Company is the beneficiary).
The payments described in clauses (ii), (iii), (v) and (viii) of this paragraph
shall be Restricted Payments that shall be permitted to be taken in accordance
with this paragraph (b) but shall reduce the amount that would otherwise be
available for Restricted Payments under clause (iii) of paragraph (a) of this
Section 1011 and the payments described in clauses (i), (iv), (vi) and (vii) of
this paragraph (b) shall be Restricted Payments that shall be permitted to be
taken in accordance with this paragraph (b) and shall not reduce the amount that
would otherwise be available for Restricted Payments under clause (iii) of
paragraph (a) of this Section 1011.
(c) For the purpose of making any calculations under this Indenture (i)
if a Restricted Subsidiary is designated an Unrestricted Subsidiary, the Company
shall be deemed to have made an Investment in an amount equal to the greater of
fair market value or net book value of the net assets of such Restricted
Subsidiary at the time of such designation as determined by the Board of
Directors of the Company, whose good faith determination will be conclusive,
(ii) any property transferred to or from an Unrestricted Subsidiary will be
valued at fair market value at the time of such transfer, as determined by the
Board of Directors of the Company, whose good faith determination will be
conclusive and (iii) subject to the foregoing, the amount of any Restricted
Payment, if other than cash, will be determined by the Board of Directors of the
Company, whose good faith determination will be conclusive.
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If the aggregate amount of all Restricted Payments calculated under
paragraph (a) of this Section 1011 includes an Investment in an Unrestricted
Subsidiary or other Person that thereafter becomes a Restricted Subsidiary, the
aggregate amount of all Restricted Payments calculated under the first paragraph
of this Section 1011 shall be reduced by the lesser of (x) the net asset value
of such Subsidiary at the time it becomes a Restricted Subsidiary and (y) the
initial amount of such Investment.
If an Investment resulted in the making of a Restricted Payment, the
aggregate amount of all Restricted Payments calculated under this Section 1011
shall be reduced by the amount of any net reduction in such Investment
(resulting from the payment of interest or dividends, loan repayment, transfer
of assets or otherwise), to the extent such net reduction is not included in the
Company's Consolidated Net Income; provided that the total amount by which the
aggregate amount of all Restricted Payments may be reduced shall not exceed the
lesser of (x) the cash proceeds received by the Company and its Restricted
Subsidiaries in connection with such net reduction and (y) the initial amount of
such Investment.
In computing the Consolidated Net Income of the Company for purposes of
clause (iii)(A) of paragraph (a) of this Section 1011, (i) the Company may use
audited financial statements for the portions of the relevant period for which
audited financial statements are available on the date of determination and
unaudited financial statements and other current financial data based on the
books and records of the Company for the remaining portion of such period and
(ii) the Company will be permitted to rely in good faith on the financial
statements and other financial data derived from the books and records of the
Company that are available on the date of determination. If the Company makes a
Restricted Payment that, at the time of the making of such Restricted Payment,
would in the good faith determination of the Company be permitted under the
requirements of this Indenture, such Restricted Payment shall be deemed to have
been made in compliance with this Indenture notwithstanding any subsequent
adjustments made in good faith to the Company's financial statements affecting
Consolidated Net Income of the Company for any period.
SECTION 1012. Purchase of Securities upon a Change of Control.
If a Change of Control occurs at any time, then each Holder shall have
the right to require that the Company purchase such Holder's Securities and
Additional Securities, if any, in whole or in part, at a purchase price in cash
equal to 101% of the principal amount of such Securities and Additional
Securities, if any, plus accrued and unpaid interest, if any, to the date of
purchase, pursuant to the offer described below (the "Change of Control Offer")
and the other procedures set forth in this Indenture.
Within 30 days following any Change of Control, the Company shall
notify in writing the Trustee thereof and give written notice of such Change of
Control to each holder of Securities and Additional Securities by first-class
mail, postage prepaid, at its address appearing in the Security Register,
stating, among other things, (i) the purchase price and the purchase date, which
will be a Business Day no earlier than 30 days nor later than 60 days from the
date such notice is mailed or such later date as is necessary to comply with
requirements under the Exchange Act (the "Change of Control Payment Date"); (ii)
that any Security not tendered will continue to accrue interest; (iii) that,
unless the Company defaults in the payment of the purchase price, any Securities
or Additional Securities accepted for payment pursuant to the Change of Control
Offer will cease to accrue interest after the Change of Control purchase date;
(iv) that Holders electing to have any Securities purchased pursuant to a Change
of Control Offer shall be required to surrender the Securities, with the form
entitled "Option of Holder to Elect Purchase" on the reverse of the Securities
completed, to the Paying Agent at the address specified in the notice prior to
the close of business on the third Business Day preceding the Change of Control
Payment Date; (v) that Holders shall be entitled to withdraw their election if
the Paying Agent receives, not later than the close of business on the second
Business Day preceding the Change of Control Payment Date, a telegram, telex,
facsimile transmission or letter setting forth the name of the Holder, the
principal amount of Securities delivered for purchase, and a statement that such
Holder is withdrawing his election to have such Securities purchased; (vi) that
Holders whose Securities are being purchased only in part shall be issued new
Securities equal in principal amount
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to the unpurchased portion of the Securities surrendered, which unpurchased
portion must be equal to $1,000 in principal amount or an integral multiple
thereof; (vii) the instructions that the Holders of Securities must follow in
order to tender their Securities; and (viii) the circumstances and relevant
facts regarding such Change of Control.
The Company shall comply with any applicable tender offer rules
including Rule 14e-1 under the Exchange Act, and any other applicable securities
laws and regulations in connection with a Change of Control Offer.
SECTION 1013. Limitation on Certain Asset Sales.
(a) The Company shall not, and shall not permit any Restricted
Subsidiary to, engage in any Asset Sale unless (i) the consideration received by
the Company or such Restricted Subsidiary for such Asset Sale is not less than
the fair market value of the assets sold (as determined by the Board of
Directors of the Company, whose good faith determination will be conclusive, and
evidenced by a resolution of the Board of Directors) and (ii) the consideration
received by the Company or the relevant Restricted Subsidiary in respect of such
Asset Sale consists of at least 75% cash or Cash Equivalents; provided that the
amount of (x) any liabilities (as shown on the most recent balance sheet of the
Company or such Restricted Subsidiary) of the Company or any of its Restricted
Subsidiaries (other than liabilities that are by their terms subordinated to the
Securities or any guarantee thereof) that are assumed by the transferee of any
such assets pursuant to a customary novation agreement that releases the Company
or such Restricted Subsidiary from further liability and (y) any securities,
notes or other obligations received by the Company or any such Restricted
Subsidiary from such transferee that are promptly converted by the Company or
such Restricted Subsidiary into cash or Cash Equivalents (to the extent of the
cash or Cash Equivalents received), shall be deemed to be cash or Cash
Equivalents, as the case may be, for purposes of this provision.
(b) If the Company or any Restricted Subsidiary engages in an Asset
Sale, the Company may, at its option, within 360 days after such Asset Sale, (i)
apply all or a portion of the Net Cash Proceeds to the permanent reduction of
amounts outstanding under the New Credit Facility or to the repayment of other
Senior Debt of the Company or a Restricted Subsidiary or (ii) invest (or enter
into a legally binding agreement to invest or cause a Restricted Subsidiary to
invest or enter into such agreement to invest) all or a portion of such Net Cash
Proceeds in properties and assets to replace the properties and assets that were
the subject of the Asset Sale or in properties and assets that will be used in
businesses of the Company or its Restricted Subsidiaries, as the case may be, as
such businesses are conducted prior to such Asset Sale. If any such legally
binding agreement to invest such Net Cash Proceeds is terminated, the Company
may, within 90 days of such termination or within 360 days of such Asset Sale,
whichever is later, invest such Net Cash Proceeds as provided in clause (i) or
(ii) (without regard to the parenthetical contained in such clause (ii)) above.
Notwithstanding clause (ii) of the immediately preceding paragraph, if the
Company or a Restricted Subsidiary engages in an Asset Sale of Designated Assets
within 365 days after the Closing Date, the Company or the relevant Restricted
Subsidiary shall be required to receive, with respect to consideration of up to
$11,000,000 received in respect of such Asset Sale of Designated Assets, 25% of
such consideration in the form of cash and Cash Equivalents and, with respect to
consideration, if any, in excess of $11,000,000 received in respect of such
Asset Sale of Designated Assets, 75% of such consideration in the form of cash
and Cash Equivalents. The amount of such Net Cash Proceeds not so used as set
forth above in this paragraph constitutes "Excess Proceeds."
(c) When the aggregate amount of Excess Proceeds exceeds $5,000,000,
the Company shall, within 30 days thereafter, make an offer to purchase (an
"Asset Sale Offer") from all Holders of Securities and Additional Securities, if
any, on a pro rata basis, in accordance with the procedures set forth in
paragraph (d) below, the maximum principal amount (expressed as a multiple of
$1,000) of Securities and Additional Securities, if any, that may be purchased
with the Excess Proceeds. The offer price as to each Security will be payable in
cash in an amount equal to 100% of the principal amount of such Security, plus
in each case accrued and unpaid interest, if any, to the date of repurchase. To
the extent that the aggregate principal amount of Securities and
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Additional Securities, if any, tendered pursuant to an Asset Sale Offer is less
than the Excess Proceeds, the Company may use the portion of the Excess Proceeds
not required to be used to repurchase the Securities and Additional Securities,
if any, for any other purpose as determined by the Company which is not
prohibited by this Indenture. If the aggregate principal amount of Securities
and Additional Securities validly tendered and not withdrawn by holders thereof
exceeds the Excess Proceeds, the Securities and Additional Securities to be
purchased will be selected on a pro rata basis (based upon the principal amount
of Securities). Upon completion of such Asset Sale Offer, the amount of Excess
Proceeds will be reset to zero.
(d) Within the time period described in paragraph (c) above for making
an Asset Sale Offer, the Company shall mail a notice to each Holder in the
manner provided in Section 106 stating: (1) that the Asset Sale Offer is being
made pursuant to the provisions of Section 1013 of this Indenture and that all
Securities and Additional Securities, if any, duly and timely tendered shall be
accepted for payment (except, as provided above, if the aggregate principal
amount as the case may be, of the Securities and Additional Securities exceeds
the amount of Excess Proceeds); (2) the purchase price and the purchase date
(the "Asset Sale Purchase Date"), which date shall be no earlier than 30 days
nor later than 60 days from the date such notice is mailed; (3) that any
Securities or new Additional Securities not tendered shall continue to accrue
interest; (4) that, unless the Company defaults in the payment of the purchase
price, all Securities and Additional Securities accepted for payment pursuant to
the Asset Sale Offer shall cease to accrue interest after the Asset Sale
Purchase Date; (5) that Holders electing to have any Securities and Additional
Securities purchased pursuant to an Asset Sale Offer shall be required to
surrender the Securities, with the form entitled "Option of Holder to Elect
Purchase" on the reverse of the Securities completed, to the Paying Agent at the
address specified in the notice prior to the close of business on the third
Business Day preceding the Asset Sale Purchase Date; (6) that Holders shall be
entitled to withdraw their election if the Paying Agent receives, not later than
the close of business on the second Business Day preceding the Asset Sale
Purchase Date, a telegram, telex, facsimile transmission or letter setting forth
the name of the Holder, the principal amount of Securities and Additional
Securities delivered for purchase, and a statement that such Holder is
withdrawing his election to have such Securities purchased; (7) that Holders
whose Securities and Additional Securities are being purchased only in part
shall be issued new Securities or new Additional Securities equal in principal
amount to the unpurchased portion of the Securities or Additional Securities
surrendered, which unpurchased portion must be equal to $1,000 in principal
amount or an integral multiple thereof; (8) any other procedures that the
Holders of Securities and Additional Securities must follow in order to tender
their Securities; and (9) the circumstances and relevant facts regarding such
Asset Sale.
SECTION 1014. Limitation on Transactions with Affiliates.
The Company shall not, and shall not permit any Restricted Subsidiary
to, directly or indirectly, enter into or suffer to exist any transaction or
series of related transactions with, or for the benefit of, any Affiliate of the
Company or any of its Restricted Subsidiaries, unless (a) such transaction or
series of related transactions is on terms that are no less favorable to the
Company or such Restricted Subsidiary, as the case may be, than those that could
have been obtained in an arm's length transaction with third parties who are not
Affiliates and (b) either (i) with respect to any transaction or series of
related transactions involving aggregate payments in excess of $1,000,000, but
less than $5,000,000, the Company delivers a resolution of the Board of
Directors of the Company set forth in an Officers' Certificate to the Trustee
certifying that such transaction or series of related transactions comply with
clause (a) above and that such transaction or transactions have been approved by
the Board of Directors (including a majority of the Disinterested Directors) of
the Company or (ii) with respect to a transaction or series of related
transactions involving aggregate payments equal to or greater than $5,000,000,
the Company delivers to the Trustee (x) an Officers' Certificate certifying that
such transaction or series of related transactions have been approved by the
Board of Directors (including a majority of the Disinterested Directors) of the
Company and (y) a written opinion from a nationally recognized investment
banking firm to the effect that such transaction or series of related
transactions are fair to the Company or such Restricted Subsidiary from a
financial point of view.
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The foregoing covenant shall not restrict any of the following:
(A) transactions among the Company and/or its Restricted
Subsidiaries;
(B) the Company from paying reasonable and customary regular
compensation or fees to, or entering into customary expense
reimbursement, indemnification or similar arrangements with, directors
of the Company or any Restricted Subsidiary who are not employees of
the Company or any Restricted Subsidiary;
(C) the issuance of securities or other payments, awards or
grants in cash, securities or otherwise pursuant to, or the funding of,
employment arrangements, stock options and stock ownership plans or
incentive plans approved by the Board of Directors;
(D) transactions permitted under Section 1011;
(E) in the case of joint ventures existing on the Closing Date
in which the Company has an interest, so long as other parties to the
joint venture that are not Affiliates of the Company own at least 50%
of the equity of such joint venture, transactions between such joint
venture and the Company or any Restricted Subsidiary; or
(F) transactions between a Receivables Subsidiary and any
Person in which the Receivables Subsidiary has an investment.
SECTION 1015. Limitation on Dividends and Other Payment Restrictions
Affecting Restricted Subsidiaries.
The Company shall not, and shall not permit any Restricted Subsidiary
to, directly or indirectly, create or otherwise cause or suffer to exist or
become effective any encumbrance or restriction of any kind on the ability of
any Restricted Subsidiary to (a) pay dividends, in cash or otherwise, or make
any other distributions on or in respect of its Capital Stock, (b) pay any Debt
owed to the Company or any other Restricted Subsidiary, (c) make loans or
advances to the Company or any other Restricted Subsidiary, or (d) transfer any
of its properties or assets to the Company or any other Restricted Subsidiary,
except for such encumbrances or restrictions existing under or by reason of any
of the following:
(i) the Indenture, the New Credit Facility, as originally
executed, and any other agreement in effect on the Closing Date to the
extent listed on Schedule II hereto;
(ii) applicable law;
(iii) customary non-assignment provisions of any lease
governing a leasehold interest of the Company or any Restricted
Subsidiary;
(iv) any agreement or other instrument of a Person
acquired by the Company or any Restricted Subsidiary in existence at
the time of such acquisition (but not created in contemplation
thereof), which encumbrance or restriction is not applicable to any
Person, or the properties or assets of any Person, other than the
Person, or the property or assets of the Person, so acquired;
(v) any encumbrance or restriction contained in contracts
for sales of Capital Stock or assets permitted by Section 1013 with
respect to assets to be sold pursuant to such contract; and
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(vi) any encumbrance or restriction existing under any
agreement that extends, renews, refinances or replaces the agreements
containing the encumbrances or restrictions in the foregoing clauses
(i) and (iv); provided that the terms and conditions of any such
encumbrances or restrictions are not materially less favorable to the
Holders of Securities than those under or pursuant to the agreement so
extended, renewed, refinanced or replaced.
SECTION 1016. Limitation on Issuances and Sales of Capital Stock of
Restricted Subsidiaries.
The Company shall not, and shall not permit any Restricted Subsidiary,
directly or indirectly, to issue, convey, sell, assign, transfer, lease or
otherwise dispose of any shares of Capital Stock of a Restricted Subsidiary
(including options, warrants or other rights to purchase shares of such Capital
Stock) except (a) to the Company or a Wholly Owned Restricted Subsidiary or (b)
in a transaction or series of related transactions consisting of a sale,
provided that immediately after giving effect to such sale neither the Company
nor any of its Subsidiaries owns any shares of Capital Stock of such Restricted
Subsidiary (including options, warrants or other rights to purchase shares of
such Capital Stock) and such sale complies with the provisions of Section 1013.
The Company shall not permit any Restricted Subsidiary that is a
Subsidiary Guarantor to issue Preferred Stock.
SECTION 1017. Limitation on Liens.
The Company shall not, and shall not permit any Restricted Subsidiary
to, create, incur, affirm or suffer to exist any Lien of any kind securing any
Pari Passu Debt or Subordinated Debt (including any assumption, guarantee or
other liability with respect thereto by any Restricted Subsidiary) upon any
property or assets (including any intercompany notes) of the Company or any
Restricted Subsidiary now owned or acquired after the Closing Date, or any
income or profits therefrom, unless the Securities are directly secured equally
and ratably with (or prior to in the case of Subordinated Debt) the obligation
or liability secured by such Lien, and except for any Lien securing Acquired
Debt created prior to the incurrence of such Debt by the Company or any
Restricted Subsidiary, provided that any such Lien only extends to the assets
that were subject to such Lien securing such Acquired Debt prior to the related
acquisition by the Company or the Restricted Subsidiary.
SECTION 1018. Unrestricted Subsidiaries.
(a) The Board of Directors of the Company may designate any Subsidiary
(including any newly acquired or newly formed Subsidiary) to be an Unrestricted
Subsidiary so long as (i) neither the Company nor any Restricted Subsidiary is
directly or indirectly liable for any Debt of such Subsidiary, (ii) no default
with respect to any Debt of such Subsidiary would permit (upon notice, lapse of
time or otherwise) any holder of any other Debt of the Company or any Restricted
Subsidiary to declare a default on such other Debt or cause the payment thereof
to be accelerated or payable prior to its Stated Maturity, (iii) any Investment
in such Subsidiary made as a result of designating such Subsidiary an
Unrestricted Subsidiary shall not violate the provisions of Section 1011, (iv)
neither the Company nor any Restricted Subsidiary has a contract, agreement,
arrangement, understanding or obligation of any kind, whether written or oral,
with such Subsidiary other than those that might be obtained at the time from
Persons who are not Affiliates of the Company and (v) neither the Company nor
any Restricted Subsidiary has any obligation to subscribe for additional shares
of Capital Stock or other equity interest in such Subsidiary, or to maintain or
preserve such Subsidiary's financial condition or to cause such Subsidiary to
achieve certain levels of operating results.
(b) The Board of Directors of the Company may designate any
Unrestricted Subsidiary as a Restricted Subsidiary; provided that (i) no Default
or Event of Default has occurred and is continuing following such designation
and (ii) the Company could incur at least $1.00 of additional Debt (other than
Permitted Debt)
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pursuant to the first paragraph of Section 1010 (treating any Debt of such
Unrestricted Subsidiary as the incurrence of Debt by a Restricted Subsidiary).
SECTION 1019. Limitation on Layering Debt.
The Company and each Subsidiary Guarantor shall not, directly or
indirectly, incur or otherwise permit to exist any Debt that is subordinate in
right of payment to any Debt of the Company or such Subsidiary Guarantor, as the
case may be, unless such Debt is also pari passu with, or subordinate in right
of payment to, the Securities or the Subsidiary Guarantee issued by such
Subsidiary Guarantor, as the case may be, or subordinate in right of payment to
the Securities or such Subsidiary Guarantee, as the case may be.
SECTION 1020. Limitation on Guarantees of Debt by Restricted
Subsidiaries.
The Company shall not permit any Restricted Subsidiary that is not a
Subsidiary Guarantor, directly or indirectly, to guarantee, assume or in any
other manner become liable for the payment of any Debt of the Company or any
Debt of any other Restricted Subsidiary, unless (a) such Restricted Subsidiary
simultaneously executes and delivers a supplemental indenture providing for a
guarantee of payment of the Securities by such Restricted Subsidiary; and (b)
with respect to any guarantee of Subordinated Debt by a Restricted Subsidiary,
any such guarantee is subordinated to such Restricted Subsidiary's Subsidiary
Guarantee at least to the same extent as such Subordinated Debt is subordinated
to the Securities, provided that the foregoing provision shall not be applicable
to any guarantee by any Restricted Subsidiary that existed at the time such
Person became a Restricted Subsidiary and was not incurred in connection with,
or in contemplation of, such Person becoming a Restricted Subsidiary.
SECTION 1021. Limitation on Conduct of Business.
The Company shall not, and shall not permit any of its Restricted
Subsidiaries to, conduct any business other than the business the Company and
its Restricted Subsidiaries was conducting on the Closing Date or businesses
reasonably related or ancillary thereto, except to such extent as would not be
material to the Company and its Restricted Subsidiaries taken as a whole.
SECTION 1022. Waiver of Certain Covenants.
The Company or any Restricted Subsidiary may omit in any particular
instance to comply with any term, provision or condition set forth in Sections
1005 through 1021, inclusive, if before or after the time for such compliance
the Holders of at least a majority in principal amount of the Outstanding
Securities, by Act of such Holders, waive such compliance in such instance with
such term, provision or condition, but no such waiver shall extend to or affect
such term, provision or condition except to the extent so expressly waived, and,
until such waiver shall become effective, the obligations of the Company and the
duties of the Trustee in respect of any such term, provision or condition shall
remain in full force and effect.
ARTICLE XI
REDEMPTION OF SECURITIES
SECTION 1101. Right of Redemption.
(a) The Securities may be redeemed at the option of the Company, as a
whole or from time to time in part, at any time on or after June 15, 2003,
subject to the conditions and at the Redemption Prices specified in the form of
Security attached hereto as Exhibit A, together with accrued interest to the
Redemption Date.
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(b) In addition, at any time or from time to time prior to June 15,
2001, the Company may redeem, on one or more occasions, up to 35% of the sum of
(i) the initial aggregate principal amount of the Securities and (ii) the
initial aggregate principal amount of any Additional Securities with the net
proceeds of one or more Public Equity Offerings at a redemption price equal to
111% of the principal amount thereof, plus accrued and unpaid interest, if any,
to the Redemption Date (subject to the right of Holders of record on the
relevant Regular Record Date to receive interest due on the relevant Interest
Payment Date); provided that, immediately after giving effect to such
redemption, at least $65,000,000 aggregate principal amount of the Securities
(including any Additional Securities) remains outstanding; provided further that
such redemptions occur within 90 days of the date of closing of the related
Public Equity Offering.
SECTION 1102. Applicability of Article.
Redemption of Securities at the election of the Company or otherwise,
as permitted or required by any provision of this Indenture, shall be made in
accordance with such provision and this Article.
SECTION 1103. Election to Redeem; Notice to Trustee.
The election of the Company to redeem any Securities pursuant to
Section 1101 shall be evidenced by a Board Resolution. In case of any redemption
at the election of the Company, the Company shall, at least 60 days prior to the
Redemption Date fixed by the Company (unless a shorter notice shall be
satisfactory to the Trustee), notify the Trustee of such Redemption Date and of
the principal amount of Securities to be redeemed and shall deliver to the
Trustee such documentation and records as shall enable the Trustee to select the
Securities to be redeemed pursuant to Section 1104.
SECTION 1104. Selection by Trustee of Securities to Be Redeemed.
If less than all the Securities are to be redeemed, the particular
Securities to be redeemed shall be selected not more than 60 days prior to the
Redemption Date by the Trustee, from the Outstanding Securities not previously
called for redemption, by lot or such method as the Trustee shall deem fair and
appropriate and which may provide for the selection for redemption of portions
of the principal of Securities; provided, however, that no such partial
redemption shall reduce the portion of the principal amount of a Security not
redeemed to less than $1,000.
The Trustee shall promptly notify the Company in writing of the
Securities selected for redemption and, in the case of any Securities selected
for partial redemption, the principal amount thereof to be redeemed.
For all purposes of this Indenture, unless the context otherwise
requires, all provisions relating to redemption of Securities shall relate, in
the case of any Security redeemed or to be redeemed only in part, to the portion
of the principal amount of such Security which has been or is to be redeemed.
SECTION 1105. Notice of Redemption.
Notice of redemption shall be given in the manner provided for in
Section 106 not less than 30 nor more than 60 days prior to the Redemption Date,
to each Holder of Securities to be redeemed.
All notices of redemption shall state:
(1) the Redemption Date,
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(2) the Redemption Price and the amount of accrued interest to
the Redemption Date payable as provided in Section 1107, if any,
(3) if less than all Outstanding Securities are to be
redeemed, the identification (and, in the case of a partial redemption,
the principal amounts) of the particular Securities to be redeemed,
(4) in case any Security is to be redeemed in part only, the
notice which relates to such Security shall state that on and after the
Redemption Date, upon surrender of such Security, the holder will
receive, without charge, a new Security or Securities of authorized
denominations for the principal amount thereof remaining unredeemed,
(5) that on the Redemption Date the Redemption Price (and
accrued interest, if any, to the Redemption Date payable as provided in
Section 1107) will become due and payable upon each such Security, or
the portion thereof, to be redeemed, and that interest thereon will
cease to accrue on and after said date,
(6) the place or places where such Securities are to be
surrendered for payment of the Redemption Price and accrued interest,
if any, and
(7) the CUSIP or CINS number, as the case may be.
Notice of redemption of Securities to be redeemed at the election of
the Company shall be given by the Company or, at the Company's request, by the
Trustee in the name and at the expense of the Company.
SECTION 1106. Deposit of Redemption Price.
On or prior to 10:00 a.m. (New York City time) on any Redemption Date,
the Company shall deposit with the Trustee or with a Paying Agent (or, if the
Company is acting as its own Paying Agent, segregate and hold in trust as
provided in Section 1003) an amount of money sufficient to pay the Redemption
Price of, and accrued interest on, all the Securities which are to be redeemed
on that date.
SECTION 1107. Securities Payable on Redemption Date.
Notice of redemption having been given as aforesaid, the Securities so
to be redeemed shall, on the Redemption Date, become due and payable at the
Redemption Price therein specified (together with accrued interest, if any, to
the Redemption Date), and from and after such date (unless the Company shall
default in the payment of the Redemption Price and accrued interest) such
Securities shall cease to bear interest. Upon surrender of any such Security for
redemption in accordance with said notice, such Security shall be paid by the
Company at the Redemption Price, together with accrued interest, if any, to the
Redemption Date; provided, however, that installments of interest whose Stated
Maturity is on or prior to the Redemption Date shall be payable to the Holders
of such Securities, or one or more Predecessor Securities, registered as such at
the close of business on the relevant Record Dates according to their terms and
the provisions of Section 309.
If any Security called for redemption shall not be so paid upon
surrender thereof for redemption, the principal (and premium, if any) shall,
until paid, bear interest from the Redemption Date at the rate borne by the
Securities.
SECTION 1108. Securities Redeemed in Part.
Any Security which is to be redeemed only in part shall be surrendered
at the office or agency of the Company maintained for such purpose pursuant to
Section 1002 (with, if the Company or the Trustee so requires,
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due endorsement by, or a written instrument of transfer in form satisfactory to
the Company and the Trustee duly executed by, the Holder thereof or such
Holder's attorney duly authorized in writing), and the Company shall execute,
and the Trustee shall authenticate and deliver to the Holder of such Security
without service charge, a new Security or Securities, of any authorized
denomination as requested by such Holder, in aggregate principal amount equal to
and in exchange for the unredeemed portion of the principal of the Security so
surrendered.
ARTICLE XII
DEFEASANCE AND COVENANT DEFEASANCE
SECTION 1201. Company Option to Effect Defeasance or Covenant
Defeasance.
The Company may, at its option by Board Resolution at any time, with
respect to the Securities, elect to have either Section 1202 or Section 1203 be
applied to all Outstanding Securities upon compliance with the conditions set
forth below in this Article XII.
SECTION 1202. Defeasance and Discharge.
Upon the Company's exercise under Section 1201 of the option applicable
to this Section 1202, the Company and the Subsidiary Guarantors shall be deemed
to have been discharged from their obligations with respect to all Outstanding
Securities on the date the conditions set forth in Section 1204 are satisfied
(hereinafter, "defeasance"). For this purpose, such defeasance means that the
Company shall be deemed to have paid and discharged the entire Debt represented
by the Outstanding Securities, which shall thereafter be deemed to be
"Outstanding" only for the purposes of Section 1205 and the other Sections of
this Indenture referred to in (A) and (B) below, and to have satisfied all its
other obligations under such Securities and this Indenture insofar as such
Securities are concerned (and the Trustee, at the expense of the Company, shall
execute proper instruments acknowledging the same), except for the following
which shall survive until otherwise terminated or discharged hereunder: (A) the
rights of Holders of Outstanding Securities to receive solely from the trust
fund described in Section 1204 payments in respect of the principal of and
premium, if any, on and interest on such Securities when such payments are due,
(B) the Company's obligations with respect to such Securities under Sections
304, 305, 308, 1002 and 1003, (C) the rights, powers, trusts, duties and
immunities of the Trustee hereunder and (D) this Article XII. Subject to
compliance with this Article XII, the Company may exercise its option under this
Section 1202 notwithstanding the prior exercise of its option under Section 1203
with respect to the Securities.
SECTION 1203. Covenant Defeasance.
Upon the Company's exercise under Section 1201 of the option applicable
to this Section 1203, each of the Company and the Restricted Subsidiaries shall
be released from its obligations under Sections 801(c), 801(d) and 801(f), the
covenants contained in Sections 1004 through 1022 (other than Section 1008) with
respect to the Outstanding Securities on and after the date the conditions set
forth below are satisfied (hereinafter, "covenant defeasance"), and the Events
of Default under sections 501(c), (d), (e) and (f), and the Securities shall
thereafter be deemed not to be "Outstanding" for the purposes of any direction,
waiver, consent or declaration or Act of Holders (and the consequences of any
thereof) in connection with such covenants, but shall continue to be deemed
"Outstanding" for all other purposes hereunder. For this purpose, such covenant
defeasance means that, with respect to the Outstanding Securities, the Company
and any Restricted Subsidiary may omit to comply with and shall have no
liability in respect of any term, condition or limitation set forth in any such
Section or Article, whether directly or indirectly, by reason of any reference
elsewhere herein to any such covenant or by reason of any reference in any such
covenant to any other provision herein or in any other document and such
omission to comply shall not constitute a Default or an Event of Default under
Sections 501(c), 501(d), 501(e) and 501(f) but, except as specified above, the
remainder of this Indenture and such Securities shall be unaffected thereby.
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SECTION 1204. Conditions to Defeasance or Covenant Defeasance.
The following shall be the conditions to application of either Section
1202 or Section 1203 to the Outstanding Securities:
(1) The Company shall irrevocably have deposited or caused to
be deposited with the Trustee (or another trustee satisfying the
requirements of Section 607 who shall agree to comply with the
provisions of this Article XII applicable to it) as trust funds in
trust, specifically pledged as security for, and dedicated solely to,
the benefit of the Holders of such Securities, (A) money in an amount,
or (B) U.S. Government Obligations (as defined herein) that through the
scheduled payment of principal and interest thereon will provide money
in an amount, or (C) a combination thereof, sufficient, in the opinion
of a nationally recognized firm of independent public accountants, to
pay and discharge the principal of and premium, if any, on and interest
on the Outstanding Securities on the Stated Maturity (or upon
Redemption Date, if applicable) of such principal (and premium, if any)
or installment of interest; provided that the Trustee shall have been
irrevocably instructed to apply such money or the proceeds of such U.S.
Government Obligations to said payments with respect to the Securities.
Before such a deposit, the Company may give to the Trustee, in
accordance with Section 1103 hereof, a notice of its election to redeem
all of the Outstanding Securities at a future date in accordance with
Article XI hereof, which notice shall be irrevocable. Such irrevocable
redemption notice, if given, shall be given effect in applying the
foregoing. For this purpose, "U.S. Government Obligations" means
securities that are (x) direct obligations of the United States of
America for the timely payment of which its full faith and credit is
pledged or (y) obligations of a Person controlled or supervised by and
acting as an agency or instrumentality of the United States of America
the timely payment of which is unconditionally guaranteed as a full
faith and credit obligation by the United States of America, which, in
either case, are not callable or redeemable at the option of the issuer
thereof at any time prior to the Stated Maturity of the principal of
the Securities, and shall also include a depository receipt issued by a
bank (as defined in Section 3(a)(2) of the Securities Act), as
custodian with respect to any such U.S. Government Obligation or a
specific payment of principal of or interest on any such U.S.
Government Obligation held by such custodian for the account of the
holder of such depository receipt, provided that (except as required by
law) such custodian is not authorized to make any deduction from the
amount payable to the holder of such depository receipt from any amount
received by the custodian in respect of the U.S. Government Obligation
or the specific payment of principal of or interest on the U.S.
Government Obligation evidenced by such depository receipt.
(2) No Default or Event of Default with respect to the
Securities shall have occurred and be continuing on the date of such
deposit or, insofar as paragraphs (8) and (9) of Section 501 hereof are
concerned, at any time during the period ending on the 91st day after
the date of such deposit (it being understood that this condition shall
not be deemed satisfied until the expiration of such period).
(3) Such defeasance or covenant defeasance shall not result in
a breach or violation of, or constitute a default under, this Indenture
or any other material agreement or instrument to which the Company or
any Subsidiary Guarantor is a party or by which it is bound.
(4) In the case of an election under Section 1202, the Company
shall have delivered to the Trustee an Opinion of Counsel stating that
(x) the Company has received from, or there has been published by, the
Internal Revenue Service a ruling, or (y) since the Closing Date, there
has been a change in the applicable federal income tax law, in either
case to the effect that, and based thereon such opinion shall confirm
that, the Holders of the Outstanding Securities will not recognize
income, gain or loss for federal income tax purposes as a result of
such defeasance and will be subject to federal income
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tax on the same amounts, in the same manner and at the same times as
would have been the case if such defeasance had not occurred.
(5) In the case of an election under Section 1203, the Company
shall have delivered to the Trustee an Opinion of Counsel to the effect
that the Holders of the Securities Outstanding will not recognize
income, gain or loss for federal income tax purposes as a result of
such covenant defeasance and will be subject to federal income tax on
the same amounts, in the same manner and at the same times as would
have been the case if such covenant defeasance had not occurred.
(6) The Company shall have delivered to the Trustee an
Officers' Certificate and an Opinion of Counsel, each stating that all
conditions precedent provided for relating to either the defeasance
under Section 1202 or the covenant defeasance under Section 1203, as
the case may be, have been complied with.
SECTION 1205. Deposited Money and U.S. Government Obligations to Be
Held in Trust; Other Miscellaneous Provisions.
Subject to the provisions of the last paragraph of Section 1003, all
money and U.S. Government Obligations (including the proceeds thereof) deposited
with the Trustee (or other qualifying trustee, collectively for purposes of this
Section 1205, the "Trustee") pursuant to Section 1204 in respect of the
Outstanding Securities shall be held in trust and applied by the Trustee, in
accordance with the provisions of such Securities and this Indenture, to the
payment, either directly or through any Paying Agent (including the Company
acting as its own Paying Agent) as the Trustee may determine, to the Holders of
such Securities of all sums due and to become due thereon in respect of
principal (and premium, if any) and interest, but such money need not be
segregated from other funds except to the extent required by law.
The Company shall pay and indemnify the Trustee against any tax, fee or
other charge imposed on or assessed against the U.S. Governmental Obligations
deposited pursuant to Section 1204 or the principal and interest received in
respect thereof other than any such tax, fee or other charge which by law is for
the account of the Holders of the Outstanding Securities.
Anything in this Article XII to the contrary notwithstanding, the
Trustee shall deliver or pay to the Company from time to time upon Company
Request any money or U.S. Government Obligations held by it as provided in
Section 1204 which, in the opinion of a nationally recognized firm of
independent public accountants expressed in a written certification thereof
delivered to the Trustee, are in excess of the amount thereof which would then
be required to be deposited to effect an equivalent defeasance or covenant
defeasance, as applicable, in accordance with this Article.
SECTION 1206. Reinstatement.
If the Trustee or any Paying Agent is unable to apply any money in
accordance with Section 1205 by reason of any order or judgment of any court or
governmental authority enjoining, restraining or otherwise prohibiting such
application, then the Company obligations under this Indenture and the
Securities shall be revived and reinstated as though no deposit had occurred
pursuant to Section 1202 or 1203, as the case may be, until such time as the
Trustee or Paying Agent is permitted to apply all such money in accordance with
Section 1205; provided, however, that if the Company makes any payment of
principal of or premium, if any, or interest on any Security following the
reinstatement of its obligations, the Company shall be subrogated to the rights
of the Holders of such Securities to receive such payment from the money held by
the Trustee or Paying Agent.
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ARTICLE XIII
SECURITIES GUARANTEES
SECTION 1301. Subsidiary Guarantees.
(a) Each Subsidiary Guarantor hereby jointly and severally, fully,
absolutely, unconditionally and irrevocably guarantees to each Holder of a
Security authenticated and delivered by the Trustee, and to the Trustee on
behalf of each Holder, the punctual payment and performance when due of all
Indenture Obligations which, for purposes of its Subsidiary Guarantee, shall
also be deemed to include all commissions, fees, charges, costs and other
expenses (including reasonable legal fees and disbursements of counsel) arising
out of or incurred by the Trustee or the Holders in connection with the
enforcement of any Subsidiary Guarantee. Without limiting the generality of the
foregoing, each Subsidiary Guarantor's liability shall extend to all amounts
that constitute part of the Indenture Obligations and would be owed by the
Company to such Holder or the Trustee under the Securities or this Indenture but
for the fact that they are unenforceable, reduced, limited, suspended or not
allowable due to the existence of a bankruptcy, reorganization or similar
proceeding involving the Company.
(b) Each Subsidiary Guarantor and by its acceptance hereof each Holder
hereby confirms that it is the intention of all such parties that the guarantee
by such Subsidiary Guarantor pursuant to its Subsidiary Guarantee not constitute
a fraudulent transfer or conveyance for purposes of the Bankruptcy Code, the
Uniform Fraudulent Conveyance Act, the Uniform Fraudulent Transfer Act of any
similar federal or state law or the provisions of its local law relating to
fraudulent transfer or conveyance. To effectuate the foregoing intention, the
Holders and each Subsidiary Guarantor hereby irrevocably agree that the
obligations of such Subsidiary Guarantor under its Subsidiary Guarantee shall be
limited to the maximum amount as shall, after giving effect to all other
contingent and fixed liabilities of such Subsidiary Guarantor and after giving
effect to any collections from or payments made by or on behalf of any other
Subsidiary Guarantor in respect of the obligations of such other Subsidiary
Guarantor under its Subsidiary Guarantee or pursuant to paragraph (c) of this
Section 1301, result in the obligations of such Subsidiary Guarantor under its
Subsidiary Guarantee not constituting a fraudulent conveyance or fraudulent
transfer under federal or state law.
(c) In order to provide for just and equitable contribution among the
Subsidiary Guarantors, the Subsidiary Guarantors agree, inter se, that in the
event any payment or distribution is made by any Subsidiary Guarantor (a
"Funding Guarantor") under its Subsidiary Guarantee, such Funding Guarantor
shall be entitled to a contribution from each other Subsidiary Guarantor in a
pro rata amount based on the Adjusted Net Assets of each Subsidiary Guarantor
(including the Funding Guarantor) for all payments, damages and expenses
incurred by the Funding Guarantor in discharging the Indenture Obligations of
the Company or any other Subsidiary Guarantor's obligations with respect to its
Subsidiary Guarantee. "Adjusted Net Assets" of such Subsidiary Guarantor at any
date shall mean the lesser of (x) the amount by which the fair value of the
property of such Subsidiary Guarantor exceeds the total amount of liabilities,
including, without limitation, contingent liabilities (after giving effect to
all other fixed and contingent liabilities incurred or assumed on such date),
but excluding liabilities under the Subsidiary Guarantee of such Subsidiary
Guarantor at such date and (y) the amount by which the present fair salable
value of the assets of such Subsidiary Guarantor at such date exceeds the amount
that shall be required to pay the probable liability of such Subsidiary
Guarantor on its debts (after giving effect to all other fixed and contingent
liabilities incurred or assumed on such date), excluding debt in respect of the
Subsidiary Guarantee, as they become absolute and matured.
SECTION 1302. Guaranty Absolute.
Each Subsidiary Guarantor guarantees that the Securities shall be paid
or performed strictly in accordance with the terms of the Securities and this
Indenture, regardless of any law, regulation or order now or hereafter in effect
in any jurisdiction affecting any of such terms or the rights of any Holder with
respect thereto. The
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obligations of each Subsidiary Guarantor under its Subsidiary Guarantee are
independent of the obligations of the Company under the Securities and this
Indenture, and a separate action or actions may be brought and prosecuted
against such Subsidiary Guarantor to enforce its Subsidiary Guarantee,
irrespective of whether any action is brought against the Company or any other
Subsidiary Guarantor or whether the Company or any other Subsidiary Guarantor is
joined in any such action or actions. The liability of each Subsidiary Guarantor
under its Subsidiary Guarantee shall be absolute and unconditional and the
liability and obligations of such Subsidiary Guarantor hereunder shall not be
released, discharged, mitigated, waived, impaired or affected in whole or in
part by:
(a) any lack of validity or enforceability of this Indenture
or the Securities with respect to the Company or any Subsidiary
Guarantor or any agreement or instrument relating thereto;
(b) any change in the time, manner or place of payment of, or
in any other term of, all or any of the Indenture Obligations, or any
other amendment or waiver of or any consent to departure from this
Indenture, including any increase in the Indenture Obligations
resulting from the extension of additional credit to the Company or
otherwise;
(c) the failure to give notice to the Subsidiary Guarantor of
the occurrence of a Default under the provisions of this Indenture or
the Securities;
(d) any taking, release or amendment or waiver of or consent
to departure from any other guarantee, for all or any of the Indenture
Obligations;
(e) any failure, omission, delay by or inability on the part
of the Trustee or the Holders to assert or exercise any right, power or
remedy conferred on the Trustee or the Holders in this Indenture or the
Securities;
(f) any change in the corporate structure, or termination,
dissolution, consolidation or merger of the Company or any Subsidiary
Guarantor with or into any other Person, the voluntary or involuntary
liquidation, dissolution, sale or other disposition of all or
substantially all the assets of the Company or any Subsidiary
Guarantor, the marshalling of the assets and liabilities of the Company
or any Subsidiary Guarantor, the receivership, insolvency, bankruptcy,
assignment for the benefit of creditors, reorganization, arrangement,
composition with the creditors, or readjustment of, or other similar
proceedings affecting the Company or any Subsidiary Guarantor, or any
of the assets of any of them;
(g) the assignment of any right, title or interest of the
Trustee or any Holder in this Indenture or the Securities to any other
Person; or
(h) any other event or circumstance (including any statute of
limitations), whether foreseen or unforeseen and whether similar or
dissimilar to any of the foregoing, that might otherwise constitute a
defense available to, or a discharge of, the Company or a Subsidiary
Guarantor, other than payment in full of the Indenture Obligations; it
being the intent of each Subsidiary Guarantor that its obligations
hereunder shall not be discharged except by payment of all amounts
owing pursuant to this Indenture or the Securities.
The Subsidiary Guarantee of each Subsidiary Guarantor shall continue to be
effective or be reinstated, as the case may be, if at any time any payment of
any of the Indenture Obligations is rescinded or must otherwise be returned by
any Holder or the Trustee upon the insolvency, bankruptcy or reorganization of
the Company or otherwise, all as though such payment had not been made. Each
Subsidiary Guarantor further agrees, to the fullest extent that it may lawfully
do so, that, as between such Subsidiary Guarantor, on the one hand, and the
Holders and the Trustee, on the other hand, (i) the maturity of the obligations
guaranteed hereby may be accelerated as provided in
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Article V of this Indenture for the purposes of this Subsidiary Guarantee,
notwithstanding any stay, injunction or other prohibition preventing such
acceleration in respect of the obligations guaranteed hereby, and (ii) in the
event of any acceleration of such obligations as provided in Article V of this
Indenture, such obligations (whether or not due and payable) shall forthwith
become due and payable by the Subsidiary Guarantor for the purpose of this
Subsidiary Guarantee.
SECTION 1303. Waivers.
(a) Each Subsidiary Guarantor hereby expressly waives (to the extent
permitted by law) notice of the acceptance of its Subsidiary Guarantee and
notice of the existence, renewal, extension or the non-performance, non-payment,
or non-observance on the part of the Company of any of the terms, covenants,
conditions and provisions of this Indenture or the Securities or any other
notice whatsoever to or upon the Company or such Subsidiary Guarantor with
respect to the Indenture Obligations. Each Subsidiary Guarantor hereby
acknowledges communication to it of the terms of this Indenture and the
Securities and all of the provisions herein contained and consents to and
approves the same. Each Subsidiary Guarantor hereby expressly waives (to the
extent permitted by law) diligence, presentment and protest.
(b) Without prejudice to any of the rights or recourse which the
Trustee or the Holders may have against the Company, each Subsidiary Guarantor
hereby expressly waives (to the extent permitted by law) any right to require
the Trustee or the Holders to:
(1) initiate or exhaust any rights, remedies or recourse
against the Company, any Subsidiary Guarantor or any other Person;
(2) value, realize upon, or dispose of any security of the
Company or any other Person held by the Trustee or the Holders; or
(3) initiate or exhaust any other remedy which the Trustee or
the Holders may have in law or equity;
before requiring, becoming entitled to or demanding payment from such Subsidiary
Guarantor under this Subsidiary Guarantee.
SECTION 1304. Subrogation.
Each Subsidiary Guarantor shall not exercise any rights that it may
acquire by way of subrogation under this Subsidiary Guarantee, by any payment
made hereunder or otherwise, until all the Indenture Obligations shall have been
paid in full. If any amount shall be paid to any Subsidiary Guarantor on account
of any such subrogation rights at any time when all the Indenture Obligations
shall not have been paid in full, such amount shall be held in trust for the
benefit of the Holders and the Trustees and shall forthwith be paid to the
Trustee, on behalf of the Holders, to be credited and applied to the Indenture
Obligations, whether matured or unmatured.
SECTION 1305. No Waiver; Remedies.
No failure on the part of any Holder or the Trustee to exercise, and no
delay in exercising, any right hereunder shall operate as 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. The remedies
herein provided are cumulative and not exclusive of any remedies provided by
law.
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SECTION 1306. Continuing Guaranty; No Right of Set-Off; Independent
Obligation.
(a) This Subsidiary Guarantee is a continuing guarantee of the payment
and performance of all Indenture Obligations and shall remain in full force and
effect until the payment in full of all of the Indenture Obligations and all
other amounts payable under this Subsidiary Guarantee and shall apply to and
secure any ultimate balance due or remaining unpaid to the Trustee or the
Holders under this Indenture or the Securities; and this Subsidiary Guarantee
shall not be considered as wholly or partially satisfied by the payment or
liquidation at any time or from time to time of any sum of money for the time
being due or remaining unpaid to the Trustee or the Holders.
(b) Each Subsidiary Guarantor hereby guarantees that the Indenture
Obligations shall be paid to the Trustee without set-off or counterclaim or
other reduction whatsoever (whether for taxes, withholding or otherwise) in
lawful currency of the United States of America.
(c) Each Subsidiary Guarantor guarantees that the Indenture Obligations
shall be paid strictly in accordance with their terms regardless of any lack of
validity or enforceability of any of such terms or the rights of the Holders
with respect thereto.
(d) Each Subsidiary Guarantor's liability to pay or perform or cause
the performance of the Indenture Obligations under this Subsidiary Guarantee
shall arise forthwith after demand for payment or performance by the Trustee has
been given to such Subsidiary Guarantor in the manner prescribed in this
Indenture.
SECTION 1307. Subsidiary Guarantors May Consolidate, Etc., on Certain
Terms.
(a) Nothing contained in this Indenture or in any of the Securities
shall prevent any consolidation or merger of a Subsidiary Guarantor with or into
the Company or another Subsidiary Guarantor or shall prevent any sale or
conveyance of the property of a Subsidiary Guarantor as an entirety or
substantially as an entirety to the Company or another Subsidiary Guarantor,
which consolidation, merger, sale or conveyance is otherwise in accordance with
the terms of this Indenture.
(b) Other than as set forth in paragraph (a) of this Section, no
Subsidiary Guarantor may consolidate with or merge with or into (whether or not
such Subsidiary Guarantor is the surviving Person) another Person whether or not
affiliated with such Subsidiary Guarantor unless: (i) subject to the provisions
of Section 1309, the Person formed by or surviving such consolidation or merger
(if other than such Subsidiary Guarantor) assumes all of the obligations of such
Subsidiary Guarantor under this Indenture and its Subsidiary Guarantee, pursuant
to a supplemental indenture in form and substance satisfactory to the Trustee,
(b) immediately after giving effect to such transaction, no Default or Event of
Default shall have occurred and be continuing and (c) immediately after giving
effect to such transaction, the Person formed by or surviving such consolidation
or merger (if other than such Subsidiary Guarantor) or to which such properties
and assets are transferred could incur at least $1.00 of additional Debt (other
than Permitted Debt) pursuant to the first paragraph of Section 1010.
SECTION 1308. Additional Guarantors.
The Company will cause each Person that becomes a Domestic Restricted
Subsidiary (other than a Receivables Subsidiary), or any other Restricted
Subsidiary that guarantees any other Debt of the Company or of a Domestic
Restricted Subsidiary, after the date of this Indenture to become a Subsidiary
Guarantor with respect to the Indenture Obligations by executing and delivering
a supplemental indenture to this Indenture providing for a Subsidiary Guarantee
by such Subsidiary under this Article XIII (or under a separate guarantee
agreement consistent in all material respects with this Article XIII). The
Company shall deliver to the Trustee, together with the supplemental indenture
referred to above, an Opinion of Counsel that such Subsidiary Guarantee is a
legal,
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valid, binding and enforceable obligation of such Subsidiary Guarantor, subject
to customary local law exceptions and customary exceptions for bankruptcy and
equitable principles.
SECTION 1309. Releases.
(a) In the event of (i) the conveyance, sale, assignment, transfer or
other disposition of all of the Capital Stock of a Subsidiary Guarantor to any
Person (by way of merger, consolidation or otherwise) in compliance with this
Section 1309 and the terms of this Indenture, (ii) a conveyance, sale,
assignment, transfer or other disposition of all or substantially all of the
assets of a Subsidiary Guarantor to any Person (by way of merger, consolidation
or otherwise) in compliance with this Section 1309 and the terms of this
Indenture, or (iii) the release or discharge of the guarantee that resulted in
the creation of such guarantee of the Securities, except a discharge or release
by or as a result of payment under such guarantee, then such Subsidiary
Guarantor (or Person acquiring such assets in the event of a sale or other
disposition of all of the assets of such Subsidiary Guarantor) shall be deemed
automatically and unconditionally released from and discharged from all of its
obligations under this Article XIII and its Subsidiary Guarantee without any
further action required on the part of the Trustee or any Holder; provided that,
in the event such transaction constitutes an Asset Sale, the Net Cash Proceeds
of such conveyance, sale, assignment, transfer or other disposition are applied
in accordance with Section 1013 hereof.
(b) Any Subsidiary Guarantor that is designated by the Board of
Directors of the Company as an Unrestricted Subsidiary, or ceases to be a
Subsidiary of the Company in accordance with the terms of this Indenture may, at
such time, at the option of the Board of Directors, be released and relieved of
its obligations under its Subsidiary Guarantee.
(c) Concurrently with the defeasance of the Securities under Section
1202 hereof, or the covenant defeasance of the Securities under Section 1203
hereof, the Subsidiary Guarantors shall be released from all their obligations
under their Subsidiary Guarantees under this Article XIII.
(d) The Trustee shall deliver an appropriate instrument evidencing such
release upon receipt of a Company Request accompanied by an Officers'
Certificate certifying as to the compliance with this Section 1309. Any
Subsidiary Guarantor not so released shall remain liable for the full amount of
principal of and interest on the Securities as provided in its Subsidiary
Guarantee.
SECTION 1310. Benefits Acknowledged.
Each Subsidiary Guarantor acknowledges that it will receive direct and
indirect benefits from the financing arrangements contemplated by this Indenture
and that its guarantee and waivers pursuant to its Subsidiary Guarantee are
knowingly made in contemplation of such benefits.
SECTION 1311. Severability.
In case any provision of this Subsidiary Guarantee shall be invalid,
illegal or unenforceable, the validity, legality, and enforceability of the
remaining provisions shall not in any way be affected or impaired thereby.
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ARTICLE XIV
SUBORDINATION OF SECURITIES AND SECURITIES GUARANTEES
SECTION 1401. Securities and Subsidiary Guarantees Subordinate to
Senior Debt.
(a) The Company covenants and agrees, and each Holder of a Security, by
his acceptance thereof, likewise covenants and agrees, that, to the extent and
in the manner hereinafter set forth in this Article XIV, the Debt represented by
the Securities and the payment of the principal of and premium, if any, and
interest on each and all of the Securities (but not amounts owing to the Trustee
by the Company pursuant to Section 606 hereof) are hereby expressly made
subordinate and subject in right of payment to the prior payment in full of all
Senior Debt.
(b) Each Subsidiary Guarantor covenants and agrees, and each Holder of
a Security, by his acceptance thereof, likewise covenants and agrees, that, to
the extent and in the manner hereinafter set forth in this Article XIV, the Debt
represented by the Subsidiary Guarantee of such Subsidiary Guarantor is hereby
expressly made subordinate and subject in right of payment to the prior payment
in full of all Guarantor Senior Debt of such Subsidiary Guarantor.
SECTION 1402. Payment Over of Proceeds Upon Dissolution, Etc.
In the event of any payment or distribution of assets of the Company or
any Subsidiary Guarantor to creditors upon any liquidation, dissolution,
winding-up, reorganization, assignment for the benefit of creditors, marshalling
of assets or any bankruptcy, insolvency or similar proceedings (each such event,
if any, is herein sometimes referred to as a "Proceeding") of the Company or any
Subsidiary Guarantor (the Company or such Subsidiary Guarantor being the
"Affected Obligor") (except in connection with the consolidation or merger of
the Company or its liquidation or dissolution following the conveyance, transfer
or lease of its properties and assets substantially as an entirety, in
accordance with Article VIII) then (i) if the Affected Obligor is the Company,
the holders of Senior Debt shall first 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 such Senior Debt (including interest accruing after the commencement
of any such Proceeding at the rate specified therein whether or not such
interest is an allowed claim in such Proceeding) before the Holders of the
Securities are entitled to receive any payment of principal of and premium, if
any, and interest on the Securities or on account of the purchase or redemption
or other acquisition of Securities by the Company or any Subsidiary of the
Company and (ii) if the Affected Obligor is a Subsidiary Guarantor, the holders
of Guarantor Senior Debt of such Subsidiary Guarantor shall first 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 such Guarantor Senior Debt (including interest
accruing after the commencement of any such Proceeding at the rate specified
therein whether or not such interest is an allowed claim in such Proceeding)
before the Holders of the Securities are entitled to receive any payment or
distribution of any kind with respect to the Subsidiary Guarantee of such
Subsidiary Guarantor (any payment on or purchase, redemption or acquisition of
the Securities, referred to in clause (i), and any payment on a Subsidiary
Guarantee, referred to in clause (ii), being, individually and collectively, a
"Securities Payment"), and, to that end, if the Affected Obligor is the Company,
the holders of Senior Debt and, if the Affected Obligor is a Subsidiary
Guarantor, the holders of Guarantor Senior Debt of such Subsidiary Guarantor
(such Senior Debt or Guarantor Senior Debt, as the case may be, being "Affected
Obligor Senior Debt" of such Affected Obligor) shall be entitled to receive, for
application to the payment thereof, any payment or distribution of any kind or
character, whether in cash, property or securities which may be payable or
deliverable in respect of the Securities in any such Proceeding.
In the event that, notwithstanding the foregoing provisions of this
Section 1402, the Trustee or the Holder of any Security shall have received any
payment or distribution of assets of an Affected Obligor of any kind or
character, whether in cash, property or securities, before all Affected Obligor
Senior Debt is paid in full,
71
<PAGE> 80
then such payment or distribution, except for amounts subject to the claim
granted to the Trustee in Section 606 hereof, shall be held in trust for the
holders of Affected Obligor Senior Debt and shall be paid over or delivered
forthwith to the trustee in bankruptcy or other Person making payment or
distribution of assets of the Affected Obligor for application to the payment of
all Affected Obligor Senior Debt remaining unpaid, to the extent necessary to
pay all Affected Obligor Senior Debt in full, after giving effect to any
concurrent payment or distribution to or for the holders of the Affected Obligor
Senior Debt. Notwithstanding the foregoing, following the commencement of a
proceeding under the Bankruptcy Code and if the holders of Senior Debt receive
less than payment in full, the Holders may retain any payment or distribution
paid by the Company with respect to the Securities pursuant to a plan of
reorganization if
(a) the holders of claims for Designated Senior Debt (who are
entitled to vote for such plan in accordance with the Bankruptcy Code)
approve such plan by a vote which equals at least (x) 66-2/3% in
principal amount of such claims and (y) one-half in number of such
claims or
(b) in the event that there is more than one class of
Designated Senior Debt in such proceeding, the holders of claims for
each such class (who are entitled to vote for such plan in accordance
with the Bankruptcy Code) approve such plan by a vote which equals at
least (x) 66-2/3% in principal amount of such claims of such class and
(y) one-half in number of such claims of such class.
For purposes of this Article XIV only, the words "any payment or
distribution of any kind or character, cash, property or securities" shall not
be deemed to include a payment or distribution of equity or subordinated
securities of any Affected Obligor provided for in a plan of reorganization or
readjustment or of any other corporation provided for by such plan of
reorganization or readjustment that, in the case of subordinated securities, are
subordinated in right of payment to all then outstanding Affected Obligor Senior
Debt to at least the same extent as the Securities or Subsidiary Guarantees, as
the case may be, are so subordinated as provided in this Article XIV.
SECTION 1403. No Payment When Certain Senior Debt in Default.
In the event that any Senior Payment Default (as defined below) shall
have occurred and be continuing, then no Securities Payment shall be made unless
and until such Senior Payment Default shall have been cured or waived or shall
have ceased to exist or all amounts then due and payable in respect of the
Designated Senior Debt or other obligations that are the subject of such Senior
Payment Default shall have been paid in full. For purposes hereof, "Senior
Payment Default" means any default in the payment of principal of or premium, if
any, or interest on, Designated Senior Debt or a default in the payment of any
other obligation under the Designated Senior Debt, when due, whether at the
Stated Maturity of any such payment or by declaration of acceleration, call for
redemption or otherwise.
In the event that any Senior Nonmonetary Default (as defined below)
shall have occurred and be continuing, then, upon the receipt by the Company and
the Trustee of written notice of such Senior Nonmonetary Default from the New
Credit Facility Agent or from an authorized Person on behalf of any holder of
Designated Senior Debt, no Securities Payment shall be made during the period
(the "Payment Blockage Period") commencing on the date of receipt of such
written notice (the "Blockage Notice") and ending on the earliest of (i) the
179th day after the date of such receipt of the Blockage Notice (the "Initial
Period") unless a Senior Payment Default has occurred and is continuing at the
end of such 179-day period, (ii) the date, if any, on which the Designated
Senior Debt to which such default relates is discharged or such default is
waived or otherwise cured and (iii) the date, if any, on which such Payment
Blockage Period shall have been terminated by written notice to the Company or
the Trustee from the New Credit Facility Agent or (after the date on which the
New Credit Facility shall no longer be in effect and no amount shall be
outstanding thereunder) from the Person who gave the Blockage Notice. In any
event, not more than one Payment Blockage Period may be commenced during any
period of 360 consecutive days, and there must be a period of at least 181
consecutive days in each period of 360
72
<PAGE> 81
consecutive days when no Payment Blockage Period is in effect. No Senior
Nonmonetary Default that existed or was continuing on the date of commencement
of any Payment Blockage Period with respect to the Designated Senior Debt
initiating such Payment Blockage Period shall be, or can be, made the basis for
the commencement of a subsequent Payment Blockage Period unless such Senior
Nonmonetary Default shall have been cured or waived for a period of not less
than 90 consecutive days. For purposes hereof, "Senior Nonmonetary Default"
means the occurrence or existence of any event, circumstance, condition or state
of facts that, by the terms of any instrument pursuant to which any Designated
Senior Debt is outstanding, permits one or more holders of such Designated
Senior Debt (or a trustee or agent on behalf of the holders thereof) to declare
such Designated Senior Debt due and payable prior to the date on which it would
otherwise become due and payable, other than a Senior Payment Default.
Notwithstanding the foregoing, the Company and the Subsidiary Guarantors may
make Securities Payments without regard to the foregoing if the Company and the
Trustee receive written notice approving such payment from a representative of
such Designated Senior Debt affected by such Senior Payment Default or Senior
Nonmonetary Default.
In the event that, notwithstanding the foregoing, the Company or any
Subsidiary Guarantor shall make any payment to the Trustee or any Holder
prohibited by the foregoing provisions of this Section 1403, then such payment
shall be held in trust for the holders of the Affected Obligor Senior Debt and
shall be paid over and delivered forthwith to the holders of the Affected
Obligor Senior Debt remaining unpaid, to the extent necessary to pay in full all
the Affected Obligor Senior Debt.
SECTION 1404. Payment Permitted If No Default.
Nothing contained in this Article XIV or elsewhere in this Indenture or
in any of the Securities shall, at any time except during the pendency of any
Proceeding referred to in Section 1402 or under the conditions described in
Section 1403, prevent (a) the Company or any Subsidiary Guarantor from making
Securities Payments, or (b) the application by the Trustee of any money
deposited with it hereunder to Securities Payments or the retention of such
payment by the Holders.
SECTION 1405. Subrogation to Rights of Holders of Senior Debt.
Subject to the payment in full of all Senior Debt, the rights of the
Holders of the Securities shall be subrogated to the rights of the holders of
such Senior Debt to receive payments and distributions of cash, property and
securities applicable to the Senior Debt until the principal of and premium, if
any, and interest on the Securities shall be paid in full. Subject to the
payment in full of all Guarantor Senior Debt, the rights of the Holders of the
Securities shall be subrogated to the rights of the holders of such Guarantor
Senior Debt to receive payments and distributions of cash, property and
securities applicable to such Guarantor Senior Debt until the principal of and
premium, if any, and interest on the Securities shall be paid in full. For
purposes of such subrogation, no payments or distributions to the holders of the
Senior Debt or Guarantor Senior Debt of any cash, property or securities to
which the Holders of the Securities or the Trustee would be entitled except for
the provisions of this Article XIV, and no payments over pursuant to the
provisions of this Article XIV to the holders of Senior Debt or Guarantor Senior
Debt by Holders of the Securities or the Trustee, shall, as among the Company,
the Subsidiary Guarantors, their respective creditors (other than holders of
Senior Debt and the Guarantor Senior Debt and the Holders of the Securities, be
deemed to be a payment or distribution by the Company to or on account of the
Senior Debt). Neither the Holders of the Securities nor the Trustee shall have
any claim against the holders of the Senior Debt or the Guarantor Senior Debt or
the New Credit Facility Agent for any impairment of the subrogation rights
herein granted arising out of any release of Liens securing the Senior Debt or
the Guarantor Senior Debt.
73
<PAGE> 82
SECTION 1406. Provisions Solely to Define Relative Rights.
The provisions of this Article XIV are and are intended solely for the
purpose of defining the relative rights of the Holders on the one hand and the
holders of Senior Debt and Guarantor Senior Debt on the other hand. Nothing
contained in this Article XIV or elsewhere in this Indenture or in the
Securities is intended to or shall (a) impair, as among the Company, its
creditors (other than holders of Senior Debt) and the Holders of the Securities,
the obligation of the Company, which is absolute and unconditional (and which,
subject to the rights under this Article XIV of the holders of Senior Debt, is
intended to rank equally with all other general obligations of the Company) to
pay to the Holders of the Securities the principal of and premium, if any, and
interest on the Securities as and when the same shall become due and payable in
accordance with their terms; or (b) impair, as among the Subsidiary Guarantors,
their creditors (other than holders of Guarantor Senior Debt) and the Holders of
the Securities, the obligation of the Subsidiary Guarantors, which is absolute
and unconditional (and which, subject to the rights under this Article XIV of
the holders of Guarantor Senior Debt, is intended to rank equally with all other
general obligations of the Subsidiary Guarantors) to pay to the Holders of the
Securities the principal of and premium, if any, and interest on the Securities
as and when the same shall become due and payable in accordance with their
terms; or (c) affect the relative rights against the Company of the Holders of
the Securities and creditors of the Company (other than the holders of Senior
Debt) or the relative rights against the Subsidiary Guarantors of the Holders of
the Securities and creditors of the Subsidiary Guarantors (other than the
Holders of Guarantor Senior Debt); or (d) prevent the Trustee or the Holder of
any Security from exercising all remedies otherwise permitted by applicable law
upon default under this Indenture, subject to the rights, if any, under this
Article XIV of the holders of Senior Debt and Guarantor Senior Debt to receive
cash, property and securities otherwise payable or deliverable to the Trustee or
such Holder. The holders of the Senior Debt and the New Credit Facility Agent,
as the case may be, shall be entitled to enforce the provisions of this Article
XIV against the Company, the Subsidiary Guarantors, the Holders of the
Securities and the Trustee.
SECTION 1407. Trustee to Effectuate Subordination.
Each Holder of a Security by his acceptance thereof authorizes and
directs the Trustee on his behalf to take such action as may be necessary or
appropriate to effectuate the subordination provided in this Article XIV and
appoints the Trustee his attorney-in-fact for any and all such purposes.
SECTION 1408. No Waiver of Subordination Provisions.
No right of any present or future holder of any Senior Debt or
Guarantor Senior Debt to enforce subordination as herein provided shall at any
time in any way be prejudiced or impaired by any act or failure to act on the
part of the Company or any Subsidiary Guarantor or by any act or failure to act,
in good faith, by any such holder, or by any noncompliance by the Company or any
Subsidiary Guarantor with the terms, provisions and covenants of this Indenture,
regardless of any knowledge thereof any such holder may have or be otherwise
charged with.
Without in any way limiting the generality of the foregoing paragraph,
the holders of Senior Debt or Guarantor Senior Debt, as the case may be, may, at
any time and from time to time, without the consent of or notice to the Trustee
or the Holders of the Securities, without incurring responsibility to the
Trustee or the Holders of the Securities and without impairing or releasing the
subordination provided in this Article XIV or the obligations hereunder of the
Holders of the Securities to the holders of Senior Debt or Guarantor Senior
Debt, as the case may be, do any one or more of the following: (i) change the
manner, place or terms of payment or extend the time of payment of, or renew or
alter, Senior Debt or Guarantor Senior Debt, as the case may be, or otherwise
amend or supplement in any manner Senior Debt or Guarantor Senior Debt, as the
case may be, or any instrument evidencing the same or any agreement under which
Senior Debt or Guarantor Senior Debt, as the case may be, is outstanding; (ii)
sell, exchange, release or otherwise deal with any property pledged, mortgaged
or otherwise securing Senior Debt or any Guarantor Senior Debt, as the case may
be; (iii) release any Person liable
74
<PAGE> 83
in any manner for the collection of Senior Debt or any Guarantor Senior Debt, as
the case may be; and (iv) exercise or refrain from exercising any rights against
the Company or any Subsidiary Guarantor and any other Person.
SECTION 1409. Notice to Trustee.
The Company and each Subsidiary Guarantor shall give prompt written
notice to the Trustee of any fact known to the Company or such Subsidiary
Guarantor which would prohibit the making of any payment to or by the Trustee in
respect of the Securities and of any subsequent cure or waiver thereof.
Notwithstanding the provisions of this Article XIV or any other provision of
this Indenture, the Trustee shall not be charged with knowledge of the existence
of any facts which would prohibit the making of any payment to or by the Trustee
in respect of the Securities, unless and until the Trustee shall have received
written notice thereof from the Company or a holder of Senior Debt or a holder
of Guarantor Senior Debt or from any trustee or agent therefor; and, prior to
the receipt of any such written notice, the Trustee, shall be entitled in all
respects to assume that no such facts exist.
The Trustee shall be entitled to rely on the delivery to it of a
written notice by a Person representing himself to be a holder of Senior Debt or
a holder of Guarantor Senior Debt (or a trustee or agent therefor) to establish
that such notice has been given by a holder of Senior Debt or a holder of
Guarantor Senior Debt (or a trustee or agent therefor). In the event that the
Trustee determines in good faith that further evidence is required with respect
to the right of any Person as a holder of Senior Debt or a holder of Guarantor
Senior Debt, as the case may be, to participate in any payment or distribution
pursuant to this Article XIV, the Trustee may request such Person to furnish
evidence to the reasonable satisfaction of the Trustee as to the amount of
Senior Debt or Guarantor Senior Debt, as the case may be, held by such Person,
the extent to which such Person is entitled to participate in such payment or
distribution and any other facts pertinent to the rights of such Person under
this Article XIV, and if such evidence is not furnished, the Trustee may defer
any payment to such Person pending judicial determination as to the right of
such Person to receive such payment.
SECTION 1410. Reliance on Judicial Order or Certificate of Liquidation
Agent.
Upon any payment or distribution of assets of the Company or any
Subsidiary Guarantor referred to in this Article XIV, the Trustee and the
Holders of the Securities shall be entitled to rely upon any order or decree
entered by any court of competent jurisdiction in a Proceeding, or a certificate
of the trustee in bankruptcy, receiver, liquidating trustee, custodian, assignee
for the benefit of creditors, agent or other Person making such payment or
distribution, delivered to the Trustee or to the Holders of Securities, for the
purpose of ascertaining the Persons entitled to participate in such payment or
distribution, the holders of the Senior Debt, Guarantor Senior Debt and other
Debt of the Company and the Subsidiary Guarantors, the amount thereof or payable
thereon, the amount or amounts paid or distributed thereon and all other facts
pertinent thereto or to this Article XIV.
SECTION 1411. Trustee Not Fiduciary for Holders of Senior Debt.
Except to the extent of its obligations under the penultimate paragraph
of Section 1402 and the last paragraph of Section 1403, the Trustee shall not be
deemed to owe any fiduciary duty to the holders of Senior Debt or Guarantor
Senior Debt and shall not be liable to any such holders if it shall in good
faith mistakenly pay over or distribute to Holders of Securities or to the
Company or to any other Person cash, property or securities to which any holders
of Senior Debt or Guarantor Senior Debt shall be entitled by virtue of this
Article XIV or otherwise. The Trustee's duties with respect to holders of Senior
Debt and Guarantor Senior Debt are limited to those specifically set forth in
this Indenture, and no implied covenants or obligations shall be construed by
any provision hereof.
75
<PAGE> 84
SECTION 1412. Rights of Trustee as Holder of Senior Debt; Preservation
of Trustee's Rights.
The Trustee in its individual capacity shall be entitled to all the
rights set forth in this Article XIV with respect to any Senior Debt or
Guarantor Senior Debt which may at any time be held by it, to the same extent as
any other holder of Senior Debt or Guarantor Senior Debt, and nothing in this
Indenture shall deprive the Trustee of any of its rights as such holder.
Nothing in this Article XIV shall apply to claims of, or payments to,
the Trustee under or pursuant to Section 606.
SECTION 1413. Applicability to Paying Agents.
In case at any time any Paying Agent other than the Trustee shall have
been appointed by the Company and be then acting hereunder, the term "Trustee"
as used in this Article XIV shall in such case (unless the context otherwise
requires) be construed as extending to and including such Paying Agent within
its meaning as fully for all intents and purposes as if such Paying Agent were
named in this Article XIV in addition to or in place of the Trustee; provided,
however, that this Section 1413 shall not apply to the Company or any Affiliate
of the Company if it or such Affiliate acts as Paying Agent.
SECTION 1414. Defeasance of this Article XIV.
The subordination of the Securities and the Subsidiary Guarantees
provided by this Article XIV is expressly made subject to the provisions for
defeasance or covenant defeasance in Article XII hereof and, anything herein to
the contrary notwithstanding, upon the effectiveness of any such defeasance or
covenant defeasance, the Securities and the Subsidiary Guarantees then
outstanding shall thereupon cease to be subordinated pursuant to this Article
XIV.
SECTION 1415. Subordination Provisions Controlling.
Notwithstanding anything to the contrary contained in this Indenture,
to the extent that any provision contained in Articles I (other than Section
101) through XIII of this Indenture conflicts with any provision contained in
Article XIV (including the definitions of certain terms used in Article XIV) of
this Indenture, the provisions contained in Article XIV of this Indenture shall
govern and control.
This Indenture may be signed in any number of counterparts each of
which so executed shall be deemed to be an original, but all such counterparts
shall together constitute but one and the same Indenture.
76
<PAGE> 85
IN WITNESS WHEREOF, the parties hereto have caused this Indenture to be
duly executed as of the day and year first above written.
TROPICAL SPORTSWEAR INT'L CORPORATION
By /s/ N. Larry McPherson
-------------------------------------
Name: N. Larry McPherson
Title: Executive Vice President -
Finance and Operations
Attest:
By /s/ Michael Kagan
----------------------------------
Name: Michael Kagan
Title: Executive Vice President,
Chief Financial Officer
and Secretary
APPAREL NETWORK CORPORATION
By /s/ N. Larry McPherson
-------------------------------------
Name: N. Larry McPherson
Title: Executive Vice President -
Finance and Operations
Attest:
By /s/ Michael Kagan
----------------------------------
Name: Michael Kagan
Title: Executive Vice President,
Secretary and
Treasurer
SAVANE INTERNATIONAL CORP.
By /s/ N. Larry McPherson
-------------------------------------
Name: N. Larry McPherson
Title: Executive Vice President -
Finance and Operations
Attest:
By /s/ Michael Kagan
----------------------------------
Name: Michael Kagan
Title: Executive Vice President
and Chief Financial Officer
77
<PAGE> 86
TROPICAL SPORTSWEAR
COMPANY, INC.
By /s/ N. Larry McPherson
-------------------------------------
Name: N. Larry McPherson
Title: Executive Vice President -
Finance and Operations
Attest:
By /s/ Michael Kagan
----------------------------------
Name: Michael Kagan
Title: Vice President,
Secretary and Treasurer
SUNTRUST BANK, ATLANTA,
as Trustee
By /s/ David Kaye
-------------------------------------
Name: David Kaye
Title: Group Vice President
Attest:
By /s/ Donna Williams
----------------------------------
Name: Donna Williams
Title: Assistant Vice President
78
<PAGE> 87
SCHEDULE I
SUBSIDIARY GUARANTORS
Tropical Sportswear Company, Inc., a Delaware corporation
Apparel Network Corporation, a Florida corporation
Savane International Corp., a Texas corporation
<PAGE> 88
EXHIBIT A
[FACE OF SECURITY]
TROPICAL SPORTSWEAR INT'L INC.
11% [Exchange]** Senior Subordinated Note due 2008
CUSIP ______________
No. _______ $_________________
Tropical Sportswear Int'l Corporation, a Florida corporation (the
"Company", which term includes any successor under the Indenture hereinafter
referred to), for value received, promises to pay to ___________, or its
registered assigns, the principal sum of ____________________________________
($___________), on June 15, 2008.
[Initial Interest Rate: 11% per annum.]*
[Interest Rate: 11% per annum.]**
Interest Payment Dates: June 15 and December 15 of each year
commencing December 15, 1998.
Regular Record Dates: June 1 and December 1 of each year.
Reference is hereby made to the further provisions of this Security set
forth on the reverse hereof, which further provisions shall for all purposes
have the same effect as if set forth at this place.
IN WITNESS WHEREOF, the Company has caused this Security to be signed
manually or by facsimile by its duly authorized officer.
Date: ______________ TROPICAL SPORTSWEAR INT'L
CORPORATION
By:
-------------------------
Title:
- -------------------------
* Include only for Initial Securities.
** Include only for Exchange Securities.
A-1
<PAGE> 89
(Form of Trustee's Certificate of Authentication)
This is one of the 11% [Exchange]* Senior Subordinated Notes due 2008 described
in the within-mentioned Indenture.
SUNTRUST BANK, ATLANTA, as Trustee
By:
----------------------------
Authorized Officer
- ------------------------------
* Include only for Exchange Securities.
A-2
<PAGE> 90
[REVERSE SIDE OF SECURITY]
TROPICAL SPORTSWEAR INT'L CORPORATION
11% Senior Subordinated Note due 2008
1. Principal and Interest.
The Company will pay the principal of this Security on June 15, 2008.
The Company promises to pay interest on the principal amount of this
Security on each Interest Payment Date, as set forth below, at the rate of [11%
per annum (subject to adjustment as provided in the fourth and sixth paragraph
of this Section 1)]* [11% per annum (subject to adjustment as provided in the
final paragraph of this Section 1), except that interest accrued on this
Security for periods prior to the applicable Exchange Date (as such term is
defined in the Registration Rights Agreement referred to below) will accrue at
the rate or rates borne by the Securities from time to time during such
periods].**
Interest will be payable semiannually (to the holders of record of the
Securities (or any predecessor Securities) at the close of business on the June
1 or December 1 immediately preceding the Interest Payment Date) on each
Interest Payment Date, commencing December 15, 1998.
[The Holder of this Security is entitled to the benefits of the
Exchange and Registration Rights Agreement, dated June 18, 1998, between the
Company and Prudential Securities Incorporated (the "Registration Rights
Agreement"). In the event that either (a) the Exchange Registration Statement is
not filed with the Securities and Exchange Commission on or prior to the 60th
calendar day following the date of original issue of the Securities, (b) the
Exchange Registration Statement is not declared effective on or prior to the
150th calendar day following the date of original issue of the Securities, (c)
the Exchange Offer is not consummated or a Shelf Registration Statement is not
declared effective on or prior to the 180th calendar day following the date of
original issue of the Securities, or (d) any registration statement required by
the Registration Rights Agreement is filed and declared effective but shall
thereafter cease to be effective (except as specifically provided herein and in
the Registration Rights Agreement) without being succeeded immediately by an
additional registration statement filed and declared effective, the interest
rate borne by this Security shall be increased by 0.50% per annum for the first
90 days following the 60-day period referred to in clause (a) above, following
the 150-day period referred to in clause (b) above, or following the 180-day
period referred to in clause (c) above or following the date on which the
relevant registration statement ceases to be effective in the case of clause (d)
above (in any such case, a "Registration Default"). Such interest will be
increased by an additional 0.50% per annum for each subsequent 90-day period in
the case of clause (a), clause (b), clause (c) or clause (d) above until such
Registration Default has been cured; provided, however, that in no event will
the interest rate borne by this Security be increased by more than 1.50%. Upon
the filing of the Exchange Registration Statement after the 60-day period
described in clause (a) above, the effectiveness of the Exchange Registration
Statement after the 150-day period described in clause (b) above, the
consummation of the Exchange Offer or the effectiveness of a Shelf Registration
Statement, as the case may be, after the 180-day period described in clause (c)
above, or the effectiveness of a succeeding registration statement, after the
date in clause (d) above, the interest rate borne by this Security from the date
of such filing, consummation or effectiveness, as the case may be, will be
reduced to the original interest rate set
- ------------------------------
* Include only for Init ial Securities.
** Include only for Exchange Securities.
A-3
<PAGE> 91
forth above; provided, however, that, if after such reduction in interest rate,
a different event specified in clause (a), (b), (c) or (d) above occurs, the
interest rate may again be increased pursuant to the foregoing provisions.]*
Interest on this Security will accrue from the most recent date to
which interest has been paid or duly provided for [on this Security or the
Security surrendered in exchange herefor]*** or, if no interest has been paid,
from June 24, 1998; provided that, if there is no existing default in the
payment of interest and if this Security is authenticated between a Regular
Record Date referred to on the face hereof and the next succeeding Interest
Payment Date, interest shall accrue from such Interest Payment Date. Interest
will be computed on the basis of a 360-day year of twelve 30-day months.
The Company shall pay interest on overdue principal and premium, if
any, and interest on overdue installments of interest, to the extent lawful, at
a rate per annum equal to the rate of interest applicable to the Securities.
2. Method of Payment.
The Company will pay interest (except defaulted interest) on the
principal amount of the Securities on each June 15 and December 15 to the
persons who are Holders (as reflected in the Security Register at the close of
business on the June 1 and December 1 immediately preceding the Interest Payment
Date), in each case, even if the Security is cancelled on registration of
transfer or registration of exchange after such record date; provided that, with
respect to the payment of principal, the Company will make payment to the Holder
that surrenders this Security to any Paying Agent on or after June 15, 2008.
The Company will pay principal, premium, if any, and interest in money
of the United States that at the time of payment is legal tender for payment of
public and private debts. [Payment of the principal of and premium, if any, and
interest on this Security will be made at the office or agency of the Company
maintained for that purpose in The City of New York (which shall be the
Corporate Finance Department of the Trustee, unless the Company shall designate
and maintain some other office or agency for such purpose), in lawful money of
the United States of America, or payment of interest may be made at the option
of the Company by check mailed to the address of the Person entitled thereto as
such address shall appear on the Security Register; provided, however, that all
payments to Holders who have given wire transfer instructions to the Company
will be made by wire transfer of immediately available funds to the accounts
specified by such Holder.]*** [All payments will be made by wire transfer of
immediately available funds to the accounts specified by the Holder.]** If a
payment date is a date other than a Business Day at a place of payment, payment
may be made at that place on the next succeeding day that is a Business Day and
no interest shall accrue for the intervening period.
3. Paying Agent and Registrar.
Initially, the Trustee will act as Paying Agent and Registrar. The
Company may change any Paying Agent or Registrar upon written notice thereto.
The Company, any Subsidiary or any Affiliate of any of them may act as Paying
Agent, Registrar or co-registrar.
- ------------------------------
* Include only for Initial Securities.
** Include for Restricted Global Security only.
*** Include for Physical Securities only.
A-4
<PAGE> 92
4. Subsidiary Guarantees.
This Security is entitled to the benefits of the Subsidiary Guarantees
made by each of the Subsidiary Guarantors, as described in the Indenture,
pursuant to which the Subsidiary Guarantors have irrevocably and
unconditionally, jointly and severally, guaranteed on a senior subordinated
basis the punctual payment when due, whether at Stated Maturity, by
acceleration, redemption or otherwise, of all obligations of the Company and
each Subsidiary Guarantor under the Indenture and this Security. A Subsidiary
Guarantor shall be released from its Subsidiary Guarantee upon the terms and
subject to the conditions set forth in the Indenture.
5. Subordination.
This Security and the Subsidiary Guarantees are subordinated in right
of payment, as set forth in the Indenture, to the prior payment in full of all
existing and future Senior Debt and Guarantor Senior Debt. Each of the Company
and the Subsidiary Guarantors agrees, and each Holder by accepting this Security
agrees, to the subordination provisions set forth in the Indenture, authorizes
the Trustee to give them effect and appoints the Trustee as attorney-in-fact for
such purposes.
6. Indenture; Limitations.
The Company issued the Securities under an Indenture dated as of June
24, 1998 as may from time to time be supplemented or amended by one or more
indentures supplemental thereto entered into pursuant to the applicable
provisions thereof (the "Indenture"), among the Company, certain domestic
subsidiaries of the Company (the "Subsidiary Guarantors" which term will include
all successor guarantors under the Indenture) and SunTrust Bank, Atlanta,
trustee (the "Trustee"). Capitalized terms herein are used as defined in the
Indenture unless otherwise indicated. The terms of the Securities include those
stated in the Indenture and those made part of the Indenture by reference to the
Trust Indenture Act. The Securities are subject to all such terms, and Holders
are referred to the Indenture and the Trust Indenture Act for a statement of all
such terms. To the extent permitted by applicable law, in the event of any
inconsistency between the terms of this Security and the terms of the Indenture,
the terms of the Indenture shall control.
The Securities are general unsecured obligations of the Company.
7. Redemption.
Optional Redemption. Except as provided below, the Securities shall not
be redeemable at the Company's option prior to June 15, 2003. The Securities may
be redeemed at the option of the Company, in whole or in part, at any time and
from time to time on or after June 15, 2003, at the following Redemption Prices
(expressed in percentages of principal amount), plus accrued and unpaid
interest, if any, to the Redemption Date (subject to the right of Holders of
record on the relevant Regular Record Date to receive interest due on an
Interest Payment Date that is on or prior to the Redemption Date), if redeemed
during the 12-month period beginning June 15 of each of the years set forth
below:
<TABLE>
<CAPTION>
Redemption
Year Price
---- -----
<S> <C>
2003.................................... 105.500%
2004.................................... 103.667
2005.................................... 101.833
2006 and thereafter .................... 100.000%
</TABLE>
In addition, at any time or from time to time prior to June 15, 2001,
the Company may redeem up to 35% of the sum of (i) the initial aggregate
principal
A-5
<PAGE> 93
amount of the Securities and (ii) the initial aggregate principal amount of any
Additional Securities with the net proceeds of one or more Public Equity
Offerings at a redemption price equal to 111% of the principal amount thereof,
plus accrued and unpaid interest, if any, to the Redemption Date (subject to the
right of Holders of record on the relevant Regular Record Date to receive
interest due on the relevant Interest Payment Date); provided, that, immediately
after giving effect to such redemption, at least $65,000,000 aggregate principal
amount of the Securities (including any Additional Securities) remains
outstanding; provided, further, that such redemptions occur within 90 days of
the date of closing of the related Public Equity Offering.
Notice of a redemption will be mailed at least 30 days but not more
than 60 days before the Redemption Date to each Holder of Securities to be
redeemed at such Holder's last address as it appears in the Security Register.
Securities in original denominations larger than $1,000 may be redeemed in part
in integral multiples of $1,000. On and after the Redemption Date, interest
ceases to accrue on Securities or portions of Securities called for redemption,
unless the Company defaults in the payment of the Redemption Price.
8. Repurchase upon a Change in Control and Asset Sales.
Upon (a) the occurrence of a Change of Control, the Company is
obligated to make an offer to purchase all outstanding Securities at a
redemption price of 101% of the principal amount thereof, plus accrued and
unpaid interest, if any, to the date of purchase and (b) certain Asset Sales,
the Company is obligated to make offers to purchase Securities with a portion of
the Net Cash Proceeds of such Asset Sales at a redemption price of 100% of the
principal amount thereof plus accrued and unpaid interest, if any, to the date
of purchase.
9. Denominations; Transfer; Exchange.
The Securities are in registered form without coupons, in denominations
of $1,000 and multiples of $1,000 in excess thereof. A Holder may register the
transfer or exchange of Securities in accordance with the Indenture. The
Registrar may require a Holder, among other things, to furnish appropriate
endorsements and transfer documents and to pay any taxes and fees required by
law or permitted by the Indenture. The Registrar need not register the transfer
or exchange of any Securities selected for redemption (except the unredeemed
portion of any Security being redeemed in part). Also, it need not register the
transfer or exchange of any Securities for a period of 15 days before a
selection of Securities to be redeemed is made.
10. Persons Deemed Owners.
A Holder may be treated as the owner of a Security for all purposes.
11. Unclaimed Money.
If money for the payment of principal, premium, if any, or interest
remains unclaimed for two years, the Trustee and the Paying Agent will pay the
money back to the Company at its request. After that, Holders entitled to the
money must look to the Company for payment, unless an abandoned property law
designates another Person, and all liability of the Trustee and such Paying
Agent with respect to such money shall cease.
12. Discharge Prior to Redemption or Maturity.
If the Company irrevocably deposits, or causes to be deposited, with
the Trustee money or U.S. Government Obligations sufficient to pay the then
outstanding principal of and premium, if any, and accrued interest on the
Securities to redemption or maturity, the Company will be discharged from the
Indenture and the Securities, except in certain circumstances for certain
sections thereof.
A-6
<PAGE> 94
13. Amendment; Supplement; Waiver.
Subject to certain exceptions, the Indenture or the Securities may be
amended or supplemented with the consent of the Holders of at least a majority
in aggregate principal amount of the Securities then Outstanding, and any
existing default or compliance with any provision may be waived with the consent
of the Holders of a majority in aggregate principal amount of the Securities
then Outstanding. Without notice to or the consent of any Holder, the parties
thereto may amend or supplement the Indenture or the Securities to, among other
things, cure any ambiguity, defect or inconsistency and make any change that
does not adversely affect the rights of any Holder.
14. Restrictive Covenants.
The Indenture contains certain covenants, including, without
limitation, covenants with respect to the following matters: (i) Debt; (ii)
Restricted Payments; (iii) certain Asset Sales; (iv) transactions with
Affiliates; (v) dividends and other payment restrictions affecting Restricted
Subsidiaries; (vi) issuances and sale of Capital Stock of Restricted
Subsidiaries; (vii) designation of Unrestricted Subsidiaries; (viii) Liens; and
(ix) merger and certain transfers of assets. Within 120 days after the end of
each fiscal year, the Company must report to the Trustee regarding compliance
with such limitations.
15. Successor Persons.
When a successor person or other entity assumes all the obligations of
its predecessor under the Securities and the Indenture, the predecessor person
will be released from those obligations.
16. Remedies for Events of Default.
If an Event of Default occurs and is continuing, the Trustee or the
Holders of at least 25% in principal amount of the Securities then Outstanding
may declare all the Securities to be immediately due and payable. If a
bankruptcy or insolvency default with respect to the Company or any of its
Significant Subsidiaries occurs and is continuing, the Securities automatically
become immediately due and payable. Holders may not enforce the Indenture or the
Securities except as provided in the Indenture. The Trustee may require
indemnity satisfactory to it before it enforces the Indenture or the Securities.
Subject to certain limitations, Holders of at least a majority in principal
amount of the Securities then Outstanding may direct the Trustee in its exercise
of any trust or power.
17. Trustee Dealings with Company.
The Trustee under the Indenture, in its individual or any other
capacity, may become the owner or pledgee of Securities and may make loans to,
accept deposits from, perform services for, and otherwise deal with, the Company
and its Affiliates as if it were not the Trustee.
18. Authentication.
This Security shall not be valid until the Trustee signs the
certificate of authentication on the other side of this Security.
19. Abbreviations.
Customary abbreviations may be used in the name of a Holder or an
assignee, such as: TEN COM (= tenants in common), TEN ENT (= tenants by the
entireties), JT TEN (= joint tenants with right of survivorship and not as
tenants in common), CUST (= Custodian) and U/G/M/A (= Uniform Gifts to Minors
Act).
The Company will furnish to any Holder upon written request and without
charge a copy of the Indenture. Requests may be made to Tropical Sportswear
Int'l Corporation, 4902 West Waters Avenue, Tampa, Florida 33634, Attention:
Chief Financial Officer.
A-7
<PAGE> 95
[FORM OF TRANSFER NOTICE]
FOR VALUE RECEIVED the undersigned registered holder hereby sell(s),
assign(s) and transfer(s) unto
- --------------------------------------------------------------------------------
Insert Taxpayer Identification No.
- --------------------------------------------------------------------------------
(Please print or typewrite name and address including zip code of assignee)
- --------------------------------------------------------------------------------
the within Security and all rights thereunder, hereby irrevocably constituting
and appointing
- --------------------------------------------------------------------------------
attorney to transfer such Security on the books of the Company with full power
of substitution in the premises.
[THE FOLLOWING PROVISION TO BE INCLUDED
ON ALL SECURITIES EXCEPT EXCHANGE SECURITIES,
UNLEGENDED OFFSHORE GLOBAL SECURITIES AND
UNLEGENDED OFFSHORE PHYSICAL SECURITIES
In connection with any transfer of this Security occurring prior to the
date which is the earlier of the date of an effective Registration Statement or
the end of the period referred to in Rule 144(k) under the Securities Act, the
undersigned confirms that without utilizing any general solicitation or general
advertising that:
[Check One]
[ ] (a) this Security is being transferred in compliance with the
exemption from registration under the Securities Act of 1933, as
amended, provided by Rule 144A thereunder.
or
[ ] (b) this Security is being transferred other than in accordance
with (a) above and documents are being furnished which comply with
the conditions of transfer set forth in this Security and the
Indenture.
A-9
<PAGE> 96
If none of the foregoing boxes is checked, the Trustee or other Registrar shall
not be obligated to register this Security in the name of any Person other than
the Holder hereof unless and until the conditions to any such transfer of
registration set forth herein and in Section 307 of the Indenture shall have
been satisfied.
Date:
--------------------
NOTICE: The signature to this assignment
must correspond with the name as
written upon the face of the
within-mentioned instrument in
every particular, without
alteration or any change
whatsoever.
Signature Guarantee:
- ---------------------------
TO BE COMPLETED BY PURCHASER IF (a) ABOVE IS CHECKED.
The undersigned represents and warrants that it is purchasing this
Security for its own account or an account with respect to which it exercises
sole investment discretion and that it and any such account is a "qualified
institutional buyer" within the meaning of Rule 144A under the Securities Act of
1933, as amended, and is aware that the sale to it is being made in reliance on
Rule 144A and acknowledges that it has received such information regarding the
Company as the undersigned has requested pursuant to Rule 144A or has determined
not to request such information and that it is aware that the transferor is
relying upon the undersigned's foregoing representations in order to claim the
exemption from registration provided by Rule 144A.
Dated:
--------------------
NOTICE: To be executed by an executive
officer, general partner, trustee
or similar representative.
A-10
<PAGE> 97
OPTION OF HOLDER TO ELECT PURCHASE
If you wish to have this Security purchased by the Company pursuant to
Section 1012 or Section 1013 of the Indenture, check the Box: [ ].
If you wish to have a portion of this Security purchased by the Company
pursuant to Section 1012 or Section 1013 of the Indenture, state the amount (in
original principal amount) below:
$ .
---------------------
Date:
------------------
Your Signature:
---------------------------------------------------------------------
(Sign exactly as your name appears on the other side of this Security)
Signature Guarantee:
------------------------------------------------------------
(Signature must be guaranteed by a member of the New York
Stock Exchange or a commercial bank or trust company)
A-11
<PAGE> 98
EXHIBIT B
FORM OF CERTIFICATE FOR EXCHANGE OR REGISTRATION OF
TRANSFER FROM RESTRICTED GLOBAL SECURITY TO
REGULATION S GLOBAL SECURITY
SunTrust Bank, Atlanta
3495 Piedmont Road
Building 10, Suite 810
Atlanta, Georgia 30305
Attention: Corporate Trust Department
Re: 11% Senior Subordinated Notes due 2008 of Tropical Sportswear
Int'l Corporation
Reference is hereby made to the Indenture, dated as of June 24, 1998
(the "Indenture"), among Tropical Sportswear Int'l Corporation, as issuer (the
"Company"), each of the Subsidiary Guarantors listed on Schedule I thereto and
SunTrust Bank, Atlanta, trustee. Capitalized terms used but not defined herein
shall have the meanings given to them in the Indenture.
This letter relates to $_________ principal amount of Securities which
are evidenced by the Restricted Global Security (CUSIP No. 89708PAA0) and held
with the Depositary in the name of Cede & Co. (the "Transferor"). The Transferor
has requested a transfer of such beneficial interest in the Securities to a
Person who will take delivery thereof in the form of an equal principal amount
of Securities evidenced by the Regulation S Global Security (CUSIP No.
U89682AA3).
In connection with such request and in respect of such Securities, the
Transferor hereby certifies that such transfer has been effected in compliance
with the transfer restrictions applicable to the Global Securities and pursuant
to and in accordance with Rule 903, Rule 904 or Rule 144 under the United States
Securities Act of 1933, as amended (the "Securities Act"), and accordingly the
Transferor hereby further certifies that:
(A) if the transfer has been effected pursuant to Rule 903 or Rule
904 under the Securities Act:
(1) the offer of the Securities was not made to a person
in the United States;
(2) either:
(a) at the time the buy order was originated,
the transferee was outside the United States or the Transferor
and any person acting on its behalf reasonably believed and
believes that the transferee was outside the United States; or
(b) the transaction was executed in, on or
through the facilities of a designated offshore securities
market and neither the Transferor nor any person acting on its
behalf knows that the transaction was prearranged with a buyer
in the United States;
(3) no directed selling efforts have been made in
contravention of the requirements of Rule 903 or Rule 904 of Regulation
S, as applicable;
(4) the transaction is not part of a plan or scheme to
evade the registration requirements of the Securities Act;
B-1
<PAGE> 99
(5) if the transfer is being requested prior to August 4,
1998, upon completion of the transaction, the beneficial interest being
transferred as described above is to be held with the Depositary
through Euroclear or Cedel Bank or both (Common Code ____________); and
(B) If the transfer has been effected pursuant to Rule 144 under the
Securities Act, the Securities have been transferred in a transaction permitted
by Rule 144 under the Securities Act.
Upon giving effect to this request to exchange a beneficial interest in
such Restricted Global Security for a beneficial interest in a Regulation S
Global Security, the resulting beneficial interest shall be subject to the
restrictions on transfer applicable to Regulation S Global Security pursuant to
the Indenture and the Securities.
This certificate and the statements contained herein are made for your
benefit and the benefit of the Company. Terms used in this certificate and not
otherwise defined in the Indenture have the meanings set forth in Regulation S
under the Securities Act.
[Insert Name of Transferor]
By:
-------------------------------
Name:
Title:
Dated: , Signature Guarantee
------------ ----
------------------------------------
B-2
<PAGE> 100
EXHIBIT C
FORM OF CERTIFICATE FOR EXCHANGE OR REGISTRATION OF
TRANSFER FROM REGULATION S GLOBAL SECURITY TO
RESTRICTED GLOBAL SECURITY
SunTrust Bank, Atlanta
3495 Piedmont Road
Building 10, Suite 810
Atlanta, Georgia 30305
Attention: Corporate Trust Department
Re: 11% Senior Subordinated Notes due 2008 of Tropical Sportswear
Int'l Corporation
Reference is hereby made to the Indenture, dated as of June 24, 1998
(the "Indenture"), among Tropical Sportswear Int'l Corporation, as issuer (the
"Company"), each of the Subsidiary Guarantors listed on Schedule I thereto and
SunTrust Bank, Atlanta, trustee. Capitalized terms used but not defined herein
shall have the meanings given to them in the Indenture.
This letter relates to $____________ principal amount of the Securities
which are evidenced by the Regulation S Global Security (CUSIP No. U89682AA3)
and held with the Depositary in the name of Cede & Co. (the "Transferor"). The
Transferor has requested a transfer of such beneficial interest in the
Securities to a Person who will take delivery thereof in the form of an equal
principal amount of Securities evidenced by the Restricted Global Security
(CUSIP No. 89708PAA0), to be held with the Depositary.
In connection with such request and in respect of such Securities, the
Transferor hereby certifies that such transfer is being effected pursuant to and
in accordance with Rule 144A under the United States Securities Act of 1933, as
amended (the "Securities Act"), and, accordingly, the Transferor hereby further
certifies that the Securities are being transferred to a Person that the
Transferor reasonably believes is purchasing the Securities for its own account,
or for one or more accounts with respect to which such Person exercises sole
investment discretion, and such Person and each such account is a "qualified
institutional buyer" within the meaning of Rule 144A in a transaction meeting
the requirements of Rule 144A and such Securities are being transferred in
compliance with any applicable blue sky securities laws of any state of the
United States.
Upon giving effect to this request to exchange a beneficial interest in
Regulation S Global Securities for a beneficial interest in the Restricted
Global Security, the resulting beneficial interest shall be subject to the
restrictions on transfer applicable to the Restricted Global Security pursuant
to the Indenture and the Securities Act.
C-1
<PAGE> 101
This certificate and the statements contained herein are made for your
benefit and the benefit of the Company. Terms used in this certificate and not
otherwise defined in the Indenture have the meanings set forth in Regulation S
under the Securities Act.
[Insert Name of Transferor]
By:
-------------------------------
Name:
Title:
Dated: , Signature Guarantee
------------ ----
------------------------------------
C-2
<PAGE> 102
EXHIBIT D
FORM OF CERTIFICATE FOR TRANSFER OF U.S. PHYSICAL SECURITIES TO REGULATION S
GLOBAL SECURITY OR RESTRICTED GLOBAL SECURITY
SunTrust Bank, Atlanta
3495 Piedmont Road
Building 10, Suite 810
Atlanta, Georgia 30305
Attention: Corporate Trust Department
Re: 11% Senior Subordinated Notes due 2008 of Tropical
Sportswear Int'l Corporation
Reference is hereby made to the Indenture, dated as of June 24, 1998
(the "Indenture"), among Tropical Sportswear Int'l Corporation, as issuer (the
"Company"), each of the Subsidiary Guarantors listed on Schedule I thereto and
SunTrust Bank, Atlanta, trustee. Capitalized terms used but not defined herein
shall have the meanings given to them in the Indenture.
This letter relates to $___________ principal amount of Securities
which are evidenced by a definitive Physical Security (Certificate No.
__________, CUSIP No. __________, in the name of _________________) (the
"Transferor"). The Transferor has requested a transfer of such interest in the
Securities to a Person that will take delivery thereof in the form of an equal
principal amount of Securities evidenced by the [Restricted Global Security
CUSIP No. 89708PAA0] [Regulation S Global Security (CUSIP No. U89682AA3)].
In connection with such request and in respect of such Securities, the
Transferor does hereby certify that: [if such request is made for transfer to
the Regulation S Global Security: such transfer has been effected pursuant to
and in accordance with Rule 903, Rule 904 or Rule 144 under the United States
Securities Act of 1933, as amended (the "Securities Act") and accordingly the
Transferor does hereby further certify that:
(1) if the transfer has been effected pursuant to Rule
903 or Rule 904 under the Securities Act:
(A) the offer of the Securities was not made to
a person in the United States;
(B) either:
(i) at the time the buy order was
originated, the transferee was outside the United
States or the Transferor and any person acting on its
behalf reasonably believed that the transferee was
outside the United States, or
(ii) the transaction was executed in, on
or through the facilities of a designated offshore
securities market and neither the Transferor nor any
person acting on its behalf knows that the
transaction was prearranged with a buyer in the
United States;
(C) no directed selling efforts have been made
in contravention of the requirements of Rule 903 or 904 of
Regulation S, as applicable; [and]
(D) the transaction is not part of a plan or
scheme to evade the registration requirements of the
Securities Act; [and
D-1
<PAGE> 103
(E) if the transfer is being requested prior to
August 4, 1998: Upon completion of the transaction, the
beneficial interest being transferred as described above is to
be held with the Depositary through Euroclear or Cedel Bank or
both (Common Code __________);] and
(2) if the transfer has been effected pursuant to Rule
144, the Securities have been transferred in a transaction permitted by
Rule 144.]
[(3) if such request is made for transfer to the
Restricted Global Security: Such transfer is being effected pursuant to
and in accordance with Rule 144A under the Securities Act, and,
accordingly, the Transferor hereby further certifies that the
Securities are being transferred to a person that the Transferor
reasonably believes is purchasing the Securities for its own account,
or for one or more accounts with respect to which such person exercises
sole investment discretion, and such person and each such account is a
"qualified institutional buyer" within the meaning of Rule 144A in a
transaction meeting the requirements of Rule 144A.]
This certificate and the statements contained herein are made for your
benefit and the benefit of the Company. Terms used in this certificate and not
otherwise defined in the Indenture have the meanings set forth in Regulation S
under the Securities Act.
Upon completion of the transaction, the beneficial interest being
transferred as described above is to be held with the Depositary through
Euroclear or Cedel Bank or both (Common Code_____).
[Insert Name of Transferor]
By:
-------------------------------
Name:
Title:
Dated: , Signature Guarantee
------------ ----
------------------------------------
D-2
<PAGE> 104
EXHIBIT E
FORM OF CERTIFICATE FOR TRANSFER OR EXCHANGE AFTER TWO YEARS
SunTrust Bank, Atlanta
3495 Piedmont Road
Building 10, Suite 810
Atlanta, Georgia 30305
Attention: Corporate Trust Department
Re: 11% Senior Subordinated Notes due 2008 of Tropical
Sportswear Int'l Corporation
Reference is hereby made to the Indenture, dated as of June 24, 1998
(the "Indenture"), among Tropical Sportswear Int'l Corporation, as issuer (the
"Company"), each of the Subsidiary Guarantors listed on Schedule I thereto and
SunTrust Bank, Atlanta, trustee. Capitalized terms used but not defined herein
shall have the meanings given to them in the Indenture.
[For transfers: This letter relates to $__________ principal amount of
Securities which are evidenced by a [Restricted Global Security (CUSIP No.
89708PAA0) and held with the Depositary in the name of Cede & Co.] [a U.S.
Physical Security (CUSIP No. ________________) registered in the name of
_________________] [and held for the benefit of _________________] (the
"Beneficial Owner"). The Beneficial Owner has requested that its beneficial
interest in such Securities be transferred to a Person that will take delivery
thereof in the form of an equal principal amount of Securities evidenced by the
Regulation S Global Security (CUSIP No. U89682AA3).
In connection with such request and in respect of such Securities, the
Beneficial Owner does hereby certify that upon such transfer, (a) a period of at
least two years will have elapsed since June 24, 1998, (b) the Beneficial Owner
during the three months preceding the date of such transfer was not an
"affiliate" of the Company (as defined in Rule 144 under the Securities Act),
and it was not acting on behalf of such an affiliate and (c) such Person to whom
such transfer is being made is not an "affiliate" of the Company.]
[For exchanges: This letter relates to $__________ principal amount of
Securities that are evidenced by a [Restricted Global Security (CUSIP No.
89708PAA0) and held with the Depositary in the name of [ ] [and held for the
benefit of ]____________] (the "Beneficial Owner"). The Beneficial Owner has
requested that its beneficial interest in such Securities be exchanged for a
beneficial interest in an equal principal amount of Securities evidenced by the
Regulation S Global Security (CUSIP No. U89682AA3).
In connection with such request and in respect of such Securities, the
Beneficial Owner does hereby certify that [it is located and acquired such
securities outside the United States (if the Restricted Period has ended) and
that such transfer is being made in accordance with Rule 903 or 904 of
Regulation S under the United States Securities Act of 1933][, upon such
exchange, (a) it will be the beneficial owner of such Securities, (b) a period
of at least two years will have elapsed since June 24, 1998 and (c) the
Beneficial Owner will not be, and during the three months preceding the date of
such exchange will not have been, an "affiliate" of the Company (as defined in
Rule 144 under the United States Securities Act of 1933), and it is not acting
on behalf of such an affiliate.]
E-1
<PAGE> 105
This certificate and the statements contained herein are made for your
benefit and the benefit of the Company.
Dated: [Insert Name of Beneficial Owner]
By:
----------------------------------
Name:
Title:
E-2
<PAGE> 1
EXHIBIT 10.3
NationsBank
NationsBanc Commercial Corporation
Factoring Agreement
entered into between
Farah Incorporated
and
NationsBanc Commercial Corporation
NationsBanc Commercial Corporation
P.O. Box 4095
Atlanta, Georgia 30302-4095
Gentlemen:
We are pleased to confirm the following agreement by which you are to
act as sole factor for sales made by us:
SECTION 1. DEFINITIONS
1.1 "Banking Day" shall mean a day for dealings by and between
banks, excluding Saturday, Sunday and any day which shall be a legal holiday in
the City of Atlanta, Georgia, and any other day on which banking institutions
are authorized to close in the City of Atlanta, Georgia.
1.2 "Credit Risk" shall mean the risk of loss resulting solely and
exclusively from a Customer's failure to pay at maturity because of its
financial inability.
1.3 "Customer Dispute" shall mean any cause for nonpayment of
Receivables, other than the financial inability of the Customer, including,
without limitation, any alleged defense, offset, or counterclaim.
1.4 "Customers" shall mean the account debtors obligated on the
Receivables.
1.5 "Default" shall mean the occurrence of any of the following
events: (a) nonpayment when due of any amount payable on any of the Obligations
or failure to perform any agreement or meet any obligation of ours contained
herein or in any agreement out of which any of the Obligations arose; (b) any
material statement, representation, or warranty of ours made orally or in
writing herein or in any other writing or statement at any time furnished or
made by us to you is untrue in any material respect as of the date furnished or
made; (c) suspension of the operation of our present business; (d) any Obligor
becomes insolvent or unable to pay debts as they mature, makes an assignment for
the benefit of creditors, or a proceeding is instituted by or against any
Obligor alleging that such Obligor is insolvent or unable to pay debts as they
mature, or a
<PAGE> 2
petition under any provision of Title 11 of the United States Code (entitled
"Bankruptcy"), as amended is brought by or against any Obligor; (e) death of any
Obligor who was a natural person, or death or withdrawal of any partner of any
Obligor which is a partnership, or dissolution, merger, or consolidation of any
Obligor which is a corporation; (f) sale, transfer or exchange, either directly
or indirectly, of a controlling stock interest of any Obligor which is a
corporation; (g) termination or withdrawal of any guaranty for the Obligations;
(h) appointment of a receiver for any collateral pledged for the Obligations or
for any property in which we have an Interest; or (i) the Pension Benefit
Guaranty Corporation shall commence proceedings under Section 4042 of the
Employee Retirement Income Security Act of 1974 (ERISA) to terminate any
employee pension benefit plan of Debtor.
1.6 "Net Amount" of Receivables shall mean the gross amount of
Receivables, less maximum discounts, less returns, less credits or allowances of
any nature at any time issued, owing, granted or outstanding, and less also your
commission as set forth herein.
1.7 "Obligations" shall mean all of our obligations to you
hereunder, including without limitation all obligations of ours to you under any
guaranty, or accommodation, sums owing to you for goods and/or services
purchased from any other firm factored by you, and all other obligations of ours
to you, however and whenever created, arising or evidenced, whether direct or
indirect, through assignment from third parties in the ordinary course of your
business, absolute, contingent or otherwise, now or hereafter existing or due or
to become due.
1.8 "Obligor" shall mean us and each other party primarily or
secondarily, directly or indirectly liable on any of the Obligations.
1.9 "Payment Date" shall mean: (a) for each credit-approved
Receivable for which you retain the Credit Risk, two (2) Banking Days after the
date on which the Receivable is credited by you to our account or, if such
Receivable is not paid, one hundred twenty (120) days after the due date of the
Receivable or, if such day is not a Banking Day, the next Banking Day; and (b)
for each Receivable for which you do not bear the Credit Risk, two (2) Banking
Days after the date on which the Receivable is credited by you to our account.
1.10 "Receivables" shall mean all accounts, instruments, contract
rights, chattel paper, documents, and general intangibles arising from our
Sales, and the proceeds thereof, and all security and guaranties therefor,
whether now existing or hereafter created.
1.11 "Sales" shall mean the sale of goods and/or the rendition of
services by us in the ordinary course of our business to Customers in the United
States of America and Puerto Rico.
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1.12 "Contract Year" shall mean the twelve (12) month period
commencing on the effective date hereof and each succeeding twelve (12) month
period thereafter.
1.14 "Standard Commission" shall mean twenty-eight hundredths of
one percent (0.28%) of the gross amount of Receivables for Receivables with
selling terms of ninety (90) days or less.
1.15 "Long Term Commission" shall mean that for all Sales made on
terms exceeding ninety (90) days our Standard Commission shall be increased by
fifteen hundredths of one percent (0.15%) of such gross amount for each
additional thirty (30) day term or part thereof.
SECTION 2. SALE AND APPROVAL; PURCHASE PRICE; COMMISSION; RESERVES
2.1 We hereby assign and sell to you as absolute owner, without
recourse, except as hereinafter set forth, our entire interest in all of our
present and future Receivables.
2.2 Notwithstanding any other provision of this Agreement, each of
our Receivables in a gross amount of One Hundred Dollars ($100) or less is
assigned and sold to you under this Agreement with full recourse.
2.3 All orders for Sales shall be submitted to you for credit
approval prior to shipment of the goods or rendition of the services so ordered,
and each approved Sale shall be made only in accordance with such approval. All
Credit approvals must be in writing. Receivables arising from orders not so
approved by you, in whole or in part, shall be with full recourse to us to the
extent and in the respects not so approved. A credit approval shall not be
effective if (a) the approved terms of sale are changed, (b) delivery of the
goods to the Customer is not made by us within forty-five (45) days after the
shipping date specified in our request for credit approval, or, if no such date
is specified, within forty-five (45) days after the date of the credit approval,
or (c) the invoice representing the Sale is not delivered to you within twenty
(20) days after the shipment date. Credit approval may be by credit line. While
a credit line remains in force, Receivables (or parts thereof) in excess of such
line will succeed amounts within the line which are paid by or credited to the
Customer; the succession of Receivables (or parts thereof) shall take place in
the order of maturity and shall be limited to amounts then so paid or credited.
The right of succession ceases when the line is cancelled. On all
credit-approved Sales you assume the Credit Risk up to the amount so approved,
provided, however, that we will bear the first one-tenth of one percent (0.10%)
of the credit losses on the amount of the uncollected Receivables if a Customer,
after delivery/rendition and acceptance of the goods/services, fails on due date
to pay in full solely because of financial inability and which are charged off
during each contract year. You are not to be responsible where nonpayment
results from any Customer Dispute, acts of God, war,
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civil strife, currency restrictions, or foreign political impediments, because
we assume all other risks. Credit approvals, once granted, may be withdrawn by
you prior to shipment/rendition of the goods/services. With regard to Sales
without credit approval or in excess of any approved amount of credit, as to any
given Customer, we agree that any payments or credits on any Receivables owing
from such Customer may be applied first to any credit-approved Receivables which
may at any time be unpaid, regardless of the respective dates such Sales
occurred and regardless of any notations on payment items, or may be applied in
such other manner as you in your sole discretion shall deem appropriate.
2.4 We will provide you with listings of Receivables in form
reasonably satisfactory to you, together with Customers' invoices, shipping
documents, and such other documents and proof of delivery/rendition as you may
at any time require. Billing on invoices by whomever done shall be conclusive
evidence of assignment and sale hereunder of such Receivables whether or not we
execute any other instrument with regard thereto. All invoices to Customers
shall state plainly on the face thereof that the Receivables represented by such
invoices have been assigned, sold, and are payable to you only. All remittances
obtained by us against Receivables will be received in trust for you, and we
will turn over to you the identical remittances as speedily as possible;
provided, however, that nothing herein authorizes us to collect Receivables.
2.5 The purchase price of Receivables is to be the Net Amount
thereof, which, less any charges and reserves, will be due and payable on
Payment Date. For the contract year commencing June 9, 1998 and for each
contract year thereafter, we shall pay you the Standard Commission plus Long
Term Commission, if applicable. However, from the commencement of the contract
and until the day following the day that the amount of the Factored Receivables
exceeds One Hundred Twenty-Five Million Dollars ($125,000,000.00) the Standard
Commission shall be waived and on such following day we shall pay you the
Standard Commission plus the Long Term Commission, if applicable. You may retain
from sums payable to us a reserve, which reserve may be revised from time to
time at your reasonable discretion, in order to provide for Customer Disputes,
possible credit losses on unapproved Receivables, and the Obligations. A
discount, credit, or allowance after issuance or granting may not be claimed by
us, but may be claimed solely by the Customer; no third party beneficiary rights
are created hereby.
2.6 We shall pay to you on demand any charges at any time
outstanding in our account.
2.7 You will render a statement of account monthly, and such
statement shall be binding upon us except for specific matters for which you are
notified in writing to the contrary within sixty (60) days after the date of
such statement.
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SECTION 3. POWER OF ATTORNEY
We hereby appoint you as our attorney-in-fact to receive, open, and
dispose of all mail addressed to us pertaining to Receivables; to endorse our
name upon any notes, acceptances, checks, drafts, money orders, and other
evidences of payment of Receivables that may come into your possession and to
deposit or otherwise collect the same; and to do all other acts and things
necessary to carry out the terms of this Agreement. This power, being coupled
with an interest, is irrevocable while any Receivable shall remain unpaid. You,
as attorney-in-fact, shall not be liable for any errors of judgment or mistake
of fact.
SECTION 4. SECURITY INTEREST
We hereby grant you a security interest in all of our present and
future accounts, instruments, contract rights, chattel paper, documents and
general intangibles, (whether arising before or after termination of this
Agreement) and all returned, repossessed, and reclaimed goods, and books and
records relating thereto, to secure all of the Obligations. We further sell and
assign to you all our title and/or interest in the goods (unless released by
you) represented by Receivables as well as goods returned by or repossessed from
Customers, all of our rights as an unpaid vendor or lienor, all of our rights of
stoppage in transit, replevin and reclamation relating thereto, and all of our
rights against third parties with respect thereto; we will cooperate with you in
exercising any rights with respect to the goods. In addition, we hereby grant
you a security interest in the reserve established pursuant to Section 2.5
hereof, to secure all of the Obligations.
SECTION 5. REPRESENTATIONS, WARRANTIES AND COVENANTS
5.1 We represent and warrant that we are fully authorized to enter
into this Agreement and perform hereunder and covenant that we will continue to
be so for the duration of this Agreement.
5.2 We represent and warrant that we are solvent.
5.3 We represent and warrant that our Receivables are, and
covenant that they shall be, at the time of their creation, bona fide and
existing obligations of our Customers arising out of our Sales, free and clear
of all security interests, liens, and claims whatsoever.
5.4 We represent and warrant that our inventory is not subject to
any security interest, lien or encumbrance whatsoever, and we covenant that we
shall not permit it to become so encumbered without your prior written consent,
except for Fleet Capital Corporation, as Agent.
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5.5 We represent and warrant with respect to each Receivable as it
arises:
(a) We will have made delivery of the goods or will have
rendered the services ordered;
(b) The Customer will accept the goods and/or services;
(c) No Customer Dispute will exist in any respect;
(d) We will have preserved and will continue to preserve
any liens and any rights to liens available by virtue of Sales; and
(e) The Customer will not be our affiliate.
SECTION 6. CUSTOMER DISPUTES, CHARGEBACKS AND RETURNS
We will notify you promptly and will settle all Customer Disputes, but
you have the right at all times to do so directly and to compromise, adjust, or
litigate all such Customer Disputes. If a Customer Dispute exists or is asserted
with regard to any Receivable, or if we breach any representation, warranty or
covenant with respect to any Receivable, you may charge back to our account the
Net Amount of such Receivable, as well as all other Receivables owing by the
same Customer. You may charge back to our account at any time any unapproved
Receivable, whether before or after its due date. A chargeback shall not be
deemed a reassignment of the Receivable, and title thereto and to the goods
represented thereby shall remain in you until you execute a reassignment,
provided however, that we may reimburse you for the amount of said chargeback
and request that you reassign the Receivable to us. All returned, replevied, and
reclaimed goods coming into our possession shall be held in trust by us for you.
SECTION 7. BOOKS AND RECORDS; FINANCIAL STATEMENTS
You and your representatives shall at all reasonable times have the
right to examine all of our books and records.
SECTION 8. INDEMNITY
We shall indemnify you for all losses, costs and expenses incurred by
you in connection with Receivables for which credit approval has not been given
and in connection with Receivables which are unpaid at maturity for reasons
other than financial inability. Further, we shall indemnify you for any
liability for duties, forwarder's fees, storage, shipping charges, sales or
excise taxes or other expenses in connection with the Receivables and for any
losses occasioned by claims of Customers under Receivables. This indemnity shall
survive the termination of this Agreement.
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SECTION 9. APPLICABLE LAW
This Agreement shall be governed by, construed and enforced according
to the laws of the State of Georgia.
SECTION 10. EFFECTIVE DATE; TERMINATION; BINDING EFFECT
If accepted by you, this Agreement shall be effective on the ninth day
of June, 1998, and shall continue in full force and effect until: (a) three (3)
years from such effective date and from year to year thereafter until terminated
(on any such anniversary date) by our giving to you not less than sixty (60)
days prior written notice: or (b) terminated by you at any time by giving to us
not less than sixty (60) days prior written notice. This Agreement may be
terminated at any time by you without notice to us should any Default occur.
Upon termination, we will pay all of our Obligations to you, and in any event we
will remain liable to you for any deficiency remaining after determination of
our liability hereunder and liquidation of any collateral. Also, upon
termination you may withhold any payment to us unless supplied with an indemnity
satisfactory to you. This Agreement shall bind us, our successors and assigns
and shall inure to the benefit of you, your successors and assigns; we agree
that you may delegate your duties hereunder.
SECTION 11. EXPENSES; ATTORNEYS' FEES; NO WAIVER; SEVERABILITY; NOTICES;
HEADINGS
We shall pay all reasonable expenses incurred by you in connection with
the execution of this Agreement, including expenses incurred in connection with
the filing of financing statements, continuation statements, record searches and
reasonable attorneys' fees. We shall also pay you such wire transfer and similar
fees as you charge from time to time and, in connection with your examinations
of our books and records, such reasonable examination fees as you charge from
time to time as well as your reasonable out-of-pocket expenses. Upon liquidation
of any collateral, settlement or prosecution of Customer Disputes, or
enforcement of any obligation of ours hereunder, you may charge to our account
all costs and expenses incurred including reasonable attorneys' fees, if
collection is by or through an attorney and such costs, expenses and fees shall
constitute obligations hereunder. No delay or failure on your part in exercising
any right, privilege, or option hereunder shall operate as a waiver of such or
of any other right, privilege, or option, and no waiver, amendment, or
modification of any provision of this Agreement shall be valid, unless in
writing signed by you and then only to the extent therein stated. Should any
provision of this Agreement be prohibited by or invalid under applicable law,
the validity of the remaining provisions shall not be affected thereby. Any
notices, requests, demands or other communications given by you under this
Agreement may be sent by mail, telex, telegraph, delivery or telecopy to our
most current address as reflected in your records. The headings used herein are
intended to be for convenience of reference
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only and shall not define or limit the scope, extent or intent or otherwise
affect the meaning of any portion hereof.
SECTION 12. ENTIRE AGREEMENT; WAIVER OF JURY TRIAL
This Agreement embodies our entire agreement as to the subject matter
and supersedes all prior agreements as to the subject matter. EACH OF US HEREBY
WAIVES ALL RIGHTS TO A TRIAL BY JURY IN ANY ACTION OR PROCEEDING RELATING TO
TRANSACTIONS UNDER THIS AGREEMENT.
SECTION 13. TRADE STYLES
Receivables under this Agreement shall include those created by our
doing business under the following trade styles, all of which have been duly and
properly registered:
Farah, Savane
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Farah Incorporated
By: /s/ N. Larry McPherson
--------------------------------
Executive Vice President
ACCEPTANCE
The foregoing Factoring Agreement is accepted in Atlanta, Georgia as of
the 9th day of June, 1998.
NationsBanc Commercial Corporation
By: /s/ Stewart M. Long, Jr.
--------------------------------
President
Funds Employed - Collection
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EXHIBIT 10.4
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TROPICAL SPORTSWEAR INT'L CORPORATION,
FARAH INCORPORATED, TROPICAL SPORTSWEAR COMPANY, INC., and
APPAREL NETWORK CORPORATION,
as Borrowers
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LOAN AND SECURITY AGREEMENT
Dated: June 10, 1998
$85,000,000.00
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THE FINANCIAL INSTITUTIONS
PARTY HERETO FROM TIME TO TIME, as Lenders
and
FLEET CAPITAL CORPORATION, as Agent
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<PAGE> 2
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
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<S> <C> <C>
SECTION 1. GENERAL DEFINITIONS..........................................................................- 2 -
SECTION 2. CREDIT FACILITIES...........................................................................- 25 -
2.1. Revolver Facility............................................................................- 26 -
2.2. LC Facility..................................................................................- 26 -
2.3. Joinder of New Subsidiaries..................................................................- 30 -
SECTION 3. INTEREST, FEES AND CHARGES................................................................- 30 -
3.1. Interest.....................................................................................- 30 -
3.2. Fees.........................................................................................- 33 -
3.3. Computation of Interest and Fees.............................................................- 34 -
3.4. Reimbursement of Expenses....................................................................- 34 -
3.5. Bank Charges.................................................................................- 34 -
3.6. Illegality...................................................................................- 35 -
3.7. Increased Costs..............................................................................- 35 -
3.8. Capital Adequacy.............................................................................- 36 -
3.9. Funding Losses...............................................................................- 37 -
3.10. Maximum Interest.............................................................................- 37 -
SECTION 4. LOAN ADMINISTRATION..........................................................................- 38 -
4.1. Manner of Borrowing and Funding Revolver Loans...............................................- 38 -
4.2. Defaulting Lender............................................................................- 41 -
4.3. Special Provisions Governing LIBOR Loans.....................................................- 41 -
4.4. Borrowers' Representative....................................................................- 41 -
4.5. All Loans to Constitute One Obligation.......................................................- 42 -
SECTION 5. PAYMENTS.....................................................................................- 42 -
5.1. General Repayment Provisions.................................................................- 42 -
5.2. Repayment of Revolver Loans..................................................................- 42 -
5.3. Payment of Other Obligations.................................................................- 43 -
5.4. Marshalling; Payments Set Aside..............................................................- 44 -
5.5. Allocation of Payments and Collections.......................................................- 44 -
5.6. Application of Payments and Collections......................................................- 45 -
5.7. Loan Accounts; the Register; Account Stated..................................................- 45 -
5.8. Gross Up for Taxes...........................................................................- 45 -
5.9. Withholding Tax Exemption....................................................................- 46 -
5.10. Nature and Extent of Each Borrower's Liability...............................................- 46 -
SECTION 6. TERM AND TERMINATION OF COMMITMENTS..........................................................- 48 -
6.1. Term of Commitments..........................................................................- 48 -
6.2. Termination..................................................................................- 48 -
</TABLE>
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<TABLE>
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SECTION 7. COLLATERAL SECURITY..........................................................................- 49 -
7.1. Grant of Security Interest...................................................................- 49 -
7.2. Other Collateral.............................................................................- 49 -
7.3. Lien on Deposit Accounts.....................................................................- 49 -
7.4. Lien Perfection; Further Assurances..........................................................- 50 -
SECTION 8. COLLATERAL ADMINISTRATION....................................................................- 50 -
8.1. General Provisions...........................................................................- 50 -
8.2. Administration of Accounts...................................................................- 51 -
8.3. Administration of Inventory..................................................................- 52 -
8.4. Administration of Equipment..................................................................- 53 -
8.5. Borrowing Base Certificates..................................................................- 53 -
8.6. Payment of Charges...........................................................................- 53 -
SECTION 9. REPRESENTATIONS AND WARRANTIES...............................................................- 53 -
9.1. General Representations and Warranties.......................................................- 53 -
9.2. Reaffirmation of Representations and Warranties..............................................- 58 -
9.3. Survival of Representations and Warranties...................................................- 58 -
SECTION 10. COVENANTS AND CONTINUING AGREEMENTS..........................................................- 59 -
10.1. Affirmative Covenants........................................................................- 59 -
10.2. Negative Covenants...........................................................................- 61 -
10.3. Specific Financial Covenants.................................................................- 65 -
SECTION 11.CONDITIONS PRECEDENT..........................................................................- 67 -
11.1. Conditions Precedent to Initial Credit Extensions............................................- 67 -
11.2. Conditions Precedent to all Credit Extensions................................................- 69 -
11.3. Limited Waiver of Conditions Precedent.......................................................- 69 -
SECTION 12. EVENTS OF DEFAULT; RIGHTS AND REMEDIES ON DEFAULT............................................- 69 -
12.1. Events of Default............................................................................- 69 -
12.2. Acceleration of Obligations; Termination of Commitments......................................- 71 -
12.3. Other Remedies...............................................................................- 72 -
12.4. Setoff.......................................................................................- 73 -
12.5. Remedies Cumulative; No Waiver...............................................................- 73 -
SECTION 13. AGENT........................................................................................- 74 -
13.1. Appointment, Authority and Duties of Agent...................................................- 74 -
13.2. Agreements Regarding Collateral..............................................................- 75 -
13.3. Reliance By Agent............................................................................- 76 -
13.4. Action Upon Default..........................................................................- 76 -
13.5. Ratable Sharing..............................................................................- 76 -
13.6. Indemnification of Agent.....................................................................- 77 -
13.7. Limitation on Responsibilities of Agent......................................................- 78 -
13.8. Successor Agent and Co-Agents................................................................- 78 -
</TABLE>
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<TABLE>
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13.9. Consents, Amendments and Waivers ; Out-of-Formula Loans......................................- 79 -
13.10. Due Diligence and Non-Reliance...............................................................- 80 -
13.11. Representations and Warranties of Lenders....................................................- 81 -
13.12. The Required Lenders.........................................................................- 81 -
13.13. Several Obligations..........................................................................- 81 -
13.14. Agent in its Individual Capacity.............................................................- 81 -
13.15. Third Party Beneficiaries....................................................................- 81 -
13.16. Notice of Transfer...........................................................................- 82 -
13.17. Replacement of Certain Lenders...............................................................- 82 -
13.18. Remittance of Payments and Collections.......................................................- 82 -
SECTION 14. BENEFIT OF AGREEMENT; ASSIGNMENTS AND PARTICIPATIONS.........................................- 83 -
14.1. Successors and Assigns.......................................................................- 83 -
14.2. Participations...............................................................................- 83 -
14.3. Assignments..................................................................................- 84 -
14.4. Tax Treatment................................................................................- 85 -
SECTION 15. MISCELLANEOUS................................................................................- 85 -
15.1. Power of Attorney............................................................................- 85 -
15.2. General Indemnity............................................................................- 85 -
15.3. Survival of All Indemnities..................................................................- 86 -
15.4. Modification of Agreement....................................................................- 86 -
15.5. Severability.................................................................................- 86 -
15.6. Cumulative Effect; Conflict of Terms.........................................................- 86 -
15.7. Execution in Counterparts....................................................................- 86 -
15.8. Agent's or Required Lenders' Consent.........................................................- 86 -
15.9. Notice.......................................................................................- 86 -
15.10. Credit Inquiries.............................................................................- 87 -
15.11. Time of Essence..............................................................................- 87 -
15.12. Entire Agreement; Exhibits and Schedules.....................................................- 87 -
15.13. Interpretation...............................................................................- 87 -
15.14. Confidentiality..............................................................................- 87 -
15.15. Obligations of Lenders Several...............................................................- 88 -
15.16. Governing Law; Consent To Forum..............................................................- 88 -
15.17. Waivers by Borrowers.........................................................................- 88 -
15.19. Waiver of DTPA...............................................................................- 89 -
</TABLE>
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LIST OF EXHIBITS AND SCHEDULES
<TABLE>
<S> <C>
Exhibit A-1 Form of Revolver Note
Exhibit A-2 Form of Swingline Note
Exhibit B Form of Notice of Conversion/Continuation
Exhibit C Form of Notice of Borrowing
Exhibit D Form of Compliance Certificate
Exhibit E Form of Opinion Contents
Exhibit F Form of Assignment and Acceptance
Exhibit G Form of Notice
Exhibit H Letter of Credit Procurement Request
Exhibit I Form of Joinder Agreement
Schedule 8.1.1 Borrowers' Business Locations
Schedule 9.1.1 Jurisdictions in which Borrowers and each of their Subsidiaries is Authorized to
do Business
Schedule 9.1.4 Capital Structure of Borrowers
Schedule 9.1.5 Corporate Names
Schedule 9.1.13 Tax Identification Numbers of Borrowers and their Subsidiaries
Schedule 9.1.15 Patents, Trademarks, Copyrights and Licenses
Schedule 9.1.18 Contracts Restricting Borrowers' Right to Incur Indebtedness; Surety Obligations
Schedule 9.1.19 Litigation
Schedule 9.1.21 Capitalized and Operating Leases
Schedule 9.1.22 Pension Plans
Schedule 9.1.24 Labor Contracts
Schedule 10.2.5 Permitted Liens
</TABLE>
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LOAN AND SECURITY AGREEMENT
THIS LOAN AND SECURITY AGREEMENT is made on June 10, 1998, by and among
TROPICAL SPORTSWEAR INT'L CORPORATION, a Florida corporation (individually and,
in its capacity as the representative of the other Borrowers pursuant to Section
4.4 hereof, "Tropical"), with its chief executive office and principal place of
business at 4902 West Waters Avenue, Tampa, Florida 33634-1302; TROPICAL
SPORTSWEAR COMPANY, INC., a Delaware corporation ("TSCI") with its chief
executive office and principal place of business at 4902 West Waters Avenue,
Tampa, Florida 33634-1302; FARAH INCORPORATED, a Texas corporation (to be
renamed Savane International Corp.) ("Farah"), having its chief executive office
and principal place of business at 4902 West Waters Avenue, Tampa, Florida
33634-1302; and APPAREL NETWORK CORPORATION, a Florida corporation ("Apparel"),
having its chief executive office and principal place of business at 4902 West
Waters Avenue, Tampa, Florida 33634-1302; any and all other direct or indirect
Subsidiaries of Tropical that are approved by Agent and that are an original
signatory hereto or that hereafter execute a "Joinder Agreement" pursuant to
this Agreement (hereinafter referred to collectively with Tropical, TSCI, Farah,
and Apparel as "Borrowers," and individually as a "Borrower"); the various
financial institutions listed on signature pages hereof and their respective
successors and permitted assigns which become "Lenders" as provided herein; and
FLEET CAPITAL CORPORATION, a Rhode Island corporation with an office at 300
Galleria Parkway, N.W., Suite 800, Atlanta, Georgia 30339, in its capacity as
collateral and administrative agent for the Lenders pursuant to Section 13
hereof (together with its successors in such capacity, "Agent"). Capitalized
terms used in this Agreement have the meanings assigned to them in Section 1,
General Definitions.
R E C I T A L S:
Each Borrower has requested that Lenders make available a revolving
credit facility to Borrowers, which shall be used by Borrowers to finance their
mutual and collective enterprise of manufacturing and distributing apparel.
In order to utilize the financial powers of each Borrower in the most
efficient and economical manner, and in order to facilitate the financing of
each Borrower's needs, Agent and Lenders will, at the request of any Borrower,
make loans to all Borrowers under the revolving credit facility on a combined
basis and in accordance with the provisions hereinafter set forth. Borrowers'
business is a mutual and collective enterprise and Borrowers believe that the
consolidation of all revolving credit loans under this Agreement will enhance
the aggregate borrowing powers of each Borrower and ease the administration of
their revolving credit loan relationship with Agent and Lenders, all to the
mutual advantage of Borrowers. Agent and Lenders' willingness to extend credit
to Borrowers and to administer each Borrower's collateral security therefor, on
a combined basis as more fully set forth in this Agreement, is done solely as an
accommodation to Borrowers and at Borrowers' request in furtherance of
Borrowers' mutual and collective enterprise.
Each Borrower has agreed to guarantee the obligations of each of the
other Borrowers under this Agreement and each of the other Loan Documents.
NOW, THEREFORE, for Ten Dollars ($10.00) and other good and valuable
consideration, the parties hereto hereby agree as follows:
<PAGE> 7
SECTION 1. GENERAL DEFINITIONS
Account - any right of a Borrower to payment for goods sold or
leased or for services rendered which is not evidenced by an Instrument
or Chattel Paper, whether or not it has been earned by performance.
Account Debtor - any Person who is or may become obligated
under or on account of an Account.
Accounts Formula Amount - on any date of determination
thereof, an amount equal to the sum of (a) 90% of the Factor Credit
Balances on such date plus (b) 85% of the net amount of Client Risk
Accounts that constitute Eligible Accounts on such date. As used
herein, the phrase "net amount of Client Risk Accounts" shall mean the
face amount of such Accounts on any date less any and all returns,
rebates, discounts (which may, at Agent's option, be calculated on
shortest terms), credits, allowances or Taxes (including sales, excise
or other taxes) at any time issued, owing, claimed by Account Debtors,
granted, outstanding or payable in connection with, or any interest
accrued on the amount of, such Accounts at such date.
Acquisition - the tender offer by Tropical, through Foxfire,
for all of the capital stock of Farah.
Acquisition Documents - the Tender Agreement, the Tender Offer
Statement and any and all documents, agreements, or instruments
executed or delivered in connection with the Acquisition.
Adjusted LIBOR Rate - with respect to each Interest Period for
a LIBOR Loan, an interest rate per annum (rounded upwards, to the next
1/16th of 1%) equal to the quotient of (a) the LIBOR Rate in effect for
such Interest Period divided by (b) a percentage (expressed as a
decimal) equal to 100% minus Statutory Reserves.
Affiliate - a Person (other than a Subsidiary): (i) which
directly or indirectly through one or more intermediaries controls, or
is controlled by, or is under common control with, a Person; (ii) which
beneficially owns or holds 10% or more of any class of the Equity
Interests of a Person; or (iii) 10% or more of Equity Interests with
power to vote of which is beneficially owned or held by another Person
or a Subsidiary of another Person. For purposes hereof, "control" means
the possession, directly or indirectly, of the power to direct or cause
the direction of the management and policies of a Person, whether
through the ownership of any Equity Interest, by contract or otherwise.
Agent Indemnitees - Agent in its capacity as agent hereunder
and under the other Loan Documents and all of Agent's present and
future officers, directors and agents.
Agreement - this Agreement and all Exhibits and Schedules
hereto.
Applicable Law - all laws, rules and regulations applicable to
the Person, conduct, transaction, covenant or Loan Documents in
question, including all applicable common law and equitable principles;
all provisions of all applicable state, federal and foreign
constitutions, statutes, rules, regulations and orders of governmental
bodies; and orders, judgments and decrees of all courts and
arbitrators.
Applicable Margin - a percentage equal to 2.75% with respect
to LIBOR Loans and 1.25% with respect to Base Rate Loans; provided
that, commencing January 1, 1999, if there exists no
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<PAGE> 8
Default or Event of Default, then the Applicable Margin shall be
increased or decreased, based upon the Consolidated Funded
Debt/Consolidated Cash Flow Ratio, as follows:
<TABLE>
<CAPTION>
Applicable
Margin for
Applicable Margin Applicable Margin for Unused Line
Leverage Ratio for Base Rate Loans LIBOR Loans Fee
-------------- ------------------- ----------- ---
<S> <C> <C> <C> <C>
(i) If the Consolidated Funded
Debt/Consolidated Cash
Flow Ratio is greater
than 4.25 to 1 1.25% 2.75% .50%
(ii) If the Consolidated Funded
Debt/ Consolidated
Cash Flow Ratio is greater
than or equal to 3.75 to 1 but
less than 4.25 to 1 .75% 2.25% .50%
(iii) If the Consolidated Funded .25% 1.75% .375%
Debt/ Consolidated Cash Flow
Ratio is greater than or
equal to 3.00 to 1 but less
than 3.75 to 1
(iv) If the Consolidated Funded .0% 1.25% .375%
Debt/ Consolidated Cash Flow
Ratio is greater than or
equal to 2.50 to 1 but less
than 3.00 to 1
(v) If the Consolidated Funded .0% 1.00% .25%
Debt/ Consolidated Cash Flow
Ratio is less than 2.50 to 1
</TABLE>
The Applicable Margin shall be subject to reduction or increase, as
applicable and as set forth in the table above, on a quarterly basis
according to the performance of Borrowers as measured by the
Consolidated Funded Debt/Consolidated Cash Flow Ratio on a cumulative
year-to-date basis through the Fiscal Year of Borrowers ending
September 30, 1998 and thereafter based upon the immediately preceding
4 Fiscal Quarters of Borrowers. Except as set forth in the last
sentence hereof, any such increase or reduction in the Applicable
Margin provided for herein shall be effective 3 Business Days after
receipt by Agent of the applicable financial statements and
corresponding Compliance Certificate. If the financial statements and
the Compliance Certificate of Borrowers setting forth the Consolidated
Funded Debt/Consolidated Cash Flow Ratio are not received by Agent by
the date required pursuant to Section 10.1.3 of this Agreement, the
Applicable Margin shall be deemed to be increased to the next highest
Applicable Margin, until such time as such financial statements and
Compliance Certificate are received and any Event of Default resulting
from a failure timely to deliver such financial statements or
Compliance Certificate is waived in writing by Agent and Lenders;
provided, however, that nothing herein shall be deemed to prevent Agent
and Lenders from charging interest at the Default Rate for so long as
an Event of Default exists. For example, if the Applicable Margin in
effect on such date is as set forth in item (iii) above, then the
Applicable Margin arising from Borrowers' failure to
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<PAGE> 9
deliver financial statements and the Compliance Certificate shall be
deemed to be the Applicable Margin set forth in item (ii) above. For
the final quarter of any fiscal year of Borrowers, Borrowers may
provide the unaudited financial statements of Borrowers, subject only
to year-end adjustments, for the purpose of determining the Applicable
Margin; provided, however, that if, upon delivery of the annual audited
financial statements required to be submitted by Borrowers to Agent
pursuant to Section 10.1.3(i) of this Agreement, Borrowers have not met
the criteria for reduction of the Applicable Margin pursuant to the
terms hereinabove for the final Fiscal Quarter of the Fiscal Year of
Borrowers then ended, then (a) such Applicable Margin reduction shall
be terminated and, effective on the first day of the month following
receipt by Agent of such audited financial statements, the Applicable
Margin shall be the Applicable Margin that would have been in effect if
such reduction had not been implemented based upon the unaudited
financial statements of Borrowers for the final Fiscal Quarter of the
Fiscal Year of Borrowers then ended, and (b) Borrowers shall pay to
Agent, for the Pro Rata benefit of the Lenders, on the first day of the
month following receipt by Agent of such audited financial statements,
an amount equal to the difference between the amount of interest that
would have been paid on the principal amount of the Obligations using
the Applicable Margin determined based upon such audited financial
statements and the amount of interest actually paid during the period
in which the reduction of the Applicable Margin was in effect based
upon the unaudited financial statements for the final Fiscal Quarter of
the Fiscal Year of Borrowers then ended.
Assignment and Acceptance - an assignment and acceptance
entered into by a Lender and an Eligible Assignee and accepted by
Agent, in the form of EXHIBIT F.
Availability - the amount that Borrowers are entitled to
borrow from time to time as Revolver Loans, such amount being the
difference derived when the sum of the principal amount of Revolver
Loans then outstanding (including any amounts that Agent or Lenders may
have paid for the account of Borrowers pursuant to any of the Loan
Documents and that have not been reimbursed by Borrowers and any
outstanding Swingline Loan) is subtracted from the Borrowing Base. If
the amount outstanding is equal to or greater than the Borrowing Base,
Availability is 0.
Availability Reserve - on any date of determination thereof,
an amount equal to the sum of (i) a reserve for general inventory
shrinkage, whether as a result of theft or otherwise, that is
determined by Agent from time to time in its reasonable credit judgment
based upon Borrowers' historical losses due to such shrinkage; (ii) all
amounts of past due rent or other charges owing at such time by any
Obligor to any landlord of any premises where any of the Collateral is
located; (iii) the LC Reserve; (iv) any amounts which any Obligor is
obligated to pay pursuant to the provisions of any of the Loan
Documents that Agent or any Lender elects to pay for the account of
such Obligor in accordance with authority contained in any of the Loan
Documents; (v) any amount received by Agent from the Business
Interruption Insurance Assignment and applied to the Revolver Loans;
(vi) the aggregate amount of reserves established by Agent in its
reasonable discretion in respect of ACH (automated clearinghouse)
transfers or obligations of Borrowers under any interest rate
protection agreement; (vii) the Factor Reserve; and (viii) for so long
as any Event of Default exists, such additional reserves as Agent in
its reasonable discretion may elect to impose from time to time,
without waiving any such Event of Default or Agent's entitlement to
accelerate the maturity of the Obligations as a consequence thereof.
Average Revolver Loan Balance - for any period, the amount
obtained by adding the aggregate of the unpaid balance of Revolver
Loans and LC Outstandings outstanding at the end of each day for the
period in question and by dividing such sum by the number of days in
such period.
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<PAGE> 10
Bank - Fleet National Bank and its successors and assigns.
Bankruptcy Code - title 11 of the United States Code.
Base Rate - a fluctuating interest rate equal to the higher
from time to time of: (i) the rate of interest announced or quoted by
Bank from time to time as its prime rate, which rate might not be the
lowest rate charged by Bank; and, if such prime rate for commercial
loans is discontinued by Bank as a standard, a comparable reference
rate designated by Bank as a substitute therefor shall be the Base
Rate, (ii) a rate of interest equal to 0.5% above the Federal Funds
Rate.
Base Rate Loan - a Loan, or portion thereof, during any period
in which it bears interest at a rate based upon the Base Rate.
Board of Governors - the Board of Governors of the Federal
Reserve Board.
Borrowing - a borrowing consisting of Loans of one Type made
on the same day by Lenders (or by Fleet in the case of a Borrowing
funded by Swingline Loans) or a conversion of a Loan or Loans of one
Type from Lenders on the same day.
Borrowing Base - on any date of determination thereof, an
amount equal to the lesser of: (a) the aggregate amount of the Revolver
Commitments on such date minus the aggregate unpaid principal amount of
LC Outstandings on such date, or (b) an amount equal to (i) the sum of
the Accounts Formula Amount plus the Inventory Formula Amount on such
date minus (ii) the Availability Reserve on such date.
Borrowing Base Certificate - a certificate, in the form
requested by Agent, by which Borrowers shall certify to Agent and
Lenders, with such frequency as Agent may request, the amount of the
Borrowing Base as of the date of the certificate (which date shall be
not more than one Business Day earlier than the date of submission of
such certificate to Agent) and the calculation of such amount.
Bridge Lender - Prudential Securities Credit Corporation, a
___________ corporation.
Bridge Loan Documents - collectively, (i) that certain Senior
Subordinated Loan Agreement dated as of June 10, 1998, by and between
Tropical and Bridge Lender, pursuant to which Bridge Lender has agreed
to make the Bridge Loan to Tropical and (ii) any and all other
agreements, documents or instruments executed or delivered in
connection with the Bridge Loan.
Bridge Loan - a loan not in excess of $100,000,000 to be made
by the Bridge Lender to Tropical on or before the Closing Date, the
proceeds of which loan will be used by Tropical to fund the
Acquisition.
Business Acquisition - any transaction, or any series of
related transactions, by which a Borrower or any of its Subsidiaries
directly or indirectly (a) acquires any ongoing business for all or
substantially all of the assets of any firm, partnership, joint
venture, corporation or division thereof, whether through the purchase
of assets, merger or otherwise or (b) acquires (in one transaction or
as the most recent transaction in a series of transactions) control of
at least a majority of the Equity Interests in any Person.
Business Day - any day excluding Saturday, Sunday and any
other day that is a legal holiday under the laws of the State of
Georgia or is a day on which banking institutions located
- 5 -
<PAGE> 11
in such state are closed; provided, however, that when used with
reference to a LIBOR Loan (including the making, continuing, prepaying
or repaying of any LIBOR Loan), the term "Business Day" shall also
exclude any day on which banks are not open for dealings in Dollar
deposits on the London interbank market.
Business Interruption Insurance Assignment - the Collateral
Assignment of Business Interruption Insurance to be executed by
Borrowers on the Closing Date in favor of Agent, for the Pro Rata
benefit of Lenders, in form and substance satisfactory to Agent, as
security for the payment of the Obligations.
Capital Expenditures - expenditures made or liabilities
incurred for the acquisition of any fixed assets or improvements,
replacements, substitutions or additions thereto which have a useful
life of more than one year, including the total principal portion of
Capitalized Lease Obligations.
Capitalized Lease Obligation - any Indebtedness represented by
obligations under a lease that is required to be capitalized for
financial reporting purposes in accordance with GAAP.
Cash Collateral - cash or Cash Equivalents, and any interest
earned thereon, that is deposited with Agent in accordance with this
Agreement for the Pro Rata benefit of Lenders as security for the
Obligations to the extent provided in this Agreement.
Cash Collateral Account - a demand deposit, money market or
other account established by Agent at such financial institution as
Agent may select in its discretion, which account shall be in Agent's
name and subject to Agent's Liens for the Pro Rata benefit of Lenders.
Cash Equivalents - (i) marketable direct obligations issued or
unconditionally guaranteed by the United States government and backed
by the full faith and credit of the United States government having
maturities of not more than 12 months from the date of acquisition;
(ii) domestic certificates of deposit and time deposits having
maturities of not more than 12 months from the date of acquisition,
bankers' acceptances having maturities of not more than 12 months from
the date of acquisition and overnight bank deposits, in each case
issued by any commercial bank organized under the laws of the United
States, any state thereof or the District of Columbia, which at the
time of acquisition are rated A-1 (or better) by Standard & Poor's
Corporation or P-1 (or better) by Moody's Investors Services, Inc., and
(unless issued by a Lender) not subject to offset rights in favor of
such bank arising from any banking relationship with such bank; (iii)
repurchase obligations with a term of not more than 30 days for
underlying securities of the types described in clauses (i) and (ii)
entered into with any financial institution meeting the qualifications
specified in clause (ii) above; and (iv) commercial paper having at the
time of investment therein or a contractual commitment to invest
therein a rating of A-1 (or better) by Standard & Poor's Corporation or
P-1 (or better) by Moody's Investors Services, Inc., and having a
maturity within 9 months after the date of acquisition thereof.
CERCLA - the Comprehensive Environmental Response Compensation
and Liability Act, 42 U.S.C. ss. 9601 et seq. and its implementing
regulations.
Chattel Paper - shall have the meaning given to "chattel
paper" in the UCC.
Claims - any and all claims, demands, liabilities,
obligations, losses, damages, penalties, actions, judgments, suits,
awards, remedial response, costs, expenses or disbursements of any kind
or nature whatsoever (including reasonable attorneys', accountants',
consultants' or paralegal fees and expenses), whether arising under or
in connection with the Loan Documents, under any
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<PAGE> 12
Applicable Law (including any Environmental Law) or otherwise, that may
now or hereafter be suffered or incurred by a Person and whether
suffered or incurred in or as a result of any investigation,
litigation, arbitration or other judicial or non-judicial proceeding or
any appeals related thereto.
Client Risk Account - a Factored Account with respect to which
a Borrower bears the Credit Risk or any Eligible Account that is not a
Factored Account.
Closing Date - the date on which all of the conditions
precedent in Section 11 of this Agreement are satisfied and the initial
Loans are made under this Agreement.
Collateral - all of the Property and interests in Property
described in Section 7 of this Agreement, and all other Property and
interests in Property that now or hereafter secure the payment and
performance of any of the Obligations.
Committed Term - as defined in Section 6.1 of this Agreement.
Commitment - at any date for any Lender, the aggregate amount
of such Lender's Revolver Commitment and "Commitments" means the
aggregate amount of all Revolver Commitments.
Commitment Termination Date - the date that is the soonest to
occur of (i) the close of business on June 10, 2003, (ii) the date on
which Borrowers elect to terminate the Commitments pursuant to Section
6.2.2 of this Agreement, or (iii) the date on which the Commitments are
terminated in accordance with Section 12.2 of this Agreement.
Compliance Certificate - a Compliance Certificate to be
provided by Borrowers to Agent in accordance with, and in the form
annexed as EXHIBIT D to, this Agreement.
Consolidated - the consolidation in accordance with GAAP of
the accounts or other items as to which such term applies.
Consolidated Cash Flow - with respect to any period,
Consolidated EBITDA minus unfinanced Capital Expenditures.
Consolidated EBITDA - for any fiscal period of Borrowers,
Borrowers' (i) income (or loss) before interest and taxes plus, (ii) to
the extent deducted in determining such income (or loss), depreciation,
amortization and other similar non-cash charges and reserves other than
non-cash charges or credits resulting from changes in prepaid assets of
accrued liabilities in the ordinary course of business, minus (iii) to
the extent recognized in determining such income (or loss),
extraordinary gains (or losses), restructuring charges or other
non-recurring items or expenses associated with the Acquisition up to
$5,000,000 in the aggregate. For all purposes of this Agreement,
Consolidated EBITDA shall be calculated for the period of four
consecutive Fiscal Quarters ended on the last date of the most recent
Fiscal Quarter for which financial statements have been provided
pursuant to Section 10.1.3 hereof except that for the fourth Fiscal
Quarter of Fiscal Year 1998 and the first and second Fiscal Quarters of
Fiscal Year 1999, Consolidated EBITDA shall be calculated as follows:
Fourth Fiscal Quarter 1998: Consolidated EBITDA for the fourth
Fiscal Quarter of Fiscal Year 1998 multiplied by 4.
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<PAGE> 13
First Fiscal Quarter 1999: Consolidated EBITDA for the fourth
Fiscal Quarter of Fiscal Year 1998 and the first Fiscal
Quarter of Fiscal Year 1999 multiplied by 2.
Second Fiscal Quarter 1999: Consolidated EBITDA for the fourth
Fiscal Quarter of Fiscal Year 1998 and the first and second
Fiscal Quarters of Fiscal Year 1999 divided by 3 and then
multiplied by 4.
Consolidated Fixed Charge Coverage - with respect to any
fiscal period, the ratio of (a) Consolidated EBITDA minus Borrowers'
Capital Expenditures that are not financed with proceeds made available
to Borrowers by another Person minus income taxes for such period to
(b) the sum of all Consolidated Fixed Charges for such period.
Consolidated Fixed Charges - with respect to any fiscal
period, the sum of Borrowers' (a) interest expense plus (b) the
aggregate of all actual principal payments of Debt for Money Borrowed,
plus (c) cash Distributions permitted by this Agreement whether
declared or paid.
Consolidated Funded Debt/Consolidated Cash Flow Ratio - with
respect to any fiscal period, the ratio of Consolidated Funded Debt
(including the Bridge Loan and all indebtedness evidenced by the Senior
Subordinated Notes) to Consolidated Cash Flow for such period.
Consolidated Funded Debt/Consolidated EBITDA - for any date,
the ratio of (i) Consolidated Funded Debt outstanding on such date to
(ii) Consolidated EBITDA.
Consolidated Senior Debt/Consolidated EBITDA - for any date,
the ratio of (i) all Funded Debt (other than the Bridge Loan or the
indebtedness evidenced by the Senior Subordinated Notes) outstanding on
such date to (ii) Consolidated EBITDA.
Consolidated Tangible Net Worth - on any date of
determination, the Consolidated net worth of Borrowers on such date as
determined in accordance with GAAP, after deducting therefrom the
amount of all intangible items reflected therein, including all
unamortized debt discount and expense, unamortized research and
development expense, unamortized deferred charges, goodwill, patents,
trademarks, service marks, trade names, copyrights, unamortized excess
cost of investment in Subsidiaries over equity at dates of acquisition,
and all similar items which should properly be treated as intangibles
in accordance with GAAP.
Convertible Debentures - 8.50% Convertible Subordinated
Debentures of Farah due 2004 in the aggregate principal amount of
$1,700,000.
Credit Risk - as defined in the Factoring Agreements.
Current Assets - at any date, the amount at which all of the
current assets of a Person would be properly classified as current
assets shown on a balance sheet at such date in accordance with GAAP
except that amounts due from Affiliates and investments in Affiliates
shall be excluded therefrom.
Debt for Money Borrowed - means, as applied to any Person, (i)
Indebtedness arising from the lending of money by any other Person to
such Person; (ii) Indebtedness, whether or not in any such case arising
from the lending of money by another Person to such Person, (A) which
is represented by notes payable or drafts accepted that evidence
extensions of credit, (B) which constitutes obligations evidenced by
bonds, debentures, notes or similar instruments, or (C) upon which
interest charges are customarily paid (other than accounts payable) or
that was issued or
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<PAGE> 14
assumed as full or partial payment for Property; (iii) Indebtedness
that constitutes a Capitalized Lease Obligation; (iv) reimbursement
obligations with respect to letters of credit or guaranties of letters
of credit and (v) Indebtedness of such Person under any guaranty of
obligations that would constitute Debt for Money Borrowed under clauses
(i) through (iii) hereof, if owed directly by such Person.
Debt Subordination Agreement - the Debt Subordination
Agreement dated the date hereof among TSCI, Tropical and Agent,
pursuant to which TSCI has agreed to subordinate all indebtedness owing
by Tropical to TSCI to the prior payment in full of the Obligations.
Default - an event or condition the occurrence of which would,
with the lapse of time or the giving of notice, or both, become an
Event of Default.
Default Rate - a fluctuating rate per annum which, on any
date, is equal to the Applicable Margin in effect for such date plus
2%.
Deposit Account - a demand, time, savings, passbook, money
market or other depository account, or a certificate of deposit,
maintained by a Borrower with any bank, savings and loan association,
credit union or other depository institution.
Deposit Account Assignment - the Collateral Assignment of
Deposit Accounts to be executed by Borrowers on the Closing Date in
favor of Agent for itself and the Pro Rata benefit of Lenders as
security for the Obligations.
Distribution - in respect of any entity, (i) any payment of
any dividends or other distributions on Equity Interests of the entity
(except distributions in such Equity Interests) and (ii) any purchase,
redemption or other acquisition or retirement for value of any Equity
Interests of the entity or any Affiliate of the entity unless made
contemporaneously from the net proceeds of the sale of Equity
Interests.
Document - shall have the meaning given to the term "document"
in the UCC.
Dollars and the sign $ - lawful money of the United States of
America.
Domestic Subsidiary - a Subsidiary of a Borrower that is
incorporated under the laws of a state of the United States.
Dominion Account - a special account of Agent established by
Borrowers at a bank selected by Borrowers, but acceptable to Agent and
Lenders in their discretion, and over which Agent shall have sole and
exclusive access and control for withdrawal purposes.
Due From Factor Report - a report prepared by Borrowers that
reflects the amount of Factored Accounts on such date.
Eligible Account - an Account which arises in the ordinary
course of a Borrower's business from the sale of goods, is payable in
Dollars, is subject to Agent's duly perfected Lien, and is deemed by
Agent, in its sole credit judgment, to be an Eligible Account. Without
limiting the generality of the foregoing, no Account shall be an
Eligible Account if: (i) it arises out of a sale made by a Borrower to
a Subsidiary or an Affiliate of any Borrower or to a Person controlled
by an Affiliate of any Borrower; (ii) it is unpaid for more than 60
days after the original due date shown on the invoice; (iii) it is due
or unpaid more than 90 days after the original invoice date;
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<PAGE> 15
(iv) 50% or more of the Accounts from the Account Debtor are not deemed
Eligible Accounts hereunder; (v) the total unpaid Accounts of the
Account Debtor exceed 20% of the net amount of all Eligible Accounts or
exceeds a credit limit established by Agent for such Account Debtor, in
each case to the extent of such excess; (vi) any covenant,
representation or warranty contained in this Agreement with respect to
such Account has been breached; (vii) the Account Debtor is also a
Borrower's creditor or supplier, or the Account Debtor has disputed
liability with respect to such Account, or the Account Debtor has made
any claim with respect to any other Account due from such Account
Debtor to a Borrower, or the Account otherwise is or may become subject
to any right of setoff, counterclaim, reserve or chargeback, provided
that, the Accounts of such Account Debtor shall be ineligible only to
the extent of such offset, counterclaim, disputed amount, reserve or
chargeback; (viii) an Insolvency Proceeding has been commenced by or
against the Account Debtor or the Account Debtor has failed, suspended
business or ceased to be Solvent; (ix) it arises from a sale to an
Account Debtor with its principal office, assets or place of business
outside the United States (other than Canada or Puerto Rico), unless
the sale is backed by an irrevocable letter of credit that is issued or
confirmed by a bank acceptable to Agent that is in form and substance
acceptable to Agent and payable in the full amount of the Account in
Dollars at a place of payment within the United States, and, if
requested by Agent, such letter of credit, or amounts payable
thereunder, is assigned to Agent; (x) it arises from a sale to the
Account Debtor on a bill-and-hold, guaranteed sale, sale-or-return,
sale-on-approval, consignment or any other repurchase or return basis;
(xi) the Account Debtor is the United States of America or any
department, agency or instrumentality thereof, unless such Borrower is
not prohibited from assigning the Account and does assign its right to
payment of such Account to Agent, in a manner satisfactory to Agent, so
as to comply with the Assignment of Claims Act of 1940 (31 U.S.C.
ss.3727 and 41 U.S.C. ss.15), or is a state, county or municipality, or
a political subdivision or agency thereof and Applicable Law disallows
or restricts an assignment of Accounts on which it is the Account
Debtor; (xii) the Account Debtor is located in a state in which such
Borrower is deemed to be doing business under the laws of such state
and which denies creditors access to its courts in the absence of
qualification to transact business in such state or of the filing of
any reports with such state, unless such Borrower has qualified as a
foreign entity authorized to transact business in such state or has
filed all required reports; (xiii) the Account is subject to a Lien
other than a Permitted Lien; (xiv) the goods giving rise to such
Account have not been delivered to and accepted by the Account Debtor;
(xv) the Account is evidenced by Chattel Paper or an Instrument of any
kind, or has been reduced to judgment; (xvi) such Borrower has made any
agreement with the Account Debtor for any deduction therefrom, except
for discounts or allowances which are made in the ordinary course of
business for prompt payment and which discounts or allowances are
reflected in the calculation of the face value of each invoice related
to such Account; or (xvii) such Borrower has made an agreement with the
Account Debtor to extend the time of payment thereof.
Eligible Assignee - a Lender or a U.S. based Affiliate of a
Lender; a commercial bank organized under the laws of the United States
or any state and having total assets in excess of $5,000,000,000 or an
asset based lending affiliate of any such bank; or a finance company,
insurance company, or any other financial institution that is
acceptable to Agent and Lenders and that in the ordinary course of
business extends credit of the type evidenced by the Notes and has
total assets in excess of $500,000,000.
Eligible Inventory - such Inventory of a Borrower (other than
packaging materials, labels and supplies) which Agent, in its sole
credit judgment, deems to be Eligible Inventory. Without limiting the
generality of the foregoing, no Inventory shall be Eligible Inventory
unless: (i) it is raw materials or finished goods; (ii) it is owned by
a Borrower and not held by it on consignment; (iii) it is in good, new
and saleable condition; (iv) it is not slow-moving, obsolete or
unmerchantable; (v) it meets all standards imposed by any governmental
agency or authority; (vi)
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<PAGE> 16
it conforms in all respects to the warranties and representations set
forth in this Agreement; (vii) it is at all times subject to Agent's
duly perfected, first priority security interest and no other Lien
except a Permitted Lien; (viii) it is in a Borrower's possession and
control, situated at a location in compliance with this Agreement and
is not in transit or outside the continental United States; and (ix) it
is not subject to any license or other agreement that limits,
conditions or restricts such Borrower's or Agent's right to sell or
otherwise dispose of such Inventory; and (x) it is not the subject of
an Intellectual Property Claim.
Environmental Certificate - the Certificate Regarding
Environmental Matters to be executed by a Senior Officer and containing
representations and warranties concerning each Borrower's and its
Subsidiaries' compliance with Environmental Laws.
Environmental Laws - all federal, state and local laws, rules,
regulations, codes, ordinances, programs, permits, guidance documents
promulgated by regulatory agencies, orders and consent decrees, now or
hereafter in effect and relating to human health and safety or the
protection or pollution of the environment, including CERCLA.
Environmental Release - a release as defined in and reportable
under CERCLA or under any applicable Environmental Law.
Equipment - all machinery, apparatus, equipment, fittings,
furniture, fixtures and other tangible personal Property (other than
Inventory) of every kind and description used in a Borrower's
operations or owned by a Borrower or in which a Borrower has an
interest, whether now owned or hereafter acquired by a Borrower and
wherever located, and all parts, accessories and special tools and all
increases and accessions thereto and substitutions and replacements
therefor.
Equity Interest - the interest of (i) a shareholder in a
corporation, (ii) a partner (whether general or limited) in a
partnership (whether general, limited or limited liability), (iii) a
member in a limited liability company, or (iv) any other Person having
any other form of equity security or ownership interest.
ERISA - the Employee Retirement Income Security Act of 1974,
as amended, and all rules and regulations from time to time promulgated
thereunder.
Event of Default - as defined in Section 12 of this Agreement.
Exchange Note - a note or other similar security that is
registered under the Securities Act of 1933 and that is exchanged for a
Senior Subordinated Note or a Note under the Bridge Loan pursuant to an
exchange offer.
Extraordinary Expenses - all costs, expenses, fees, and
advances which Agent may suffer or incur, whether prior to or after the
occurrence of an Event of Default, on account of or in connection with
(i) the repossession, storage, repair, appraisal, insuring, completion
of the manufacture of, preparing for sale, advertising for sale,
selling, collecting or otherwise preserving or realizing upon any
Collateral; (ii) the defense of Agent's Lien upon any Collateral or the
priority thereof or any adverse claim with respect to the Loans, the
Loan Documents or the Collateral asserted by any Obligor, any receiver
or trustee for any Obligor or any creditor or representative of
creditors of any Obligor; (iii) the settlement or satisfaction of any
Liens upon any Collateral (whether or not such Liens are Permitted
Liens); (iv) the collection of any of the Obligations; (v) the
negotiation, documentation, and closing of any restructuring or
forbearance
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<PAGE> 17
agreement with respect to the Loan Documents or Obligations; (vi)
amounts advanced by Agent pursuant to Section 8.1.3 of this Agreement;
(vii) the enforcement of any of the provisions of any of the Loan
Documents; or (viii) any payment under indemnity or other payment
agreement provided by Agent to any financial institution in connection
with any Dominion Account. Such costs, expenses and advances may
include transfer fees, taxes, storage fees, insurance costs, permit
fees, utility reservation and standby fees, legal fees, appraisal fees,
brokers' fees and commissions, auctioneers' fees and commissions,
accountants' fees, environmental study fees, wages and salaries paid to
employees of any or all Borrowers or independent contractors in
liquidating any Collateral, travel expenses, all other fees and
expenses payable or reimbursable by Borrowers or any other Obligor
under any of the Loan Documents, and all other fees and expenses
associated with the enforcement of rights or remedies under any of the
Loan Documents, but excluding compensation paid to employees (including
inside legal counsel who are employees) of Agent.
Factors - Heller, NationsBanc and each other Person who
executes a Factoring Agreement with a Borrower and is approved by Agent
and Lenders in writing.
Factor Assignment Agreements - collectively, (i) the
Assignment of Factoring Proceeds dated of even date herewith between
Tropical and Agent, and consented to by Heller, pursuant to which,
among other things, Tropical has collaterally assigned to Agent and
Heller has acknowledged the assignment to Agent of, all sums at any
time or times due or to become due from Heller under its Factoring
Agreement, (ii) the Assignment of Factoring Proceeds dated of even date
herewith between Farah and Agent, and consented to by NationsBanc,
pursuant to which, among other things, Farah has collaterally assigned
to Agent and NationsBanc has acknowledged the assignment to Agent of,
all sums at any time or times due or to become due from NationsBanc
under its Factoring Agreement, and (iii) any and all other assignments
of factoring proceeds executed by a Borrower in favor of Agent in
connection with a factoring arrangement of a Borrower.
Factor Credit Balances - on any date of determination thereof,
an amount equal to the aggregate of all outstanding Factored Accounts
with respect to which a Factor bears the Credit Risk on such date,
minus the sum of any fees, commissions or other charges due from a
Borrower to such Factor on such date under its Factoring Agreement,
including any deductions for credit loss sharing, which amount, on any
date of determination thereof, shall be deemed to be, when the date of
determination is the date of a Factor Status Statement, the amount
reflected on such Factor Status Statement as the aggregate balance
standing to the credit of Borrowers, and when the date of determination
is any other date, an amount equal to the aggregate balances standing
to the credit of Borrowers as reflected on the Due From Factor Report
delivered to Agent by Borrowers on such date, or, in the absence of the
delivery of a Due From Factor Report on any date, an amount determined
by Agent in sole and absolute discretion.
Factor Intercreditor Agreements - collectively, (i) the Factor
Intercreditor Agreement dated of even date herewith between Heller and
Agent by which, among other things, such parties have established the
relative priorities of their Liens with respect to Tropical's Accounts,
(ii) the Factor Intercreditor Agreement dated of even date herewith
between NationsBanc and Agent by which, among other things, such
parties have established the relative priorities of their Liens with
respect to Farah's Accounts, and (iii) any and all other intercreditor
agreements executed by a Factor and Agent in connection with a
factoring arrangement of a Borrower.
Factor Reserve - the amount which at any time may be charged
to a Borrower under a Factoring Agreement or withheld from sums
otherwise due to a Borrower under a Factoring Agreement, including
interest, fees, commissions, ledger debt and other charges due a Factor
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<PAGE> 18
under a Factoring Agreement and the amount of any actual or anticipated
disputes or claims arising with respect to any Factored Account.
Factor Status Statement - an account current statement or
similar report issued by a Factor on a monthly basis under its
Factoring Agreement and setting forth the status of the Factored
Accounts under such Factoring Agreement.
Factored Account - an Account factored by a Factor under a
Factoring Agreement.
Factoring Agreements - collectively, (i) that certain
Factoring Agreement dated as of October 1, 1995, between Tropical and
Heller, (ii) that certain Factoring Agreement dated June 8, 1998,
between Farah and NationsBanc, and (iii) any and all other factoring
agreements executed by a Borrower in favor of a Factor.
Farah Domestic Subsidiaries - Farah U.S.A., Farah
International and Savane.
Farah International - Farah International, Inc., a Texas
corporation.
Farah Subsidiaries Merger - the merger of the Farah Domestic
Subsidiaries with and into Farah, with Farah being the surviving entity
after the consummation of such merger.
Farah U.S.A. - Farah U.S.A., Inc., a Texas corporation.
Federal Funds Rate - for any period, a fluctuating interest
rate per annum equal for each date during such period to the weighted
average of the rates on overnight federal funds transactions with
members of the Federal Reserve System arranged by federal funds
brokers, as published for such day (or, if such day is not a Business
Day, for the next preceding Business Day) in Atlanta, Georgia by the
Federal Reserve Bank of Atlanta, or if such rate is not so published
for any day which is a Business Day, the average of the quotations for
such day on such transactions received by Agent from 3 federal funds
brokers of recognized standing selected by Agent.
Fee Letter - the Fee Letter dated April 27, 1998, between
Tropical and Agent.
Fiscal Quarter - each consecutive period of 13 weeks beginning
on the first day of a Fiscal Year (and, in the case of any Fiscal Year
of 53 weeks, the 14-week period occurring during such period).
Fiscal Year - the fiscal year of Borrowers and their
Subsidiaries for accounting and tax purposes, which ends on the
Saturday nearest September 30th of each year.
Fleet - Fleet Capital Corporation, a Rhode Island corporation,
and its successors and assigns.
Fleet Indemnitees - Fleet and all of its present and future
officers, directors and agents.
Foreign Contractor - a Person that processes Inventory of a
Borrower and that is located outside of the United States.
Foreign Subsidiary - a Subsidiary that is not a Domestic
Subsidiary.
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<PAGE> 19
Foxfire - Foxfire Acquisition Corp., a Texas corporation and a
wholly-owned Subsidiary of Tropical.
Foxfire Merger - the Merger of Foxfire with and into Farah,
with Farah being the surviving entity after the consummation of such
Merger.
Funded Debt - all Debt for Money Borrowed which would, in
accordance with GAAP, constitute long term debt, including (a) any Debt
with a maturity more than one year after the creation thereof and (b)
any Debt for Money Borrowed which is renewable or extendable at the
option of a Borrower for a period of more than one year from the date
of creation of such Debt for Money Borrowed, including the Revolver
Loans and LC Outstandings.
Funding Account - an account or accounts established by any
Borrower or any of them for receipt of proceeds of Loans or such other
account as Borrowers may specify in writing.
GAAP - generally accepted accounting principles in the United
States of America in effect from time to time.
General Intangibles - all general intangibles of a Borrower,
whether now owned or hereafter created or acquired by a Borrower,
including all choses in action, causes of action, company or other
business records, inventions, blueprints, designs, patents, patent
applications, trademarks, trademark applications, trade names, trade
secrets, service marks, goodwill, brand names, copyrights,
registrations, licenses, franchises, customer lists, tax refund claims,
computer programs, operational manuals, all claims under guaranties,
security interests or other security held by or granted to a Borrower
to secure payment of any of any of a Borrower's Accounts by an Account
Debtor, all rights to indemnification and all other intangible property
of a Borrower of every kind and nature (other than Accounts).
Governmental Approvals - all authorizations, consents,
approvals, licenses and exemptions of, registrations and filings with,
and reports to, all national state or local government (whether
domestic or foreign) and any political subdivisions thereof in any
other governmental, quasi-governmental, judicial, administrative,
public or statutory instrumentality, authority, body, agency, bureau or
entity.
Guarantors - each Domestic Subsidiary and each other Person
who may hereafter guarantee payment or performance of the whole or any
part of the Obligations.
Heller - Heller Financial, Inc., a Delaware corporation.
Indebtedness - as applied to a Person means, without
duplication: (i) all items which in accordance with GAAP would be
included in determining total liabilities as shown on the liability
side of a balance sheet of such Person as of the date as of which
Indebtedness is to be determined, including Capitalized Lease
Obligations; (ii) all obligations of other Persons which such Person
has guaranteed; (iii) all reimbursement obligations in connection with
letters of credit or letter of credit guaranties issued for the account
of such Person; and (iv) in the case of Borrowers (without
duplication), the Obligations.
Indemnified Amount - in the case of Agent Indemnitees, the
amount of any loss, cost, expenses or damages suffered or incurred by
Agent Indemnitees and against which Lenders or any Obligor have agreed
to indemnify Agent Indemnitees pursuant to the terms of this Agreement
or any of the other Loan Documents; in the case of Lender Indemnitees,
the amount of any loss, cost,
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<PAGE> 20
expenses or damages suffered or incurred by Lender Indemnitees and
against which Lenders or any Obligor have agreed to indemnify Lender
Indemnitees pursuant to the terms of this Agreement or any of the other
Loan Documents; and, in the case of Fleet Indemnitees, the amount of
any loss, cost, expenses or damages suffered or incurred by Fleet
Indemnitees and against which Lenders or any Obligor have agreed to
indemnify Fleet Indemnitees pursuant to the terms of this Agreement or
any of the other Loan Documents.
Indemnitees - the Agent Indemnities, the Fleet Indemnities and
the Lender Indemnities.
Indenture - the Indenture among Tropical, certain of its
Subsidiaries and the Trustee.
Insolvency Proceeding - any action, case or proceeding
commenced by or against a Person, or any agreement of such Person, for
(a) the entry of an order for relief under any chapter of the
Bankruptcy Code or other insolvency or debt adjustment law (whether
state, federal or foreign), (b) the appointment of a receiver, trustee,
liquidator or other custodian for such Person or any part of its
Property, (c) an assignment or trust mortgage for the benefit of
creditors of such Person, or (d) the liquidation, dissolution or
winding up of the affairs of such Person.
Instrument - shall have the meaning ascribed to the term
"instrument" in the UCC.
Intellectual Property - Property of a Borrower or its Domestic
Subsidiary constituting under any Applicable Law a patent, patent
application, copyright, trademark, service mark, tradename or mask
work, or license or other right to use any of the foregoing.
Intellectual Property Claim - the assertion by any Person of a
claim (whether asserted in writing, by action, suit or proceeding or
otherwise) that a Borrower's ownership, use, marketing, sale or
distribution of any Inventory, Equipment, Intellectual Property or
other Property is violative of any ownership, patent, copyright,
trademark, trade secret or other rights of such Person.
Interest Period - shall have the meaning ascribed to it in
Section 3.1.3 of this Agreement.
Inventory - all of a Borrower's inventory, whether now owned
or hereafter acquired, including all goods intended for sale or lease
by a Borrower, or for display or demonstration; all work in process;
all raw materials and other materials and supplies of every nature and
description used or which might be used in connection with the
manufacture, printing, packing, shipping, advertising, selling, leasing
or furnishing of such goods or otherwise used or consumed in a
Borrower's business; and all Documents evidencing and General
Intangibles relating to any of the foregoing, whether now owned or
hereafter acquired by a Borrower.
Inventory Formula Amount - on any date of determination
thereof, an amount equal to the lesser of (i) $45,000,000 or (ii) 60%
of the Value of Eligible Inventory on such date consisting of raw
materials or finished goods (with advances against Eligible Inventory
to increase to 80% during a 120-day period between November 1 and March
31 of each year).
Investment Property - all Securities (whether certificated or
uncertificated), security entitlements, securities accounts, commodity
contracts and commodity accounts.
Joinder Agreement - an agreement executed by a new Borrower
pursuant to Section 2.3 hereof, which agreement shall be in
substantially the form of Exhibit I attached hereto.
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<PAGE> 21
LC Application - an application by a Borrower to Bank, on a
form approved by Bank, for the issuance of a Letter of Credit, with
Fleet as a co-applicant, that is submitted to Bank at least 5 Business
Days prior to the requested issuance date of such Letter of Credit.
LC Conditions - the following conditions, the satisfaction of
each of which is required before Fleet shall be obligated to join in
the execution of an LC Application in connection with a request to Bank
for the issuance of a Letter of Credit: (i) each of the conditions set
forth in Section 11 of this Agreement has been and continues to be
satisfied, including the absence of any Default or Event of Default;
(ii) after giving effect to the issuance of the requested Letter of
Credit and all other unissued Letters of Credit for which an LC
Application has been signed by Fleet, the LC Outstandings would not
exceed in the aggregate $20,000,000 with respect to documentary Letters
of Credit or $500,000 with respect to standby Letters of Credit and no
Out-of-Formula Condition would exist, and, if no Revolver Loans are
outstanding, the LC Outstandings do not exceed the Borrowing Base;
(iii) the expiry date of the Letter of Credit does not extend beyond
the earlier to occur of 365 days from the date of issuance or the 30th
day prior to the last Business Day of the Committed Term; and (iv) the
currency in which payment is to be made under the Letter of Credit is
Dollars.
LC Documents - any and all agreements, instruments and
documents (other than an LC Application or an LC Support) required by
Bank to be executed by any or all Borrowers or any other Person and
delivered to Bank for the issuance of a Letter of Credit.
LC Facility - a subfacility of the Revolver Facility
consisting of LC Outstandings in an aggregate amount not to exceed
$20,500,000.
LC Outstandings - on any date of determination thereof, an
amount (in Dollars) equal to the sum of (i) all amounts then due and
payable by any Obligor on such date by reason of any payment made on or
before such date by Fleet under any LC Support plus (ii) the aggregate
undrawn amount of all Letters of Credit then outstanding or to be
issued by Bank under an LC Application theretofore submitted to Bank.
LC Request - a Letter of Credit Procurement Request from any
or all Borrowers to Fleet in the form of Exhibit H hereto.
LC Reserve - at any date, (i) 40% of the face amount of all
documentary Letters of Credit outstanding on such date plus (ii) 100%
of the face amount of all standby Letters of Credit outstanding on such
date.
LC Support - a guaranty or other support agreement from Fleet
in favor of Bank pursuant to which Fleet shall guarantee or otherwise
assure the payment or performance by the parties (other than Fleet) to
an LC Application of such parties' obligations with respect to such
Letter of Credit, including the obligation of such parties to reimburse
Bank for any payment made by Bank under such Letter of Credit.
Lender Indemnitee - a Lender in its capacity as a lender under
this Agreement and its present and future officers, directors and
agents.
Lenders - each of the financial institutions listed on the
signature pages hereof, together with their respective successors and
permitted assigns pursuant to Section 14.1 hereof, including Fleet as
the procurer of Letters of Credit and as the provider of Swingline
Loans.
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<PAGE> 22
Letter of Credit - any standby letter of credit or documentary
letter of credit issued by Bank for the account of any or all
Borrowers.
Letter of Credit Fee Letter - the Letter of Credit Fee Letter
dated June 10, 1998, among Borrowers and Agent.
LIBOR Lending Office - with respect to a Lender, the office
designated as a LIBOR Lending Office for such Lender on the signature
page hereof (or on any Assignment and Acceptance, in the case of an
assignee) and such other office of such Lender or any of its Affiliates
that is hereafter designated by written notice to Agent.
LIBOR Loan - a Loan, or portion thereof, during any period in
which it bears interest at a rate based upon the applicable Adjusted
LIBOR Rate.
LIBOR Rate - with respect to an Interest Period, the rate per
annum determined by Agent at which deposits of Dollars approximately
equal in principal amount to or comparable to the amount of the LIBOR
Loan to which such Interest Period relates and for a term comparable to
such Interest Period are offered to Bank by prime banks in the London
interbank foreign currency deposits market at approximately 11:00 a.m.,
London time, 2 Business Days prior to the commencement of such Interest
Period. Each determination by Agent of any LIBOR Rate shall, in the
absence of any manifest error, be conclusive.
Licensor - any Person from whom a Borrower licenses the right
to use any trademark, copyright or other intangible in connection with
the manufacture, marketing or sale of any Inventory.
License Agreement - any agreement between a Borrower and a
Licensor pursuant to which such Borrower markets, manufactures or sells
Inventory.
Lien - any interest in Property securing an obligation owed
to, or a claim by, a Person other than the owner of the Property,
whether such interest is based on common law, statute or contract. The
term "Lien" shall also include reservations, exceptions, encroachments,
easements, rights-of-way, covenants, conditions, restrictions, leases
and other title exceptions and encumbrances affecting Property. For the
purpose of this Agreement, each Borrower shall be deemed to be the
owner of any Property which it has acquired or holds subject to a
conditional sale agreement or other arrangement pursuant to which title
to the Property has been retained by or vested in some other Person for
security purposes.
Loan - each Revolver Loan.
Loan Account - the loan account established by each Lender on
its books pursuant to Section 5.7 of this Agreement.
Loan Documents - this Agreement, the Other Agreements and the
Security Documents.
Margin Stock - shall have the meaning ascribed to it in
Regulation U of the Board of Governors.
Material Adverse Effect - the effect of any event or condition
which, alone or when taken together with other events or conditions
occurring or existing concurrently therewith, (i) has a material
adverse effect upon the business, operations, Properties or condition
(financial or
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<PAGE> 23
otherwise) of any Borrower; (ii) has or may be reasonably expected to
have any material adverse effect whatsoever upon the validity or
enforceability of this Agreement or any of the other Loan Documents;
(iii) has any material adverse effect upon the value of the whole or
any material part of the Collateral, the Liens of Agent with respect to
the Collateral or the priority of any such Liens; (iv) materially
impairs the ability of any Borrower to perform its obligations under
this Agreement or any of the other Loan Documents, including repayment
of any of the Obligations when due; or (v) materially impairs the
ability of Agent or any Lender to enforce or collect the Obligations or
realize upon any of the Collateral in accordance with the Loan
Documents and Applicable Law.
Maximum Rate - the maximum non-usurious rate of interest
permitted by Applicable Law that at any time, or from time to time, may
be contracted for, taken, reserved, charged or received on the
Indebtedness in question or, to the extent that at any time Applicable
Law may thereafter permit a higher maximum non-usurious rate of
interest, then such higher rate. Notwithstanding any other provision
hereof, the Maximum Rate shall be calculated on a daily basis (computed
on the actual number of days elapsed over a year of 365 or 366 days, as
the case may be).
Material Contract - an agreement to which an Obligor is a
party (other than the Loan Documents) for which breach, termination,
cancellation, nonperformance or failure to renew could reasonably be
expected to have a Material Adverse Effect.
Merger Documents - any and all agreements, instruments or
documents executed or delivered in connection with the Mergers.
Mergers - the Farah Subsidiaries Merger and the Foxfire
Merger.
Multiemployer Plan - has the meaning set forth in Section
4001(a)(3) of ERISA.
NationsBanc - NationsBanc Commercial Corporation, a Georgia
corporation.
Net Proceeds - proceeds (including cash receivable (when
received) by way of deferred payment) received by a Borrower in cash
from the sale, lease, transfer or other disposition of any Property,
including insurance proceeds and awards of compensation received with
respect to the destruction or condemnation of all or part of such
Property, net of: (i) the reasonable and customary costs and expenses
of such sale, lease, transfer or other disposition; and (ii) amounts
applied to repayment of Indebtedness (other than the Obligations)
secured by a Permitted Lien on the Property disposed of that is senior
to Lender's Liens.
Notes - each Revolver Note, the Swingline Note and any other
promissory note executed by Borrowers at Agent's request to evidence
any of the Obligations.
Notice of Borrowing - as defined in Section 4.1.1(i) of this
Agreement.
Notice of Conversion/Continuation - as defined in Section
3.1.2(ii) of this Agreement.
Obligations - all debts, liabilities, obligations, covenants
and duties now or at any time or times hereafter owing by any Borrower
to Agent or any Lender, whether arising pursuant to this Agreement or
any of the other Loan Documents and whether direct or indirect,
absolute or contingent, due or to become due, primary or secondary, or
joint or several, including all of the Loans and all interest payable
in connection therewith, all LC Outstandings and all other sums
chargeable to or payable by any Borrower under any of the Loan
Documents or Applicable Law
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<PAGE> 24
but specifically excluding any amounts owing by any Borrower to
NationsBanc under its Factoring Agreement.
Obligor - each Borrower, each Guarantor and any other Person
that is at any time liable for the payment of the whole or any part of
the Obligations.
Organization Documents - with respect to any Person, its
charter, certificate or articles of incorporation, bylaws, articles of
organization, operating agreement, partnership agreement or similar
agreement or instrument governing the formation or operation of such
Person.
Other Agreements - the Notes, each LC Support, the
Environmental Certificate, the Factor Intercreditor Agreements, the
Debt Subordination Agreement, the Fee Letter, the Letter of Credit Fee
Letter and any and all agreements, instruments and documents (other
than this Agreement and the Security Documents), heretofore, now or
hereafter executed by any or all Borrowers, any Obligor or any other
Person and delivered to Agent or any Lender in respect of the
transactions contemplated by this Agreement.
Out-of-Formula Condition - as defined in Section 2.1.2 of this
Agreement.
Out-of-Formula Loan - a Revolver Loan made when an
Out-of-Formula Condition exists or the amount of any Revolver Loan
which, when funded, results in an Out-of-Formula Condition.
Participant - as defined in Section 14.2.1.
Participating Lender - as defined in Section 2.2.2(i).
Patent Assignment - each Patent Collateral Assignment and
Security Agreement dated the date hereof, executed by a Borrower in
favor of Agent and by which such Borrower has assigned to Agent, for
its benefit as Agent and for the Pro Rata benefit of Lenders, as
security for the Obligations, all of such Borrower's right, title and
interest in and to the patents described therein.
Payment Account - an account maintained by Agent (currently at
Harris Bank & Trust in Chicago, Illinois) to which all monies from time
to time deposited to a Dominion Account shall be transferred and all
other payments shall be sent in immediately available federal funds.
Payment Items - all checks, drafts, or other items of payment
payable to a Borrower, including proceeds of any of the Collateral.
Pending Revolver Loans - at any date, the aggregate principal
amount of all Revolver Loans which have been requested in any Notice of
Borrowing received by Agent but which have not theretofore been
advanced by Agent or Lenders.
Permitted Business Acquisition - means any Business
Acquisition by a Borrower after June 30, 1999 in which each of the
following conditions is satisfied:
(a) the business being acquired would
comply with Section 10.2.14 of this Agreement;
(b) immediately before and after giving
effect to such Business Acquisition, no Event of Default shall
have occurred and be continuing or would result therefrom;
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<PAGE> 25
(c) such Business Acquisition does not
involve the incurrence of Debt for Money Borrowed by such
Borrower other than Revolver Loans;
(d) immediately before and after giving
effect to such Business Acquisition, Borrowers shall have a
minimum Availability of at least $10,000,000, provided that no
Accounts or Inventory acquired by such Borrower in connection
with such Business Acquisition shall be deemed Eligible
Accounts or Eligible Inventory for purposes of determining
Availability for purposes of this definition;
(e) the amount of all such Business
Acquisitions does not exceed $15,000,000 in the aggregate over
the term of the Agreement;
(f) such Borrower shall have given Agent
at least 30 Business Days prior written notice of such
Business Acquisition and delivered to Agent UCC-1 financing
statements and any other appropriate documentation to perfect
or continue the perfection of Agent's Liens with respect to
any and all assets acquired by such Borrower;
(g) any assets acquired by such Borrower
in connection with such Business Acquisition shall not be
subject to any Liens other than Permitted Liens;
(h) if such Business Acquisition involves
the creation of a Subsidiary of such Borrower, such Subsidiary
shall have guaranteed the payment in full of Borrowers'
Obligations to Agent and Lenders, shall have executed a
Joinder Agreement and shall have executed and delivered to
Agent and Lenders such other agreements, instruments or
documents required by Agent and Lenders in their sole
discretion;
(i) Borrowers shall have delivered to
Agent Projections on a pro forma basis for the forthcoming 3
Fiscal Years, year by year and for the forthcoming Fiscal
Year, on a quarterly basis, showing that, after giving effect
to the Business Acquisition, Borrowers will have Consolidated
Cash Flow in an amount satisfactory to Agent and Lenders in
their sole discretion; and
(j) the use of any proceeds of Loans made
hereunder in connection with such Permitted Business
Acquisition shall not violate Regulation U.
Permitted Lien - a Lien of a kind specified in Section 10.2.5
of this Agreement.
Person - an individual, partnership, corporation, limited
liability company, limited liability partnership, joint stock company,
land trust, business trust, or unincorporated organization, or a
government or agency or political subdivision thereof.
Plan - an employee pension benefit plan now or hereafter
maintained for employees of Borrowers that is covered by Title IV of
ERISA.
Pro Rata - a share of or in all Loans, participations in LC
Outstandings or, in the case of Fleet, the portion of the LC
Outstandings in which Fleet does not sell a participation interest
pursuant to Section 2.2.2 of this Agreement, Obligations to indemnify
or reimburse Fleet as the procurer of Letters of Credit or in its
capacity as Agent, payments, proceeds, collections, Collateral and
Extraordinary Expenses, which share for any Lender on any date shall be
a percentage arrived at by dividing the amount of the Commitment of
such Lender on such date by the aggregate amount of the Commitments of
all Lenders on such date.
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<PAGE> 26
Projections - Borrowers' forecasted Consolidated and
consolidating (a) balance sheets, (b) profit and loss statements, (c)
cash flow statements, and (d) capitalization statements, all prepared
on a consistent basis with Borrowers' historical financial statements,
together with appropriate supporting details and a statement of
underlying assumptions.
Properly Contested - in the case of any Indebtedness of an
Obligor (including any Taxes) that is not paid as and when due or
payable by reason of such Obligor's bona fide dispute concerning its
liability to pay same or concerning the amount thereof, (i) such
Indebtedness is being properly contested in good faith by appropriate
proceedings promptly instituted and diligently conducted; (ii) such
Obligor has established appropriate reserves as shall be required in
conformity with GAAP, (iii) the non-payment of such Indebtedness will
not have a Material Adverse Effect and will not result in a forfeiture
of any assets of such Obligor; (iv) no Lien is imposed upon any of such
Obligor's assets with respect to such Indebtedness unless such Lien is
at all times junior and subordinate in priority to the Liens in favor
of Agent (except only with respect to property taxes that have priority
as a matter of applicable state law) and enforcement of such Lien is
stayed during the period prior to the final resolution or disposition
of such dispute; (v) if the Indebtedness results from or is determined
by the entry, rendition or issuance against an Obligor or any of its
assets of a judgment, writ, order or decree for the payment of money in
an amount that exceeds the uncontested insurance available therefor by
$1,000,000, execution on such judgment, writ, order or decree is stayed
pending a timely appeal or other judicial review; and (vi) if such
contest is abandoned, settled or determined adversely (in whole or in
part) to such Obligor, such Obligor forthwith pays such Indebtedness
and all penalties, interest and other amounts due in connection
therewith.
Property - any interest in any kind of property or asset,
whether real, personal or mixed, or tangible or intangible.
Purchase Money Debt - means and includes (i) Debt for Money
Borrowed (other than the Obligations) for the payment of all or any
part of the purchase price of any fixed assets, (ii) any Debt for Money
Borrowed (other than the Obligations) incurred at the time of or within
20 days prior to or after the acquisition of any fixed assets for the
purpose of financing all or any part of the purchase price thereof, and
(iii) any renewals, extensions or refinancings thereof, but not any
increases in the principal amounts thereof outstanding at the time.
Purchase Money Lien - a Lien upon fixed assets which secures
Purchase Money Debt, but only if such Lien shall at all times be
confined solely to the fixed assets acquired through the incurrence of
the Purchase Money Debt secured by such Lien and such Lien constitutes
a purchase money security interest under the UCC.
Regulation D - Regulation D of the Board of Governors.
Regulation U - Regulation U of the Board of Governors.
Register - the register maintained by Agent in accordance with
Section 5.7.2 of this Agreement.
Reportable Event - any of the events set forth in Section
4043(b) of ERISA.
Required Lenders - at any date of determination thereof,
Lenders having Commitments representing at least 66-2/3% of the
aggregate Commitments at such time; provided, however, that if any
Lender shall be in breach of any of its obligations hereunder to
Borrowers or Agent,
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including any breach resulting from its failure to honor its Commitment
in accordance with the terms of this Agreement, then, for so long as
such breach continues, the term "Required Lenders" shall mean Lenders
(excluding each Lender that is in breach of its obligations hereunder)
having Commitments representing at least 66-2/3% of the aggregate
Commitments at such time; provided, further, however, that if the
Commitments have been terminated, the term "Required Lenders" shall
mean Lenders (excluding each Lender that is in breach of its
obligations hereunder) holding Loans representing at least 66-2/3% of
the aggregate principal amount of Loans outstanding at such time.
Restricted Investment - any acquisition of Property by a
Borrower or any of its Subsidiaries in exchange for cash or other
Property, whether in the form of an acquisition of Equity Interests or
Indebtedness, or the purchase or acquisition by a Borrower or any of
its Subsidiaries of any other Property, or a loan, advance, capital
contribution or subscription, except acquisitions of the following: (a)
fixed assets to be used in the business of a Borrower or any of its
Subsidiaries so long as the acquisition costs thereof constitute
Capital Expenditures permitted hereunder; (b) goods held for sale or
lease or to be used in the manufacture of goods or the provision of
services by a Borrower or any of its Subsidiaries in the ordinary
course of business; (c) Current Assets arising from the sale or lease
of goods or the rendition of services in the ordinary course of
business of a Borrower or any of its Subsidiaries; (d) investments in
Domestic Subsidiaries of a Borrower including investments in Domestic
Subsidiaries after the Closing Date so long as such Domestic
Subsidiaries guaranty the Obligations; (e) investments in Foreign
Subsidiaries and joint ventures of a Borrower to the extent such
investments or joint ventures are existing on the Closing Date and
additional investments in Foreign Subsidiaries, not to exceed in the
aggregate, at any time, $10,000,000 or not to exceed, together with all
Permitted Business Acquisitions, $20,000,000; (f) Cash Equivalents to
the extent they are not subject to rights of offset in favor of any
Person other than Agent or a Lender; and (g) Permitted Business
Acquisitions.
Revolver Commitment - at any date for any Lender, the
obligation of such Lender to make Revolver Loans and to purchase
participations in LC Outstandings (and, in the case of Fleet, to make
Swingline Loans under the Swingline Subfacility) pursuant to the terms
and conditions of this Agreement, which shall not exceed the principal
amount set forth opposite such Lender's name under the heading
"Revolver Commitment" on the signature pages hereof or the signature
page of the Assignment and Acceptance by which it became a Lender, as
modified from time to time pursuant to the terms of this Agreement or
to give effect to any applicable Assignment and Acceptance; and
"Revolver Commitments" means the aggregate principal amount of the
Revolver Commitments of all Lenders, the maximum amount of which shall
be $85,000,000.
Revolver Facility - the revolving credit facility established
by Agent and Lenders in favor of Borrowers pursuant to Section 2.1 of
this Agreement.
Revolver Loan - a Loan made by Lenders as provided in Section
2.1 of this Agreement or a Swingline Loan funded solely by Fleet.
Revolver Note - a Revolver Note to be executed by Borrowers in
favor of each Lender in the form of EXHIBIT A-1 attached hereto, which
shall be in the face amount of such Lender's Revolver Commitment and
which shall evidence all Revolver Loans made by such Lender to
Borrowers pursuant to this Agreement.
Savane - Savane Direct Incorporated, a Texas corporation.
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Schedule of Accounts - as defined in Section 8.2.1 of this
Agreement.
Security - shall have the same meaning as in Section 2(1) of
the Securities Act of 1933.
Security Documents - the Patent Assignment, each Guaranty, the
Trademark Security Agreements the Deposit Account Assignment, the
Business Interruption Insurance Assignment, the Stock Pledge
Agreements, the Factor Assignment Agreements and all other instruments
and agreements now or at any time hereafter securing the whole or any
part of the Obligations.
Senior Subordinated Notes - the Senior Subordinated Unsecured
Notes, issued by Tropical in the aggregate amount of $125,000,000, and
payable in 2008.
Senior Officer - the chairman of the board of directors, the
president, the executive vice president or the chief financial officer
of, or in-house legal counsel to, Borrowers.
Settlement Report - a report delivered by Agent to Lenders
summarizing the amount of the outstanding Revolver Loans as of the
Settlement Date and the calculation of the Borrowing Base as of such
Settlement Date.
Solvent - as to any Person, such Person (i) owns Property
whose fair saleable value is greater than the amount required to pay
all of such Person's Indebtedness (including contingent Indebtedness),
(ii) is able to pay all of its Indebtedness as such Indebtedness
matures, (iii) has capital sufficient to carry on its business and
transactions and all business and transactions in which it is about to
engage; and (iv) is not "insolvent" within the meaning of Section
101(32) of the Bankruptcy Code.
SouthTrust - SouthTrust Bank, National Association.
SouthTrust Loan Agreement - the Construction and Term Loan
Agreement dated May 7, 1996, between Tropical and SouthTrust, pursuant
to which SouthTrust extended a term loan to Tropical in the original
principal amount of $9,600,000.
SouthTrust Loan Documents - collectively, the SouthTrust Loan
Agreement, the SouthTrust Mortgage and any and all other documents,
agreements or instruments executed in connection with any of the
foregoing.
SouthTrust Mortgage - the Real Estate Mortgage dated May 7,
1996, between Tropical and SouthTrust, pursuant to which Tropical has
conveyed to SouthTrust a Lien upon certain real Property and the
improvements thereon owned by Tropical and located at 4924 West Waters
Avenue and 4902 West Waters Avenue, Tampa, Hillsborough County,
Florida.
Statutory Reserves - on any date, the percentage (expressed as
a decimal) established by the Board of Governors which is the then
stated maximum rate for all reserves (including any emergency,
supplemental or other marginal reserve requirements) applicable to any
member bank of the Federal Reserve System in respect to Eurocurrency
Liabilities (or any successor category of liabilities under Regulation
D). Such reserve percentage shall include, without limitation, those
imposed pursuant to said Regulation D. The Statutory Reserve shall be
adjusted automatically on and as of the effective date of any change in
such percentage.
Stock Pledge Agreements - each Stock Pledge Agreement executed
by a Borrower in favor of Agent and by which such Borrower has pledged
to Agent, for its benefit as Agent and for the
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<PAGE> 29
Pro Rata benefit of Lender's, as security for the Obligations, 66% of
the capital stock of each Foreign Subsidiary of such Borrower and all
of the capital stock of each Domestic Subsidiary of such Borrower.
Subordinated Debt - Indebtedness of any or all Borrowers that
is subordinated in right of payment to the Obligations in a manner
satisfactory to Agent, including the Bridge Loan, the Senior
Subordinated Notes and any Exchange Notes.
Subsidiary - any Person a majority of the Equity Interests of
which is at the time owned, directly or indirectly, by a Borrower or by
one or more other Subsidiaries or by a Borrower and one or more other
Subsidiaries.
Swingline Subfacility - at any date, the commitment of Fleet
to make Swingline Loans to Borrowers pursuant to the terms of this
Agreement, which shall not exceed $5,000,000 outstanding at any time.
Swingline Loan - as defined in Section 4.1.3 of this
Agreement.
Swingline Note - the Swingline Note to be executed by
Borrowers on or before the Closing Date in favor of Fleet in the form
of EXHIBIT A-2 attached hereto, which shall be in the face amount of
the Swingline Subfacility and which shall evidence all Swingline Loans
made by Fleet to Borrowers pursuant to this Agreement.
Swingline Settlement Date - the earlier of (i) the occurrence
of an Event of Default or (ii) such dates from time to time on which
Fleet requests settlement of the Revoler Loans.
Taxes - any present or future taxes, levies, imposts, duties,
fees, assessments, deductions, withholdings or other charges of
whatever nature, including income, receipts, excise, property, sales,
use, transfer, license, payroll, withholding, social security and
franchise taxes now or hereafter imposed or levied by the United
States, or any state, local or foreign government or by any department,
agency or other political subdivision or taxing authority thereof or
therein and all interest, penalties, additions to tax and similar
liabilities with respect thereto, but excluding, in the case of each
Lender, taxes imposed on or measured by the net income or overall gross
receipts of such Lender.
Tender Agreement - the Agreement and Plan of Merger dated May
1, 1998, among Tropical, Foxfire and Farah, pursuant to which Tropical
has agreed to cause Foxfire to make a cash tender offer for all of the
capital stock of Farah.
Tender Offer Statement - the Tender Offer Statement dated May
8, 1998, filed by Foxfire with the Securities and Exchange Commission
with respect to the Acquisition.
Trademark Security Agreement - each Trademark Security
Agreement executed by a Borrower in favor of Agent and by which such
Borrower has assigned to Agent, for its benefit as Agent and for the
Pro Rata benefit of Lenders, as security for the Obligations, all of
such Borrower's right, title and interest in and to all of its
trademarks.
Transferee - as defined in Section 14.3.3 of this Agreement.
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<PAGE> 30
Tropical Entities - Tropical, TSCI, Apparel and each of their
respective wholly-owned Subsidiaries.
Trustee - SunTrust Bank, Atlanta, a Georgia banking
corporation.
Type - any type of a Loan determined with respect to the
interest option applicable thereto, which shall be either a LIBOR Loan
or a Base Rate Loan.
UCC - the Uniform Commercial Code (or any successor statute)
as adopted and in force in the State of Georgia or, when the laws of
any other state govern the method or manner of the perfection or
enforcement of any security interest in any of the Collateral, the
Uniform Commercial Code (or any successor statute) of such state.
Value - with reference to the value of Eligible Inventory,
value determined on the basis of the lower of cost or market of such
Eligible Inventory, with the cost thereof calculated on a first-in,
first-out basis, determined in accordance with GAAP.
Voting Stock - Securities of any class or classes of a
corporation the holders of which are ordinarily, in the absence of
contingencies, entitled to elect a majority of the corporate directors
(or Persons performing similar functions).
(a) ACCOUNTING TERMS. Unless otherwise specified herein, all
terms of an accounting character used in this Agreement shall be interpreted,
all accounting determinations under this Agreement shall be made, and all
financial statements required to be delivered under this Agreement shall be
prepared in accordance with GAAP, applied on a basis consistent with the most
recent audited Consolidated financial statements of Borrowers and their
Subsidiaries heretofore delivered to Agent and Lenders and using the same method
for inventory valuation as used in such audited financial statements, except for
any change in which Borrowers' independent public accountants concur or as
required by GAAP unless (i) Borrowers shall have objected to determining such
compliance on such basis at the time of delivery of such financial statements or
(ii) Agent or any Lender shall so object in writing within 30 days after the
delivery of such financial statements, in either of which events such
calculations shall be made on a basis consistent with those used in the
preparation of the latest financial statements as to which such objection shall
not have been made. In the event of any change in GAAP that occurs after the
date of this Agreement and that is material to Borrowers, Agent and Lenders
shall have the right to require either that conforming adjustments be made to
any financial covenants set forth in this Agreement, or the components thereof,
that are affected by such change or that Borrowers report its financial
condition based on GAAP as in effect immediately prior to the occurrence of such
change.
(b) OTHER TERMS. All other terms contained in this Agreement
shall have, when the context so indicates, the meanings provided for by the UCC
to the extent the same are used or defined therein.
(C) CERTAIN MATTERS OF CONSTRUCTION. The terms "herein,"
"hereof" and "hereunder" and other words of similar import refer to this
Agreement as a whole and not to any particular section, paragraph or
subdivision. Any pronoun used shall be deemed to cover all genders. In the
computation of periods of time from a specified date to a later specified date,
the word "from" means "from and including" and the words "to" and "until" each
means "to but excluding." The section titles, table of contents and list of
exhibits appear as a matter of convenience only and shall not affect the
interpretation of this Agreement. All references to statutes and related
regulations shall include any amendments of same and any successor statutes and
regulations. All references to any of the Loan Documents shall include any and
all amendment or modifications thereto and any and all restatements, extensions
or renewals
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<PAGE> 31
thereof. All references to any Person shall mean and include the successors and
permitted assigns of such Person. All references to "including" and "include"
shall be understood to mean "including, without limitation." All references to
the time of day shall mean the time of day on the day in question in Atlanta,
Georgia, unless otherwise expressly provided in this Agreement. A Default or an
Event of Default shall be deemed to exist at all times during the period
commencing on the date that such Default or Event of Default occurs to the date
on which such Default or Event of Default is waived in writing pursuant to this
Agreement or, in the case of a Default, is cured within any period of cure
expressly provided in this Agreement; and an Event of Default shall "continue"
or be "continuing" until such Event of Default has been waived in writing by
Agent. Whenever the phrase "to the best of any Borrower's knowledge" or words of
similar import relating to the knowledge or the awareness of any Borrower are
used herein, such phrase shall mean and refer to (i) the actual knowledge of a
Senior Officer of any Borrower or (ii) the knowledge that a Senior Officer would
have obtained if he had engaged in good faith and diligent performance of his
duties, including the making of such reasonable specific inquiries as may be
necessary of the officers, employees or agents of any Borrower and a good faith
attempt to ascertain the existence or accuracy of the matter to which such
phrase relates.
SECTION 2. CREDIT FACILITIES
Subject to the terms and conditions of, and in reliance upon the
representations and warranties made in, this Agreement and the other Loan
Documents, Lenders severally agree to the extent and in the manner hereinafter
set forth to make their respective Pro Rata shares of the Commitments available
to Borrowers, in an aggregate amount up to $85,000,000, as follows:
2.1. REVOLVER FACILITY.
2.1.1 Revolver Loans. Each Lender agrees, severally to the
extent of its Revolver Commitment and not jointly with the other Lenders, upon
the terms and subject to the conditions set forth herein, to make Revolver Loans
to Borrowers on any Business Day during the period from the date hereof through
the Business Day before the last day of the Committed Term, not to exceed in
aggregate principal amount outstanding at any time such Lender's Revolver
Commitment at such time, which Revolver Loans may be repaid and reborrowed in
accordance with the provisions of this Agreement; provided, however, that
Lenders shall have no obligation to Borrowers whatsoever to make any Revolver
Loan on or after the Commitment Termination Date or if at the time of the
proposed funding thereof the aggregate principal amount of all of the Revolver
Loans and Pending Revolver Loans then outstanding exceeds, or would exceed after
the funding of such Revolver Loan, the Borrowing Base. Each Borrowing of
Revolver Loans shall be funded by Lenders on a Pro Rata basis in accordance with
their respective Revolver Commitments (except for Revolver Loans funded by Fleet
as Swingline Loans). The Revolver Loans shall bear interest as set forth in
Section 3.1 hereof. Each Revolver Loan shall, at the option of Borrowers, be
made or continued as, or converted into, part of one or more Borrowings that,
unless specifically provided herein, shall consist entirely of Base Rate Loans
or LIBOR Loans.
2.1.2 Out-of-Formula Loans. If the unpaid balance of Revolver
Loans outstanding at any time should exceed the Borrowing Base at such time (an
"Out-of-Formula Condition"), such Revolver Loans shall nevertheless constitute
Obligations that are secured by the Collateral and entitled to all of the
benefits of the Loan Documents. In the event that Lenders are willing in their
sole and absolute discretion to make Out-of-Formula Loans, such Out-of-Formula
Loans shall be payable ON DEMAND by Agent (and Agent shall make such demand if
directed to do so by the Required Lenders) and shall bear interest as provided
in this Agreement for Revolver Loans generally.
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<PAGE> 32
2.1.3 Use of Proceeds. The proceeds of the Revolver Loans
shall be used by Borrowers solely for one or more of the following purposes: (i)
to satisfy any Indebtedness owing on the Closing Date by Tropical to Fleet and
by Farah and its Subsidiaries to Congress Financial Corporation (Southwest) and
to redeem the Convertible Debentures; (ii) to pay the fees and transaction
expenses associated with the closing of the Acquisition, the closing of Bridge
Loan, the issuance of the Senior Subordinated Notes and the transactions
described herein; (iii) to pay any of the Obligations; and (iv) to make
expenditures for other lawful corporate purposes of Borrowers to the extent such
expenditures are not prohibited by this Agreement or Applicable Law. In no event
may any Revolver Loan proceeds be used by any Borrower to make a contribution to
the equity of any Subsidiary (unless otherwise expressly permitted herein), to
purchase or to carry (or to reduce, retire or refinance any Indebtedness
incurred to purchase or carry) any Margin Stock or for any related purpose that
violates the provisions of Regulations T, U or X of the Board of Governors.
2.1.4 Revolver Notes. The Revolver Loans made by each Lender
and interest accruing thereon shall be evidenced by the records of Agent and
such Lender and by the Revolver Note payable to such Lender (or the assignee of
such Lender), which shall be executed by Borrowers, completed in conformity with
this Agreement and delivered to such Lender on the Closing Date. All outstanding
principal amounts and accrued interest under the Revolver Loans shall be due and
payable as set forth in Section 5.2 hereof.
2.2. LC FACILITY.
2.2.1 Procurement of Letters of Credit. During the period from
the date hereof to (but excluding) the 30th day prior to the last day of the
Committed Term, and provided no Default or Event of Default exists, Fleet agrees
to establish the LC Facility pursuant to which Fleet shall procure from Bank one
or more Letters of Credit on Borrowers' request therefor from time to time,
subject to the following terms and conditions:
(i) Each Borrower acknowledges that Bank's willingness
to issue any Letter of Credit is conditioned upon Bank's receipt of (A)
an LC Support from Fleet, (B) an LC Application with respect to the
requested Letter of Credit and (C) such other instruments and
agreements as Bank may customarily require for the issuance of a letter
of credit of equivalent type and amount as the requested Letter of
Credit. Fleet shall have no obligation to procure any Letter of Credit
unless (x) Fleet receives an LC Request from such Borrower at least 2
Business Days prior to the date on which such Borrower desires to
submit such LC Application to Bank for such Letter of Credit and (y)
each of the LC Conditions is satisfied on the date of Fleet's receipt
of the LC Request and at the time of the requested execution by Fleet
of the LC Application. In no event shall Fleet or any other Lender have
any liability or obligation to any Borrower for any failure or refusal
by Bank to issue, for Bank's delay in issuing, or for any error of Bank
in issuing any Letter of Credit.
(ii) Letters of Credit may be requested by Borrower
only if they are to be used (a) to support obligations of a Borrower
incurred in the ordinary course of its business, as presently
conducted, on a standby basis or (b) for such other purposes as Agent
and Lenders may approve from time to time in writing.
(iii) Borrowers shall comply with all of the terms and
conditions imposed on Borrowers by Bank, whether such terms and
conditions are contained in an LC Application or in any agreement with
respect thereto. Subject to the rights of Bank, Agent and Lenders shall
have the same rights and remedies that Bank has under any agreements
that Borrowers may have with Bank in addition to any rights and
remedies contained in any of the Loan Documents. Borrowers
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jointly and severally agree to reimburse Bank for any draw under any
Letter of Credit immediately ON DEMAND, and to pay Bank the amount of
all other liabilities and obligations payable to Bank under or in
connection with any Letter of Credit immediately when due, irrespective
of any claim, setoff, defense or other right that any Borrower may have
at any time against Bank or any other Person. If Fleet shall pay any
amount under any LC Support with respect to any Letter of Credit, then
Borrowers shall be jointly and severally obligated to pay to Fleet, in
Dollars on the first Business Day following the date on which payment
was made by Fleet under such LC Support, an amount equal to the amount
paid by Fleet under such LC Support together with interest from and
after the date of Fleet's payment under such LC Support until payment
in full is made by Borrowers at a variable rate per annum in effect
from time to time hereunder for Revolver Loans constituting Base Rate
Loans. Until Fleet has received payment from Borrowers in accordance
with the foregoing provisions of this clause (iii), Fleet, in addition
to all of its other rights and remedies under this Agreement, shall be
fully subrogated to (A) the rights and remedies of Bank as issuer of
the Letter of Credit under any agreement with Borrowers relating to the
issuance of such Letter of Credit, and (B) the rights and remedies of
each beneficiary under such Letter of Credit whose claims against
Borrowers have been discharged with the proceeds of such Letter of
Credit.
(iv) Borrowers assume all risks of the acts, omissions or
misuses of any Letter of Credit by the beneficiary thereof. The
obligation of Borrowers to reimburse Fleet for any payment made by
Fleet under any LC Support shall be absolute, unconditional,
irrevocable and joint and several and shall be paid without regard to
any lack of validity or enforceability of any Letter of Credit, the
existence of any claim, setoff, defense or other right which any or all
Borrowers may have at any time against a beneficiary of any Letter of
Credit, or improper honor by Bank of any draw request under a Letter of
Credit. If presentation of a demand, draft, certificate or other
document does not comply with the terms of a Letter of Credit and a
Borrower contends that, as a consequence of such noncompliance it has
no obligation to reimburse Bank for any payment made with respect
thereto, Borrowers shall nevertheless be obligated to reimburse Fleet
for any payment made under any LC Support with respect to such Letter
of Credit, but without waiving any claim a Borrower may have against
Bank in connection therewith. All disputes regarding any Letter of
Credit shall be resolved by Borrowers directly with Bank.
(v) No Letter of Credit shall be extended or amended in
any respect that is not solely ministerial, unless all of the LC
Conditions are met as though a new Letter of Credit were being
requested and issued.
2.2.2. Participations.
(i) Immediately upon the issuance by Bank of any
Letter of Credit, each Lender (other than Fleet) shall be deemed to
have irrevocably and unconditionally purchased and received from Fleet,
without recourse or warranty, an undivided interest and participation
equal to the Pro Rata share of such Lender (a "Participating Lender")
in all LC Outstandings arising in connection with such Letter of Credit
and any security therefor or guaranty pertaining thereto, but in no
event greater than an amount which, when added to such Lender's Pro
Rata share of all Revolver Loans and LC Outstandings then outstanding,
exceeds such Lender's Revolver Commitment.
(ii) If Fleet makes a payment under any LC Support
and Borrowers do not repay or cause to be repaid the amount of such
payment on Fleet's demand therefor, Fleet shall promptly notify Agent,
which shall promptly notify each Participating Lender, of such payment
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and each Participating Lender shall promptly and unconditionally pay to
Agent, for the account of Fleet, in Dollars in immediately available
funds, the amount of such Participating Lender's Pro Rata share of such
payment, and Agent shall promptly pay such amounts to Fleet. If a
Participating Lender does not make its Pro Rata share of the amount of
such payment available to Agent, such Lender agrees to pay to Agent for
the account of Fleet, forthwith ON DEMAND, such amount together with
interest thereon at the Federal Funds Rate. The failure of any
Participating Lender to make available to Agent for the account of
Fleet such Participating Lender's Pro Rata share of the LC Outstandings
shall not relieve any other Participating Lender of its obligation
hereunder to make available to Agent its Pro Rata share of the LC
Outstandings, but no Participating Lender shall be responsible for the
failure of any other Participating Lender to make available to Agent
its Pro Rata share of the LC Outstandings on the date such payment is
to be made.
(iii) Whenever Fleet receives a payment on account of
the LC Outstandings, including any interest thereon, as to which Agent
has previously received payments from any Lender for the account of
Fleet, Fleet shall promptly pay to each Participating Lender which has
funded its participating interest therein, in immediately available
funds, an amount equal to such Participating Lender's Pro Rata share
thereof.
(iv) The obligation of each Participating Lender to
make payments to Agent for the account of Fleet in connection with
Fleet's payment under any LC Support shall be absolute, unconditional
and irrevocable, not subject to any counterclaim, setoff, qualification
or exception whatsoever (other than for Fleet's gross negligence or
willful misconduct), and shall be made in accordance with the terms and
conditions of this Agreement under all circumstances and irrespective
of whether or not any or all Borrowers may assert or have any claim for
any lack of validity or unenforceability of this Agreement or any of
the other Loan Documents; the existence of any Default or Event of
Default; any draft, certificate or other document presented under a
Letter of Credit having been determined to be forged, fraudulent,
invalid or insufficient in any respect or any statement therein being
untrue or inaccurate in any respect; or the existence of any setoff or
defense any Obligor may have with respect to any of the Obligations.
(v) Neither Fleet nor any of its officers,
directors, employees or agents shall be liable to any Participating
Lenders for any action taken or omitted to be taken under or in
connection with any of the LC Documents except as a result of actual
gross negligence or willful
misconduct on the part of Fleet. Fleet does not assume any
responsibility for any failure or delay in performance or breach by any
or all Borrowers or any other Person of any of its obligations under
any of the LC Documents. Fleet does not make to Participating Lenders
any express or implied warranty, representation or guaranty with
respect to the Collateral, the LC Documents, or other Obligor. Fleet
shall not be responsible to any Participating Lender for any recitals,
statements, information, representations or warranties contained in, or
for the execution, validity, genuineness, effectiveness or
enforceability of or any of the LC Documents; the validity,
genuineness, enforceability, collectibility, value or sufficiency of
any of the Collateral or the perfection of any Lien therein; or the
assets, liabilities, financial condition, results of operations,
business, creditworthiness or legal status of any Borrower or any other
Obligor or any Account Debtor. In connection with its administration of
and enforcement of rights or remedies under any of the LC Documents,
Fleet shall be entitled to act, and shall be fully protected in acting
upon, any certification, notice or other communication in whatever form
believed by Fleet, in good faith,
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to be genuine and correct and to have been signed or sent or made by a
proper Person. Fleet may consult with and employ legal counsel,
accountants and other experts and to advise it concerning its rights,
powers and privileges under the LC Documents and shall be entitled to
act upon, and shall be fully protected in any action taken in good
faith reliance upon, any advise given by such experts. Fleet may employ
agents and attorneys-in-fact in connection with any matter relating to
the LC Documents and shall not be liable for the negligence, default or
misconduct of any such agents or attorneys-in-fact selected by Fleet
with reasonable care. Fleet shall not have any liability to any
Participating Lender by reason of Fleet's refraining to take any action
under any of the LC Documents without having first received written
instructions from the Required Lenders to take such action.
2.2.3. Cash Collateral Account. If any LC Outstandings,
whether or not then due or payable, shall for any reason be outstanding (i) at
any time when an Event of Default has occurred and is continuing, (ii) on any
date that Availability is less than zero, or (iii) on or at any time after the
Commitment Termination Date, then Borrowers shall, on Agent's request, forthwith
deposit with Agent, in cash, an amount equal to the maximum aggregate amount of
all LC Outstandings then outstanding. If Borrowers fail to make such deposit on
the first Business Day following Agent's demand therefor, Lenders may (and shall
upon direction of the Required Lenders) advance such amount as Revolver Loans
(whether or not an Out-of-Formula Condition is created thereby). Such cash
(together with any interest accrued thereon) shall be held by Agent in the Cash
Collateral Account and may be invested, in Agent's discretion, in Cash
Equivalents. Each Borrower hereby pledges to Agent and grants to Agent a
security interest in, for the benefit of Agent in such capacity and for the Pro
Rata benefit of Lenders, all Cash Collateral held in the Cash Collateral Account
from time to time and all proceeds thereof, as security for the payment of all
Obligations, whether or not then due or payable. From time to time after cash is
deposited in the Cash Collateral Account, Agent may apply Cash Collateral then
held in the Cash Collateral Account to the payment of any amounts, in such order
as Agent may elect, as shall be or shall become due and payable by Borrowers to
Agent or any Lender with respect to the LC Outstandings which may be then
outstanding. Neither any Borrower nor any other Person claiming by, through or
under or on behalf of any Borrower shall have any right to withdraw any of the
Cash Collateral held in the Cash Collateral Account, including any accrued
interest, provided that upon termination or expiration of all Letters of Credit
and the payment and satisfaction of all of the LC Outstandings outstanding, any
Cash Collateral remaining in the Cash Collateral Account shall be returned to
Borrowers unless an Event of Default then exists (in which event Agent may apply
such Cash Collateral to the payment of any other Obligations outstanding, with
any surplus to be turned over to Borrowers).
2.2.4. Indemnifications.
(i) In addition to any other indemnity which any or
all Borrowers may have to Agent or any Lender under any of the other
Loan Documents and without limiting such other indemnification provisions, each
Borrower hereby agrees to indemnify and defend each of the Agent Indemnitees and
Lender Indemnitees and to hold each of the Agent Indemnitees and Lender
Indemnitees harmless from and against any and all Claims which any of the Agent
Indemnitees or any of the Lender Indemnitees may (except to the extent it
results from their own gross negligence or willful misconduct) incur or be
subject to as a consequence, directly or indirectly, of (a) the issuance of,
payment or failure to pay or any performance or failure to perform under any
Letter of Credit or LC Support or (b) any suit, investigation or proceeding as
to which Agent or any Lender is or may become a party to as a consequence,
directly or indirectly, of the issuance of any Letter of Credit or any LC
Support or the payment or failure to pay thereunder.
(ii) Each Participating Lender agrees to indemnify
and defend each of the Fleet Indemnitees (to the extent the Fleet
Indemnitees are not reimbursed by Borrowers or any other
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Obligor, but without limiting the indemnification obligations of
Borrowers under this Agreement), on a Pro Rata basis, from and against
any and all Claims which may be imposed on, incurred by or asserted
against any of the Fleet Indemnitees in any way related to or arising
out of Fleet's administration or enforcement of rights or remedies
under any of the LC Documents or any of the transactions contemplated
thereby (including costs and expenses which Borrowers are obligated to
pay under Section 15.2 hereof), INCLUDING ALL CLAIMS ARISING FROM THE
SOLE OR CONTRIBUTORY NEGLIGENCE OF THE FLEET INDEMNITEES provided that
no Participating Lender shall be liable to any of the Fleet Indemnitees
for any of the foregoing to the extent that they result solely from the
willful misconduct or gross negligence of such Fleet Indemnitees.
2.3. JOINDER OF NEW SUBSIDIARIES. If and to the extent requested to do
so by Agent (and in all events at the direction of the Required Lenders),
Borrowers shall cause any existing or future Subsidiary of any Borrower to
execute a Joinder Agreement pursuant to which such Subsidiary shall (i) become a
party to this Agreement and each of the other Loan Documents to which a Borrower
is a party; (ii) agree to comply with and be bound by the terms and conditions
of this Agreement and all of the other Loan Documents; and (iii) become a
"Borrower" hereunder and thereafter be jointly and severally liable for the
performance of all of the Obligations.
SECTION 3. INTEREST, FEES AND CHARGES
3.1. INTEREST.
3.1.1 Rates of Interest. Borrowers jointly and severally agree
to pay interest in respect of all unpaid principal amounts of the Revolver Loans
from the respective dates such principal amounts are advanced until paid
(whether at stated maturity, on acceleration or otherwise) at a rate per annum
equal to the applicable rate indicated below:
(i) for Revolver Loans made or outstanding as Base
Rate Loans, the Applicable Margin plus the Base Rate in effect from
time to time; or
(ii) for Revolver Loans made or outstanding as LIBOR
Loans, the Applicable Margin plus the relevant Adjusted LIBOR Rate for
the applicable Interest Period selected by a Borrower in conformity
with this Agreement.
Upon determining the Adjusted LIBOR Rate for any Interest
Period requested by Borrowers, Agent shall promptly notify Borrowers thereof by
telephone and, if so requested by Borrowers, confirmed in writing. Such
determination shall, absent manifest error, be final, conclusive and binding on
all parties and for all purposes. The applicable rate of interest for all Loans
bearing interest based upon the Base Rate shall be increased or decreased, as
the case may be, by an amount equal to any increase or decrease in the Base
Rate, with such adjustments to be effective as of the opening of business on the
day that any such change in the Base Rate becomes effective. Interest on each
Loan shall accrue from and including the date on which such Loan is made,
converted to a Loan of another Type or continued as a LIBOR Loan to (but
excluding) the date of any repayment thereof; provided, however, that, if a Loan
is repaid on the same day made, one day's interest shall be paid on such Loan.
The Base Rate on the date hereof is 8.50% per annum and, therefore, the rate of
interest in effect hereunder on the date hereof, expressed in simple interest
terms, is 9.75% per annum with respect to any portion of the Revolver Loans
bearing interest as a Base Rate Loan.
3.1.2. Conversions and Continuations.
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(i) Borrowers may on any Business Day, subject to
the giving of a proper Notice of Conversion/Continuation as hereinafter
described, elect (A) to continue all or any part of a LIBOR Loan by
selecting a new Interest Period therefor, to commence on the last day
of the immediately preceding Interest Period, or (B) to convert all or
any part of a Loan of one Type into a Loan of another Type; provided,
however, that no outstanding Loans may be converted into or continued
as LIBOR Loans when any Default or Event of Default exists. Any
conversion of a LIBOR Loan into a Base Rate Loan shall be made on the
last day of the Interest Period for such LIBOR Loan. Any conversion or
continuation made with respect to less than the entire outstanding
balance of the Revolver Loans, must be allocated among Lenders on a Pro
Rata basis, and the Interest Period for Loans converted into or
continued as LIBOR Loans shall be coterminous for each Lender.
(ii) Whenever Borrowers desire to convert or
continue Loans under Section 3.1.2(i), a Borrower shall give Agent
written notice (or telephonic notice promptly confirmed in writing)
substantially in the form of EXHIBIT B (a "Notice of
Conversion/Continuation"), signed by an authorized officer of such
Borrower, at least 1 Business Day before the requested conversion date,
in the case of a conversion into Base Rate Loans, and at least 3
Business Days before the requested conversion or continuation date, in
the case of a conversion into or continuation of LIBOR Loans. Promptly
after receipt of a Notice of Conversion/Continuation, Agent shall
notify each Lender in writing of the proposed conversion or
continuation. Each such Notice of Conversion/Continuation shall be
irrevocable and shall specify the aggregate principal amount of the
Loans to be converted or continued, the date of such conversion or
continuation (which shall be a Business Day) and whether the Loans are
being converted into or continued as LIBOR Loans (and, if so, the
duration of the Interest Period to be applicable thereto) or Base Rate
Loans. If, upon the expiration of any Interest Period in respect of any
LIBOR Loans Borrowers shall have failed to deliver the Notice of
Conversion/Continuation, Borrowers shall be deemed to have elected to
convert such LIBOR Loans to Base Rate Loans.
3.1.3. Interest Periods. In connection with the making or
continuation of, or conversion into, each Borrowing of LIBOR Loans, Borrowers
shall select an interest period (each an "Interest Period") to be applicable to
such LIBOR Loan, which interest period shall commence on the date such LIBOR
Loan is made and shall end on a numerically corresponding day in the first,
second, third or sixth month thereafter; provided, however, that:
(i) the initial Interest Period for a LIBOR Loan
shall commence on the date of such Borrowing (including the date of any
conversion from a Loan of another Type) and each Interest Period
occurring thereafter in respect of such Revolver Loan shall commence on
the date on which the next preceding Interest Period expires;
(ii) if any Interest Period would otherwise expire
on a day that is not a Business Day, such Interest Period shall expire
on the next succeeding Business Day, provided that if any Interest
Period in respect of LIBOR Loans would otherwise expire on a day which
is not a
Business Day but is a day of the month after which no further Business
Day occurs in such month, such Interest Period shall expire on the next
preceding Business Day;
(iii) any Interest Period that begins on a day for
which there is no numerically corresponding day in the calendar month
at the end of such Interest Period shall expire on the last Business
Day of such calendar month;
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(iv) no Interest Period with respect to any portion of
principal of a Loan shall extend beyond a date on which a Borrower is
required to make a scheduled payment of such portion of principal;
(v) no Interest Period shall extend beyond the last
day of the Committed Term; and
(vi) there shall be no more than 10 Interest Periods in
effect at any one time.
3.1.4. Interest Rate Not Ascertainable. If Agent shall
determine (which determination shall, absent manifest error, be final,
conclusive and binding upon all parties) that on any date for determining the
Adjusted LIBOR Rate for any Interest Period, by reason of any changes arising
after the date of this Agreement affecting the London interbank market or any
Lender's or Bank's position in such market, adequate and fair means do not exist
for ascertaining the applicable interest rate on the basis provided for in the
definition of Adjusted LIBOR Rate, then, and in any such event, Agent shall
forthwith give notice (by telephone confirmed in writing) to a Borrower of such
determination. Until Agent notifies a Borrower that the circumstances giving
rise to the suspension described herein no longer exist, the obligation of
Lenders to make LIBOR Loans shall be suspended, and such affected Loans then
outstanding shall, at the end of the then applicable Interest Period or at such
earlier time as may be required by Applicable Law, bear the same interest as
Base Rate Loans.
3.1.5. Default Rate of Interest. Interest shall accrue at the
Default Rate (i) with respect to the principal amount of any portion of the
Obligations (and, to the extent permitted by Applicable Law, all past due
interest) that is not paid on the due date thereof (whether due at stated
maturity, on demand, upon acceleration or otherwise) until paid in full; (ii)
with respect to the principal amount of all of the Obligations (and, to the
extent permitted by Applicable Law, all past due interest) upon the earlier to
occur of (x) a Borrower's receipt of notice from Agent of the Required Lenders'
election to charge the Default Rate based upon the existence of any Event of
Default (which notice Agent shall send only with the consent or at the direction
of the Required Lenders), whether or not acceleration or demand for payment of
the Obligations has been made, or (y) the commencement by or against any
Borrower of an Insolvency Proceeding, whether or not under the circumstances
described in either clause (i) or (ii) hereof Agent or Lenders elect to
accelerate the maturity or demand payment of any of the Obligations; and (iii)
with respect to the principal amount of any Out-of-Formula Loans, whether or not
demand for payment thereof has been made by Agent. To the fullest extent
permitted by Applicable Law, the Default Rate shall apply and accrue on any
judgment entered with respect to any of the Obligations and to the unpaid
principal amount of the Obligations during any Insolvency Proceeding of a
Borrower. Each Borrower acknowledges that the cost and expense to Agent and each
Lender attendant upon the occurrence of an Event of Default are difficult to
ascertain or estimate and that the Default Rate is a fair and reasonable
estimate to compensate Agent and Lender for such added cost and expense.
3.2. FEES.
3.2.1. LC Facility Fees. Borrowers shall be jointly and
severally obligated to pay all fees at any time payable to Bank for each Letter
of Credit, including all charges set forth in the Letter of Credit Fee Letter.
In no event shall Fleet be liable to Bank, any Borrower or any other Person for
any fees payable in respect of any Letter of Credit by reason of Fleet's joining
in any LC Application or otherwise. Borrowers shall also be jointly and
severally obligated to pay to Agent, for the Pro Rata benefit of Lenders:
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(i) for the LC Support of each standby Letter of
Credit, a fee at a rate per annum equal to the Applicable Margin for LIBOR
Loans, multiplied by the aggregate undrawn face amount of such standby Letter of
Credit outstanding from time to time during the term of this Agreement which
shall be due and payable upon issuance of each standby Letter of Credit, and an
additional fee equal to the Applicable Margin for LIBOR Loans, multiplied by the
undrawn face amount of such Letter of Credit payable upon each renewal thereof
and each extension thereof, all of which fees and charges shall be deemed fully
earned upon issuance, renewal or extension (as the case may be) of each such
standby Letter of Credit, and shall not be subject to rebate or proration upon
the termination of this Agreement for any reason; and
(ii) for the LC Support of each documentary Letter of
Credit, a fee equal to 1% per annum of the undrawn face amount of each such
Letter of Credit, payable upon the issuance of such Letter of Credit and an
additional fee equal to 1% per annum of the undrawn face amount of such Letter
of Credit payable upon each renewal thereof, and each extension thereof, which
fees and charges shall be fully earned upon issuance, renewal or extension (as
the case may be) of each such Letter of Credit, shall be due and payable on the
first Business Day of each month, and shall not be subject to rebate or
proration upon the termination of this Agreement for any reason.
3.2.2. Unused Line Fee. Borrowers shall be jointly and
severally obligated to pay to Agent for the Pro Rata benefit of Lenders a fee at
a rate per annum equal to the Applicable Margin for the Unused Line Fee on such
date, multiplied by the amount that the Average Revolver Loan Balance for any
month (or portion thereof that this Agreement is in effect) is less than the
Commitments, such fee to be paid on the first day of the following month; but if
this Agreement is terminated on a day other than the first day of a month, then
any such fee payable for the month in which termination shall occur shall be
paid on the effective date of such termination.
3.2.3. Audit and Appraisal Fees. Borrowers shall be jointly
and severally obligated to reimburse Agent and Lenders for all reasonable costs
and expenses incurred by Agent in connection with all audits and appraisals of
any Obligor's books and records and such other matters pertaining to any Obligor
or any Collateral as Agent or any such Lender shall deem appropriate.
3.2.4. Annual Agency Fee. In consideration of Fleet's service
as Agent hereunder, Borrowers shall be jointly and severally obligated to pay to
Agent the underwriting fee and an annual agency fee, all as outlined in the Fee
Letter, which fees shall be payable on the dates and in the manner set forth in
the Fee Letter.
3.2.5 General Provisions. All fees shall be fully earned by
the identified recipient thereof pursuant to the foregoing provisions of this
Agreement on the due date thereof and, except as otherwise set forth herein or
required by Applicable Law, shall not be subject to rebate, refund or proration.
All fees provided for in Section 3.2 are and shall be deemed to be for
compensation for services and are not, and shall not be deemed to be, interest
or any other charge for the use, forbearance or detention of money.
3.3. COMPUTATION OF INTEREST AND FEES. All fees and other charges
provided for in this Agreement that are calculated as a per annum percentage of
any amount and all interest shall be calculated daily and shall be computed on
the actual number of days elapsed over a year of 360 days. For purposes of
computing interest and other charges hereunder, all Payment Items received by
Agent shall be deemed applied by Agent on account of the Obligations (subject to
final payment of such items) on the Business Day that Agent receives such items
in immediately available funds in the Payment Account, and Agent shall be deemed
to have received such Payment Item on the date specified in Section 5.6 hereof.
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3.4. REIMBURSEMENT OF EXPENSES. Borrowers shall reimburse Agent for any
and all legal or accounting expenses or any other out-of-pocket cost or expenses
incurred by Agent in connection with the negotiation and preparation of this
Agreement or any of the other Loan Documents. If, after the Closing Date, Agent
incurs reasonable legal or accounting expenses or any other out-of-pocket costs
or expenses in connection with (i) any amendment of or modification of this
Agreement or any of the other Loan Documents; (ii) the administration of this
Agreement or any of the other Loan Documents and the transactions contemplated
hereby and thereby; or (iii) any litigation, contest, dispute, suit, proceeding
or action (whether instituted by Agent, any Lender, an Obligor or any other
Person) in any way relating to the Collateral, this Agreement or any of the
other Loan Documents or any Borrower's affairs and no Event of Default exists at
such time, then all reasonable legal fees and accounting expenses and other
out-of-pocket costs and expenses of Agent shall be charged to Borrowers. If an
Event of Default exists, Borrowers shall pay to Agent and Lenders or reimburse
Agent and Lenders for any and all legal fees, accounting expenses and other
out-of-pocket costs and expenses of Agent and any Lender, including, fees and
expenses in connection with (i) any amendment or modification of this Agreement
or any of the other Loan Documents (ii); the administration of this Agreement or
any other Loan Documents or any of the transactions contemplated hereby or
thereby; (iii) any litigation, contest, dispute, suit, proceeding or action
(whether instituted by Agent, any Lender, an Obligor or any other Person) in any
way relating to the Collateral, this Agreement or any of the other Loan
Documents or any Borrower's affairs; (iv) any attempt to enforce any rights of
Agent or any Lender against any or all Borrowers or any other Person which may
be obligated to Agent or a Lender by virtue of this Agreement or any of the
other Loan Documents, including the Account Debtors; (v) any attempt to inspect
or conduct audits with respect to any Borrower's books and records of the
Collateral; or (vi) any attempt to verify, protect, preserve, restore, appraise,
collect, sell, liquidate or otherwise dispose of or realize upon the Collateral.
All amounts chargeable to Borrowers under this Section 3.4 shall be Obligations
secured by all of the Collateral, shall be payable ON DEMAND to Agent or
Lenders, as the case may be.
3.5. BANK CHARGES. Borrowers shall pay to Agent, ON DEMAND, any and all
fees, costs or expenses which Agent pays to a bank or other similar institution
(including any fees paid by Agent) arising out of or in connection with (i) the
forwarding to a Borrower or any other Person on behalf of Borrower by Agent of
proceeds of Loans made by Lenders to a Borrower pursuant to this Agreement and
(ii) the depositing for collection by Agent of any Payment Item received or
delivered to Agent on account of the Obligations. Each Borrower acknowledges and
agrees that Agent may charge such costs, fees and expenses to Borrowers based
upon Agent's good faith estimate of such costs, fees and expenses as they are
incurred by Agent.
3.6. ILLEGALITY. Notwithstanding anything to the contrary contained
elsewhere in this Agreement, if (i) any change in any law or regulation or in
the interpretation thereof by any governmental authority charged with the
administration thereof shall make it unlawful for a Lender to make or maintain a
LIBOR Loan or to give effect to its obligations as contemplated hereby with
respect to a LIBOR Loan or (ii) at any time such Lender determines that the
making or continuance of any LIBOR Loan has become impracticable as a result of
a contingency occurring after the date hereof which adversely affects the London
interbank market or the position of such Lender in such market, then such Lender
shall after such determination give Agent and any Borrower notice thereof and
may thereafter (1) declare that LIBOR Loans will not thereafter be made by such
Lender, whereupon any request by a Borrower for a LIBOR Loan shall be deemed a
request for a Base Rate Loan unless such Lender's declaration shall be
subsequently withdrawn (which declaration shall be withdrawn promptly after the
cessation of the circumstances described in clause (i) or (ii) above); and (2)
require that all outstanding LIBOR Loans made by such Lender be converted to
Base Rate Loans, under the circumstances of clause (i) or (ii) of this Section
3.6 insofar as such Lender determines the continuance of LIBOR Loans to be
impracticable, in which event all such LIBOR Loans shall be converted
automatically to Base Rate Loans as of the date of any Borrower's receipt of the
aforesaid notice from such Lender.
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3.7. INCREASED COSTS. If, by reason of (a) the introduction of or any
change (including any change by way of imposition or increase of Statutory
Reserves or other reserve requirements) in or in the interpretation of any law
or regulation, or (b) the compliance with any guideline or request from any
central bank or other governmental authority or quasi-governmental authority
exercising control over banks or financial institutions generally (whether or
not having the force of law):
(i) any Lender shall be subject after the date
hereof, to any Taxes, duty or other charge with respect to any LIBOR
Loan or its obligation to make LIBOR Loans, or a change shall result in
the basis of taxation of payment to any Lender of the principal of or
interest on its LIBOR Loans or its obligation to make LIBOR Loans
(except for changes in the rate of Tax on the overall net income of
such Lender imposed by the jurisdiction in which such Lender's
principal executive office is located); or
(ii) any reserve (including any imposed by the
Board of Governors), special deposits or similar requirement against
assets of, deposits with or for the account of, or credit extended by,
any Lender shall be imposed or deemed applicable or any other condition
affecting its LIBOR Loans or its obligation to make LIBOR Loans shall
be imposed on such Lender or the London interbank market;
and as a result thereof there shall be any increase in the cost to such Lender
of agreeing to make or making, funding or maintaining LIBOR Loans (except to the
extent already included in the determination of the applicable Adjusted LIBOR
Rate for LIBOR Loans), or there shall be a reduction in the amount received or
receivable by such Lender, then such Lender shall, promptly after determining
the existence or amount of any such increased costs for which such Lender seeks
payment hereunder, give any Borrower notice thereof and Borrowers shall from
time to time, upon written notice from and demand by such Lender (with a copy of
such notice and demand to Agent), pay to Agent for the account of such Lender,
within 5 Business Days after the date specified in such notice and demand, an
additional amount sufficient to indemnify such Lender against such increased
costs. A certificate as to the amount of such increased cost, submitted to
Borrowers by such Lender, shall be final, conclusive and binding for all
purposes, absent manifest error. In no event shall Agent make a claim for
compensation from Borrowers under this Section 3.7 for any period occurring more
than 60 days prior to the date upon which Tropical, in its capacity as the
representative of Borrowers, receives such certificate.
If any Lender shall advise Agent at any time that, because of the
circumstances described hereinabove in this Section 3.7 or any other
circumstances arising after the date of this Agreement affecting such Lender or
the London interbank market or such Lender's position in such market, the
Adjusted LIBOR Rate, as determined by Agent, will not adequately and fairly
reflect the cost to such Lender of funding LIBOR Loans, then, and in any such
event:
(i) Agent shall forthwith give notice (by
telephone confirmed in writing) to Tropical and Lenders of such event;
(ii) Borrowers' right to request and such Lender's
obligation to make LIBOR Loans shall be immediately suspended and
Borrowers' right to continue a LIBOR Loan as such beyond the then
applicable Interest Period shall also be suspended, until each
condition giving rise to such suspension no longer exists; and
(iii) such Lender shall make a Base Rate Loan as
part of the requested Borrowing of LIBOR Loans, which Base Rate Loan
shall, for all purposes, be considered part of such Borrowing.
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For purposes of this Section 3.7, all references to a Lender shall be
deemed to include any bank holding company or bank parent of such Lender.
3.8. CAPITAL ADEQUACY. If any Lender determines that after the date
hereof (a) the adoption of any Applicable Law regarding capital requirements for
banks or bank holding companies or the subsidiaries thereof, (b) any change in
the interpretation or administration of any such Applicable Law by any
governmental authority, central bank, or comparable agency charged with the
interpretation or administration thereof, or (c) compliance by such Lender or
its holding company with any request or directive of any such governmental
authority, central bank or comparable agency regarding capital adequacy (whether
or not having the force of law), has the effect of reducing the return on such
Lender's capital to a level below that which such Lender could have achieved
(taking into consideration such Lender's and its holding company's policies with
respect to capital adequacy immediately before such adoption, change or
compliance and assuming that such Lender's capital was fully utilized prior to
such adoption, change or compliance) but for such adoption, change or compliance
as a consequence of such Lender's commitment to make the Loans pursuant hereto
by any amount deemed by such Lender to be material:
(i) Agent shall promptly, after its receipt of a
certificate from such Lender setting forth such Lender's determination
of such occurrence, give notice thereof to any Borrower and Lenders;
and
(ii) Borrowers shall pay to Agent, for the account of
such Lender, as an additional fee from time to time, ON DEMAND, such
amount as such Lender certifies to be the amount reasonably calculated
to compensate such Lender for such reduction.
A certificate of such Lender claiming entitlement to compensation as
set forth above will be conclusive in the absence of manifest error. In no event
shall Agent make a claim for compensation from Borrowers under this Section 3.8
for any period occurring more than 60 days prior to the date upon which
Tropical, in its capacity as the representative of Borrowers, receives such
certificate. Such certificate will set forth the nature of the occurrence giving
rise to such compensation, the additional amount or amounts to be paid to such
Lender (including the basis for such Lender's determination of such amount), and
the method by which such amounts were determined. In determining such amount,
such Lender may use any reasonable averaging and attribution method. For
purposes of this Section 3.8 all references to a Lender shall be deemed to
include any bank holding company or bank parent of such Lender.
3.9. FUNDING LOSSES. If after the date hereof Agent or any Lender
determines that (a) the adoption of any Applicable Law regarding capital
requirements for banks or bank holding companies or the subsidiaries thereof,
(b) any change in the interpretation or administration of any such Applicable
Law, any governmental authority, central bank, or comparable agency charged with
the interpretation or administration thereof, or (c) compliance by any Lender or
its holding company with any request or directive of any such governmental
authority, central bank or comparable agency regarding capital adequacy (whether
or not having the force of law), has the effect of reducing the return on such
Lender's capital to a level below that which such Lender could have achieved
(taking into consideration such Lender's and its holding company's policies with
respect to capital adequacy immediately before such adoption, change or
compliance and assuming that such Lender's capital was fully utilized prior to
such adoption, change or compliance) but for such adoption, change or compliance
as a consequence of such Lender's commitment to make the Loans pursuant hereto
by any amount deemed by such Lender to be material, Borrowers shall pay to such
Lender, as an additional fee from time to time, on demand, such amount as such
Lender certifies to be the amount that will compensate such Lender for such
reduction. A certificate of such Lender claiming entitlement to compensation as
set forth above will be conclusive in the absence of manifest error. Such
certificate will set forth the nature of the occurrence giving rise to
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such compensation, the additional amount or amounts to be paid to such Lender
(including the basis for such Lender's determination of such amount), and the
method by which such amounts were determined. In determining such amount, such
Lender may use any reasonable averaging and attribution method. For purposes of
this Section 3.9, all references to a Lender shall be deemed to include any bank
holding company or bank parent of such Lender.
3.10. MAXIMUM INTEREST. Regardless of any provision contained in any of
the Loan Documents, in no contingency or event whatsoever shall the aggregate of
all amounts that are contracted for, charged or received by Agent and Lenders
pursuant to the terms of this Agreement or any of the other Loan Documents and
that are deemed interest under Applicable Law exceed the highest rate
permissible under any Applicable Law. No agreements, conditions, provisions or
stipulations contained in this Agreement or any of the other Loan Documents or
the exercise by Agent of the right to accelerate the payment or the maturity of
all or any portion of the Obligations, or the exercise of any option whatsoever
contained in any of the Loan Documents, or the prepayment by any or all
Borrowers of any of the Obligations, or the occurrence of any contingency
whatsoever, shall entitle Agent or any Lender to charge or receive in any event,
interest or any charges, amounts, premiums or fees deemed interest by Applicable
Law (such interest, charges, amounts, premiums and fees referred to herein
collectively as "Interest") in excess of the Maximum Rate and in no event shall
Borrowers be obligated to pay Interest exceeding such Maximum Rate, and all
agreements, conditions or stipulations, if any, which may in any event or
contingency whatsoever operate to bind, obligate or compel Borrowers to pay
Interest exceeding the Maximum Rate shall be without binding force or effect, at
law or in equity, to the extent only of the excess of Interest over such Maximum
Rate. If any Interest is charged or received in excess of the Maximum Rate
("Excess"), each Borrower acknowledges and stipulates that any such charge or
receipt shall be the result of an accident and bona fide error, and such Excess,
to the extent received, shall be applied first to reduce the principal amount of
the Obligations and the balance, if any, returned to Borrowers, it being the
intent of the parties hereto not to enter into a usurious or otherwise illegal
relationship. The right to accelerate the maturity of any of the Obligations
does not include the right to accelerate any Interest that has not otherwise
accrued on the date of such acceleration, and Agent and Lenders do not intend to
collect any unearned Interest in the event of any such acceleration. Each
Borrower recognizes that, with fluctuations in the rates of interest set forth
in Section 3.1.1 of this Agreement, and the Maximum Rate, such an unintentional
result could inadvertently occur. All monies paid to Agent or any Lender
hereunder or under any of the other Loan Documents, whether at maturity or by
prepayment, shall be subject to any rebate of unearned Interest as and to the
extent required by Applicable Law. By the execution of this Agreement, each
Borrower covenants that (i) the credit or return of any Excess shall constitute
the acceptance by such Borrower of such Excess, and (ii) no Borrower shall seek
or pursue any other remedy, legal or equitable, against Agent or any Lender,
based in whole or in part upon contracting for, charging or receiving any
Interest in excess of the Maximum Rate. For the purpose of determining whether
or not any Excess has been contracted for, charged or received by Agent or any
Lender, all Interest at any time contracted for, charged or received from any or
all Borrowers in connection with any of the Loan Documents shall, to the extent
permitted by Applicable Law, be amortized, prorated, allocated and spread in
equal parts throughout the full term of the Obligations. Borrowers, Agent and
Lenders shall, to the maximum extent permitted under Applicable Law, (i)
characterize any non-principal payment as an expense, fee or premium rather than
as Interest and (ii) exclude voluntary prepayments and the effects thereof. The
provisions of this Section 3.10 shall be deemed to be incorporated into every
Loan Document (whether or not any provision of this Section is referred to
therein). All such Loan Documents and communications relating to any Interest
owed by any or all Borrowers and all figures set forth therein shall, for the
sole purpose of computing the extent of Obligations, be automatically recomputed
by Borrowers, and by any court considering the same, to give effect to the
adjustments or credits required by this Section 3.10.
SECTION 4. LOAN ADMINISTRATION
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4.1. MANNER OF BORROWING AND FUNDING REVOLVER LOANS. Borrowings under
the Commitments established pursuant to Section 2.1 hereof shall be made and
funded as follows:
4.1.1. Notice of Borrowing.
(i) Whenever any Borrower desires to make a Borrowing
under Section 2.1 of this Agreement (other than a Borrowing resulting
from a conversion or continuation pursuant to Section 3.1.2), such
Borrower shall give Agent prior written notice (or telephonic notice
promptly confirmed in writing) of such Borrowing request (a "Notice of
Borrowing"), which shall be in the form of EXHIBIT C annexed hereto and
signed by an authorized officer of such Borrower. Such Notice of
Borrowing shall be given by such Borrower no later than 12:00 noon at
the office of Agent designated by Agent from time to time (a) on the
Business Day of the requested funding date of such Borrowing, in the
case of Base Rate Loans, and (b) at least 2 Business Days prior to the
requested funding date of such Borrowing, in the case of LIBOR Loans.
Notices received after 12:00 noon shall be deemed received on the next
Business Day. The Revolver Loans made by each Lender on the Closing
Date shall be made as Base Rate Loans and thereafter may be made or
continued as or converted into Base Rate Loans or LIBOR Loans. Each
Notice of Borrowing (or telephonic notice thereof) shall be irrevocable
and shall specify (a) the principal amount of the Borrowing, (b) the
date of Borrowing (which shall be a Business Day), (c) whether the
Borrowing is to consist of Base Rate Loans or LIBOR Loans, (d) in the
case of LIBOR Loans, the duration of the Interest Period to be
applicable thereto, and (e) the account of Borrowers to which the
proceeds of such Borrowing are to be disbursed. Borrowers may not
request any LIBOR Loans if a Default or Event of Default exists.
(ii) Unless payment is otherwise timely made by
Borrowers, the becoming due of any amount required to be paid under
this Agreement or any of the other Loan Documents as principal, accrued
interest, fees or other charges (including the repayment of any LC
Outstandings) shall be deemed irrevocably to be a request for Revolver
Loans on the due date of, and in an aggregate amount required to pay,
such principal, accrued interest, fees or other charges, and the
proceeds of such Revolver Loans may be disbursed by way of direct
payment of the relevant Obligation and shall bear interest as Base Rate
Loans. Neither Agent nor any Lender shall have any obligation to
Borrowers to honor any deemed request for a Revolver Loan when an
Out-of- Formula Condition exists or would result therefrom, but may do
so in their discretion and without regard to the existence of, and
without being deemed to have waived, any Default or Event of Default.
(iii) As an accommodation to Borrowers, Agent and
Lenders may permit telephonic requests for Borrowings and electronic
transmittal of instructions, authorizations, agreements or reports to
Agent by Borrowers; provided, however, that Borrowers shall confirm
each such telephonic request for a Borrowing of LIBOR Loans by delivery
of the required Notice of Borrowing to Agent by facsimile transmission
promptly, but in no event later than 5:00 p.m. on the same day. Unless
Borrowers specifically direct Agent and Lenders in writing not to
accept or act upon telephonic or electronic communications from
Borrowers, neither Agent nor any Lender shall have any liability to
Borrowers for any loss or damage suffered by such Borrowers as a result
of Agent's or any Lender's honoring of any requests, execution of any
instructions, authorizations or agreements or reliance on any reports
communicated to it telephonically or electronically and purporting to
have been sent to Agent or Lenders by a Borrower and neither Agent nor
any Lender shall have any duty to verify the origin of any such
communication or the identity or authority of the Person sending it.
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4.1.2. Fundings by Lenders. Subject to its receipt of notice
from Agent of a Notice of Borrowing as provided in Section 4.1.1 (i) (except in
the case of a deemed request by a Borrower for a Revolver Loan as provided in
Sections 4.1.1(ii) or 4.1.3(ii) hereof, in which event no Notice of Borrowing
need be submitted), each Lender shall timely honor its Revolver Commitment by
funding its Pro Rata share of each Borrowing of Revolver Loans that is properly
requested by a Borrower and that such Borrower is entitled to receive under the
Loan Agreement. Agent shall notify Lenders of each Notice of Borrowing by 12:00
noon on the proposed funding date (in the case of Base Rate Loans) or by 3:00
p.m. at least 2 Business Days before the proposed funding date (in the case of
LIBOR Loans). Each Lender shall deposit with Agent an amount equal to its Pro
Rata share of the Borrowing requested by such Borrower at Agent's designated
bank in immediately available funds not later than 1:00 p.m. on the date of
funding of such Borrowing, unless Agent's notice to Lenders is received after
12:00 noon on the proposed funding date of a Base Rate Loan, in which event
Lenders shall deposit with Agent their respective Pro Rata shares of the
requested Borrowing on or before 12:00 noon of the next Business Day. Subject to
its receipt of such amounts from Lenders, Agent shall make the proceeds of the
Revolver Loans received by it available to such Borrower by disbursing such
proceeds in accordance with such Borrower's disbursement instructions set forth
in the applicable Notice of Borrowing. Unless Agent shall have been notified in
writing by a Lender prior to the proposed time of funding that such Lender does
not intend to deposit with Agent an amount equal such Lender's Pro Rata share of
the requested Borrowing, Agent may assume that such Lender has deposited or
promptly will deposit its share with Agent and Agent may in its discretion
disburse a corresponding amount to such Borrower on the applicable funding date.
If a Lender's Pro Rata share of such Borrowing is not in fact deposited with
Agent, then, if Agent has disbursed to such Borrower an amount corresponding to
such share, then such Lender agrees to pay, and in addition Borrowers jointly
and severally agree to repay, to Agent forthwith on demand such corresponding
amount, together with interest thereon, for each day from the date such amount
is disbursed by Agent to or for the benefit of such Borrower until the date such
amount is paid or repaid to Agent, (a) in the case of Borrowers, at the interest
rate applicable to such Borrowing and (b) in the case of such Lender, at the
Federal Funds Rate. If such Lender repays to Agent such corresponding amount,
such amount so repaid shall constitute a Revolver Loan, and if both such Lender
and Borrowers shall have repaid such corresponding amount, Agent shall promptly
return to Borrowers such corresponding amount in same day funds.
4.1.3. Settlement and Swingline Loans.
(i) In order to facilitate the administration of the
Revolver Loans under this Agreement, Lenders agree (which agreement
shall not be for the benefit of or enforceable by any Borrower) that
settlement among them with respect to the Revolver Loans shall take
place on a Swingline Settlement Date, which may occur before or after
the occurrence or during the continuance of a Default or Event of
Default and whether or not all of the conditions set forth in Section
11 of this Agreement have been met. On each Swingline Settlement Date,
payment shall be made by or to each Lender in the manner provided
herein and in accordance with the Settlement Report delivered by Agent
to Lenders with respect to such Swingline Settlement Date so that, as
of each Swingline Settlement Date and after giving effect to the
transaction to take place on such Swingline Settlement Date, each
Lender shall hold its Pro Rata share of all Revolver Loans and
participations in LC Outstandings then outstanding.
(ii) Between Swingline Settlement Dates, Agent may
request Fleet to advance, and Fleet may, but shall in no event be
obligated to, advance to Borrowers out of Fleet's own funds the entire
principal amount of any Borrowing of Revolver Loans that are Base Rate
Loans requested or deemed requested pursuant to this Agreement (any
such Revolver Loan funded exclusively by Fleet being referred to as a
"Swingline Loan"). Each Swingline Loan shall constitute a Revolver Loan
hereunder and shall be subject to all of the terms, conditions and
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security applicable to other Revolver Loans, except that all payments
thereon shall be payable to Fleet solely for its own account. The
obligation of Borrowers to repay such Swingline Loans to Fleet shall be
evidenced by the Swingline Note and by the records of Fleet. Agent
shall not request Fleet to make any Swingline Loan if (A) Agent shall
have received written notice from any Lender that one or more of the
applicable conditions precedent set forth in Section 11 hereof will not
be satisfied on the requested funding date for the applicable Borrowing
or (B) the requested Borrowing would exceed the amount of Availability
on the funding date or would cause the then outstanding principal
balance of all Swingline Loans to exceed $5,000,000. Fleet shall not be
required to determine whether the applicable conditions precedent set
forth in Section 11 hereof have been satisfied or the requested
Borrowing would exceed the amount of Availability on the funding date
applicable thereto prior to making, in its sole discretion, any
Swingline Loan. On each Swingline Settlement Date, or, if earlier, upon
demand by Agent for payment thereof, the then outstanding Swingline
Loans shall be immediately due and payable. Borrowers shall be deemed
to have requested (without the necessity of submitting any Notice of
Borrowing) Revolver Loans to be made on each Swingline Settlement Date
in the amount of all outstanding Swingline Loans and to have authorized
agent to cause the proceeds of such Revolver Loans to be applied to the
repayment of such Swingline Loans and interest accrued thereon. Agent
shall notify the Lenders of the outstanding balance of Revolver Loans
prior to 12:00 noon on each Swingline Settlement Date and each Lender
shall deposit with Agent an amount equal to its Pro Rata share of the
amount of Revolver Loans deemed requested in immediately available
funds not later than 3:00 p.m. on such Swingline Settlement Date, and
without regard to whether any of the conditions precedent set forth in
Section 11 hereof are satisfied. If any Swingline Loan is not repaid on
the due date thereof, then on the second Business Day after Fleet's
request each Lender (other than Fleet) shall purchase a participating
interest in such Swingline Loan in an amount equal to its Pro Rata
share of such Swingline Loan by transferring to Fleet, in immediately
available funds, the amount of such participation. The proceeds of
Swingline Loans may be used solely for purposes for which Revolver
Loans generally may be used in accordance with Section 2.1.3 hereof. If
any amounts received by Fleet in respect of any Swingline Loans are
later required to be returned or repaid by Fleet to any or all
Borrowers or any other Obligor or their respective representatives or
successors-in-interest, whether by court order, settlement or
otherwise, the other Lender shall, upon demand by Fleet with notice to
Agent, pay to Agent for the account of Fleet, an amount equal to each
other Lender's Pro Rata share of all such amounts required to be
returned by Fleet.
4.1.4. Disbursement Authorization. Each Borrower hereby
irrevocably authorizes Agent to disburse the proceeds of each Revolver Loan
requested by any Borrower, or deemed to be requested pursuant to Section 4.1.1
or Section 4.1.3(ii), as follows: (i) the proceeds of each Revolver Loan
requested under Section 4.1.1(i) shall be disbursed by Agent in accordance with
the terms of the written disbursement letter from Borrowers in the case of the
initial Borrowing, and, in the case of each subsequent Borrowing, by wire
transfer to such bank account as may be agreed upon by any Borrower and Agent
from time to time or elsewhere if pursuant to a written direction from such
Borrower; and (ii) the proceeds of each Revolver Loan requested under Section
4.1.1(ii) or Section 4.13(ii) shall be disbursed by Agent by way of direct
payment of the relevant interest or other Obligation. Any Loan proceeds received
by any Borrower or in payment of any of the Obligations shall be deemed to have
been received by all Borrowers.
4.2. DEFAULTING LENDER. If any Lender shall, at any time, fail to make
any payment to Agent or Fleet that is required hereunder, Agent may, but shall
not be required to, retain payments that would otherwise be made to such
defaulting Lender hereunder and apply such payments to such defaulting Lender's
defaulted obligations hereunder, at such time, and in such order, as Agent may
elect in its sole discretion. With respect to the payment of any funds from
Agent to a Lender or from a Lender to Agent,
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the party failing to make the full payment when due pursuant to the terms hereof
shall, upon demand by the other party, pay such amount together with interest on
such amount at the Federal Funds Rate. The failure of any Lender to fund its
portion of any Revolver Loan shall not relieve any other Lender of its
obligation, if any, to fund its portion of the Revolver Loan on the date of
Borrowing, but no Lender shall be responsible for the failure of any other
Lender to make any Revolver Loan to be made by such Lender on the date of any
Borrowing. At any time prior to the termination of the Commitments and solely
for purposes of voting or consenting to matters with respect to any of the Loan
Documents, Collateral or any Obligations and determining a defaulting Lender's
Pro Rata share of payments and proceeds of Collateral, a defaulting Lender shall
not be deemed to be a "Lender" and such Lender's Commitment shall be deemed to
be zero (0).
4.3. SPECIAL PROVISIONS GOVERNING LIBOR LOANS.
4.3.1 Minimum Amounts. Each election of LIBOR Loans pursuant
to Section 4.1.1(i), and each continuation of or conversion to LIBOR Loans
pursuant to Section 3.1.2 hereof, shall be in a minimum amount of $1,000,000 and
integral multiples of $250,000 in excess of that amount.
4.3.2 LIBOR Lending Office. Each Lender's initial LIBOR
Lending Office is set forth opposite its name on the signature pages hereof.
Each Lender shall have the right at any time and from time to time to designate
a different office of itself or of any Affiliate as such Lender's LIBOR Lending
Office, and to transfer any outstanding LIBOR Loans to such LIBOR Lending
Office. No such designation or transfer shall result in any liability on the
part of Borrowers for increased costs or expenses resulting solely from such
designation or transfer (except any such transfer that is made by a Lender
pursuant to Section 3.6 or Section 3.7). Increased costs or expenses resulting
from a change in Applicable Law occurring subsequent to any such designation or
transfer shall be deemed not to result solely from such designation or transfer.
4.4. BORROWERS' REPRESENTATIVE. Each Borrower hereby irrevocably
appoints Tropical and Tropical agrees to act under this Agreement, as the Agent
and representative of itself and each other Borrower for all purposes under this
Agreement, including requesting Borrowings, selecting whether any Loan or
portion thereof is to bear interest as a Base Rate Loan or a LIBOR Loan, and
receiving account statements and other notices and communications to Borrowers
(or any of them) from Agent. Agent may rely, and shall be fully protected in
relying, on any Notice of Borrowing, Notice of Conversion/Continuation,
disbursement instructions, reports, information or any other notice or
communication made or given by Tropical, whether in its own name, on behalf of
any Borrower or on behalf of "the Borrowers," and Agent shall have no obligation
to make any inquiry or request any confirmation from or on behalf of any other
Borrower as to the binding effect on such Borrower of any such request,
instruction, report, information, notice or communication, nor shall the joint
and several character of Borrowers' liability for the Revolver Loans be
affected, provided that the provisions of this Section 4.4 shall not be
construed so as to preclude any Borrower from directly requesting Borrowings or
taking other actions permitted to be taken by "a Borrower" hereunder. Agent
intends to maintain a single Loan Account in the name of "Tropical Sportswear
Int'l Corporation" hereunder, and each Borrower expressly agrees to such
arrangement and confirms that such arrangement shall have no effect on the joint
and several character of such Borrower's liability for the Revolver Loans.
4.5. ALL LOANS TO CONSTITUTE ONE OBLIGATION. The Loans shall
constitute one general Obligation of Borrowers and shall be secured by Agent's
Lien upon all of the Collateral; provided, however, that Agent and each Lender
shall be deemed to be a creditor of each Borrower and the holder of a separate
claim against each Borrower to the extent of any Obligations jointly and
severally owed by Borrowers to Agent or such Lender.
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SECTION 5. PAYMENTS
5.1. GENERAL REPAYMENT PROVISIONS. All payments (including all
prepayments) of principal of and interest on the Loans, LC Outstandings and
other Obligations that are payable to Agent or any Lender shall be made to Agent
in Dollars without any offset or counterclaim and free and clear of (and without
deduction for) any present or future Taxes, and, with respect to payments made
other than by application of balances in the Payment Account, in immediately
available funds not later than 12:00 noon on the due date (and payment made
after such time on the due date to be deemed to have been made on the next
succeeding Business Day). All payments received by Agent shall be distributed by
Agent to Lenders on a Pro Rata basis, subject to the right of offset that Agent
may have as to amounts otherwise to be remitted to a particular Lender by reason
of amounts due Agent from such Lender under any of the Loan Documents.
5.2. REPAYMENT OF REVOLVER LOANS.
5.2.1. Payment of Principal. The outstanding principal amounts
with respect to the Revolver Loans shall be repaid as follows:
(i) Any portion of the Revolver Loans
consisting of the principal amount of Base Rate Loans shall be
paid by Borrowers to Agent, for the Pro Rata benefit of
Lenders (or, in the case of Swingline Loans, for the sole
benefit of Fleet) unless timely converted to a LIBOR Loan in
accordance with this Agreement, immediately upon (a) each
receipt by Agent, any Lender or Borrower of any proceeds of
any of the Accounts or Inventory, to the extent of such
proceeds, (b) the Commitment Termination Date, and (c) in the
case of Swingline Loans, the earlier of Fleet's demand for
payment or on each Swingline Settlement Date with respect to
all Swingline Loans outstanding on such date.
(ii) Any portion of the Revolver Loans
consisting of the principal amount of LIBOR Loans shall be
paid by Borrowers to Agent, for the Pro Rata benefit of
Lenders, unless converted to a Base Rate Loan or continued as
a LIBOR Loan in accordance with the terms of this Agreement,
upon (a) the last day of the Interest Period applicable
thereto and (b) the Commitment Termination Date. In no event
shall Borrowers be authorized to pay any LIBOR Loan prior to
the last day of the Interest Period applicable thereto unless
Borrowers pay to Agent, for the Pro Rata benefit of Lenders
and concurrently with any prepayment of a LIBOR Loan, the
amount due Agent and Lenders under Section 3.9 hereof as a
consequence of such prepayment.
(iii) Notwithstanding anything to the contrary
contained elsewhere in this Agreement, if an Out-of-Formula
Condition shall exist, Borrowers shall notify Agent of such
Out-of-Formula Condition on the first Business Day after any
Borrower has obtained knowledge of such Out-of-Formula
Condition and immediately upon Agent's demand, repay the
outstanding Revolver Loans that are Base Rate Loans in an
amount sufficient to reduce the aggregate unpaid principal
amount of all Revolver Loans by an amount equal to such
excess; and, if such payment of Base Rate Loans is not
sufficient to eliminate the Out-of-Formula Condition, then
Borrowers shall immediately either (a) deposit with Agent, for
the Pro Rata benefit of Lenders, for application to any
outstanding Revolver Loans bearing interest as LIBOR Loans as
the same become due and payable (whether at the end of the
applicable Interest Periods or on the Commitment Termination
Date), cash in an amount sufficient to eliminate such
Out-of-Formula Condition to be held by Agent pending
disbursement of same to Lenders, but subject to Agent's Lien
thereon and rights of offset with respect thereto, or (b) pay
the Revolver Loans outstanding as LIBOR Loans to the extent
necessary to eliminate such Out-of-Formula Condition and also
pay to Agent for the Pro
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Rata benefit of Lenders any and all amounts required by
Section 3.9 hereof to be paid by reason of the prepayment of a
LIBOR Loan prior to the last day of the Interest Period
applicable thereto.
5.2.2. Payment of Interest. Interest accrued on the Revolver
Loans shall be due and payable on (i) the first calendar day of each month (for
the immediately preceding month), computed through the last calendar day of the
preceding month, with respect to any Revolver Loan (whether a Base Rate Loan or
LIBOR Loan) and (ii) the last day of the applicable Interest Period in the case
of a LIBOR Loan. Accrued interest shall also be paid by Borrowers on the
Commitment Termination Date. With respect to any Base Rate Loan converted into a
LIBOR Loan pursuant to Section 3.1.2 on a day when interest would not otherwise
have been payable with respect to such Base Rate Loan, accrued interest to the
date of such conversion on the amount of such Base Rate Loan so converted shall
be paid on the conversion date.
5.2.3. Mandatory Prepayments. Borrowers shall make the
following mandatory payments to Agent, for the Pro Rata benefit of Lenders, for
application to the Obligations (unless otherwise specified below):
(i) to the extent that the sum of the Loans plus
outstanding LC Outstandings exceeds either (x) the sum of the Borrowing
Base plus cash then held in the Cash Collateral Account or (y) the
aggregate amount of the Revolver Commitments, and if after giving
effect to any such prepayment in full of the Revolver Loans, the sum of
the LC Outstandings exceeds either the Borrowing Base or the aggregate
amount of the Revolver Commitments, then Borrowers shall, at the
request of Agent made at any time prior to the occurrence of an Event
of Default or if an Event of Default exists, immediately without
request, deposit into the Cash Collateral Account amount equal to such
excess;
(ii) in an amount equal to 100% of the Net Proceeds
received by any Obligor from any sale of Collateral (excluding sales of
Inventory in the ordinary course of business) which are approved by the
Required Lenders, except for dispositions of Equipment expressly
permitted by Section 8.4.2 of this Agreement;
(iii) 100% of the Net Proceeds received by any
Borrower from the issuance of any debt or equity securities (other than
the Senior Subordinated Notes and the Exchange Notes and excluding Net
Proceeds received from the refinancing of any existing debt), unless at
the time of such issuance the ratio of Consolidated Indebtedness to
Consolidated EBITDA is less than 3.5 to 1.0; and
(iv) 100% of the Net Proceeds of any insurance or
condemnation awards.
5.3. PAYMENT OF OTHER OBLIGATIONS. Borrowers shall pay all costs,
fees and charges pursuant to this Agreement as and when provided in Section 3.2
hereof, to Agent or to any other Person designated by Agent in writing. The
balance of the Obligations requiring the payment of money, including the LC
Outstandings, shall be repaid by Borrowers to Agent for the Pro Rata benefit of
Lenders, as and when provided in the Loan Documents, or, if no date of payment
is otherwise specified in the Loan Documents, ON DEMAND.
5.4. MARSHALLING; PAYMENTS SET ASIDE. None of Agent or any Lender
shall be under any obligation to marshall any assets in favor of any Borrower or
any other Obligor or against or in payment of any or all of the Obligations. To
the extent that Borrowers make a payment or payments to Agent or
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Lenders or any of such Persons receives payment from the proceeds of any
Collateral or exercises its right of setoff, and such payment or payments or the
proceeds of such enforcement or setoff or any part thereof are subsequently
invalidated, declared to be fraudulent or preferential, set aside or required to
be repaid to a trustee, receiver or any other party, then to the extent of such
recovery, the obligation or part thereof originally intended to be satisfied,
and all Liens, rights and remedies therefor, shall be revived and continued in
full force and effect as if such payment had not been made or such enforcement
or setoff had not occurred. The provisions of the immediately preceding sentence
of this Section 5.4 shall survive any termination of the Commitments and payment
in full of the Obligations.
5.5. ALLOCATION OF PAYMENTS AND COLLECTIONS.
5.5.1. All monies to be applied to the Obligations, whether
such monies represent voluntary payments by one or more Obligors or are received
pursuant to demand for payment or realized from any disposition of Collateral,
shall be allocated among Agent and such of the Lenders as are entitled thereto
(and, with respect to monies allocated to Lenders, on a Pro Rata basis unless
otherwise provided herein): (i) first, to Agent to pay principal and accrued
interest on any portion of the Revolver Loans which Agent may have advanced on
behalf of any Lender and for which Agent has not been reimbursed by such Lender
or Borrower; (ii) if an Event of Default exists and Fleet elects allocation in
accordance with this clause (ii), second, to Fleet to pay the principal and
accrued interest on any portion of the Swingline Loans outstanding, to be shared
with Lenders that have acquired a participating interest in such Swingline
Loans; (iii) third, to Fleet to pay the principal amount of and any accrued
interest on any payment made by Fleet under any LC Support to the extent that
Fleet has not been reimbursed in full and has not received from each
Participating Lender a participation payment as required by Section 2.2.2
hereof; (iv) fourth, to Agent and Fleet to pay the amount of Extraordinary
Expenses that have not been reimbursed to Agent or Fleet by Borrower or Lenders,
together with interest accrued thereon at the rate applicable to Revolver Loans
that are Base Rate Loans; (v) fifth, to Agent to pay any Indemnified Amount that
has not been paid to Agent by Obligors or Lenders, together with interest
accrued thereon at the rate applicable to Revolver Loans that are Base Rate
Loans; (vi) sixth, to Agent to pay any fees due and payable to Agent; (vii)
seventh, to Lenders for any Indemnified Amount that they have paid to Agent and
Extraordinary Expenses that they have reimbursed to Agent, to the extent that
Lenders have not been reimbursed from Obligors therefor; (viii) eighth, to the
Participating Lenders to pay principal and interest on their participations in
the LC Outstandings outstanding (or, to the extent any of the LC Outstandings
are contingent and an Event of Default then exists, deposited in the Cash
Collateral Account to provide security for the payment of the LC Outstandings);
(ix) ninth, to Lenders in payment of the unpaid principal and accrued interest
in respect of the Loans and any other Obligations (excluding the Swingline
Loans) then outstanding to be shared among Lenders on a Pro Rata basis, or on
such other basis as may be agreed upon in writing by Lenders (which agreement or
agreements may be entered into without notice to or the consent or approval of
Borrowers); and (x) unless an Event of Default exists and Fleet has elected
allocation pursuant to clause (ii) above, to the Swingline Loans. The
allocations set forth in this Section 5.6 are solely to determine the rights and
priorities of Agent and Lenders as among themselves and may be changed by Agent
and Lenders without notice to or the consent or approval of Borrower or any
other Person.
5.5.2. Agent shall not be liable for any allocation or
distribution of payments made by it in good faith and, if any such allocation or
distribution is subsequently determined to have been made in error, the sole
recourse of any Lender to whom payment was due but not made shall be to recover
from the other Lenders any payment in excess of the amount to which such other
Lenders are determined to be entitled (and such other Lenders hereby agree to
return to such Lender any such erroneous payments received by them).
5.6. APPLICATION OF PAYMENTS AND COLLECTIONS. All Payment Items
received by Agent by 12:00 noon on any Business Day (other than Payment Items
received by Agent in immediately available funds) shall be deemed received on
the next Business Day. All Payment Items received by Agent after
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12:00 noon on any Business Day (other than Payment Items received by Agent in
immediately available funds) shall be deemed received on the second Business Day
following such Business Day. Any Payment Item received by Agent in immediately
available funds shall be deemed received on the same Business Day as when
received. Except to the extent that the manner of application to the Obligations
of payments or proceeds of Collateral is expressly governed by other provisions
of this Agreement, each Borrower irrevocably waives the right to direct the
application of any and all payments and collections at any time or times
hereafter received by Agent or any Lender from or on behalf of such Borrower,
and each Borrower does hereby irrevocably agree that Agent shall have the
continuing exclusive right to apply and reapply any and all such payments and
collections received at any time or times hereafter by Agent or its agent
against the Obligations, in such manner as Agent may deem advisable,
notwithstanding any entry by Agent upon any of its books and records. If as the
result of collections of Accounts as authorized by Section 8.2.5 a credit
balance exists, such credit balance shall not accrue interest in favor of
Borrowers, but shall be available to Borrowers at any time or times for so long
as no Default or Event of Default exists.
5.7. LOAN ACCOUNTS; THE REGISTER; ACCOUNT STATED.
5.7.1. Loan Accounts. Each Lender shall maintain in accordance
with its usual and customary practices an account or accounts (a "Loan Account")
evidencing the Indebtedness of Borrowers to such Lender resulting from each Loan
owing to such Lender from time to time, including the amount of principal and
interest payable to such Lender from time to time hereunder and under each Note
payable to such Lender.
5.7.2. The Register. Agent shall maintain a register (the
"Register") which shall include a master account and a subsidiary account for
each Lender and in which accounts (taken together) shall be recorded (i) the
date and amount of each Borrowing made hereunder, the Type of each Loan
comprising such Borrowing and any Interest Period applicable thereto, (ii) the
effective date and amount of each Assignment and Acceptance delivered to and
accepted by it and the parties thereto, (iii) the amount of any principal or
interest due and payable or to become due and payable from Borrowers to each
Lender hereunder or under the Notes, and (iv) the amount of any sum received by
Agent from Borrowers or any other Obligor and each Lender's share thereof. The
Register shall be available for inspection by Borrowers or any Lender at the
offices of Agent at any reasonable time and from time to time upon reasonable
prior written notice.
5.7.3. Entries Binding. The entries made in the Register and
each Loan Account shall constitute rebuttably presumptive evidence of the
information contained therein; provided, however, that if a copy of information
contained in the Register or any Loan Account is provided to any Person, or any
Person inspects the Register or any Loan Account, at any time or from time to
time, then the information contained in the Register or the Loan Account, as
applicable shall be conclusive and binding on such Person for all purposes
absent manifest error, unless such Person notifies Agent in writing within 30
days after such Person's receipt of such copy or such Person's inspection of the
Register or Loan Account of its intention to dispute the information contained
therein.
5.8. GROSS UP FOR TAXES. If Borrowers shall be required by
Applicable Law to withhold or deduct any Taxes from or in respect of any sum
payable under this Agreement or any of the other Loan Documents, (a) the sum
payable to Agent or such Lender shall be increased as may be necessary so that,
after making all required withholding or deductions, Agent or such Lender (as
the case may be) receives an amount equal to the sum it would have received had
no such withholding or deductions been made, (b) Borrowers shall make such
withholding or deductions, and (c) Borrowers shall pay the full amount withheld
or deducted to the relevant taxation authority or other authority in accordance
with Applicable Law.
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5.9. WITHHOLDING TAX EXEMPTION. At least 5 Business Days prior to the first
date on which interest or fees are payable hereunder for the account of any
Lender, each Lender that is not incorporated under the laws of the United States
or any state thereof agrees that it will deliver to Borrowers and Agent 2 duly
completed copies of United States Internal Revenue Service Form 1001 or 4224,
certifying in either case that such Lender is entitled to receive payment under
this Agreement and its Notes without deduction or withholding of any United
States federal income taxes. Each Lender which so delivers a Form 1001 or 4224
further undertakes to deliver to Borrowers and Agent 2 additional copies of such
form (or a successor form) on or before the date that such form expires
(currently, 3 successive calendar years for Form 1001 and one calendar year for
Form 4224) or becomes obsolete or after the occurrence of any event requiring a
change in the form so delivered by it, and such amendments thereto or extensions
or renewals thereof as may be reasonably requested by Borrowers or Agent, in
each case, certifying that such Lender is entitled to receive payments under
this Agreement and its Notes without deduction or withholding of any United
States federal income taxes, unless an event (including any change in treaty,
law or regulation) has occurred prior to the date on which any such delivery
would otherwise be required that renders all such forms inapplicable or that
would prevent such Lender from duly completing and delivering any such form with
respect to it and such Lender advises Borrowers and Agent that it is not capable
or receiving payments without any deduction or withholding of United States
federal income taxes.
5.10. NATURE AND EXTENT OF EACH BORROWER'S LIABILITY.
(i) Joint and Several Liability. Each Borrower shall be liable for, on
a joint and several basis, and hereby guarantees the timely payment by all other
Borrowers of, all of the Loans and other Obligations, regardless of which
Borrower actually may have received the proceeds of any Loans or other
extensions of credit hereunder or the amount of such Loans received or the
manner in which Agent or any Lender accounts for such Loans or other extensions
of credit on its books and records, it being acknowledged and agreed that Loans
to any Borrower inure to the mutual benefit of all Borrowers and that Agent and
Lenders are relying on the joint and several liability of Borrowers in extending
the Loans and other financial accommodations hereunder. Each Borrower hereby
unconditionally and irrevocably agrees that upon default in the payment when due
(whether at stated maturity, by acceleration or otherwise) of any principal of,
or interest owed on, any of the Loans or other Obligations, such Borrower shall
forthwith pay the same, without notice or demand.
(ii) Unconditional Nature of Liability. Each Borrower's joint and
several liability hereunder with respect to, and guaranty of, the Loans and
other Obligations shall, to the fullest extent permitted by Applicable Law, be
unconditional irrespective of (i) the validity, enforceability, avoidance or
subordination of any of the Obligations or of any promissory note or other
document evidencing all or any part of the Obligations, (ii) the absence of any
attempt to collect any of the Obligations from any other Obligor or any
Collateral or other security therefor, or the absence of any other action to
enforce the same, (iii) the waiver, consent, extension, forbearance or granting
of any indulgence by Agent or any Lender with respect to any provision of any
instrument evidencing or securing the payment of any of the Obligations, or any
other agreement now or hereafter executed by any other Borrower and delivered to
Agent or any Lender, (iv) the failure by Agent to take any steps to perfect or
maintain the perfected status of its security interest in or Lien upon, or to
preserve its rights to, any of the Collateral or other security for the payment
or performance of any of the Obligations or Agent's release of any Collateral or
of its Liens upon any Collateral, (v) Agent's or Lenders' election, in any
proceeding instituted under the Bankruptcy Code, for the application of Section
1111(b)(2) of the Bankruptcy Code, (vi) any borrowing or grant of a security
interest by any other Borrower, as debtor-in-possession under Section 364 of the
Bankruptcy Code, (vii) the release or compromise, in whole or in part, of the
liability of any Obligor for the payment of any of the Obligations, (ix) any
amendment or modification of any of the Loan Documents or waiver of any Default
or Event of Default thereunder, (x) any increase in the amount of the
Obligations beyond any limits imposed herein or in the amount of any interest,
fees or other
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charges payable in connection therewith, or any decrease in the same, (xi) the
disallowance of all or any portion of Agent's or any Lender's claims for the
repayment of any of the Obligations under Section 502 of the Bankruptcy Code, or
(viii) any other circumstance that might constitute a legal or equitable
discharge or defense of any Borrower. After the occurrence and during the
continuance of any Event of Default, Agent may proceed directly and at once,
without notice to any Obligor, against any or all of Obligors to collect and
recover all or any part of the Obligations, without first proceeding against any
other Obligor or against any Collateral or other security for the payment or
performance of any of the Obligations, and each Borrower waives any provision
that might otherwise require Agent under Applicable Law to pursue or exhaust its
remedies against any Collateral or Obligor before pursuing another Obligor. Each
Borrower consents and agrees that Agent shall be under no obligation to marshall
any assets in favor of any Obligor or against or in payment of any or all of the
Obligations.
(iii) No Reduction in Liability for Obligations. No payment or payments
made by an Obligor or received or collected by Agent from a Borrower or any
other Person by virtue of any action or proceeding or any setoff or
appropriation or application at any time or from time to time in reduction of or
in payment of the Obligations shall be deemed to modify, reduce, release or
otherwise affect the liability of any Borrower under this Agreement, each of
whom shall remain jointly and severally liable for the payment and performance
of all Loans and other Obligations until the Obligations are paid in full and
this Agreement is terminated.
(iv) Contribution. Each Borrower is unconditionally obligated to repay
the Obligations as a joint and several obligor under this Agreement. If, as of
any date, the aggregate amount of payments made by a Borrower on account of the
Obligations and proceeds of such Borrower's Collateral that are applied to the
Obligations exceeds the aggregate amount of Loan proceeds actually used by such
Borrower in its business (such excess amount being referred to as an
"Accommodation Payment"), then each of the other Borrowers (each such Borrower
being referred to as a "Contributing Borrower") shall be obligated to make
contribution to such Borrower (the "Paying Borrower") in an amount equal to (A)
the product derived by multiplying the sum of each Accommodation Payment of each
Borrower by the Allocable Percentage of the Borrower from whom contribution is
sought less (B) the amount, if any, of the then outstanding Accommodation
Payment of such Contributing Borrower (such last mentioned amount which is to be
subtracted from the aforesaid product to be increased by any amounts theretofore
paid by such Contributing Borrower by way of contribution hereunder, and to be
decreased by any amounts theretofore received by such Contributing Borrower by
way of contribution hereunder); provided, however, that a Paying Borrower's
recovery of contribution hereunder from the other Borrowers shall be limited to
that amount paid by the Paying Borrower in excess of its Allocable Percentage of
all Accommodation Payments then outstanding of all Borrowers. As used herein,
the term "Allocable Percentage" shall mean, on any date of determination
thereof, a fraction the denominator of which shall be equal to the number of
Borrowers who are parties to this Agreement on such date and the numerator of
which shall be 1; provided, however, that such percentages shall be modified in
the event that contribution from a Borrower is not possible by reason of
insolvency, bankruptcy or otherwise by reducing such Borrower's Allocable
Percentage equitably and by adjusting the Allocable Percentage of the other
Borrowers proportionately so that the Allocable Percentages of all Borrowers at
all times equals 100%.
(v) Subordination. Each Borrower hereby subordinates any claims,
including any right of payment, subrogation, contribution and indemnity, that it
may have from or against any other Obligor, and any successor or assign of any
other Obligor, including any trustee, receiver or debtor-in-possession,
howsoever arising, due or owing or whether heretofore, now or hereafter
existing, to the payment in full of all of the Obligations.
SECTION 6. TERM AND TERMINATION OF COMMITMENTS
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6.1. TERM OF COMMITMENTS. Subject to each Lender's right to cease making
Loans and other extensions of credit to Borrowers when any Default or Event of
Default exists or upon termination of the Commitments as provided in Section 6.2
hereof, the Commitments shall be in effect for a period of 5 years from the date
hereof, through the close of business on June 10, 2003 (the "Committed Term").
6.2. TERMINATION.
6.2.1. Termination by Agent. Agent may (and upon the direction of the
Required Lenders, shall) terminate the Commitments without notice to any
Borrower upon or after the occurrence of an Event of Default. The Commitments
shall automatically terminate as provided in Sections 2.4 and 12.2 hereof.
6.2.2. Termination by Borrowers. Upon at least 60 days prior written
notice to Agent, any Borrower may, at its option, terminate the Commitments;
provided, however, no such termination by any Borrower shall be effective until
Borrowers have satisfied all of the Obligations. Any notice of termination given
by Borrowers shall be irrevocable unless Agent otherwise agrees in writing.
Borrowers may elect to terminate the Commitments in their entirety only. No
section of this Agreement, Type of Loan available hereunder or Commitment may be
terminated by any Borrower singly.
6.2.3. Effect of Termination. On the effective date of termination by
Agent or by Borrowers, all of the Obligations shall be immediately due and
payable and Lenders shall have no obligation to make any Loans and Fleet shall
have no obligation to procure any Letters of Credit. All undertakings,
agreements, covenants, warranties and representations of each Borrower contained
in the Loan Documents shall survive any such termination and Agent shall retain
its Liens in the Collateral and all of its rights and remedies under the Loan
Documents notwithstanding such termination until Borrowers have satisfied the
Obligations to Agent and Lenders, in full. For purposes of this Agreement, the
Obligations shall not be deemed to have been satisfied until all Obligations for
the payment of money have been paid to Agent in same day funds and all
Obligations that are at the time in question contingent (including, all LC
Outstandings that exist by virtue of an outstanding Letter of Credit) have been
fully cash collateralized in favor and to the satisfaction of Agent in an amount
equal to 105% of the face amount of all Letters of Credit and Agent has received
as beneficiary a direct pay letter of credit in form and from an issuing bank
acceptable to Agent and providing for direct payment to Agent of all such
contingent Obligations at the time they become fixed (including reimbursement of
all sums paid by Agent under any LC Support) in an amount equal to 105% of the
face amount of all Letters of Credit. Notwithstanding the payment in full of the
Obligations, Agent shall not be required to terminate its security interests in
any of the Collateral unless, with respect to any loss or damage Agent may incur
as a result of the dishonor or return of any Payment Items applied to the
Obligations, Agent shall have received either (i) a written agreement, executed
by Borrowers and any Person whose loans or other advances to Borrowers are used
in whole or in part to satisfy the Obligations, indemnifying Agent from any such
loss or damage; or (ii) such monetary reserves and Liens on the Collateral for
such period of time as Agent, in its reasonable discretion, may deem necessary
to protect Agent from any such loss or damage. The provisions of Section 5.5
hereof and all obligations of Borrowers to indemnify Agent and each Lender
pursuant to this Agreement shall in all events survive any termination of the
Commitments.
SECTION 7. COLLATERAL SECURITY
7.1. GRANT OF SECURITY INTEREST. To secure the prompt payment and
performance of all of the Obligations, each Borrower hereby grants to Agent, for
the benefit of itself as Agent and for the Pro Rata benefit of Lenders, a
continuing security interest in and Lien upon all of the following Property and
interests in Property of such Borrower, whether now owned or existing or
hereafter created, acquired or arising and wheresoever located:
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(i) All Accounts;
(ii) All Inventory;
(iii) All Equipment;
(iv) All Instruments;
(v) All Chattel Paper;
(vi) All Documents;
(vii) All General Intangibles;
(viii) All Deposit Accounts;
(ix) All Investment Property, including all Equity Interests of
each Subsidiary of a Borrower (but excluding any portion thereof that
constitutes Margin Stock unless otherwise expressly provided in any
Security Documents);
(x) All monies now or at any time or times hereafter in the
possession or under the control of Agent or a Lender or a bailee or
Affiliate of Agent or a Lender, including any Cash Collateral in the
Cash Collateral Account;
(xi) All accessions to, substitutions for and all replacements,
products and cash and non-cash proceeds of (i) through (x) above,
including proceeds of and unearned premiums with respect to insurance
policies insuring any of the Collateral and claims against any Person
for loss of, damage to, or destruction of any of the Collateral; and
(xii) All books and records (including customer lists, files,
correspondence, tapes, computer programs, print-outs, and other
computer materials and records) of such Borrower pertaining to any of
(i) through (xi) above.
7.2. OTHER COLLATERAL. In addition to the items of Property referred to
in Section 7.1 above, the Obligations shall also be secured by the Cash
Collateral to the extent provided herein and all of the other items of Property
from time to time described in any of the Security Documents as security for any
of the Obligations.
7.3. LIEN ON DEPOSIT ACCOUNTS. As additional security for the payment
and performance of the Obligations, each Borrower hereby grants to Agent, for
the benefit of itself as Agent and for the Pro Rata benefit of Lenders, a
continuing security interest in and lien upon, and hereby collaterally assigns
to Agent, all of such Borrower's right, title and interest in and to any
deposits or other sums at any time credited to each such Deposit Account,
including any sums in any blocked account or any special lockbox account and in
the accounts in which sums are deposited. In connection with the foregoing, each
Borrower hereby authorizes and directs each such bank or other depository to pay
or deliver to Agent upon its written demand therefor made at any time upon the
occurrence and during the continuation of an Event of Default and without
further notice to such Borrower (such notice being hereby expressly waived), all
balances in each Deposit Account maintained by Borrower with such depository for
application to the Obligations then outstanding, and the rights given Agent in
this Section 7.4 shall be cumulative with and in addition to Agent's other
rights and remedies in regard to the foregoing Property as proceeds of
Collateral. Each Borrower hereby irrevocably appoints Agent as such Borrower's
attorney-in-fact to
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collect any and all such balances to the extent any such payment is not made to
Agent by such bank or other depository after demand thereon is made by Agent
pursuant hereto.
7.4. LIEN PERFECTION; FURTHER ASSURANCES. Promptly after Agent's
request therefor, Borrowers shall execute and deliver to Agent such instruments,
assignments or documents as are necessary under the UCC or other Applicable Law
to perfect Agent's Lien of the Collateral, and shall take such other action as
may be requested by Agent to give effect to or carry out the intent and purposes
of this Agreement. Unless prohibited by Applicable Law, each Borrower hereby
authorizes Agent to execute and file any such financing statement on such
Borrower's behalf. The parties agree that a carbon, photographic or other
reproduction of this Agreement shall be sufficient as a financing statement and
may be filed in any appropriate office in lieu thereof.
SECTION 8. COLLATERAL ADMINISTRATION
8.1. GENERAL PROVISIONS.
8.1.1. Location of Collateral. All tangible items of Collateral,
other than Inventory in transit, shall at all times be kept by Borrowers at one
or more of the business locations of Borrowers set forth in SCHEDULE 8.1.1
hereto and shall not be moved therefrom, without the prior written approval of
Agent, except that in the absence of an Event of Default and acceleration of the
maturity of the Obligations in consequence thereof, Borrowers (i) may make sales
or other dispositions of any Collateral to the extent authorized by Section
10.2.9 hereof, (ii) may move Inventory or any record relating to any Collateral
or change the location of its chief executive office to a location in the United
States other than those shown on SCHEDULE 8.1.1 hereto so long as Borrowers have
given Agent at least 30 Business Days' prior written notice of such new location
and prior to moving any Inventory to such location Borrowers have executed and
delivered to Agent UCC-1 financing statements and any other appropriate
documentation to perfect or continue the perfection of Agent's Liens with
respect to such Inventory or other Collateral and all proceeds thereof and (iii)
upon 30 days prior written notice to Agent, may move cutting machinery and other
related Equipment owned by Borrowers and located at their cutting facilities
located in Texas and Florida and having a book value of not more than $5,000,000
in the aggregate at any time during the term of this Agreement to locations
outside of the United States in connection with the relocation of their
facilities to such locations.
8.1.2. Insurance of Collateral. Each Borrower shall maintain and
pay for insurance upon all Collateral, wherever located, covering casualty,
hazard, public liability, theft, malicious mischief, and such other risks in
such amounts and with such insurance companies as are reasonably satisfactory to
Agent. Agent and Lenders acknowledge that the insurance coverage maintained by
Borrowers as of the date hereof is acceptable as of the date hereof based upon
Borrowers' current businesses. All proceeds payable under each such policy shall
be payable to Agent for application to the Obligations. Each Borrower shall
deliver the originals or certified copies of such policies to Agent with
satisfactory lender's loss payable endorsements reasonably satisfactory to
Agent, naming Agent as sole loss payee, assignee or additional insured, as
appropriate. Each policy of insurance or endorsement shall contain a clause
requiring the insurer to give not less than 30 days prior written notice to
Agent in the event of cancellation of the policy for any reason whatsoever and a
clause specifying that the interest of Agent shall not be impaired or
invalidated by any act or neglect of any Borrower or the owner of the Property
or by the occupation of the premises for purposes more hazardous than are
permitted by said policy. If any Borrower fails to provide and pay for such
insurance, Agent may, at its option, but shall not be required to, procure the
same and charge each Borrower therefor. Each Borrower agrees to deliver to
Agent, promptly as rendered, true copies of all reports made in any reporting
forms to insurance companies. For so long as no Event of Default exists, each
Borrower shall have the right to settle, adjust and compromise any claim with
respect to any insurance maintained by each Borrower provided that all
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proceeds thereof are applied in the manner specified in this Agreement, and
Agent agrees promptly to provide any necessary endorsement to any checks or
drafts issued in payment of any such claim. At any time that an Event of Default
exists, only Agent shall be authorized to settle, adjust and compromise such
claims, Agent shall have all rights and remedies with respect to such policies
of insurance as are provided for in this Agreement and the other Loan Documents.
8.1.3. Protection of Collateral. All expenses of protecting,
storing, warehousing, insuring, handling, maintaining and shipping any
Collateral, all Taxes imposed under any Applicable Law on any of the Collateral
or in respect of the sale thereof, and all other payments required to be made by
Agent to any Person to realize upon any Collateral shall be borne and paid by
Borrowers. If Borrowers fail to pay promptly any portion thereof when due, Agent
may, at its option, but shall not be required to, pay the same and charge
Borrowers therefor. Agent shall not be liable or responsible in any way for the
safekeeping of any of the Collateral or for any loss or damage thereto (except
for reasonable care in the custody thereof while any Collateral is in Agent's
actual possession) or for any diminution in the value thereof, or for any act or
default of any warehouseman, carrier, forwarding agency, or other Person
whomsoever, but the same shall be at Borrowers' sole risk.
8.1.4. Defense of Title to Collateral. Each Borrower shall at all
times defend its title to the Collateral and Agent's Liens therein against all
Persons and all claims and demands whatsoever.
8.2. ADMINISTRATION OF ACCOUNTS.
8.2.1. Records and Schedules of Accounts. Each Borrower shall keep
accurate and complete records of its Accounts and all payments and collections
thereon and shall submit to Agent on such periodic basis as Agent shall request
a sales and collections report for the preceding period, in form satisfactory to
Agent. Borrowers shall also provide to Agent on or before the 20th day of each
month, in form acceptable to Agent, a detailed aged trial balance of all
Accounts existing as of the last day of the preceding month, specifying the
names, addresses, face value, dates of invoices and due dates for each Account
Debtor obligated on an Account so listed ("Schedule of Accounts"). In addition,
if Accounts in an aggregate face amount in excess of $1,000,000 cease to be
Eligible Accounts in whole or in part, Borrowers shall notify Agent of such
occurrence promptly (and in any event within 2 Business Days) after any
Borrower's having obtained knowledge of such occurrence and the Borrowing Base
shall thereupon be adjusted to reflect such occurrence. Each Borrower shall
deliver to Agent copies of invoices or invoice registers related to all of its
Accounts at such times as Agent may request.
8.2.2. Discounts, Disputes and Returns. If any Borrower grants any
discounts, allowances or credits that are not shown on the face of the invoice
for the Account involved, Borrowers shall report such discounts, allowances or
credits, as the case may be to Agent as part of the next required Schedule of
Accounts. If any amounts due and owing in excess of $500,000 are in dispute
between any Borrower and any Account Debtor, or if any returns are made in
excess of $500,000 with respect to any Accounts owing from an Account Debtor,
Borrowers shall provide Agent with written notice thereof at the time of
submission of the next Schedule of Accounts, explaining in detail the reason for
the dispute or return, all claims related thereto and the amount in controversy.
If an Event of Default exists, Agent shall have the right to settle or adjust
all disputes and claims directly with the Account Debtor and to compromise the
amount or extend the time for payment of any Accounts comprising a part of the
Collateral upon such terms and conditions as Agent may deem advisable, and to
charge the deficiencies, costs and expenses thereof, including attorney's fees,
to Borrowers.
8.2.3. Taxes. If an Account of any Borrower includes a charge for
any Taxes payable to any governmental taxing authority, Agent is authorized, in
its sole discretion, to pay the amount thereof to the proper taxing authority
for the account of such Borrower and to charge Borrowers therefor;
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provided, however, that neither Agent nor Lenders shall be liable for any Taxes
that may be due by any or all Borrowers.
8.2.4. Account Verification. Whether or not a Default or an Event
of Default exists, Agent shall have the right at any time, in the name of Agent,
any designee of Agent or any Borrower to verify the validity, amount or any
other matter relating to any Accounts of any Borrower by mail, telephone,
telegraph or otherwise. Borrowers shall cooperate fully with Agent in an effort
to facilitate and promptly conclude any such verification process.
8.2.5. Collection of Accounts and Proceeds of Collateral. To
expedite collection, Borrowers shall endeavor in the first instance to make
collection of their Accounts for Agent and Lenders. All Payment Items received
by any Borrower in respect of its Accounts, together with the proceeds of any
other Collateral, shall be held by such Borrower as trustee of an express trust
for Agent's benefit and shall, at Agent's request made at any time, immediately
deposit same in kind the Dominion Account. Agent retains the right at all times
after the occurrence of a Default or an Event of Default to notify Account
Debtors of each Borrower that Accounts have been assigned to Agent and to
collect Accounts directly in its own name and to charge to Borrowers the
collection costs and expenses, incurred by Agent or Lenders, including
reasonable attorneys' fees.
8.2.6. Information Regarding Factoring Agreements. Each Borrower
shall promptly provide Agent with copies of all reports, statements of account
and other communications received by such Borrower from a Factor with reference
to its Factoring Agreement, including, without limitation, all Factor Status
Statements, all notices of default or termination, and all amendments thereto.
Borrowers shall identify to Agent each month the Client Risk Accounts and amount
thereof. Borrowers shall provide on to Agent a daily basis, a Due From Factor
Report, together with copies of all data and other information requested by
Agent from which such Due From Factor Reports are derived.
8.3. ADMINISTRATION OF INVENTORY.
8.3.1. Records and Reports of Inventory. Each Borrower shall keep
accurate and complete records of its Inventory and shall furnish Agent and
Lenders inventory reports respecting such Inventory in form and detail
satisfactory to Agent and Lenders at least once each month, not later than the
20th day of each month or more frequently as Agent and Lenders may request if an
Event of Default exists. Each Borrower shall conduct a physical inventory of
such Borrower's inventory no less frequently than annually and shall provide to
Agent and Lenders a report based on each such physical inventory promptly
thereafter, together with such supporting information as Agent shall request.
8.3.2. Returns of Inventory. No Borrower shall return any of its
Inventory to a supplier or vendor thereof, or any other Person, whether for
cash, credit against future purchases or then existing payables, or otherwise,
unless (i) such return is in the ordinary course of business of such Borrower
and such Person; (ii) no Default or Event of Default exists or would result
therefrom; (iii) the return of such Inventory will not result in an
Out-of-Formula Condition; (iv) Borrowers promptly notifies Agent thereof if the
aggregate Value of all Inventory returned in any month exceeds $1,000,000; and
(v) any payments received by any Borrower in connection with any such return are
promptly turned over to Agent for application to the Obligations.
8.4. ADMINISTRATION OF EQUIPMENT.
8.4.1. Records and Schedules of Equipment. Each Borrower shall
keep accurate records itemizing and describing the kind, type, quality, quantity
and value of its Equipment and all dispositions made in accordance with Section
8.4.2 hereof. Immediately on request therefor by Agent,
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Borrowers shall deliver to Agent and Lenders any and all evidence of ownership,
if any, of any of the Equipment.
8.4.2. Dispositions of Equipment. No Borrower will sell, lease or
otherwise dispose of or transfer any of the Equipment or any part thereof
without the prior written consent of Agent; provided, however, that the
foregoing restriction shall not apply, for so long as no Default or Event of
Default exists, to (i) dispositions of any Equipment that is owned on the
Closing Date by any Foreign Subsidiary; (ii) the transfer of Equipment of a
Borrower to a location outside of the United States or the sale of such
Equipment to a Foreign Contractor; (iii) dispositions of Equipment which, in the
aggregate during any consecutive 12-month period, has a fair market value or
book value, whichever is more, of $1,000,000 or less, or (iv) replacements of
Equipment with Equipment of like kind, function and value, provided that the
replacement Equipment shall be acquired prior to or concurrently with any
disposition of the Equipment that is to be replaced, the replacement Equipment
shall be free and clear of Liens other than Permitted Liens, and Borrowers shall
have given Agent at least 10 days prior written notice of such disposition.
8.4.3 Condition of Equipment. The Equipment is in good operating
condition and repair, and all necessary replacements of and repairs thereto
shall be made so that the value and operating efficiency of the Equipment shall
be maintained and preserved, reasonable wear and tear excepted. No Borrower will
permit any of the Equipment to become affixed to any real Property leased to
such Borrower, so that an interest arises therein under the real estate laws of
the applicable jurisdiction unless the landlord and if applicable, mortgagee of
such real Property has executed a landlord waiver, leasehold mortgage or
mortgagee waiver in favor of and in form acceptable to Agent, and no Borrower
will permit any of the Equipment to become an accession to any personal Property
that is subject to a Lien unless the Lien is a Permitted Lien (other than a
Purchase Money Lien).
8.5. BORROWING BASE CERTIFICATES. On or before the 20th day of each
month, Borrowers shall deliver to Agent a Borrowing Base Certificate prepared as
of the close of business of the previous month, and at such other times as Agent
may request. All calculations of Availability in connection with the preparation
of any Borrowing Base Certificate shall originally be made by Borrowers and
certified to Agent, provided that Agent shall have the right to review and
adjust, in the exercise of its reasonable credit judgment, any such calculation
(i) to reflect its reasonable estimates of declines in value of any of the
Collateral described therein and (ii) to the extent that such calculation is not
in accordance with this Agreement or does not accurately reflect the amount of
the Availability Reserve.
8.6. PAYMENT OF CHARGES. All amounts chargeable to Borrowers under this
Section 8 hereof shall be Obligations secured by all of the Collateral, shall be
payable ON DEMAND.
SECTION 9. REPRESENTATIONS AND WARRANTIES
9.1. GENERAL REPRESENTATIONS AND WARRANTIES. To induce Agent and
Lenders to enter into this Agreement and to make available the Commitments, each
Borrower warrants and represents to Agent and Lenders that:
9.1.1. Organization and Qualification. Each Borrower and each of
its Subsidiaries is an entity duly organized, validly existing and in good
standing under the laws of the jurisdiction of its organization. Each Borrower
and each of its Domestic Subsidiaries is duly qualified andis authorized to do
business and is in good standing as a foreign corporation or limited liability
company in each state or jurisdiction listed on SCHEDULE 9.1.1 hereto and in all
other states and jurisdictions in which the failure of any such Borrower or any
of such Domestic Subsidiaries to be so qualified would have a Material Adverse
Effect.
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9.1.2. Power and Authority. Each Borrower and each other Obligor
is duly authorized and empowered to enter into, execute, deliver and perform
this Agreement and each of the other Loan Documents to which it is a party. The
execution, delivery and performance of this Agreement and each of the other Loan
Documents have been duly authorized by all necessary action and do not and will
not (i) require any consent or approval of any of the holders of Equity
Interests of any Borrower or any other Obligor; (ii) contravene the Organization
Documents of any Borrower or any other Obligor; (iii) violate, or cause any
Borrower or any other Obligor to be in default under, any provision of any
Applicable Law, order, writ, judgment, injunction, decree, determination or
award in effect having applicability to such Borrower or any other Obligor; (iv)
result in a breach of or constitute a default under any indenture or loan or
credit agreement or any other agreement, lease or instrument to which any
Borrower or any other Obligor is a party or by which it or its Properties may be
bound or affected that involves a dollar amount of $1,000,000 or more; or (v)
result in, or require, the creation or imposition of any Lien (other than
Permitted Liens) upon or with respect to any of the Properties now owned or
hereafter acquired by any Borrower or any other Obligor.
9.1.3. Legally Enforceable Agreement. This Agreement is, and each
of the other Loan Documents when delivered under this Agreement will be, a
legal, valid and binding obligation of each Borrower and each other Obligor
which is a signatory thereto enforceable against them in accordance with the
respective terms of such Loan Documents, except as the enforceability thereof
may be limited by bankruptcy, insolvency or other similar laws of general
application affecting the enforcement of creditors' rights.
9.1.4. Capital Structure. As of the date hereof, SCHEDULE 9.1.4
hereto states (i) the correct name of each Subsidiary, its jurisdiction of
organization and the percentage of its Equity Interest having voting powers
owned by each Person, (ii) the name of each corporate Affiliate of each Borrower
and the nature of the affiliation and (iii) the number of authorized and issued
Equity Interests (and treasury shares) of each Borrower and each of its
Subsidiaries. Each Borrower has good title to all of the shares it purports to
own of the Equity Interests of each of its Subsidiaries, free and clear in each
case of any Lien other than Permitted Liens. All such Equity Interests have been
duly issued and are fully paid and non-assessable.
9.1.5. Corporate Names. During the 5-year period preceding the
date of this Agreement, no Borrower nor any of its Subsidiaries has been known
as or used any corporate, fictitious or trade names except those listed on
SCHEDULE 9.1.5 hereto. Except as set forth on SCHEDULE 9.1.5, no Borrower nor
any other Obligor has been the surviving corporation of a merger or
consolidation or acquired all or substantially all of the assets of any Person.
9.1.6. Business Locations; Agent for Process. As of the date
hereof, the chief executive office and other places of business of each Borrower
and each other Obligor are as listed on SCHEDULE 8.1.1 hereto. During the 5-year
period preceding the date of this Agreement, no Borrower nor any other Obligor
has had an office, place of business or agent for service of process other than
as listed on SCHEDULE 8.1.1. Except as shown on SCHEDULE 8.1.1 on the date
hereof, no Inventory of any Borrower or any other Obligor is stored with a
bailee, warehouseman or similar Person, nor is any Inventory consigned to any
Person.
9.1.7. Title to Properties; Priority of Liens. Each Borrower and
each other Obligor has good and marketable title to and fee simple ownership of,
or valid and subsisting leasehold interests in, all of its real Property, and
good title to all of its personal Property, in each case free and clear of all
Liens except Permitted Liens. Each Borrower has paid or discharged, and has
caused each of its Subsidiaries to pay and discharge, all lawful claims which,
if unpaid, might become a Lien against any Properties of such Borrower or such
Subsidiary that is not a Permitted Lien. The Liens granted to Agent
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under Section 7 hereof are first priority Liens, subject only to those Permitted
Liens which are expressly permitted by the terms of this Agreement to have
priority over the Liens of Agent.
9.1.8. Accounts. Agent may rely, in determining which Accounts are
Eligible Accounts, on all statements and representations made by a Borrower with
respect to any Account. Unless otherwise indicated in writing to Agent, with
respect to each Account, Borrowers warrant that:
(i) It is genuine and in all respects what it purports to
be, and it is not evidenced by a judgment;
(ii) It arises out of a completed, bona fide sale and
delivery of goods by a Borrower in the ordinary course of its business
and substantially in accordance with the terms and conditions of all
purchase orders, contracts or other documents relating thereto and
forming a part of the contract between a Borrower and the Account
Debtor;
(iii) It is for a liquidated amount maturing as stated in the
duplicate invoice covering such sale or rendition of services, a copy
of which has been furnished or is available to Agent on request;
(iv) Such Account, and Agent's security interest therein, is
not, and will not (by voluntary act or omission of a Borrower) be in
the future, subject to any offset, Lien, deduction, defense, dispute,
counterclaim or any other adverse condition except for disputes
resulting in returned goods where the amount in controversy is deemed
by Agent to be immaterial, and each such Account is absolutely owing to
a Borrower and is not contingent in any respect or for any reason;
(v) The contract under which such Account arose does not
condition or restrict a Borrower's right to assign to Agent the right
to payment thereunder unless such Borrower has obtained the Account
Debtor's consent to such collateral assignment or complied with any
conditions to such assignment (regardless of whether under the UCC or
other Applicable Law any such restrictions are ineffective to prevent
the grant of a Lien upon such Account in favor of Agent);
(vi) Such Borrower has not made any agreement with any
Account Debtor thereunder for any extension, compromise, settlement or
modification of any such Account or any deduction therefrom, except
discounts or allowances which are granted by a Borrower in the ordinary
course of its business for prompt payment and which are reflected in
the calculation of the net amount of each respective invoice related
thereto and are reflected in the Schedules of Accounts submitted to
Agent pursuant to Section 8.2.1 hereof;
(vii) To the best of such Borrower's knowledge, there are no
facts, events or occurrences which are reasonably likely to impair the
validity or enforceability of any of its Accounts or reduce the amount
payable thereunder from the face amount of the invoice and statements
delivered to Agent with respect thereto;
(viii) To the best of such Borrower's knowledge, the Account
Debtor thereunder (1) had the capacity to contract at the time any
contract or other document giving rise to the Account was executed and
(2) is Solvent; and
(ix) To the best of such Borrower's knowledge, there are no
proceedings or actions which are threatened or pending against any
Account Debtor thereunder
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and which are reasonably likely to result in any material adverse
change in such Account Debtor's financial condition or the
collectibility of such Account.
9.1.9. Financial Statements. The Consolidated and consolidating
balance sheets of Tropical and such other Persons described therein (including
the accounts of all Subsidiaries of Tropical for the respective periods during
which a Subsidiary relationship existed) as of April 4, 1998, and the related
statements of income, changes in stockholder's equity, and changes in financial
position for the periods ended on such dates, have been prepared in accordance
with GAAP, and present fairly the financial positions of Tropical and such
Persons at such dates and the results of Tropical's operations for such periods.
The Consolidated and consolidating balance sheets of Farah and such other
Persons described therein (including the accounts of all Subsidiaries of Farah
for the respective periods during which a Subsidiary relationship existed) as of
February 1, 1998, and the related statements of income, changes in stockholder's
equity, and changes in financial position for the periods ended on such dates,
have been prepared in accordance with GAAP, and present fairly the financial
positions of Farah and such Persons at such dates and the results of Farah's
operations for such periods. Since April 4, 1998, there has been no material
change in the condition, financial or otherwise, of any Borrower and such other
Persons as shown on the Consolidated balance sheet as of such date and no
material change in the aggregate value of Equipment and real Property owned by
any Borrower or such other Persons.
9.1.10. Full Disclosure. The financial statements referred to in
Section 9.1.9 hereof do not contain any untrue statement of a material fact and
neither this Agreement nor any other written statement contains or omits any
material fact necessary to make the statements contained herein or therein not
materially misleading. There is no fact or circumstances in existence on the
date hereof which any Borrower has failed to disclose to Agent in writing that
may reasonably be expected to have a Material Adverse Effect.
9.1.11. Solvent Financial Condition. Each Borrower and each other
Obligor is now Solvent and, after giving effect to the Loans to be made
hereunder, the Letters of Credit to be issued in connection herewith and the
consummation of the other transactions described in the Loan Documents, the
Acquisition Documents, the Bridge Loan Documents, and the Merger Documents, each
Borrower and each other Obligor will be Solvent.
9.1.12. Surety Obligations. Except as set forth on SCHEDULE 9.1.12
hereto on the date hereof, no Borrower nor any other Obligor is obligated as
surety or indemnitor under any surety or similar bond or other contract issued
or entered into any agreement to assure payment, performance or completion of
performance of any undertaking or obligation of any Person.
9.1.13. Taxes. The federal tax identification number of each
Borrower and each other Obligor is as shown on SCHEDULE 9.1.13 hereto. Each
Borrower and each other Obligor has filed all federal, state and local tax
returns and other reports it is required by law to file and has paid, or made
provision for the payment of, all Taxes upon it, its income and Properties as
and when such Taxes are due and payable, except to the extent being Properly
Contested or except as otherwise disclosed on SCHEDULE 9.1.13 hereto. The
provision for Taxes on the books of each Borrower and each other Obligor are
adequate for all years not closed by applicable statutes, and for its current
Fiscal Year.
9.1.14. Brokers. There are no claims for brokerage commissions,
finder's fees or investment banking fees in connection with the transactions
contemplated by this Agreement or any of the other Loan Documents.
9.1.15. Intellectual Property. Each Borrower and each other
Obligor each owns or possesses all Intellectual Property necessary for the
present and planned future conduct of its business
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without any conflict with the rights of others; there is no objection to or
pending Intellectual Property Claim with respect to any Borrower's right to use
any such Intellectual Property and no Borrower is aware of any grounds for
challenge or objection thereto; and, except as may be disclosed on SCHEDULE
9.1.15, no Borrower pays any royalty or other compensation to any Person for the
right to use any Intellectual Property. All such patents, trademarks, service
marks, tradenames, copyrights, licenses and other similar rights are listed on
SCHEDULE 9.1.15 hereto, to the extent they are registered under the laws of the
United State or any State thereof.
9.1.16. Governmental Approvals. Each Borrower and each other
Obligor has, and is in good standing with respect to, all Governmental Approvals
necessary to continue to conduct its business as heretofore or proposed to be
conducted by it and to own or lease and operate its Properties as now owned or
leased by it, except for Governmental Approvals, the failure to possess which
would not have a Material Adverse Effect.
9.1.17. Compliance with Laws. Each Borrower and each of its
Subsidiaries has duly complied with, and its Properties, business operations and
leaseholds are in compliance in all material respects with, the provisions of
all Applicable Law (except to the extent that any such noncompliance with
Applicable Law would not reasonably be expected to have a Material Adverse
Effect) and there have been no citations, notices or orders of noncompliance
issued to any Borrower or any of its Subsidiaries under any such law, rule or
regulation. No Inventory has been produced in violation of the Fair Labor
Standards Act (29 U.S.C. ss. 201 et seq.). With respect to matters arising under
any Environmental Laws, the representations and warranties contained in the
Environmental Certificate are true and correct on the date hereof.
9.1.18. Restrictions. No Borrower nor any other Obligor is a party
or subject to any contract, agreement, or charter or other corporate
restriction, which has or could be reasonably expected to have a Material
Adverse Effect. Except as set forth on SCHEDULE 9.1.18 hereto, no Borrower nor
any other Obligor is a party or subject to any contract or agreement (other than
this Agreement) which restricts its right or ability to incur Indebtedness, none
of which prohibit the execution of or compliance with this Agreement or the
other Loan Documents by any Borrower or any other Obligor, as applicable.
9.1.19. Litigation. Except as set forth on SCHEDULE 9.1.19 hereto,
as of the Closing Date there are no actions, suits, proceedings or
investigations pending on the date hereof, or to the knowledge of any Borrower,
threatened on the date hereof, against or affecting any Borrower or any of its
Subsidiaries, or the business, operations, Properties, prospects, profits or
condition of any Borrower or any of its Subsidiaries, which, if determined
adversely to any Borrower or any of its Subsidiaries, would have a Material
Adverse Effect. To the knowledge of any Borrower, no Borrower nor any of its
Subsidiaries is in default on the date hereof with respect to any order, writ,
injunction, judgment, decree or rule of any court, governmental authority or
arbitration board or tribunal.
9.1.20. No Defaults. No Default or Event of Default exists at the
time, or would result from the funding, of any Loan or other extension of
credit. No Borrower nor any other Obligor is in default, and no event has
occurred and no condition exists which constitutes or which with the passage of
time or the giving of notice or both would constitute a default, under any
Material Contract or in the payment of any Debt for Money Borrowed of any
Borrower or any other Obligor to any Person. No default exists in the
performance by any Borrower of any of its obligations under the Acquisition
Documents.
9.1.21. Leases. SCHEDULE 9.1.21 hereto is a complete listing of
all material capitalized and operating leases of each Borrower and each other
Obligor on the date hereof. Each Borrower and each other Obligor is in
substantial compliance with all of the terms of each of its respective
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capitalized and operating leases and there is no basis upon which the lessors
under any such leases could terminate same or declare such Borrower or any other
Obligor in default thereunder.
9.1.22. Pension Plans. Except as disclosed on SCHEDULE 9.1.22
hereto, no Borrower nor any of its Subsidiaries has any Plan on the date hereof.
Each Borrower and each of its Subsidiaries is in substantial compliance with the
requirements of ERISA and the regulations promulgated thereunder with respect to
each Plan, except to the extent such non-compliance is not reasonably likely to
result in a Material Adverse Effect in connection with any Plan. No Borrower nor
any of its Subsidiaries has any withdrawal liability under Title IV of ERISA in
connection with a Multiemployer Plan.
9.1.23. Trade Relations. There exists no actual or threatened
termination, cancellation or limitation of, or any materially adverse
modification or change in, the business relationship between any Borrower and
any customer or any group of customers whose purchases individually or in the
aggregate are material to the business of such Borrower, or with any material
supplier or group of suppliers, and there exists no condition or state of facts
or circumstances which is reasonably likely to have a Material Adverse Effect or
prevent any Borrower from conducting such business after the consummation of the
transactions contemplated by this Agreement in substantially the same manner in
which it has heretofore been conducted.
9.1.24. Labor Relations. Except as described on SCHEDULE 9.1.24
hereto, as of the Closing Date no Borrower nor any of its Subsidiaries is a
party to any collective bargaining agreement on the date hereof. On the date
hereof, there are no material grievances, disputes or controversies with any
union or any other organization of any Borrower's or any of its Subsidiaries'
employees, or, to any Borrower's knowledge, any threats of strikes, work
stoppages or any asserted pending demands for collective bargaining by any union
or organization.
9.1.25. Investment Company Act; Public Utility Holding Company
Act. No Obligor is an "investment company" or a "person directly or indirectly
controlled by or acting on behalf of an investment company" within the meaning
of the Investment Company Act of 1940, or a "holding company," or a "subsidiary
company" of a "holding company," or an "affiliate" of a "holding company" or of
a "subsidiary company" of a "holding company," within the meaning of the Public
Utility Holding Company Act of 1935.
9.1.26. Margin Stock. No Borrower nor any of its Subsidiaries is
engaged, principally or as one of its important activities, in the business of
extending credit for the purpose of purchasing or carrying any Margin Stock.
9.2. REAFFIRMATION OF REPRESENTATIONS AND WARRANTIES. Each
representation and warranty contained in this Agreement and the other Loan
Documents shall be deemed to be reaffirmed by each Borrower upon each delivery
of a Notice of Borrowing to Agent in accordance with Section 4.1 of this
Agreement, except for changes in the nature of a Borrower's or, if applicable,
any of its Subsidiaries' business or operations that may occur after the date
hereof in the ordinary course of business so long as Agent has consented to such
changes or such changes are not violative of any provision of this Agreement.
Notwithstanding the foregoing, representations and warranties which by their
terms are applicable only to a specific date shall be deemed made only at and as
of such date.
9.3. SURVIVAL OF REPRESENTATIONS AND WARRANTIES. All representations
and warranties of Borrowers contained in this Agreement or any of the other Loan
Documents shall survive the execution, delivery and acceptance thereof by Agent,
Lenders and the parties thereto and the closing of the transactions described
therein or related thereto.
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SECTION 10. COVENANTS AND CONTINUING AGREEMENTS
10.1. AFFIRMATIVE COVENANTS. For so long as there are any Commitments
outstanding and thereafter until payment in full of the Obligations, each
Borrower covenants that, unless otherwise consented to by the Required Lenders
in writing, it shall and shall cause each of its Subsidiaries to:
10.1.1. Visits and Inspections. Permit representatives of Agent,
from time to time, as often as may be reasonably requested, but only during
normal business hours and (except when a Default or Event of Default exists)
upon reasonable prior notice, to visit and inspect the Properties of such
Borrower and each of its Subsidiaries, inspect, audit and make extracts from its
books and records, and discuss with its officers, employees and independent
accountants, such Borrower's and each Subsidiary's business, financial
condition, business prospects and results of operations. Representatives of each
Lender shall be authorized to accompany Agent on each such visit and inspection
and to participate with Agent therein.
10.1.2. Notices. Notify Agent and Lenders in writing, promptly
after such Borrower's obtaining knowledge thereof, (i) of the commencement of
any litigation affecting any Obligor or any of its Properties, whether or not
the claims asserted in such litigation are considered by Borrowers to be covered
by insurance, and of the institution of any administrative proceeding, to the
extent that such litigation or proceeding, if determined adversely to such
Obligor, would reasonably be expected to have a Material Adverse Effect; (ii) of
any material labor dispute to which any Obligor may become a party, any strikes
or walkouts relating to any of its plants or other facilities, and the
expiration of any labor contract to which it is a party or by which it is bound
which dispute or expiration could reasonably be expected to result in a Material
Adverse Effect; (iii) of any material default by any Obligor under or
termination of any Material Contract or any note, indenture, loan agreement,
mortgage, lease, deed, guaranty or other similar agreement relating to any
Indebtedness of such Obligor exceeding $3,000,000; (iv) of any Default or Event
of Default; (v) of any default by any Person under any note or other evidence of
Indebtedness payable to an Obligor in an amount exceeding $3,000,000; (vi) of
any judgment against any Obligor in an amount exceeding $1,000,000 in excess of
the amount covered by insurance; (vii) of the assertion by any Person of any
Intellectual Property Claim, the adverse resolution of which would reasonably be
expected to have a Material Adverse Effect; (viii) of any violation or asserted
violation of ERISA with respect to a Plan or any Environmental Law, the adverse
resolution of which would reasonably be expected to have a Material Adverse
Effect; and (ix) of any Environmental Release by an Obligor or on any Property
owned or occupied by an Obligor.
10.1.3. Financial Statements. Keep adequate records and books of
account with respect to its business activities in which proper entries are made
in accordance with GAAP reflecting all its financial transactions; and cause to
be prepared and to be furnished to Agent and Lenders the following (all to be
prepared in accordance with GAAP applied on a consistent basis, unless
Borrowers' certified public accountants concur in any change therein, such
change is disclosed to Agent and is consistent with GAAP and, if required by the
Required Lenders, the financial covenants set forth in Section 10.3 are amended
in a manner requested by the Required Lenders to take into account the effects
of such change):
(i) as soon as available, and in any event within 90 days
after the close of each Fiscal Year, unqualified audited financial
statements of Borrowers and their Subsidiaries as of the end of such
Fiscal Year, on a Consolidated basis, certified without material
qualification by a firm of independent certified public accountants of
recognized national standing selected by Borrowers but reasonably
acceptable to Agent (except for a qualification for a change in
accounting principles with which the accountant concurs), and setting
forth in each case in comparative form the corresponding Consolidated
figures for the preceding Fiscal Year;
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(ii) as soon as available, and in any event within 45 days
after the end of each Fiscal Quarter hereafter (but within 60 days
after the last month in a Fiscal Year), including the last Fiscal
Quarter of Borrowers' Fiscal Year, unaudited interim financial
statements of Borrowers and their Subsidiaries as of the end of such
Fiscal Quarter and of the portion of Borrowers' Fiscal Year then
elapsed, on a Consolidated and consolidating basis, certified by the
principal financial officer or executive vice president of finance and
operations of Borrowers as prepared in accordance with GAAP and fairly
presenting the Consolidated financial position and results of
operations of Borrowers and their Subsidiaries for such Fiscal Quarter
and period subject only to changes from audit and year-end adjustments
and except that such statements need not contain notes;
(iii) as soon as available, and in any event within 30 days
after the end of each month hereafter, including the last month of
Borrowers' Fiscal Year, unaudited interim financial statements of
Borrowers and their Subsidiaries as of the end of such month and of the
portion of Borrowers' Fiscal Year then elapsed, on a Consolidated and
consolidating basis, certified by the principal financial officer or
executive vice president of finance and operations of Borrowers as
prepared in accordance with GAAP and fairly presenting the Consolidated
financial position and results of operations of Borrowers and their
Subsidiaries for such month and period subject only to changes from
audit and year-end adjustments and except that such statements need not
contain notes;
(iv) promptly after the sending or filing thereof, as the
case may be, copies of any proxy statements, financial statements or
reports which any Borrower has made generally available to its
shareholders and copies of any regular, periodic and special reports or
registration statements which any Borrower files with the Securities
and Exchange Commission or any governmental authority which may be
substituted therefor, or any national securities exchange;
(v) promptly after the filing thereof, copies of any annual
report to be filed in accordance with ERISA in connection with each
Plan; and
(vi) such other data and information (financial and
otherwise) as Agent, from time to time, may reasonably request, bearing
upon or related to the Collateral or any Borrower's and any of its
Subsidiaries' financial condition or results of operations.
Concurrently with the delivery of the financial statements
described in clause (i) of this Section 10.1.3, Borrowers shall deliver to Agent
and Lenders a copy of the accountants' letter to Borrowers' management that is
prepared in connection with such financial statements. Concurrently with the
delivery of the financial statements described in clauses (i), (ii) and (iii) of
this Section 10.1.3, or more frequently if requested by Agent or any Lender
during any period that a Default or Event of Default exists, Borrowers shall
cause to be prepared and furnished to Agent and Lenders a Compliance Certificate
executed by the chief financial officer of Borrowers.
10.1.4. Projections. No later than 30 days prior to the end of
each Fiscal Year of Borrowers, deliver to Agent and Lenders the Projections of
Borrowers for the forthcoming 3 years, year by year, and for the forthcoming
Fiscal Year, on a quarterly basis.
10.1.5. Taxes. Pay and discharge all Taxes prior to the date on
which such Taxes become delinquent or penalties attach thereto, except and to
the extent only that such Taxes are being Properly Contested.
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10.1.6. Compliance with Laws. Comply with all Applicable Law,
including ERISA with respect to all Plans, all Environmental Laws and all laws,
statutes, regulations and ordinances regarding the collection, payment and
deposit of Taxes, and obtain and keep in force any and all Governmental
Approvals necessary to the ownership of its Properties or to the conduct of its
business, to the extent that any such failure to comply, obtain or keep in force
would be reasonably likely to have a Material Adverse Effect. Without limiting
the generality of the foregoing, if any Environmental Release shall occur at or
on any of the Properties of any Borrower or any of its Subsidiaries, Borrowers
shall, or shall cause the applicable Subsidiary to, act immediately to
investigate and report to Agent and all appropriate governmental authorities the
extent of, and to make appropriate remedial action to eliminate, such
Environmental Release, whether or not ordered or otherwise directed to do so by
any governmental authority.
10.1.7. Insurance. In addition to the insurance required herein
with respect to the Collateral, maintain and cause each of its Subsidiaries to
maintain, with financially sound and reputable insurers, insurance with respect
to its Properties and business against such casualties and contingencies of such
type (including product liability, business interruption, larceny, embezzlement,
or other criminal misappropriation insurance) and in such amounts as is
customary in the business of such Borrower or such Subsidiary.
10.1.8. Year 2000 Compatibility. Take all action necessary to
assure that Borrowers's computer based systems are able to operate and
effectively process data including dates on and after January 1, 2000. Borrowers
shall provide Agent written assurance acceptable to Agent that the Tropical
Entities' systems are Year 2000 compliant on or before December 31, 1998 and
that Farah's systems are Year 2000 compliant on or before June 30, 1999.
Borrowers shall promptly and in no event later than December 31, 1998 with
respect to the Tropical Entities and June 30, 1999, with respect to Farah, take
all action necessary to ensure that all computer based systems of Borrowers and
its Subsidiaries are capable of the following: (a) handling date information
involving all and any dates before, during and/or after January 1, 2000,
including accepting input, providing output and performing date calculations in
whole or in part; (b) operating, accurately without interruption on and in
respect of any and all dates before, during and/or after January 1, 2000, and
without any change in performance; (c) responding to and processing two digit
year input without creating any ambiguity as to the century; and (d) storing and
providing date input information without creating any ambiguity as to the
century. In addition, at the request of Agent, Borrowers shall provide Agent any
additional assurances in form and substance reasonably satisfactory to Agent of
Borrowers's and each of its Subsidiaries' Year 2000 compatibility.
10.1.9. License Agreements. Keep each License Agreement in full
force and effect for so long as such Borrower has any Inventory, the
manufacture, sale or distribution of which is in any manner governed by or
subject to such License Agreement.
10.2. NEGATIVE COVENANTS. For so long as there are any Commitments
outstanding and thereafter until payment in full of the Obligations, each
Borrower covenants that, unless the Required Lenders have first consented
thereto in writing, it shall not and shall not permit any of its Subsidiaries
to:
10.2.1. Fundamental Changes. Merge, reorganize, consolidate or
amalgamate with any Person, or liquidate, wind up its affairs or dissolve
itself, except for (i) mergers or consolidations of any Subsidiary with any
Borrower or another Subsidiary; (ii) Permitted Business Acquisitions; (iii)
mergers or consolidations of any Subsidiary of Tropical into Tropical; and (iv)
the winding up of the affairs of any Foreign Subsidiary and dispositions
expressly authorized by Section 10.2.9(v) hereof.
10.2.2. Loans. Make any loans or other advances of money to any
Person other than (i) to an officer or employee of such Borrower or a Subsidiary
for salary, travel advances, advances
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against commissions and other similar advances in the ordinary course of
business; (ii) to Foreign Contractors of a Borrower or any Subsidiary in the
ordinary course of business, not to exceed, together with any guaranties under
Section 10.2.3(iv), $2,000,000 in the aggregate at any time outstanding; (iii)
from TSCI to Tropical; (iv) to purchasers in the form of deferred payment in
connection with the sale of any Equipment, to the extent such sale is permitted
hereunder; (v) from a Borrower to any Domestic Subsidiary of such Borrower or
another Borrower and from any Domestic Subsidiary of a Borrower to such Borrower
or any other Domestic Subsidiary of such Borrower or any other Borrower; and
(vi) to Foreign Subsidiaries to the extent permitted under Section 10.2.10.
10.2.3. Permitted Debt for Money Borrowed. Create, incur, assume,
guarantee or suffer to exist any Debt for Money Borrowed, except:
(i) the Obligations;
(ii) Subordinated Debt existing on the Closing Date;
(iii) Purchase Money Debt;
(iv) Debt for Money Borrowed by such Borrower, but only to
the extent that such Debt is outstanding on the date of this Agreement
and is not to be satisfied on or about the Closing Date from the
proceeds of the initial Loans, together with any extension, renewals or
refinancings of such Debt provided that the principal amount of such
Debt is not increased;
(v) Guaranties by a Borrower of any indebtedness of a
Foreign Contractor, not to exceed, together with any loans to Foreign
Contractors under Section 10.2.2 hereof, $2,000,000 in the aggregate at
any time outstanding;
(vi) The Bridge Loan or any Exchange Notes and any
guaranties by Subsidiaries of the Bridge Loan or Exchange Notes so long
as such guaranties are subordinated in right of payment to the
Obligations ;
(vii) Debt for Money Borrowed owing by (a) a Borrower to
another Borrower or a Domestic Subsidiary of a Borrower and (b) a
Domestic Subsidiary of a Borrower to any Borrower or any other Domestic
Subsidiary of such Borrower;
(viii) Debt for Money Borrowed owing by a Foreign Subsidiary
to a Borrower or by a Foreign Subsidiary to Persons other than
Borrowers, not to exceed $10,000,000 in the aggregate at any time, with
such amount to be reduced to $2,000,000 after the sale of the Foreign
Subsidiaries of Farah that are located in the United Kingdom, Australia
and New Zealand.
(ix) after repayment of the Bridge Loan or any Exchange
Notes issued in connection therewith, the Senior Subordinated Notes or
any Exchange Notes and the guaranties by Subsidiaries of the Senior
Subordinated Notes or Exchange Notes so long as such guaranties are
subordinated in right of payment to the Obligations; and
(x) Debt for Money Borrowed not included in paragraphs (i)
through (viii) above which is not secured by a Lien (unless such Lien
is a Permitted Lien) and does not exceed at any time, in the aggregate,
the sum of $5,000,000 as to all Borrowers and all of their
Subsidiaries.
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<PAGE> 69
10.2.4. Affiliate Transactions. Enter into, or be a party to any
transaction with any Affiliate or stockholder, except: (i) the transactions not
prohibited by the Loan Documents; (ii) payment of reasonable compensation to
officers and employees for services actually rendered to a Borrower or to a
Subsidiary of a Borrower; (iii) payment of customary directors' fees and
indemnities; (iv) transactions with Affiliates that were consummated prior to
the date hereof and have been disclosed to Agent prior to the Closing Date; and
(v) transactions with Affiliates upon fair and reasonable terms which are fully
disclosed to Agent and are no less favorable to such Borrower or such Subsidiary
than would obtain in a comparable arm's length transaction with a Person not an
Affiliate or stockholder of such Borrower or such Subsidiary.
10.2.5. Limitation on Liens. Create or suffer to exist any Lien
upon any of its Property, income or profits, whether now owned or hereafter
acquired, except:
(i) Liens at any time granted in favor of Agent;
(ii) Liens for Taxes (excluding any Lien imposed pursuant to
any of the provisions of ERISA) not yet due or being Properly
Contested;
(iii) Liens arising in the ordinary course of such Borrower's
or any of its Subsidiaries' business by operation of law, but only if
payment in respect of any such Lien is not at the time required or the
Indebtedness secured by any such Lien is being Properly Contested and
such Liens do not materially detract from the value of the Property of
such Borrower or such Subsidiary and do not materially impair the use
thereof in the operation of such Borrower's or such Subsidiary's
business;
(iv) Purchase Money Liens;
(v) Liens securing Indebtedness of a Subsidiary of a
Borrower to any Borrower or to another Subsidiary and Liens securing
Indebtedness of a Borrower to any Subsidiary or to another Borrower;
(vi) Liens arising by virtue of the rendition, entry or
issuance against such Borrower or any of its Subsidiaries, or any
Property of such Borrower or any of its Subsidiaries, of any judgment,
writ, order, or decree that involves the payment of money in an amount
that exceeds the uncontested insurance available therefor by $1,000,000
or more for so long as any such Lien (a) is in existence for less than
20 consecutive days after it first arises or is being Properly
Contested and (b) is at all times junior in priority to any Liens in
favor of Agent;
(vii) Liens incurred or deposits made in the ordinary course
of business to secure the performance of tenders, bids, leases,
contracts (other than for the repayment of Money Borrowed), statutory
obligations and other similar obligations or arising as a result of
progress payments under government contracts, provided that, to the
extent any such Liens attach to any of the Collateral, such Liens are
at all times subordinate and junior to the Liens upon the Collateral in
favor of Agent;
(viii) easements, rights-of-way, restrictions, covenants or
other agreements of record and other similar charges or encumbrances on
real Property of such Borrower or any of its Subsidiaries that do not
interfere with the ordinary conduct of the business of such Borrower or
such Subsidiary;
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<PAGE> 70
(ix) Liens securing Debt for Money Borrowed that is incurred
pursuant to the refinancing of Debt for Money Borrowed permitted
pursuant to Section 10.2.3(iv) so long as any such Lien encumbers the
same Property as the Lien securing the Debt for Money Borrowed being
refinanced;
(x) Liens in existence immediately prior to the Closing
Date that are satisfied in full and released on the Closing Date as a
result of the application of such Borrower's cash on hand at the
Closing Date or the proceeds of the Loans to be made on the Closing
Date;
(xi) Liens securing Indebtedness of a Foreign Subsidiary
that is existence on the Closing Date or any refinancings thereof;
(xii) such other Liens as appear on SCHEDULE 10.2.5 hereto,
to the extent provided therein; and
(xiii) such other Liens as Required Lenders in their sole
discretion may hereafter approve in writing.
10.2.6. Subordinated Debt. Make any payment of all or any part of
any Subordinated Debt, except in accordance with the subordination agreement
relative thereto; or amend or modify the terms of any Subordinated Debt, other
than to extend the time of payment thereof or to reduce the rate of interest
payable in connection therewith.
10.2.7. Distributions. Declare or make any Distributions other
than (i) Distributions by Subsidiaries to the Borrowers and (ii) Distributions
of Borrowers (other than Tropical) to Tropical.
10.2.8. Capital Expenditures. Make Capital Expenditures
(including, expenditures by way of capitalized leases) which in the aggregate,
as to all Borrowers and their Subsidiaries, exceed $11,000,000 during Fiscal
Year 1998 and $14,000,000 during any Fiscal Year thereafter, provided, that any
amount not expended in a Fiscal Year may be carried forward and expended in the
immediately succeeding Fiscal Year.
10.2.9. Disposition of Assets. Sell, assign, lease, consign or
otherwise dispose of any of its Properties or any interest therein, including
any disposition of Property as part of a sale and leaseback transaction, to or
in favor of any Person, except (i) sales of Inventory in the ordinary course of
business for so long as no Event of Default exists hereunder, (ii) dispositions
of Equipment to the extent authorized by Section 8.4.2 hereof, (iii) a transfer
of Property to a Borrower by a Subsidiary of such Borrower, (iv) sales of
Factored Accounts to Heller or NationsBanc pursuant to their respective
Factoring Agreements as in effect on the Closing Date or sales of Factored
Accounts to Persons other than Heller or NationsBanc to the extent approved by
Agent in writing in its sole and absolute discretion; (v) other dispositions
expressly authorized by other provisions of the Loan Documents, including
Sections 10.2.1 and 10.2.5 and (vi) dispositions of any Equity Interest held by
any Borrower or any Subsidiary of any Foreign Subsidiary or any Property that is
owned by any Foreign Subsidiary of a Borrower.
10.2.10. Restricted Investments. Make or have any Restricted
Investment except as expressly permitted by Sections 10.2.2 or 10.2.9 hereof.
10.2.11. Tax Consolidation. File or consent to the filing of any
consolidated income tax return with any Person other than Borrowers and their
Subsidiaries.
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<PAGE> 71
10.2.12. Fiscal Year. Establish a fiscal year different from the
Fiscal Year.
10.2.13. Organization Documents. Except in connection with any
transaction permitted under Section 10.2.1 hereof, amend, modify or otherwise
change any of the terms or provisions in any of its Organization Documents as in
effect on the date hereof, except for changes that do not affect in any way such
Borrower's or any of its Subsidiaries' rights and obligations to enter into and
perform the Loan Documents to which it is a party and to pay all of the
Obligations and that do not otherwise have a Material Adverse Effect.
10.2.14. Conduct of Business. Engage in any business other than
the businesses engaged in by it on the Closing Date and any business or
activities which are substantially similar, related or incidental thereto.
10.2.15. Factoring Agreements. Amend, modify or otherwise change
any of the terms or provisions in any of the Factoring Agreements as in effect
on the date hereof.
10.3. SPECIFIC FINANCIAL COVENANTS. For so long as there are any
Commitments outstanding and thereafter until payment in full of the Obligations,
Borrowers covenant that, unless otherwise consented to by the Required Lenders
in writing, they shall:
10.3.1. Consolidated Tangible Net Worth. Maintain, as of the end
of each Fiscal Quarter, Consolidated Tangible Net Worth of not less than the
amount shown below for the period corresponding thereto:
<TABLE>
<CAPTION>
Period Amount
------ ------
<S> <C>
Closing Date through October 3, 1998 $12,000,000
October 4, 1998 through January 2, 1999 $13,500,000
January 3, 1999 through April 3, 1999 $14,000,000
April 4, 1999 through July 3, 1999 $17,000,000
July 4, 1999 through October 2, 1999 $20,000,000
October 2, 1999 through December 30, 1999 $25,000,000
Each Fiscal Quarter thereafter $25,000,000 plus
$4,000,000 for each
additional Fiscal Quarter
after December 30, 1999
</TABLE>
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<PAGE> 72
10.3.2. Consolidated Fixed Charge Coverage. Maintain, as of the
end of each Fiscal Quarter, a Consolidated Fixed Charge Coverage of at least the
ratio shown below for the applicable period corresponding thereto:
<TABLE>
<CAPTION>
Period Ratio
------ -----
<S> <C>
July 1, 1998 through October 3, 1998 2.50 to 1.00
July 1, 1998 through January 2, 1999 2.50 to 1.00
July 1, 1998 through April 3, 1999 2.50 to 1.00
July 1, 1998 through July 3, 1999 2.50 to 1.00
October 3, 1998 through 2.50 to 1.00
October 2, 1999
Each Fiscal Quarter after October 2, 1999 2.50 to 1.00
based upon the immediately preceding 4
Fiscal Quarters
</TABLE>
10.3.3. Consolidated Senior Debt/Consolidated EBITDA. Maintain, as
of the end of each Fiscal Quarter, a ratio of Consolidated Senior Debt/EBITDA of
not more than the ratio shown below for the applicable period corresponding
thereto:
<TABLE>
<CAPTION>
Period Ratio
------ -----
<S> <C>
July 1, 1998 through September 30, 1998 2.50 to 1.00
July 1, 1998 through December 31, 1998 2.50 to 1.00
July 1, 1998 through March 31, 1999 2.50 to 1.00
July 1, 1998 through June 30, 1999 2.50 to 1.00
October 1, 1998 through 2.50 to 1.00
September 30, 1999
Each Fiscal Quarter after September 30, 1999 2.50 to 1.00
based upon the immediately preceding 4
Fiscal Quarters
</TABLE>
10.3.4. Consolidated Funded Debt/Consolidated EBITDA. Maintain, as
of the end of each Fiscal Quarter, a ratio of Consolidated Funded Debt
/Consolidated EBITDA of not more than the ratio shown below for the applicable
period corresponding thereto:
<TABLE>
<CAPTION>
Period Ratio
------ -----
<S> <C>
July 1, 1998 through October 3, 1998 5.00 to 1.00
July 1, 1998 through January 2, 1999 5.00 to 1.00
July 1, 1998 through April 3, 1999 5.00 to 1.00
July 1, 1998 through July 3, 1999 4.50 to 1.00
October 3, 1998 through October 2, 4.50 to 1.00
1999
Each Fiscal Quarter after October 2, 1999 4.00 to 1.00
based upon the immediately preceding 4
Fiscal Quarters
</TABLE>
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SECTION 11. CONDITIONS PRECEDENT
11.1. CONDITIONS PRECEDENT TO INITIAL CREDIT EXTENSIONS.
Notwithstanding any other provision of this Agreement or any of the other Loan
Documents, and without affecting in any manner the rights of Agent and Lenders
under the other sections of this Agreement, Lenders shall not be required to
fund any Loan requested by Borrowers, procure any Letter of Credit, or otherwise
extend credit to a Borrower unless, on or before June 15, 1998, each of the
following conditions has been and continues to be satisfied in form and
substance satisfactory to Agent unless otherwise waived in writing by Agent:
11.1.1. Loan Documents. Each of the Loan Documents shall have been
duly executed and delivered to Agent by each of the signatories thereto and
accepted by Agent and Lenders.
11.1.2. Availability. Agent shall have determined, and Lenders
shall be satisfied that, immediately after Lenders have made the initial
Revolver Loans and Bank has issued the Letters of Credit to be issued on the
Closing Date, and Borrowers have paid (or made provision for payment of) all
closing costs incurred in connection with the Commitments, Availability is not
less than $10,000,000.
11.1.3. Evidence of Perfection and Priority of Liens. Agent shall
have received copies of all filing receipts or acknowledgments issued by any
governmental authority to evidence any filing or recordation necessary to
perfect the Liens of Agent in the Collateral and evidence in form satisfactory
to Agent and Lenders that such Liens constitute valid and perfected security
interests and Liens, and that there are no other Liens upon any Collateral
except for Permitted Liens.
11.1.4. Organization Documents. Agent shall have received a copy
of the Organization Documents of each Borrower and each Obligor, and all
amendments thereto, certified by the Secretary of State or other appropriate
officials of the jurisdiction of each Borrower's and each Obligor's states of
organization.
11.1.5. Good Standing Certificates. Agent shall have received good
standing certificates for each Borrower and each Obligor, issued by the
Secretary of State or other appropriate official of such Borrower's or such
Obligor's jurisdiction of organization and each jurisdiction where the conduct
of such Borrower's or such Obligor's business activities or ownerships of its
Property necessitates qualification.
11.1.6. Opinion Letters. Agent shall have received a favorable,
written opinion of Alston & Bird LLP and the respective local counsel to
Borrowers and Agent, covering the matters set forth on EXHIBIT E attached
hereto.
11.1.7. Insurance. Agent shall have received certified copies of
the casualty insurance policies of Borrowers with respect to the Collateral,
together with loss payable endorsements on Agent's standard form of loss payee
endorsement naming Agent as loss payee with respect to each such policy and
copies of Borrowers' liability insurance policies, including product liability
policies, together with endorsements naming Agent as an additional insured, all
as required by the Loan Documents.
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11.1.8. Landlord Agreements. Agent shall have received all
landlord or warehouseman agreements with respect to all premises leased by any
Borrower (other than retail locations of any Borrower) and which are disclosed
on SCHEDULE 8.1.1 hereto.
11.1.9. Solvency Certificates. Agent and Lenders shall have
received certificates satisfactory to them from one or more knowledgeable Senior
Officers of Borrowers that, after giving effect to the financing under this
Agreement, the issuance of the Letters of Credit, the consummation of the
transactions evidenced by the Acquisition Documents, the Bridge Loan Documents
and the Merger Documents, each Borrower is Solvent.
11.1.10. No Labor Disputes. Agent shall have received assurances
satisfactory to it that there are no threats of strikes or work stoppages by any
employees, or organization of employees, of any Obligor which Agent reasonably
determines may have a Material Adverse Effect.
11.1.11. Compliance with Laws and Other Agreements. Agent shall
have determined or received assurances satisfactory to it that none of the Loan
Documents or any of the transactions contemplated thereby violate any applicable
law, court order or agreement binding upon any Obligor.
11.1.12. No Material Adverse Change. No material adverse change in
the financial condition of any Obligor or in the quality, quantity or value of
any Collateral shall have occurred since April 4, 1998.
11.1.13. Pro Forma Balance Sheets. Agent shall have received a pro
forma opening balance sheet of Borrowers and their Consolidated Subsidiaries, on
a Consolidated basis, giving effect to the Acquisition and the issuance of the
Senior Subordinated Notes and the initial Loans to be made hereunder, that
reflect compliance by Borrowers with the applicable financial covenants
contained herein.
11.1.14. Projections. Agent shall have received projections of
Borrowers for the 5 years following closing, prepared on a Consolidated basis,
giving effect to the Acquisition and the issuance of the Senior Subordinated
Notes and projected Borrowings under the Revolver Facility, prepared as of the
first year on a quarterly basis and on an annual basis for the remaining years,
including for each year, income statements, balance sheets, cash flow
statements, together with assumptions.
11.1.15. Financial Information. Agent and Lenders shall have
received, in form and substance satisfactory to them, all financial information,
including, without limitation, a reconciliation of the actual financial
performance to budget or plan, that any Lender, through Agent, may reasonably
request and that has not heretofore been provided to Agent.
11.1.16. Approvals. Agent shall have (i) satisfied itself that all
Governmental Approvals and filings of a material nature necessary for
consummation of the Acquisition and issuance of the Senior Subordinated Notes,
have been obtained without any adverse action being taken (including
Hart-Scott-Rodino Act clearance and compliance with Regulation U), (ii)
received, reviewed and found acceptable all Acquisition Documents and (iii)
satisfied itself that all of the transactions contemplated by the Acquisition
will be consummated simultaneously with the making of the initial Loan hereunder
, strictly in accordance with the terms and conditions of the Acquisition
Documents without waiver of any material condition thereof.
11.1.17. Bridge Loan. Borrowers shall have consummated all of the
transactions contemplated by the Bridge Loan Documents and the Bridge Loan shall
have been made by the Bridge Lender.
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11.1.18. Fee Letter. Borrowers shall have paid the balance of all
fees then payable under the Fee Letter.
11.1.19. Mergers. The Mergers shall have been consummated in
accordance with the terms of the Merger Documents.
11.2. CONDITIONS PRECEDENT TO ALL CREDIT EXTENSIONS. Notwithstanding
any other provision of this Agreement or any of the other Loan Documents, and
without affecting in any manner the rights of Agent and Lenders under the other
sections of this Agreement, Lenders shall not be required to fund any Loans,
procure any Letter of Credit or otherwise extend any credit to or for the
benefit of any Borrower, unless and until each of the following conditions has
been and continues to be satisfied:
11.2.1. No Defaults. No Default or Event of Default shall exist at
the time of, or would result from, the funding of such Loan or other extension
of credit.
11.2.2. Satisfaction of Conditions in Other Loan Documents. Each
of the conditions precedent set forth in any other Loan Document shall have been
and shall remain satisfied.
11.2.3. No Litigation. No action, proceeding, investigation,
regulation or legislation shall have been instituted, threatened or proposed
before any court, governmental agency or legislative body to enjoin, restrain or
prohibit, or to obtain damages in respect of, or which is related to or arises
out of, this Agreement or any of the other Loan Documents or the consummation of
the transactions contemplated hereby or thereby.
11.2.4. No Material Adverse Effect. No event shall have occurred
and no condition shall exist which has or may be reasonably likely to have a
Material Adverse Effect.
11.2.5. Borrowing Base Certificate. Agent shall have received each
Borrowing Base Certificate required by the terms of this Agreement or otherwise
requested by Agent.
11.3. LIMITED WAIVER OF CONDITIONS PRECEDENT. If Lenders shall make any
Loans, procure any Letter of Credit or otherwise extend any credit to Borrowers
under this Agreement at a time when any of the foregoing conditions precedent
are not satisfied (regardless of whether the failure of satisfaction of any such
conditions precedent was known or unknown to Agent or Lenders), the funding of
such Loans shall not operate as a waiver of the right of Agent and Lenders to
insist upon the satisfaction of all conditions precedent with respect to each
subsequent Borrowing requested by Borrowers or a waiver of any Default or Event
of Default as a consequence of the failure of any such conditions to be
satisfied, unless Agent, with the prior written consent of the Required Lenders,
in writing waives the satisfaction of any condition precedent in which event
such waiver shall only be applicable for the specific instance given and only to
the extent and for the period of time expressly stated in such written waiver.
SECTION 12. EVENTS OF DEFAULT; RIGHTS AND REMEDIES ON DEFAULT
12.1. EVENTS OF DEFAULT. The occurrence or existence of any one or more
of the following events or conditions shall constitute an "Event of Default"
(each of which Events of Default shall be deemed to exist unless and until
waived by Agent and Lenders in accordance with the provisions of Section 13.9
hereof):
12.1.1. Payment of Obligations. Borrowers shall fail to pay any of
the Obligations on the due date thereof (whether due at stated maturity, on
demand, upon acceleration or otherwise).
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12.1.2. Misrepresentations. Any representation, warranty or other
written statement to Agent or any Lender by or on behalf of any Obligor, whether
made in or furnished in compliance with or in reference to any of the Loan
Documents, proves to have been false or misleading in any material respect when
made or furnished or when reaffirmed pursuant to Section 9.2 hereof.
12.1.3. Breach of Specific Covenants. Any Borrower shall fail or
neglect to perform, keep or observe any covenant contained in Sections 7.3,
8.1.1, 8.2.4, 8.2.5, 8.2.6, 8.5, 10.1.1, 10.1.3, 10.2 or 10.3 hereof on the date
that such Borrower is required to perform, keep or observe such covenant.
12.1.4. Breach of Other Covenants. Any Borrower shall fail or
neglect to perform, keep or observe any covenant contained in this Agreement
(other than a covenant which is dealt with specifically elsewhere in Section
12.1 hereof) and the breach of such other covenant is not cured to Agent's and
the Required Lender's satisfaction within 30 days after the sooner to occur of
any Senior Officer's receipt of notice of such breach from Agent or the date on
which such failure or neglect first becomes known to any Senior Officer;
provided, however, that such notice and opportunity to cure shall not apply in
the case of any failure to perform, keep or observe any covenant which is not
capable of being cured at all or within such 30-day period or which is a willful
and knowing breach by any Borrower.
12.1.5. Default Under Other Documents. Any Borrower or any other
Obligor shall default in the due and punctual observance or performance of any
liability or obligation to be observed or performed by it under any of the Other
Agreements, Security Documents or Acquisition Documents.
12.1.6. Other Defaults. There shall occur any default or event of
default on the part of any Borrower or any Subsidiary of a Borrower under any
agreement, document or instrument to which such Borrower or such Subsidiary is a
party or by which such Borrower or such Subsidiary or any of their respective
Properties is bound, creating or relating to any Indebtedness in excess of
$3,000,000 if the payment or maturity of such Indebtedness may be accelerated in
consequence of such event of default or demand for payment of such Indebtedness
may be made.
12.1.7. Uninsured Losses. Any loss, theft, damage or destruction
of any of the Collateral not fully covered (subject to such deductibles as Agent
shall have permitted) by insurance if the amount not covered by insurance
exceeds $1,000,000.
12.1.8. Solvency. Any Obligor shall cease to be Solvent.
12.1.9. Insolvency Proceedings. Any Borrower shall commence, or
shall consent to the commencement against it of, any Insolvency Proceeding or
any Insolvency Proceeding shall be commenced against any Borrower and the same
shall not have been dismissed within 60 days after the commencement thereof.
12.1.10. Business Disruption; Condemnation. There shall occur a
cessation of a substantial part of the business of any Obligor for a period
which may be reasonably expected to have a Material Adverse Effect; or any
Obligor shall suffer the loss or revocation of any license or permit now held or
hereafter acquired by such Obligor which is necessary to the continued or lawful
operation of its business; or any Obligor shall be enjoined, restrained or in
any way prevented by court, governmental or administrative order from conducting
all or any material part of its business affairs; or any material lease or
agreement pursuant to which any Obligor leases or occupies any premises on which
any Collateral is located shall be canceled or terminated prior to the
expiration of its stated term and such cancellation or termination has a
Material Adverse Effect or results in an Out-of-Formula Condition; or any
material part of the Collateral shall be taken through condemnation or the value
of such Property shall be materially impaired through condemnation.
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12.1.11. Change of Ownership. Tropical shall cease to own all of
the issued and outstanding capital stock of TSCI, Apparel or Farah.
12.1.12. ERISA. A Reportable Event shall occur which Agent, in its
reasonable discretion, shall determine constitutes grounds for the termination
by the Pension Benefit Guaranty Corporation ("PBGC") of any Plan under Section
4042(a) of ERISA or for the appointment by the appropriate United States
district court of a trustee for any Plan pursuant to Section 4042(b) of ERISA,
or if any Plan shall be terminated by the PBGC pursuant to Section 4042 of ERISA
or any such trustee shall be requested or appointed by the PBGC pursuant to
Section 4042 of ERISA, or if any Borrower, any Subsidiary of a Borrower or any
Obligor is in "default" (as defined in Section 4219(c)(5) of ERISA) with respect
to payments to a Multiemployer Plan resulting from such Borrower's, such
Subsidiary's or such Obligor's complete or partial withdrawal from such Plan.
12.1.13. Challenge to Loan Documents. Any Obligor or any of its
Affiliates shall challenge or contest in any action, suit or proceeding the
validity or enforceability of any of the Loan Documents, the legality or
enforceability of any of the Obligations, the perfection or priority of any Lien
granted to Agent, the subordination provisions of any Subordinated Debt or any
of the Loan Documents ceases to be in full force or effect for any reason other
than a full or partial release by Agent and Lenders in accordance with the terms
thereof.
12.1.14. Judgment. A judgment or order for the payment of money in
an amount that exceeds the uncontested insurance available therefor by
$1,000,000 or more shall be entered against any Borrower by any court and such
judgment or order shall result in the creation of a Lien upon any asset of any
Borrower that is not a Permitted Lien.
12.1.15. Repudiation of or Default Under Guaranty. Any Guarantor
shall revoke or attempt to revoke the Guaranty signed by such Guarantor, shall
repudiate such Guarantor's liability thereunder, or shall be in default under
the terms thereof, or shall fail to confirm in writing, promptly, after receipt
of Lender's written request therefor, such Guarantor's ongoing liability under
the Guaranty Agreement in accordance with the terms thereof.
12.1.16. Criminal Forfeiture. Any Obligor shall be convicted under
any criminal law that could lead to a forfeiture of any Property of such Obligor
that would have a Material Adverse Effect.
12.1.17. Factoring Default. Any default or event of default shall
occur under, or any Borrower shall default in the observance or performance of
any term, covenant, condition or agreement contained in any Factoring Agreement
or any Factor Assignment Agreement or any default or event of default shall
occur under any Factor Intercreditor Agreement and such default shall continue
beyond any applicable grace period.
12.1.18. SouthTrust Loan Documents. A default or event of default
shall occur under, or Tropical shall default in the performance or observance of
any term, covenant, condition or agreement contained in any of the SouthTrust
Loan Documents and such default shall continue beyond any applicable grace
period.
12.1.19. Senior Subordinated Notes. Any default or event of
default shall occur under any of the Senior Subordinated Notes, any Exchange
Notes or the Indenture and such default shall continue beyond any applicable
grace period.
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12.1.20. Bridge Loan. Any default or event of default shall occur
under any of the Bridge Loan Documents or any Exchange Notes and such default
shall continue beyond any applicable grace period.
12.2. ACCELERATION OF OBLIGATIONS; TERMINATION OF COMMITMENTS. Without
in any way limiting the right of Agent to demand payment of any portion of the
Obligations payable on demand in accordance with this Agreement:
12.2.1. Upon or at any time after the occurrence of an Event of
Default (other than pursuant to Section 12.1.9 hereof) and for so long as such
Event of Default shall exist, Agent may in its discretion (and, upon receipt of
written instructions to do so from the Required Lenders, shall) (a) declare the
principal of and any accrued interest on the Loans and all other Obligations
owing under any of the Loan Documents to be, whereupon the same shall become
without further notice or demand (all of which notice and demand each Borrower
expressly waives), forthwith due and payable and Borrowers shall forthwith pay
to Agent the entire principal of and accrued and unpaid interest on the Loans
and other Obligations plus reasonable attorneys' fees and expenses if such
principal and interest are collected by or through an attorney-at-law and (b)
terminate the Commitments.
12.2.2. Upon the occurrence of an Event of Default specified in
Section 12.1.9 hereof, all of the Obligations shall become automatically due and
payable without declaration, notice or demand by Agent to or upon any Borrowers
and the Commitments shall automatically terminate as if terminated by Agent
pursuant to Section 6.2.1 hereof and with the effect specified in Section 6.2.3
hereof.
12.3. OTHER REMEDIES. Upon and after the occurrence of an Event of
Default and for so long as such Event of Default shall exist, Agent may in its
discretion (and, upon receipt of written direction of the Required Lenders,
shall) exercise from time to time the following rights and remedies (without
prejudice to the rights of Agent or any Lender to enforce its claim against any
or all Obligors):
12.3.1. All of the rights and remedies of a secured party under
the UCC or under other Applicable Law, and all other legal and equitable rights
to which Agent may be entitled under any of the Loan Documents, all of which
rights and remedies shall be cumulative and shall be in addition to any other
rights or remedies contained in this Agreement or any of the other Loan
Documents, and none of which shall be exclusive.
12.3.2. The right to collect all amounts at any time payable to a
Borrower from any Account Debtor or other Person at any time indebted to such
Borrower.
12.3.3. The right to take immediate possession of any of the
Collateral, and to (i) require Borrowers to assemble the Collateral, at
Borrowers' expense, and make it available to Agent at a place designated by
Agent which is reasonably convenient to both parties, and (ii) enter any
premises where any of the Collateral shall be located and to keep and store the
Collateral on said premises until sold (and if said premises be the Property of
a Borrower, then such Borrower agrees not to charge Agent for storage thereof).
12.3.4. The right to sell or otherwise dispose of all or any
Collateral in its then condition, or after any further manufacturing or
processing thereof, at public or private sale or sales, with such notice as may
be required by Applicable Law, in lots or in bulk, for cash or on credit, all as
Agent, in its sole discretion, may deem advisable. Each Borrower agrees that any
requirement of notice to Borrowers or any other Obligor of any proposed public
or private sale or other disposition of Collateral by Agent shall be deemed
reasonable notice thereof if given at least 10 days prior thereto, and such sale
may be at such locations as Agent may designate in said notice. Agent shall have
the right to conduct such
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sales on any Borrower's or any other Obligor's premises, without charge
therefor, and such sales may be adjourned from time to time in accordance with
Applicable Law. Agent shall have the right to sell, lease or otherwise dispose
of the Collateral, or any part thereof, for cash, credit or any combination
thereof, and Agent may purchase all or any part of the Collateral at public or,
if permitted by law, private sale and, in lieu of actual payment of such
purchase price, may set off the amount of such price against the Obligations.
The proceeds realized from the sale or other disposition of any Collateral may
be applied, after allowing 2 Business Days for collection, first to any
Extraordinary Expenses incurred by Agent, second to interest accrued with
respect to any of the Obligations; and third, to the principal balance of the
Obligations. If any deficiency shall arise, Obligors shall remain jointly and
severally liable to Agent and Lenders therefor.
12.3.5. The right to require Borrowers to deposit with Agent funds
equal to the LC Outstandings and, if Borrowers fail promptly to make such
deposit, Agent and Lenders may advance such amount as a Revolver Loan (whether
or not an Out-of-Formula Condition exists or is created thereby). Any such
deposit or advance shall be held by Agent and Lenders as a reserve to fund
future payments on any LC Support. At such time as the LC Support has been paid
or terminated and all Letters of Credit have been drawn upon or expired, any
amounts remaining in such reserve shall be applied against any outstanding
Obligations, or, if all Obligations have been indefeasibly paid in full,
returned to Borrowers.
Agent is hereby granted a license or other right to use, without charge, each
Borrower's Intellectual Property and each Borrower's trade secrets, brochures,
customer lists, promotional and advertising materials, labels, and packaging
materials, and any Property of a similar nature, in advertising for sale,
marketing, selling and completing the manufacturing of any Collateral, and each
Borrower's rights under all licenses and all franchise agreements shall inure to
Agent's benefit.
12.4. SETOFF. In addition to any Liens granted under any of the Loan
Documents and any rights now or hereafter available under Applicable Law, Agent
and each Lender (and each of their respective Affiliates) is hereby authorized
by Borrowers at any time that an Event of Default exists, without notice to
Borrowers or 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 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 Agent, such Lender or any of their Affiliates to or for
the credit or the account of any Borrower against and on account of the
Obligations of Borrowers arising under the Loan Documents to Agent, such Lender
or any of their Affiliates, including all Loans and LC Outstandings and all
claims of any nature or description arising out of or in connection with this
Agreement, irrespective of whether or not (i) Agent or such Lender shall have
made any demand hereunder, (ii) Agent, at the request or with the consent of the
Required Lenders shall have declared the principal of and interest on the Loans
and other amounts due hereunder to be due and payable as permitted by this
Agreement and even though such Obligations may be contingent or unmatured or
(iii) the Collateral for the Obligations is adequate. Notwithstanding the
foregoing, each of Agent and Lenders agree with each other that it shall not,
without the express consent of the Required Lenders, and that it shall (to the
extent that it is lawfully entitled to do so) upon the request of the Required
Lenders, exercise its setoff rights hereunder against any accounts of any
Borrower now or hereafter maintained with Agent, such Lender or any Affiliate of
any of them, but no Borrower shall have a claim or cause of action against Agent
or any Lender for any setoff made without the consent of the Required Lenders
and the validity of any such setoff shall not be impaired by the absence of such
consent. If any party (or its Affiliate) exercises the right of setoff provided
for hereunder, such party shall be obligated to share any such setoff in the
manner and to the extent required by Section 13.5.
12.5. REMEDIES CUMULATIVE; NO WAIVER.
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12.5.1. All covenants, conditions, provisions, warranties,
guaranties, indemnities, and other undertakings of Borrowers contained in this
Agreement and the other Loan Documents, or in any document referred to herein or
contained in any agreement supplementary hereto or in any schedule given to
Agent or any Lender or contained in any other agreement between Agent or any
Lender and any or all Borrowers, heretofore, concurrently, or hereafter entered
into, shall be deemed cumulative to and not in derogation or substitution of any
of the terms, covenants, conditions, or agreements of Borrowers herein
contained. The rights and remedies of Agent and Lenders under this Agreement and
the other Loan Documents shall be cumulative and not exclusive of any rights or
remedies that Agent or any Lender would otherwise have.
12.5.2. The failure or delay of Agent or any Lender to require
strict performance by Borrowers of any provision of any of the Loan Documents or
to exercise or enforce any rights, Liens, powers or remedies under any of the
Loan Documents or with respect to any Collateral shall not operate as a waiver
of such performance, Liens, rights, powers and remedies, but all such
requirements, Liens, rights, powers, and remedies shall continue in full force
and effect until all Loans and all other Obligations owing or to become owing
from Borrowers to Agent and Lenders shall have been fully satisfied. None of the
undertakings, agreements, warranties, covenants and representations of Borrowers
contained in this Agreement or any of the other Loan Documents and no Event of
Default by any Borrower under this Agreement or any other Loan Documents shall
be deemed to have been suspended or waived by Agent, unless such suspension or
waiver is by an instrument in writing specifying such suspension or waiver and
is signed by a duly authorized representative of Agent and directed to
Borrowers.
12.5.3. If Agent or any Lender shall accept performance by a
Borrower, in whole or in part, of any obligation that a Borrower is required by
any of the Loan Documents to perform only when a Default or Event of Default
exists, or if Agent or any Lender shall exercise any right or remedy under any
of the Loan Documents that may not be exercised other than when a Default or
Event of Default exists, Agent's acceptance of such performance by a Borrower or
Agent's or Lender's exercise of any such right or remedy shall not operate to
waive any such Event of Default or to preclude the exercise by Agent of any
other right or remedy, unless otherwise expressly agreed in writing by Agent or
such Lender, as the case may be.
SECTION 13. AGENT
13.1. APPOINTMENT, AUTHORITY AND DUTIES OF AGENT.
13.1.1. Each Lender hereby irrevocably appoints and designates
Fleet as Agent to act as herein specified. Agent may, and each Lender by its
acceptance of a Note shall be deemed irrevocably to have authorized Agent to,
enter into all Loan Documents to which Agent is to be a party on the Closing
Date and all amendments hereto and all Security Documents thereafter executed by
each Borrower, for its benefit and the Pro Rata benefit of Lenders and, except
as otherwise provided in this Section 13, to exercise such rights and powers
under this Agreement and the other Loan Documents as are specifically delegated
to Agent by the terms hereof and thereof, together with such other rights and
powers as are reasonably incidental thereto. Each Lender agrees that any action
taken by Agent or the Required Lenders in accordance with the provisions of this
Agreement or the other Loan Documents, and the exercise by Agent or the Required
Lenders of any of the powers set forth herein or therein, together with such
other powers as are reasonably incidental thereto, shall be authorized and
binding upon all Lenders. Without limiting the generality of the foregoing,
Agent shall have the sole and exclusive right and authority to (a) act as the
disbursing and collecting agent for Lenders with respect to all payments and
collections arising in connection with this Agreement and the other Loan
Documents; (b) execute and deliver as Agent each Loan Document and accept
delivery of each such agreement delivered by any or all Borrowers or any other
Obligor; (c) act as collateral agent for Lenders for purposes of the perfection
of all security interests
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and Liens created by this Agreement or the Security Documents with respect to
all material items of the Collateral and, subject to the direction of the
Required Lenders, for all other purposes stated therein, provided that Agent
hereby appoints, authorizes and directs each Lender to act as a collateral
sub-agent for Agent and the other Lenders for purposes of the perfection of all
security interest and Liens with respect to a Borrower's Deposit Accounts
maintained with, and all cash and Cash Equivalents held by, such Lender; (d)
subject to the direction of the Required Lenders, manage, supervise or otherwise
deal with the Collateral; and (e) except as may be otherwise specifically
restricted by the terms of this Agreement and subject to the direction of the
Required Lenders, exercise all remedies given to Agent or Lenders with respect
to any of the Collateral under the Loan Documents relating thereto, Applicable
Law or otherwise. The duties of Agent shall be ministerial and administrative in
nature, and Agent shall not have by reason of this Agreement or any other Loan
Document a fiduciary relationship with any Lender (or any Lender's
participants). Unless and until its authority to do so is revoked in writing by
the Required Lenders, Agent shall have the exclusive right to determine whether
any Accounts or Inventory constitute Eligible Accounts or Eligible Inventory
(basing such determination in each case upon the meanings given to such terms in
this Agreement), or whether to impose or release any reserve, and to exercise
its own credit judgment in connection therewith, which determinations and
judgments, if exercised in good faith, shall exonerate Agent from any liability
to Lenders or any other Person for any errors in judgment.
13.1.2. Agent (which term, as used in this sentence, shall include
reference to Agent's Affiliates and to the officers, directors, employees and
agents of Agent's Affiliates) shall not: (a) have any duties or responsibilities
except those expressly set forth in this Agreement and the other Loan Documents
or (b) be required to take, initiate or conduct any litigation, foreclosure or
collection proceedings hereunder or under any of the other Loan Documents except
to the extent directed to do so by the Required Lenders during the continuance
of any Event of Default.
13.1.3. Agent may perform any of its duties by or through its
agents and employees and may employ agents and attorneys-in-fact and shall not
be responsible for the negligence or misconduct of any such agents or
attorneys-in-fact selected by it with reasonable care. Borrowers shall promptly
(and in any event, ON DEMAND) reimburse Agent for all reasonable expenses
(including all Extraordinary Expenses) incurred by Agent pursuant to any of the
provisions hereof or of any of the other Loan Documents or in the execution of
any of Agent's duties hereby or thereby created or in the exercise of any right
or power herein or therein imposed or conferred upon it or Lenders (excluding,
however, general overhead expenses), and each Lender agrees promptly to pay to
Agent, ON DEMAND, such Lender's Pro Rata share of any such reimbursement for
expenses (including Extraordinary Expenses) that is not timely made by Borrowers
to Agent.
13.1.4. The rights, remedies, powers and privileges conferred upon
Agent hereunder and under the other Loan Documents may be exercised by Agent
without the necessity of the joinder of any other parties unless otherwise
required by Applicable Law. If Agent shall request instructions from the
Required Lenders with respect to any act or action (including the failure to
act) in connection with this Agreement or any of the other Loan Documents, Agent
shall be entitled to refrain from such act or taking such action unless and
until Agent shall have received instructions from the Required Lenders; and
Agent shall not incur liability to any Person by reason of so refraining.
Without limiting the foregoing, no Lender shall have any right of action
whatsoever against Agent as a result of Agent acting or refraining from acting
hereunder or under any of the Loan Documents in accordance with the instructions
of the Required Lenders.
13.1.5. Agent shall promptly, upon receipt thereof, forward to
each Lender copies of any significant written notices, reports, certificates and
other information received by Agent from any Obligor (to the extent such Obligor
is not required by the terms of the Loan Documents to supply such
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information directly to Lenders) and copies of the results of any field audits
by Agent with respect to Borrowers.
13.2. AGREEMENTS REGARDING COLLATERAL. Each Lender shall have a Pro
Rata interest in the security interests and Liens in and to the Collateral and
any other Property granted or assigned to Agent under the Loan Documents.
Lenders hereby irrevocably authorize Agent, at its option and in its discretion,
to release any Lien upon any Collateral (i) upon the termination of the
Commitments and payment or satisfaction of all of the Obligations or (ii)
constituting Equipment sold or disposed of in accordance with the terms of this
Agreement if a Borrower certifies to Agent that the disposition is made in
compliance with the terms of this Agreement (and Agent may rely conclusively on
any such certificate, without further inquiry). Agent shall have no obligation
whatsoever to any of the Lenders to assure that any of the Collateral exists or
is owned by a Borrower or is cared for, protected or insured or has been
encumbered, or that Agent's Liens have been properly or sufficiently or lawfully
created, perfected, protected or enforced or entitled to any particular priority
or to exercise at any duty of care with respect to any of the Collateral.
13.3. RELIANCE BY AGENT. Agent shall be entitled to rely, and shall be
fully protected in so relying, upon any certification, notice or other
communication (including any thereof by telephone, telex, telegram, telecopier
message or cable) believed by it to be genuine and correct and to have been
signed, sent or made by or on behalf of the proper Person or Persons, and upon
advice and statements of legal counsel, independent accountants and other
experts selected by Agent. As to any matters not expressly provided for by this
Agreement or any of the other Loan Documents, Agent shall in all cases be fully
protected in acting or refraining from acting hereunder and thereunder in
accordance with the instructions of the Required Lenders, and such instructions
of the Required Lenders and any action taken or failure to act pursuant thereto
shall be binding upon Lenders.
13.4. ACTION UPON DEFAULT. Agent shall not be deemed to have knowledge
of the occurrence of a Default or an Event of Default other than nonpayment when
due of an amount required to be repaid with respect to the Loans) unless it has
received written notice from a Lender or Borrowers specifying the occurrence and
nature of such Default or Event of Default. If Agent shall receive such a notice
of a Default or an Event of Default or shall otherwise acquire actual knowledge
of any written Default or Event of Default, Agent shall promptly notify Lenders
in writing and Agent shall take such action and assert such rights under this
Agreement and the other Loan Documents, or shall refrain from taking such action
and asserting such rights, as the Required Lenders shall direct from time to
time. If any Lender shall receive a notice of a Default or an Event of Default
or shall otherwise acquire actual knowledge of any Default or Event of Default,
such Lender shall promptly notify Agent and the other Lenders in writing. As
provided in Section 13.3 hereof, Agent shall not be subject to any liability by
reason of acting or refraining to act pursuant to any request of the Required
Lenders except for its own willful misconduct or gross negligence in connection
with any action taken by it. Before directing Agent to take or refrain from
taking any action or asserting any rights or remedies under this Agreement and
the other Loan Documents on account of any Event of Default, the Required
Lenders shall consult with and seek the advice of (but without having to obtain
the consent of) each other Lender, and promptly after directing Agent to take or
refrain from taking any such action or asserting any such rights, the Required
Lenders will so advise each other Lender of the action taken or refrained from
being taken and, upon request of any Lender, will supply information concerning
actions taken or not taken. In no event shall the Required Lenders, without the
prior written consent of each Lender, direct Agent to accelerate and demand
payment of the Loans held by one Lender without accelerating and demanding
payment of all other Loans or to terminate the Commitments of one or more
Lenders without terminating the Commitments of all Lenders. Each Lender agrees
that, without the prior written consent of the Required Lenders, it will not
take any legal action or institute any action or proceeding against any Obligor
with respect to any of the Obligations or Collateral or accelerate or otherwise
enforce its portion of the Obligations. Without limiting the generality of the
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foregoing, none of Lenders may exercise any right that it might otherwise have
under Applicable Law to credit bid at foreclosure sales, UCC sales or other
similar sales or dispositions of any of the Collateral except as authorized by
the Required Lenders. Notwithstanding anything to the contrary set forth in this
Section 13.4 or elsewhere in this Agreement, each Lender shall be authorized to
take such action to preserve or enforce its rights against any Obligor where a
deadline or limitation period is otherwise applicable and would, absent the
taken of specified action, bar the enforcement of Obligations held by such
Lender against such Obligor, including the filing of proofs of claim in any
Insolvency Proceeding.
13.5. RATABLE SHARING. If any Lender shall obtain any payment or
reduction (including any amounts received as adequate protection of a bank
account deposit treated as cash collateral under the Bankruptcy Code) of any
Obligation of Borrowers hereunder (whether voluntary, involuntary, through the
exercise of any right of set-off or otherwise) in excess of its Pro Rata share
of payments or reductions on account of such Obligations obtained by all of the
Lenders, such Lender shall forthwith (i) notify the other Lenders and Agent of
such receipt and (ii) purchase from the other Lenders such participations in the
affected Obligations as shall be necessary to cause such purchasing Lender to
share the excess payment or reduction, net of costs incurred in connection
therewith, on a Pro Rata basis, provided that if all or any portion of such
excess payment or reduction is thereafter recovered from such purchasing Lender
or additional costs are incurred, the purchase shall be rescinded and the
purchase price restored to the extent of such recovery or such additional costs,
but without interest. Each Borrower agrees that any Lender so purchasing a
participation from another Lender pursuant to this Section 13.5 may, to the
fullest extent permitted by Applicable Law, exercise all of its rights of
payment (including the right of set-off) with respect to such participation as
fully as if such Lender were the direct creditor of Borrowers in the amount of
such participation.
13.6. INDEMNIFICATION OF AGENT.
13.6.1. Each Lender severally agrees to indemnify and defend the
Agent Indemnitees (to the extent not reimbursed by Borrowers under this
Agreement, but without limiting the indemnification obligation of Borrowers
under this Agreement), on a Pro Rata basis, and to hold each of the Agent
Indemnitees harmless from and against, any and all Claims which may be imposed
on, incurred by or asserted against any of the Agent Indemnitees in any way
related to or arising out of this Agreement or any of the other Loan Documents
or any other document contemplated by or referred to herein or therein or the
transactions contemplated hereby or thereby (including the costs and expenses
which Borrowers are obligated to pay under Section 15.2 hereof or amounts Agent
may be called upon to pay in connection with any lockbox or Dominion Account
arrangement contemplated hereby) or the enforcement of any of the terms hereof
or thereof or of any such other documents, provided that no Lender shall be
liable to any Agent Indemnitee for any of the foregoing to the extent that they
result solely from the willful misconduct or gross negligence of such Agent
Indemnitee.
13.6.2. Without limiting the generality of the foregoing
provisions of this Section 13.6, if Agent should be sued by any receiver,
trustee in bankruptcy, debtor-in-possession or other Person on account of any
alleged preference or fraudulent transfer received or alleged to have been
received from any Borrower or any other Obligor as the result of any transaction
under the Loan Documents, then in such event any monies paid by Agent in
settlement or satisfaction of such suit, together with all Extraordinary
Expenses incurred by Agent in the defense of same, shall be promptly reimbursed
to Agent by Lenders to the extent of each Lender's Pro Rata share.
13.6.3. Without limiting the generality of the foregoing
provisions of this Section 13.6, if at any time (whether prior to or after the
Commitment Termination Date) any action or proceeding shall be brought against
any of the Agent Indemnitees by an Obligor or by any other Person claiming by,
through or under an Obligor, to recover damages for any act taken or omitted by
Agent under any of the
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Loan Documents or in the performance of any rights, powers or remedies of Agent
against any Obligor, any Account Debtor, the Collateral or with respect to any
Loans, or to obtain any other relief of any kind on account of any transaction
involving any Agent Indemnitees under or in relation to any of the Loan
Documents, each Lender agrees to indemnify, defend and hold the Agent
Indemnitees harmless with respect thereto and to pay to the Agent Indemnitees
each Lender's Pro Rata share of such amount as any of the Agent Indemnitees
shall be required to pay by reason of a judgment, decree, or other order entered
in such action or proceeding or by reason of any compromise or settlement agreed
to by the Agent Indemnitees, including all interest and costs assessed against
any of the Agent Indemnitees in defending or compromising such action, together
with attorneys' fees and other legal expenses paid or incurred by the Agent
Indemnitees in connection therewith; provided, however, that no Lender shall be
liable to any Agent Indemnitee for any of the foregoing to the extent that they
arise solely from the willful misconduct or gross negligence of such Agent
Indemnitee. In Agent's discretion, Agent may also reserve for or satisfy any
such judgment, decree or order from proceeds of Collateral prior to any
distributions therefrom to or for the account of Lenders.
13.7. LIMITATION ON RESPONSIBILITIES OF AGENT. Agent shall in all cases
be fully justified in failing or refusing to act hereunder unless it shall have
received further assurances to its satisfaction from Lenders of their
indemnification obligations under Section 13.6 hereof against any and all Claims
which may be incurred by Agent by reason of taking or continuing to take any
such action. Agent shall not be liable to Lenders (or any Lender's participants)
for any action taken or omitted to be taken under or in connection with this
Agreement or the other Loan Documents except as a result of actual gross
negligence or willful misconduct on the part of Agent. Agent does not assume any
responsibility for any failure or delay in performance or breach by any Obligor
or any Lender of its obligations under this Agreement or any of the other Loan
Documents. Agent does not make to Lenders, and no Lender makes to Agent or the
other Lenders, any express or implied warranty, representation or guarantee with
respect to the Loans, the Collateral, the Loan Documents or any Obligor. Neither
Agent nor any of its agents, attorneys or employees shall be responsible to
Lenders, and no Lender nor any of its agents, attorneys or employees shall be
responsible to Agent or the other Lenders, for: (i) any recitals, statements,
information, representations or warranties contained in any of the Loan
Documents or in any certificate or other document furnished pursuant to the
terms hereof; (ii) the execution, validity, genuineness, effectiveness or
enforceability of, any of the Loan Documents; (iii) the validity, genuineness,
enforceability, collectibility, value, sufficiency or existence of any
Collateral, or the perfection or priority of any Lien therein; or (iv) the
assets, liabilities, financial condition, results of operations, business,
creditworthiness or legal status of any Obligor or any Account Debtor. Agent
shall have no obligation to any Lender to ascertain or inquire into the
existence of any Default or Event of Default, the observance or performance by
any Obligor of any of the duties or agreements of such Obligor under any of the
Loan Documents or the satisfaction of any conditions precedent contained in any
of the Loan Documents. Agent may consult with and employ legal counsel,
accountants and other experts and shall be entitled to act upon, and shall be
fully protected in any action taken in good faith reliance upon, any advice
given by such experts.
13.8. SUCCESSOR AGENT AND CO-AGENTS.
13.8.1. Subject to the appointment and acceptance of a successor
Agent as provided below, Agent may resign at any time by giving at least 30 days
written notice thereof to each Lender and Borrowers. Upon any such resignation,
the Required Lenders, after prior consultation with (but without having to
obtain consent of) each Lender, shall have the right to appoint a successor
Agent which shall be (i) a Lender, (ii) a United States based affiliate of a
Lender or (iii) a commercial bank that is organized under the laws of the United
States or of any State thereof and has a combined capital surplus of at least
$100,000,000 (or any asset based lending affiliate of any such bank) and is
reasonably acceptable to Borrowers (and for purposes hereof, any successor to
Fleet shall be deemed acceptable to Borrowers). Upon the acceptance by a
successor Agent of an appointment as an Agent hereunder, such successor Agent
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shall thereupon succeed to and become vested with all the rights, powers,
privileges and duties of the retiring Agent without further act, deed or
conveyance, and the retiring Agent shall be discharged from its duties and
obligations hereunder. After any retiring Agent's resignation hereunder as
Agent, the provisions of this Section 13 (including the provisions of Section
13.6 hereof) shall continue in effect for its benefit in respect of any actions
taken or omitted to be taken by it while it was acting as Agent. Notwithstanding
anything to the contrary contained in this Agreement, any successor by merger or
acquisition of the stock or assets of Fleet shall continue to be Agent hereunder
unless such successor shall resign in accordance with the provisions hereof.
13.8.2. It is the purpose of this Agreement that there shall be no
violation of any Applicable Law denying or restricting the right of financial
institutions to transact business as agent or otherwise in any jurisdiction. It
is recognized that, in case of litigation under any of the Loan Documents, or in
case Agent deems that by reason of present or future laws of any jurisdiction
Agent might be prohibited from exercising any of the powers, rights or remedies
granted to Agent or Lenders hereunder or under any of the Loan Documents or from
holding title to or a Lien upon any Collateral or from taking any other action
which may be necessary hereunder or under any of the Loan Documents, Agent may
appoint an additional Person as a separate collateral agent or co-collateral
agent which is not so prohibited from taking any of such actions or exercising
any of such powers, rights or remedies. If Agent shall appoint an additional
Person as a separate collateral agent or co-collateral agent as provided above,
each and every remedy, power, right, claim, demand or cause of action intended
by any of the Loan Documents to be exercised by or vested in or conveyed to
Agent with respect thereto shall be exercisable by and vested in such separate
collateral agent or co-collateral agent, but only to the extent necessary to
enable such separate collateral agent or co-collateral agent to exercise such
powers, rights and remedies, and every covenant and obligation necessary to the
exercise thereof by such separate collateral agent or co-collateral agent shall
run to and be enforceable by either of them. Should any instrument from Lenders
be required by the separate collateral agent or co-collateral agent so appointed
by Agent in order more fully and certainly to vest in and confirm to him or it
such rights, powers, duties and obligations, any and all of such instruments
shall, on request, be executed, acknowledged and delivered by Lenders whether or
not a Default or Event of Default then exists. In case any separate collateral
agent or co-collateral agent, or a successor to either, shall die, become
incapable of acting, resign or be removed, all the estates, properties, rights,
powers, duties and obligations of such separate collateral agent or
co-collateral agent, so far as permitted by Applicable Law, shall vest in and be
exercised by the Agent until the appointment of a new collateral agent or
successor to such separate collateral agent or co-collateral agent.
13.9. CONSENTS, AMENDMENTS AND WAIVERS; OUT-OF-FORMULA LOANS.
13.9.1. No amendment or modification of any provision of this
Agreement shall be effective without the prior written agreement of the Required
Lenders and Borrowers, and no waiver of any Default or Event of Default shall be
effective without the prior written consent of the Required Lenders; provided,
however, that, without the prior consent of all Lenders, no waiver of any
Default or Event of Default shall be effective if the Default or Event of
Default relates to Borrower's failure to observe or perform any covenant that
may not be amended without the unanimous written consent of Lenders as
hereinafter set forth in this Section 13.9.1. Notwithstanding the immediately
preceding sentence, the written agreement of all Lenders shall be required to
effectuate any amendment, modification or waiver that would (a) alter the
provisions of Sections 3.6, 3.7, 3.8, 3.9, 5.6, 5.7, 6.1, 13, 15.2 or 15.3, the
definitions of "Availability Reserve," "Borrowing Base" and other defined terms
used in such definition,"Pro Rata," "Required Lenders" or any provision of this
Agreement obligating Agent to take certain actions at the direction of the
Required Lenders, or any provision of this Agreement regarding the Pro Rata
treatment or obligations of Lenders, (b) increase or otherwise modify any of the
Commitments (other than to reduce proportionately each Lender's Commitment in
connection with any overall reduction in the amount of the Commitments), (c)
alter or amend the rate of interest payable in respect of the Loans
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(except as may be expressly authorized by the Loan Documents or as may be
necessary, in Agent's judgement, to comply with Applicable Law), (d) waive or
agree to defer collection of or reduce any fee, termination charge or other
charge provided for under any of the Loan Documents or the unused line fee in
Section 3.2.2 hereof, (e) subordinate the payment of any of the Obligations to
any other Indebtedness or the priority of any Liens granted to Agent under any
of the Loan Documents to Liens granted to any other Person, except as currently
provided in or contemplated by the Loan Documents in connection with any
Borrower's incurrence of Purchase Money Debt, and except for Liens granted by an
Obligor to financial institutions with respect to amounts on deposit with such
financial institutions to cover returned items, processing and analysis charges
and other charges in the ordinary course of business that relate to deposit
accounts with such financial institutions, (f) alter the time or amount of
repayment of any of the Loans or waive any Event of Default resulting from
nonpayment of the Loans on the due date thereof (or within any applicable period
of grace), (g) forgive any of the Obligations, except any portion of the
Obligations held by a Lender who consents in writing to such forgiveness, or (h)
release any Obligor from liability for any of the Obligations or release any
material portion of the Collateral except to the extent expressly provided for
herein. In no event shall any amendment to the provisions of Sections 2.3 or
4.1.3 be effective without the prior written consent of Fleet. No Lender shall
be authorized to amend or modify any Note held by it unless such amendment or
modification is consented to in writing by all Lenders; provided, however, that
the foregoing shall not be construed to prohibit an amendment or modification to
any provision of this Agreement that may be effected pursuant to this Section
13.9.1 by agreement of Borrowers and the Required Lenders even though such an
amendment or modification results in an amendment or modification of the Notes
by virtue of the incorporation by reference in each of the Notes of this
Agreement. The making of any Loans hereunder by any Lender during the existence
of a Default or Event of Default shall not be deemed to constitute a waiver of
such Default or Event of Default. Any waiver or consent granted by Lenders
hereunder shall be effective only if in writing and then only in the specific
instance and for the specific purpose for which it was given.
13.9.2. In connection with any proposed amendment to any of the
Loan Documents or waiver of any of the terms thereof or any Default or Event of
Default thereunder, no Borrower shall solicit, request or negotiate for or with
respect to any such proposed amendment or waiver of any of the provisions of
this Agreement or any of the other Loan Documents unless each Lender shall be
informed thereof by Borrowers or Agent (to the extent known by Agent) and shall
be afforded an opportunity of considering the same and supplied by Borrowers
with sufficient information to enable it to make an informed decision with
respect thereto. No Borrower will, directly or indirectly, pay or cause to be
paid any remuneration or other thing of value, whether by way of supplemental or
additional interest, fee or otherwise, to any Lender (in its capacity as a
Lender hereunder) as consideration for or as an inducement to the consent to or
agreement by such Lender with any waiver or amendment of any of the terms and
provisions of this Agreement or any of the other Loan Documents unless such
remuneration or thing of value is concurrently paid, on the same terms, on a Pro
Rata basis to all Lenders.
13.9.3. Unless otherwise directed in writing by the Required
Lenders, Agent may require Lenders to honor requests by Borrowers for
Out-of-Formula Loans (in which event, and notwithstanding anything to the
contrary set forth in Section 2.1.1 or elsewhere in this Agreement, Lenders
shall continue to make Revolver Loans up to their Pro Rata share of the
Commitments) and to forbear from requiring Borrowers to cure an Out-of-Formula
Condition, (1) when no Event of Default exists (or if an Event of Default
exists, when the existence of such Event of Default is not known by Agent), if
and for so long as (i) such Out-of-Formula Condition does not continue for a
period of more than 15 consecutive days, following which no Out-of-Formula
Condition exists for at least 15 consecutive days before another Out-of-Formula
Condition exists, (ii) no more than 5 such 15-day periods exist during any one
Fiscal Year and no Out-of-Formula Condition exists during the period in which
the advance rate against Eligible Inventory is 80%, (iii) the amount of the
Revolver Loans outstanding at any time does not exceed the aggregate of the
Commitments at such time, and (iv) the Out-of-Formula Condition is not known by
Agent
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at the time in question to exceed $2,000,000; and (2) regardless of
whether or not an Event of Default exists, if Agent discovers the existence of
an Out-of-Formula Condition not previously known by it to exist, but Lenders
shall be obligated to continue making such Revolver Loans as directed by Agent
only (A) if the amount of the Out-of-Formula Condition is not increased by more
than $1,000,000 above the amount determined by Agent to exist on the date of
discovery thereof and (B) for a period not to exceed 5 Business Days. In no
event shall Borrowers be deemed to be beneficiaries of this Section 13.9.3 or
authorized to enforce any of the provisions of this Section 13.9.3.
13.10. DUE DILIGENCE AND NON-RELIANCE. Each Lender hereby acknowledges
and represents that it has, independently and without reliance upon Agent or the
other Lenders, and based upon such documents, information and analyses as it has
deemed appropriate, made its own credit analysis of each Obligor and its own
decision to enter into this Agreement and to fund the Loans to be made by it
hereunder and to purchase participations in the LC Outstandings pursuant to
Section 2.2.2 hereof, and each Lender has made such inquiries concerning the
Loan Documents, the Collateral and each Obligor as such Lender feels necessary
and appropriate, and has taken such care on its own behalf as would have been
the case had it entered into the other Loan Documents without the intervention
or participation of the other Lenders or Agent. Each Lender hereby further
acknowledges and represents that the other Lenders and Agent have not made any
representations or warranties to it concerning any Obligor, any of the
Collateral or the legality, validity, sufficiency or enforceability of any of
the Loan Documents. Each Lender also hereby acknowledges that it will,
independently and without reliance upon the other Lenders or Agent, and based
upon such financial statements, documents and information as it deems
appropriate at the time, continue to make and rely upon its own credit decisions
in making Loans and in taking or refraining to take any other action under this
Agreement or any of the other Loan Documents. Except for notices, reports and
other information expressly required to be furnished to Lenders by Agent
hereunder, Agent shall not have any duty or responsibility to provide any Lender
with any notices, reports or certificates furnished to Agent by any Obligor or
any credit or other information concerning the affairs, financial condition,
business or Properties of any Obligor (or any of its Affiliates) which may come
into possession of Agent or any of Agent's Affiliates.
13.11. REPRESENTATIONS AND WARRANTIES OF LENDERS. By its execution of
this Agreement, each Lender hereby represents and warrants to each Borrower and
the other Lenders that it has the power to enter into and perform its
obligations under this Agreement and the other Loan Documents, and that it has
taken all necessary and appropriate action to authorize its execution and
performance of this Agreement and the other Loan Documents to which it is a
party, each of which will be binding upon it and the obligations imposed upon it
herein or therein will be enforceable against it in accordance with the
respective terms of such documents.
13.12. THE REQUIRED LENDERS. As to any provisions of this Agreement or
the other Loan Documents under which action may or is required to be taken upon
direction or approval of the Required Lenders, the direction or approval of the
Required Lenders shall be binding upon each Lender to the same extent and with
the same effect as if each Lender had joined therein. Notwithstanding anything
to the contrary contained in this Agreement, Borrowers shall not be deemed to be
a beneficiary of, or be entitled to enforce, sue upon or assert as a defense to
any of the Obligations, any provisions of this Agreement that requires Agent or
any Lender to act, or conditions their authority to act, upon the direction or
consent of the Required Lenders; and any action taken by Agent or any Lender
that requires the consent or direction of the Required Lenders as a condition to
taking such action shall, insofar as Borrowers are concerned, be presumed to
have been taken with the requisite consent or direction of the Required Lenders.
13.13. SEVERAL OBLIGATIONS. The obligations and commitments of each
Lender under this Agreement and the other Loan Documents are several and neither
Agent nor any Lender shall be responsible for the performance by the other
Lenders of its obligations or commitments hereunder or
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thereunder. Notwithstanding any liability of Lenders stated to be joint and
several to third Persons under any of the Loan Documents, such liability shall
be shared, as among Lenders, Pro Rata according to the respective Commitments of
Lenders.
13.14. AGENT IN ITS INDIVIDUAL CAPACITY. With respect to its obligation
to lend under this Agreement, the Loans made by it and each Note issued to it,
Agent shall have the same rights and powers hereunder and under the other Loan
Documents as any other Lender or holder of a Note and may exercise the same as
though it were not performing the duties specified herein; and the terms
"Lenders," "Required Lenders," or any similar term shall, unless the context
clearly otherwise indicates, include Agent in its capacity as a Lender. Agent
and its Affiliates may each accept deposits, maintain deposits or credit
balances for, invest in, lend money to, act as trustee under indentures of,
serve as financial advisor to, and generally engage in any kind of business with
any Borrower or any other Obligor, or any affiliate of a Borrower or any other
Obligor, as if it were any other bank and without any duty to account therefor
to the other Lenders.
13.15. THIRD PARTY BENEFICIARIES. This Section 13 is not intended to
confer any rights or benefits upon any Borrower or any other Person except
Lenders and Agent, and no Person (including any or all Borrowers) other than
Lenders and Agent shall have any right to enforce any of the provisions of this
Section 13 except as expressly provided in Section 13.17 hereof. As between
Borrowers and Agent, any action that Agent may take or purport to take on behalf
of Lenders under any of the Loan Documents shall be conclusively presumed to
have been authorized and approved by Lenders as herein provided.
13.16. NOTICE OF TRANSFER. Agent may deem and treat a Lender party to
this Agreement as the owner of such Lender's portion of the Revolver Loans for
all purposes, unless and until a written notice of the assignment or transfer
thereof executed by such Lender has been received by Agent.
13.17. REPLACEMENT OF CERTAIN LENDERS. If a Lender ("Affected Lender")
shall have (i) failed to fund its Pro Rata share of any Revolver Loan requested
by Borrowers which such Lender is obligated to fund under the terms of this
Agreement and which such failure has not been cured, (ii) requested compensation
from Borrowers under Section 3.7 to recover increased costs incurred by such
Lender (or its parent or holding company) which are not being incurred generally
by the other Lenders (or their respective parents or holding companies), or
(iii) delivered a notice pursuant to Section 3.6 hereof claiming that such
Lender is unable to extend LIBOR Loans to Borrowers for reasons not generally
applicable to the other Lenders, then, in any such case and in addition to any
other rights and remedies that Agent, any other Lender or any Borrower may have
against such Affected Lender, any Borrower or Agent may make written demand on
such Affected Lender (with a copy to Agent in the case of a demand by a Borrower
and a copy to Borrowers in the case of a demand by Agent) for the Affected
Lender to assign, and such Affected Lender shall assign pursuant to one or more
duly executed Assignment and Acceptances within 5 Business Days after the date
of such demand, to one or more Lenders willing to accept such assignment or
assignments, or to one or more Eligible Assignees designated by Agent, all of
such Affected Lender's rights and obligations under this Agreement (including
its Commitments and all Loans owing to it) in accordance with Section 14 hereof.
Agent is hereby irrevocably authorized to execute one or more Assignment and
Acceptances as attorney-in-fact for any Affected Lender which fails or refuses
to execute and deliver the same within 5 Business Days after the date of such
demand. The Affected Lender shall be entitled to receive, in cash and
concurrently with execution and delivery of each such Assignment and Acceptance,
all amounts owed to the Affected Lender hereunder or under any other Loan
Document, including the aggregate outstanding principal amount of the Revolver
Loans owed to such Lender, together with accrued interest thereon through the
date of such assignment. Upon the replacement of any Affected Lender pursuant to
this Section 13.17, such Affected Lender shall cease to have any participation
in, entitlement to, or other right to share in the Liens of Agent in any
Collateral and such Affected Lender shall have no further liability to Agent,
any Lender or any other Person under any of the Loan Documents
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(except as provided in Section 13.6 hereof as to events or transactions which
occur prior to the replacement of such Affected Lender), including any
commitment to make Loans or purchase participations in LC Outstandings.
13.18. REMITTANCE OF PAYMENTS AND COLLECTIONS.
13.18.1. All payments by any Lender to Agent shall be made not
later than the time set forth elsewhere in this Agreement on the Business Day
such payment is due; provided, however, that if such payment is due on demand by
Agent and such demand is made on the paying Lender after 11:00 a.m. on such
Business Day, then payment shall be made by 11:00 a.m. on the next Business Day.
Payment by Agent to any Lender shall be made by wire transfer, promptly
following Agent's receipt of funds for the account of such Lender and in the
type of funds received by Agent; provided, however, that if Agent receives such
funds at or prior to 1:00 p.m., Agent shall pay such funds to such Lender by
2:00 p.m. on such Business Day, but if Agent receives such funds after 1:00
p.m., Agent shall pay such funds to such Lender by 2:00 p.m. on the next
Business Day.
13.18.2. With respect to the payment of any funds from Agent to a
Lender or from a Lender to Agent, the party failing to make full payment when
due pursuant to the terms hereof shall, on demand by the other party, pay such
amount together with interest thereon at the Federal Funds Rate. In no event
shall Borrowers be entitled to receive any credit for any interest paid by Agent
to any Lender, or by any Lender to Agent, at the Federal Funds Rate as provided
herein.
13.18.3. If Agent pays any amount to a Lender in the belief or
expectation that a related payment has been or will be received by Agent from an
Obligor and such related payment is not received by Agent, then Agent shall be
entitled to recover such amount from each Lender that receives such amount. If
Agent determines at any time that any amount received by it under this Agreement
or any of the other Loan Documents must be returned to an Obligor or paid to any
other Person pursuant to any Applicable Law, court order or otherwise, then,
notwithstanding any other term or condition of this Agreement or any of the
other Loan Documents, Agent shall not be required to distribute such amount to
any Lender.
SECTION 14. BENEFIT OF AGREEMENT; ASSIGNMENTS AND PARTICIPATIONS
14.1. SUCCESSORS AND ASSIGNS. This Agreement shall be binding upon and
inure to the benefit of Borrowers, Agent and Lenders and their respective
successors and assigns (which, in the case of Agent, shall include any successor
Agent appointed pursuant to Section 13.8 hereof), except that (i) no Borrower
shall have the right to assign its rights or delegate performance of any of its
obligations under any of the Loan Documents and (ii) any assignment by any
Lender must be made in compliance with Section 14.3 hereof. Agent may treat the
payee of any Note as the owner thereof for all purposes hereof unless and until
such payee complies with Section 14.3 in the case of an assignment thereof or,
in the case of any other transfer, a written notice of the transfer is filed
with Agent. Any assignee or transferee of a Note agrees by acceptance thereof to
be bound by all the terms and provisions of the Loan Documents. Any request,
authority or consent of any Person, who at the time of making such request or
giving such authority or consent is the holder of a Note, shall be conclusive
and binding on any subsequent holder, transferee or assignee of such Note or of
any Note or Notes issued in exchange therefor.
14.2. PARTICIPATIONS.
14.2.1. Permitted Participants; Effect. Any Lender may, in the
ordinary course of its business and in accordance with Applicable Law, at any
time sell to one or more banks or other financial institutions (each a
"Participant") participating interest in any of the Obligations owing to such
Lender, any Commitment of such Lender or any other interest of such Lender under
any of the Loan Documents. In the event of any such sale by a Lender of
participating interests to a Participant, such Lender's obligations under the
Loan Documents shall remain unchanged, such Lender shall remain solely
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responsible to the other parties hereto for the performance of such obligations,
such Lender shall remain the holder of any Note for all purposes under the Loan
Documents, all amounts payable by Borrowers under this Agreement and any of the
Notes shall be determined as if such Lender had not sold such participating
interests, and Borrowers and Agent shall continue to deal solely and directly
with such Lender in connection with such Lender's rights and obligations under
the Loan Documents. If a Lender sells a participation to a Person other than an
Affiliate of such Lender, then such Lender shall give prompt written notice
thereof to Borrowers and the other Lenders.
14.2.2. Voting Rights. Each Lender shall retain the sole right to
approve, without the consent of any Participant, any amendment, modification or
waiver of any provision of the Loan Documents other than an amendment,
modification or waiver with respect to any Loans or Commitment in which such
Participant has an interest which forgives principal, interest or fees or
reduces the stated interest rate or the stated rates at which fees are payable
with respect to any such Loan or Commitment, postpones the Commitment
Termination Date, or any date fixed for any regularly scheduled payment of
interest or fees on such Revolver Loan or Commitment, or releases from liability
any Borrower or any Guarantor or releases any substantial portion of any of the
Collateral.
14.2.3. Benefit of Set-Off. Each Borrower agrees that each
Participant shall be deemed to have the right of set-off provided in Section
12.4 hereof in respect of its participating interest in amounts owing under the
Loan Documents to the same extent and subject to the same requirements under
this Agreement (including Section 13.5) as if the amount of its participating
interest were owing directly to it as a Lender under the Loan Documents,
provided that each Lender shall retain the right of set-off provided in Section
12.4 hereof with respect to the amount of participating interests sold to each
Participant. Lenders agree to share with each Participant, and each Participant
by exercising the right of set-off provided in Section 12.4 agrees to share with
each Lender, any amount received pursuant to the exercise of its right of
set-off, such amounts to be shared in accordance with Section 13.5 hereof as if
each Participant were a Lender.
14.3. ASSIGNMENTS.
14.3.1. Permitted Assignments. Any Lender may, in the ordinary
course of its business and in accordance with Applicable Law, at any time assign
to any Eligible Assignee all or any part of its rights and obligations under the
Loan Documents, so long as (i) each assignment is of a constant, and not a
varying, ratable percentage of all of the transferor Lender's rights and
obligations under the Loan Documents with respect to the Loans and the LC
Outstandings and, in the case of a partial assignment, is in a minimum principal
amount of $5,000,000 (or $1,000,000 in the case of an assignment between
existing Lenders) and integral multiples of $1,000,000 in excess of that amount;
(ii) except in the case of an assignment in whole of a Lender's rights and
obligations under the Loan Documents or an assignment by one original signatory
to this Agreement to another such signatory, immediately after giving effect to
any assignment, the aggregate amount of the Commitments retained by the
transferor Lender shall in no event be less than $15,000,000; and (iii) the
parties to each such assignment shall execute and deliver to Agent, for its
acceptance and recording, an Assignment and Acceptance. The consent of Agent
and, provided no Default or Event of Default exists, Borrowers (which shall not
be unreasonably withheld or delayed) shall be required prior to an assignment
becoming effective with respect to an Eligible Assignee which is not a Lender or
an Affiliate of a Lender, and such assignment shall not become effective until
such time as notice thereof is given to Borrowers and Agent in substantially the
form of EXHIBIT G attached hereto. Nothing contained herein shall limit in any
way the right of Lenders to assign (i) to any Eligible Assignee all of their
rights and obligations under the Loan Documents or (ii) all or any portion of
the Loans owing to it to any Federal Reserve Bank or the United States Treasury
as collateral security pursuant to Regulation A of the Board of Governors and
any Operating Circular issued by such Federal Reserve Bank, provided that in the
case of this clause (ii) any payment in respect of such assigned Loans made by
Borrowers to the assigning Lender in accordance with the terms of this Agreement
shall satisfy Borrowers'
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obligations hereunder in respect of such assigned Loans to the extent of such
payment, but no such assignment shall release the assigning Lender from its
obligations hereunder.
14.3.2. Effect; Effective Date. Upon (i) delivery to Agent of a
notice of assignment substantially in the form attached as EXHIBIT G hereto,
together with any consents required by Section 14.3.1, and (ii) payment of a
$5,000 fee to the Agent for processing any assignment to an Eligible Assignee
that is not an Affiliate of the transferor Lender, such assignment shall become
effective on the effective date specified in such notice of assignment. On and
after the effective date of such assignment, such Eligible Assignee shall for
all purposes be a Lender party to this Agreement and any other Loan Document
executed by the Lenders and shall have all the rights and obligations of the
Lender under the Loan Documents to the same extent as if it were an original
party thereto, and no further consent or action by Borrowers, Lenders or Agent
shall be required to release the transferor Lender with respect to the
Commitment (or portion thereof) of such Lender and Obligations assigned to such
Eligible Assignee. Upon the consummation of any assignment to an Eligible
Assignee pursuant to this Section 14.3.2, the transferor Lender, Agent and
Borrowers shall make appropriate arrangements so that replacement Notes are
issued to such transferor Lender and new Notes or, as appropriate, replacement
Notes, are issued to such Eligible Assignee, in each case in principal amounts
reflecting their respective Commitments, as adjusted pursuant to such
assignment.
14.3.3. Dissemination of Information. Each Borrower authorizes
each Lender and Agent to disclose to any Participant, any Eligible Assignee or
any other Person acquiring an interest in the Loan Documents by operation of law
(each a "Transferee"), and any prospective Transferee, any and all information
in Agent's or such Lender's possession concerning each Borrower, the
Subsidiaries of each Borrower or the Collateral, subject to the limitations of
Section 15.14 and other appropriate confidentiality undertakings on the part of
such Transferee.
14.4. TAX TREATMENT. If any interest in any Loan Document is
transferred to any Transferee that is organized under the laws of any
jurisdiction other than the United States or any State thereof, the transferor
Lender shall cause such Transferee, concurrently with the effectiveness of such
transfer, to comply with the provisions of Section 5.9 hereof.
SECTION 15. MISCELLANEOUS
15.1. POWER OF ATTORNEY. Each Borrower hereby irrevocably designates,
makes, constitutes and appoints Agent (and all Persons designated by Agent) as
such Borrower's true and lawful attorney (and agent-in-fact) and Agent, or
Agent's designee, may, without notice to such Borrower and in either such
Borrower's or Agent's name, but at the cost and expense of Borrowers:
15.1.1. At such time or times as Agent or said designee, in its
sole discretion, may determine, endorse such Borrower's name on any Payment Item
or proceeds of the Collateral which come into the possession of Agent or under
Agent's control.
15.1.2. At such time or times upon or during the occurrence of an
Event of Default as Agent or Agent's designee in its sole discretion may
determine: (i) demand payment of the Accounts from the Account Debtors, enforce
payment of the Accounts by legal proceedings or otherwise, and generally
exercise all of such Borrower's rights and remedies with respect to the
collection of the Accounts; (ii) settle, adjust, compromise, discharge or
release any of the Accounts or other Collateral or any legal proceedings brought
to collect any of the Accounts or other Collateral; (iii) sell or assign any of
the Accounts and other Collateral upon such terms, for such amounts and at such
time or times as Agent deems advisable; (iv) take control, in any manner, of any
item of payment or proceeds relating to any Collateral; (v) prepare, file and
sign such Borrower's name to a proof of claim in bankruptcy or similar document
against any Account Debtor or to any notice of lien, assignment or satisfaction
of Lien or similar document in connection with any of the Collateral; (vi)
receive, open and dispose of all mail addressed to
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such Borrower and to notify postal authorities to change the address for
delivery thereof to such address as Agent may designate; (vii) endorse the name
of such Borrower upon any of the items of payment or proceeds relating to any
Collateral and deposit the same to the account of Agent on account of the
Obligations; (viii) endorse the name of such Borrower upon any chattel paper,
document, instrument, invoice, freight bill, bill of lading or similar document
or agreement relating to any Accounts or Inventory of any Obligor and any other
Collateral; (ix) use such Borrower's stationery and sign the name of such
Borrower to verifications of the Accounts and notices thereof to Account
Debtors; (x) use the information recorded on or contained in any data processing
equipment and computer hardware and software relating to the Accounts,
Inventory, Equipment and any other Collateral; (xi) make and adjust claims under
policies of insurance; and (xii) do all other acts and things necessary, in
Agent's determination, to fulfill such Borrower's obligations under this
Agreement.
15.2. GENERAL INDEMNITY. Each Borrower hereby agrees to indemnify and
defend the Indemnitees and to hold the Indemnitees harmless from and against any
Claim ever suffered or incurred by any of the Agent Indemnitees or Lender
Indemnitees arising out of or related to this Agreement or any of the other Loan
Documents, the performance by Agent or Lenders of their duties or the exercise
of any of their rights or remedies under this Agreement or any of the other Loan
Documents or as a result of any Borrower's failure to observe, perform or
discharge any of its duties hereunder. Each Borrower shall also indemnify and
defend the Indemnitees against and save the Indemnitees harmless from all Claims
of any Person arising out of, related to or with respect to any of the
transactions entered into pursuant to this Agreement or any of the other Loan
Documents or Agent's Lien upon the Collateral. Without limiting the generality
of the foregoing, this indemnity shall extend to any Claims asserted against or
incurred by any of the Indemnitees by any Person under any Environmental Laws or
similar laws by reason of any Borrower's or any other Person's failure to comply
with laws applicable to solid or hazardous waste materials or other toxic
substances. Additionally, if any Taxes (excluding Taxes imposed upon or measured
solely by the net income of Agent and Lenders, but including, any intangibles
tax, stamp tax, recording tax or franchise tax) shall be payable by Agent or any
Obligor on account of the execution or delivery of this Agreement, or the
execution, delivery, issuance or recording of any of the other Loan Documents,
or the creation or repayment of any of the Obligations hereunder, by reason of
any Applicable Law now or hereafter in effect, Borrowers will pay (or will
promptly reimburse Agent and Lenders for the payment of) all such Taxes,
including any interest and penalties thereon, and will indemnify and hold the
Indemnitees harmless from and against all liability in connection therewith. The
foregoing indemnities SHALL INCLUDE ALL CLAIMS ARISING OUT OF ANY INDEMNITEE'S
SOLE OR CONTRIBUTORY NEGLIGENCE, but shall not apply to Claims incurred by any
of the Indemnitees as a direct and proximate result of their own gross
negligence or willful misconduct or that arise out of any disputes arising
solely out of the relationship between Agent and any Lender.
15.3. SURVIVAL OF ALL INDEMNITIES. Notwithstanding anything to the
contrary in this Agreement or any of the other Loan Documents, the obligation of
each Borrower and each Lender with respect to each indemnity given by it in this
Agreement, whether given by such Borrower to Agent Indemnitees, Lender
Indemnitees or Fleet Indemnitees or by any Lender to any Agent Indemnitees or
Fleet Indemnitees, shall survive the payment in full of the Obligations and the
termination of any of the Commitments.
15.4. MODIFICATION OF AGREEMENT. This Agreement may not be modified,
altered or amended, except by an agreement in writing signed by Borrowers, Agent
and Lenders (or, where otherwise expressly allowed by Section 13 hereof, the
Required Lenders in lieu of Agent and Lenders); provided, however, that no
consent, written or otherwise, of any Borrower shall be necessary or required in
connection with any amendment of any of the provisions of Section 13 (other than
Section 13.17) or any other provision of this Agreement that affects only the
rights, duties and responsibilities of Lenders and Agent as among themselves so
long as no such amendment imposes any additional obligations on Borrowers.
15.5. SEVERABILITY. Wherever 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
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<PAGE> 93
shall be prohibited by or invalid under Applicable Law, such provision shall be
ineffective only to the extent of such prohibition or invalidity, without
invalidating the remainder of such provision or the remaining provisions of this
Agreement.
15.6. CUMULATIVE EFFECT; CONFLICT OF TERMS. To the fullest extent
permitted by Applicable Law, the provisions of the Other Agreements and the
Security Documents are hereby made cumulative with the provisions of this
Agreement. Except as otherwise provided in any of the other Loan Documents by
specific reference to the applicable provision of this Agreement, if any
provision contained in this Agreement is in direct conflict with, or
inconsistent with, any provision in any of the other Loan Documents, the
provision contained in this Agreement shall govern and control.
15.7. EXECUTION IN COUNTERPARTS. This Agreement and any amendments
hereto 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 to be an original and all of which counterparts taken together
shall constitute but one and the same instrument.
15.8. AGENT'S OR REQUIRED LENDERS' CONSENT. Whenever Agent's, Lenders'
or Required Lenders' consent is required to be obtained under this Agreement or
any of the other Loan Documents as a condition to any action, inaction,
condition or event, Agent and each Lender shall be authorized to give or
withhold its consent in its sole and absolute discretion and to condition its
consent upon the giving of additional collateral security for the Obligations,
the payment of money or any other matter.
15.9. NOTICE. All notices, requests and demands to or upon a party
hereto shall be in writing and shall be sent by certified or registered mail,
return receipt requested, personal delivery against receipt or by telecopier or
other facsimile transmission and shall be deemed to have been validly served,
given or delivered when delivered against receipt, or, in the case of facsimile
transmission, when received (if on a Business Day and, if not received on a
Business Day, then on the next Business Day after receipt) at the office where
the noticed party's telecopier is located, in each case addressed to the noticed
party at the address shown for such party on the signature page hereof or, in
the case of a Person who becomes a Lender after the date hereof, at the address
shown on the Assignment and Acceptance by which such Person became a Lender.
Notwithstanding the foregoing, no notice to or upon Agent pursuant to Sections
2.2, 3.1, 4.1 or 6.2.2 shall be effective until actually received by the Person
to whose attention at Agent such notice is required to be sent. Any written
notice, request or demand that is not sent in conformity with the provisions
hereof shall nevertheless be effective on the date that such notice, request or
demand is actually received by the Person to whose attention at the noticed
party such notice, request or demand is required to be sent.
15.10. CREDIT INQUIRIES. Each Borrower hereby authorizes and permits
Agent and Lenders (but Agent and Lenders shall have no obligation) to respond to
usual and customary credit inquiries from third parties concerning such Borrower
or any of its Subsidiaries.
15.11. TIME OF ESSENCE. Time is of the essence of this Agreement, the
Other Agreements and the Security Documents.
15.12. ENTIRE AGREEMENT; EXHIBITS AND SCHEDULES. This Agreement and the
other Loan Documents, together with all other instruments, agreements and
certificates executed by the parties in connection therewith or with reference
thereto, embody the entire understanding and agreement between the parties
hereto and thereto with respect to the subject matter hereof and thereof and
supersede all prior agreements, understandings and inducements, whether express
or implied, oral or written. Each of the Exhibits and each of the Schedules
attached hereto are incorporated into this Agreement and by this reference made
a part hereof.
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<PAGE> 94
15.13. INTERPRETATION. No provision of this Agreement or any of the
other Loan Documents shall be construed against or interpreted to the
disadvantage of any party hereto by any court or other governmental or judicial
authority by reason of such party having or being deemed to have structured or
dictated such provision.
15.14. CONFIDENTIALITY. Agent and Lenders each agrees to exercise
reasonable efforts (and, in any event, with at least the same degree of care as
it ordinarily exercises with respect to confidential information of its other
customers) to keep any confidential information delivered or made available by
Borrowers to it, including information obtained by Agent or any Lender by reason
of a visit or investigation by any Person contemplated in Section 10.1.1 hereof,
confidential from any Person other than individuals employed or retained by such
Lender who are or are expected to become engaged in evaluating, approving,
structuring, administering or otherwise giving professional advice with respect
to any of the Loans or Collateral; provided, however, that nothing herein shall
prevent Agent or any Lender from disclosing such confidential information (i) to
any party to this Agreement from time to time or any Participant, (ii) pursuant
the order of any court or administrative agency pursuant to legal process, (iii)
upon the request or demand of any regulatory agency or authority having
jurisdiction over Agent or such Lender, (iv) which has been publicly disclosed
other than by an act or omission of Agent or any Lender except as permitted
herein, (v) to the extent reasonably required in connection with any litigation
(with respect to any of the Loan Documents or any of the transactions
contemplated thereby) to which Agent, any Lender or their respective Affiliates
may be a party, (vi) to the extent reasonably required in connection with the
exercise of any remedies hereunder, (vii) to Agent's or any Lender's legal
counsel and independent auditors, and (viii) to any actual or proposed
Participant, Assignee or other Transferee of all or part of a Lender's rights
hereunder so long as such Transferee has agreed in writing to be bound by the
provisions of this Section.
15.15. OBLIGATIONS OF LENDERS SEVERAL. The obligations of each Lender
hereunder are several, and no Lender shall be responsible for the obligations or
Commitment of any other Lender. Nothing contained in this Agreement and no
action taken by Lenders pursuant hereto shall be deemed to constitute the
Lenders to be a partnership, association, joint venture or any other kind of
entity. The amounts payable at any time hereunder to each Lender shall be a
separate and independent debt, and each Lender shall be entitled, to the extent
not otherwise restricted hereunder, to protect and enforce its rights arising
out of this Agreement and any of the other Loan Documents and it shall not be
necessary for Agent or any other Lender to be joined as an additional party in
any proceeding for such purpose.
15.16. GOVERNING LAW; CONSENT TO FORUM. THIS AGREEMENT HAS BEEN
NEGOTIATED, EXECUTED AND DELIVERED AT AND SHALL BE DEEMED TO HAVE BEEN MADE IN
ATLANTA, GEORGIA. THIS AGREEMENT SHALL BE GOVERNED BY AND CONSTRUED IN
ACCORDANCE WITH THE LAWS OF THE STATE OF GEORGIA; PROVIDED, HOWEVER, THAT IF ANY
OF THE COLLATERAL SHALL BE LOCATED IN ANY JURISDICTION OTHER THAN GEORGIA, THE
LAWS OF SUCH JURISDICTION SHALL GOVERN THE METHOD, MANNER AND PROCEDURE FOR
FORECLOSURE OF AGENT'S LIEN UPON SUCH COLLATERAL AND THE ENFORCEMENT OF AGENT'S
OTHER REMEDIES IN RESPECT OF SUCH COLLATERAL TO THE EXTENT THAT THE LAWS OF SUCH
JURISDICTION ARE DIFFERENT FROM OR INCONSISTENT WITH THE LAWS OF THE STATE OF
GEORGIA. AS PART OF THE CONSIDERATION FOR NEW VALUE RECEIVED, AND REGARDLESS OF
ANY PRESENT OR FUTURE DOMICILE OR PRINCIPAL PLACE OF BUSINESS OF ANY BORROWER,
ANY LENDER OR AGENT, EACH BORROWER HEREBY CONSENTS AND AGREES THAT THE SUPERIOR
COURT OF FULTON COUNTY, GEORGIA, OR, AT AGENT'S OPTION, THE UNITED STATES
DISTRICT COURT FOR THE NORTHERN DISTRICT OF GEORGIA, ATLANTA DIVISION, SHALL
HAVE JURISDICTION TO HEAR AND DETERMINE ANY CLAIMS OR DISPUTES AMONG BORROWERS,
AGENT AND LENDERS PERTAINING TO THIS AGREEMENT OR TO ANY MATTER ARISING OUT OF
OR RELATED TO THIS AGREEMENT. EACH BORROWER EXPRESSLY SUBMITS AND CONSENTS IN
ADVANCE TO SUCH JURISDICTION IN ANY ACTION OR SUIT COMMENCED IN ANY SUCH COURT,
AND EACH BORROWER HEREBY WAIVES ANY OBJECTION WHICH SUCH BORROWER MAY HAVE BASED
UPON LACK OF PERSONAL JURISDICTION, IMPROPER VENUE OR FORUM NON CONVENIENS AND
HEREBY CONSENTS TO THE GRANTING OF SUCH LEGAL OR EQUITABLE RELIEF AS IS DEEMED
APPROPRIATE BY SUCH COURT. EACH BORROWER HEREBY WAIVES PERSONAL SERVICE OF THE
SUMMONS, COMPLAINT AND OTHER PROCESS ISSUED IN ANY SUCH ACTION OR SUIT AND
AGREES THAT SERVICE OF SUCH SUMMONS, COMPLAINT AND OTHER
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<PAGE> 95
PROCESS MAY BE MADE BY CERTIFIED MAIL ADDRESSED TO SUCH BORROWER AT THE ADDRESS
SET FORTH IN THIS AGREEMENT AND THAT SERVICE SO MADE SHALL BE DEEMED COMPLETED
UPON THE EARLIER OF SUCH BORROWER'S ACTUAL RECEIPT THEREOF OR 3 DAYS AFTER
DEPOSIT IN THE U.S. MAILS, PROPER POSTAGE PREPAID. NOTHING IN THIS AGREEMENT
SHALL BE DEEMED OR OPERATE TO AFFECT THE RIGHT OF AGENT TO SERVE LEGAL PROCESS
IN ANY OTHER MANNER PERMITTED BY LAW, OR TO PRECLUDE THE ENFORCEMENT BY AGENT OF
ANY JUDGMENT OR ORDER OBTAINED IN SUCH FORUM OR THE TAKING OF ANY ACTION UNDER
THIS AGREEMENT TO ENFORCE SAME IN ANY OTHER APPROPRIATE FORUM OR JURISDICTION.
15.17. WAIVERS BY BORROWERS. EACH BORROWER WAIVES (I) THE RIGHT TO
TRIAL BY JURY (WHICH AGENT AND EACH LENDER HEREBY ALSO WAIVES) IN ANY ACTION,
SUIT, PROCEEDING OR COUNTERCLAIM OF ANY KIND ARISING OUT OF OR RELATED TO ANY OF
THE LOAN DOCUMENTS, THE OBLIGATIONS OR THE COLLATERAL; (II) PRESENTMENT, DEMAND
AND PROTEST AND NOTICE OF PRESENTMENT, PROTEST, DEFAULT, NON PAYMENT, MATURITY,
RELEASE, COMPROMISE, SETTLEMENT, EXTENSION OR RENEWAL OF ANY OR ALL COMMERCIAL
PAPER, ACCOUNTS, CONTRACT RIGHTS, DOCUMENTS, INSTRUMENTS, CHATTEL PAPER AND
GUARANTIES AT ANY TIME HELD BY AGENT ON WHICH SUCH BORROWER MAY IN ANY WAY BE
LIABLE AND HEREBY RATIFIES AND CONFIRMS WHATEVER AGENT MAY DO IN THIS REGARD;
(III) NOTICE PRIOR TO TAKING POSSESSION OR CONTROL OF THE COLLATERAL OR ANY BOND
OR SECURITY WHICH MIGHT BE REQUIRED BY ANY COURT PRIOR TO ALLOWING AGENT TO
EXERCISE ANY OF AGENT'S REMEDIES; (IV) THE BENEFIT OF ALL VALUATION,
APPRAISEMENT AND EXEMPTION LAWS; AND (V) NOTICE OF ACCEPTANCE HEREOF. EACH
BORROWER ACKNOWLEDGES THAT THE FOREGOING WAIVERS ARE A MATERIAL INDUCEMENT TO
AGENT'S AND LENDER'S ENTERING INTO THIS AGREEMENT AND THAT AGENT AND LENDERS ARE
RELYING UPON THE FOREGOING WAIVERS IN ITS FUTURE DEALINGS WITH BORROWERS. EACH
BORROWER WARRANTS AND REPRESENTS THAT IT HAS REVIEWED THE FOREGOING WAIVERS WITH
ITS LEGAL COUNSEL AND HAS KNOWINGLY AND VOLUNTARILY WAIVED ITS JURY TRIAL RIGHTS
FOLLOWING CONSULTATION WITH LEGAL COUNSEL. IN THE EVENT OF LITIGATION, THIS
AGREEMENT MAY BE FILED AS A WRITTEN CONSENT TO A TRIAL BY THE COURT.
15.18. BORROWERS, AGENT AND LENDERS HEREBY AGREE THAT THE PROVISIONS OF
CHAPTER 346 OF THE TEXAS FINANCE CODE, AS AMENDED (REGULATING CERTAIN REVOLVING
CREDIT AND REVOLVING TRI-PARTY ACCOUNTS) SHALL NOT APPLY TO THE LOAN DOCUMENTS.
15.19. WAIVER OF DTPA. EACH BORROWER WAIVES ALL PROVISIONS OF THE TEXAS
DECEPTIVE TRADE PRACTICES-CONSUMER PROTECTION ACT, TEXAS BUSINESS AND COMMERCE
CODE SS.SS. 17.41, ET SEQ. ("DTPA") OTHER THAN SS. 17.555 (PERTAINING TO
CONTRIBUTION AND INDEMNITY) OF THE DPTA, AND WARRANTS AND REPRESENTS THAT IT (I)
HAS ASSETS HAVING A VALUE OF $5,000,000 OR MORE, (II) HAS KNOWLEDGE AND
EXPERIENCE IN FINANCIAL AND BUSINESS MATTERS THAT ENABLE IT TO EVALUATE THE
MERITS AND RISKS OF THE TRANSACTIONS CONTEMPLATED BY THIS AGREEMENT AND THE
OTHER LOAN DOCUMENTS, (III) IS NOT IN A SIGNIFICANTLY DISPARATE BARGAINING
POSITION RELATIVE TO AGENT AND LENDERS AND (IV) HAS BEEN REPRESENTED BY LEGAL
COUNSEL IN CONNECTION WITH THE TRANSACTIONS CONTEMPLATED BY THIS AGREEMENT AND
THE OTHER LOAN DOCUMENTS.
[Signatures begin on next page]
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<PAGE> 96
IN WITNESS WHEREOF, this Agreement has been signed, sealed and
delivered in Atlanta, Georgia, on the day and year specified at the beginning of
this Agreement.
<TABLE>
<S> <C>
BORROWERS:
ATTEST: TROPICAL SPORTSWEAR INT'L
CORPORATION
/s/ Regina M. Ifland By: /s/ N. Larry McPherson
- ------------------------------------- ----------------------------------
REGINA M. IFLAND, Assistant Secretary N. LARRY MCPHERSON, Executive Vice
[CORPORATE SEAL] President - Finance and Operations
Address:
4902 West Waters Avenue
Tampa, Florida 33634-1302
Attention: Executive Vice President - Finance
and Operations
Telecopier No.: (813) 249-4901
ATTEST: TROPICAL SPORTSWEAR COMPANY, INC.
/s/ Regina M. Ifland By: /s/ N. Larry McPherson
- ------------------------------------- ----------------------------------
REGINA M. IFLAND, Assistant Secretary N. LARRY MCPHERSON, Executive Vice
[CORPORATE SEAL] President - Finance and Operations
Address:
4902 West Waters Avenue
Tampa, Florida 33634-1302
Attention: Executive Vice President - Finance
and Operations
Telecopier No.: (813) 249-4901
ATTEST: FARAH INCORPORATED
/s/ Regina M. Ifland By: /s/ N. Larry McPherson
- ------------------------------------- ----------------------------------
REGINA M. IFLAND, Assistant Secretary N. LARRY MCPHERSON, Executive Vice
[CORPORATE SEAL] President - Finance and Operations
Address:
4902 West Waters Avenue
Tampa, Florida 33634-1302
Attention: Executive Vice President - Finance
and Operations
Telecopier No.: (813) 249-4901
</TABLE>
[Signatures continued on next page]
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<PAGE> 97
<TABLE>
<S> <C>
ATTEST: APPAREL NETWORK CORPORATION
/s/ Regina M. Ifland By: /s/ N. Larry McPherson
- ------------------------------------- -----------------------------------
REGINA M. IFLAND, Assistant Secretary N. LARRY MCPHERSON, Executive Vice
[CORPORATE SEAL] President - Finance and Operations
Address:
4902 West Waters Avenue
Tampa, Florida 33634-1302
Attention: Executive Vice President - Finance
and Operations
Telecopier No.: (813) 249-4901
LENDERS:
FLEET CAPITAL CORPORATION
Revolver Commitment: $35,000,000 By: /s/ Elizabeth L. Waller
-----------------------------------
Title: Vice President
---------------------------
LIBOR Lending Office:
300 Galleria Parkway, N.W.
Suite 800
Atlanta, Georgia 30339
Attention: Loan Administration Manager
Telecopier No.: (770) 859-2483
NATIONSBANC COMMERCIAL
CORPORATION
Revolver Commitment: $27,000,000 By: /s/ Larry Artman
-----------------------------------
Title: Vice President
---------------------------
LIBOR Lending Office:
2059 Northlake Parkway
Tucker, Georgia 30084
Attention: Mr. W. Steve Allen
Telecopier No.: (770) 491-4189
FIRST UNION NATIONAL BANK
Revolver Commitment: $23,000,000 By: /s/ John T. Trainor
-----------------------------------
Title: Vice President
---------------------------
LIBOR Lending Office:
One First Union Center
301 South College Street, DC-5
Charlotte, North Carolina 28288-0737
Attention: Mr. John Trainor, Portfolio Manager
Telecopier No.: (704) 374-2703
</TABLE>
[Signatures continued on next page]
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<PAGE> 98
<TABLE>
<S> <C>
AGENT:
FLEET CAPITAL CORPORATION,
as Agent
By: /s/ Elizabeth L. Waller
------------------------------------
Title: Vice President
----------------------------
Address:
300 Galleria Parkway, N.W.
Suite 800
Atlanta, Georgia 30339
Attention: Loan Administration Manager
Telecopier No.: (770) 859-2483
</TABLE>
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<PAGE> 99
EXHIBIT A-1
FORM OF REVOLVER NOTE
June 10, 1998
U.S. $__________.__ Atlanta, Georgia
FOR VALUE RECEIVED, the undersigned, TROPICAL SPORTSWEAR INT'L
CORPORATION, a Florida corporation, FARAH INCORPORATED, a Texas corporation,
TROPICAL SPORTSWEAR COMPANY, INC., a Delaware corporation and APPAREL NETWORK
CORPORATION, a Florida corporation (referred to collectively herein as
"Borrowers," and individually as a "Borrower"), hereby unconditionally, and
jointly and severally, promise to pay to the order of _________________________
(herein, together with any subsequent holder hereof, called the "Holder") the
principal sum of $_______________ or such lesser sum as may constitute Holder's
Pro Rata share of the outstanding principal amount of all Revolver Loans
pursuant to the terms of the Loan Agreement (as defined below) on the date on
which such outstanding principal amounts become due and payable pursuant to
Section 5.2 of the Loan Agreement, in strict accordance with the terms thereof.
Borrowers likewise unconditionally, and jointly and severally, promise to pay to
Holder interest from and after the date hereof on Holder's Pro Rata share of the
outstanding principal amount of Revolver Loans at such interest rates, payable
at such times, and computed in such manner as are specified in Section 3.1 of
the Loan Agreement, in strict accordance with the terms thereof.
This Revolver Note ("Note") is issued pursuant to, and is one of the
"Revolver Notes" referred to in, the Loan and Security Agreement dated the date
hereof (as the same may be amended from time to time, the "Loan Agreement"),
among Borrowers, Fleet Capital Corporation ("Agent"), as agent for the financial
institutions from time to time parties thereto as lenders ("Lenders"), and such
Lenders, and Holder is and shall be entitled to all benefits thereof and of all
Loan Documents executed and delivered in connection therewith. All capitalized
terms used herein, unless otherwise defined herein, shall have the meanings
ascribed to such terms in the Loan Agreement.
The repayment of the principal balance of this Note is subject to the
provisions of Section 5.2 of the Loan Agreement. The entire unpaid principal
balance and all accrued interest on this Note shall be due and payable
immediately upon the termination of the Commitments as set forth in Section 6.2
of the Loan Agreement.
All payments of principal and interest shall be made in Dollars in
immediately available funds as specified in the Loan Agreement.
Upon or after the occurrence of an Event of Default and for so long as
such Event of Default exists, the principal balance and all accrued interest of
this Note may be declared due and payable in the manner and with the effect
provided in the Loan Agreement, and the unpaid principal balance hereof shall
bear interest at the Default Rate as provided in Section 3.1.5 of the Loan
Agreement. Borrowers jointly and severally agree to pay, and save Holder
harmless against, any liability for the payment of, all costs and expenses,
including, but not limited to, reasonable attorneys' fees, if this Note is
collected by or through an attorney-at-law.
All principal amounts of Revolver Loans made by Holder to Borrowers
pursuant to the Loan Agreement, and all accrued and unpaid interest thereon,
shall be deemed outstanding under this Note and
<PAGE> 100
shall continue to be owing by Borrowers until paid in accordance with the terms
of this Note and the Loan Agreement.
In no contingency or event whatsoever, whether by reason of advancement
of the proceeds hereof or otherwise, shall the amount paid or agreed to be paid
to Holder for the use, forbearance or detention of money advanced hereunder
exceed the highest lawful rate permissible under any law which a court of
competent jurisdiction may deem applicable hereto; and, in the event of any such
payment inadvertently paid by Borrowers or inadvertently received by Holder,
such excess sum shall be, at Borrowers' option, returned to Borrowers forthwith
or credited as a payment of principal, but shall not be applied to the payment
of interest. It is the intent hereof that Borrowers not pay or contract to pay,
and that Holder not receive or contract to receive, directly or indirectly in
any manner whatsoever, interest in excess of that which may be paid by Borrowers
under Applicable Law.
Time is of the essence of this Note. To the fullest extent permitted by
Applicable Law, each Borrower, for itself and its legal representatives,
successors and assigns, expressly waives presentment, demand, protest, notice of
dishonor, notice of non-payment, notice of maturity, notice of protest,
presentment for the purpose of accelerating maturity, diligence in collection,
and the benefit of any exemption or insolvency laws.
Wherever possible each provision of this Note shall be interpreted in
such a manner as to be effective and valid under Applicable Law, but if any
provision of this Note shall be prohibited or invalid under Applicable Law, such
provision shall be ineffective to the extent of such prohibition or invalidity
without invalidating the remainder of such provision or remaining provisions of
this Note. No delay or failure on the part of Holder in the exercise of any
right or remedy hereunder shall operate as a waiver thereof, nor as an
acquiescence in any default, nor shall any single or partial exercise by Holder
of any right or remedy preclude any other right or remedy. Holder, at its
option, may enforce its rights against any Collateral securing this Note without
Agent or Holder enforcing its rights against any Borrower, any Guarantor of the
indebtedness evidenced hereby or any other property or indebtedness due or to
become due to any Borrower. Each Borrower agrees that, without releasing or
impairing such Borrower's liability hereunder, Holder or Agent may at any time
release, surrender, substitute or exchange any Collateral securing this Note and
may at any time release any party primarily or secondarily liable for the
indebtedness evidenced by this Note.
The rights of Holder and obligations of Borrowers hereunder shall be
construed in accordance with and governed by the laws (without giving effect to
the conflict of law principles thereof) of the State of Georgia. This Note is
intended to take effect as an instrument under seal under Georgia law.
IN WITNESS WHEREOF, Borrowers have caused this Note to be signed,
sealed and delivered in Atlanta, Georgia by its duly authorized officers on the
date first above written.
ATTEST: BORROWERS:
TROPICAL SPORTSWEAR INT'L
CORPORATION
By:
- ------------------------------------- ----------------------------------
REGINA M. IFLAND, Assistant Secretary N. LARRY MCPHERSON, Executive Vice
President - Finance and Operations
[CORPORATE SEAL]
-2-
<PAGE> 101
ATTEST: FARAH INCORPORATED
By:
- ------------------------------------- ----------------------------------
REGINA M. IFLAND, Assistant Secretary N. LARRY MCPHERSON, Executive Vice
President - Finance and Operations
[CORPORATE SEAL]
ATTEST: TROPICAL SPORTSWEAR COMPANY, INC.
By:
- ------------------------------------- ----------------------------------
REGINA M. IFLAND, Assistant Secretary N. LARRY MCPHERSON, Executive Vice
President - Finance and Operations
[CORPORATE SEAL]
ATTEST: APPAREL NETWORK CORPORATION
By:
- ------------------------------------- ----------------------------------
REGINA M. IFLAND, Assistant Secretary N. LARRY MCPHERSON, Executive Vice
President - Finance and Operations
[CORPORATE SEAL]
-3-
<PAGE> 102
EXHIBIT A-2
FORM OF SWINGLINE NOTE
June 10, 1998
U.S. $5,000,000.00 Atlanta, Georgia
FOR VALUE RECEIVED, the undersigned, TROPICAL SPORTSWEAR INT'L
CORPORATION, a Florida corporation, FARAH INCORPORATED, a Texas corporation,
TROPICAL SPORTSWEAR COMPANY, INC., a Delaware corporation, and APPAREL NETWORK
CORPORATION, a Florida corporation (referred to collectively herein as
"Borrowers," and individually as a "Borrower"), hereby unconditionally, and
jointly and severally, promise to pay to the order of FLEET CAPITAL CORPORATION,
a Rhode Island corporation (herein, together with any subsequent holder hereof,
called the "Holder") the principal sum of $5,000,000 or such lesser sum as may
constitute the outstanding principal amount of all Swingline Loans pursuant to
the terms of the Loan Agreement (as defined below) on the date on which such
outstanding principal amounts become due and payable pursuant to the Loan
Agreement, in strict accordance with the terms thereof. Borrowers likewise
unconditionally, and jointly and severally, promise to pay to Holder interest
from and after the date hereof on the outstanding principal amount of Swingline
Loans at such interest rates, payable at such times, and computed in such manner
as are specified in Section 3.1 of the Loan Agreement, in strict accordance with
the terms thereof.
This Swingline Note ("Note") is issued pursuant to, and is the
"Swingline Note" referred to in, the Loan and Security Agreement dated June 10,
1998 (as the same may be amended from time to time, the "Loan Agreement"), among
Borrowers, the financial institutions from time to time parties thereto as
lenders ("Lenders"), Fleet Capital Corporation, as administrative and collateral
agent (in such capacity, "Agent"), and Fleet is and shall be entitled to all
benefits thereof and of all Loan Documents executed and delivered in connection
therewith. All capitalized terms used herein, unless otherwise defined herein,
shall have the meanings ascribed to such terms in the Loan Agreement.
The repayment of the principal balance of this Note shall be made in
the manner and to the extent stated in Section 5.2 of the Loan Agreement. The
entire unpaid principal balance and all accrued interest on this Note shall be
due and payable immediately upon the Commitment Termination Date.
All payments of principal and interest shall be made in U.S. Dollars in
immediately available funds as specified in the Loan Agreement.
Upon or after the occurrence of an Event of Default and for so long as
such Event of Default exists, the principal balance and all accrued interest of
this Note may be declared due and payable in the manner and with the effect
provided in the Loan Agreement, and the unpaid principal balance hereof shall
bear interest at the Default Rate as and when provided in Section 3.1.5 of the
Loan Agreement. Borrowers jointly and severally agree to pay, and save Holder
harmless against any liability for the payment of, all costs and expenses,
including, but not limited to, reasonable attorneys' fees, if this Note is
collected by or through an attorney-at-law.
All principal amounts of Swingline Loans made by Holder to Borrowers
pursuant to the Loan Agreement, and all accrued and unpaid interest thereon,
shall be deemed outstanding under this Note and shall continue to be owing by
Borrowers until paid in accordance with the terms of this Note and the Loan
Agreement.
In no contingency or event whatsoever, whether by reason of advancement
of the proceeds hereof or otherwise, shall the amount paid or agreed to be paid
to Holder for the use, forbearance or detention of money advanced hereunder
exceed the highest lawful rate permissible under any law which a court of
<PAGE> 103
competent jurisdiction may deem applicable hereto; and, in the event of any such
payment inadvertently paid by Borrowers or inadvertently received by Holder,
such excess sum shall be, at Borrowers' option, returned to Borrowers forthwith
or credited as a payment of principal, but shall not be applied to the payment
of interest. It is the intent hereof that Borrowers not pay or contract to pay,
and that Holder not receive or contract to receive, directly or indirectly in
any manner whatsoever, interest in excess of that which may be paid by Borrowers
under Applicable Law.
Time is of the essence of this Note. To the fullest extent permitted by
Applicable Law, each Borrower, for itself and its legal representatives,
successors and assigns, expressly waives presentment, demand, protest, notice of
dishonor, notice of non-payment, notice of maturity, notice of protest,
presentment for the purpose of accelerating maturity, diligence in collection,
and the benefit of any exemption or insolvency laws.
Wherever possible each provision of this Note shall be interpreted in
such a manner as to be effective and valid under Applicable Law, but if any
provision of this Note shall be prohibited or invalid under Applicable Law, such
provision shall be ineffective to the extent of such prohibition or invalidity
without invalidating the remainder of such provision or remaining provisions of
this Note. No delay or failure on the part of Holder in the exercise of any
right or remedy hereunder shall operate as a waiver thereof, nor as an
acquiescence in any default, nor shall any single or partial exercise by Holder
of any right or remedy preclude any other right or remedy. Agent may, at its
option, enforce its rights against any Collateral securing this Note without
enforcing its rights against any or all Borrowers, any Guarantor of the
indebtedness evidenced hereby or any other property or indebtedness due or to
become due to any Borrower. Each Borrower agrees that, without releasing or
impairing such Borrower's liability hereunder, Agent or Holder may at any time
release, surrender, substitute or exchange any Collateral securing this Note and
may at any time release any party primarily or secondarily liable for the
indebtedness evidenced by this Note.
The rights of Holder and obligations of Borrowers hereunder shall be
construed in accordance with and governed by the laws (without giving effect to
the conflict of law principles thereof) of the State of Georgia. This Note is
intended to take effect as an instrument under seal under Georgia law.
IN WITNESS WHEREOF, Borrowers have caused this Note to be signed,
sealed and delivered in Atlanta, Georgia by their duly authorized officers on
the date first above written.
ATTEST: BORROWERS:
TROPICAL SPORTSWEAR INT'L
CORPORATION
By:
- ------------------------------------- ----------------------------------
REGINA M. IFLAND, Assistant Secretary N. LARRY MCPHERSON, Executive Vice
President - Finance and Operations
[CORPORATE SEAL]
ATTEST: FARAH INCORPORATED
By:
- ------------------------------------- ----------------------------------
REGINA M. IFLAND, Assistant Secretary N. LARRY MCPHERSON, Executive Vice
President - Finance and Operations
[CORPORATE SEAL]
- 2 -
<PAGE> 104
ATTEST: TROPICAL SPORTSWEAR COMPANY, INC.
By:
- ------------------------------------- ----------------------------------
REGINA M. IFLAND, Assistant Secretary N. LARRY MCPHERSON, Executive Vice
President - Finance and Operations
[CORPORATE SEAL]
ATTEST: APPAREL NETWORK CORPORATION
By:
- ------------------------------------- ----------------------------------
REGINA M. IFLAND, Assistant Secretary N. LARRY MCPHERSON, Executive Vice
President - Finance and Operations
[CORPORATE SEAL]
- 3 -
<PAGE> 105
EXHIBIT B
FORM OF NOTICE OF CONVERSION/CONTINUATION
Date ______________,______
Fleet Capital Corporation, as Agent
6060 J.A. Jones, Suite 200
Charlotte, North Carolina 28287
Attention: Operations Manager
Re: Loan and Security Agreement dated June 10, 1998, by and among
Tropical Sportswear Int'l Corporation, certain other borrowers
noted therein, Fleet Capital Corporation, as agent for certain
Lenders from time to time parties thereto, and such Lenders
(as at any time amended, the "Loan Agreement")
Gentlemen:
This Notice of Conversion/Continuation is delivered to you pursuant to
Section 3.1.2 of the Loan Agreement. Unless otherwise defined herein,
capitalized terms used herein shall have the meanings attributable thereto in
the Loan Agreement. Borrowers hereby give notice of its request as follows:
Check as applicable:
[ ] A conversion of Loans from one Type to another, as follows:
(i) The requested date of the proposed
conversion is ______________, 19__ (the
"Conversion Date");
(ii) The Type of Loans to be converted pursuant
hereto are presently __________________
[select either LIBOR Loans or Base Rate
Loans] in the principal amount of
$_____________ outstanding as of the
Conversion Date;
(iii) The portion of the aforesaid Loans to be
converted on the Conversion Date is
$_____________ (the "Conversion Amount");
(iv) The Conversion Amount is to be converted
into a ____________ [select either a LIBOR
Loan or a Base Rate Loan] (the "Converted
Loan") on the Conversion Date.
(v) [In the event a Borrower selects a LIBOR
Loan:] Borrowers hereby request that the
Interest Period for such Converted Loan be
for a duration of _____ [insert length of
Interest Period].
[ ] A continuation of LIBOR Loans for new Interest Period, as follows:
(i) The requested date of the proposed
continuation is _______________, 19__ (the
"Continuation Date");
(ii) The aggregate amount of the LIBOR Loans
subject to such continuation is
$__________________;
<PAGE> 106
(iii) The duration of the selected Interest Period
for the LIBOR Loans which are the subject of
such continuation is: _____________ [select
duration of applicable Interest Period];
Each Borrower hereby ratifies and reaffirms all of its liabilities and
obligations under the Loan Documents and certifies that no Default or Event of
Default exists on the date hereof.
Borrowers have caused this Notice of Conversion/Continuation to be
executed and delivered by their duly authorized representative, this _______ day
of ______________, 19__.
----------------------------------
By:
----------------------------------
Title:
-------------------------------
- 2 -
<PAGE> 107
EXHIBIT C
FORM OF NOTICE OF BORROWING
Date ______________, ______
Fleet Capital Corporation, as Agent
6060 J.A. Jones, Suite 200
Charlotte, North Carolina 28287
Attention: Operations Manager
Re: Loan and Security Agreement dated June 10, 1998, by and among
Tropical Sportswear Int'l Corporation, certain other borrowers
noted therein, Fleet Capital Corporation, as agent for certain
Lenders from time to time parties thereto, and such Lenders
(as at any time amended, the "Loan Agreement")
Gentlemen:
This Notice of Borrowing is delivered to you pursuant to Section 4.1.1
of the Loan Agreement. Unless otherwise defined herein, capitalized terms used
herein shall have the meanings attributable thereto in the Loan Agreement.
Borrowers hereby request a Revolver Loan in the aggregate principal amount of
$______________, to be made on _____________, _____, to be disbursed to the
Funding Account, and to consist of:
Check as applicable: [ ] Base Rate Loans in the aggregate principal
amount of $_____________
[ ] LIBOR Loans in the aggregate
principal amount of $___________,
with Interest Periods as follows:
(i) As to
$_____________, an
Interest Period of
______ month(s);
(ii) As to
$_____________, an
Interest Period of
______ months;
(iii) As to
$_____________, an
Interest Period of
______ months.
Each Borrower hereby ratifies and reaffirms all of its liabilities and
obligations under the Loan Documents and hereby certifies that no Default or
Event of Default exists on the date hereof.
Borrowers have caused this Notice of Borrowing to be executed and
delivered by their duly authorized representative, this ______ day of
_____________, _____.
----------------------------------
By:
----------------------------------
Title:
-------------------------------
<PAGE> 108
EXHIBIT D
COMPLIANCE CERTIFICATE
[Letterhead of Borrowers]
__________________, 19__
Fleet Capital Corporation, as Agent
300 Galleria Parkway, N.W.
Suite 800
Atlanta, Georgia 30339
The undersigned, the chief financial officer of TROPICAL
SPORTSWEAR INT'L CORPORATION, a Florida corporation ("Tropical"), gives this
certificate to FLEET CAPITAL CORPORATION ("Agent") in accordance with the
requirements of Section 10.1.3 of that certain Loan and Security Agreement dated
June 10, 1998, among Borrowers, Agent and the Lenders referenced therein ("Loan
Agreement"). Capitalized terms used in this Certificate, unless otherwise
defined herein, shall have the meanings ascribed to them in the Loan Agreement.
1. Based upon my review of the balance sheets and
statements of income of Borrowers and their Subsidiaries for the [Fiscal Year]
[quarterly period] ending __________________, 19__, copies of which are attached
hereto, I hereby certify that:
(a) Consolidated Tangible Net Worth is $___________.
(b) Consolidated Fixed Charge Coverage is ____ to
1.0.
(c) Consolidated Senior Debt/Consolidated EBITDA is
____ to 1.0.
(d) Consolidated Funded Debt/Consolidated EBITDA is
____ to 1.0.
2. No Default exists on the date hereof, other than:
________________________________________________ [if none, so state]; and
<PAGE> 109
3. No Event of Default exists on the date hereof, other
than ___________________________________________________ [if none, so state].
4. As of the date hereof, each Borrower is current in
its payment of all accrued rent and other charges to Persons who own or lease
any premises where any of the Collateral is located, and there are no pending
disputes or claims regarding any Borrower's failure to pay or delay in payment
of any such rent or other charges.
Very truly yours,
-------------------------------
Chief Financial Officer
- 2 -
<PAGE> 110
EXHIBIT E
OPINION LETTER REQUIREMENTS
With respect to each Borrower, Borrowers' counsel's opinion letter
should address the following in a manner satisfactory to Agent:
1. Each Borrower's due incorporation, valid existence, good standing and
qualification as a foreign corporation.
2. Corporate name of each Borrower.
3. Each Borrower's corporate power to execute, deliver and perform the Loan
Documents.
4. Each Borrower's due authorization to execute, deliver and perform the Loan
Documents, and its due execution and delivery thereof.
5. Each Borrower's execution, delivery and performance of the Loan Documents do
not (a) violate the articles or bylaws, (b) cause a breach or default under any
agreement, (c) violate any law, regulation, judgment or order, or (d) result in
or require a Lien or other encumbrance other than in favor of Agent.
6. The number of issued and outstanding shares of stock of each Borrower.
7. The Loan Documents as legal, valid and binding obligations, enforceable
against all Obligors in accordance with their respective terms, subject to
standard bankruptcy and other creditor's rights and equity exceptions.
8. Counsel's lack of knowledge of litigation or other proceedings, except as
disclosed in Loan Agreement.
9. Absence of any registration, filing, consent or approval requirement of
governmental authority in connection with the execution, delivery and
performance of the Loan Documents.
10. Non-violation by the Loan Documents of any Applicable Laws relating to
interest or usury.
11. Due payment of all applicable taxes and fees required to be paid in
connection with the Loans, the Loan Documents, UCC-1 financing statements and
other Security Documents.
12. Creation in favor of Agent of a duly perfected security interest in the
Collateral described in the Security Documents.
13. Absence of violation of Section 7 of the Securities Exchange Act of 1934, as
amended, any regulations issued pursuant thereto, or regulations G, T, U and X
of the Board of Governors of the Federal Reserve System, by the transactions
contemplated by the Loan Documents.
14. Absence of requirement under the laws of applicable states for Agent or
Lenders to qualify in such states to enter into or enforce the provisions of the
Loan Documents.
<PAGE> 111
EXHIBIT F
FORM OF ASSIGNMENT AND ACCEPTANCE
Dated as of ______, 19__
Reference is made to the Loan and Security Agreement dated _______,
19__ (at any time amended, the "Loan Agreement"), among TROPICAL SPORTSWEAR
INT'L CORPORATION, ("Tropical"), each of its indirect or direct Subsidiaries
that are from time to time a party thereto (collectively with Tropical referred
to hereinafter as "Borrowers," and individually as a "Borrower"), FLEET CAPITAL
CORPORATION, in its capacity as agent ("Agent") for the financial institutions
from time to time party to the Loan Agreement ("Lenders"), and Lenders.
Capitalized terms used herein and not otherwise defined shall have the meanings
assigned to such terms in the Loan Agreement.
______________________________________ (the "Assignor") and __________
______________ (the "Assignee") agree as follows:
1. Assignor hereby assigns to Assignee and Assignee hereby purchases
and assumes from Assignor (i) a principal amount of $________ of the outstanding
Revolver Loans held by Assignor and $___________ of participations of Assignor
in LC Outstandings (which amounts, according to the records of Agent, represent
_______% of the total principal amount of outstanding Revolver Loans and LC
Outstandings) and (ii) a principal amount of $__________ of Assignor's Revolver
Commitment (which amount includes Assignor's outstanding Revolver Loans being
assigned to Assignee pursuant to clause (i) above and which, according to the
records of Agent, represents (____%) of the total Revolver Commitments of
Lenders under the Loan Agreement) (collectively the "Assigned Interest"),
together with an interest in the Loan Documents corresponding to the Assigned
Interest. This Agreement shall be effective from the date (the "Assignment
Effective Date") on which Assignor receives both (x) the principal amount of the
Assigned Interest in the Loans on the Assignment Effective Date, if any, and (y)
a copy of this Agreement duly executed by Assignee. From and after the
Assignment Effective Date, Assignee hereby expressly assumes, and undertakes to
perform, all of Assignor's obligations in respect of Assignor's Commitments to
the extent, and only to the extent, of Assignee's Assigned Interest, and all
principal, interest, fees and other amounts which would otherwise be payable to
or for Assignor's account in respect of the Assigned Interest shall be payable
to or for Assignee's account, to the extent such amounts have accrued subsequent
to the Assignment Effective Date.
2. Assignor (i) represents that as of the date hereof, the aggregate of
its Commitments under the Loan Agreement (without giving effect to assignments
thereof, which have not yet become effective) is $__________, and the
outstanding balance of its Loans and participations in LC Outstandings
(unreduced by any assignments thereof, which have not yet become effective) is
$__________; (ii) makes no representation or warranty and assumes no
responsibility with respect to any statements, warranties or representations
made in or in connection with the Loan Agreement or the execution, legality,
validity, enforceability, genuineness, sufficiency or value of the Loan
Agreement or any other instrument or document
<PAGE> 112
furnished pursuant thereto, other than that Assignor is the legal and beneficial
owner of the interest being assigned by it hereunder and that such interest is
free and clear of any adverse claim; (iii) makes no representation or warranty
and assumes no responsibility with respect to the financial condition of
Borrowers, the performance or observance by Borrowers of any of their
obligations under the Loan Agreement or any of the Loan Documents[; and (iv)
attaches the Notes held by it and requests that Agent exchange such Notes for
new Notes payable to Assignee and the Assignor in the principal amounts set
forth on Schedule A hereto].
3. Assignee (i) represents and warrants that it is legally authorized
to enter into this Assignment and Acceptance; (ii) confirms that it has received
a copy of the Loan Agreement, together with copies of the most recent financial
statements delivered pursuant to Section 10.1.3 thereof, and copies of such
other Loan Documents and information as it has deemed appropriate to make its
own credit analysis and decision to enter into this Assignment and Acceptance;
(iii) agrees that it shall, independently and without reliance upon the Assignor
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 the Loan Agreement; (iv) confirms that it is eligible to become an
Assignee; (v) appoints and authorizes Agent to take such action as agent on its
behalf and to exercise such powers under the Loan Agreement as are delegated to
Agent by the terms thereof, together with such powers as are incidental thereto;
(vi) agrees that it will strictly observe and perform all the obligations that
are required to be performed by it as a "Lender" under the terms of the Loan
Agreement and the other Loan Documents; and (vii) agrees that it will keep
confidential all information with respect to Borrowers furnished to it by
Borrowers or the Assignor to the extent provided in the Loan Agreement.
4. Assignor acknowledges and agrees that it will not sell or otherwise
dispose of the Assigned Interest or any portion thereof, or grant any
participation therein, in a manner which, or take any action in connection
therewith which, would violate the terms of any of the Loan Documents.
5. This Agreement and all rights and obligations shall be interpreted
in accordance with and governed by the laws of the State of Georgia. If any
provision hereof would be invalid under Applicable Law, then such provision
shall be deemed to be modified to the extent necessary to render it valid while
most nearly preserving its original intent; no provision hereof shall be
affected by another provision's being held invalid.
6. Each notice or other communication hereunder shall be in writing,
shall be sent by messenger, by telecopy or facsimile transmission or by
first-class mail, shall be deemed given when sent and shall be sent as follows:
If to Assignee, to the following address (or to such other address as
Assignee may designate from time to time):
--------------------------
--------------------------
--------------------------
If to Assignor, to the following address (or to such other address as
Assignor may designate from time to time):
--------------------------
--------------------------
--------------------------
- 2 -
<PAGE> 113
Payments hereunder shall be made by wire transfer of immediately
available Dollars as follows:
If to Assignee, to the following account (or to such other account as
Assignee may designate from time to time):
--------------------------
ABA No.
-------------------
--------------------------
Account No.
---------------
Reference:
----------------
If to Assignor, to the following account (or to such other account as
Assignor may designate from time to time):
--------------------------
ABA No.
-------------------
--------------------------
ABA No.
-------------------
For Account of:
-----------
Reference:
----------------
IN WITNESS WHEREOF, the parties hereto have caused this Assignment and
Acceptance to be executed and delivered by their respective duly authorized
officers, as of the date first above written.
----------------------------------
("Assignor")
By:
-------------------------------
Title:
-------------------------
----------------------------------
("Assignee")
By:
-------------------------------
Title:
-------------------------
- 3 -
<PAGE> 114
SCHEDULE A TO ASSIGNMENT AND ACCEPTANCE
<PAGE> 115
EXHIBIT G
FORM OF NOTICE
Reference is made to (i) the Loan and Security Agreement dated June 10,
1998 (as at any time amended, the "Loan Agreement") among TROPICAL SPORTSWEAR
INT'L CORPORATION, ("Tropical"), each of its indirect or direct Subsidiaries
that are from time to time a party thereto (collectively with Tropical
hereinafter referred to as "Borrowers," and individually as a "Borrower"), FLEET
CAPITAL CORPORATION in its capacity as agent ("Agent") for the financial
institutions from time to time party to the Loan Agreement ("Lenders"), and
Lenders, and (ii) the Assignment and Acceptance dated as of ____________, 19__
(the "Assignment Agreement") between __________________ (the "Assignor") and
____________________ (the "Assignee"). Except as otherwise defined herein,
capitalized terms used herein which are defined in the Loan Agreement are used
herein with the respective meanings specified therein.
The Assignor hereby notifies Borrowers and Agent of Assignor's intent
to assign to Assignee pursuant to the Assignment Agreement a principal amount of
(i) $________ of the outstanding Revolver Loans and participations in LC
Outstandings held by Assignor, (ii) $___________ of Assignor's Revolver
Commitment (which amount includes the Assignor's outstanding Revolver Loans
being assigned to Assignee pursuant to clause (i) above), together with an
interest in the Loan Documents corresponding to the interest in the Loans and
Commitments so assigned. Pursuant to the Assignment Agreement, Assignee has
expressly assumed all of Assignor's obligations under the Loan Agreement to the
extent of the Assigned Interest (as defined in the Assignment Agreement).
For purposes of the Loan Agreement, Agent shall deem Assignor's share
of the Revolver Commitment to be reduced by $_________, and Assignee's share of
the Revolver Commitment to be increased by $_________.
The address of the Assignee to which notices, information and payments
are to be sent under the terms of the Loan Agreement is:
--------------------------
--------------------------
--------------------------
--------------------------
Assignees LIBOR Lending Office address is as follows:
--------------------------
--------------------------
--------------------------
--------------------------
<PAGE> 116
This Notice is being delivered to Borrowers and Agent pursuant to
Section 13.3 of the Loan Agreement. Please acknowledge your receipt of this
Notice by executing and returning to Assignee and Assignor a copy of this
Notice.
IN WITNESS WHEREOF, the undersigned have caused the execution of this
Notice, as of _________________, 19__.
----------------------------------
("Assignor")
By:
-------------------------------
Title:
-------------------------
----------------------------------
("Assignee")
By:
-------------------------------
Title:
-------------------------
ACKNOWLEDGED AND AGREED TO
AS OF THE DATE SET FORTH ABOVE:
BORROWERS:
TROPICAL SPORTSWEAR INT'L CORPORATION
By:
-----------------------------------
Title:
-----------------------------
TROPICAL SPORTSWEAR COMPANY, INC.
By:
-----------------------------------
Title:
-----------------------------
FARAH INCORPORATED
By:
-----------------------------------
Title:
-----------------------------
- 2 -
<PAGE> 117
APPAREL NETWORK CORPORATION
By:
-----------------------------------
Title:
-----------------------------
FLEET CAPITAL CORPORATION,
as Agent
By:
-----------------------------------
Title:
-----------------------------
- 3 -
<PAGE> 118
EXHIBIT H
LETTER OF CREDIT PROCUREMENT REQUEST
Fleet Capital Corporation, as Agent
Suite 800
300 Galleria Parkway
Atlanta, Georgia 30339
Attention: Loan Officer
This Letter of Credit Procurement Request is delivered to you pursuant
to the Loan and Security Agreement, dated June 10, 1998, among Tropical
Sportswear Int'l Corporation, a Florida corporation ("Tropical"), each of its
indirect or direct Subsidiaries that are from time to time a party thereto
(collectively referred to with Tropical as "Borrowers," and individually as a
"Borrower"), various financial institutions as are, or may become, parties
thereto (collectively, the "Lenders"), and Fleet Capital Corporation, as
administrative and collateral agent (in such capacity, the "Agent"), as the same
may be amended, supplemented, restated or otherwise modified from time to time
(the "Loan Agreement"). Unless otherwise defined herein, terms used herein have
the meanings assigned to them in the Loan Agreement.
Borrowers hereby request Fleet to join in the execution of an LC
Application for the issuance of a Letter of Credit by Bank, as follows,
(1) Borrower's/Account Party's Name _________________
(2) Amount of Letter of Credit: $_________________
(3) Issuance Date: _________________
(4) Beneficiary's Name: _________________
(5) Beneficiary's Address: _________________
_________________
_________________
(6) Expiry Date: _________________
(7) Draw Conditions: _________________
_________________
_________________
_________________
(8) Single draw [ ] or Multiple draw [ ]
<PAGE> 119
(9) Purpose of Letter of Credit: _________________
_________________
_________________
Attached hereto is the Bank's form of LC Application, completed with
the details of the Letter of Credit requested herein.
Each Borrower hereby certifies that each of the LC Conditions is now,
and will on the date of issuance of the Letter of Credit, be satisfied in all
respects and that no Default or Event of Default exists. Each Borrower hereby
ratifies and reaffirms all of the Loan Documents and Obligations arising
thereunder.
IN WITNESS WHEREOF, each Borrower has caused this Letter of Credit
Procurement Request to be executed and delivered by its duly authorized officer,
this ___ day of _________________, ____.
TROPICAL SPORTSWEAR INT'L
CORPORATION
By:
-----------------------------------
Name:
------------------------------
Title:
-----------------------------
<PAGE> 120
EXHIBIT I
JOINDER AGREEMENT
AND
SUPPLEMENT TO LOAN AGREEMENT
SUPPLEMENT NO. ______ (this "Supplement") dated as of _____________,
_____, to the Loan and Security Agreement dated June 10,1998 (as at any time
supplemented or amended, the "Loan Agreement"), by and among TROPICAL SPORTSWEAR
INT'L CORPORATION, a Florida corporation ("Tropical"); FARAH INCORPORATED, a
Texas corporation ("Farah"), TROPICAL SPORTSWEAR COMPANY, INC., a Delaware
corporation ("TSCI"); APPAREL NETWORK CORPORATION, a Florida corporation
("Apparel"); and each other Person that is from time to time a Borrower under
the Loan Agreement (Tropical , Farah, TSCI and Apparel and each of the foregoing
referred to herein individually as a "Borrower" and collectively as
"Borrowers"), and FLEET CAPITAL CORPORATION ("Agent"), a Rhode Island
corporation, in its capacity as administrative and collateral agent for the
Lenders thereto, and Lenders. Capitalized terms used herein, unless otherwise
defined herein, shall have the meanings ascribed to them in the Loan Agreement.
The terms "herein," "hereof" and "hereunder" and other words of similar import
refer to this Supplement as a whole and not to any particular section, paragraph
or subdivision. All references to any Person shall mean and include the
successors and permitted assigns of such Person. All references to any of the
Loan Documents shall include any and all amendments or modifications thereto and
any and all restatements, extensions or renewals thereof. Wherever the phrase
"including" shall appear in this Supplement, such word shall be understood to
mean "including, without limitation."
Borrowers have requested Agent and Lenders to make Revolver Loans and
extend other credit pursuant to the Loan Agreement. Pursuant to the Loan
Agreement, each New Borrower that was not in existence on the date thereof is
required to become a party to and to enter into the Loan Agreement as a Borrower
upon becoming a New Borrower. The Loan Agreement provides that additional New
Borrowers may become Borrowers under the Loan Agreement by execution and
delivery of an instrument in the form of this Supplement. The undersigned,
_______________________, a _______________________ corporation, is a New
Borrower and is executing this Supplement in accordance with the requirements of
the Loan Agreement to become a party to the Loan Agreement in order to induce
Agent and Lenders to continue to extend credit under the Loan Agreement and as
consideration for the Revolver Loans previously made.
Accordingly, and for Ten Dollars ($10.00) in hand paid and other good
and valuable consideration, the receipt and adequacy of which are hereby
acknowledged by the parties hereto, Agent and New Borrower agree as follows:
1. In accordance with the Loan Agreement, New Borrower by its signature
below becomes a Borrower under the Loan Agreement with the same force and effect
as if originally named therein as a Borrower, and New Borrower hereby agrees to
all the terms and provisions of the Loan Agreement applicable to it as a
Borrower thereunder. Each reference to a "Borrower" in the Loan Agreement shall
be deemed to include New Borrower. The Loan Agreement is hereby incorporated
herein by reference.
<PAGE> 121
2. New Borrower acknowledges that it has requested Agent and Lenders to
extend financial accommodations to it and to Borrowers on a combined basis in
accordance with the provisions of the Loan Agreement, as hereby amended. In
accordance with the terms of Section 5.11 of the Loan Agreement, New Borrower
acknowledges and agrees that it shall be jointly and severally liable for any
and all Revolver Loans and other Obligations heretofore or hereafter made by
Agent or any Lenders to any Borrower and for all interest, fees and other
charges payable in connection therewith. New Borrower hereby appoints and
designates Tropical as, and Tropical shall continue to act under the Loan
Agreement as, the representative of New Borrower and each other Borrower for all
purposes, including requesting borrowings and receiving accounts statements and
other notices and communications to Borrowers (or any of them) from Agent and
Lenders. Each Loan made by Agent and Lenders under the Loan Agreement or any of
the other Loan Documents shall be disbursed to the Loan Account of Borrowers.
3. To secure the prompt payment and performance to Agent and Lenders of
all of the Obligations, New Borrower hereby grants to Agent, for the benefit of
itself, as Agent and for the ratable benefit of Lenders, a continuing security
interest in and Lien upon all of such Borrower's assets, including all of the
following Property and interests in Property of such Borrower, whether now owned
or existing or hereafter created, acquired or arising and wheresoever located:
(i) All Accounts;
(ii) All Inventory;
(iii) All Instruments;
(iv) All Chattel Paper;
(v) All Documents;
(vi) All General Intangibles;
(vii) All Equipment;
(viii) All Securities, whether certificated or uncertificated
(but excluding any portion thereof that constitute Margin Stock), and
all securities entitlements;
(ix) All monies now or at any time or times hereafter in the
possession or under the control of Agent or any Lender or a bailee or
Affiliate of Agent or any Lender, including any Cash Collateral in the
Cash Collateral Account;
(x) All accessions to, substitutions for and all replacements,
products and cash and non-cash proceeds of (i) through (ix) above,
including proceeds of and unearned premiums with respect to insurance
policies insuring any of the Collateral; and
(xi) All books and records (including customer lists, files,
correspondence, tapes, computer programs, print-outs, and other
computer materials and records) of such Borrower pertaining to any of
(i) through (x) above.
- 2 -
<PAGE> 122
4. New Borrower represents and warrants to Agent and Lenders that New
Borrower is a wholly owned Subsidiary of ______________ and is engaged in the
same business as the other Borrowers as part of a joint and common enterprise;
that this Supplement has been duly authorized, executed and delivered by New
Borrower and constitutes a legal, valid and binding obligation of New Borrower,
enforceable against it in accordance with its terms, except as the
enforceability thereof may be limited by bankruptcy, insolvency, reorganization,
moratorium or other similar laws affecting creditors rights generally and by
general principles of equity (regardless of whether such enforceability is
considered in a proceeding at law or in equity); and that the Schedules attached
hereto contain true, accurate and complete information with respect to New
Borrower and the matters covered by the provisions of Section 8 of the Loan
Agreement and such Schedules shall be deemed to supplement and be a part of the
Schedules to the Loan Agreement.
5. Except as otherwise expressly provided in this Supplement, nothing
herein shall be deemed to amend or modify any provision of the Loan Agreement or
any of the other Loan Documents, each of which shall remain in full force and
effect. This Supplement is not intended to be, nor shall it be construed to
create, a novation or accord and satisfaction, and the Loan Agreement as herein
modified shall continue in full force and effect.
6. In case any provision in or obligation under this Supplement 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.
7. New Borrower agrees to reimburse Agent and Lenders for Agent's and
Lenders' reasonable out-of-pocket expenses in connection with this Supplement,
including, without limitation, the fees, disbursements and other charges of
counsel for Agent and Lenders.
8. This Supplement and the other Loan Documents, together with all
other instruments, agreements and certificates executed by the parties in
connection therewith or with reference thereto, embody the entire understanding
and agreement between the parties hereto and thereto with respect to the subject
matter hereof and thereof and supersede all prior agreements, understandings and
inducements, whether express or implied, oral or written. Each of the Schedules
attached hereto is incorporated into this Supplement and by this reference made
a part hereof.
9. This Supplement and any amendments, waivers, consents or supplements
may be executed in any number of counterparts and by the different parties
hereto in separate counterparts, each of which when so executed and delivered
shall be deemed an original, but all such counterparts shall constitute but one
and the same instrument.
10. This Supplement shall be effective when accepted by Agent in
Atlanta, Georgia (New Borrower hereby waiving notice of such acceptance) and
thereupon shall be deemed a contract made in Georgia, and shall be governed by
and construed and enforced in accordance with the laws of the State of Georgia
without regard to the conflict of laws principles thereof.
11. THE PARTIES HERETO EACH HEREBY WAIVES THE RIGHT TO TRIAL BY JURY IN
ANY ACTION, SUIT, COUNTERCLAIM OR PROCEEDING ARISING OUT OF OR RELATED TO THIS
SUPPLEMENT.
- 3 -
<PAGE> 123
IN WITNESS WHEREOF, New Borrower and Agent have duly executed this
Supplement under seal as of the date and year first above written.
ATTEST: [NAME OF NEW BORROWER]
By:
-------------------------------
By:
-------------------------------
Secretary
Name:
-----------------------------------
[CORPORATE SEAL]
Title:
----------------------------------
Address:
--------------------------------
-----------------------------------
-----------------------------------
Accepted in Atlanta, Georgia:
FLEET CAPITAL CORPORATION, AS AGENT
By:
-------------------------------------
Name:
--------------------------------
Title:
---------------------------------
- 4 -
<PAGE> 124
<TABLE>
<CAPTION>
LIST OF ATTACHED SCHEDULES
<S> <C>
8.1.1 New Borrower's and its Subsidiaries' Business Locations
9.1.1 Jurisdictions in which New Borrower and its Subsidiaries are
Authorized to do Business
9.1.4 Capital Structure of New Borrower
9.1.5 Corporate Names
9.1.13 Tax Identification Numbers of New Borrower and its
Subsidiaries
9.1.15 Intellectual Property
9.1.18 Contracts Restricting Rights to Incur Debts
9.1.19 Litigation
9.1.21 Capitalized and Operating Leases
9.1.22 Pension Plans
9.1.24 Labor Contracts
10.2.5 Permitted Liens
</TABLE>
<PAGE> 125
SCHEDULE 8.1.1
BUSINESS LOCATIONS
1. Borrowers currently have the following business locations, and no
others:
Chief Executive Office: 4902 West Waters Avenue
Tampa, Florida 33634
Other Locations:
2. Borrowers maintain their books and records relating to Accounts and
General Intangibles at:
4902 West Waters Avenue
Tampa, Florida 33634
3. Borrowers have had no office, place of business or agent for process
located in any county other than as set forth above, except:
4. Each Subsidiary currently has the following business locations, and no
others:
Chief Executive Office:
Other Locations:
5. Each Subsidiary maintains its books and records relating to Accounts
and General Intangibles at:
6. Each Subsidiary has had no office, place of business or agent for
process located in any county other than as set forth above, except:
<PAGE> 126
7. The following bailees, warehouseman, similar parties and consignees
hold inventory of a Borrower or one of its Subsidiaries:
<TABLE>
<S> <C> <C> <C>
NATURE OF AMOUNT OF
NAME LOCATION RELATIONSHIP INVENTORY
</TABLE>
- 2 -
<PAGE> 127
SCHEDULE 9.1.1
JURISDICTIONS IN WHICH BORROWERS
AND THEIR SUBSIDIARIES
ARE AUTHORIZED TO DO BUSINESS
<TABLE>
<CAPTION>
Name of Entity Jurisdictions
-------------- -------------
<S> <C>
Tropical Sportswear Int'l Corporation (i) Florida
(ii) New York
Tropical Sportswear Company, Inc. (i) Delaware
Farah Incorporated (i) Texas
Apparel Network Corporation (i) Florida
</TABLE>
<PAGE> 128
SCHEDULE 9.1.4
CAPITAL STRUCTURE
1. The classes and number of authorized shares of Borrowers and each of
their Subsidiaries and the record owner of such shares are as follows:
Borrowers:
- ----------
<TABLE>
<CAPTION>
==================================================================================================================
Number of Shares Number of Shares
Class of Stock Issued and Outstanding Record Owners Authorized but Unissued
- ------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
- ------------------------------------------------------------------------------------------------------------------
- ------------------------------------------------------------------------------------------------------------------
- ------------------------------------------------------------------------------------------------------------------
==================================================================================================================
</TABLE>
Subsidiaries:
- -------------
<TABLE>
<CAPTION>
==================================================================================================================
Number of Shares Number of Shares
Class of Stock Issued and Outstanding Record Owners Authorized but Unissued
- ------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
- ------------------------------------------------------------------------------------------------------------------
- ------------------------------------------------------------------------------------------------------------------
- ------------------------------------------------------------------------------------------------------------------
==================================================================================================================
</TABLE>
2. The number, nature and holder of all other outstanding Securities of
Borrowers and each of their Subsidiaries are as follows:
<PAGE> 129
3. The correct name and jurisdiction of incorporation of each of the
Subsidiaries of Borrowers and the percentage of its issued and
outstanding shares owned by a Borrower are as follows:
<TABLE>
<CAPTION>
=============================================================================================================
Percentage of Shares
Name Jurisdiction of Incorporation Owned by Borrower
- -------------------------------------------------------------------------------------------------------------
<S> <C> <C>
- -------------------------------------------------------------------------------------------------------------
- -------------------------------------------------------------------------------------------------------------
=============================================================================================================
</TABLE>
4. The name of each Borrower's corporate or joint venture Affiliates and
the nature of the affiliation are as follows:
- 2 -
<PAGE> 130
SCHEDULE 9.1.5
CORPORATE NAMES
1. Each Borrower's correct corporate name, as registered with the
Secretary of State of the State of its state of incorporation, is:
"Tropical Sportswear International Corporation"
"Farah Incorporated"
"Tropical Sportswear Company, Inc."
"Apparel Network Corporation"
2. In the conduct of its business, Borrowers have used the following
names:
3. Each Subsidiaries' correct corporate name, as registered with the
Secretary of State of the State of its incorporation, is:
4. In the conduct of its business, each Subsidiary has used the following
names:
<PAGE> 131
SCHEDULE 9.1.13
TAX IDENTIFICATION NUMBERS OF BORROWERS AND SUBSIDIARIES
<TABLE>
<CAPTION>
Borrowers' Tax ID Numbers are as follows:
Name of Borrower Tax ID Number
---------------- -------------
<S> <C>
Tropical Sportswear International Corporation
Farah Incorporated
Tropical Sportswear Company, Inc.
Apparel Network Corporation
Name of Subsidiary Tax ID Number
------------------ -------------
</TABLE>
<PAGE> 132
SCHEDULE 9.1.15
PATENTS, TRADEMARKS, COPYRIGHTS AND LICENSES
1. Borrowers' and their Subsidiaries' patents:
<TABLE>
<CAPTION>
=========================================================================================================================
Patent Owner Status in Federal Registration Registration
Patent Office Number Date
- -------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
- -------------------------------------------------------------------------------------------------------------------------
- -------------------------------------------------------------------------------------------------------------------------
=========================================================================================================================
</TABLE>
<PAGE> 133
2. Borrowers' and their Subsidiaries' trademarks:
<TABLE>
<CAPTION>
Trademark Name Application No. Registration No. Issue Date
- -------------- --------------- ---------------- ----------
<S> <C> <C> <C>
Active 1 1,117,335
Bay Runner 1,762,106
Bay to Bay 1,648,201
Baysport 1,720,393
Boston Bay 1,758,436
Bridge Pointe 1,647,493
Chocks 1,788,904
Commanche 1,763,717
Cotton Proof 1,711,867
Cottonfarm Co-op 1,762,105
Cottonwood Traders 1,715,925
Desert Storm 1,810,077
Manatee 1,722,055
Manatee "design" 1,710,130
Manatee Magic 1,720,398
Port West 1,521,025
Royal Palm & Design 699,031
Royal Palm 1,186,894
Salt of the Earth 1,784,228
Tropical 1,646,084
Walton Supply Co. 1,763,714
Washout 1,725,844
Wildlife 1,773,702
Wildlife Refuge 1,683,029
Wooden Nickel 1,773,697
Woodmere 1,738,437
Ziabo 1,718,286
Bay to Bay Crew
</TABLE>
- 2 -
<PAGE> 134
<TABLE>
<CAPTION>
Trademark Name Application No. Registration No. Issue Date
- -------------- --------------- ---------------- ----------
<S> <C> <C> <C>
Bay to Bay Basic
Big Blue 74/345,681
Big Horn 74/401,143
Bush Pilot
Cactus Jack
Flying A
Golf Club International
Great Basin 74/378,620
I'm Washable Wool 74/476,474
Just Try Me 74/422,885
Little Big Horn 74/401,144
Natural Living
Natural Man By Tropical 74/247,932
Natural Performer 74/476,473
No Iron Pant
No Iron Shirt
Salt River 74/441,818
Sawtooth Mountains 74/401,145
Design of a Seed
Packet 74/482,170
Silk Blues 74/193,576
Texas Jeans
The Big Picture
The Coal Mine Company
The Nature of
Excellence
Three Graces
Texas Jeans 74/441,807
The Big Picture 74/452,554
Tropical Sportswear
International 74/482,172
Tropical Sportswear 74/482,173
T.S.I. 74/482,171
Two Peppers 74/452,555
U.S. Customs 74/413,053
U.S. Trading Company 74/422,884
Walkshort 74/441,805
Wet Process 74/413,052
Wrinkleproof 74/413,536
</TABLE>
3. Borrowers' and their Subsidiaries' copyrights:
<TABLE>
<CAPTION>
========================================================================================================================
Copyrights Owner Status in Federal Registration Registration
Copyright Office Number Date
- ------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
NONE
- ------------------------------------------------------------------------------------------------------------------------
- ------------------------------------------------------------------------------------------------------------------------
- ------------------------------------------------------------------------------------------------------------------------
========================================================================================================================
</TABLE>
4. Borrowers' and their Subsidiaries' licenses (other than routine
business licenses, authorizing them to transact business in local
jurisdictions):
- 3 -
<PAGE> 135
<TABLE>
<CAPTION>
========================================================================================================================
Name of License Nature of License Licensor Term of License
- ------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Bill Blass
- ------------------------------------------------------------------------------------------------------------------------
Flyers
- ------------------------------------------------------------------------------------------------------------------------
Generra (Jeans)
- ------------------------------------------------------------------------------------------------------------------------
Generra (Pants)
- ------------------------------------------------------------------------------------------------------------------------
John Weitz
========================================================================================================================
</TABLE>
- 4 -
<PAGE> 136
SCHEDULE 9.1.18
CONTRACTS RESTRICTING BORROWERS' RIGHT TO INCUR INDEBTEDNESS
Contracts that restrict the right of a Borrower to incur Indebtedness:
<TABLE>
<CAPTION>
========================================================================================================================
Title of Contract Identity of Parties Nature of Term of Contract
Restriction
- ------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
- ------------------------------------------------------------------------------------------------------------------------
- ------------------------------------------------------------------------------------------------------------------------
- ------------------------------------------------------------------------------------------------------------------------
========================================================================================================================
</TABLE>
<PAGE> 137
SCHEDULE 9.1.19
LITIGATION
1. Actions, suits, proceedings and investigations pending against
Borrowers or any of their Subsidiaries:
<TABLE>
<CAPTION>
========================================================================================================================
Title of Action Nature of Action Complaining Parties Jurisdiction or
Tribunal
- ------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
- ------------------------------------------------------------------------------------------------------------------------
- ------------------------------------------------------------------------------------------------------------------------
- ------------------------------------------------------------------------------------------------------------------------
========================================================================================================================
</TABLE>
2. The only threatened actions, suits, proceedings or investigations of
which any Borrower or any Subsidiary is aware are as follows:
<PAGE> 138
SCHEDULE 9.1.21
CAPITALIZED AND OPERATING LEASES
Borrowers and their Subsidiaries have the following capitalized leases:
<TABLE>
<CAPTION>
========================================================================================================================
Lessee Lessor Term of Lease Property Covered
- ------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
- ------------------------------------------------------------------------------------------------------------------------
- ------------------------------------------------------------------------------------------------------------------------
========================================================================================================================
</TABLE>
<PAGE> 139
SCHEDULE 9.1.22
PENSION PLANS
Borrowers and their Subsidiaries have the following Plans:
<TABLE>
<CAPTION>
========================================================================================================================
Party Type of Plan
- ------------------------------------------------------------------------------------------------------------------------
<S> <C>
Borrowers
- ------------------------------------------------------------------------------------------------------------------------
- ------------------------------------------------------------------------------------------------------------------------
[Subsidiaries] NONE
- ------------------------------------------------------------------------------------------------------------------------
========================================================================================================================
</TABLE>
<PAGE> 140
SCHEDULE 9.1.24
COLLECTIVE BARGAINING AGREEMENTS; LABOR CONTROVERSIES
1. Borrowers and their Subsidiaries are parties to the following
collective bargaining agreements:
<TABLE>
<CAPTION>
========================================================================================================================
Type of Agreement Parties Term of Agreement
- ------------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
- ------------------------------------------------------------------------------------------------------------------------
- ------------------------------------------------------------------------------------------------------------------------
- ------------------------------------------------------------------------------------------------------------------------
========================================================================================================================
</TABLE>
2. Material grievances, disputes of controversies with employees are as
follows:
<TABLE>
<CAPTION>
========================================================================================================================
Parties Involved Nature of Grievance, Dispute or
Controversy
- ------------------------------------------------------------------------------------------------------------------------
<S> <C>
- ------------------------------------------------------------------------------------------------------------------------
- ------------------------------------------------------------------------------------------------------------------------
- ------------------------------------------------------------------------------------------------------------------------
========================================================================================================================
</TABLE>
3. Threatened strikes, work stoppages and asserted pending demands for
collective bargaining are as follows:
<TABLE>
<CAPTION>
========================================================================================================================
Parties Involved Nature of Matter
- ------------------------------------------------------------------------------------------------------------------------
<S> <C>
- ------------------------------------------------------------------------------------------------------------------------
- ------------------------------------------------------------------------------------------------------------------------
- ------------------------------------------------------------------------------------------------------------------------
========================================================================================================================
</TABLE>
<PAGE> 141
SCHEDULE 10.2.5
PERMITTED LIENS
<TABLE>
<CAPTION>
========================================================================================================================
Secured Party Nature of Lien
- ------------------------------------------------------------------------------------------------------------------------
<S> <C>
SouthTrust Bank, N.A. Lien in the real property and the
improvements thereon that are owned by
Tropical and that are located at 4924 West
Waters Avenue and 4902 West Waters
Avenue, Tampa, Hillsborough County,
Florida.
- ------------------------------------------------------------------------------------------------------------------------
- ------------------------------------------------------------------------------------------------------------------------
- ------------------------------------------------------------------------------------------------------------------------
- ------------------------------------------------------------------------------------------------------------------------
========================================================================================================================
</TABLE>
<PAGE> 1
EXHIBIT 10.5
FIRST AMENDMENT TO LOAN AND SECURITY AGREEMENT
THIS FIRST AMENDMENT TO LOAN AND SECURITY AGREEMENT (this
"Amendment") is made and entered into this 9th day of July, 1998, by and between
TROPICAL SPORSTWEAR INT'L CORPORATION, a Florida corporation ("Tropical"),
TROPICAL SPORTSWEAR COMPANY, INC., a Delaware corporation ("TSCI"), SAVANE
INTERNATIONAL CORP., a Texas corporation (formerly known as Farah Incorporated)
("Savane"), and APPAREL NETWORK CORPORATION, a Florida corporation ("Apparel")
(Tropical, TSCI, Savane and Apparel collectively referred to hereinafter as
"Borrowers" and individually as a "Borrower") each with its chief executive
office and principal place of business at 4902 West Waters Avenue, Tampa,
Florida 33634-1302; the various financial institutions listed on the signature
pages hereof and their respective successors and permitted assigns which become
"Lenders" as provided in the Loan Agreement (as defined below); and FLEET
CAPITAL CORPORATION, a Rhode Island corporation, in its capacity as collateral
and administrative agent for the Lenders (together with its successors in such
capacity, "Agent") with an office at 300 Galleria Parkway, N.W., Suite 800,
Atlanta, Georgia 30339.
RECITALS:
Borrowers, Agent and Fleet Capital Corporation, NationsBanc Commercial
Corporation and First Union National Bank, as Lenders (the "Existing Lenders"),
are parties to a certain Loan and Security Agreement dated June 10, 1998 (the
"Loan Agreement"), pursuant to which the Existing Lenders have made certain
revolving credit loans and letter of credit accommodations to Borrowers.
Borrowers have requested that Agent and Existing Lenders amend the Loan
Agreement to increase the maximum amount of revolving credit loans available to
Borrowers to $110,000,000 and to add Deutsche Financial Services Corporation
("Deutsche") as a "Lender" under the Loan Agreement.
Agent and Lenders are willing to amend the Loan Agreement on the terms
and conditions as hereinafter set forth.
NOW, THEREFORE, for TEN DOLLARS ($10.00) in hand paid and other good
and valuable consideration, the receipt and sufficiency of which are hereby
severally acknowledged, the parties hereto, intending to be legally bound
hereby, agree as follows:
1. DEFINITIONS. All capitalized terms used in this Amendment, unless
otherwise defined herein, shall have the meaning ascribed to such terms in the
Loan Agreement.
<PAGE> 2
2. AMENDMENT TO LOAN AGREEMENT. The Loan Agreement is hereby amended as
follows:
a. By deleting the definition of "Lenders," "Revolver
Commitments" and "Senior Subordinated Notes" in Section 1 of the Loan Agreement
and by substituting the following new definitions in lieu thereof:
Lenders - each of Fleet, NationsBanc Commercial
Corporation, First Union National Bank and Deutsche Financial
Services Corporation, together with their respective
successors and permitted assigns pursuant to Section 14.1
hereof, including Fleet as the procurer of Letters of Credit
and as the provider of Swingline Loans.
Revolver Commitments means the aggregate principal
amount of the Revolver Commitments of all Lenders, the maximum
amount of which shall be $110,000,000.
Senior Subordinated Notes - the Senior Subordinated
Unsecured Notes, issued by Tropical in the aggregate amount of
$100,000,000, and payable in 2008.
b. By deleting subsection (ii) in the definition of
"Availability Reserve" in Section 1 of the Loan Agreement and by substituting
the following new subsection (ii) in lieu thereof:
(ii) all amounts of past due rent or other charges owing at
such time by any Obligor to any landlord of any premises where
any of the collateral is located, and, at Agent's election, an
amount equal to 3 months rent with respect to each premises
leased by any Borrower (other than retail locations of any
Borrower) for which Agent has not received a landlord
agreement in form and substance satisfactory to Agent;
b. By deleting the reference to "$45,000,000" in subsection
(i) in the definition of "Inventory Formula Amount" in Section 1 of the Loan
Agreement and by substituting a reference to "$55,000,000" in lieu thereof.
c. By deleting the reference to "$85,000,000" in the first
paragraph of Section 2 of the Loan Agreement and by substituting a reference to
"$110,000,000" in lieu thereof.
d. By deleting Section 3.2.3 of the Loan Agreement in its
entirety and by substituting the following new Section 3.2.3 in lieu thereof:
- 2 -
<PAGE> 3
3.2.3. Audit and Appraisal Fees. Borrowers shall be
jointly and severally obligated to reimburse Agent for all
reasonable costs and expenses incurred by Agent in connection
with all audits and appraisals of any Obligor's books and
records and such other matters pertaining to any Obligor or
any Collateral as Agent shall deem appropriate.
e. By deleting the reference to "October 2, 1999" in the sixth
period listed in Section 10.3.1 of the Loan Agreement and by substituting a
reference to "October 3, 1999" in lieu thereof.
f. By deleting Section 10.3.3 of the Loan Agreement in its
entirety and by substituting the following new Section 10.3.3 in lieu thereof:
10.3.3. Consolidated Senior Debt/Consolidated EBITDA.
Maintain, as of the end of each Fiscal Quarter, a ratio of
Consolidated Senior Debt/EBITDA of not more than the ratio
shown below for the applicable period corresponding thereto:
<TABLE>
<CAPTION>
Period Ratio
------ -----
<S> <C>
July 1, 1998 through October 3, 1998 2.75 to 1.00
July 1, 1998 through January 2, 1998 2.75 to 1.00
July 1, 1998 through April 3, 1999 2.75 to 1.00
July 1, 1998 through July 3, 1999 2.50 to 1.00
October 3, 1998 through 2.50 to 1.00
October 2, 1999
Each Fiscal Quarter after October 2.50 to 1.00
2, 1999 based upon the immediately
preceding 4 Fiscal Quarters
</TABLE>
b. By deleting the amount set forth opposite each Lender's
name under the heading "Revolver Commitment" on the signature pages to the Loan
Agreement and by substituting in lieu thereof the amount set forth opposite each
Lender's name under the heading "Revolver Commitment" on the signature pages
hereto.
- 3 -
<PAGE> 4
3. RATIFICATION AND REAFFIRMATION. Each Borrower hereby ratifies and
reaffirms each of the Loan Documents and all of such Borrower's covenants,
duties, indebtedness and liabilities thereunder.
4. ACKNOWLEDGMENTS AND STIPULATIONS. Each Borrower acknowledges and
stipulates that the Loan Agreement and the other Loan Documents executed by such
Borrower are legal, valid and binding obligations of such Borrower that are
enforceable against such Borrower in accordance with the terms thereof; all of
the Obligations are owing and payable without defense, offset or counterclaim
(and to the extent there exists any such defense, offset or counterclaim on the
date hereof, the same is hereby waived by each Borrower); the security interests
and liens granted by each Borrower in favor of Agent are duly perfected, first
priority security interests and liens; and the unpaid principal amount of the
Revolver Loans on and as of the close of business on July 8, 1998, totaled
$63,446,930.59.
5. REPRESENTATIONS AND WARRANTIES. Each Borrower represents and
warrants to Agent and Lenders, to induce Agent and Lenders to enter into this
Amendment, that no Default or Event of Default exists on the date hereof; the
execution, delivery and performance of this Amendment have been duly authorized
by all requisite corporate action on the part of such Borrower and this
Amendment has been duly executed and delivered by such Borrowers; and all of the
representations and warranties made by Borrowers in the Loan Agreement are true
and correct on and as of the date hereof, except to the extent any
representation or warranty specifically relates to an earlier date.
6. CONDITIONS PRECEDENT. The effectiveness of the amendments contained
in Section 2 hereof are subject to the satisfaction of each of the following
conditions precedent, in form and substance satisfactory to Agent, unless
satisfaction thereof is specifically waived in writing by Agent:
a. Borrowers execute and deliver to each Existing Lender an
Amended and Restated Revolver Note in the amount of each Existing Lender's
Revolver Commitment and Borrowers execute and deliver to Deutsche a Revolver
Note in the original principal amount equal to Deutsche's Revolver Commitment;
and
b. Agent receives the commitment fee for the increase in the
Commitments as set forth in that certain "Fee Letter" dated on or about the date
hereof from Agent to Borrowers.
7. DEUTSCHE FINANCIAL SERVICES CORPORATION. As of the date hereof,
Deutsche shall be and become a Lender under the Loan Agreement and the other
Loan Documents. Deutsche hereby (i) confirms that it has received a copy of the
Loan Agreement and the other Loan Documents, financial statements and other
information as it has deemed appropriate to make its own credit analysis and
decision to enter into this Amendment and to become a Lender under the Loan
Agreement; (ii) agrees that it will, independently and without reliance upon
Agent or any other Lender and based on such documents and information as it
shall deem appropriate at the
- 4 -
<PAGE> 5
time, continue to make its own credit decisions in taking or not taking action
under the Loan Agreement; (iii) appoints and authorizes Agent to take such
actions as agent on its behalf and to exercise such powers under the Loan
Agreement and other Loan Documents as are delegated to the Agent by the terms
thereof, together with such powers as are incidental thereto; and (iv) agrees
that it will perform in accordance with their terms all of the duties and
obligations which by the terms of the Loan Agreement and other Loan Documents
are required to be performed by it as a Lender.
Neither Agent or any Lender makes any representation or warranty to
Deutsche and assumes no responsibility with respect to the financial condition
of the Borrowers or the performance or observance by the Borrowers of any of
their respective obligations under the Loan Agreement or other Loan Documents.
Deutsche's LIBOR Lending office and address to which notices under the
Loan Agreement should be forwarded is as follows:
Deutsche Financial Services Corporation
Suite 700
3225 Cumberland Boulevard
Atlanta, Georgia 30339
Attention: Melinda Paino
Telecopy No.: (770) 933-2993
8. EXPENSES OF AGENT. Borrowers jointly and severally agree to pay, ON
DEMAND, all costs and expenses incurred by Agent in connection with the
preparation, negotiation and execution of this Amendment and any other Loan
Documents executed pursuant hereto and any and all amendments, modifications,
and supplements thereto, including, without limitation, the reasonable costs and
fees of Agent's legal counsel and any taxes or expenses associated with or
incurred in connection with any instrument or agreement referred to herein or
contemplated hereby.
9. EFFECTIVENESS; GOVERNING LAW. This Amendment shall be effective upon
acceptance by Agent and Lenders in Atlanta, Georgia (notice of which acceptance
is hereby waived), whereupon the same shall be governed by and construed in
accordance with the internal laws of the State of Georgia.
10. SUCCESSORS AND ASSIGNS. This Amendment shall be binding upon and
inure to the benefit of the parties hereto and their respective successors and
assigns.
11. NO NOVATION, ETC.. Except as otherwise expressly provided in this
Amendment, nothing herein shall be deemed to amend or modify any provision of
the Loan Agreement or any of the other Loan Documents, each of which shall
remain in full force and effect. This Amendment is not intended to be, nor shall
it be construed to create, a novation or accord and satisfaction, and the Loan
Agreement as herein modified shall continue in full force and effect.
- 5 -
<PAGE> 6
12. COUNTERPARTS; TELECOPIED SIGNATURES. This Amendment may be executed
in any number of counterparts and by different parties to this Agreement on
separate counterparts, each of which, when so executed, shall be deemed an
original, but all such counterparts shall constitute one and the same agreement.
Any signature delivered by a party by facsimile transmission shall be deemed to
be an original signature hereto.
13. FURTHER ASSURANCES. Each Borrower agrees to take such further
actions as Agent and Lender shall reasonably request from time to time in
connection herewith to evidence or give effect to the amendments set forth
herein or any of the transactions contemplated hereby.
14. SECTION TITLES. Section titles and references used in this
Amendment shall be without substantive meaning or content of any kind whatsoever
and are not a part of the agreements among the parties hereto.
15. RELEASE OF CLAIMS. To induce Agent and Lenders to enter into this
Amendment, each Borrower hereby release, acquits and forever discharges Agent
and Lenders, and all officers, directors, agents, employees, successors and
assigns of Agent and Lenders, from any and all liabilities, claims, demands,
actions or causes or actions of any kind or nature (if there be any), whether
absolute or contingent, disputed or undisputed, at law or in equity, or known or
unknown, that such Borrower now has or ever had against Agent and Lenders
arising under or in connection with any of the Loan Documents or otherwise.
16. WAIVER OF JURY TRIAL. To the fullest extent permitted by applicable
law, the parties hereto each hereby waives the right to trial by jury in any
action, suit, counterclaim or proceeding arising out of or related to this
Amendment.
IN WITNESS WHEREOF, the parties hereto have caused this Amendment to be
duly executed under seal and delivered by their respective duly authorized
officers on the date first written above.
BORROWERS:
ATTEST: TROPICAL SPORTSWEAR INT'L
CORPORATION
/s/ Karen Costillo By: /s/ N. Larry McPherson
- -------------------------------- -----------------------------------
Assistant Secretary
[CORPORATE SEAL] Title: Executive Vice President--
Finance and Operations
--------------------------------
- 6 -
<PAGE> 7
[Signatures continued on the following page]
ATTEST: TROPICAL SPORTSWEAR COMPANY,
INC.
/s/ Karen Costillo By: /s/ N. Larry McPherson
- -------------------------------- -----------------------------------
Assistant Secretary
[CORPORATE SEAL] Title: Executive Vice President--
Finance and Operations
-----------------------------
ATTEST: SAVANE INTERNATIONAL CORP.
(f/k/a Farah Incorporated)
/s/ Karen Costillo By: /s/ N. Larry McPherson
- -------------------------------- -----------------------------------
Secretary
[CORPORATE SEAL] Title: Executive Vice President--
Finance and Operations
-----------------------------
ATTEST: APPAREL NETWORK CORPORATION
/s/ Karen Costillo By: /s/ N. Larry McPherson
- -------------------------------- -----------------------------------
Assistant Secretary
[CORPORATE SEAL] Title: Executive Vice President--
Finance and Operations
-----------------------------
LENDERS:
FLEET CAPITAL CORPORATION
Revolver Commitment: $42,000,000 By: /s/ Elizabeth L. Waller
-----------------------------------
Title: Vice President
-----------------------------
NATIONSBANC COMMERCIAL
CORPORATION
Revolver Commitment: $28,000,000 By: /s/ Andrea Jackson
-----------------------------------
Title: Vice President
-----------------------------
[Signatures continued on the following page]
- 7 -
<PAGE> 8
FIRST UNION NATIONAL BANK
Revolver Commitment: $25,000,000 By: /s/ John T. Trainor
-----------------------------------
Title: Vice President
-----------------------------
DEUTSCHE FINANCIAL SERVICES
CORPORATION
Revolver Commitment: $15,000,000 By: /s/ Pamela Petrick
-----------------------------------
Title: Vice President
-----------------------------
AGENT:
FLEET CAPITAL CORPORATION,
as Agent
By: /s/ Elizabeth L. Waller
-----------------------------------
Title: Vice President
-----------------------------
- 8 -
<PAGE> 1
EXHIBIT 10.6
EXECUTION COUNTERPART
================================================================================
$100,000,000
SENIOR SUBORDINATED LOAN AGREEMENT
(Bridge Facility)
Dated as of June 10, 1998
Among
TROPICAL SPORTSWEAR INT'L CORPORATION
as Borrower
and
PRUDENTIAL SECURITIES CREDIT CORPORATION
as Lender
================================================================================
<PAGE> 2
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
<S> <C>
ARTICLE I
DEFINITIONS AND ACCOUNTING TERMS
SECTION 1.01. Certain Defined Terms..............................................................................1
SECTION 1.02. Computation of Time Periods.......................................................................20
SECTION 1.03. Accounting Terms..................................................................................20
ARTICLE II
AMOUNTS AND TERMS OF THE ADVANCES
SECTION 2.01. The Advances......................................................................................21
SECTION 2.02. Making the Advances...............................................................................21
SECTION 2.03. Repayment.........................................................................................21
SECTION 2.04. Prepayments.......................................................................................21
SECTION 2.05. Interest..........................................................................................22
SECTION 2.06. Fees..............................................................................................23
SECTION 2.07. Increased Costs, Etc..............................................................................23
SECTION 2.08. Payments and Computations.........................................................................24
SECTION 2.09. Taxes.............................................................................................24
SECTION 2.10. Sharing of Payments, Etc..........................................................................26
SECTION 2.11. Use of Proceeds...................................................................................27
SECTION 2.12. Exchange Securities...............................................................................27
ARTICLE III
CONDITIONS OF LENDING
SECTION 3.01. Conditions Precedent to Borrowing..................................................................28
ARTICLE IV
REPRESENTATIONS AND WARRANTIES
SECTION 4.01. Representations and Warranties of the Borrower....................................................32
SECTION 4.02. Survival of Representations and Warranties........................................................38
SECTION 4.03. Pari Passu........................................................................................38
ARTICLE V
COVENANTS OF THE BORROWER
SECTION 5.01. Affirmative Covenants.............................................................................38
SECTION 5.02. Negative Covenants................................................................................40
SECTION 5.03. Reporting Requirements............................................................................45
SECTION 5.04. Financial Covenants...............................................................................48
</TABLE>
i
<PAGE> 3
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
<S> <C>
ARTICLE VI
EVENTS OF DEFAULT
SECTION 6.01. Events of Default.................................................................................49
ARTICLE VII
MISCELLANEOUS
SECTION 7.01. Amendments, Etc...................................................................................52
SECTION 7.02. Notice, Etc.......................................................................................52
SECTION 7.03. No Waiver; Remedies...............................................................................53
SECTION 7.04. Costs and Expenses; Indemnification...............................................................53
SECTION 7.05. Right of Set-off..................................................................................56
SECTION 7.06. Binding Effect....................................................................................56
SECTION 7.07. Assignments and Participations....................................................................56
SECTION 7.08. Governing Law; Submission to Jurisdiction.........................................................58
SECTION 7.09. Execution in Counterparts.........................................................................58
SECTION 7.10. Confidentiality...................................................................................58
SECTION 7.11. Waiver of Jury Trial..............................................................................58
SECTION 7.12. Subordination.....................................................................................59
</TABLE>
Exhibit A - Form of Note
Exhibit B - Form of Guaranty
Exhibit C - Form of Indenture
Exhibit D - Form of Registration Rights Agreement
Schedule 3.01(e) - Material Liabilities and Obligations
Schedule 3.01(h) - Indebtedness
Schedule 3.01(j) - Good Standing Certificates
Schedule 4.01(b) - Subsidiaries
Schedule 4.01(d) - Consents and Approvals
Schedule 4.01(j) - Litigation
Schedule 4.01(t) - Taxes
Schedule 5.02(e) - Existing Liens
ii
<PAGE> 4
SENIOR SUBORDINATED LOAN AGREEMENT
SENIOR SUBORDINATED LOAN AGREEMENT dated as of June 10, 1998 among TROPICAL
SPORTSWEAR INT'L CORPORATION, a Florida corporation (the "BORROWER"), and
PRUDENTIAL SECURITIES CREDIT CORPORATION ("PSSC").
PRELIMINARY STATEMENTS:
WHEREAS, pursuant to an Agreement and Plan of Merger dated May 1, 1998 (the
"ACQUISITION AGREEMENT"), the Borrower has agreed to purchase (the
"ACQUISITION") all of the outstanding Capital Stock of Farah Incorporated, a
Texas corporation ("FARAH" or the "ACQUIRED BUSINESS"); and
WHEREAS, the Borrower has requested that PSSC fund a portion of the
Acquisition pending the consummation of the Rule 144A Offering; and
WHEREAS, PSSC is willing to agree to provide such financing on the terms
and conditions of this Agreement; and
NOW, THEREFORE, in consideration of the premises and of the mutual
covenants and agreements contained herein, the parties hereto hereby agree as
follows:
ARTICLE I
DEFINITIONS AND ACCOUNTING TERMS
SECTION 1.01. CERTAIN DEFINED TERMS. As used in this Agreement, the
following terms shall have the following meanings (such meanings to be equally
applicable to both the singular and plural forms of the terms defined):
"ACCOUNT" means any right of the Borrower or any Subsidiary thereof to
payment for goods sold or leased or for services rendered which is not
evidenced by an instrument or chattel paper (as such terms are defined in
the Uniform Commercial Code of any relevant jurisdiction), whether or not
it has been earned by performance.
"ACQUIRED BUSINESS" has the meaning specified in the Preliminary
Statements to this Agreement.
"ACQUISITION" has the meaning specified in the Preliminary Statements
to this Agreement.
<PAGE> 5
2
"ACQUISITION AGREEMENT" has the meaning specified in the Preliminary
Statements to this Agreement.
"ADVANCE" has the meaning specified in Section 2.01.
"AFFILIATE" means, with respect to any specified Person, (a) any other
Person directly or indirectly controlling or controlled by or under direct
or indirect common control with such specified Person or (b) any other
Person that owns, directly or indirectly, 10% or more of such specified
Person's Capital Stock or any executive officer or director of any
specified Person or other Person or, with respect to any natural Person,
any Person having a relationship with such Person by blood, marriage or
adoption no more remote than first cousin. For the purposes of this
definition, "control," when used with respect to any specified Person,
means the power to direct the management and policies of such Person,
directly or indirectly, whether through the ownership of voting securities,
by contract or otherwise; and the terms "controlling" and "controlled" have
meanings correlative to the foregoing.
"APPLICABLE LAW" means all laws, rules and regulations applicable to
the Person, conduct, transaction, covenant or Loan Documents in question,
including all applicable common law and equitable principles; all
provisions of all applicable state, federal and foreign constitutions,
statutes, rules, regulations and orders of governmental bodies; and orders,
judgments and decrees of all courts and arbitrators.
"APPLICABLE MARGIN" means for the period from the Closing Date to the
ninetieth day after the Closing Date, 4.0% per annum plus, on the first day
following the end of each ninety day period following the Closing Date
through the Maturity Date, an additional 0.5% per annum; provided, that
during any Interest Period in which the Prime Rate is in effect pursuant to
Section 2.05(a), the Applicable Margin shall be adjusted to approximate the
Applicable Margin that would be applicable if the Eurodollar Rate were in
effect during such Interest Period.
"BANKRUPTCY CODE" means Title 11, United States Code, as amended.
"BLOCKAGE NOTICE" has the meaning set forth in Section 7.12.
"BLOCKAGE PERIOD" has the meaning set forth in Section 7.12.
"BORROWER" means Tropical Sportswear Int'l Corporation, a Florida
corporation.
<PAGE> 6
3
"BORROWING" means a borrowing consisting of simultaneous Advances of
the same type made by the Lenders.
"BUSINESS DAY" means a day of the year on which banks are not required
or authorized to close in New York City.
"CAPITAL EXPENDITURES" means expenditures made or liabilities incurred
for the acquisition of any fixed assets or improvements, replacements,
substitutions or additions thereto which have a useful life of more than
one year, including the total principal portion of Capitalized Lease
Obligations.
"CAPITALIZED LEASE OBLIGATION" means any Indebtedness represented by
obligations under a lease that is required to be capitalized for financial
reporting purposes in accordance with GAAP.
"CAPITAL STOCK" of any Person means any and all shares, partnership
interests, participations, rights in or other equivalents of, or interests
in, the equity of such Person, but excluding any debt securities
convertible into such equity.
"CASH EQUIVALENTS" means (a) any evidence of Indebtedness with a
maturity of 180 days or less issued or directly and fully guaranteed or
insured by the United States of America or any agency or instrumentality
thereof (provided that the full faith and credit of the Untied States of
America is pledged in support thereof); (b) certificates of deposit or
acceptances or Eurodollar time deposits with a maturity of 180 days or less
of, and overnight bank deposits and demand accounts with, any financial
institution that is a member of the Federal Reserve System having combined
capital and surplus and undivided profits of not less than $500 million;
(c) commercial paper with a maturity of 180 days or less issued by a
corporation that is not an Affiliate of the Borrower and is organized under
the laws of any state of the United States or the District of Columbia and
rated at least A-1 by Standard & Poor's or at least P-1 by Moody's; and (d)
funds which invest in any of the foregoing.
"CERCLA" means the Comprehensive Environmental Response, Compensation
and Liability Act of 1980.
"CHANGE OF CONTROL" means the occurrence of any of the following
events:
(a) Any Person or "group" (as such term is used in Sections 13(d) and
14(d) of the Exchange Act), other than one or more Permitted Holders, is or
becomes the "beneficial owner" (as defined in Rules 13d-3 and 13d-5 under
the Exchange Act, except
<PAGE> 7
4
that a Person will be deemed to have "beneficial ownership" of all
securities that such Person has the right to acquire, whether such right is
exercisable immediately or only after the passage of time), directly or
indirectly, of more than 50% of the voting power of all classes of Voting
Stock of the Borrower;
(b) During any consecutive two-year period, individuals who at the
beginning of such period constituted the Board of Directors of the Borrower
(together with any new directors whose election to such Board of Directors,
or whose nomination for election by the stockholders of the Borrower, was
approved by a vote of 66 2/3% of the directors then still in office who
were either directors at the beginning of such period or whose election or
nomination for election was previously so approved) cease for any reason to
constitute a majority of the Board of Directors of the Borrower then in
office; or
(c) The Borrower is liquidated or dissolved or adopts a plan of
liquidation or dissolution, other than a transaction that complies with the
provisions of clause (a) or (i) of Section 5.02.
"CLOSING DATE" means the date on which all conditions set forth in
Section 3.01 have been satisfied or waived by all of the Lenders, and the
Lenders fund their Advances.
"COMMITMENT" means, with respect to Prudential, $100,000,000 or, if
Prudential has assigned all or a portion of its Commitment, the amount set
forth for such assignee in the Register maintained by Prudential pursuant
to Section 7.07(b) as such assignee's "Commitment".
"COMMON STOCK" means fully paid and nonassessable whole shares of
common stock, par value $.01 per share, of the Borrower.
"CONFIDENTIAL INFORMATION" means information that the Borrower
furnishes to any Lender in a writing designated as confidential, but does
not include any such information that is or becomes generally available to
the public or that is or becomes available to any Lender from a source
other than the Borrower that is not, to the best of such Lender's
knowledge, acting in violation of a confidentiality agreement with the
Borrower.
"CONSOLIDATED" refers to the consolidation of accounts in accordance
with GAAP.
"CONSOLIDATED EBITDA" means, for any fiscal period of the Borrower and
its Subsidiaries, the (i) income (or loss) before interest and taxes of the
Borrower and its Subsidiaries plus, (ii) to the extent deducted in
determining such income (or loss), depreciation, amortization and other
similar non-cash charges and reserves other than non-cash
<PAGE> 8
5
charges or credits resulting from changes in prepaid assets of accrued
liabilities in the ordinary course of business, minus (iii) to the extent
recognized in determining such income (or loss), extraordinary gains (or
losses), restructuring charges or other non-recurring items or expenses
associated with the Acquisition up to $5,000,000 in the aggregate. For all
purposes of this Agreement, Consolidated EBITDA shall be calculated for the
period of four consecutive fiscal quarters ended on the last date of the
most recent fiscal quarter for which financial statements have been
provided pursuant to Section 5.03 hereof except that for the fourth fiscal
quarter of fiscal year 1998 and the first and second fiscal quarters of
fiscal year 1999, Consolidated EBITDA shall be calculated as follows:
Fourth fiscal quarter 1998: Consolidated EBITDA for the fourth fiscal
quarter of fiscal year 1998 multiplied by 4.
First fiscal quarter 1999: Consolidated EBITDA for the fourth fiscal
quarter of fiscal year 1998 and the first fiscal quarter of fiscal
year 1999 multiplied by 2.
Second fiscal quarter 1999: Consolidated EBITDA for the fourth fiscal
quarter of fiscal year 1998 and the first and second fiscal quarters
of fiscal year 1999 divided by 3 and then multiplied by 4.
"CONSOLIDATED FIXED CHARGE COVERAGE" means, with respect to any fiscal
period, the ratio of (a) Consolidated EBITDA minus the Capital Expenditures
of the Borrower and its Subsidiaries that are not financed with proceeds
made available to the Borrower and its Subsidiaries by another Person minus
income taxes for such period to (b) the sum of all Consolidated Fixed
Charges for such period.
"CONSOLIDATED FIXED CHARGES" means, with respect to any fiscal period,
the sum of the (a) interest expense plus (b) the aggregate of all actual
principal payments of Debt for Money Borrowed, plus (c) cash Distributions
permitted by this Agreement whether declared or paid, in each case, of the
Borrower and its Subsidiaries.
"CONSOLIDATED FUNDED DEBT/CONSOLIDATED EBITDA" means, for any date,
the ratio of (i) Consolidated Funded Debt outstanding on such date to (ii)
Consolidated EBITDA.
"CONSOLIDATED SENIOR DEBT/CONSOLIDATED EBITDA" means, for any date,
the ratio of (i) all Funded Debt (other than the Indebtedness outstanding
under the Loan Documents) outstanding on such date to (ii) Consolidated
EBITDA.
"CONSOLIDATED TANGIBLE NET WORTH" means, on any date of determination,
the Consolidated net worth of the Borrower and its Subsidiaries on such
date as determined
<PAGE> 9
6
in accordance with GAAP, after deducting therefrom the amount of all
intangible items reflected therein, including all unamortized debt discount
and expense, unamortized research and development expense, unamortized
deferred charges, goodwill, patents, trademarks, service marks, trade
names, copyrights, unamortized excess cost of investment in Subsidiaries
over equity at dates of acquisition, and all similar items which should
properly be treated as intangibles in accordance with GAAP.
"CONTRACTOR" means a Person that processes inventory of the Borrower
or any Subsidiary thereof and that is located outside of the United States
of America.
"CONTROL EVENT" means:
(i) the execution by the Borrower or any of its Subsidiaries or
Affiliates of any agreement or letter of intent with respect to any
proposed transaction or event or series of transactions or events which,
individually or in the aggregate, may reasonably be expected to result in a
Change in Control;
(ii) the execution of any written agreement which, when fully
performed by the parties thereto, would result in a Change in Control; or
(iii) the making of any written offer by any person (as such term is
used in section 13(d) and section 14(d)(2) of the Exchange Act as in effect
on the Closing Date) or related persons constituting a group (as such term
is used in Rule 13d-5 under the Exchange Act as in effect on the Closing
Date) to the holders of the Common Stock of the Borrower, which offer if
accepted by the requisite number of holders, would result in a Change in
Control.
"CURRENT ASSETS" means, at any date, the amount at which all of the
current assets of a Person would be properly classified as current assets
shown on a balance sheet at such date in accordance with GAAP except that
amounts due from Affiliates and investments in Affiliates shall be excluded
therefrom.
"DEBT FOR MONEY BORROWED" means, as applied to any Person, (i)
Indebtedness arising from the lending of money by any other Person to such
Person; (ii) Indebtedness, whether or not in any such case arising from the
lending of money by another Person to such Person, (A) which is represented
by notes payable or drafts accepted that evidence extensions of credit, (B)
which constitutes obligations evidenced by bonds, debentures, notes or
similar instruments, or (C) upon which interest charges are customarily
paid (other than accounts payable) or that was issued or assumed as full or
partial payment for Property; (iii) Indebtedness that constitutes a
Capitalized Lease Obligation; (iv)
<PAGE> 10
7
reimbursement obligations with respect to letters of credit or guaranties
of letters of credit and (v) Indebtedness of such Person under any guaranty
of obligations that would constitute Debt for Money Borrowed under clauses
(i) through (iii) hereof, if owed directly by such Person.
"DEFAULT" means any Event of Default or any event that would
constitute an Event of Default but for the requirement that notice be given
or time elapse or both.
"DESIGNATED SENIOR DEBT" means (i) all Senior Debt under the Senior
Credit Facility and (ii) any other issue of Senior Debt or refinancing
thereof permitted by the definition of Senior Debt, having a principal
amount of at least $25.0 million and which has been designated by the
Borrower as Designated Senior Debt in the instrument evidencing or
governing such Senior Debt.
"DISQUALIFIED STOCK" means any class or series of Capital Stock that,
either by its terms, or by the terms of any security into which it is
convertible or exchangeable or by contract or otherwise (a) is, or upon the
happening of an event or passage of time would be, required to be redeemed
prior to one year after the Maturity Date, (b) is redeemable at the option
of the holder thereof at any time prior to one year after the Maturity Date
or (c) at the option of the holder thereof, is convertible into or
exchangeable for debt securities at any time prior to one year after the
Maturity Date; provided that any Capital Stock that would not constitute
Disqualified Stock but for provisions therein giving holders thereof the
right to cause the issuer thereof to repurchase or redeem such Capital
Stock upon the occurrence of an "asset sale" or "change of control"
occurring prior to the Maturity Date will not constitute Disqualified Stock
if the "asset sale" or "change of control" provisions applicable to such
Capital Stock are no more favorable to the holders of such Capital Stock
than the provisions contained in Section 2.04(b), clauses (ii) and (iv),
respectively, are to the Lenders, and such Capital Stock specifically
provides that the issuer will not repurchase or redeem any of such stock
pursuant to such provision prior to the Borrower's prepayment of such of
the Advances as are required to be prepaid pursuant to Section 2.04(b),
clauses (ii) and (iv).
"DISTRIBUTION" means, in respect of any Person, (i) any payment of any
dividends or other distributions with respect to the Capital Stock of such
Person (except distributions in such Capital Stock) and (ii) any purchase,
redemption or other acquisition or retirement for value of any Capital
Stock of such Person or any Affiliate of such Person unless made
contemporaneously from the net proceeds of the sale of Capital Stock.
"DISTRIBUTION EVENT" has the meaning set forth in Section 7.12.
<PAGE> 11
8
"ELIGIBLE ASSIGNEE" means (a) a commercial bank or trust company
organized under the laws of the United States, or any State thereof; (b) a
commercial bank organized under the laws of any other country, provided
that such bank is acting through a branch or agency located in the United
States; and (c) any other commercial bank or other financial institution
engaged generally in the business of extending credit or purchasing debt
instruments; provided, however, that (A) any such Person shall also (iv)
have outstanding unsecured indebtedness that is rated A- or better by
Standard & Poor's or A3 or better by Moody's (or an equivalent rating by
another nationally recognized credit rating agency of similar standing if
neither of such corporations is then in the business of rating unsecured
indebtedness of entities engaged in such businesses) or (v) have combined
capital and surplus (as established in its most recent report of condition
to its primary regulator) of not less than $250,000,000 (or its equivalent
in foreign currency), (B) any Person described in clause (b) or (c) above
shall, on the date on which it is to become a Lender hereunder, (i) be
entitled to receive payments hereunder without deduction or withholding of
any United States Federal income taxes and (ii) provide to Prudential and
the Borrower Internal Revenue Service Form 1001 or 4224, as appropriate,
certifying that such Person is entitled to receive payments hereunder
without deduction or withholding of any United States Federal income taxes.
"ENVIRONMENTAL ACTION" means any administrative, regulatory or
judicial action, suit, demand, demand letter, claim, notice of
non-compliance or violation, investigation, proceeding, consent order or
consent agreement relating in any way to any Environmental Law or any
Environmental Permit including, without limitation, (a) any claim by any
governmental or regulatory authority for enforcement, cleanup, removal,
response, remedial or other actions or damages pursuant to any
Environmental Law and (b) any claim by any third party seeking damages,
contribution, indemnification, cost recovery, compensation or injunctive
relief resulting from Hazardous Materials or arising from alleged injury or
threat of injury to health, safety or the environment.
"ENVIRONMENTAL LAW" means any federal, state or local law, rule,
regulation, order, writ, judgment, injunction, decree, determination or
award relating to the environment, health, safety or Hazardous Materials,
including, without limitation, CERCLA, the Resource Conservation and
Recovery Act, the Hazardous Materials Transportation Act, the Clean Water
Act, the Toxic Substances Control Act, the Clean Air Act, the Safe Drinking
Water Act, the Atomic Energy Act, the Federal Insecticide, Fungicide and
Rodenticide Act and the Occupational Safety and Health Act.
"ENVIRONMENTAL PERMIT" means any permit, approval, identification
number, license or other authorization required under any Environmental
Law.
<PAGE> 12
9
"ERISA" means the Employee Retirement Income Security Act of 1974, as
amended from time to time, and the regulations promulgated and rulings
issued thereunder.
"ERISA AFFILIATE" of any Person means any other Person that for
purposes of Title IV of ERISA is a member of such Person's controlled
group, or under common control with such Person, within the meaning of
Section 414 of the Internal Revenue Code.
"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 Plan of such Person or any of its ERISA Affiliates 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 or any of
its ERISA Affiliates of a notice of intent to terminate such Plan, pursuant
to Section 4041(a)(2) of ERISA (including any such notice with respect to a
plan amendment referred to in Section 4041(e) of ERISA); (c) the cessation
of operations at a facility of such Person or any of its ERISA Affiliates
in the circumstances described in Section 4062(e) of ERISA; (d) the
withdrawal by such Person or any of its ERISA Affiliates from a Multiple
Employer Plan during a plan year for which it was a substantial employer,
as defined in Section 4001(a)(2) of ERISA; (e) the failure by such Person
or any of its ERISA Affiliates to make a payment to a Plan required under
Section 302(f)(1) of ERISA; (f) the adoption of an amendment to a Plan of
such Person or any of its ERISA Affiliates requiring the provision of
security to such Plan, pursuant to Section 307 of ERISA; or (g) the
institution by the PBGC of proceedings to terminate a Plan of such Person
or any of its ERISA Affiliates, pursuant to Section 4042 of ERISA, or the
occurrence of any event or condition described in Section 4042 of ERISA
that could constitute grounds for the termination of, or the appointment of
a trustee to administer, such Plan.
"EUROCURRENCY LIABILITIES" has the meaning specified in Regulation D
of the Board of Governors of the Federal Reserve System, as in effect from
time to time.
"EURODOLLAR RATE" means, for each Interest Period shall mean (x) the
London interbank offered rate for United States of America Dollar deposits
for a period equal in length to such Interest Period that appears as of
11:00 A.M. (London time) on the second Business Day next preceding the
first day of such Interest Period on the display page designated as Page
3750 on the Telerate Monitor (or such other page or service as shall
replace the Telerate Monitor for the purposes of displaying the London
interbank offered rate for United States of America Dollar deposits),
divided by (y) 1 minus the applicable Eurodollar Rate Reserve Percentage
for such Interest Period. If (i) on the date on which the Borrower shall
seek to determine the LIBOR Rate for an Interest Period, no quotation
<PAGE> 13
10
is given on Telerate Monitor page 3750, or (ii) the Borrower shall have
failed to give at least two Business Days' prior written notice to request
the advance of funds hereunder, the LIBOR Rate shall be equal to the each
Lender's cost of funds for United States Dollar deposits for a period
comparable to such Interest Period on the date of determination for amounts
approximately equal to the then-outstanding principal balance of the Note.
The period between the date hereof and the date of payment in full of
the principal amount hereof shall be divided into successive periods of
three calendar months (each, an "INTEREST PERIOD"), with each such Interest
Period ending on the last day of a calendar month, except that the initial
Interest Period shall begin on the Closing Date and end on the last day of
the calendar month occurring three months after the last day of the
calendar month in which the Closing Date occurs. Each subsequent Interest
Period shall begin on the last day of the preceding Interest Period;
provided, that, (i) any Interest Period that would otherwise end on a day
that is not a Business Day shall, subject to clauses (ii) and (iii) below,
be extended to the next succeeding Business Day unless such Business Day
falls in another calendar month, in which case such Interest Period shall
end on the next preceding Business Day; (ii) any Interest Period that
begins on the last Business Day of a calendar month (or on a day for which
there is no numerically corresponding day in the calendar month at the end
of such Interest Period) shall, subject to clause (iii), end on the last
Business Day of a calendar month; and (iii) any Interest Period that would
otherwise end after the Maturity Date shall end on the Maturity Date.
"EURODOLLAR RATE RESERVE PERCENTAGE" for any Interest Period means the
reserve percentage applicable two Business Days before the first day of
such Interest Period under regulations issued from time to time by the
Board of Governors of the Federal Reserve System (or any successor) for
determining the maximum reserve requirement (including, without limitation,
any emergency, supplemental or other marginal reserve requirement) for a
member bank of the Federal Reserve System in New York City with respect to
liabilities or assets consisting of or including Eurocurrency Liabilities
(or with respect to any other category of liabilities that includes
deposits by reference to which the interest rate on Eurodollar Rate
Advances is determined) having a term equal to such Interest Period.
"EVENTS OF DEFAULT" has the meaning specified in Section 6.01.
"EXCHANGE ACT" means the Securities Exchange Act of 1934, as amended.
"EXCHANGE SECURITY" means a senior subordinated exchange note of the
Borrower issued pursuant to the Indenture.
<PAGE> 14
11
"EXEMPT PROPERTY" means (i) any equipment that is owned on the Closing
Date by any Foreign Subsidiary of the Borrower; (ii) the transfer of
equipment of the Borrower or any Subsidiary thereof to a location outside
of the United States or the sale of such equipment to a Contractor; (iii)
dispositions of equipment which, in the aggregate during any consecutive
12-month period, has a fair market value or book value, whichever is more,
of $1,000,000 or less; and (iv) replacements of equipment with equipment of
like kind, function and value, provided that the replacement equipment
shall be acquired prior to or concurrently with any disposition of the
equipment that is to be replaced, the replacement Equipment shall be free
and clear of Liens other than Permitted Liens, and the Borrower shall have
given the Lenders at least 10 days prior written notice of such
disposition.
"EXISTING DEBT" means Indebtedness of the Borrower and its
Subsidiaries outstanding immediately before giving effect to the
Acquisition.
"FACILITY" means, at any time, the aggregate amount of the Lenders'
Commitments at such time.
"FACTORED ACCOUNT" means an Account factored by a Factor under a
Factoring Agreement.
"FACTORING AGREEMENTS" means, collectively, (i) that certain Factoring
Agreement dated as of October 1, 1995, between the Borrower and Heller,
(ii) that certain Factoring Agreement dated June 10, 1998, between the
Acquired Business and NationsBanc, and (iii) any and all other factoring
agreements executed by the Borrower or a Subsidiary thereof in favor of a
Factor.
"FACTORS" means Heller, NationsBanc and each other Person who executes
a Factoring Agreement with the Borrower or a Subsidiary thereof and is
approved by the Lenders in writing.
"FEE LETTER" means the Bridge Financing Fee Letter, dated as of April
26, 1998, between Prudential and the Borrower, as modified pursuant to
Section 2.06 hereof.
"FOREIGN SUBSIDIARY" means a Subsidiary of a Person that is organized
under the laws of a jurisdiction other than the United States of America or
any State thereof.
"FOXFIRE" means Foxfire Acquisition Corp., a Texas corporation and a
direct, wholly-owned Subsidiary of the Borrower.
<PAGE> 15
12
"FUNDED DEBT" means all Debt for Money Borrowed of the Borrower and
its Subsidiaries which would, in accordance with GAAP, constitute long term
debt, including (a) any Indebtedness with a maturity more than one year
after the creation thereof and (b) any Debt for Money Borrowed which is
renewable or extendable at the option of such obligor for a period of more
than one year from the date of creation of such Debt for Money Borrowed.
"GAAP" has the meaning specified in Section 1.03.
"GOVERNMENTAL APPROVALS" means all authorizations, consents,
approvals, licenses and exemptions of, registrations and filings with, and
reports to, all national state or local government (whether domestic or
foreign) and any political subdivisions thereof in any other governmental,
quasi-governmental, judicial, administrative, public or statutory
instrumentality, authority, body, agency, bureau or entity.
"GUARANTOR" means Tropical Sportswear Company, Inc., a Delaware
corporation, Farah Incorporated, a Texas corporation, and Apparel Network
Corporation, a Florida corporation, and each other Subsidiary that executes
and delivers a Guaranty Supplement as required under this Agreement.
"GUARANTY" has the meaning specified in Section 3.01(j)(ix).
"GUARANTY SUPPLEMENT" means a guaranty supplement in the form of Annex
A to the Guaranty.
"HAZARDOUS MATERIALS" means (a) petroleum or petroleum products,
natural or synthetic gas, asbestos in any form that is or could become
friable, urea formaldehyde foam insulation and radon gas, (b) any
substances defined as or included in the definition of "hazardous
substances," "hazardous wastes," "hazardous materials," "extremely
hazardous wastes," "restricted hazardous wastes," "toxic substances,"
"toxic pollutants," "contaminants" or "pollutants," or words of similar
import, under any Environmental Law and (c) any other substance exposure to
which is regulated under any Environmental Law.
"HELLER" means Heller Financial, Inc., a Delaware corporation.
"INDEBTEDNESS" means, as applied to a Person, without duplication: (i)
all items which in accordance with GAAP would be included in determining
total liabilities as shown on the liability side of a balance sheet of such
Person as of the date as of which Indebtedness is to be determined,
including Capitalized Lease Obligations; (ii) all obligations of other
Persons which such Person has guaranteed; and (iii) all reimbursement
<PAGE> 16
13
obligations in connection with letters of credit or letter of credit
guaranties issued for the account of such Person.
"INDENTURE" means that certain Indenture, in substantially the form of
Exhibit C hereto.
"INSUFFICIENCY" means, with respect to any Plan, the amount, if any,
of its unfunded benefit liabilities, as defined in Section 4001(a)(18) of
ERISA.
"INTERNAL REVENUE CODE" means the Internal Revenue Code of 1986, as
amended from time to time, and the regulations promulgated and rulings
issued thereunder.
"INTEREST PERIOD" shall have the meaning specified in the defined term
"Eurodollar Rate."
"LENDERS" means, on the Closing Date and thereafter, Prudential and
each assignee that shall become a party hereto from time to time.
"LICENSE AGREEMENT" means any agreement between the Borrower or any
Subsidiary thereof and a Licensor pursuant to which such the Borrower or
such Subsidiary markets, manufactures or sells inventory.
"LICENSOR" means any Person from whom the Borrower or any Subsidiary
thereof licenses the right to use any trademark, copyright or other
intangible in connection with the manufacture, marketing or sale of any
inventory.
"LIEN" means any lien, security interest or other charge or
encumbrance of any kind, or any other type of preferential arrangement,
including, without limitation, the lien or retained security title of a
conditional vendor and any easement, right of way or other encumbrance on
title to real property.
"LOAN DOCUMENTS" means this Agreement, the Notes, the Guaranty, each
Guaranty Supplement, the Fee Letter and each other agreement, document or
instrument executed and delivered hereunder or thereunder.
"LOAN PARTY" means the Borrower and each Guarantor.
"MARGIN STOCK" has the meaning specified in Regulation U.
<PAGE> 17
14
"MATERIAL ADVERSE CHANGE" means any material adverse change in the
business, condition (financial or otherwise), operations, performance,
properties or prospects of the Borrower, or the Borrower and its
Subsidiaries, taken as a whole, or the Acquired Business.
"MATERIAL ADVERSE EFFECT" means a material adverse effect on (a) the
business, condition (financial or otherwise), operations, performance,
properties or prospects of the Borrower or the Borrower and any of its
Subsidiaries taken as a whole, (b) the rights and remedies of any Lender
under any Loan Document, (c) the Acquired Business or (d) the ability of
the Borrower or any other Person to perform its Obligations under any Loan
Document or Related Document.
"MATERIAL CONTRACT" means, with respect to any Person, each contract
identified as such from time to time in the Forms 10-K and 10-Q of such
Person that are filed under the Exchange Act.
"MATURITY DATE" means June 10, 1999.
"MERGER" means the merger of Foxfire with and into Farah pursuant to
the Acquisition Agreement as soon as practicable after the completion of
the Tender Offer.
"MULTIEMPLOYER PLAN" of any Person means a multiemployer plan, as
defined in Section 4001(a)(3) of ERISA, to which such Person or any of its
ERISA Affiliates is making or accruing an obligation to make contributions,
or has within any of the preceding five plan years made or accrued an
obligation to make contributions.
"MULTIPLE EMPLOYER PLAN" of any Person means a single employer plan,
as defined in Section 4001(a)(15) of ERISA, that (a) is maintained for
employees of such Person or any of its ERISA Affiliates and at least one
Person other than such Person and its ERISA Affiliates or (b) was so
maintained and in respect of which such Person or any of its ERISA
Affiliates could have liability under Section 4064 or 4069 of ERISA in the
event such plan has been or were to be terminated.
"NATIONSBANC" means NationsBanc Commercial Corporation, a Georgia
corporation.
"NET CASH PROCEEDS" means, with respect to any sale, lease, transfer
or other disposition of any asset or the sale or issuance of any
Indebtedness or capital stock, any securities convertible into or
exchangeable for capital stock or any warrants, rights or options to
acquire capital stock by any Person, the aggregate amount of cash received
from
<PAGE> 18
15
time to time by or on behalf of such Person in connection with such
transaction after deducting therefrom only (a) reasonable and customary
brokerage commissions, underwriting fees and discounts, legal fees,
finder's fees and other similar fees and commissions and (b) the amount of
taxes payable in connection with or as a result of such transaction and (c)
the amount of any Indebtedness secured by a Lien on such asset that, by the
terms of such transaction, is required to be prepaid upon such disposition,
in each case to the extent, but only to the extent, that the amounts so
deducted are, at the time of receipt of such cash, actually paid to a
Person that is not an Affiliate and are properly attributable to such
transaction or to the asset that is the subject thereof.
"NOTE" means a promissory note of the Borrower payable to the order of
any Lender, in substantially the form of Exhibit A hereto, evidencing the
indebtedness of the Borrower to such Lender resulting from the Advance made
by such Lender.
"NOTICE OF BORROWING" has the meaning specified in Section 2.02(a).
"OBLIGATION" means, with respect to any Person, any obligation of such
Person of any kind, including, without limitation, any liability of such
Person on any claim, whether or not the right of any creditor to payment in
respect of such claim is reduced to judgment, liquidated, unliquidated,
fixed, contingent, matured, disputed, undisputed, legal, equitable, secured
or unsecured, and whether or not such claim is discharged, stayed or
otherwise affected by any proceeding referred to in Section 6.01(f).
Without limiting the generality of the foregoing, the Obligations of the
Borrower under the Loan Documents include (a) the obligation to pay
principal, interest, charges, expenses, fees, attorneys' fees and
disbursements, indemnities and other amounts payable by the Borrower under
any Loan Document and (b) the obligation to reimburse any amount in respect
of any of the foregoing that any Lender, in its sole discretion, may elect
to pay or advance on behalf of the Borrower.
"OECD" means the Organization for Economic Cooperation and
Development.
"OTHER TAXES" has the meaning specified in Section 2.09(b).
"PARI PASSU DEBT" means any Indebtedness of the Borrower or any
Guarantor, whether outstanding at the date hereof or incurred thereafter,
that ranks pari passu in right of payment with the Indebtedness of the
Borrower or any Guarantor under the Loan Documents.
"PBGC" means the Pension Benefit Guaranty Corporation.
<PAGE> 19
16
"PERMITTED HOLDER" means each of William W. Compton, Michael Kagan and
their respective Affiliates.
"PERMITTED LIEN" means a lien of the kind specified in clauses (i) -
(xii) of Section 5.02(e) of this Agreement.
"PERSON" means any individual, partnership, corporation (including a
business trust), limited liability company or partnership, joint stock
company, trust, unincorporated organization, association, joint venture or
other entity, or a government or any political subdivision or agency
thereof.
"PLAN" means a Single Employer Plan or a Multiple Employer Plan.
"PREFERRED STOCK" means, with respect to any corporation, capital
stock issued by such corporation that is entitled to a preference or
priority over any other capital stock issued by such corporation upon any
distribution of such corporation's assets, whether by dividend or upon
liquidation.
"PRELIMINARY OFFERING MEMORANDUM" means the Preliminary Offering
Memorandum, dated May 29, 1998, relating to the issuance and sale of the
senior subordinated notes of the Borrower.
"PRIME RATE" means the rate of interest publicly announced by
Prudential from time to time as its "Prime Rate" or, if Prudential shall
not at any time of determination publicly announce a rate of interest as
its "Prime Rate", the "Prime Rate" publicly announced by any money center
bank from time to time as its "Prime Rate", as published in the Wall Street
Journal (it being understood that in either case the Prime Rate may not be
the lowest rate Prudential charges its customers).
"PROPERTY" means any interest in any kind of property or asset,
whether real, personal or mixed, or tangible or intangible.
"PRUDENTIAL" means PSSC or any Affiliate thereof.
"PURCHASE MONEY DEBT" means and includes (i) Debt for Money Borrowed
for the payment of all or any part of the purchase price of any fixed
assets, (ii) any Debt for Money Borrowed incurred at the time of or within
20 days prior to or after the acquisition of any fixed assets for the
purpose of financing all or any part of the purchase price thereof, and
(iii) any renewals, extensions or refinancings thereof, but not any
increases in the principal amounts thereof outstanding at the time.
<PAGE> 20
17
"PURCHASE MONEY LIEN" means a Lien upon fixed assets which secures
Purchase Money Debt, but only if such Lien shall at all times be confined
solely to the fixed assets acquired through the incurrence of the Purchase
Money Debt secured by such Lien and such Lien constitutes a purchase money
security interest under the Uniform Commercial Code of the State governing
such Lien.
"REDEEMABLE" means, with respect to any capital stock, Indebtedness or
other right or Obligation, any such right or Obligation that (a) the issuer
has undertaken to redeem at a fixed or determinable date or dates, whether
by operation of a sinking fund or otherwise, or upon the occurrence of a
condition not solely within the control of the issuer or (b) is redeemable
at the option of the holder.
"REGISTER" has the meaning specified in Section 7.07(b).
"REGISTRATION RIGHTS AGREEMENT" means a Registration Rights Agreement
relating to the registration of the Exchange Securities under the
Securities Act, substantially in the form of Exhibit D hereto.
"REGULATION U" means Regulation U of the Board of Governors of the
Federal Reserve System, as in effect from time to time.
"RELATED DOCUMENTS" means the Acquisition Agreement and each other
document, instrument or certificate delivered in connection with the
Acquisition and the Senior Credit Facility.
"REQUIRED LENDERS" means at any time Lenders owed or holding more than
50% of the sum of the aggregate principal amount of the Advances
outstanding at such time, or, if no such principal amount is outstanding at
such time, Lenders holding more than 50% of the aggregate Commitments at
such time, or if the Exchange Securities have been issued, Lenders (or
their nominees) holding more than 50% of the Value (determined by
Liquidation Preference) of the Exchange Securities.
"RESTRICTED INVESTMENT" means any acquisition of Property by the
Borrower or any of its Subsidiaries in exchange for cash or other Property,
whether in the form of an acquisition of Capital Stock or Indebtedness, or
the purchase or acquisition by the Borrower or any of its Subsidiaries of
any other Property, or a loan, advance, capital contribution or
subscription, except acquisitions of the following: (a) fixed assets to be
used in the business of the Borrower or any of its Subsidiaries so long as
the acquisition costs thereof constitute Capital Expenditures permitted
hereunder; (b) goods held for sale or lease or to be used in the
manufacture of goods or the provision of services by the
<PAGE> 21
18
Borrower or any of its Subsidiaries in the ordinary course of business; (c)
Current Assets arising from the sale or lease of goods or the rendition of
services in the ordinary course of business of the Borrower or any of its
Subsidiaries; (d) investments in Guarantors; (e) investments in Foreign
Subsidiaries of the Borrower and joint ventures of the Borrower or any
Guarantor to the extent such investments or joint ventures are existing on
the Closing Date, and additional investments in such Foreign Subsidiaries
in the aggregate amount not to exceed at any time $20,000,000; and (f) Cash
Equivalents to the extent they are not subject to rights of offset in favor
of any Person.
"RULE 144A OFFERING" means the issuance and sale by the Borrower of an
aggregate of $125,000,000 aggregate principal amount of senior subordinated
notes in an private placement pursuant to Rule 144A under the Securities
Act, upon substantially the terms and conditions set forth under the
heading "Description of the Notes" in the Preliminary Offering Memorandum.
"SECURITIES ACT" means the Securities Act of 1933, as amended.
"SECURITIES OFFERING" means the public or private issuance or sale by
the Borrower, any Subsidiary of the Borrower, or any Affiliate of the
Borrower or any Subsidiary thereof, of any equity or debt securities, any
securities convertible into or exchangeable for any equity or debt
securities or any warrants, rights or options to acquire or subscribe for
any equity or debt securities, but shall not include (i) the promissory
notes issued to the lenders under the Senior Credit Facility or (ii)
options to purchase the Capital Stock of such Person issued pursuant to an
employee stock ownership plan or the Capital Stock of such Person issued
upon the exercise of such options.
"SENIOR CREDIT FACILITY" means the credit agreement dated as of June
10, 1998 among the Borrower, the banks party thereto and Fleet Capital
Corporation, as agent, as such agreement may be amended, renewed, extended,
substituted, replaced, restated, refinanced, restructured, supplemented or
otherwise modified from time to time (including, without limitation, any
successive amendments, renewals, extensions, substitutions, replacements,
restatements, refinancings, restructuring, supplements or other
modifications of the foregoing); provided that with respect to any
agreement providing for the refinancing, substitution or replacement of
Indebtedness under the Senior Credit Facility (including any such agreement
which increases the principal amount thereof), such agreement shall be the
Senior Credit Facility for the purposes of this definition only if a notice
to that effect is delivered by the Borrower to the Lenders and there shall
be at any time only one credit agreement that is the Senior Credit
Facility.
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19
"SENIOR DEBT" means the principal of and premium, if any, and interest
on (including interest accruing after the filing of a petition initiating
any proceeding pursuant to any bankruptcy law, whether or not allowed) and
other amounts due on or in connection with any Indebtedness of the Borrower
(other than the Obligations under the Loan Documents or Pari Passu Debt),
whether outstanding on the date hereof or thereafter incurred, unless, in
the case of such Indebtedness, the instrument creating or evidencing the
same or pursuant to which the same is outstanding expressly provides that
such Indebtedness will be pari passu with or subordinate in right of
payment to the Obligations under the Loan Documents. Without limiting the
generality of the foregoing, "Senior Debt" includes the principal of and
premium, if any, and interest (including interest accruing after the
occurrence of an event of default or after the filing of a petition
initiating any proceeding pursuant to any bankruptcy law, whether or not
allowed) on all obligations of every nature of the Borrower from time to
time owed to the lenders under the Senior Credit Facility, provided,
however, that any Indebtedness under any refinancing, refunding or
replacement of the Senior Credit Facility will not constitute Senior Debt
to the extent that the Indebtedness thereunder is by its express terms
subordinate to any other Indebtedness of the Borrower. Notwithstanding the
foregoing, "Senior Debt" will not include (a) Indebtedness represented by
Disqualified Stock, (b) any trade payables, (c) Indebtedness of or amounts
owed by the Borrower for compensation to employees or for services rendered
to the Borrower, (d) any liability for foreign, federal, state, local or
other taxes owed or owing by the Borrower, (e) Indebtedness of the Borrower
to a Subsidiary of the Borrower or any other Affiliate of the Borrower or
any of such Affiliate's Subsidiaries, (f) that portion of any Indebtedness
that, at the time of the incurrence, is incurred by the Borrower in
violation of his Agreement, (g) amounts owing under leases (other than
Capitalized Lease Obligations) and (h) Indebtedness that is without
recourse to the Borrower (regardless of any election under Section 1111(b)
of the Bankruptcy Code).
"SENIOR NONMONETARY DEFAULT" has the meaning set forth in Section
7.12.
"SENIOR PAYMENT DEFAULT" has the meaning set forth in Section 7.12.
"SINGLE EMPLOYER PLAN" of any Person means a single employer plan, as
defined in Section 4001(a)(15) of ERISA, that (a) is maintained for
employees of such Person or any of its ERISA Affiliates and no Person other
than such Person and its ERISA Affiliates or (b) was so maintained and in
respect of which such Person or any of its ERISA Affiliates could have
liability under Section 4069 of ERISA in the event such plan has been or
were to be terminated.
<PAGE> 23
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"SOLVENT" and "SOLVENCY" mean, with respect to any Person on a
particular date, that on such date (a) the fair value of the property of
such Person is greater than the total amount of liabilities, including,
without limitation, contingent liabilities, of such Person, (b) the present
fair salable value of the assets of such Person is not less than the amount
that will be required to pay the probable liability of such Person on its
debts as they become absolute and matured, (c) such Person does not intend
to, and does not believe that it will, incur debts or liabilities beyond
such Person's ability to pay as such debts and liabilities mature and (d)
such Person is not engaged in business or a transaction, and is not about
to engage in business or a transaction, for which such Person's property
would constitute an unreasonably small capital. The amount of contingent
liabilities at any time shall be computed as the amount that, in the light
of all the facts and circumstances existing at such time, represents the
amount that can reasonably be excepted to become an actual or matured
liability.
"TENDER OFFER" means that certain tender offer commenced by Foxfire to
purchase all of the outstanding Capital Stock of Farah pursuant to the
Acquisition Agreement.
"SUBORDINATED DEBT" means Indebtedness of the Borrower or any
Subsidiary thereof that is subordinated in right of payment to the
Obligations of the Borrower under the Loan Documents in a manner
satisfactory to Lenders.
"SUBSIDIARY" of any Person means any corporation, limited liability
company, partnership, joint venture, trust or estate of which (or in which)
more than 50% of (a) the issued and outstanding capital stock having
ordinary voting power to elect a majority of the Board of Directors of such
corporation (irrespective of whether at the time capital stock of any other
class or classes of such corporation shall or might have voting power upon
the occurrence of any contingency), (b) the interest in the capital or
profits of such partnership or joint venture or (c) the beneficial interest
in such trust or estate is at the time directly or indirectly owned or
controlled by such Person, by such Person and one or more of its other
Subsidiaries or by one or more of such Person's other Subsidiaries.
"TAXES" has the meaning specified in Section 2.09(a).
"VOTING STOCK" means any class or classes of Capital Stock pursuant to
which the holders thereof have the general voting power under ordinary
circumstances to elect at least a majority of the board of directors,
managers or trustees of any Person (irrespective of whether or not, at the
time, stock of any other class or classes has, or might have, voting power
by reason of the happening of any contingency).
"WELFARE PLAN" means a welfare plan, as defined in Section 3(1) of
ERISA.
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"WITHDRAWAL LIABILITY" has the meaning specified in Part I of Subtitle
E of Title IV of ERISA.
SECTION 1.02. COMPUTATION OF TIME PERIODS. In this Agreement in the
computation of periods of time from a specified date to a later specified date,
the word "from" means "from and including" and the words "to" and "until" each
mean "to but excluding".
SECTION 1.03. ACCOUNTING TERMS. All accounting terms not specifically
defined herein shall be construed in accordance with generally accepted
accounting principles consistent with those applied in the preparation of the
financial statements referred to in Section 4.01(f) ("GAAP").
ARTICLE II
AMOUNTS AND TERMS OF THE ADVANCES
SECTION 2.01. THE ADVANCES. Each Lender severally agrees, on the terms and
conditions hereinafter set forth, to make a single advance (an "ADVANCE") to the
Borrower on the Closing Date in an amount not to exceed such Lender's
Commitment. Amounts borrowed under this Section 2.01 and repaid or prepaid may
not be reborrowed.
SECTION 2.02. MAKING THE ADVANCES. (a) Except as otherwise provided in
Section 2.02(b) each Borrowing shall be made on notice, given not later than
11:00 A.M. (New York City time) on the third Business Day prior to the date of
the proposed Borrowing, by the Borrower to each Lender, except that the
Borrowing made on the Closing Date may be made upon such lesser notice as may be
acceptable to the Lenders. Each such notice of a Borrowing (a "NOTICE OF
BORROWING") shall be by telephone, confirmed by prompt delivery of the original
version of the Notice of Borrowing, specifying therein the requested (i) date of
such Borrowing and (ii) aggregate amount of such Borrowing. The Lenders will
make the Advance available to the Borrower pursuant to written instructions
provided by the Borrower prior to the Closing Date.
(b) Each Notice of Borrowing shall be irrevocable and binding on the
Borrower. The Borrower shall indemnify each Lender against any loss, cost or
expense incurred by such Lender as a result of any failure to fulfill on or
before the date specified in such Notice of Borrowing for such Borrowing the
applicable conditions set forth in Article III, including, without limitation,
any loss (including loss of anticipated profits), cost or expense incurred by
reason of the liquidation or reemployment of deposits or other funds acquired by
such Lender to fund the Advance to be made by such Lender as part of such
Borrowing when such Advance, as a result of such failure, is not made on such
date.
<PAGE> 25
22
SECTION 2.03. REPAYMENT. The Borrower shall repay to the Lenders the
aggregate outstanding principal amount of the Advances on the Maturity Date.
SECTION 2.04. PREPAYMENTS. (a) OPTIONAL. The Borrower may, upon at least
five Business Days' notice to the Lenders stating the proposed date and
aggregate principal amount of the prepayment, and if such notice is given the
Borrower shall, prepay the outstanding aggregate principal amount of the
Advances comprising part of the same Borrowing in whole or ratably in part;
provided, however, that each partial prepayment shall be in an aggregate
principal amount of $10,000,000 or an integral multiple of $1,000,000 in excess
thereof.
(b) MANDATORY. (i) The Borrower shall, on the date of receipt of the
Net Cash Proceeds from any Securities Offering, prepay an aggregate principal
amount of the Advances comprising part of the same Borrowing equal to the amount
of such Net Cash Proceeds.
(ii) The Borrower shall, on the date of receipt of the Net Cash
Proceeds from any sale of Property (excluding inventory sold in the
ordinary course of business) by the Borrower or any Subsidiary thereof that
is approved by the Required Lenders, prepay an aggregate principal amount
of the Advances comprising part of the same Borrowing equal to the amount
of such Net Cash Proceeds, provided, the Lenders right to receive such Net
Cash Proceeds is subject to the prior right of the "lenders" under the
Senior Credit Facility to receive such Net Cash Proceeds, and provided
further that the Borrower shall not be obligated to prepay the Advances
with the Net Cash Proceeds from the sale of Exempt Property for so long as
no Default or Event of Default exists.
(iii) In the event Prudential proposes to consummate the Rule 144A
Offering and act as initial purchaser in connection therewith, and the Rule
144A Offering is not consummated for any reason (including, without
limitation, due to the proposed pricing or terms of the Rule 144A Offering
or the availability of alternative financing to the Borrower, or any of its
Subsidiaries or Affiliates) other than a default by Prudential under the
terms and conditions of the purchase agreement, if executed, relating to
the Rule 144A Offering, the Borrower shall on the day on which Prudential
proposed to consummate the Rule 144A Offering, prepay all Advances
outstanding at such time and cancel the Commitments in whole.
(iv) Upon the occurrence of a Change of Control, the Borrower shall
on the date of such Change of Control, prepay all Advances outstanding at
such time in an amount equal to 101% of the principal amount thereof and
cancel the Commitments in whole.
<PAGE> 26
23
(c) INTEREST. All prepayments under subsections (a) and (b) above
shall be made together with accrued interest to the date of such prepayment on
the aggregate principal amount prepaid.
SECTION 2.05. INTEREST. (a) ORDINARY INTEREST. The Borrower shall pay
interest on the unpaid principal amount of each Advance owing to each Lender
from the date of such Advance until such principal amount shall be paid in full,
at a rate per annum equal at all times during each Interest Period for such
Advance to the sum of (i) (A) during the Interest Period beginning on the
Closing Date, the Prime Rate, and (B) during each succeeding Interest Period,
the Eurodollar Rate for such Interest Period for such Advance plus (ii) the
Applicable Margin in effect during such Interest Period, payable in arrears on
the last day of such Interest Period.
(b) Notwithstanding anything to the contrary set forth in clause (a) above,
the interest rate applicable to any Advances shall not exceed, at any time, the
lesser of (i) 18% per annum and (ii) the maximum amount permitted by applicable
law.
(c) DEFAULT INTEREST. Upon the occurrence and during the continuance of a
Default, the Borrower shall pay interest on (i) the unpaid principal amount of
each Advance owing to each Lender, payable in arrears on the dates referred to
in clause (a) above, at a rate per annum equal at all times to 2% per annum
above the rate per annum then required to be paid on such Advance and (ii) the
amount of any interest, fee or other amount payable hereunder which is not paid
when due, from the date such amount shall be due until such amount shall be paid
in full, payable in arrears on the date such amount shall be paid in full and on
demand, at a rate per annum equal at all times to 2% per annum above the rate
per annum required to be paid on Advances pursuant to clause (a) above.
SECTION 2.06. FEES. The Borrower shall pay to Prudential for its own
account the fees and expenses set forth in the Fee Letter and such other fees
and expenses as may from time to time be agreed between the Borrower and
Prudential, provided that paragraph 1(b) of the Fee Letter is hereby modified to
require the payment of the "Funding Fee" described therein in two installments,
with the first installment due on the Closing Date in an amount equal to .50% of
the aggregate amount of the Advances made on such date, and the second
installment due on the date occurring 30 days after the Closing Date in an
amount equal to .75% of the aggregate amount of the Advance made on the Closing
Date if the Advances and any other amount due to the Lenders under the Loan
Documents are outstanding on such date.
SECTION 2.07. INCREASED COSTS, ETC. (a) If, due to either (i) the
introduction of or any change (other than any change by way of imposition or
increase of reserve requirements included in the Eurodollar Rate Reserve
Percentage) in or in the interpretation of any law or regulation or (ii) the
compliance with any guideline or request from any central bank or other
governmental
<PAGE> 27
24
authority (whether or not having the force of law), there shall be any increase
in the cost to any Lender of agreeing to make or of making, funding or
maintaining the Advances, then the Borrower shall from time to time, upon demand
by such Lender, pay to such Lender additional amounts sufficient to compensate
such Lender for such increased cost. A certificate as to the amount of such
increased cost, submitted to the Borrower and Prudential by such Lender, shall
be conclusive and binding for all purposes, absent manifest error.
(b) If any Lender determines that compliance with any law or
regulation or any guideline or request from any central bank or other
governmental authority (whether or not having the force of law) affects or would
affect the amount of capital required or expected to be maintained by such
Lender or any corporation controlling such Lender and that the amount of such
capital is increased by or based upon the existence of such Lender's commitment
to lend hereunder and other commitments of such type, then, upon demand by such
Lender, the Borrower shall pay to such Lender, from time to time as specified by
such Lender, additional amounts sufficient to compensate such Lender in the
light of such circumstances, to the extent that such Lender reasonably
determines such increase in capital to be allocable to the existence of such
Lender's commitment to lend hereunder. A certificate as to such amounts (showing
the basis therefor and the computation thereof in reasonable detail) submitted
to the Borrower and Prudential by such Lender, shall be conclusive and binding
for all purposes, absent manifest error.
(c) Notwithstanding any other provision of this Agreement, if the
introduction of or any change in or in the interpretation of any law or
regulation shall make it unlawful, or any central bank or other governmental
authority shall assert that it is unlawful, for any Lender to perform its
obligations hereunder to make Advances or to continue to fund or maintain
Advances hereunder, then, on notice thereof and demand therefor by such Lender
to the Borrower, each Advance will automatically, upon such demand, be due and
payable.
SECTION 2.08. PAYMENTS AND COMPUTATIONS. (a) The Borrower shall make each
payment hereunder and under the Notes not later than 11:00 A.M. (New York City
time) on the day when due in U.S. dollars to each Lender in same day funds at
each such Lender's domestic account as designated to the Borrower by each such
Lender in writing.
(b) The Borrower hereby authorizes each Lender, if and to the extent
payment owed to such Lender is not made when due hereunder or under the Note
held by such Lender, to charge from time to time against any and all of the
Borrower's accounts with such Lender any amount so due.
(c) All computations of interest and fees shall be made by Prudential
on the basis of a year of 360 days, in each case for the actual number of days
(including the first day but excluding the last day) occurring in the period for
which such interest or fees are payable. Each
<PAGE> 28
25
determination by Prudential of an interest rate or fee hereunder shall be
conclusive and binding for all purposes, absent manifest error.
(d) Whenever any payment hereunder or under the Notes shall be stated
to be due on a day other than a Business Day, such payment shall be made on the
next succeeding Business Day, and such extension of time shall in such case be
included in the computation of such payment; provided, however, that, if such
extension would cause payment of interest on or principal of Advances to be made
in the next following calendar month, such payment shall be made on the next
preceding Business Day.
SECTION 2.09. TAXES. (a) Any and all payments by the Borrower hereunder or
under the Notes shall be made, in accordance with Section 2.08, free and clear
of and without deduction for any and all present or future taxes, levies,
imposts, deductions, charges or withholdings, and all liabilities with respect
thereto, excluding, in the case of each Lender, net income taxes that are
imposed by the United States and franchise taxes and net income taxes that are
imposed on such Lender by the state or foreign jurisdiction under the laws of
which such Lender is organized or any political subdivision thereof and, in the
case of each Lender, franchise taxes and net income taxes that are imposed on
such Lender by the state or foreign jurisdiction of such Lender's Applicable
Lending Office or any political subdivision thereof (all such non-excluded
taxes, levies, imposts, deductions, charges, withholdings and liabilities being
hereinafter referred to as "TAXES"). If the Borrower shall be required by law to
deduct any Taxes from or in respect of any sum payable hereunder or under any
Note to any Lender, (i) the sum payable shall be increased as may be necessary
so that after making all required deductions (including deductions applicable to
additional sums payable under this Section 2.09) such Lender receives an amount
equal to the sum it would have received had no such deductions been made, (ii)
the Borrower shall make such deductions and (iii) the Borrower shall pay the
full amount deducted to the relevant taxation authority or other authority in
accordance with applicable law.
(b) In addition, the Borrower shall pay any present or future stamp,
documentary, excise, property or similar taxes, charges or levies that arise
from any payment made hereunder or under the Notes or from the execution,
delivery or registration of, or otherwise with respect to, this Agreement or
under the other Loan Documents (hereinafter referred to as "OTHER TAXES").
(c) The Borrower shall indemnify each Lender for the full amount of
Taxes and Other Taxes, and for the full amount of taxes imposed by any
jurisdiction on amounts payable under this Section 2.09, paid by such Lender and
any liability (including penalties, additions to tax, interest and expenses)
arising therefrom or with respect thereto. This indemnification shall be made
within 30 days from the date such Lender makes written demand therefor.
<PAGE> 29
26
(d) Within 30 days after the date of any payment of Taxes, the
Borrower shall furnish to each Lender, at its address referred to in Section
7.02, the original receipt of payment thereof or a certified copy of such
receipt. In the case of any payment hereunder or under the Notes by the Borrower
through an account or branch outside the United States or on behalf of the
Borrower by a payor that is not a United States person, if the Borrower
determines that no Taxes are payable in respect thereof, the Borrower shall
furnish, or shall cause such payor to furnish, to each Lender, at such address,
an opinion of counsel acceptable to Prudential stating that such payment is
exempt from Taxes. For purposes of this subsection (d) and subsection (e), the
terms "UNITED STATES" and "UNITED STATES PERSON" shall have the meanings
specified in Section 7701 of the Internal Revenue Code.
(e) Each Lender organized under the laws of a jurisdiction outside the
United States shall, on or prior to the date of its execution and delivery of
this Agreement in the case of Prudential, and on the date on which it became a
Lender, in the case of each other Lender, and from time to time thereafter if
requested in writing by the Borrower (but only so long thereafter as such Lender
remains lawfully able to do so), provide the Borrower with Internal Revenue
Service form 1001 or 4224, as appropriate, or any successor form prescribed by
the Internal Revenue Service, certifying that such Lender is entitled to
benefits under an income tax treaty to which the United States is a party that
reduces the rate of withholding tax on payments under this Agreement or the
Notes or certifying that the income receivable pursuant to this Agreement or the
Notes is effectively connected with the conduct of a trade or business in the
United States. If the form provided by a Lender at the time such Lender first
becomes a party to this Agreement indicates a United States interest withholding
tax rate in excess of zero, withholding tax at such rate shall be considered
excluded from Taxes unless and until such Lender provides the appropriate form
certifying that a lesser rate applies, whereupon withholding tax at such lesser
rate only shall be considered excluded from Taxes for periods governed by such
form; provided, however, that, if at the date on which a Lender assignee becomes
a party to this Agreement, the Lender assignor was entitled to payments under
subsection (a) in respect of United States withholding tax with respect to
interest paid at such date, then, to such extent, the term Taxes shall include
(in addition to withholding taxes that may be imposed in the future or other
amounts otherwise includable in Taxes) United States withholding tax, if any,
applicable with respect to the Lender assignee on such date. If any form or
document referred to in this subsection (e) requires the disclosure of
information, other than information necessary to compute the tax payable and
information required on the date hereof by Internal Revenue Service form 1001 or
4224, that the Lender reasonably considers to be confidential, the Lender shall
give notice thereof to the Borrower and shall not be obligated to include in
such form or document such confidential information.
(f) For any period with respect to which a Lender has failed to
provide the Borrower with the appropriate form described in subsection (e)
(other than if such failure is due
<PAGE> 30
27
to a change in law occurring after the date on which a form originally was
required to be provided or if such form otherwise is not required under
subsection (e)), such Lender shall not be entitled to indemnification under
subsection (a) or (c) with respect to Taxes imposed by the United States;
provided, however, that should a Lender become subject to Taxes because of its
failure to deliver a form required hereunder, the Borrower shall take such steps
as such Lender shall reasonably request to assist such Lender to recover such
Taxes.
(g) Without prejudice to the survival of any other agreement of the
Borrower hereunder, the agreements and obligations of the Borrower contained in
this Section 2.09 shall survive the payment in full of principal and interest
hereunder and under the Notes.
SECTION 2.10. SHARING OF PAYMENTS, ETC. If any Lender shall obtain at any
time any payment (whether voluntary, involuntary, through the exercise of any
right of set-off, or otherwise) (a) on account of Obligations due and payable to
such Lender hereunder and under the other Loan Documents at such time in excess
of its ratable share (according to the proportion of (i) the amount of such
Obligations due and payable to such Lender at such time to (ii) the aggregate
amount of the Obligations due and payable to all Lenders hereunder and under the
other Loan Documents at such time) of payments on account of the Obligations due
and payable to all Lenders hereunder and under the other Loan Documents at such
time obtained by all the Lenders at such time or (b) on account of Obligations
owing (but not due and payable) to such Lender hereunder and under the other
Loan Documents at such time in excess of its ratable share (according to the
proportion of (i) the amount of such Obligations owing to such Lender at such
time to (ii) the aggregate amount of the Obligations owing (but not due and
payable) to all Lenders hereunder and under the other Loan Documents at such
time) of payments on account of the Obligations owing (but not due and payable)
to all Lenders hereunder and under the other Loan Documents at such time
obtained by all the Lenders at such time, such Lender shall forthwith purchase
from the other Lenders such participations in the Obligations due and payable or
owing to them, as the case may be, as shall be necessary to cause such
purchasing Lender to share the excess payment ratably with each of them;
provided, however, that if all or any portion of such excess payment is
thereafter recovered from such purchasing Lender, such purchase from each other
Lender shall be rescinded and such other Lender shall repay to the purchasing
Lender the purchase price to the extent of such other Lender's ratable share
(according to the proportion of (i) the purchase price paid to such Lender to
(ii) the aggregate purchase price paid to all lenders) of such recovery together
with an amount equal to such Lender's ratable share (according to the proportion
of (i) the amount of such other Lender's required repayment to (ii) the total
amount so recovered from the purchasing Lender) of any interest or other amount
paid or payable by the purchasing Lender in respect of the total amount so
recovered. The Borrower agrees that any Lender so purchasing a participation
from another Lender pursuant to this Section 2.10 may, to the fullest extent
permitted by law, exercise all of its rights of payment (including the right of
set-
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28
off) with respect to such participation as fully as if such Lender were the
direct creditor of the Borrower in the amount of such participation.
SECTION 2.11. USE OF PROCEEDS. The proceeds of the Advances shall be
available (and the Borrower agrees that it shall use such proceeds) solely to
acquire the Acquired Business pursuant to the Acquisition Agreement, to pay
transaction fees and expenses and to retire, repay or defease Existing Debt.
SECTION 2.12. EXCHANGE SECURITIES. In the event the Borrower fails to repay
the Advances on the Maturity Date, together with accrued interest thereon and
provided no Default (other than the Borrower's failure to make such repayment)
has occurred and is then continuing, the unpaid Advances then outstanding, plus
an amount equal to accrued and unpaid interest thereon (the "REPAYMENT AMOUNT")
shall automatically on such day be exchanged for Exchange Securities having an
aggregate principal amount equal to the Repayment Amount in accordance with the
terms of the Indenture, which will be executed by the Borrower and delivered to
the trustee for the Exchange Securities on such day, and the Registration Rights
Agreement, which will be executed by the Borrower and delivered to the holders
of the Exchange Securities on such day. Each Lender shall receive Exchange
Securities in an aggregate amount equal to each such Lender's pro rata share of
the Repayment Amount and each such Exchange Security shall be registered in the
name of such Lender (or its nominee). The Borrower shall provide, or cause to be
provided, to the Lenders such other documents, instruments, certificates and
opinions as they may reasonably request in connection with the issuance of the
Exchange Securities. The interest rate applicable to the Exchange Securities
shall be equal to the sum of (x) the interest rate in effect with respect to the
Advances immediately prior to the Maturity Date plus (y) 1.00%.
ARTICLE III
CONDITIONS OF LENDING
SECTION 3.01. CONDITIONS PRECEDENT TO BORROWING. The obligation of each
Lender to make an Advance on the Closing Date is subject to the following
conditions precedent:
(a) The Acquisition Agreement shall be in full force and effect and
shall not have been terminated, and no party thereto shall have disavowed
any of its obligations thereunder, and all conditions precedent set forth
therein for the consummation of the Acquisition (other than the payment of
the purchase price specified in the Acquisition Agreement) shall have been
satisfied, or with the consent of the Lenders, waived.
(b) The Lenders shall be satisfied with the corporate and legal
structure and capitalization of each Loan Party, including the terms and
conditions of the charter, bylaws
<PAGE> 32
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and each class of Capital Stock of each Loan Party and of each agreement or
instrument relating to such structure or capitalization.
(c) All conditions to effectiveness of the Senior Credit Facility
(other than the funding of the Advances hereunder) shall have been
satisfied, or with the consent of the Lenders, waived, and the initial
funding under the Senior Credit Facility shall have occurred.
(d) No material adverse change in the consolidated financial
condition, business, operations, assets, liabilities or prospects of the
Borrower (including any event which, in the reasonable opinion of
Prudential, is likely to result in such a material adverse change) shall
have occurred since December 31, 1997, and no material inaccuracy in the
financial statements prepared as of such date shall exist. No material
adverse change in the consolidated financial condition, business,
operations, assets, liabilities or prospects of the Acquired Business
(including any event which, in the reasonable opinion of Prudential, is
likely to result in such a material adverse change) shall have occurred
since February 1, 1998, except as disclosed to the Lenders in writing prior
to the Closing Date, and no material inaccuracy in the financial statements
prepared as of such date shall exist.
(e) Since September 27, 1997, the Borrower has not incurred any
liability or obligation whatsoever, whether accrued, absolute, contingent
or otherwise, except (i) as disclosed to the Lenders in the most recent
Consolidated financial statements of the Borrower and its Subsidiaries, and
the footnotes thereto, (ii) for liabilities or obligations incurred by the
Borrower in the ordinary course of business or which are not material to
the Borrower, and (iii) as set forth on Schedule 3.01(e). The Borrower and
its Subsidiaries shall have no material liabilities except those set forth
in such financial statements or disclosed in the footnotes thereto. Since
November 2, 1997, the Acquired Business has not incurred any liability or
obligation whatsoever, whether accrued, absolute, contingent or otherwise,
except as disclosed to the Lenders in the most recent Consolidated
financial statements of the Acquired Business and the footnotes thereto,
and except for liabilities or obligations incurred by the Acquired Business
in the ordinary course of business or which are not material to the
Acquired Business. The Acquired Business shall have no material liabilities
except those set forth in such financial statements or disclosed in the
footnotes thereto.
(f) At least five Business Days prior to the Closing Date, each of the
Lenders shall have received (i) audited consolidated financial statements
of the Borrower and its Subsidiaries for the three-year period ended
September 27, 1997 and unaudited financial statements for any interim
quarterly periods occurring during such period; (ii) audited consolidated
financial statements of the Acquired Business for the three-year period
ended
<PAGE> 33
30
November 2, 1997 and any unaudited financial statements for any interim
quarterly periods; and (iii) unaudited financial statements for (A) the
Borrower and its Subsidiaries and (B) the Acquired Business for each month
and quarter prior to the Closing Date since the date of the financial
statements delivered pursuant to this clause (f) (including pro forma
financial statements giving effect to the Acquisition and meeting the
requirements of Regulation S-X for Form S-1 registration statements).
(g) There shall not have occurred any material disruption or material
adverse change, as determined in the sole judgment of each of the Lenders,
in the financial or capital markets generally, or in the markets for high
yield debt or equity securities in particular or affecting syndication or
funding of the Borrowing hereunder (or the refinancing such Borrowing).
(h) The Lenders shall be satisfied that all Existing Debt (including
any Indebtedness of the Acquired Business), other than the Indebtedness
identified on Schedule 3.01(h), has been prepaid, redeemed or defeased in
full or otherwise satisfied and extinguished.
(i) The Lenders shall have completed a due diligence investigation of
the Borrower and its Subsidiaries and the Acquired Business in scope, and
with results, satisfactory to the Lenders, and nothing shall have come to
the attention of the Lenders during the course of such due diligence
investigation to lead them to believe (i) that the Preliminary Offering
Memorandum was or has become misleading, incorrect or incomplete in any
material respect, (ii) that, following the consummation of the transactions
contemplated by the Acquisition Agreement, the Borrower and its
Subsidiaries would not have good and marketable title to all material
assets of the Acquired Business reflected in the Preliminary Offering
Memorandum and (iii) that the transactions contemplated by the Acquisition
Agreement will have a Material Adverse Effect; without limiting the
generality of the foregoing, the Lenders shall have been given such access
to the management, records, books of account, contracts and properties of
the Acquired Business as they shall have requested.
(j) Prudential shall have received on or before the day of the
Borrowing the following, each dated such day (unless otherwise specified),
in form and substance satisfactory to each Lender (unless otherwise
specified) and (except for the Notes) in sufficient copies for each Lender:
(i) The Notes to the order of the Lenders;
<PAGE> 34
31
(ii) Certified copies of the resolutions of the Board of
Directors of the Borrower and each other Loan Party approving the
Acquisition, this Agreement, the Notes and each other Loan Document to
which it is a party, and of all documents evidencing other necessary
corporate action and governmental approvals, if any, with respect to
the Acquisition, this Agreement, the Notes and each other Loan
Document and each Related Document;
(iii) A copy of the charter of each Loan Party and each amendment
thereto, certified (as of a date reasonably near the date of the
Borrowing) by the Secretary of State of the State of incorporation of
such Loan Party as being a true and correct copy thereof;
(iv) With respect to each Loan Party, a copy of a certificate of
the Secretary of State of the State of its incorporation, dated
reasonably near the date of the Borrowing, listing the charter of such
Loan Party and each amendment thereto on file in his office and
certifying that (A) such amendments are the only amendments to such
Loan Party's charter on file in his office, and (B) such Loan Party is
duly incorporated and in good standing under the laws of such State;
(v) A copy of a certificate of the Secretary of State of each
State identified on Schedule 3.01(j), in each case, dated reasonably
near the date of the Borrowing, stating that the Loan Party whose name
appears in the column adjacent to the name of such State is duly
qualified and in good standing as a corporation organized under the
laws of such State or as a foreign corporation in such State and has
filed all annual reports required to be filed to the date of such
certificate;
(vi) A certificate of the Borrower and each other Loan Party,
signed on behalf of the Borrower or such other Loan Party by its
President or a Vice President and its Secretary or any Assistant
Secretary, dated the date of the Borrowing (the statements made in
which certificate shall be true on and as of the date of the
Borrowing), certifying as to (A) the absence of any amendments to the
charter of the Borrower or such other Loan Party since the date of the
Secretary of State's certificate referred to in clause (iv) above, (B)
a true and correct copy of the bylaws of the Borrower or such other
Loan Party as in effect on the date of the Borrowing, (C) the due
incorporation and good standing of the Borrower or such other Loan
Party as a corporation organized under the laws of the State of its
incorporation, and the absence of any proceeding for the dissolution
or liquidation of the Borrower or such other Loan Party, (D) the truth
of the representations and warranties contained in each of the Loan
Documents, the Acquisition Agreement and the Senior Credit Facility as
though made on and as of the date of the
<PAGE> 35
32
Borrowing and (E) the absence of any event occurring and continuing,
or resulting from the Borrowing or the application of the proceeds
therefrom, that constitutes a Default;
(vii) A certificate of the Secretary or an Assistant Secretary of
each Loan Party certifying the names and true signatures of the
officers of such Loan Party authorized to sign this Agreement, the
Notes and each other Loan Document and each Related Document to which
it is or will be a party and the other documents to be delivered
hereunder and thereunder;
(viii) Certified copies of each of the Related Documents, duly
executed by the parties thereto and in form and substance satisfactory
to the Lenders and, in connection with the Acquisition Agreement,
letters from counsel to the seller of the Acquired Business and
Borrower's counsel addressed to the Lenders granting the Lenders
permission to rely on their respective legal opinions delivered in
connection with the Acquisition;
(ix) A guaranty in substantially the form of Exhibit B (as
amended from time to time in accordance with its terms, a "GUARANTY"),
duly executed by each Guarantor;
(x) Such financial, business and other information regarding
the Borrower and its Subsidiaries or the Acquired Business as the
Lenders shall have requested including, without limitation,
information as to possible contingent liabilities, tax matters,
environmental matters and obligations under ERISA and such other
approvals, opinions or documents as any Lender may reasonably request
as to the legality, validity, binding effect or enforceability of the
Loan Documents or Related Documents;
(xi) A certificate of the chief financial officer or the
Executive Vice President of Finance and Operations of the Borrower, in
form and substance satisfactory to the Lenders, attesting to the
Solvency of the Borrower after giving effect to the Acquisition and
the other transactions contemplated hereby and by the Related
Documents.
(xii) A letter, in form and substance satisfactory to Prudential,
from the Borrower to Ernst & Young LLP, its independent certified
public accountants, advising such accountants that the Lenders have
been authorized to exercise all rights of the Borrower to require such
accountants to disclose any and all financial statements and any other
information of any kind that they may have with respect
<PAGE> 36
33
to the Borrower and its Subsidiaries and directing such accountants to
comply with any reasonable request of any Lender for such information.
(xiii) Favorable opinions of counsel for the Borrower and the
Guarantors, in each case, in form and substance satisfactory to
Prudential; and
(xiv) Each Lender shall have received such other approvals,
opinions or documents as any Lender may reasonably request.
(k) The Borrower shall have paid all accrued fees and expenses of each
Lender (including amounts owing under the Fee Letter and the accrued fees
and expenses of counsel to the Lender).
ARTICLE IV
REPRESENTATIONS AND WARRANTIES
SECTION 4.01. REPRESENTATIONS AND WARRANTIES OF THE BORROWER. The Borrower
represents and warrants as follows:
(a) The Borrower (i) is a corporation duly organized, validly existing
and good standing under the laws of the jurisdiction of its incorporation,
(ii) is duly qualified and in good standing as a foreign corporation in
each other jurisdiction in which it owns or leases property or in which the
conduct of its business requires it to so qualify or be licensed except
where the failure to so qualify or be licensed is not reasonably likely to
have a Material Adverse Effect and (iii) has all requisite corporate power
and authority to own or lease and operate its properties and to carry on
its business as now conducted and as proposed to be conducted. All of the
outstanding capital stock of the Borrower has been validly issued, is fully
paid and non-assessable.
(b) Set forth on Schedule 4.01(b) hereto is a complete and accurate
list of all Subsidiaries of the Borrower, showing as of the date hereof (as
to each such Subsidiary) the jurisdiction of its incorporation, the number
of shares of each class of capital stock authorized, and the number
outstanding, on the date hereof and the percentage of the outstanding
shares of each such class owned (directly or indirectly) by the Borrower.
Each such Subsidiary (i) is a corporation duly organized, validly existing
and in good standing under the laws of the jurisdiction of its
incorporation, (ii) is duly qualified and in good standing as a foreign
corporation in each other jurisdiction in which it owns or leases property
or in which the conduct of its business requires it to so qualify or be
licensed except where the failure to so qualify or be licensed is not
reasonably likely to have a
<PAGE> 37
34
Material Adverse Effect and (iii) has all requisite corporate power and
authority to own or lease and operate its properties and to carry on its
business as now conducted and as proposed to be conducted.
(c) The execution, delivery and performance by the Borrower of this
Agreement, the Notes and each other Loan Document, and the issuance and
delivery of the Exchange Securities in accordance with Section 2.12, and
the consummation of the Acquisition and the other transactions contemplated
hereby, are within the Borrower's corporate powers, have been duly
authorized by all necessary corporate action, and do not (i) contravene the
Borrower's charter or bylaws, (ii) violate any law (including, without
limitation, the Exchange Act and the Racketeer Influenced and Corrupt
Organizations Chapter of the Organized Crime Control Act of 1970), rule,
regulation (including, without limitation, Regulation X of the Board of
Governors of the Federal Reserve System), order, writ, judgment,
injunction, decree, determination or award, (iii) conflict with or result
in the breach of, or constitute a default under, any contract, loan
agreement, indenture, mortgage, deed of trust, lease or other instrument
binding on or affecting the Borrower, any of its Subsidiaries or any of
their properties or (iv) result in or require the creation or imposition of
any Lien upon or with respect to any of the properties of the Borrower or
any of its Subsidiaries. Neither the Borrower nor any of its Subsidiaries
is in violation of any such law, rule, regulation, order, writ, judgment,
injunction, decree, determination or award or in breach of any such
contract, loan agreement, indenture, mortgage, deed of trust, lease or
other instrument, the violation or breach of which is reasonably likely to
have a Material Adverse Effect.
(d) No authorization or approval or other action by, and no notice to
or filing with, any governmental authority or regulatory body or any other
third party is required for (i) the due execution, delivery, recordation,
filing or performance by the Borrower of this Agreement, the Notes or any
other Loan Document, including, without limitation, the issuance and
delivery of the Exchange Securities, or for the consummation of the
Acquisition or the other transactions contemplated hereby, or (ii) the
exercise by any Lender of its rights under the Loan Documents, except for
the authorizations, approvals, actions, notices and filings listed on
Schedule 4.01(d), all of which have been duly obtained, taken, given or
made and are in full force and effect. All applicable waiting periods in
connection with the Acquisition and the other transactions contemplated
hereby have expired without any action having been taken by any competent
authority restraining, preventing or imposing materially adverse conditions
upon the Acquisition or the rights of the Borrower or its Subsidiaries
freely to transfer or otherwise dispose of any properties now owned or
hereafter acquired by any of them.
<PAGE> 38
35
(e) This Agreement has been, and each of the Notes, each other Loan
Document and each Related Document when delivered hereunder will have been,
duly executed and delivered by the Borrower. This Agreement is, and each of
the Notes, each other Loan Document and each Related Document when
delivered hereunder will be, the legal, valid and binding obligation of the
Borrower, enforceable in accordance with its terms. On or prior to the
Closing Date, the Exchange Securities will be duly authorized and, when
issued, each will be the legal, valid and binding obligation of the
Borrower, enforceable in accordance with its terms.
(f) The Consolidated balance sheet of the Borrower and its
Subsidiaries as at September 27, 1997 and the related Consolidated
statement of income and cash flows of the Borrower and its Subsidiaries for
the fiscal year then ended, accompanied by an opinion of Ernst & Young LLP,
independent public accountants, copies of which have been furnished to each
Lender, fairly present, the Consolidated financial condition of the
Borrower and its Subsidiaries for the period ended on such date, all in
accordance with GAAP applied on a consistent basis, and since September 27,
1997, there has been no Material Adverse Change, except as disclosed to the
Lenders in writing prior to the Closing Date.
(g) The Consolidated pro forma balance sheets of the Borrower and its
Subsidiaries as at April 4, 1998, and the related Consolidated pro forma
statement of income of the Borrower and its Subsidiaries for the 12 months
then ended, certified by the chief financial officer of the Borrower,
copies of which have been furnished to each Lender, fairly present the
Consolidated pro forma financial condition of the Borrower and its
Subsidiaries as at such date and the Consolidated pro forma results of
operations of the Borrower and its Subsidiaries for the period ended on
such date, in each case giving effect to the Acquisition and the other
transactions contemplated hereby, all in accordance with GAAP.
(h) The Borrower is, individually and together with its Subsidiaries,
Solvent.
(i) All written information, reports and other papers and data
furnished to the Lenders by, on behalf of, or at the direction of the
Borrower or any other Loan Party were, at the time the same were so
furnished, complete and correct in all material respects, to the extent
necessary to give the recipient true and accurate knowledge of the subject
matter, or in the case of financial statements, present fairly, in
accordance with generally accepted accounting principles consistently
applied, the financial position of the Persons involved as at the date
thereof and the results of operations for such periods. Neither the Loan
Documents nor any of the schedules, attachments, written statements,
documents, certificates or other items prepared or supplied to the Lenders
by or on behalf of the
<PAGE> 39
36
Borrower with respect to the transactions contemplated thereby, contains
any untrue statement of a material fact or omits to state a material fact
necessary to make the statements herein or therein, in light of the
circumstances under which they were made, not misleading. There is no fact
which the Borrower has not disclosed to the Lenders in writing and of which
any of its officers, directors or executive employees is aware and which
has had or would reasonably be expected to have a Material Adverse Effect.
(j) Except as set forth on Schedule 4.01(j), there is no action, suit,
investigation, litigation or proceeding affecting the Borrower, any of its
Subsidiaries or the Acquired Business, including any Environmental Action,
pending or threatened before any court, governmental agency or arbitrator
that (i) adversely affects or could adversely affect the Borrower, any of
its Subsidiaries, the Acquired Business or the Acquisition or (ii) purports
to affect the legality, validity or enforceability of the Acquisition, this
Agreement, any Note, any other Loan Document or any Related Document or the
consummation of the transactions contemplated hereby.
(k) No proceeds of any Advance will be used to acquire any equity
security of a class that is registered pursuant to Section 12 of the
Exchange Act.
(l) The Borrower is not engaged in the business of extending credit
for the purpose of purchasing or carrying Margin Stock, and no proceeds of
any Advance will be used to purchase or carry any Margin Stock or to extend
credit to others for the purpose of purchasing or carrying any Margin
Stock. Following application of the proceeds of each Advance, not more than
25 percent of the value of the assets of either the Borrower, or the
Borrower and its Subsidiaries on a Consolidated basis, will be Margin
Stock.
(m) No ERISA Event has occurred or is reasonably expected to occur
with respect to any Plan of the Borrower or any of its ERISA Affiliates
that has resulted in or is reasonably likely to result in a material
liability of the Borrower or any of its ERISA Affiliates.
(n) Neither the Borrower nor any of its ERISA Affiliates has incurred
or is reasonably expected to incur any Withdrawal Liability with respect to
any Multiemployer Plan.
(o) Neither the Borrower nor any of its ERISA Affiliates has been
notified by the sponsor of a Multiemployer Plan of the Borrower or any of
its ERISA Affiliates that such Multiemployer Plan is in reorganization or
has been terminated, within the meaning of Title IV of ERISA, and no such
Multiemployer Plan is reasonably expected to be in reorganization or to be
terminated, within the meaning of Title IV of ERISA.
<PAGE> 40
37
(p) Neither the business nor the properties of the Borrower or any of
its Subsidiaries are affected by any fire, explosion, accident, strike,
lockout or other labor dispute, drought, storm, hail, earthquake, embargo,
act of God or of the public enemy or other casualty (whether or not covered
by insurance) that would be reasonably likely to have a Material Adverse
Effect.
(q) The operations and properties of the Borrower and each of its
Subsidiaries comply in all material respects with all Environmental Laws,
all necessary Environmental Permits have been obtained and are in effect
for the operations and properties of the Borrower and its Subsidiaries, the
Borrower and its Subsidiaries are in compliance in all material respects
with all such Environmental Permits, and no circumstances exist that would
be reasonably likely to (i) form the basis of an Environmental Action
against the Borrower or any of its Subsidiaries or any of their properties
that could have a Material Adverse Effect or (ii) cause any such property
to be subject to any restrictions on ownership, occupancy, use or
transferability under any Environmental Law.
(r) Neither the Borrower nor any of its Subsidiaries has transported
or arranged for the transportation of any Hazardous Materials to any
location that is listed or proposed for listing on the National Priorities
List under CERCLA or on the Comprehensive Environmental Response,
Compensation and Liability Information System maintained by the
Environmental Protection Agency or any analogous state list, Hazardous
Materials have not been generated, used, treated, handled, stored or
disposed of on, or released or transported to or from, any property of the
Borrower or any of its Subsidiaries or, to the best of its knowledge, any
adjoining property, except in compliance with all Environmental Laws and
Environmental Permits, and all other wastes generated at any such
properties have been disposed of in compliance with all Environmental Laws
and Environmental Permits.
(s) Neither the Borrower nor any of its Subsidiaries is a party to any
indenture, loan or credit agreement or any lease or other agreement or
instrument or subject to any charter or corporate restriction that would be
reasonably likely to have a Material Adverse Effect.
(t) Except as set forth on Schedule 4.01(t), the Borrower and each of
its Subsidiaries has filed, has caused to be filed or has been included in
all tax returns (Federal, state, local and foreign) required to be filed
and has paid all taxes shown thereon to be due, together with applicable
interest and penalties.
(u) Neither the Borrower nor any of its Subsidiaries is an "investment
company," or an "affiliated person" of, or "promoter" or "principal
underwriter" for, an
<PAGE> 41
38
"investment company," as such terms are defined in the Investment Company
Act of 1940, as amended. Neither the making of any Advances nor the
application of the proceeds or repayment thereof by the Borrower, nor the
consummation of the other transactions contemplated hereby, will violate
any provision of such Act or any rule, regulation or order of the
Securities and Exchange Commission thereunder.
(v) Neither the Borrower nor any of its Subsidiaries is a "holding
company", or a "subsidiary company" of a "holding company" or an
"affiliate" of a "holding company" or of a "subsidiary company" of a
"holding company", as such terms are defined in the Public Utility Holding
Company Act of 1935, as amended.
(w) Neither the Borrower nor anyone acting on its behalf has offered
the Notes for sale to, or solicited any offer to buy any of the same from,
or otherwise approached or negotiated in respect thereof with, any person
other than Prudential. Neither the Borrower nor anyone acting on its behalf
has taken, or will take, any action that would subject the issuance or sale
of the Notes to the registration requirements of Section 5 of the
Securities Act.
(x) The offer and sale of the Notes is, and the issuance of the
Exchange Securities will be, exempt from the registration requirements of
the Securities Act, and in compliance with all applicable state securities
laws.
(y) The Merger and the Acquisition Agreement have been duly authorized
and approved by all necessary corporate action on the part of the Borrower
and Farah. The Acquisition Agreement has been duly authorized, executed and
delivered by the Borrower and Farah and constitutes a valid and binding
obligation of the Borrower and Farah, enforceable against the Borrower and
Farah in accordance with its terms, subject, as to enforcement, to
bankruptcy, insolvency, reorganization and other laws of general
applicability relating to or affecting creditors' rights and general
equitable principles. The Acquisition Agreement is in full force and
effect. The Articles of Merger relating to the Merger have been filed with
the Secretary of State of the State of Texas and the Merger has become
effective. The Tender Offer was conducted in a manner that complied with
the Exchange Act and the rules and regulations of the Securities and
Exchange Commission thereunder, and the Tender Offer has been consummated.
SECTION 4.02. SURVIVAL OF REPRESENTATIONS AND WARRANTIES. The
representations and warranties set forth in Section 4.01 shall survive until the
earlier of (a) the repayment in full of the Advances in full, together with
accrued interest thereon, and (b) the redemption or retirement in whole of the
Exchange Securities.
<PAGE> 42
39
SECTION 4.03. PARI PASSU. Except for the obligations of the Borrower under
the Senior Credit Facility, the Obligations under this Agreement and the other
Loan Documents rank pari passu with all other unsubordinated Indebtedness of the
Borrower and senior to all subordinated Indebtedness of the Borrower.
ARTICLE V
COVENANTS OF THE BORROWER
SECTION 5.01. AFFIRMATIVE COVENANTS. So long as any Advance shall remain
unpaid, any Lender shall have any Commitment hereunder or any Lender (or its
nominee) shall be a holder of an Exchange Security, the Borrower will, unless
the Required Lenders shall otherwise consent in writing:
(a) VISITS AND INSPECTIONS. Permit representatives of the Lenders,
from time to time, as often as may be reasonably requested, but only during
normal business hours and (except when a Default or Event of Default
exists) upon reasonable prior notice, to visit and inspect the Properties
of such Borrower and each of its Subsidiaries, inspect, audit and make
extracts from its books and records, and discuss with its officers,
employees and independent accountants, such Borrower's and each
Subsidiary's business, financial condition, business prospects and results
of operations.
(b) FINANCIAL STATEMENTS. Keep, and cause each of its Subsidiaries to
keep, adequate records and books of account with respect to its business
activities in which proper entries are made in accordance with GAAP
reflecting all its financial transactions.
(c) COMPLIANCE WITH LAWS. Comply, and cause each of its Subsidiaries
to comply, with all Applicable Law, including ERISA with respect to all
Plans, all Environmental Laws and all laws, statutes, regulations and
ordinances regarding the collection, payment and deposit of taxes, and
obtain and keep in force any and all Governmental Approvals necessary to
the ownership of its Properties or to the conduct of its business, to the
extent that any such failure to comply, obtain or keep in force would be
reasonably likely to have a Material Adverse Effect. Without limiting the
generality of the foregoing, if any release of Hazardous Materials shall
occur at or on any of the Properties of the Borrower or any of its
Subsidiaries, the Borrower shall, or shall cause the applicable Subsidiary
to, act immediately to investigate and report to the Lenders and all
appropriate governmental authorities the extent of, and to make appropriate
remedial action to eliminate, such release, whether or not ordered or
otherwise directed to do so by any governmental authority.
<PAGE> 43
40
(d) INSURANCE. Maintain, and cause each of its Subsidiaries to
maintain, with financially sound and reputable insurers, insurance with
respect to its Properties and business against such casualties and
contingencies of such type (including product liability, business
interruption, larceny, embezzlement, or other criminal misappropriation
insurance) and in such amounts as is customary in the business of the
Borrower or such Subsidiary.
(e) YEAR 2000 COMPATIBILITY. Take all action necessary to assure that
the computer based systems of the Borrower and each Subsidiary of the
Borrower are able to operate and effectively process data including dates
on and after January 1, 2000. In addition, at the request of any Lender,
the Borrower shall provide such Lender any additional assurances in form
and substance reasonably satisfactory to such Lender of the Borrower's and
each of its Subsidiaries' year 2000 compatibility.
(f) LICENSE AGREEMENTS. Keep, and cause each of its Subsidiaries to
keep, each License Agreement in full force and effect for so long as the
Borrower or such Subsidiary has any inventory, the manufacture, sale or
distribution of which is in any manner governed by or subject to such
License Agreement.
(g) PAYMENT OF TAXES, ETC. Pay and discharge, and cause each of its
Subsidiaries to pay and discharge, before the same shall become delinquent,
(i) all taxes, assessments and governmental charges or levies imposed upon
it or upon its property and (ii) all lawful claims that, if unpaid, might
by law become a Lien upon its property; provided, however, that neither the
Borrower nor any of its Subsidiaries shall be required to pay or discharge
any such tax, assessment, charge or claim that is being contested in good
faith and by proper proceedings and as to which appropriate reserves are
being maintained, unless and until any Lien resulting therefrom attaches to
its property and becomes enforceable against its other creditors.
(h) PERFORMANCE OF RELATED DOCUMENTS. Perform and observe all of the
terms and provisions of each Related Document to be performed or observed
by it, maintain each such Related Document in full force and effect,
enforce such Related Document in accordance with its terms, take all such
action to such end as may be from time to time requested by any Lender and,
upon request of any Lender, make to each other party to each such Related
Document such demands and requests for information and reports or for
action as the Borrower is entitled to make under such Related Document.
(i) PERFORMANCE OF MATERIAL CONTRACTS. Perform and observe all the
terms and provisions of each Material Contract to be performed or observed
by it, maintain each such Material Contract in full force and effect,
enforce each such Material Contract in
<PAGE> 44
41
accordance with its terms, take all such action to such end as may be from
time to time requested by any Lender and, upon request of any Lender, make
to each other party to each such Material Contract such demands and
requests for information and reports or for action as the Borrower is
entitled to make under such Material Contract, and cause each of its
Subsidiaries to do so.
(j) USE OF PROCEEDS. Use the proceeds of the Advances as provided in
Section 2.11.
(k) REFINANCING. Use its best efforts to cause the refinancing of the
Facility hereunder as soon as possible but in no event later than the
Maturity Date.
(l) ADDITIONAL GUARANTIES. With respect to any Person that becomes a
domestic Subsidiary of the Borrower after the Closing Date, substantially
contemporaneously with becoming a domestic Subsidiary, the Borrower shall
promptly deliver, or cause to be delivered, to the Lenders:
(i) a Guaranty Supplement duly executed by such Subsidiary; and
(ii) such legal opinions, officers' certificates, financing
statements, applications for registration, directors and shareholders
resolutions and other agreements, instruments and documents as the
Lender may reasonably request in connection with such Guaranty
Supplement.
SECTION 5.02. NEGATIVE COVENANTS. So long as any Advance shall remain
unpaid, any Lender shall have any Commitment hereunder or any Lender shall be a
holder of an Exchange Security, the Borrower will not, and will not permit any
of its Subsidiaries to, at any time, without the written consent of the Required
Lenders or, if required under Section 7.01, of all of the Lenders:
(a) FUNDAMENTAL CHANGES. Merge, reorganize, consolidate or amalgamate
with any Person, or liquidate, wind up its affairs or dissolve itself,
except for (i) mergers or consolidations of any Subsidiary with the
Borrower or another Subsidiary, provided that the Borrower is the surviving
Person of any such transaction involving the Borrower, and that a Guarantor
is the surviving Person of any such transaction involving a Guarantor but
not the Borrower; and (ii) the winding up of the affairs of any Foreign
Subsidiary of the Borrower and dispositions expressly authorized by Section
5.02 hereof.
(b) LOANS. Make any loans or other advances of money to any Person
other than (i) to an officer or employee of the Borrower or a Subsidiary
thereof for salary, travel
<PAGE> 45
42
advances, advances against commissions and other similar advances in the
ordinary course of business; (ii) to Contractors of a Borrower or any
Subsidiary thereof in the ordinary course of business, not to exceed,
together with any guaranties under Section 5.02(c)(iv), $2,000,000 in the
aggregate at any time outstanding; (iii) intercompany loans to the Borrower
or any Guarantor made by the Borrower or any Guarantor; (iv) to purchasers
in the form of deferred payment in connection with the sale of any
equipment, to the extent permitted hereunder; or (v) to Foreign
Subsidiaries to the extent permitted under Section 5.02(j).
(c) PERMITTED DEBT. Create, incur, assume, guarantee or suffer to
exist any Debt for Money Borrowed, except:
(i) Indebtedness under the Senior Credit Facility;
(ii) Subordinated Debt existing on the Closing Date;
(iii) Purchase Money Debt;
(iv) Guaranties by a Borrower of any indebtedness of a
Contractor, not to exceed, together with any loans to Contractors
under Section 5.02(b)(ii) hereof, $2,000,000 in the aggregate at any
time outstanding;
(v) Indebtedness under the Loan Documents and the Exchange
Securities;
(vi) Debt for Money Borrowed owing by the Borrower to a
Guarantor or a by a Guarantor to the Borrower or another Guarantor;
(vii) Debt for Money Borrowed owing by a Foreign Subsidiary of
the Borrower to the Borrower or a Guarantor, or by such Subsidiary to
Persons other than the Borrower or a Guarantor, not to exceed
$10,000,000 in the aggregate at any time, with such amount to be
reduced to $2,000,000 after the sale of the Subsidiaries of the
Acquired Business that are located in the United Kingdom, Australia
and New Zealand;
(viii) Debt for Money Borrowed not included in paragraphs (i)
through (vii) above which is not secured by a Lien (unless such Lien
is a Permitted Lien) and does not exceed at any time, in the
aggregate, the sum of $5,000,000 as to the Borrower and all of its
Subsidiaries; and
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43
(ix) Indebtedness existing as of the Closing Date set forth on
Schedule 3.01(h) hereto.
(d) AFFILIATE TRANSACTIONS. Enter into, or be a party to any
transaction with any Affiliate or stockholder, except: (i) the transactions
not prohibited by the Loan Documents and the Related Documents; (ii)
payment of reasonable compensation to officers and employees for services
actually rendered to the Borrower or to its Subsidiaries; (iii) payment of
customary directors' fees and indemnities; (iv) transactions with
Affiliates that were consummated prior to the date hereof and have been
disclosed to Lenders prior to the Closing Date; and (v) transactions with
Affiliates upon fair and reasonable terms which are fully disclosed to the
Lenders and are no less favorable to the Borrower or such Subsidiary than
would obtain in a comparable arm's length transaction with a Person not an
Affiliate or stockholder of the Borrower or such Subsidiary.
(e) LIMITATION ON LIENS. Create or suffer to exist any Lien upon any
of its Property, income or profits, whether now owned or hereafter
acquired, except:
(i) Liens at any time granted to secure the Obligations of the
Borrower and its Subsidiaries under the Senior Credit Facility;
(ii) Liens for taxes (excluding any Lien imposed pursuant to any
of the provisions of ERISA) that are not yet due or that are being
contested in good faith and by proper proceedings and as to which
appropriate reserves are being maintained;
(iii) Liens arising in the ordinary course of the Borrower's or
any of its Subsidiaries' business by operation of law, but only if
payment in respect of any such Lien is not at the time required, or
the Indebtedness secured by any such Lien is being contested in good
faith and by proper proceedings and appropriate reserves are being
maintained as to such contested Indebtedness, and such Liens do not
materially detract from the value of the Property of the Borrower or
such Subsidiary and do not materially impair the use thereof in the
operation of the Borrower's or such Subsidiary's business;
(iv) Purchase Money Liens;
(v) Liens securing Indebtedness of a Subsidiary of the Borrower
to the Borrower or to another Subsidiary and Liens securing
Indebtedness of the Borrower to any Subsidiary of the Borrower to the
extent such Indebtedness is permitted to exist hereunder;
<PAGE> 47
44
(vi) Liens arising by virtue of the rendition, entry or issuance
against the Borrower or any of its Subsidiaries, or any Property of
the Borrower or any of its Subsidiaries, of any judgment, writ, order,
or decree that involves the payment of money in an amount that exceeds
the uncontested insurance available therefor by $1,000,000 or more for
so long as any such Lien is in existence for less than 20 consecutive
days after it first arises or is being contested in good faith and by
proper proceedings and as to which appropriate reserves are being
maintained;
(vii) Liens incurred or deposits made in the ordinary course of
business to secure the performance of tenders, bids, leases, contracts
(other than for the repayment of Debt for Money Borrowed), statutory
obligations and other similar obligations or arising as a result of
progress payments under government contracts;
(viii) easements, rights-of-way, restrictions, covenants or other
agreements of record and other similar charges or encumbrances on real
Property of the Borrower or any of its Subsidiaries that do not
interfere with the ordinary conduct of the business of the Borrower or
such Subsidiary;
(ix) Liens securing Debt for Money Borrowed incurred pursuant to
the refinancing of Debt for Money Borrowed permitted pursuant to
Section 5.02(c) so long as any such Lien encumbers the same Property
as the Lien securing the Debt for Money Borrowed being refinanced;
(x) Liens in existence immediately prior to the Closing Date
that are satisfied in full and released on the Closing Date as a
result of the application of the Borrower's cash on hand at the
Closing Date or the proceeds of the Advances to be made on the Closing
Date;
(xi) Liens securing Indebtedness of a Foreign Subsidiary of the
Borrower that is existence on the Closing Date or any refinancings
thereof; and
(xii) such other Liens as appear on Schedule 5.02(e) hereto, to
the extent provided therein.
(f) SUBORDINATED DEBT. Make any payment of all or any part of any
Subordinated Debt, except in accordance with the subordination agreement
relative thereto, or amend or modify the terms of any Subordinated Debt,
other than to extend the time of payment thereof or to reduce the rate of
interest payable in connection therewith.
<PAGE> 48
45
(g) DISTRIBUTIONS. Declare or make any Distributions other than
Distributions by Subsidiaries of the Borrower or any Guarantor to the
Borrower or any Guarantor.
(h) CAPITAL EXPENDITURES. Make Capital Expenditures (including,
expenditures by way of capitalized leases) which in the aggregate, as to
the Borrower and its Subsidiaries, exceed $11,000,000 during fiscal year
1998 and $14,000,000 during any fiscal year thereafter, provided, that any
amount not expended in a fiscal year may be carried forward and expended in
the immediately succeeding fiscal year.
(i) DISPOSITION OF ASSETS. Sell, assign, lease, consign or otherwise
dispose of any of its Properties or any interest therein, including any
disposition of Property as part of a sale and leaseback transaction, to or
in favor of any Person, except (i) sales of inventory in the ordinary
course of business for so long as no Event of Default exists hereunder,
(ii) dispositions of Exempt Property, (iii) a transfer of Property to the
Borrower by a Subsidiary of the Borrower or a transfer of Property to a
Guarantor by the Borrower or a Subsidiary of the Borrower, (iv) sales of
Factored Accounts to Heller or NationsBanc pursuant to their respective
Factoring Agreements as in effect on the Closing Date, or sales of Factored
Accounts to Persons other than Heller or NationsBanc to the extent approved
by the Lenders in writing in their sole and absolute discretion, (v) other
dispositions expressly authorized by other provisions of the Loan
Documents, including Sections 5.02(a) and (e), and (vi) dispositions of any
Capital Stock of any Foreign Subsidiary held by the Borrower or any
Subsidiary of the Borrower or any Property that is owned by any Foreign
Subsidiary of the Borrower.
(j) RESTRICTED INVESTMENTS. Make or have any Restricted Investment,
except as expressly permitted by Sections 5.02(b) and (i) hereof.
(k) TAX CONSOLIDATION. File or consent to the filing of any
consolidated income tax return with any Person other than the Borrower and
its Subsidiaries.
(l) FISCAL YEAR. Establish a fiscal year different from the fiscal
year in effect on the date hereof.
(m) ORGANIZATION DOCUMENTS. Except in connection with any transaction
permitted under Section 5.02(a) hereof and except as otherwise contemplated
by the Related Documents, amend, modify or otherwise change any of the
terms or provisions in any of its constituent documents as in effect on the
date hereof, except for changes that do not affect in any way the
Borrower's or any of its Subsidiaries' rights and obligations to enter into
and perform the Loan Documents to which it is a party and to pay all of the
<PAGE> 49
46
Obligations under the Loan Documents and that do not otherwise have a
Material Adverse Effect.
(n) CONDUCT OF BUSINESS. Engage in any business other than the
businesses engaged in by it on the Closing Date and any business or
activities which are substantially similar, related or incidental thereto.
(o) AMENDMENTS. Cancel or terminate any Related Document or consent to
or accept any cancellation or termination thereof, amend, modify or change
in any manner any term or condition of any Related Document (except that
the documents entered into in connection with the Senior Credit Facility
may be amended or modified, provided that any such amendment or
modification that increases the obligations of, or is more restrictive of,
the Borrower or its Subsidiaries shall not be permitted hereunder unless
the Loan Documents are modified in substantially the same manner) or give
any consent, waiver or approval thereunder, waive any default under or any
breach of any term or condition of any Related Document, agree in any
manner to any other amendment, modification or change of any term or
condition of any Related Document (except that the documents entered into
in connection with the Senior Credit Facility may be amended or modified,
provided that any such amendment or modification that increases the
obligations of, or is more restrictive of, the Borrower or its Subsidiaries
shall not be permitted hereunder unless the Loan Documents are modified in
substantially the same manner) or take any other action in connection with
any Related Document that would impair the value of the interest or rights
of the Borrower thereunder or that would impair the rights or interests of
any Lender, or permit any of its Subsidiaries to do any of the foregoing.
SECTION 5.03. REPORTING REQUIREMENTS. So long as any Advance shall remain
unpaid, any Lender shall have any Commitment hereunder or any Lender shall be a
holder of an Exchange Security, the Borrower will, unless the Required Lenders
shall otherwise consent in writing, furnish to the Lenders:
(a) DEFAULT NOTICE. As soon as possible and in any event within two
days after the occurrence of each Default continuing on the date of such
statement, a statement of the chief financial officer of the Borrower
setting forth details of such Default and the action that the Borrower has
taken and proposes to take with respect thereto.
(b) MONTHLY FINANCIALS. As soon as available and in any event within
30 days after the end of each month other than the last month of any fiscal
quarter or fiscal year of the Borrower, a Consolidated balance sheet of the
Borrower and its Subsidiaries as of the end of such month and Consolidated
statements of income and cash flows of the Borrower and its Subsidiaries
for the period commencing at the end of the previous month
<PAGE> 50
47
and ending with the end of such month, setting forth in each case in
comparative form the corresponding figures for the preceding month, all in
reasonable detail and duly certified by the chief financial officer of the
Borrower, together with a schedule in form satisfactory to the Lenders of
the computations used by the Borrower in determining compliance with the
covenants contained in Section 5.04, certified by such officer as true,
correct and complete.
(c) QUARTERLY FINANCIALS. As soon as available and in any event within
45 days after the end of each of the first three quarters of each fiscal
year of the Borrower, a Consolidated balance sheet of the Borrower and its
Subsidiaries as of the end of such quarter and Consolidated statements of
income and cash flows of the Borrower and its Subsidiaries for the period
commencing at the end of the previous fiscal year and ending with the end
of such quarter, setting forth in each case in comparative form the
corresponding figures for the corresponding period of the preceding fiscal
year, all in reasonable detail and duly certified (subject to year-end
audit adjustments) by the chief financial officer of the Borrower as having
been prepared in accordance with GAAP, together with (i) a certificate of
said officers (A) stating that no Default has occurred and is continuing
or, if a Default has occurred and is continuing, a statement as to the
nature thereof and the action that the Borrower has taken and proposes to
take with respect thereto, and (B) certifying compliance with each of the
financial covenants set forth in Section 5.04 hereof, and (ii) a schedule
in form satisfactory to the Lenders of the computations used by the
Borrower in determining compliance with the covenants contained in Section
5.04, certified by the chief financial officer of the Borrower as true,
correct and complete.
(d) ANNUAL FINANCIALS. As soon as available and in any event within 90
days after the end of each fiscal year of the Borrower, a copy of the
annual audit report for such year for the Borrower and its Subsidiaries,
including therein a Consolidated balance sheet of the Borrower and its
Subsidiaries as of the end of such fiscal year and Consolidated statements
of income and cash flows of the Borrower and its Subsidiaries for such
fiscal year, in each case accompanied by an opinion acceptable to the
Required Lenders of Ernst & Young LLP or other independent public
accountants of recognized standing acceptable to the Required Lenders,
together with (i) a certificate of such accounting firm to the Lenders
stating that in the course of the regular audit of the business of the
Borrower and its Subsidiaries, which audit was conducted by such accounting
firm in accordance with generally accepted auditing standards, such
accounting firm has obtained no knowledge that a Default has occurred and
is continuing, or if, in the opinion of such accounting firm, a Default has
occurred and is continuing, a statement as to the nature thereof, (ii) a
schedule in form satisfactory to the Lenders of the computations used by
such accountants in determining, as of the end of such fiscal year,
compliance with the covenants contained
<PAGE> 51
48
in Section 5.04, certified by the chief financial officer of the Borrower
as true, correct and complete, and (iii) a certificate of the chief
financial officer of the Borrower stating that no Default has occurred and
is continuing or, if a default has occurred and is continuing, a statement
as to the nature thereof and the action that the Borrower has taken and
proposes to take with respect thereto.
(e) ERISA EVENTS. Promptly and in any event within 10 days after the
Borrower or any of its ERISA Affiliates knows or has reason to know that
any ERISA Event with respect to the Borrower or any of its ERISA Affiliates
has occurred, a statement of the chief financial officer of the Borrower
describing such ERISA Event and the action, if any, that the Borrower or
such ERISA Affiliate has taken and proposes to take with respect thereto.
(f) PLAN TERMINATIONS. Promptly and in any event within two Business
Days after receipt thereby by the Borrower or any of its ERISA Affiliates,
copies of each notice from the PBGC stating its intention to terminate any
Plan of the Borrower or any of its ERISA Affiliates or to have a trustee
appointed to administer any such Plan.
(g) PLAN ANNUAL REPORTS. Promptly and in any event within 30 days
after the filing thereof with the Internal Revenue Service, copies of each
Schedule B (Actuarial Information) to the annual report (Form 5500 Series)
with respect to each Plan of each Loan Party or any of its ERISA
Affiliates.
(h) MULTIEMPLOYER PLAN NOTICES. Promptly and in any event within five
Business Days after receipt thereof by the Borrower or any of its ERISA
Affiliates from the sponsor of a Multiemployer Plan of the Borrower or any
of its ERISA Affiliates, copies of each notice concerning (i) the
imposition of Withdrawal Liability by any such Multiemployer Plan, (ii) the
reorganization or termination, within the meaning of Title IV of ERISA, of
any such Multiemployer Plan or (iii) the amount of liability incurred, or
that may be incurred, by the Borrower or any of its ERISA Affiliates in
connection with any event described in clause (i) or (ii).
(i) LITIGATION. Promptly after the commencement thereof, notice of all
actions, suits, investigations, litigation and proceedings before any court
or governmental department, commission, board, bureau, agency or
instrumentality, domestic or foreign, affecting the Borrower or any of its
Subsidiaries of the type described in Section 4.01(j).
(j) SECURITIES REPORTS. Promptly after the sending or filing thereof,
copies of all proxy statements, financial statements and reports that the
Borrower or any of its Subsidiaries sends to its stockholders, and copies
of all regular, periodic and special
<PAGE> 52
49
reports, and all registration statements, that the Borrower or any of its
Subsidiaries files with the Securities and Exchange Commission or any
governmental authority that may be substituted therefor, or with any
national securities exchange.
(k) ENVIRONMENTAL CONDITIONS. Promptly after the occurrence thereof,
notice of any condition or occurrence on any property of the Borrower or
any of its Subsidiaries that results in a material noncompliance by the
Borrower or any of its Subsidiaries with any Environmental Law or
Environmental Permit or could (i) form the basis of an Environmental Action
against the Borrower or any of its Subsidiaries or such property that could
have a Material Adverse Effect or (ii) cause any such property to be
subject to any restrictions on ownership, occupancy, use or transferability
under any Environmental Law.
(l) NOTICE OF CHANGE OF CONTROL. Promptly and in any event within two
days after the occurrence of any Control Event, written notice of such
Control Event.
(m) OTHER INFORMATION. Such other information respecting the business,
condition (financial or otherwise), operations, performance, properties or
prospects of the Borrower or any of its Subsidiaries as any Lender may from
time to time reasonably request.
SECTION 5.04. FINANCIAL COVENANTS. So long as any Advance shall remain
unpaid, any Lender shall have any Commitment hereunder or any Lender shall be a
holder of an Exchange Security, the Borrower shall, unless the Required Lenders
otherwise consent in writing:
(a) CONSOLIDATED TANGIBLE NET WORTH. Maintain, as of the end of each
fiscal quarter, Consolidated Tangible Net Worth of not less than the amount
shown below for the applicable period corresponding thereto:
<TABLE>
<CAPTION>
Date Amount
---- ------
<S> <C>
Closing Date through October 3, 1998 $12,000,000
October 4, 1998 through January 2, 1999 $13,500,000
January 3, 1999 through April 3, 1999 $14,000,000
April 4, 1999 through Maturity Date $17,000,000
</TABLE>
(b) CONSOLIDATED FIXED CHARGE COVERAGE. Maintain, as of the end of
each fiscal quarter, a Consolidated Fixed Charge Coverage of at least the
ratio shown below for the applicable period corresponding thereto:
<PAGE> 53
50
<TABLE>
<CAPTION>
Period Ratio
------ -----
<S> <C>
July 1, 1998 through October 3, 1998 1.10 to 1.00
July 1, 1998 through January 2, 1999 1.15 to 1.00
July 1, 1998 through April 3, 1999 1.20 to 1.00
July 1, 1998 through Maturity Date 1.25 to 1.00
</TABLE>
(c) CONSOLIDATED SENIOR DEBT/CONSOLIDATED EBITDA. Maintain, as of the
end of each fiscal quarter, a ratio of Consolidated Senior Debt/EBITDA of
not more than the ratio shown below for the applicable period corresponding
thereto:
<TABLE>
<CAPTION>
Period Ratio
------ -----
<S> <C>
July 1, 1998 through October 3, 1998 2.50 to 1.00
July 1, 1998 through January 2, 1999 2.50 to 1.00
July 1, 1998 through April 3, 1999 2.50 to 1.00
July 1, 1998 through Maturity Date 2.50 to 1.00
</TABLE>
(d) CONSOLIDATED FUNDED DEBT/CONSOLIDATED EBITDA. Maintain, as of the
end of each fiscal quarter, a ratio of Consolidated Funded
Debt/Consolidated EBITDA of not more than the ratio shown below for the
applicable period corresponding thereto:
<TABLE>
<CAPTION>
Period Ratio
------ -----
<S> <C>
July 1, 1998 through October 3, 1998 5.00 to 1.00
July 1, 1998 through January 2, 1999 5.00 to 1.00
July 1, 1998 through April 3, 1999 5.00 to 1.00
July 1, 1998 through Maturity Date 4.50 to 1.00
</TABLE>
<PAGE> 54
51
ARTICLE VI
EVENTS OF DEFAULT
SECTION 6.01. EVENTS OF DEFAULT. If any of the following events ("EVENTS OF
DEFAULT") shall occur and be continuing:
(a) the Borrower shall fail to pay any principal of, or interest on,
any Advance, or any Loan Party shall fail to make any other payment under
any Loan Document, in each case when the same becomes due and payable; or
(b) any representation or warranty made by any Loan Party (or any of
its officers) under or in connection with any Loan Document shall prove to
have been incorrect in any material respect when made; or
(c) the Borrower shall fail to perform or observe any term, covenant
or agreement contained in Section 5.01(h), 5.01(j), 5.01(l), 5.02, 5.03 or
5.04;
(d) any Loan Party shall fail to perform any other term, covenant or
agreement contained in any Loan Document on its part to be performed or
observed if such failure shall remain unremedied for 30 days after written
notice thereof shall have been given to the Borrower by any Lender; or
(e) the Borrower or any of its Subsidiaries shall fail to pay any
principal of, premium or interest on or any other amount payable in respect
of any Indebtedness that is outstanding in a principal amount of at least
$3,000,000 in the aggregate (but excluding Indebtedness outstanding
hereunder), when the same becomes due and payable (whether by scheduled
maturity, required prepayment, acceleration, demand or otherwise), and such
failure shall continue after the applicable grace period, if any, specified
in the agreement or instrument relating to such Indebtedness; or any other
event shall occur or condition shall exist under any agreement or
instrument relating to any such Indebtedness and shall continue after the
applicable grace period, if any, specified in such agreement or instrument,
if the effect of such event or condition is to accelerate, or to permit the
acceleration of, the maturity of such Indebtedness or otherwise to cause,
or to permit the holder thereof to cause, such Indebtedness to mature; or
any such Indebtedness shall be declared to be due and payable or required
to be prepaid or redeemed (other than by a regularly scheduled required
prepayment or redemption), purchased or defeased, or an offer to prepay,
redeem, purchase or defease such Indebtedness shall be required to be made,
in each case prior to the stated maturity thereof; or
<PAGE> 55
52
(f) the Borrower or any of its Subsidiaries shall generally not pay
its debts as such debts become due, or shall admit in writing its inability
to pay its debts generally, or shall make a general assignment for the
benefit of creditors; or any proceeding shall be instituted by or against
the Borrower or any of its Subsidiaries seeking to adjudicate it a bankrupt
or insolvent, or seeking liquidation, winding up, reorganization,
arrangement, adjustment, protection, relief, or composition of it or its
debts under any law relating to bankruptcy, insolvency or reorganization or
relief of debtors, or seeking the entry of an order for relief or the
appointment of a receiver, trustee, or other similar official for it or for
any substantial part of its property and, in the case of any such
proceeding instituted against it (but not instituted by it) that is being
diligently contested by it in good faith, either such proceeding shall
remain undismissed or unstayed for a period of 60 days or any of the
actions sought in such proceeding (including, without limitation, the entry
of an order for relief against, or the appointment of a receiver, trustee,
custodian or other similar official for, it or any substantial part of its
property) shall occur; or the Borrower or any of its Subsidiaries shall
take any corporate action to authorize any of the actions set forth above
in this subsection (f); or
(g) any judgment or order for the payment of money in excess of the
uncontested insurance available therefor by $1,000,000 or more shall be
rendered against the Borrower or any of its Subsidiaries and either (i)
enforcement proceedings shall have been commenced by any creditor upon such
judgment or order or (ii) there shall be any period of 10 consecutive days
during which a stay of enforcement of such judgment or order, by reason of
a pending appeal or otherwise, shall not be in effect; or
(h) any provision of any Loan Document after delivery thereof pursuant
to Section 3.01 shall for any reason cease to be valid and binding on or
enforceable against any Loan Party a party to such Loan Document, or such
Loan Party shall so state in writing; or
(i) a Change of Control shall have occurred; or
(j) any ERISA Event shall have occurred with respect to a Plan of the
Borrower or any of its ERISA Affiliates and the sum (determined as of the
date of occurrence of such ERISA Event) of the Insufficiency of such Plan
and the Insufficiency of any and all other Plans of the Borrower and its
ERISA Affiliates with respect to which an ERISA Event shall have occurred
and then exist (or the liability of the Borrower and its ERISA Affiliates
related to such ERISA Event) exceeds $1,000,000; or
(k) the Borrower or any of its ERISA Affiliates shall have been
notified by the sponsor of a Multiemployer Plan that it has incurred
Withdrawal Liability to such
<PAGE> 56
53
Multiemployer Plan in an amount that, when aggregated with all other
amounts required to be paid to Multiemployer Plans by the Borrower and its
ERISA Affiliates as Withdrawal Liability (determined as of the date of such
notification), exceeds $1,000,000 or requires payments exceeding $100,000
per annum; or
(l) the Borrower or any of its ERISA Affiliates shall have been
notified by the sponsor of a Multiemployer Plan of the Borrower or any of
its ERISA Affiliates that such Multiemployer Plan is in reorganization or
is being terminated, within the meaning of Title IV of ERISA, and as a
result of such reorganization or termination the aggregate annual
contributions of the Borrower and its ERISA Affiliates to all Multiemployer
Plans that are then in reorganization or being terminated have been or will
be increased over the amounts contributed to such Multiemployer Plans for
the plan years of such Multiemployer Plans immediately preceding the plan
year in which such reorganization or termination occurs by an amount
exceeding $1,000,000; or
(m) an "Event of Default" (as defined in the Senior Credit Agreement)
shall have occurred and be continuing under the Senior Credit Agreement;
then, and in any such event, Prudential (i) shall at the request, or may with
the consent, of the Required Lenders, by notice to the Borrower, declare the
obligation of each Lender to make Advances to be terminated, whereupon the same
shall forthwith terminate, and (ii) shall at the request, or may with the
consent, of the Required Lenders, by notice to the Borrower, declare the Notes,
all interest thereon and all other amounts payable under this Agreement and the
other Loan Documents to be forthwith due and payable, whereupon the Notes, all
such interest and all such amounts shall become and be forthwith due and
payable, without presentment, demand, protest or further notice of any kind, all
of which are hereby expressly waived by the Borrower; provided, however, that
upon the occurrence of an Event of Default pursuant to the terms of subsection
(f) of this Section 6.01, (x) the obligation of each Lender to make Advances
shall automatically be terminated and (y) the Notes, all such interest and all
such amounts shall automatically become and be due and payable, without
presentment, demand, protest or any notice of any kind, all of which are hereby
expressly waived by the Borrower.
ARTICLE VII
MISCELLANEOUS
SECTION 7.01. AMENDMENTS, ETC. No amendment or waiver of any provision of
this Agreement or any other Loan Document nor consent to any departure by the
Borrower therefrom, shall in any event be effective unless the same shall be in
writing and signed by the Required Lenders, and then such waiver or consent
shall be effective only in the specific instance and for
<PAGE> 57
54
the specific purpose for which given; provided, however, that no amendment,
waiver or consent shall, unless in writing and signed by all the Lenders, do any
of the following at any time: (i) waive any of the conditions specified in
Section 3.01 or, in the case of the initial Borrowing, 3.02, (ii) change the
percentage of the Commitments or of the aggregate unpaid principal amount of the
Notes, or the number of Lenders, that shall be required for the Lenders or any
of them to take any action hereunder, (iii) amend this Section 7.01 or Section
2.04(b), (iv) increase the Commitments of the Lenders or subject the Lenders to
any additional obligations, (v) reduce the principal of, or interest on, the
Notes or any fees or other amounts payable hereunder or (vi) postpone any date
fixed for any payment of principal of, or interest on, the Notes or any fees or
other amounts payable hereunder or amend Section 2.06.
SECTION 7.02. NOTICE, ETC. All notices and other communications provided
for hereunder shall be in writing (including telecopy) and mailed, telecopied,
or delivered as follows:
(a) if to the Borrower, at 4902 West Waters Avenue, Tampa, Florida 33634;
Attn: Michael Kagan or Larry McPherson; telephone: (813) 249-4900; telecopier:
(813) 249-4904;
(b) if to Prudential, at One Seaport Plaza, New York, New York 10292; Attn:
Fred Robustelli; telephone: (212) 214-6813; telecopier: (212) 214-7938, with a
copy to Prudential Securities Incorporated, One New York Plaza, New York, New
York 10292; Attn: Christopher Barber; telephone: (212) 778-1361; telecopier:
(212) 778-5718;
(c) if to any other Lender, at such address as shall be designated by such
Lender in a written notice to the other parties;
(d) if to any subsequent holder of Exchange Securities, to such holder at
its address appearing on the records of the Borrower and to the Trustee under
the Indenture;
or, as to each party, at such other address as shall be designated by such party
in a written notice to the other parties. All such notices and communications
shall, when mailed, telegraphed, telecopied, telexed or cabled, be effective
when deposited in the mails, delivered to the telegraph company, transmitted by
telecopier, confirmed by telex answerback or delivered to the cable company,
respectively, except that notices and communications to the Lenders pursuant to
Article II or III shall not be effective until received by such Lenders.
SECTION 7.03. NO WAIVER; REMEDIES. No failure on the part of any Lender,
and no delay in exercising, any right hereunder or under any Note shall operate
as a waiver thereof; nor shall any single or partial exercise of any such right
preclude any other or further exercise thereof or the exercise of any other
right. The remedies herein provided are cumulative and not exclusive of any
remedies provided by law.
<PAGE> 58
55
SECTION 7.04. COSTS AND EXPENSES; INDEMNIFICATION. (a) The Borrower agrees
to pay on demand (i) all costs and expenses of the Lenders in connection with
the waiver, amendment or enforcement of the Loan Documents (including, without
limitation, the reasonable fees and expenses of counsel for Prudential with
respect thereto, with respect to advising the Lenders as to its rights and
responsibilities, or the perfection, protection or preservation of rights or
interests, under the Loan Documents, with respect to negotiations with the
Borrower or with other creditors of the Borrower or any of its Subsidiaries
arising out of any Default or any events of circumstances that may give rise to
a Default and with respect to presenting claims in or otherwise participating in
or monitoring any bankruptcy, insolvency or other similar proceedings involving
creditors' rights generally and any proceeding ancillary thereto) and (ii) all
costs and expenses of the Lenders in connection with the enforcement of the Loan
Documents, whether in any action, suit or litigation, any bankruptcy, insolvency
or other similar proceeding affecting creditors' rights generally or otherwise
(including, without limitation, the reasonable fees and expenses of counsel for
each Lender with respect thereto).
(b) (i) The Borrower agrees that it will indemnify and hold harmless
the Lenders to the fullest extent permitted by law, from and against any
and all losses, claims, damages, obligations, penalties, judgments, awards,
liabilities, costs, expenses and disbursements (and any and all actions,
suits, proceedings and investigations in respect thereof and any and all
legal or other costs, expenses and disbursements in giving testimony or
furnishing documents in response to a subpoena or otherwise), including,
without limitation, the costs, expenses and disbursements, as and when
incurred, of investigating, preparing or defending any such action,
proceeding or investigation (whether or not in connection with litigation
in which any of the Lenders is a party thereto), directly or indirectly,
caused by, relating to, based upon, arising out of or in connection with
(a) this Agreement and the other Loan Documents, (b) the Acquisition or (c)
any untrue statement or alleged untrue statement of a material fact
contained in, or omissions or alleged omissions from any filing with any
governmental agency or similar statements or omissions in or from any
information furnished by the Borrower or any of its Subsidiaries or
Affiliates or the Acquired Business or any of its Subsidiaries or
Affiliates to any of the Lenders or any other person in connection with
this Agreement and the other Loan Documents or the Acquisition; provided,
however, that such indemnity agreement shall not apply to any such loss,
claim, damage, obligation, penalty, judgment, award, liability, cost,
expense or disbursement to the extent it is found in a final judgment by a
court of competent jurisdiction (not subject to further appeal) to have
resulted primarily and directly from the gross negligence or willful
misconduct of any of the Lenders. The Borrower also agrees that the Lenders
shall have no liability (whether direct or indirect, in contract or tort or
otherwise) to the Borrower for or in connection with this Agreement and the
other Loan Documents or the transactions contemplated thereby including,
without limitation, the Acquisition, except for any such losses, claims,
damages, obligations,
<PAGE> 59
56
penalties, judgments, awards, liabilities, costs, expenses and
disbursements that are finally judicially determined by a court of
competent jurisdiction (not subject to further appeal) to have resulted
from the bad faith or gross negligence of any of the Lenders.
(ii) The indemnification provisions in this Section shall be in
addition to any liability which the Borrower may have to the Lenders or the
Persons indemnified below in this sentence and shall extend to the
following: the Lenders, Prudential, their respective affiliated entities,
directors, officers, employees, legal counsel, agents and controlling
persons (within the meaning of the federal securities laws), and none of
such indemnified persons shall be liable for any act or omission of any of
the others. All references to "Lender(s)" in these indemnification
provisions shall be understood to include any and all of the foregoing.
(iii) If any action, suit, proceeding or investigation is commenced,
as to which any indemnified party proposes to demand indemnification, it
shall notify the Borrower with reasonable promptness; provided, however,
that any failure by any indemnified party to so notify the Borrower shall
not relieve the Borrower from its obligations hereunder. Prudential, on
behalf of the Lenders, shall have the right to retain counsel of its choice
to represent the Lenders, and the Borrower shall pay the fees, expenses and
disbursement of such counsel; and such counsel shall, to the extent
consistent with its professional responsibilities, cooperate with the
Borrower and any counsel designated by the Borrower. The Borrower shall be
liable for any settlement of any claim against any of the Lenders made with
the Borrower's written consent, which consent shall not be unreasonably
withheld. The Borrower shall not, without the prior written consent of
Prudential, settle or compromise any claim, or permit a default or consent
to the entry of any judgment in respect thereof, unless such settlement,
compromise or consent includes, as an unconditional term thereof, the
giving by the claimant to each of the Lenders of an unconditional and
irrevocable release from all liability in respect of such claim.
(iv) In order to provide for just and equitable contribution, if a
claim for indemnification pursuant to the indemnification provisions
contained in this Section is made but is found in a final judgment by a
court of competent jurisdiction (not subject to further appeal) that such
indemnification may not be enforced in such case, even though the express
provisions hereof provide for indemnification in such case, then the
Borrower, on the one hand, and the Lenders, on the other hand, shall
contribute to the losses, claims, damages, obligations, penalties,
judgments, awards, liabilities, costs, expenses and disbursements to which
the indemnified persons may be subject in accordance with the relative
benefits received by the Borrower, on the one hand, and the Lenders, on the
other hand, and also the relative fault of the Borrower, on the one hand,
and the Lenders, on the other hand, in connection with the statements, acts
or omissions which resulted in such
<PAGE> 60
57
losses, claims, damages, obligations, penalties, judgments, awards,
liabilities, costs, expenses and disbursements and the relevant equitable
considerations shall also be considered. No person found liable for a
fraudulent misrepresentation shall be entitled to contribution from any
person who is not also found liable for such fraudulent misrepresentation.
Notwithstanding the foregoing, none of the Lenders shall be obligated to
contribute any amount hereunder that exceeds the amount of fees previously
received by such Lender pursuant to the Fee Letter.
(v) Neither termination of the Commitments nor repayment of the
Advances shall affect the indemnification provisions contained in this
Section which shall then remain operative and in full force and effect.
(c) If any payment of principal of any Advance is made by the Borrower
to or for the account of a Lender other than on the last day of the Interest
Period for such Advance, as a result of a payment or conversion pursuant to
Section 2.07(c), acceleration of the maturity of the Notes pursuant to Section
6.01 or for any other reason, the Borrower shall, upon demand by such Lender,
pay to such Lender any amounts required to compensate such Lender for any
additional losses, costs or expenses that it may reasonably incur as a result of
such payment, including, without limitation, any loss (including loss of
anticipated profits), cost or expense incurred by reason of the liquidation or
reemployment of deposits or other funds acquired by any Lender to fund or
maintain such Advance.
(d) If the Borrower fails to pay when due any costs, expenses or other
amounts payable by it under any Loan Document, including, without limitation,
fees and expenses of counsel and indemnities, such amount may be paid on behalf
of the Borrower by any Lender, in its sole discretion.
SECTION 7.05. RIGHT OF SET-OFF. Upon (a) the occurrence and during the
continuance of any Event of Default and (b) the making of the request or the
granting of the consent specified by Section 6.01 to authorize Prudential to
declare the Notes due and payable pursuant to the provisions of Section 6.01,
each Lender is hereby authorized at any time and from time to time, to the
fullest extent permitted by law, to set off and otherwise apply any and all
deposits (general or special, time or demand, provisional or final) at any time
held and other indebtedness at any time owing by such Lender to or for the
credit or the account of the Borrower against any and all of the Obligations of
the Borrower now or hereafter existing under this Agreement and the Note or
Notes held by such Lender, irrespective of whether such Lender shall have made
any demand under this Agreement or such Note or Notes and although such
obligations may be unmatured. Each Lender agrees promptly to notify the Borrower
after any such set-off and application; provided, however, that the failure to
give such notice shall not affect the validity of such set-off
<PAGE> 61
58
and application. The rights of each Lender under this Section are in addition to
other rights and remedies (including, without limitation, other rights of
set-off) that such Lender may have.
SECTION 7.06. BINDING EFFECT. This Agreement shall become effective when it
shall have been executed by the Borrower and Prudential and thereafter shall be
binding upon and inure to the benefit of the Borrower, Prudential and each
Lender party thereto from time to time and their respective successors and
assigns, except that the Borrower shall not have the right to assign its rights
hereunder or any interest herein without the prior written consent of the
Lenders.
SECTION 7.07. ASSIGNMENTS AND PARTICIPATIONS. (a) Each Lender may assign to
one or more banks or other entities all or a portion of its rights and
obligations under this Agreement (including, without limitation, all or a
portion of its Commitment or Commitments and the Advances owing to it and the
Note or Notes held by it); provided, however, that (i) the amount of the
Commitment of the assigning Lender being assigned pursuant to each such
assignment shall in no event be less than $5,000,000 and shall be an integral
multiple of $1,000,000, and (ii) each such assignment shall be to an Eligible
Assignee.
(b) Prudential shall maintain at its address referred to in Section
7.02 a register for the recordation of the names and addresses of the Lenders
and the Commitment of, and principal amount of the Advances owing under the
Facility to, each Lender from time to time (the "REGISTER"). The entries in the
Register shall be conclusive and binding for all purposes, absent manifest
error, and the Borrower and the Lenders may treat each Person whose name is
recorded in the Register as a Lender hereunder for all purposes of this
Agreement. The Register shall be available for inspection by the Borrower or any
Lender at any reasonable time and from time to time upon reasonable prior
notice.
(c) The Borrower hereby agrees to cooperate with the Lenders in
connection with the assignment of the Commitments and Advances under Section
7.07(a). Within five Business Days after its receipt of notice, the Borrower, at
its own expense, shall execute and deliver to the applicable Lender in exchange
for the surrendered Note or Notes a new Note to the order of such Lender's
assignee in an amount equal to the Commitment assumed by it and, if the
assigning Lender has retained a Commitment hereunder, a new Note to the order of
the assigning Lender in an amount equal to the Commitment retained by it
hereunder. Such new Note or Notes shall be in an aggregate principal amount
equal to the aggregate principal amount of such surrendered Note or Notes, shall
be dated the effective date of such assignment.
(d) Each Lender may sell participations in or to all or a portion of
its rights and obligations under this Agreement (including, without limitation,
all or a portion of its Commitments and the Advances owing to it and the Note or
Notes held by it); provided, however, that (i) such Lender's obligations under
this Agreement (including, without limitation, its
<PAGE> 62
59
Commitments) shall remain unchanged, (ii) such Lender shall remain solely
responsible to the other parties hereto for the performance of such obligations,
(iii) such Lender shall remain the holder of any such Note for all purposes of
this Agreement, (iv) the Borrower and the Lenders shall continue to deal solely
and directly with such Lender in connection with such Lender's rights and
obligations under this Agreement and (v) no participant under any such
participation shall have any right to approve any amendment or waiver of any
provision of any Loan Document, or any consent to any departure by the Borrower
therefrom, except to the extent that such amendment, waiver or consent would
reduce the principal of, or interest on, the Notes or any fees or other amounts
payable hereunder, in each case to the extent subject to such participation,
postpone any date fixed for any payment of principal of, or interest on, the
Notes or any fees or other amounts payable hereunder, in each case to the extent
subject to such participation.
(e) Any Lender may, in connection with any assignment or participation
or proposed assignment or participation pursuant to this Section 7.07, disclose
to the assignee or participant or proposed assignee or participant, any
information relating to the Borrower furnished to such Lender by or on behalf of
the Borrower; provided, however, that, prior to any such disclosure, the
assignee or participant or proposed assignee or participant shall agree to
preserve the confidentiality of any Confidential Information received by it from
such Lender.
(f) Notwithstanding any other provision set forth in this Agreement,
any Lender may at any time create a security interest in all or any portion of
its rights under this Agreement (including, without limitation, the Advances
owing to it and the Note or Notes held by it) in favor of any Federal Reserve
Bank in accordance with Regulation A of the Board of Governors of the Federal
Reserve System.
SECTION 7.08. GOVERNING LAW; SUBMISSION TO JURISDICTION. THIS AGREEMENT AND
THE NOTES SHALL BE CONSTRUED AND ENFORCED IN ACCORDANCE WITH, AND THE RIGHTS OF
THE PARTIES SHALL BE GOVERNED BY, THE LAW OF THE STATE OF NEW YORK, EXCLUDING
CHOICE-OF-LAW PRINCIPLES OF THE LAW OF SUCH STATE THAT WOULD REQUIRE THE
APPLICATION OF THE LAWS OF A JURISDICTION OTHER THAN SUCH STATE. THE BORROWER
HEREBY SUBMITS TO THE JURISDICTION OF THE SUPREME COURT OF THE STATE OF NEW YORK
LOCATED IN NEW YORK COUNTY, NEW YORK AND THE UNITED STATES DISTRICT COURT FOR
THE SOUTHERN DISTRICT OF NEW YORK AND IRREVOCABLY AGREES THAT, SUBJECT TO SOLE
AND ABSOLUTE ELECTION OF THE HOLDERS OF THE NOTES AND TO THE EXTENT PERMITTED BY
APPLICABLE LAW, ALL ACTIONS OR PROCEEDINGS RELATING TO THIS AGREEMENT OR THE
NOTES OR ANY OTHER LOAN DOCUMENT SHALL BE LITIGATED IN SUCH COURTS, AND THE
BORROWER WAIVES ANY OBJECTION
<PAGE> 63
60
WHICH IT MAY HAVE BASED ON IMPROPER VENUE OR FORUM NON CONVENIENS TO THE CONDUCT
OF ANY PROCEEDING IN ANY SUCH COURTS.
SECTION 7.09. EXECUTION IN COUNTERPARTS. This Agreement may be executed in
any number of counterparts and by different parties hereto in separate
counterparts and by different parties hereto in separate counterparts, each of
which when so executed shall be deemed to be an original and all of which taken
together shall constitute one and the same agreement. Delivery of an executed
counterpart of a signature page to this Agreement by telecopier shall be
effective as delivery of a manually executed counterpart of this Agreement.
SECTION 7.10. CONFIDENTIALITY. Neither Prudential nor any Lender shall
disclose any Confidential Information to any Person without the consent of the
Borrower, other than (a) to such Lender's Affiliates and their officers,
directors, employees, agents and advisors and to actual or prospective assignees
and participants, and then only on a confidential basis, (b) as required by any
law, rule or regulation or judicial process and (c) as requested or required by
any state, federal or foreign authority or examiner regulating banks or banking.
SECTION 7.11. WAIVER OF JURY TRIAL. Each of the Borrower and the Lenders
hereby irrevocably waives all right to trial by jury in any action, proceeding
or counterclaim (whether based on contract, tort or otherwise) arising out of or
relating to any of the Loan Documents, the Advances or the actions of any Lender
in the negotiation, administration, performance or enforcement thereof.
SECTION 7.12. SUBORDINATION. (a) The Lenders agree that the Obligations of
the Loan Parties under the Loan Documents are subordinate in right of payment to
the prior payment in full of all Senior Debt, whether outstanding on the Closing
Date or thereafter incurred. Upon any payment or distribution of assets of the
Borrower to creditors upon any liquidation, dissolution, winding up,
reorganization, assignment for the benefit of creditors, marshaling of assets or
any bankruptcy, insolvency or similar proceedings of the Borrower, whether
voluntary or involuntary (except in connection with the consolidation or merger
of the Borrower or its liquidation or dissolution following the conveyance,
transfer or lease of its properties and assets substantially as an entirety)
(each such event, a "DISTRIBUTION EVENT"), the holders of Senior Debt will first
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 such Senior Debt (including
interest accruing after the commencement of any such proceeding at the rate
specified in the applicable Senior Debt) before the Lenders are entitled to
receive any payment of principal of and interest on the amounts outstanding
under the Loan Documents. In the event that, notwithstanding the foregoing, any
Lender receives any payment or distribution of assets of the Borrower of any
kind or character (excluding equity or subordinated securities of the Borrower
provided for in a plan of reorganization or readjustment that, in the case of
subordinated securities, are subordinated in right of payment to all Senior Debt
<PAGE> 64
61
to at least the same extent as the Indebtedness under the Loan Documents is so
subordinated) after the occurrence of a Distribution Event but before all the
Senior Debt is paid in full, then such payment or distribution will be held in
trust for the holders of Senior Debt and will be required to be paid over or
delivered forthwith to the trustee in bankruptcy or other Person making payment
or distribution of assets of the Borrower for application to the payment of all
Senior Debt remaining unpaid, to the extent necessary to pay the Senior Debt in
full. Notwithstanding the foregoing, following the commencement of a proceeding
under the Bankruptcy Code and if the holders of Senior Debt receive less than
payment in full, the Lenders may retain any payment or distribution paid by the
Borrower under the Loan Documents pursuant to a plan of reorganization if
(i) the holders of claims for Designated Senior Debt (who are
entitled to vote for such plan in accordance with the Bankruptcy Code)
approve such plan by a vote which equals at least (x) 66-2/3% in principal
amount of such claims and (y) one-half in number of such claims, or
(ii) in the event that there is more than one class of Designated
Senior Debt in such proceeding, the holders of claims for each such class
(who are entitled to vote for such plan in accordance with the Bankruptcy
Code) approve such plan by a vote which equals at least (x) 66-2/3% in
principal amount of such claims of such class and (y) one-half in number of
such claims of such class.
(b) The Borrower may not make any payments on account of the Indebtedness
outstanding under the Loan Documents if a default in the payment of principal of
(or premium, if any) or interest on Designated Senior Debt has occurred and is
continuing or a default in the payment when due of any other obligation under
Designated Senior Debt has occurred and is continuing (a "SENIOR PAYMENT
DEFAULT"). In addition, if any default (other than a Senior Payment Default) has
occurred and is continuing with respect to any Designated Senior Debt permitting
the holders thereof (or a trustee or agent on behalf thereof) to accelerate the
maturity thereof (a "SENIOR NONMONETARY DEFAULT") and the Borrower has received
written notice thereof from the agent under the Senior Credit Facility or from
an authorized Person on behalf of any holder of Designated Senior Debt, then the
Borrower may not make any payments on account of the Indebtedness outstanding
under the Loan Documents for a period (a "BLOCKAGE PERIOD") commencing on the
date the Borrower receives such written notice (a "BLOCKAGE NOTICE") and ending
on the earliest of (x) 179 days after the date on which the applicable Blockage
Notice is received unless a Senior Payment Default has occurred and is
continuing at the end of such 179-day period, (y) the date, if any, on which
the Designated Senior Debt to which such default relates is discharged or such
default is waived or otherwise cured and (z) the date, if any, on which such
Blockage Period has been terminated by written notice to the Borrower from the
agent under the Senior Credit Facility or from the Person who gave the Blockage
Notice. However, the Borrower may make payments with respect to the Indebtedness
outstanding under the Loan Documents
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62
without regard to the foregoing if the Borrower receives written notice
approving such payment from a representative of the Designated Senior Debt
affected by such Senior Payment Default or Senior Nonmonetary Default. In any
event, not more than one Blockage Period may be commenced during any period of
360 consecutive days, and there must be a period of at least 181 consecutive
days in each period of 360 consecutive days when no Blockage Period is in
effect. No Senior Nonmonetary Default that existed or was continuing on the date
of the commencement of any Blockage Period with respect to the Designated Senior
Debt initiating such Blockage Period will be, or can be, made the basis for the
commencement of a subsequent Blockage Period, unless such default has been cured
or waived for a period of not less than 90 consecutive days. In the event that,
notwithstanding the foregoing, the Borrower makes any payment to the Lenders
prohibited by these blockage provisions, then such payment will be held in trust
for the holders of Senior Debt and will be required to be paid over and
delivered forthwith to the holders of the Senior Debt remaining unpaid, to the
extent necessary to pay in full all the Senior Debt.
(c) Notwithstanding anything to the contrary in this Section 7.12, the
right of the Lenders to receive the proceeds of the Rule 144A Offering in
satisfaction of the Obligations of the Borrower under the Loan Documents is not
subordinate to the prior payment of any Senior Debt or Designated Senior Debt.
<PAGE> 66
S-1
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be
executed by their respective officers thereunto duly authorized, as of the date
first above written.
TROPICAL SPORTSWEAR INT'L
CORPORATION, as Borrower
By /s/ N. Larry McPherson
-------------------------------------
Name: N. Larry McPherson
Title: Executive Vice President --
Finance and Operations
PRUDENTIAL SECURITIES CREDIT
CORPORATION, as a Lender
By /s/ George D. Martin, III
-------------------------------------
Name: George D. Martin, III
Title: Vice President
<PAGE> 67
EXHIBIT A
FORM OF PROMISSORY NOTE
$100,000,000 Dated: June __, 1998
FOR VALUE RECEIVED, the undersigned, TROPICAL SPORTSWEAR INT'L
CORPORATION, a Florida corporation (the "BORROWER"), HEREBY PROMISES TO PAY to
the order of PRUDENTIAL SECURITIES CREDIT CORPORATION (the "LENDER") the
aggregate principal amount of ONE HUNDRED MILLION UNITED STATES DOLLARS
($100,000,000) pursuant to the Credit Agreement (as defined below) on the
Maturity Date.
The Borrower promises to pay interest on the unpaid principal amount of
each Advance from the date of such Advance until such principal amount is paid
in full, at such interest rates, and payable at such times, as are specified in
the Credit Agreement.
Both principal and interest are payable in lawful money of the United
States of America to the Lender, at _____________, in same day funds.
This Promissory Note is one of the Notes referred to in, and is
entitled to the benefits of, the Senior Subordinated Loan Agreement, dated as of
June __, 1998 (the "CREDIT AGREEMENT"; capitalized terms used herein and not
otherwise defined shall have the meanings set forth in the Credit Agreement)
among the Borrower and the Lender. The Credit Agreement contains provisions for
acceleration of the maturity hereof upon the happening of certain stated events
and also for prepayments on account of principal hereof prior to the maturity
hereof upon the terms and conditions therein specified.
This Note shall be construed in accordance with and governed by the
laws of the State of New York.
TROPICAL SPORTSWEAR INT'L CORPORATION
By:
----------------------------------
Name:
Title:
<PAGE> 1
EXHIBIT 10.11
EMPLOYMENT AGREEMENT
THIS EMPLOYMENT AGREEMENT (this "Agreement") is made and entered into
this 9th day of June, 1998 by and between Farah Incorporated, a Texas
corporation (hereinafter, the "Company" which term shall include the Company's
other subsidiaries, affiliates and successors), and Russell G. Gibson
(hereinafter, "Executive"), to be effective as of the Effective Date, as defined
in Section 1.
BACKGROUND
Executive is the Chief Financial Officer of Farah U.S.A., Inc., an
affiliate of the Company. Pursuant to an Agreement and Plan of Merger, dated as
of May 1, 1998 (the "Merger Agreement"), the Company will be acquired by
Tropical Sportswear Int'l Corporation (the "Merger").
The Company desires to retain Executive from and after the Merger as an
executive of the Company, and Executive is willing to serve as such, all in
accordance with the terms and conditions of this Agreement.
Executive and the Company are parties to that certain Amended and
Restated Employment Agreement, dated as of March 2, 1996, as amended, which
provides certain benefits to Executive in the event of his termination of
employment following a change of control of the Company (the "Prior Employment
Agreement"). The Prior Employment Agreement will be superseded in its entirety
by this Agreement.
NOW THEREFORE, in consideration of the foregoing and of the mutual
covenants and agreements set forth herein, and other good and valuable
consideration, the receipt and sufficiency of which are hereby acknowledged, the
parties hereto agree as follows:
1. Effective Date. The effective date of this Agreement (the "Effective
Date") will be the date on which the effective time of the Merger occurs.
2. Employment. As of the Effective Date, Executive will be employed in
the capacity of Senior Vice President/Chief Financial Officer, Branded Finance,
of the Company. Executive's responsibilities under this Agreement shall be in
accordance with the policies and objectives established by the Company.
3. Employment Period. Unless earlier terminated herein in accordance
with Section 6 hereof, Executive's employment shall be for an initial one-year
term (the "Employment Period"), beginning on the Effective Date. Unless earlier
terminated, the Employment Period shall, without further action by Executive or
the Company, be extended by an additional day every day from and after the
Effective Date, such that there shall at all times be one year remaining in the
Employment Period.
<PAGE> 2
4. Extent of Service. During the Employment Period, and excluding any
periods of vacation and sick leave to which Executive is entitled, Executive
agrees to devote his business time, attention, skill and efforts exclusively to
the faithful performance of his duties hereunder; provided, however, that it
shall not be a violation of this Agreement for Executive to (i) devote
reasonable periods of time to charitable and community activities and, with the
approval of the Company, industry or professional activities, and/or (ii) manage
personal business interests and investments, so long as such activities do not
materially interfere with the performance of Executive's responsibilities under
this Agreement.
5. Compensation and Benefits.
(a) Base Salary. During the Employment Period, the Company will pay
to Executive a base salary in the amount of $185,000 per year ("Base Salary"),
less normal withholdings, payable in equal monthly or more frequent installments
as are customary under the Company's payroll practices from time to time. The
Compensation Committee of the Board of Directors of the Company shall review
Executive's Base Salary annually and in its sole discretion, subject to approval
of the Board of Directors of the Company, may increase Executive's Base Salary
from year to year. The annual review of Executive's salary by the Board will
consider, among other things, Executive's own performance and the Company's
performance.
(b) Incentive, Savings and Retirement Plans. During the Employment
Period, Executive shall be entitled to participate in all incentive, savings and
retirement plans (including without limitation, the Company's 401(k) plan),
practices, policies and programs applicable generally to peer executives of the
Company and its affiliated companies ("Peer Executives"), and on the same basis
as such Peer Executives.
(c) Stock Options. On the Effective Date, Executive shall be granted
under the Company's Employee Stock Option Plan options to acquire 6,000 shares
of the Company's common stock (the "Options"), which Options will have a
per-share exercise price equal to the fair market value of Company common stock
on the date of grant and terms and conditions that are no less favorable than
those applicable to grants made to Peer Executives.
(d) Welfare Benefit Plans. During the Employment Period, Executive
and Executive's family shall be eligible for participation in and shall receive
all benefits under welfare benefit plans, practices, policies and programs
provided by the Company and its affiliated companies (including, without
limitation, medical, disability, employee life, group life, and accidental death
insurance plans and programs) to the extent applicable generally to Peer
Executives. Without limiting the foregoing, during the first year of the
Employment Period, the Company shall pay the cost of premiums for that certain
split-dollar life insurance policy referred to in Section 2(d) of the Prior
Employment Agreement (the "Split-Dollar Insurance Premium Commitment").
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<PAGE> 3
(e) Expenses. During the Employment Period, Executive shall be
entitled to receive prompt reimbursement for all reasonable expenses incurred by
Executive in accordance with the policies, practices and procedures of the
Company and its affiliated companies to the extent applicable generally to Peer
Executives.
(f) Fringe Benefits. During the Employment Period, Executive shall
be entitled to fringe benefits in accordance with the plans, practices, programs
and policies of the Company and its affiliated companies in effect for Peer
Executives. Without limiting the foregoing, during the Employment Period, the
Company shall pay up to $350 per month for membership dues at a country club of
Executive's choosing.
6. Termination of Employment.
(a) Death, Retirement or Disability. Executive's employment shall
terminate automatically upon Executive's death or Retirement during the
Employment Period. For purposes of this Agreement, "Retirement" shall mean
normal retirement as defined in the Company's then-current retirement plan, or
there is no such retirement plan, "Retirement" shall mean voluntary termination
after age 65 with at least ten years of service. If the Company determines in
good faith that the Disability of Executive has occurred during the Employment
Period (pursuant to the definition of Disability set forth below), it may give
to Executive written notice in accordance with Section 14(f) of this Agreement
of its intention to terminate Executive's employment. In such event, Executive's
employment with the Company shall terminate effective on the 30th day after
receipt of such written notice by Executive (the "Disability Effective Date"),
provided that, within the 30 days after such receipt, Executive shall not have
returned to full-time performance of Executive's duties. For purposes of this
Agreement, "Disability" shall mean a mental or physical disability as determined
by the Board of Directors of the Company in accordance with standards and
procedures similar to those under the Company's employee long-term disability
plan, if any. At any time that the Company does not maintain such a long-term
disability plan, Disability shall mean the inability of Executive, as determined
by the Board, to substantially perform the essential functions of his regular
duties and responsibilities due to a medically determinable physical or mental
illness which has lasted (or can reasonably be expected to last) for a period of
six consecutive months.
(b) Termination by the Company. The Company may terminate
Executive's employment during the Employment Period with or without Cause. For
purposes of this Agreement, "Cause" shall mean:
(i) the willful and continued failure of Executive to perform
substantially Executive's duties with the Company (other than any such failure
resulting from incapacity due to physical or mental illness, and specifically
excluding any failure by Executive, after reasonable efforts, to meet
performance expectations), for more than thirty (30) days after a written demand
for substantial performance is delivered to Executive that specifically
identifies the manner in which Executive has not substantially performed
Executive's duties, or
-3-
<PAGE> 4
(ii) the willful engaging by Executive in illegal conduct
or gross misconduct which is materially and demonstrably injurious to the
Company, or
(iii) Executive engages in any misconduct involving moral
turpitude whether occurring in the performance of his duties or otherwise.
(c) Termination by Executive. Executive's employment may be
terminated by Executive for Good Reason or no reason. For purposes of this
Agreement, "Good Reason" shall mean a material reduction by the Company in
Executive's Base Salary and benefits as in effect on the Effective Date or as
the same may be increased from time to time.
(d) Notice of Termination. Any termination by the Company for Cause,
or by Executive for Good Reason, shall be communicated by Notice of Termination
to the other party hereto given in accordance with Section 14(f) of this
Agreement. For purposes of this Agreement, a "Notice of Termination" means a
written notice which (i) indicates the specific termination provision in this
Agreement relied upon, (ii) to the extent applicable, sets forth in reasonable
detail the facts and circumstances claimed to provide a basis for termination of
Executive's employment under the provision so indicated and (iii) if the Date of
Termination (as defined below) is other than the date of receipt of such notice,
specifies the termination date (which date shall be not more than 30 days after
the giving of such notice). The failure by Executive or the Company to set forth
in the Notice of Termination any fact or circumstance which contributes to a
showing of Good Reason or Cause shall not waive any right of Executive or the
Company, respectively, hereunder or preclude Executive or the Company,
respectively, from asserting such fact or circumstance in enforcing Executive's
or the Company's rights hereunder.
(e) Date of Termination. "Date of Termination" has the following
meaning: (i) if Executive's employment is terminated by the Company or by
Executive other than by reason of death, Retirement or Disability, the Date of
Termination will be the date specified in the Notice of termination, and (ii) if
Executive's employment is terminated by reason of death, Retirement or
Disability, the Date of Termination will be the date of death or Retirement of
Executive or the Disability Effective Date, as the case may be.
7. Obligations of the Company upon Termination.
(a) Termination by Executive for Good Reason; Termination by the
Company Other Than for Cause, Death or Disability. If, during the Employment
Period, the Company shall terminate Executive's employment other than for Cause,
death or Disability, or Executive shall terminate employment for Good Reason,
then in consideration of Executive's services rendered prior to such termination
and as reasonable compensation for his compliance with the Restrictive Covenants
in Section 12 hereof:
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<PAGE> 5
(i) the Company shall pay to Executive the aggregate of
the following amounts:
A. the sum of (1) Executive's Base Salary through the
Date of Termination to the extent not theretofore paid, (2)
the product of (x) Executive's target annual bonus that would
have been payable with respect to the fiscal year in which the
Date of Termination occurs, and (y) a fraction, the numerator
of which is the number of days in the current fiscal year
through the Date of Termination (or in the case of 1998, the
number of days between the Effective Date and the Date of
Termination), and the denominator of which is 365, (3) any
compensation previously deferred by Executive (together with
any accrued interest or earnings thereon) and any accrued
vacation pay, in each case to the extent not theretofore paid,
and (4) any other payment or obligation due from the Company
to Executive and not yet paid (the sum of the amounts
described in clauses (1), (2), (3) and (4) shall be
hereinafter referred to as the "Accrued Obligations"); and
B. the Retention Bonus, to the extent not theretofore
paid; and
(ii) The Company shall continue to pay to Executive his
Base Salary (subject to withholding of all applicable taxes) for the remainder
of the Employment Period then in effect (without regard to the termination of
the Employment Period pursuant to Section 6) in the same manner as the same was
being paid as of the Date of Termination; and
(iii) for the remainder of the Employment Period then in
effect (without regard to the termination of the Employment Period pursuant to
Section 6), or such longer period as may be provided by the terms of the
appropriate plan, program, practice or policy, the Company shall continue
benefits to Executive and/or Executive's family in accordance with the plans,
programs, practices and policies described in Section 5(d) of this Agreement
(including the Split-Dollar Insurance Premium Commitment) if Executive's
employment had not been terminated; and
(iv) to the extent not theretofore paid or provided, the
Company shall timely pay or provide to Executive any other amounts or benefits
required to be paid or provided or which Executive is eligible to receive under
any plan, program, policy or practice or contract or agreement of the Company
and its affiliated companies (such other amounts and benefits shall be
hereinafter referred to as the "Other Benefits").
(b) Death. If Executive's employment is terminated by reason
of Executive's death during the Employment Period, this Agreement shall
terminate without further obligations to Executive's legal representatives under
this Agreement, other than for payment of Accrued Obligations, the Retention
Bonus (to the extent not theretofore paid), and the timely payment or provision
of Other Benefits. The term Other Benefits as utilized in this Section 7(b)
shall include, without limitation, and Executive's estate and/or
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beneficiaries shall be entitled to receive, any death benefits applicable to
Executive at the date of his death, regardless of when payable.
(c) Disability. If Executive's employment is terminated by reason of
Executive's Disability during the Employment Period, this Agreement shall
terminate without further obligations to Executive, other than for payment of
Accrued Obligations, the Retention Bonus (to the extent not theretofore paid),
and the timely payment or provision of Other Benefits. The term Other Benefits
as utilized in this Section 7(c) shall include, without limitation, and
Executive's estate and/or beneficiaries shall be entitled to receive, any
disability benefits applicable to Executive at the Date of Termination,
regardless of when payable.
(d) Retirement. If Executive's employment is terminated by reason of
Executive's Retirement during the Employment Period, this Agreement shall
terminate without further obligations to Executive, other than for payment of
Accrued Obligations, the Retention Bonus (to the extent not theretofore paid),
and the timely payment or provision of Other Benefits. The term Other Benefits
as utilized in this Section 7(d) shall include, without limitation, and
Executive's estate and/or beneficiaries shall be entitled to receive, any
retirement benefits applicable to Executive at the Date of Termination,
regardless of when payable.
(e) Cause or Voluntary Termination without Good Reason. If
Executive's employment shall be terminated for Cause during the Employment
Period, or if Executive voluntarily terminates employment during the Employment
Period without Good Reason, this Agreement shall terminate without further
obligations to Executive, other than for payment of Accrued Obligations (other
than the prorata bonus described in Section 7(a)(i)(A)(2)) and the timely
payment or provision of Other Benefits.
8. Non-exclusivity of Rights. Nothing in this Agreement shall prevent
or limit Executive's continuing or future participation in any plan, program,
policy or practice provided by the Company or any of its affiliated companies
and for which Executive may qualify, nor, subject to Section 14(d), shall
anything herein limit or otherwise affect such rights as Executive may have
under any contract or agreement with the Company or any of its affiliated
companies. Amounts which are vested benefits or which Executive is otherwise
entitled to receive under any plan, policy, practice or program of or any
contract or agreement with the Company or any of its affiliated companies at or
subsequent to the Date of Termination shall be payable in accordance with such
plan, policy, practice or program or contract or agreement except as explicitly
modified by this Agreement.
9. Limitation of Benefits.
(a) Notwithstanding anything in this Agreement to the contrary,
in the event it shall be determined that any benefit, payment or distribution by
the Company to or for the benefit of Executive (whether payable or distributable
pursuant to the terms of this Agreement or otherwise) (such benefits, payments
or distributions are hereinafter referred
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to as "Payments") would, if paid, be subject to the excise tax (the "Excise
Tax") imposed by Section 4999 of the Internal Revenue Code of 1986, as amended
(the "Code"), then the aggregate present value of the Payments shall be reduced
(but not below zero) to an amount expressed in present value that maximizes the
aggregate present value of the Payments without causing the Payments or any part
thereof to be subject to the Excise Tax and therefore nondeductible by the
Company because of Section 280G of the Code (the "Reduced Amount"). For purposes
of this Section 9, present value shall be determined in accordance with Section
280G(d)(4) of the Code. In the event, after the exhaustion of all remedies, it
is necessary to reduce the Payments, the difference between the Payments and the
Reduced Amount shall be treated for all purposes as a loan to Executive, which
Executive shall repay to the Company together with interest at the applicable
Federal rate provided for in Section 7872(f)(2) of the Code.
(b) All determinations required to be made under this Section 9,
including whether an Excise Tax would otherwise be imposed, whether the Payments
shall be reduced, the amount of the Reduced Amount, and the assumptions to be
utilized in arriving at such determinations, shall be made by the Company's
regular independent accounting firm at the expense of the Company or, at the
election and expense of Executive, another nationally recognized independent
accounting firm (the "Accounting Firm") which shall provide detailed supporting
calculations both to the Company and Executive within 15 business days of the
receipt of notice from Executive that a Payment is due to be made, or such
earlier time as is requested by the Company. Any determination by the Accounting
Firm shall be binding upon the Company and Executive. As a result of the
uncertainty in the application of Section 4999 of the Code at the time of the
initial determination by the Accounting Firm hereunder, it is possible that
Payments hereunder will have been unnecessarily limited by this Section 9
("Underpayment"), consistent with the calculations required to be made
hereunder. The Accounting Firm shall determine the amount of the Underpayment
that has occurred and any such Underpayment shall be promptly paid by the
Company to or for the benefit of Executive together with interest at the
applicable Federal rate provided for in Section 7872(f)(2) of the Code.
10. Costs of Enforcement. Each party to the Agreement shall pay its own
costs and expenses in any contest of the validity or enforceability of, or
liability under, any provision of this Agreement (including as a result of any
contest by the Executive about the amount of any payment pursuant to this
Agreement).
11. Representations and Warranties. Executive hereby represents and
warrants to the Company that Executive is not a party to, or otherwise subject
to, any covenant not to compete (other than as contained herein) with any person
or entity, and Executive's execution of this Agreement and performance of his
obligations hereunder will not violate the terms or conditions of any contract
or obligation, written or oral, between Executive and any other person or
entity.
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12. Restrictions on Conduct of Executive.
(a) General. Executive and the Company understand and agree that the
purpose of the provisions of this Section 12 is to protect legitimate business
interests of the Company, as more fully described below, and is not intended to
eliminate Executive's post-employment competition with the Company per se, nor
is it intended to impair or infringe upon Executive's right to work, earn a
living, or acquire and possess property from the fruits of his labor. Executive
hereby acknowledges that the post-employment restrictions set forth in this
Section 12 are reasonable and that they do not, and will not, unduly impair his
ability to earn a living after the termination of this Agreement. Therefore,
subject to the limitations of reasonableness imposed by law upon the
restrictions set forth herein by the time and geographical area described below,
Executive shall be subject to the restrictions set forth in this Section 12.
(b) Definitions. The following capitalized terms used in this
Section 12 shall have the meanings assigned to them below, which definitions
shall apply to both the singular and the plural forms of such terms:
"Competitive Position" means any employment with a Competitor
in which Executive will use or is likely to use any Confidential Information or
Trade Secrets, or in which Executive has duties for such Competitor that relate
to Competitive Services and that are the same or similar to those services
actually performed by Executive for the Company;
"Competitive Services" means the merchandising, manufacturing,
distribution, selling or marketing of men's, women's, boys' or girls' sportswear
(tops and bottoms), each of which activities is engaged in by the Company and
its subsidiaries on the date of this Agreement.
"Competitor" means any Person engaged, wholly or in part, in
Competitive Services.
"Confidential Information" means all information regarding the
Company, its activities, business or clients that is the subject of reasonable
efforts by the Company to maintain its confidentiality and that is not generally
disclosed by practice or authority to persons not employed by the Company, but
that does not rise to the level of a Trade Secret. "Confidential Information"
shall include, but is not limited to, sales and marketing techniques and plans,
lists of contact data, technical data relating to the Company's products or
production techniques, purchase and supply information, details of client or
consultant contracts, current and anticipated customer requirements, pricing
policies, client billing information, price lists, market studies, business
plans, operational methods, marketing plans or strategies, product development
techniques or plans, financial plans and data concerning the Company, and
management planning information). "Confidential Information" shall not include
information that has become generally available to the public by the act of one
who has the right to disclose such information
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<PAGE> 9
without violating any right or privilege of the Company. This definition shall
not limit any definition of "confidential information" or any equivalent term
under state or federal law.
"Determination Date" means the date of termination of
Executive's employment with the Company for any reason whatsoever or any earlier
date (during the Employment Period) of an alleged breach of the Restrictive
Covenants by Executive.
"Person" means any individual or any corporation, partnership,
joint venture, limited liability company, association or other entity or
enterprise.
"Principal or Representative" means a principal, owner, partner,
shareholder, joint venturer, investor, member, trustee, director, officer,
manager, employee, agent, representative or consultant.
"Protected Employees" means employees of the Company who were
employed by the Company at any time within six (6) months prior to the
Determination Date.
"Restricted Period" means the Period of Employment and a period
extending two (2) years from the termination of Executive's employment with the
Company for any reason whatsoever.
"Restricted Territory" means the United States and North,
Central and South America, the United Kingdom, Western Europe, Australia, New
Zealand, and Fiji. The Company and Executive acknowledge and agree that the
Company and its subsidiaries do business and sell men's, women's, boys' and
girls' sportswear (tops and bottoms) in all 50 states of the United States and
in each other country in the Restricted Territory.
"Restrictive Covenants" means the restrictive covenants
contained in Section 12(c) hereof.
"Trade Secret" means all information regarding the Company,
without regard to form, including, but not limited to, technical or nontechnical
data, a formula, a pattern, a compilation, a program, a device, a method, a
technique, a drawing, a process, financial data, financial plans, product plans,
distribution lists or a list of actual or potential customers, advertisers or
suppliers which is not commonly known by or available to the public and which
information: (A) derives economic value, actual or potential, from not being
generally known to, and not being readily ascertainable by proper means by,
other persons who can obtain economic value from its disclosure or use; and (B)
is the subject of efforts that are reasonable under the circumstances to
maintain its secrecy. Without limiting the foregoing, Trade Secret means any
item of Confidential Information that constitutes a "trade secret(s)" under the
common law or statutory law of the State of Texas.
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(c) Restrictive Covenants.
(i) Restriction on Disclosure and Use of Confidential
Information and Trade Secrets. Executive understands and agrees that the
Confidential Information and Trade Secrets constitute valuable assets of the
Company and its affiliated entities, and may not be converted to Executive's own
use. Accordingly, Executive hereby agrees that Executive shall not, directly or
indirectly, at any time during the Restricted Period reveal, divulge, or
disclose to any Person not expressly authorized by the Company any Confidential
Information, and Executive shall not, directly or indirectly, at any time during
the Restricted Period use or make use of any Confidential Information in
connection with any business activity other than that of the Company. Throughout
the term of this Agreement and at all times after the date that this Agreement
terminates for any reason, Executive shall not directly or indirectly transmit
or disclose any Trade Secret of the Company to any Person, and shall not make
use of any such Trade Secret, directly or indirectly, for himself or for others,
without the prior written consent of the Company. The parties acknowledge and
agree that this Agreement is not intended to, and does not, alter either the
Company's rights or Executive's obligations under any state or federal statutory
or common law regarding trade secrets and unfair trade practices.
Anything herein to the contrary notwithstanding, Executive shall
not be restricted from disclosing or using Confidential Information that is
required to be disclosed by law, court order or other legal process; provided,
however, that in the event disclosure is required by law, Executive shall
provide the Company with prompt notice of such requirement so that the Company
may seek an appropriate protective order prior to any such required disclosure
by Executive.
(ii) Nonsolicitation of Protected Employees. Executive
understands and agrees that the relationship between the Company and each of its
Protected Employees constitutes a valuable asset of the Company and may not be
converted to Executive's own use. Accordingly, Executive hereby agrees that
during the Restricted Period Executive shall not directly or indirectly on
Executive's own behalf or as a Principal or Representative of any Person or
otherwise solicit or induce any Protected Employee to terminate his or her
employment relationship with the Company or to enter into employment with any
other Person.
(iii) Noncompetition with the Company. The parties
acknowledge: (A) that Executive's services under this Agreement require special
expertise and talent in the provision of Competitive Services and that Executive
will have substantial contacts with customers, suppliers, advertisers and
vendors of the Company; (B) that pursuant to this Agreement, Executive will be
placed in a position of trust and responsibility and he will have access to a
substantial amount of Confidential Information and Trade Secrets and that the
Company is placing him in such position and giving him access to such
information in reliance upon his agreement not to compete with the Company
during the period of time as Executive receives compensation from the Company in
the event (and only in the event) Executive's employment is terminated by the
Company other than for
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<PAGE> 11
Cause, death or Disability or by the Executive for Good Reason; (C) that due to
his management duties, Executive will be the repository of a substantial portion
of the goodwill of the Company and would have an unfair advantage in competing
with the Company; (D) that due to Executive's special experience and talent, the
loss of Executive's services to the Company under this Agreement cannot
reasonably or adequately be compensated solely by damages in an action at law;
(E) that Executive is capable of competing with the Company; and (F) that
Executive is capable of obtaining gainful, lucrative and desirable employment
that does not violate the restrictions contained in this Agreement. In
consideration of the compensation and benefits being paid and to be paid by the
Company to Executive hereunder, Executive hereby agrees that, during the period
of time as Executive receives compensation from the Company in the event (and
only in the event) Executive's employment is terminated by the Company other
than for Cause, death or Disability or by the Executive for Good Reason,
Executive will not, without prior written consent of the Company, directly or
indirectly seek or obtain a Competitive Position in the Restricted Territory
with a Competitor; provided, however, that the provisions of this Agreement
shall not be deemed to prohibit the ownership by Executive of any securities of
the Company or its affiliated entities or not more than five percent (5%) of any
class of securities of any corporation having a class of securities registered
pursuant to the Securities Exchange Act of 1934, as amended. Nothing contained
in this paragraph (iii) shall prohibit Executive from working in a firm of
certified public accountants whose clients include one or more Competitors.
(d) Enforcement of Restrictive Covenants.
(i) Rights and Remedies Upon Breach. In the event
Executive breaches, or threatens to commit a breach of, any of the provisions of
the Restrictive Covenants, the Company shall have the following rights and
remedies, which shall be independent of any others and severally enforceable,
and shall be in addition to, and not in lieu of, any other rights and remedies
available to the Company at law or in equity:
(A) the right and remedy to enjoin, preliminarily
and permanently, Executive from violating or threatening to violate the
Restrictive Covenants and to have the Restrictive Covenants specifically
enforced by any court of competent jurisdiction, it being agreed that any breach
or threatened breach of the Restrictive Covenants would cause irreparable injury
to the Company and that money damages would not provide an adequate remedy to
the Company; and
(B) the right and remedy to require Executive to
account for and pay over to the Company all compensation, profits, monies,
accruals, increments or other benefits derived or received by Executive as the
result of any transactions constituting a breach of the Restrictive Covenants.
(ii) Severability of Covenants. Executive acknowledges
and agrees that the Restrictive Covenants are reasonable and valid in time and
scope and in all other respects. The covenants set forth in this Agreement shall
be considered and construed as
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<PAGE> 12
separate and independent covenants. Should any part or provision of any covenant
be held invalid, void or unenforceable in any court of competent jurisdiction,
such invalidity, voidness or unenforceability shall not render invalid, void or
unenforceable any other part or provision of this Agreement. If any portion of
the foregoing provisions is found to be invalid or unenforceable by a court of
competent jurisdiction because its duration, the territory, the definition of
activities or the definition of information covered is considered to be invalid
or unreasonable in scope, the invalid or unreasonable term shall be redefined,
or a new enforceable term provided, such that the intent of the Company and
Executive in agreeing to the provisions of this Agreement will not be impaired
and the provision in question shall be enforceable to the fullest extent of the
applicable laws.
13. Assignment and Successors.
(a) Executive. This Agreement is personal to Executive and
without the prior written consent of the Company shall not be assignable by
Executive otherwise than by will or the laws of descent and distribution. This
Agreement shall inure to the benefit of and be enforceable by Executive's legal
representatives.
(b) The Company. This Agreement shall inure to the benefit of
and be binding upon the Company and its successors and assigns. The Company will
require any successor to all or substantially all of the business and/or assets
of the Company (whether direct or indirect, by purchase, merger, consolidation
or otherwise) to assume expressly and agree to perform this Agreement in the
same manner and to the same extent that the Company would be required to perform
it if no such succession had taken place. As used in this Agreement, "the
Company" shall mean the Company as hereinbefore defined and any successor to its
business and/or assets as aforesaid which assumes and agrees to perform this
Agreement by operation of law or otherwise.
14. Miscellaneous.
(a) Waiver. Failure of either party to insist, in one or more
instances, on performance by the other in strict accordance with the terms and
conditions of this Agreement shall not be deemed a waiver or relinquishment of
any right granted in this Agreement or of the future performance of any such
term or condition or of any other term or condition of this Agreement, unless
such waiver is contained in a writing signed by the party making the waiver.
(b) Severability. If any provision or covenant, or any part
thereof, of this Agreement should be held by any court to be invalid, illegal or
unenforceable, either in whole or in part, such invalidity, illegality or
unenforceability shall not affect the validity, legality or enforceability of
the remaining provisions or covenants, or any part thereof, of this Agreement,
all of which shall remain in full force and effect.
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<PAGE> 13
(c) Other Agents. Nothing in this Agreement is to be
interpreted as limiting the Company from employing other personnel on such terms
and conditions as may be satisfactory to it.
(d) Entire Agreement. Except as provided herein, this
Agreement contains the entire agreement between the Company and Executive with
respect to the subject matter hereof, and it supersedes and invalidates any
previous agreements or contracts between them which relate to the subject matter
hereof, including without limitation the Prior Employment Agreement. No
representations, inducements, promises or agreements, oral or otherwise, which
are not embodied herein shall be of any force or effect.
(e) Governing Law. Except to the extent preempted by federal
law, and without regard to conflict of laws principles, the laws of the State of
Texas shall govern this Agreement in all respects, whether as to its validity,
construction, capacity, performance or otherwise.
(f) Notices. All notices, requests, demands and other
communications required or permitted hereunder shall be in writing and shall be
deemed to have been duly given if delivered or three days after mailing if
mailed, first class, certified mail, postage prepaid:
To Company: Farah Incorporated
Attention: William W. Compton
Tropical Sportswear Int'l Corporation
4902 West Waters Avenue
Tampa, Florida 33634-1302
Facsimile No. (813) 249-4904
To Executive: Russell G. Gibson
301 Crystal Drive
El Paso, Texas 79912
Any party may change the address to which notices, requests, demands and other
communications shall be delivered or mailed by giving notice thereof to the
other party in the same manner provided herein.
(g) Amendments and Modifications. This Agreement may be
amended or modified only by a writing signed by both parties hereto, which makes
specific reference to this Agreement.
[Remainder of Page Intentionally Left Blank]
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IN WITNESS WHEREOF, the parties hereto have duly executed and delivered
this Employment Agreement as of the date first above written.
FARAH INCORPORATED
By: /s/ Michael Kagan
------------------------------------------
Michael Kagan
Chief Financial Officer
EXECUTIVE:
/s/ Russell G. Gibson
---------------------------------------------
Russell G. Gibson
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<PAGE> 1
EXHIBIT 10.12
EMPLOYMENT AGREEMENT
THIS EMPLOYMENT AGREEMENT (this "Agreement") is made and entered into
this 9th day of June, 1998 by and between Farah Incorporated, a Texas
corporation (hereinafter, the "Company" which term shall include the Company's
other subsidiaries, affiliates and successors), and Gary J. Kernaghan
(hereinafter, "Executive"), to be effective as of the Effective Date, as defined
in Section 1.
BACKGROUND
Executive is the President, Branded Division, of the Farah U.S.A., Inc.,
an affiliate of the Company. Pursuant to an Agreement and Plan of Merger, dated
as of May 1, 1998 (the "Merger Agreement"), the Company will be acquired by
Tropical Sportswear Int'l Corporation (the "Merger").
The Company desires to retain Executive from and after the Merger as an
executive of the Company, and Executive is willing to serve as such, all in
accordance with the terms and conditions of this Agreement.
Executive and the Company are parties to that certain Amended and
Restated Employment Agreement, dated as of August 25, 1994, as amended, which
provides certain benefits to Executive in the event of his termination of
employment following a change of control of the Company (the "Prior Employment
Agreement"). The Prior Employment Agreement will be superseded in its entirety
by this Agreement.
NOW THEREFORE, in consideration of the foregoing and of the mutual
covenants and agreements set forth herein, and other good and valuable
consideration, the receipt and sufficiency of which are hereby acknowledged, the
parties hereto agree as follows:
1. Effective Date. The effective date of this Agreement (the "Effective
Date") will be the date on which the effective time of the Merger occurs.
2. Employment. As of the Effective Date, Executive will be employed in
the capacity of Senior Vice President, Branded Merchandising and Marketing, of
the Company. Executive's responsibilities under this Agreement shall be in
accordance with the policies and objectives established by the Company.
3. Employment Period. Unless earlier terminated herein in accordance
with Section 7 hereof, Executive's employment shall be for a two-year term (the
"Employment Period"), beginning on the Effective Date.
4. Extent of Service. During the Employment Period, and excluding any
periods of vacation and sick leave to which Executive is entitled, Executive
agrees to devote his business time, attention, skill and efforts exclusively to
the faithful performance of his
<PAGE> 2
duties hereunder; provided, however, that it shall not be a violation of this
Agreement for Executive to (i) devote reasonable periods of time to charitable
and community activities and, with the approval of the Company, industry or
professional activities, and/or (ii) manage personal business interests and
investments, so long as such activities do not materially interfere with the
performance of Executive's responsibilities under this Agreement.
5. Compensation and Benefits.
(a) Signing Bonus. On the Effective Date, the Company will pay to
Employee a signing bonus in the amount of $25,000.
(b) Retention Bonus. In addition to the Signing Bonus and any annual
bonus payable under subsection (b) below, the Company shall pay to Executive on
the second anniversary of the Effective Date, unless prior to such date the
Company has terminated Executive's employment for Cause (as hereinafter defined)
or Executive has resigned without Good Reason (as hereinafter defined), a
retention bonus in the amount of $25,000 (the "Retention Bonus");
(c) Base Salary. During the Employment Period, the Company will pay
to Executive a base salary in the amount of $180,000 per year ("Base Salary"),
less normal withholdings, payable in equal monthly or more frequent installments
as are customary under the Company's payroll practices from time to time. The
Compensation Committee of the Board of Directors of the Company shall review
Executive's Base Salary annually and in its sole discretion, subject to approval
of the Board of Directors of the Company, may increase Executive's Base Salary
from year to year. The annual review of Executive's salary by the Board will
consider, among other things, Executive's own performance and the Company's
performance.
(d) Incentive, Savings and Retirement Plans. During the Employment
Period, Executive shall be entitled to participate in all incentive, savings and
retirement plans (including without limitation, the Company's 401(k) plan),
practices, policies and programs applicable generally to peer executives of the
Company and its affiliated companies ("Peer Executives"), and on the same basis
as such Peer Executives.
(e) Stock Options. On the Effective Date, Executive shall be granted
under the Company's Employee Stock Option Plan options to acquire 6,000 shares
of the Company's common stock (the "Options"), which Options will have a
per-share exercise price equal to the fair market value of Company common stock
on the date of grant and terms and conditions that are no less favorable than
those applicable to grants made to Peer Executives.
(f) Welfare Benefit Plans. During the Employment Period, Executive
and Executive's family shall be eligible for participation in and shall receive
all benefits under welfare benefit plans, practices, policies and programs
provided by the Company and its
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<PAGE> 3
affiliated companies (including, without limitation, medical, disability,
employee life, group life, and accidental death insurance plans and programs) to
the extent applicable generally to Peer Executives. Without limiting the
foregoing, during each of the two years of the Employment Period, the Company
shall pay up to $20,000 per year of the cost of premiums for that certain
split-dollar life insurance policy, if any, referred to in the Prior Employment
Agreement (the "Split-Dollar Insurance Premium Commitment").
(g) Expenses. During the Employment Period, Executive shall be
entitled to receive prompt reimbursement for all reasonable expenses incurred by
Executive in accordance with the policies, practices and procedures of the
Company and its affiliated companies to the extent applicable generally to Peer
Executives.
(h) Fringe Benefits. During the Employment Period, Executive shall be
entitled to fringe benefits in accordance with the plans, practices, programs
and policies of the Company and its affiliated companies in effect for Peer
Executives. Without limiting the foregoing, during the Employment Period, the
Company shall pay up to $350 per month for membership dues at a country club of
Executive's choosing.
6. Termination of Employment.
(a) Death, Retirement or Disability. Executive's employment shall
terminate automatically upon Executive's death or Retirement during the
Employment Period. For purposes of this Agreement, "Retirement" shall mean
normal retirement as defined in the Company's then-current retirement plan, or
there is no such retirement plan, "Retirement" shall mean voluntary termination
after age 65 with at least ten years of service. If the Company determines in
good faith that the Disability of Executive has occurred during the Employment
Period (pursuant to the definition of Disability set forth below), it may give
to Executive written notice in accordance with Section 14(f) of this Agreement
of its intention to terminate Executive's employment. In such event, Executive's
employment with the Company shall terminate effective on the 30th day after
receipt of such written notice by Executive (the "Disability Effective Date"),
provided that, within the 30 days after such receipt, Executive shall not have
returned to full-time performance of Executive's duties. For purposes of this
Agreement, "Disability" shall mean a mental or physical disability as determined
by the Board of Directors of the Company in accordance with standards and
procedures similar to those under the Company's employee long-term disability
plan, if any. At any time that the Company does not maintain such a long-term
disability plan, Disability shall mean the inability of Executive, as determined
by the Board, to substantially perform the essential functions of his regular
duties and responsibilities due to a medically determinable physical or mental
illness which has lasted (or can reasonably be expected to last) for a period of
six consecutive months.
(b) Termination by the Company. The Company may terminate Executive's
employment during the Employment Period with or without Cause. For purposes of
this Agreement, "Cause" shall mean:
<PAGE> 4
(i) the willful and continued failure of Executive to perform
substantially Executive's duties with the Company (other than any such failure
resulting from incapacity due to physical or mental illness, and specifically
excluding any failure by Executive, after reasonable efforts, to meet
performance expectations), for more than thirty (30) days after a written demand
for substantial performance is delivered to Executive that specifically
identifies the manner in which Executive has not substantially performed
Executive's duties, or
(ii) the willful engaging by Executive in illegal conduct
or gross misconduct which is materially and demonstrably injurious to the
Company, or
(iii) Executive engages in any misconduct involving moral
turpitude whether occurring in
the performance of his duties or otherwise.
(c) Termination by Executive. Executive's employment may be
terminated by Executive for Good Reason or no reason. For purposes of this
Agreement, "Good Reason" shall mean a material reduction by the Company in
Executive's Base Salary and benefits as in effect on the Effective Date or as
the same may be increased from time to time.
(d) Notice of Termination. Any termination by the Company for Cause,
or by Executive for Good Reason, shall be communicated by Notice of Termination
to the other party hereto given in accordance with Section 14(f) of this
Agreement. For purposes of this Agreement, a "Notice of Termination" means a
written notice which (i) indicates the specific termination provision in this
Agreement relied upon, (ii) to the extent applicable, sets forth in reasonable
detail the facts and circumstances claimed to provide a basis for termination of
Executive's employment under the provision so indicated and (iii) if the Date of
Termination (as defined below) is other than the date of receipt of such notice,
specifies the termination date (which date shall be not more than 30 days after
the giving of such notice). The failure by Executive or the Company to set forth
in the Notice of Termination any fact or circumstance which contributes to a
showing of Good Reason or Cause shall not waive any right of Executive or the
Company, respectively, hereunder or preclude Executive or the Company,
respectively, from asserting such fact or circumstance in enforcing Executive's
or the Company's rights hereunder.
(e) Date of Termination. "Date of Termination" has the following
meaning: (i) if Executive's employment is terminated by the Company or by
Executive other than by reason of death, Retirement or Disability, the Date of
Termination will be the date specified in the Notice of termination, and (ii) if
Executive's employment is terminated by reason of death, Retirement or
Disability, the Date of Termination will be the date of death or Retirement of
Executive or the Disability Effective Date, as the case may be.
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7. Obligations of the Company upon Termination.
(a) Termination by Executive for Good Reason; Termination by the
Company Other Than for Cause, Death or Disability. If, during the Employment
Period, the Company shall terminate Executive's employment other than for Cause,
death or Disability, or Executive shall terminate employment for Good Reason,
then in consideration of Executive's services rendered prior to such termination
and as reasonable compensation for his compliance with the Restrictive Covenants
in Section 12 hereof:
(i) the Company shall pay to Executive the aggregate of the
following amounts:
A. the sum of (1) Executive's Base Salary through the Date
of Termination to the extent not theretofore paid, (2) the product of
(x) Executive's target annual bonus that would have been payable with
respect to the fiscal year in which the Date of Termination occurs, and
(y) a fraction, the numerator of which is the number of days in the
current fiscal year through the Date of Termination (or in the case of
1998, the number of days between the Effective Date and the Date of
Termination), and the denominator of which is 365, (3) any compensation
previously deferred by Executive (together with any accrued interest or
earnings thereon) and any accrued vacation pay, in each case to the
extent not theretofore paid and (4) any other payment or obligation due
from the Company to Executive and not yet paid (the sum of the amounts
described in clauses (1), (2), (3) and (4) shall be hereinafter
referred to as the "Accrued Obligations"); and
B. the Retention Bonus, to the extent not theretofore
paid; and
(ii) The Company shall continue to pay to Executive his
Base Salary (subject to withholding of all applicable taxes) for the
remainder of the Employment Period then in effect (without regard to
the termination of the Employment Period pursuant to Section 6) in the
same manner as the same was being paid as of the Date of Termination;
and
(iii) for the remainder of the Employment Period then in effect
(without regard to the termination of the Employment Period pursuant to
Section 6), or such longer period as may be provided by the terms of
the appropriate plan, program, practice or policy, the Company shall
continue benefits to Executive and/or Executive's family in accordance
with the plans, programs, practices and policies described in Section
5(f) of this Agreement if Executive's employment had not been
terminated; and
(iv) to the extent not theretofore paid or provided, the
Company shall timely pay or provide to Executive any other amounts or
benefits required to be paid or provided or which Executive is eligible
to receive under any plan, program, policy or practice or contract or
agreement of the Company and its affiliated companies (such other
amounts and benefits shall be hereinafter referred to as the "Other
Benefits").
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(b) Death. If Executive's employment is terminated by reason
of Executive's death during the Employment Period, this Agreement shall
terminate without further obligations to Executive's legal representatives under
this Agreement, other than for payment of Accrued Obligations, the Retention
Bonus (to the extent not theretofore paid), and the timely payment or provision
of Other Benefits. The term Other Benefits as utilized in this Section 7(b)
shall include, without limitation, and Executive's estate and/or beneficiaries
shall be entitled to receive, any death benefits applicable to Executive at the
date of his death, regardless of when payable.
(c) Disability. If Executive's employment is terminated by
reason of Executive's Disability during the Employment Period, this Agreement
shall terminate without further obligations to Executive, other than for payment
of Accrued Obligations, the Retention Bonus (to the extent not theretofore
paid), and the timely payment or provision of Other Benefits. The term Other
Benefits as utilized in this Section 7(c) shall include, without limitation, and
Executive's estate and/or beneficiaries shall be entitled to receive, any
disability benefits applicable to Executive at the Date of Termination,
regardless of when payable.
(d) Retirement. If Executive's employment is terminated by
reason of Executive's Retirement during the Employment Period, this Agreement
shall terminate without further obligations to Executive, other than for payment
of Accrued Obligations, the Retention Bonus (to the extent not theretofore
paid), and the timely payment or provision of Other Benefits. The term Other
Benefits as utilized in this Section 7(d) shall include, without limitation, and
Executive's estate and/or beneficiaries shall be entitled to receive, any
retirement benefits applicable to Executive at the Date of Termination,
regardless of when payable.
(e) Cause or Voluntary Termination without Good Reason. If
Executive's employment shall be terminated for Cause during the Employment
Period, or if Executive voluntarily terminates employment during the Employment
Period without Good Reason, this Agreement shall terminate without further
obligations to Executive, other than for payment of Accrued Obligations (other
than the prorata bonus described in Section 7(a)(i)(A)(2)) and the timely
payment or provision of Other Benefits.
8. Non-exclusivity of Rights. Nothing in this Agreement shall prevent
or limit Executive's continuing or future participation in any plan, program,
policy or practice provided by the Company or any of its affiliated companies
and for which Executive may qualify, nor, subject to Section 14(d), shall
anything herein limit or otherwise affect such rights as Executive may have
under any contract or agreement with the Company or any of its affiliated
companies. Amounts which are vested benefits or which Executive is otherwise
entitled to receive under any plan, policy, practice or program of or any
contract or agreement with the Company or any of its affiliated companies at or
subsequent to the Date of Termination shall be payable in accordance with such
plan, policy, practice or program or contract or agreement except as explicitly
modified by this Agreement.
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9. Limitation of Benefits.
(a) Notwithstanding anything in this Agreement to the contrary,
in the event it shall be determined that any benefit, payment or distribution by
the Company to or for the benefit of Executive (whether payable or distributable
pursuant to the terms of this Agreement or otherwise) (such benefits, payments
or distributions are hereinafter referred to as "Payments") would, if paid, be
subject to the excise tax (the "Excise Tax") imposed by Section 4999 of the
Internal Revenue Code of 1986, as amended (the "Code"), then the aggregate
present value of the Payments shall be reduced (but not below zero) to an amount
expressed in present value that maximizes the aggregate present value of the
Payments without causing the Payments or any part thereof to be subject to the
Excise Tax and therefore nondeductible by the Company because of Section 280G of
the Code (the "Reduced Amount"). For purposes of this Section 9, present value
shall be determined in accordance with Section 280G(d)(4) of the Code. In the
event, after the exhaustion of all remedies, it is necessary to reduce the
Payments, the difference between the Payments and the Reduced Amount shall be
treated for all purposes as a loan to Executive, which Executive shall repay to
the Company together with interest at the applicable Federal rate provided for
in Section 7872(f)(2) of the Code.
(b) All determinations required to be made under this Section 9,
including whether an Excise Tax would otherwise be imposed, whether the Payments
shall be reduced, the amount of the Reduced Amount, and the assumptions to be
utilized in arriving at such determinations, shall be made by the Company's
regular independent accounting firm at the expense of the Company or, at the
election and expense of Executive, another nationally recognized independent
accounting firm (the "Accounting Firm") which shall provide detailed supporting
calculations both to the Company and Executive within 15 business days of the
receipt of notice from Executive that a Payment is due to be made, or such
earlier time as is requested by the Company. Any determination by the Accounting
Firm shall be binding upon the Company and Executive. As a result of the
uncertainty in the application of Section 4999 of the Code at the time of the
initial determination by the Accounting Firm hereunder, it is possible that
Payments hereunder will have been unnecessarily limited by this Section 9
("Underpayment"), consistent with the calculations required to be made
hereunder. The Accounting Firm shall determine the amount of the Underpayment
that has occurred and any such Underpayment shall be promptly paid by the
Company to or for the benefit of Executive together with interest at the
applicable Federal rate provided for in Section 7872(f)(2) of the Code.
10. Costs of Enforcement. Each party to the Agreement shall pay its own
costs and expenses in any contest of the validity or enforceability of, or
liability under, any provision of this Agreement (including as a result of any
contest by the Executive about the amount of any payment pursuant to this
Agreement).
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<PAGE> 8
11. Representations and Warranties. Executive hereby represents and
warrants to the Company that Executive is not a party to, or otherwise subject
to, any covenant not to compete (other than as contained herein) with any person
or entity, and Executive's execution of this Agreement and performance of his
obligations hereunder will not violate the terms or conditions of any contract
or obligation, written or oral, between Executive and any other person or
entity.
12. Restrictions on Conduct of Executive.
(a) General. Executive and the Company understand and agree that
the purpose of the provisions of this Section 12 is to protect legitimate
business interests of the Company, as more fully described below, and is not
intended to eliminate Executive's post-employment competition with the Company
per se, nor is it intended to impair or infringe upon Executive's right to work,
earn a living, or acquire and possess property from the fruits of his labor.
Executive hereby acknowledges that the post-employment restrictions set forth in
this Section 12 are reasonable and that they do not, and will not, unduly impair
his ability to earn a living after the termination of this Agreement. Therefore,
subject to the limitations of reasonableness imposed by law upon the
restrictions set forth herein by the time and geographical area described below,
Executive shall be subject to the restrictions set forth in this Section 12.
(b) Definitions. The following capitalized terms used in this
Section 12 shall have the meanings assigned to them below, which definitions
shall apply to both the singular and the plural forms of such terms:
"Competitive Position" means any employment with a Competitor in
which Executive will use or is likely to use any Confidential Information or
Trade Secrets, or in which Executive has duties for such Competitor that relate
to Competitive Services and that are the same or similar to those services
actually performed by Executive for the Company;
"Competitive Services" means the merchandising, manufacturing,
distribution, selling or marketing of men's, women's, boys' or girls' sportswear
(tops and bottoms), each of which activities is engaged in by the Company and
its subsidiaries on the date of this Agreement.
"Competitor" means any Person engaged, wholly or in part, in
Competitive Services.
"Confidential Information" means all information regarding the
Company, its activities, business or clients that is the subject of reasonable
efforts by the Company to maintain its confidentiality and that is not generally
disclosed by practice or authority to persons not employed by the Company, but
that does not rise to the level of a Trade Secret. "Confidential Information"
shall include, but is not limited to, sales and marketing techniques and plans,
lists of contact data, technical data relating to the
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<PAGE> 9
Company's products or production techniques, purchase and supply information,
details of client or consultant contracts, current and anticipated customer
requirements, pricing policies, client billing information, price lists, market
studies, business plans, operational methods, marketing plans or strategies,
product development techniques or plans, financial plans and data concerning the
Company, and management planning information). "Confidential Information" shall
not include information that has become generally available to the public by the
act of one who has the right to disclose such information without violating any
right or privilege of the Company. This definition shall not limit any
definition of "confidential information" or any equivalent term under state or
federal law.
"Determination Date" means the date of termination of
Executive's employment with the Company for any reason whatsoever or any earlier
date (during the Employment Period) of an alleged breach of the Restrictive
Covenants by Executive.
"Person" means any individual or any corporation, partnership,
joint venture, limited liability company, association or other entity or
enterprise.
"Principal or Representative" means a principal, owner, partner,
shareholder, joint venturer, investor, member, trustee, director, officer,
manager, employee, agent, representative or consultant.
"Protected Customers" means any Person to whom the Company has
sold its products or services or solicited to sell its products or services
during the twelve (12) months prior to the Determination Date.
"Protected Employees" means employees of the Company who were
employed by the Company at any time within six (6) months prior to the
Determination Date.
"Protected Suppliers" means any person from whom the Company has
purchased products or services or solicited to purchase products or services
during the twelve (12) months prior to the Determination Date.
"Restricted Period" means the Period of Employment and a period
extending two (2) years from the termination of Executive's employment with the
Company for any reason whatsoever.
"Restricted Territory" means the United States and North,
Central and South America, the United Kingdom, Western Europe, Australia, New
Zealand, and Fiji. The Company and Executive acknowledge and agree that the
Company and its subsidiaries do business and sell men's, women's, boys' and
girls' sportswear (tops and bottoms) in all 50 states of the United States and
in each other country in the Restricted Territory.
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<PAGE> 10
"Restrictive Covenants" means the restrictive covenants
contained in Section 12(c) hereof.
"Trade Secret" means all information regarding the Company,
without regard to form, including, but not limited to, technical or nontechnical
data, a formula, a pattern, a compilation, a program, a device, a method, a
technique, a drawing, a process, financial data, financial plans, product plans,
distribution lists or a list of actual or potential customers, advertisers or
suppliers which is not commonly known by or available to the public and which
information: (A) derives economic value, actual or potential, from not being
generally known to, and not being readily ascertainable by proper means by,
other persons who can obtain economic value from its disclosure or use; and (B)
is the subject of efforts that are reasonable under the circumstances to
maintain its secrecy. Without limiting the foregoing, Trade Secret means any
item of Confidential Information that constitutes a "trade secret(s)" under the
common law or statutory law of the State of Texas.
(c) Restrictive Covenants.
(i) Restriction on Disclosure and Use of Confidential
Information and Trade Secrets. Executive understands and agrees that the
Confidential Information and Trade Secrets constitute valuable assets of the
Company and its affiliated entities, and may not be converted to Executive's own
use. Accordingly, Executive hereby agrees that Executive shall not, directly or
indirectly, at any time during the Restricted Period reveal, divulge, or
disclose to any Person not expressly authorized by the Company any Confidential
Information, and Executive shall not, directly or indirectly, at any time during
the Restricted Period use or make use of any Confidential Information in
connection with any business activity other than that of the Company. Throughout
the term of this Agreement and at all times after the date that this Agreement
terminates for any reason, Executive shall not directly or indirectly transmit
or disclose any Trade Secret of the Company to any Person, and shall not make
use of any such Trade Secret, directly or indirectly, for himself or for others,
without the prior written consent of the Company. The parties acknowledge and
agree that this Agreement is not intended to, and does not, alter either the
Company's rights or Executive's obligations under any state or federal statutory
or common law regarding trade secrets and unfair trade practices.
Anything herein to the contrary notwithstanding, Executive shall not be
restricted from disclosing or using Confidential Information that is required to
be disclosed by law, court order or other legal process; provided, however, that
in the event disclosure is required by law, Executive shall provide the Company
with prompt notice of such requirement so that the Company may seek an
appropriate protective order prior to any such required disclosure by Executive.
(ii) Nonsolicitation of Protected Employees. Executive
understands and agrees that the relationship between the Company and each of its
Protected Employees constitutes a valuable asset of the Company and may not be
converted to
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<PAGE> 11
Executive's own use. Accordingly, Executive hereby agrees that
during the Restricted Period Executive shall not directly or indirectly on
Executive's own behalf or as a Principal or Representative of any Person or
otherwise solicit or induce any Protected Employee to terminate his or her
employment relationship with the Company or to enter into employment with any
other Person.
(iii) Restriction on Relationships with Protected
Customers and Protected Suppliers. Executive understands and agrees that the
relationship between the Company and each of its Protected Customers and between
the Company and each of its Protected Suppliers constitutes valuable assets of
the Company and may not be converted to Executive's own use. Accordingly,
Executive hereby agrees that, during (i) the period of time that Executive
receives compensation from the Company in the event Executive's employment is
terminated by the Company other than for Cause, death or Disability or by
Executive for Good Reason or (ii) a period of seven (7) weeks in the event that
Executive's employment is terminated by the Company for Cause or by Executive
without Good Reason, Executive shall not, without the prior written consent of
the Company, directly or indirectly, on Executive's own behalf or as a Principal
or Representative of any Person, solicit, divert, take away or attempt to
solicit, divert or take away (i) a Protected Customer for the purpose of
providing or selling Competitive Services or (ii) a Protected Supplier for the
purpose of acquiring or purchasing goods or services in connection with
providing or selling Competitive Services; provided, however, that the
prohibition of this covenant shall apply only to Protected Customers and
Protected Suppliers with whom Executive had Material Contact on the Company's
behalf during the twelve (12) months immediately preceding the termination of
his employment hereunder. For purposes of this Agreement, Executive had
"Material Contact" with a Protected Customer or a Protected Customer if (a) he
had business dealings with the Protected Customer or Protected Customer, as the
case may be, on the Company's behalf; (b) he was responsible for supervising or
coordinating the dealings between the Company and the Protected Customer or
Protected Customer, as the case may be; or (c) he obtained Trade Secrets or
Confidential Information about the Protected Customer, as the case may be, as a
result of his association with the Company.
(iv) Noncompetition with the Company. The parties
acknowledge: (A) that Executive's services under this Agreement require special
expertise and talent in the provision of Competitive Services and that Executive
will have substantial contacts with customers, suppliers, advertisers and
vendors of the Company; (B) that pursuant to this Agreement, Executive will be
placed in a position of trust and responsibility and he will have access to a
substantial amount of Confidential Information and Trade Secrets and that the
Company is placing him in such position and giving him access to such
information in reliance upon his agreement not to compete with the Company
during (i) the period of time that Executive receives compensation from the
Company in the event Executive's employment is terminated by the Company other
than for Cause, death or Disability or by Executive for Good Reason or (ii) a
period of seven (7) weeks in the event that Executive's employment is terminated
by the Company for Cause or by Executive without Good Reason; (C) that due to
his management duties, Executive will be
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<PAGE> 12
the repository of a substantial portion of the goodwill of the Company and would
have an unfair advantage in competing with the Company; (D) that due to
Executive's special experience and talent, the loss of Executive's services to
the Company under this Agreement cannot reasonably or adequately be compensated
solely by damages in an action at law; (E) that Executive is capable of
competing with the Company; and (F) that Executive is capable of obtaining
gainful, lucrative and desirable employment that does not violate the
restrictions contained in this Agreement. In consideration of the compensation
and benefits being paid and to be paid by the Company to Executive hereunder,
Executive hereby agrees that, during (i) the period of time that Executive
receives compensation from the Company in the event Executive's employment is
terminated by the Company other than for Cause, death or Disability or by
Executive for Good Reason or (ii) a period of seven (7) weeks in the event that
Executive's employment is terminated by the Company for Cause or by Executive
without Good Reason, Executive will not, without prior written consent of the
Company, directly or indirectly seek or obtain a Competitive Position in the
Restricted Territory with a Competitor; provided, however, that the provisions
of this Agreement shall not be deemed to prohibit the ownership by Executive of
any securities of the Company or its affiliated entities or not more than five
percent (5%) of any class of securities of any corporation having a class of
securities registered pursuant to the Securities Exchange Act of 1934, as
amended.
(d) Enforcement of Restrictive Covenants.
(i) Rights and Remedies Upon Breach. In the event
Executive breaches, or threatens to commit a breach of, any of the provisions of
the Restrictive Covenants, the Company shall have the following rights and
remedies, which shall be independent of any others and severally enforceable,
and shall be in addition to, and not in lieu of, any other rights and remedies
available to the Company at law or in equity:
(A) the right and remedy to enjoin, preliminarily
and permanently, Executive from violating or threatening to violate the
Restrictive Covenants and to have the Restrictive Covenants specifically
enforced by any court of competent jurisdiction, it being agreed that any breach
or threatened breach of the Restrictive Covenants would cause irreparable injury
to the Company and that money damages would not provide an adequate remedy to
the Company; and
(B) the right and remedy to require Executive to
account for and pay over to the Company all compensation, profits, monies,
accruals, increments or other benefits derived or received by Executive as the
result of any transactions constituting a breach of the Restrictive Covenants.
(ii) Severability of Covenants. Executive acknowledges
and agrees that the Restrictive Covenants are reasonable and valid in time and
scope and in all other respects. The covenants set forth in this Agreement shall
be considered and construed as separate and independent covenants. Should any
part or provision of any covenant be held invalid, void or unenforceable in any
court of competent jurisdiction, such invalidity,
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<PAGE> 13
voidness or unenforceability shall not render invalid, void or unenforceable any
other part or provision of this Agreement. If any portion of the foregoing
provisions is found to be invalid or unenforceable by a court of competent
jurisdiction because its duration, the territory, the definition of activities
or the definition of information covered is considered to be invalid or
unreasonable in scope, the invalid or unreasonable term shall be redefined, or a
new enforceable term provided, such that the intent of the Company and Executive
in agreeing to the provisions of this Agreement will not be impaired and the
provision in question shall be enforceable to the fullest extent of the
applicable laws.
13. Assignment and Successors.
(a) Executive. This Agreement is personal to Executive and
without the prior written consent of the Company shall not be assignable by
Executive otherwise than by will or the laws of descent and distribution. This
Agreement shall inure to the benefit of and be enforceable by Executive's legal
representatives.
(b) The Company. This Agreement shall inure to the benefit of
and be binding upon the Company and its successors and assigns. The Company will
require any successor to all or substantially all of the business and/or assets
of the Company (whether direct or indirect, by purchase, merger, consolidation
or otherwise) to assume expressly and agree to perform this Agreement in the
same manner and to the same extent that the Company would be required to perform
it if no such succession had taken place. As used in this Agreement, "the
Company" shall mean the Company as hereinbefore defined and any successor to its
business and/or assets as aforesaid which assumes and agrees to perform this
Agreement by operation of law or otherwise.
14. Miscellaneous.
(a) Waiver. Failure of either party to insist, in one or more
instances, on performance by the other in strict accordance with the terms and
conditions of this Agreement shall not be deemed a waiver or relinquishment of
any right granted in this Agreement or of the future performance of any such
term or condition or of any other term or condition of this Agreement, unless
such waiver is contained in a writing signed by the party making the waiver.
(b) Severability. If any provision or covenant, or any part
thereof, of this Agreement should be held by any court to be invalid, illegal or
unenforceable, either in whole or in part, such invalidity, illegality or
unenforceability shall not affect the validity, legality or enforceability of
the remaining provisions or covenants, or any part thereof, of this Agreement,
all of which shall remain in full force and effect.
(c) Other Agents. Nothing in this Agreement is to be
interpreted as limiting the Company from employing other personnel on such terms
and conditions as may be satisfactory to it.
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<PAGE> 14
(d) Entire Agreement. Except as provided herein, this
Agreement contains the entire agreement between the Company and Executive with
respect to the subject matter hereof, and it supersedes and invalidates any
previous agreements or contracts between them which relate to the subject matter
hereof, including without limitation the Prior Employment Agreement. No
representations, inducements, promises or agreements, oral or otherwise, which
are not embodied herein shall be of any force or effect.
(e) Governing Law. Except to the extent preempted by federal
law, and without regard to conflict of laws principles, the laws of the State of
Texas shall govern this Agreement in all respects, whether as to its validity,
construction, capacity, performance or otherwise.
(f) Notices. All notices, requests, demands and other
communications required or permitted hereunder shall be in writing and shall be
deemed to have been duly given if delivered or three days after mailing if
mailed, first class, certified mail, postage prepaid:
To Company: Farah Incorporated
Attention: William W. Compton
Tropical Sportswear Int'l Corporation
4902 West Waters Avenue
Tampa, Florida 33634-1302
Facsimile No. (813) 249-4904
To Executive: Gary J. Kernaghan
200 North Festival, No. 413
El Paso, Texas 79912
Any party may change the address to which notices, requests, demands and other
communications shall be delivered or mailed by giving notice thereof to the
other party in the same manner provided herein.
(g) Amendments and Modifications. This Agreement may be
amended or modified only by a writing signed by both parties hereto, which makes
specific reference to this Agreement.
[Remainder of Page Intentionally Left Blank]
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<PAGE> 15
IN WITNESS WHEREOF, the parties hereto have duly executed and delivered
this Employment Agreement as of the date first above written.
FARAH INCORPORATED
By: /s/ Michael Kagan
--------------------------------
Michael Kagan
Chief Financial Officer
EXECUTIVE:
/s/ Gary J. Kernaghan
-----------------------------------
Gary J. Kernaghan
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<PAGE> 1
EXHIBIT 10.13
EMPLOYMENT AGREEMENT
THIS EMPLOYMENT AGREEMENT (this "Agreement") is made and entered into
this 9th day of June, 1998 by and between Farah Incorporated, a Texas
corporation (hereinafter, the "Company" which term shall include the Company's
other subsidiaries, affiliates and successors), and Polly Vaughn (hereinafter,
"Executive"), to be effective as of the Effective Date, as defined in Section 1.
BACKGROUND
Executive is the Senior Vice President of Farah U.S.A., Inc., an
affiliate of the Company. Pursuant to an Agreement and Plan of Merger, dated as
of May 1, 1998 (the "Merger Agreement"), the Company will be acquired by
Tropical Sportswear Int'l Corporation (the "Merger").
The Company desires to retain Executive from and after the Merger as an
executive of the Company, and Executive is willing to serve as such, all in
accordance with the terms and conditions of this Agreement.
NOW THEREFORE, in consideration of the foregoing and of the mutual
covenants and agreements set forth herein, and other good and valuable
consideration, the receipt and sufficiency of which are hereby acknowledged, the
parties hereto agree as follows:
1. Effective Date. The effective date of this Agreement (the
"Effective Date") will be the date on which the effective time of the Merger
occurs.
2. Employment. As of the Effective Date, Executive will be employed in
the capacity of Vice President and Chief Accounting Officer of the Company.
Executive's responsibilities under this Agreement shall be in accordance with
the policies and objectives established by the Chief Executive Officer of the
Company.
3. Employment Period. Unless earlier terminated herein in accordance
with Section 6 hereof, Executive's employment shall be for a one-year term (the
"Employment Period"), beginning on the Effective Date. The Employment Period
shall, without further action by Executive or the Company, be extended by an
additional one-year period on the first and each subsequent anniversary of the
Effective Date; provided, however, that either party may, by notice to the
other, cause the Employment Period to cease to extend automatically. Upon such
notice, the Employment Period shall terminate upon the expiration of the
then-current term, including any prior extensions.
4. Extent of Service. During the Employment Period, and excluding any
periods of vacation and sick leave to which Executive is entitled, Executive
agrees to devote her
<PAGE> 2
business time, attention, skill and efforts exclusively to the faithful
performance of her duties hereunder; provided, however, that it shall not be a
violation of this Agreement for Executive to (i) devote reasonable periods of
time to charitable and community activities and, with the approval of the
Company, industry or professional activities, and/or (ii) manage personal
business interests and investments, so long as such activities do not materially
interfere with the performance of Executive's responsibilities under this
Agreement.
5. Compensation and Benefits.
(a) Base Salary. During the Employment Period, the Company
will pay to Executive a base salary in the amount of $100,000 per year ("Base
Salary"), less normal withholdings, payable in equal monthly or more frequent
installments as are customary under the Company's payroll practices from time to
time. The Compensation Committee of the Board of Directors of the Company shall
review Executive's Base Salary annually and in its sole discretion, subject to
approval of the Board of Directors of the Company, may increase Executive's Base
Salary from year to year. The annual review of Executive's salary by the Board
will consider, among other things, Executive's own performance and the Company's
performance.
(b) Incentive, Savings and Retirement Plans. During the
Employment Period, Executive shall be entitled to participate in all incentive,
savings and retirement plans (including without limitation, the Company's 401(k)
plan), practices, policies and programs applicable generally to peer executives
of the Company and its affiliated companies ("Peer Executives"), and on the same
basis as such Peer Executives.
(c) Welfare Benefit Plans. During the Employment Period,
Executive and Executive's family shall be eligible for participation in and
shall receive all benefits under welfare benefit plans, practices, policies and
programs provided by the Company and its affiliated companies (including,
without limitation, medical, disability, employee life, group life, and
accidental death insurance plans and programs) to the extent applicable
generally to Peer Executives.
(d) Expenses. During the Employment Period, Executive shall be
entitled to receive prompt reimbursement for all reasonable expenses incurred by
Executive in accordance with the policies, practices and procedures of the
Company and its affiliated companies to the extent applicable generally to Peer
Executives.
(e) Fringe Benefits. During the Employment Period, Executive
shall be entitled to fringe benefits in accordance with the plans, practices,
programs and policies of the Company and its affiliated companies in effect for
Peer Executives.
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6. Termination of Employment.
(a) Death, Retirement or Disability. Executive's employment
shall terminate automatically upon Executive's death or Retirement during the
Employment Period. For purposes of this Agreement, "Retirement" shall mean
normal retirement as defined in the Company's then-current retirement plan, or
there is no such retirement plan, "Retirement" shall mean voluntary termination
after age 65 with ten years of service. If the Company determines in good faith
that the Disability of Executive has occurred during the Employment Period
(pursuant to the definition of Disability set forth below), it may give to
Executive written notice in accordance with Section 14(f) of this Agreement of
its intention to terminate Executive's employment. In such event, Executive's
employment with the Company shall terminate effective on the 30th day after
receipt of such written notice by Executive (the "Disability Effective Date"),
provided that, within the 30 days after such receipt, Executive shall not have
returned to full-time performance of Executive's duties. For purposes of this
Agreement, "Disability" shall mean a mental or physical disability as determined
by the Board of Directors of the Company in accordance with standards and
procedures similar to those under the Company's employee long-term disability
plan, if any. At any time that the Company does not maintain such a long-term
disability plan, Disability shall mean the inability of Executive, as determined
by the Board, to substantially perform the essential functions of her regular
duties and responsibilities due to a medically determinable physical or mental
illness which has lasted (or can reasonably be expected to last) for a period of
six consecutive months.
(b) Termination by the Company. The Company may terminate
Executive's employment during the Employment Period with or without Cause. For
purposes of this Agreement, "Cause" shall mean:
(i) the willful and continued failure of Executive
to perform substantially Executive's duties with the Company (other than any
such failure resulting from incapacity due to physical or mental illness, and
specifically excluding any failure by Executive, after reasonable efforts, to
meet performance expectations), after a written demand for substantial
performance is delivered to Executive which specifically identifies the manner
in which Executive has not substantially performed Executive's duties, or
(ii) the willful engaging by Executive in illegal conduct
or gross misconduct which is materially and demonstrably injurious to the
Company, or
(iii) Executive engages in any misconduct involving moral
turpitude whether occurring in the performance of her duties or otherwise.
(c) Termination by Executive. Executive's employment may be
terminated by Executive for Good Reason or no reason. For purposes of this
Agreement, "Good Reason" shall mean a material reduction by the Company in
Executive's Base Salary and benefits as in effect on the Effective Date or as
the came may be increased from time to time.
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(d) Notice of Termination. Any termination by the Company for
Cause, or by Executive for Good Reason, shall be communicated by Notice of
Termination to the other party hereto given in accordance with Section 14(f) of
this Agreement. For purposes of this Agreement, a "Notice of Termination" means
a written notice which (i) indicates the specific termination provision in this
Agreement relied upon, (ii) to the extent applicable, sets forth in reasonable
detail the facts and circumstances claimed to provide a basis for termination of
Executive's employment under the provision so indicated and (iii) if the Date of
Termination (as defined below) is other than the date of receipt of such notice,
specifies the termination date (which date shall be not more than 30 days after
the giving of such notice). The failure by Executive or the Company to set forth
in the Notice of Termination any fact or circumstance which contributes to a
showing of Good Reason or Cause shall not waive any right of Executive or the
Company, respectively, hereunder or preclude Executive or the Company,
respectively, from asserting such fact or circumstance in enforcing Executive's
or the Company's rights hereunder.
(e) Date of Termination. "Date of Termination" has the following
meaning: (i) if Executive's employment is terminated by the Company or by
Executive other than by reason of death, Retirement or Disability, the Date of
Termination will be the date specified in the Notice of termination, and (ii) if
Executive's employment is terminated by reason of death, Retirement or
Disability, the Date of Termination will be the date of death or Retirement of
Executive or the Disability Effective Date, as the case may be.
7. Obligations of the Company upon Termination.
(a) Termination by Executive for Good Reason; Termination by the
Company Other Than for Cause, Death or Disability. If, during the Employment
Period, the Company shall terminate Executive's employment other than for Cause,
death or Disability, or Executive shall terminate employment for Good Reason,
then in consideration of Executive's services rendered prior to such termination
and as reasonable compensation for her compliance with the Restrictive Covenants
in Section 12 hereof:
(i) the Company shall pay to Executive the aggregate of
the following amounts:
A. the sum of (1) Executive's Base Salary through the
Date of Termination to the extent not theretofore paid, (2) the product
of (x) Executive's target annual bonus that would have been payable
with respect to the fiscal year in which the Date of Termination
occurs, and (y) a fraction, the numerator of which is the number of
days in the current fiscal year through the Date of Termination (or in
the case of 1998, the number of days between the Effective Date and the
Date of Termination), and the denominator of which is 365, and (3) any
compensation previously deferred by Executive (together with any
accrued interest or earnings thereon) and any accrued vacation pay, in
each case to the extent not theretofore
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paid (the sum of the amounts described in clauses (1), (2) and (3)
shall be hereinafter referred to as the "Accrued Obligations"); and
B. the Retention Bonus, to the extent not
theretofore paid; and
(ii) Executive will continue to receive her Base Salary
(subject to withholding of all applicable taxes) for the remainder of the
Employment Period in the same manner as the same was being paid as of the Date
of Termination; provided, however, that such payments shall be paid in a single
lump sum payment, to be paid not later than thirty (30) days after the Date of
Termination; and provided further, that the amount of such lump sum payment
shall be determined by taking the payments to be made and discounting them to
their Present Value (as such term is defined in Code Section 280G(d)(4) or any
successor Code provision); and
(iii) for the remainder of the Employment Period, or such
longer period as may be provided by the terms of the appropriate plan, program,
practice or policy, the Company shall continue benefits to Executive and/or
Executive's family in accordance with the plans, programs, practices and
policies described in Section 5(c) of this Agreement (including the Split-Dollar
Insurance Premium Commitment) if Executive's employment had not been terminated;
and
(iv) to the extent not theretofore paid or provided, the
Company shall timely pay or provide to Executive any other amounts or benefits
required to be paid or provided or which Executive is eligible to receive under
any plan, program, policy or practice or contract or agreement of the Company
and its affiliated companies (such other amounts and benefits shall be
hereinafter referred to as the "Other Benefits").
(b) Death. If Executive's employment is terminated by reason
of Executive's death during the Employment Period, this Agreement shall
terminate without further obligations to Executive's legal representatives under
this Agreement, other than for payment of Accrued Obligations, the Retention
Bonus (to the extent not theretofore paid), and the timely payment or provision
of Other Benefits. The term Other Benefits as utilized in this Section 7(b)
shall include, without limitation, and Executive's estate and/or beneficiaries
shall be entitled to receive, any death benefits applicable to Executive at the
date of her death.
(c) Disability. If Executive's employment is terminated by
reason of Executive's Disability during the Employment Period, this Agreement
shall terminate without further obligations to Executive, other than for payment
of Accrued Obligations, the Retention Bonus (to the extent not theretofore
paid), and the timely payment or provision of Other Benefits. The term Other
Benefits as utilized in this Section 7(c) shall include, without limitation, and
Executive's estate and/or beneficiaries shall be entitled to receive, any
disability benefits applicable to Executive at the Date of Termination.
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(d) Retirement. If Executive's employment is terminated by
reason of Executive's Retirement during the Employment Period, this Agreement
shall terminate without further obligations to Executive, other than for payment
of Accrued Obligations, the Retention Bonus (to the extent not theretofore
paid), and the timely payment or provision of Other Benefits. The term Other
Benefits as utilized in this Section 7(d) shall include, without limitation, and
Executive's estate and/or beneficiaries shall be entitled to receive, any
retirement benefits applicable to Executive at the Date of Termination.
(e) Cause or Voluntary Termination without Good Reason. If
Executive's employment shall be terminated for Cause during the Employment
Period, or if Executive voluntarily terminates employment during the Employment
Period without Good Reason, this Agreement shall terminate without further
obligations to Executive, other than for payment of Accrued Obligations (other
than the prorata bonus described in Section 7(a)(i)(A)(2)) and the timely
payment or provision of Other Benefits.
8. Non-exclusivity of Rights. Nothing in this Agreement shall
prevent or limit Executive's continuing or future participation in any plan,
program, policy or practice provided by the Company or any of its affiliated
companies and for which Executive may qualify, nor, subject to Section 14(d),
shall anything herein limit or otherwise affect such rights as Executive may
have under any contract or agreement with the Company or any of its affiliated
companies. Amounts which are vested benefits or which Executive is otherwise
entitled to receive under any plan, policy, practice or program of or any
contract or agreement with the Company or any of its affiliated companies at or
subsequent to the Date of Termination shall be payable in accordance with such
plan, policy, practice or program or contract or agreement except as explicitly
modified by this Agreement.
9. Limitation of Benefits.
(a) Notwithstanding anything in this Agreement to the
contrary, in the event it shall be determined that any benefit, payment or
distribution by the Company to or for the benefit of Executive (whether payable
or distributable pursuant to the terms of this Agreement or otherwise) (such
benefits, payments or distributions are hereinafter referred to as "Payments")
would, if paid, be subject to the excise tax (the "Excise Tax") imposed by
Section 4999 of the Internal Revenue Code of 1986, as amended (the "Code"), then
the aggregate present value of the Payments shall be reduced (but not below
zero) to an amount expressed in present value that maximizes the aggregate
present value of the Payments without causing the Payments or any part thereof
to be subject to the Excise Tax and therefore nondeductible by the Company
because of Section 280G of the Code (the "Reduced Amount"). For purposes of this
Section 9, present value shall be determined in accordance with Section
280G(d)(4) of the Code. In the event, after the exhaustion of all remedies, it
is necessary to reduce the Payments, the difference between the Payments and the
Reduced Amount shall be treated for all purposes as a loan to Executive, which
Executive shall repay to the Company together with interest at the applicable
Federal rate provided for in Section 7872(f)(2) of the Code.
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(b) All determinations required to be made under this Section 9,
including whether an Excise Tax would otherwise be imposed, whether the Payments
shall be reduced, the amount of the Reduced Amount, and the assumptions to be
utilized in arriving at such determinations, shall be made by the Company's
regular independent accounting firm at the expense of the Company or, at the
election and expense of Executive, another nationally recognized independent
accounting firm (the "Accounting Firm") which shall provide detailed supporting
calculations both to the Company and Executive within 15 business days of the
receipt of notice from Executive that a Payment is due to be made, or such
earlier time as is requested by the Company. All fees and expenses of the
Accounting Firm shall be borne solely by the Company. Any determination by the
Accounting Firm shall be binding upon the Company and Executive. As a result of
the uncertainty in the application of Section 4999 of the Code at the time of
the initial determination by the Accounting Firm hereunder, it is possible that
Payments hereunder will have been unnecessarily limited by this Section 9
("Underpayment"), consistent with the calculations required to be made
hereunder. The Accounting Firm shall determine the amount of the Underpayment
that has occurred and any such Underpayment shall be promptly paid by the
Company to or for the benefit of Executive together with interest at the
applicable Federal rate provided for in Section 7872(f)(2) of the Code.
10. Costs of Enforcement. Each party to the Agreement shall pay its own
costs and expenses in any contest of the validity or enforceability of, or
liability under, any provision of this Agreement (including as a result of any
contest by the Executive about the amount of any payment pursuant to this
Agreement).
11. Representations and Warranties. Executive hereby represents and
warrants to the Company that Executive is not a party to, or otherwise subject
to, any covenant not to compete (other than as contained herein) with any person
or entity, and Executive's execution of this Agreement and performance of her
obligations hereunder will not violate the terms or conditions of any contract
or obligation, written or oral, between Executive and any other person or
entity.
12. Restrictions on Conduct of Executive.
(a) General. Executive and the Company understand and agree that
the purpose of the provisions of this Section 12 is to protect legitimate
business interests of the Company, as more fully described below, and is not
intended to eliminate Executive's post-employment competition with the Company
per se, nor is it intended to impair or infringe upon Executive's right to work,
earn a living, or acquire and possess property from the fruits of her labor.
Executive hereby acknowledges that the post-employment restrictions set forth in
this Section 12 are reasonable and that they do not, and will not, unduly impair
her ability to earn a living after the termination of this Agreement. Therefore,
subject to the limitations of reasonableness imposed by law upon the
restrictions set forth herein by the time and geographical area described below,
Executive shall be subject to the restrictions set forth in this Section 12.
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(b) Definitions. The following capitalized terms used in this
Section 12 shall have the meanings assigned to them below, which definitions
shall apply to both the singular and the plural forms of such terms:
"Competitive Position" means any employment with a Competitor
in which Executive will use or is likely to use any Confidential Information or
Trade Secrets, or in which Executive has duties for such Competitor that relate
to Competitive Services and that are the same or similar to those services
actually performed by Executive for the Company;
"Competitive Services" means the merchandising,
manufacturing, distribution, selling or marketing of men's, women's, boys' or
girls' sportswear (tops and bottoms), each of which activities is engaged in by
the Company and its subsidiaries on the date of this Agreement.
"Competitor" means any Person engaged, wholly or in part, in
Competitive Services.
"Confidential Information" means all information regarding
the Company, its activities, business or clients that is the subject of
reasonable efforts by the Company to maintain its confidentiality and that is
not generally disclosed by practice or authority to persons not employed by the
Company, but that does not rise to the level of a Trade Secret. "Confidential
Information" shall include, but is not limited to, sales and marketing
techniques and plans, lists of contact data, technical data relating to the
Company's products or production techniques, purchase and supply information,
details of client or consultant contracts, current and anticipated customer
requirements, pricing policies, client billing information, price lists, market
studies, business plans, operational methods, marketing plans or strategies,
product development techniques or plans, financial plans and data concerning the
Company, and management planning information). "Confidential Information" shall
not include information that has become generally available to the public by the
act of one who has the right to disclose such information without violating any
right or privilege of the Company. This definition shall not limit any
definition of "confidential information" or any equivalent term under state or
federal law.
"Determination Date" means the date of termination of
Executive's employment with the Company for any reason whatsoever or any earlier
date (during the Employment Period) of an alleged breach of the Restrictive
Covenants by Executive.
"Person" means any individual or any corporation,
partnership, joint venture, limited liability company, association or other
entity or enterprise.
"Principal or Representative" means a principal, owner,
partner, shareholder, joint venturer, investor, member, trustee, director,
officer, manager, employee, agent, representative or consultant.
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"Protected Customers" means any Person to whom the Company
has sold its products or services or solicited to sell its products or services
during the twelve (12) months prior to the Determination Date.
"Protected Employees" means employees of the Company who were
employed by the Company at any time within six (6) months prior to the
Determination Date.
"Restricted Period" means the Period of Employment and a
period extending two (2) years from the termination of Executive's employment
with the Company for any reason whatsoever.
"Restricted Territory" means the United States and North,
Central and South America, the United Kingdom, Western Europe, Australia, New
Zealand, and Fiji. The Company and Executive acknowledge and agree that the
Company and its subsidiaries do business and sell men's, women's, boys' and
girls' sportswear (tops and bottoms) in all 50 states of the United States and
in each other country in the Restricted Territory.
"Restrictive Covenants" means the restrictive covenants
contained in Section 12(c) hereof.
"Trade Secret" means all information, without regard to form,
including, but not limited to, technical or nontechnical data, a formula, a
pattern, a compilation, a program, a device, a method, a technique, a drawing, a
process, financial data, financial plans, product plans, distribution lists or a
list of actual or potential customers, advertisers or suppliers which is not
commonly known by or available to the public and which information: (A) derives
economic value, actual or potential, from not being generally known to, and not
being readily ascertainable by proper means by, other persons who can obtain
economic value from its disclosure or use; and (B) is the subject of efforts
that are reasonable under the circumstances to maintain its secrecy. Without
limiting the foregoing, Trade Secret means any item of Confidential Information
that constitutes a "trade secret(s)" under the common law or statutory law of
the State of Texas.
(c) Restrictive Covenants.
(i) Restriction on Disclosure and Use of Confidential
Information and Trade Secrets. Executive understands and agrees that the
Confidential Information and Trade Secrets constitute valuable assets of the
Company and its affiliated entities, and may not be converted to Executive's own
use. Accordingly, Executive hereby agrees that Executive shall not, directly or
indirectly, at any time during the Restricted Period reveal, divulge, or
disclose to any Person not expressly authorized by the Company any Confidential
Information, and Executive shall not, directly or indirectly, at any time during
the Restricted Period use or make use of any Confidential Information in
connection with
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any business activity other than that of the Company. Throughout the term of
this Agreement and at all times after the date that this Agreement terminates
for any reason, Executive shall not directly or indirectly transmit or disclose
any Trade Secret of the Company to any Person, and shall not make use of any
such Trade Secret, directly or indirectly, for himself or for others, without
the prior written consent of the Company. The parties acknowledge and agree that
this Agreement is not intended to, and does not, alter either the Company's
rights or Executive's obligations under any state or federal statutory or common
law regarding trade secrets and unfair trade practices.
Anything herein to the contrary notwithstanding, Executive shall not be
restricted from disclosing or using Confidential Information that is required to
be disclosed by law, court order or other legal process; provided, however, that
in the event disclosure is required by law, Executive shall provide the Company
with prompt notice of such requirement so that the Company may seek an
appropriate protective order prior to any such required disclosure by Executive.
(ii) Nonsolicitation of Protected Employees.
Executive understands and agrees that the relationship between the Company and
each of its Protected Employees constitutes a valuable asset of the Company and
may not be converted to Executive's own use. Accordingly, Executive hereby
agrees that during the Restricted Period Executive shall not directly or
indirectly on Executive's own behalf or as a Principal or Representative of any
Person or otherwise solicit or induce any Protected Employee to terminate her or
her employment relationship with the Company or to enter into employment with
any other Person.
(iii) Restriction on Relationships with Protected
Customers. Executive understands and agrees that the relationship between the
Company and each of its Protected Customers constitutes a valuable asset of the
Company and may not be converted to Executive's own use. Accordingly, Executive
hereby agrees that, during the Restricted Period, Executive shall not, without
the prior written consent of the Company, directly or indirectly, on Executive's
own behalf or as a Principal or Representative of any Person, solicit, divert,
take away or attempt to solicit, divert or take away a Protected Customer for
the purpose of providing or selling Competitive Services; provided, however,
that the prohibition of this covenant shall apply only to Protected Customers
with whom Executive had Material Contact on the Company's behalf during the
twelve (12) months immediately preceding the termination of her employment
hereunder. For purposes of this Agreement, Executive had "Material Contact" with
a Protected Customer if (a) she had business dealings with the Protected
Customer on the Company's behalf; (b) she was responsible for supervising or
coordinating the dealings between the Company and the Protected Customer; or (c)
she obtained Trade Secrets or Confidential Information about the customer as a
result of her association with the Company.
(iv) Noncompetition with the Company. The parties
acknowledge: (A) that Executive's services under this Agreement require special
expertise and talent in the provision of Competitive Services and that Executive
will have substantial contacts
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with customers, suppliers, advertisers and vendors of the Company; (B) that
pursuant to this Agreement, Executive will be placed in a position of trust and
responsibility and she will have access to a substantial amount of Confidential
Information and Trade Secrets and that the Company is placing her in such
position and giving her access to such information in reliance upon her
agreement not to compete with the Company during the Restricted Period; (C) that
due to her management duties, Executive will be the repository of a substantial
portion of the goodwill of the Company and would have an unfair advantage in
competing with the Company; (D) that due to Executive's special experience and
talent, the loss of Executive's services to the Company under this Agreement
cannot reasonably or adequately be compensated solely by damages in an action at
law; (E) that Executive is capable of competing with the Company; and (F) that
Executive is capable of obtaining gainful, lucrative and desirable employment
that does not violate the restrictions contained in this Agreement. In
consideration of the compensation and benefits being paid and to be paid by the
Company to Executive hereunder, Executive hereby agrees that, during the
Restricted Period, Executive will not, without prior written consent of the
Company, directly or indirectly seek or obtain a Competitive Position in the
Restricted Territory with a Competitor; provided, however, that the provisions
of this Agreement shall not be deemed to prohibit the ownership by Executive of
any securities of the Company or its affiliated entities or not more than five
percent (5%) of any class of securities of any corporation having a class of
securities registered pursuant to the Securities Exchange Act of 1934, as
amended.
(d) Enforcement of Restrictive Covenants.
(i) Rights and Remedies Upon Breach. In the event
Executive breaches, or threatens to commit a breach of, any of the provisions of
the Restrictive Covenants, the Company shall have the following rights and
remedies, which shall be independent of any others and severally enforceable,
and shall be in addition to, and not in lieu of, any other rights and remedies
available to the Company at law or in equity:
(A) the right and remedy to enjoin, preliminarily
and permanently, Executive from violating or threatening to violate the
Restrictive Covenants and to have the Restrictive Covenants specifically
enforced by any court of competent jurisdiction, it being agreed that any breach
or threatened breach of the Restrictive Covenants would cause irreparable injury
to the Company and that money damages would not provide an adequate remedy to
the Company; and
(B) the right and remedy to require Executive to
account for and pay over to the Company all compensation, profits, monies,
accruals, increments or other benefits derived or received by Executive as the
result of any transactions constituting a breach of the Restrictive Covenants.
(ii) Severability of Covenants. Executive acknowledges
and agrees that the Restrictive Covenants are reasonable and valid in time and
scope and in all other respects. The covenants set forth in this Agreement shall
be considered and construed as
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separate and independent covenants. Should any part or provision of any covenant
be held invalid, void or unenforceable in any court of competent jurisdiction,
such invalidity, voidness or unenforceability shall not render invalid, void or
unenforceable any other part or provision of this Agreement. If any portion of
the foregoing provisions is found to be invalid or unenforceable by a court of
competent jurisdiction because its duration, the territory, the definition of
activities or the definition of information covered is considered to be invalid
or unreasonable in scope, the invalid or unreasonable term shall be redefined,
or a new enforceable term provided, such that the intent of the Company and
Executive in agreeing to the provisions of this Agreement will not be impaired
and the provision in question shall be enforceable to the fullest extent of the
applicable laws.
(iii) Attorneys' Fees. In any action relating to the
enforcement of the Restrictive Covenants, the prevailing party in such action
shall be entitled to be paid any and all costs and expenses incurred by her or
it in enforcing or establishing her or its rights thereunder, including, without
limitation, reasonable attorneys' fees, whether suit be brought or not, and
whether or not incurred in trial, bankruptcy or appellate proceedings.
13. Assignment and Successors.
(a) Executive. This Agreement is personal to Executive and
without the prior written consent of the Company shall not be assignable by
Executive otherwise than by will or the laws of descent and distribution. This
Agreement shall inure to the benefit of and be enforceable by Executive's legal
representatives.
(b) The Company. This Agreement shall inure to the benefit of
and be binding upon the Company and its successors and assigns. The Company will
require any successor to all or substantially all of the business and/or assets
of the Company (whether direct or indirect, by purchase, merger, consolidation
or otherwise) to assume expressly and agree to perform this Agreement in the
same manner and to the same extent that the Company would be required to perform
it if no such succession had taken place. As used in this Agreement, "the
Company" shall mean the Company as hereinbefore defined and any successor to its
business and/or assets as aforesaid which assumes and agrees to perform this
Agreement by operation of law or otherwise.
14. Miscellaneous.
(a) Waiver. Failure of either party to insist, in one or more
instances, on performance by the other in strict accordance with the terms and
conditions of this Agreement shall not be deemed a waiver or relinquishment of
any right granted in this Agreement or of the future performance of any such
term or condition or of any other term or condition of this Agreement, unless
such waiver is contained in a writing signed by the party making the waiver.
(b) Severability. If any provision or covenant, or any part
thereof, of this Agreement should be held by any court to be invalid, illegal or
unenforceable, either in
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whole or in part, such invalidity, illegality or unenforceability shall not
affect the validity, legality or enforceability of the remaining provisions or
covenants, or any part thereof, of this Agreement, all of which shall remain in
full force and effect.
(c) Other Agents. Nothing in this Agreement is to be
interpreted as limiting the Company from employing other personnel on such terms
and conditions as may be satisfactory to it.
(d) Entire Agreement. Except as provided herein, this
Agreement contains the entire agreement between the Company and Executive with
respect to the subject matter hereof, and it supersedes and invalidates any
previous agreements or contracts between them which relate to the subject matter
hereof. No representations, inducements, promises or agreements, oral or
otherwise, which are not embodied herein shall be of any force or effect.
(e) Governing Law. Except to the extent preempted by federal
law, and without regard to conflict of laws principles, the laws of the State of
Texas shall govern this Agreement in all respects, whether as to its validity,
construction, capacity, performance or otherwise.
(f) Notices. All notices, requests, demands and other
communications required or permitted hereunder shall be in writing and shall be
deemed to have been duly given if delivered or three days after mailing if
mailed, first class, certified mail, postage prepaid:
To Company: Farah Incorporated
Attention: William W. Compton
Tropical Sportswear Int'l Corporation
4902 West Waters Avenue
Tampa, Florida 33634-1302
Facsimile No. (813) 249-4904
To Executive: Polly Vaughn
4171 N. Mesa
El Paso, Texas
Any party may change the address to which notices, requests, demands and other
communications shall be delivered or mailed by giving notice thereof to the
other party in the same manner provided herein.
(g) Amendments and Modifications. This Agreement may be
amended or modified only by a writing signed by both parties hereto, which makes
specific reference to this Agreement.
[Remainder of Page Intentionally Left Blank]
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IN WITNESS WHEREOF, the parties hereto have duly executed and delivered
this Employment Agreement as of the date first above written.
FARAH INCORPORATED
By: /s/ Michael Kagan
--------------------------------
Michael Kagan
Chief Financial Officer
EXECUTIVE:
/s/ Polly Vaughn
----------------------------------
Polly Vaughn
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EXHIBIT 10.14
EMPLOYMENT AGREEMENT
THIS EMPLOYMENT AGREEMENT (this "Agreement") is made and entered into
this 9th day of June, 1998 by and between Farah Incorporated, a Texas
corporation (hereinafter, the "Company" which term shall include the Company's
other subsidiaries, affiliates and successors), and Michael R. Mitchell
(hereinafter, "Executive"), to be effective as of the Effective Date, as defined
in Section 1.
BACKGROUND
Executive is the President of Farah U.S.A., Inc., an affiliate of the
Company. Pursuant to an Agreement and Plan of Merger, dated as of May 1, 1998
(the "Merger Agreement"), the Company will be acquired by Tropical Sportswear
Int'l Corporation (the "Merger").
The Company desires to retain Executive from and after the Merger as an
executive of the Company, and Executive is willing to serve as such, all in
accordance with the terms and conditions of this Agreement.
Executive and the Company are parties to that certain Amended and
Restated Employment Agreement, dated as of August 2, 1994, as amended, which
provides certain benefits to Executive in the event of his termination of
employment following a change of control of the Company (the "Prior Employment
Agreement"). The Prior Employment Agreement will be superseded in its entirety
by this Agreement.
NOW THEREFORE, in consideration of the foregoing and of the mutual
covenants and agreements set forth herein, and other good and valuable
consideration, the receipt and sufficiency of which are hereby acknowledged, the
parties hereto agree as follows:
1. Effective Date. The effective date of this Agreement (the
"Effective Date") will be the date on which the effective time of the Merger
occurs.
2. Employment. As of the Effective Date, Executive will be employed in
the capacity of President, Branded Division, of the Farah U.S.A. division of the
Company. Executive's responsibilities under this Agreement shall be in
accordance with the policies and objectives established by the Company.
3. Employment Period. Unless earlier terminated herein in accordance
with Section 6 hereof, Executive's employment shall be for an initial two-year
term (the "Employment Period"), beginning on the Effective Date. Unless earlier
terminated, the Employment Period shall, without further action by Executive or
the Company, be extended by an additional day every day from and after the first
anniversary of the Effective Date, such that there shall at all times be one
year remaining in the Employment Period after the first year of the Employment
Period.
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4. Extent of Service. During the Employment Period, and excluding any
periods of vacation and sick leave to which Executive is entitled, Executive
agrees to devote his business time, attention, skill and efforts exclusively to
the faithful performance of his duties hereunder; provided, however, that it
shall not be a violation of this Agreement for Executive to (i) devote
reasonable periods of time to charitable and community activities and, with the
approval of the Company, industry or professional activities, and/or (ii) manage
personal business interests and investments, so long as such activities do not
materially interfere with the performance of Executive's responsibilities under
this Agreement.
5. Compensation and Benefits.
(a) Signing Bonus. On the Effective Date, the Company will pay to
Employee a signing bonus in the amount of $50,000.
(b) Retention Bonus. In addition to the Signing Bonus and any annual
bonus payable under subsection (d) below, the Company shall pay to Executive on
the second anniversary of the Effective Date, unless prior to such date the
Company has terminated Executive's employment for Cause (as hereinafter defined)
or Executive has resigned without Good Reason (as hereinafter defined), a
retention bonus in the amount of $50,000 (the "Retention Bonus");
(c) Base Salary. During the Employment Period, the Company will pay
to Executive a base salary in the amount of $300,000 per year ("Base Salary"),
less normal withholdings, payable in equal monthly or more frequent installments
as are customary under the Company's payroll practices from time to time. The
Compensation Committee of the Board of Directors of the Company shall review
Executive's Base Salary annually and in its sole discretion, subject to approval
of the Board of Directors of the Company, may increase Executive's Base Salary
from year to year. The annual review of Executive's salary by the Board will
consider, among other things, Executive's own performance and the Company's
performance.
(d) Incentive, Savings and Retirement Plans. During the Employment
Period, Executive shall be entitled to participate in all incentive, savings and
retirement plans (including without limitation, the Company's 401(k) plan),
practices, policies and programs applicable generally to peer executives of the
Company and its affiliated companies ("Peer Executives"), and on the same basis
as such Peer Executives.
(e) Stock Options. On the Effective Date, Executive shall be granted
under the Company's Employee Stock Option Plan options to acquire 10,000 shares
of the Company's common stock (the "Options"), which Options will have a
per-share exercise price equal to the fair market value of Company common stock
on the date of grant and terms and conditions that are no less favorable than
those applicable to grants made to Peer Executives.
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(f) Welfare Benefit Plans. During the Employment Period, Executive
and Executive's family shall be eligible for participation in and shall receive
all benefits under welfare benefit plans, practices, policies and programs
provided by the Company and its affiliated companies (including, without
limitation, medical, disability, employee life, group life, and accidental death
insurance plans and programs) to the extent applicable generally to Peer
Executives. Without limiting the foregoing, during each of the first two years
of the Employment Period, the Company shall pay up to $20,000 per year of the
cost of premiums for that certain split-dollar life insurance policy referred to
in Section 2(d) of the Prior Employment Agreement (the "Split-Dollar Insurance
Premium Commitment").
(g) Expenses. During the Employment Period, Executive shall be
entitled to receive prompt reimbursement for all reasonable expenses incurred by
Executive in accordance with the policies, practices and procedures of the
Company and its affiliated companies to the extent applicable generally to Peer
Executives.
(h) Fringe Benefits. During the Employment Period, Executive shall
be entitled to fringe benefits in accordance with the plans, practices, programs
and policies of the Company and its affiliated companies in effect for Peer
Executives. Without limiting the foregoing, during the Employment Period, the
Company shall pay up to $350 per month for membership dues at country club of
Executive's choosing.
6. Termination of Employment.
(a) Death, Retirement or Disability. Executive's employment
shall terminate automatically upon Executive's death or Retirement during the
Employment Period. For purposes of this Agreement, "Retirement" shall mean
normal retirement as defined in the Company's then-current retirement plan, or
there is no such retirement plan, "Retirement" shall mean voluntary termination
after age 65 with at least ten years of service. If the Company determines in
good faith that the Disability of Executive has occurred during the Employment
Period (pursuant to the definition of Disability set forth below), it may give
to Executive written notice in accordance with Section 14(f) of this Agreement
of its intention to terminate Executive's employment. In such event, Executive's
employment with the Company shall terminate effective on the 30th day after
receipt of such written notice by Executive (the "Disability Effective Date"),
provided that, within the 30 days after such receipt, Executive shall not have
returned to full-time performance of Executive's duties. For purposes of this
Agreement, "Disability" shall mean a mental or physical disability as determined
by the Board of Directors of the Company in accordance with standards and
procedures similar to those under the Company's employee long-term disability
plan, if any. At any time that the Company does not maintain such a long-term
disability plan, Disability shall mean the inability of Executive, as determined
by the Board, to substantially perform the essential functions of his regular
duties and responsibilities due to a medically determinable physical or mental
illness which has lasted (or can reasonably be expected to last) for a period of
six consecutive months.
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(b) Termination by the Company. The Company may terminate
Executive's employment during the Employment Period with or without Cause. For
purposes of this Agreement, "Cause" shall mean:
(i) the willful and continued failure of Executive to
perform substantially Executive's duties with the Company (other than any such
failure resulting from incapacity due to physical or mental illness, and
specifically excluding any failure by Executive, after reasonable efforts, to
meet performance expectations), for more than thirty (30) days after a written
demand for substantial performance is delivered to Executive that specifically
identifies the manner in which Executive has not substantially performed
Executive's duties, or
(ii) the willful engaging by Executive in illegal conduct
or gross misconduct which is materially and demonstrably injurious to the
Company, or
(iii) Executive engages in any misconduct involving moral
turpitude whether occurring in the performance of his duties or otherwise.
(c) Termination by Executive. Executive's employment may be
terminated by Executive for Good Reason or no reason. For purposes of this
Agreement, "Good Reason" shall mean a material reduction by the Company in
Executive's Base Salary and benefits as in effect on the Effective Date or as
the same may be increased from time to time.
(d) Notice of Termination. Any termination by the Company for
Cause, or by Executive for Good Reason, shall be communicated by Notice of
Termination to the other party hereto given in accordance with Section 14(f) of
this Agreement. For purposes of this Agreement, a "Notice of Termination" means
a written notice which (i) indicates the specific termination provision in this
Agreement relied upon, (ii) to the extent applicable, sets forth in reasonable
detail the facts and circumstances claimed to provide a basis for termination of
Executive's employment under the provision so indicated and (iii) if the Date of
Termination (as defined below) is other than the date of receipt of such notice,
specifies the termination date (which date shall be not more than 30 days after
the giving of such notice). The failure by Executive or the Company to set forth
in the Notice of Termination any fact or circumstance which contributes to a
showing of Good Reason or Cause shall not waive any right of Executive or the
Company, respectively, hereunder or preclude Executive or the Company,
respectively, from asserting such fact or circumstance in enforcing Executive's
or the Company's rights hereunder.
(e) Date of Termination. "Date of Termination" has the following
meaning: (i) if Executive's employment is terminated by the Company or by
Executive other than by reason of death, Retirement or Disability, the Date of
Termination will be the date specified in the Notice of termination, and (ii) if
Executive's employment is terminated by reason of death, Retirement or
Disability, the Date of Termination will be the date of death or Retirement of
Executive or the Disability Effective Date, as the case may be.
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7. Obligations of the Company upon Termination.
(a) Termination by Executive for Good Reason; Termination by
the Company Other Than for Cause, Death or Disability. If, during the Employment
Period, the Company shall terminate Executive's employment other than for Cause,
death or Disability, or Executive shall terminate employment for Good Reason,
then in consideration of Executive's services rendered prior to such termination
and as reasonable compensation for his compliance with the Restrictive Covenants
in Section 12 hereof:
(i) the Company shall pay to Executive the aggregate of
the following amounts:
A. the sum of (1) Executive's Base Salary through
the Date of Termination to the extent not theretofore paid, (2) the
product of (x) Executive's target annual bonus that would have been
payable with respect to the fiscal year in which the Date of
Termination occurs, and (y) a fraction, the numerator of which is the
number of days in the current fiscal year through the Date of
Termination (or in the case of 1998, the number of days between the
Effective Date and the Date of Termination), and the denominator of
which is 365, (3) any compensation previously deferred by Executive
(together with any accrued interest or earnings thereon) and any
accrued vacation pay, in each case to the extent not theretofore paid
and (4) any other payment or obligation due from the Company to
Executive and not yet paid (the sum of the amounts described in clauses
(1), (2), (3) and (4) shall be hereinafter referred to as the "Accrued
Obligations"); and
B. the Retention Bonus, to the extent not
theretofore paid; and
(ii) The Company shall continue to pay to Executive his
Base Salary (subject to withholding of all applicable taxes) for the remainder
of the Employment Period then in effect (without regard to the termination of
the Employment Period pursuant to Section 6) in the same manner as the same was
being paid as of the Date of Termination; and
(iii) for the remainder of the Employment Period then in
effect (without regard to the termination of the Employment Period pursuant to
Section 6), or such longer period as may be provided by the terms of the
appropriate plan, program, practice or policy, the Company shall continue
benefits to Executive and/or Executive's family in accordance with the plans,
programs, practices and policies described in Section 5(f) of this Agreement
(including the Split-Dollar Insurance Premium Commitment) if Executive's
employment had not been terminated; and
(iv) to the extent not theretofore paid or provided, the
Company shall timely pay or provide to Executive any other amounts or benefits
required to be paid or provided or which Executive is eligible to receive under
any plan, program, policy or
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<PAGE> 6
practice or contract or agreement of the Company and its affiliated companies
(such other amounts and benefits shall be hereinafter referred to as the "Other
Benefits").
(b) Death. If Executive's employment is terminated by reason
of Executive's death during the Employment Period, this Agreement shall
terminate without further obligations to Executive's legal representatives under
this Agreement, other than for payment of Accrued Obligations, the Retention
Bonus (to the extent not theretofore paid), and the timely payment or provision
of Other Benefits. The term Other Benefits as utilized in this Section 7(b)
shall include, without limitation, and Executive's estate and/or beneficiaries
shall be entitled to receive, any death benefits applicable to Executive at the
date of his death, regardless of when payable.
(c) Disability. If Executive's employment is terminated by
reason of Executive's Disability during the Employment Period, this Agreement
shall terminate without further obligations to Executive, other than for payment
of Accrued Obligations, the Retention Bonus (to the extent not theretofore
paid), and the timely payment or provision of Other Benefits. The term Other
Benefits as utilized in this Section 7(c) shall include, without limitation, and
Executive's estate and/or beneficiaries shall be entitled to receive, any
disability benefits applicable to Executive at the Date of Termination,
regardless of when payable.
(d) Retirement. If Executive's employment is terminated by
reason of Executive's Retirement during the Employment Period, this Agreement
shall terminate without further obligations to Executive, other than for payment
of Accrued Obligations, the Retention Bonus (to the extent not theretofore
paid), and the timely payment or provision of Other Benefits. The term Other
Benefits as utilized in this Section 7(d) shall include, without limitation, and
Executive's estate and/or beneficiaries shall be entitled to receive, any
retirement benefits applicable to Executive at the Date of Termination,
regardless of when payable.
(e) Cause or Voluntary Termination without Good Reason. If
Executive's employment shall be terminated for Cause during the Employment
Period, or if Executive voluntarily terminates employment during the Employment
Period without Good Reason, this Agreement shall terminate without further
obligations to Executive, other than for payment of Accrued Obligations (other
than the prorata bonus described in Section 7(a)(i)(A)(2)) and the timely
payment or provision of Other Benefits.
8. Non-exclusivity of Rights. Nothing in this Agreement shall prevent
or limit Executive's continuing or future participation in any plan, program,
policy or practice provided by the Company or any of its affiliated companies
and for which Executive may qualify, nor, subject to Section 14(d), shall
anything herein limit or otherwise affect such rights as Executive may have
under any contract or agreement with the Company or any of its affiliated
companies. Amounts which are vested benefits or which Executive is otherwise
entitled to receive under any plan, policy, practice or program of or any
contract or agreement with the Company or any of its affiliated companies at or
subsequent to the
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<PAGE> 7
Date of Termination shall be payable in accordance with such plan, policy,
practice or program or contract or agreement except as explicitly modified by
this Agreement.
9. Limitation of Benefits.
(a) Notwithstanding anything in this Agreement to the contrary,
in the event it shall be determined that any benefit, payment or distribution by
the Company to or for the benefit of Executive (whether payable or distributable
pursuant to the terms of this Agreement or otherwise) (such benefits, payments
or distributions are hereinafter referred to as "Payments") would, if paid, be
subject to the excise tax (the "Excise Tax") imposed by Section 4999 of the
Internal Revenue Code of 1986, as amended (the "Code"), then the aggregate
present value of the Payments shall be reduced (but not below zero) to an amount
expressed in present value that maximizes the aggregate present value of the
Payments without causing the Payments or any part thereof to be subject to the
Excise Tax and therefore nondeductible by the Company because of Section 280G of
the Code (the "Reduced Amount"). For purposes of this Section 9, present value
shall be determined in accordance with Section 280G(d)(4) of the Code. In the
event, after the exhaustion of all remedies, it is necessary to reduce the
Payments, the difference between the Payments and the Reduced Amount shall be
treated for all purposes as a loan to Executive, which Executive shall repay to
the Company together with interest at the applicable Federal rate provided for
in Section 7872(f)(2) of the Code.
(b) All determinations required to be made under this Section 9,
including whether an Excise Tax would otherwise be imposed, whether the Payments
shall be reduced, the amount of the Reduced Amount, and the assumptions to be
utilized in arriving at such determinations, shall be made by the Company's
regular independent accounting firm at the expense of the Company or, at the
election and expense of Executive, another nationally recognized independent
accounting firm (the "Accounting Firm") which shall provide detailed supporting
calculations both to the Company and Executive within 15 business days of the
receipt of notice from Executive that a Payment is due to be made, or such
earlier time as is requested by the Company. Any determination by the Accounting
Firm shall be binding upon the Company and Executive. As a result of the
uncertainty in the application of Section 4999 of the Code at the time of the
initial determination by the Accounting Firm hereunder, it is possible that
Payments hereunder will have been unnecessarily limited by this Section 9
("Underpayment"), consistent with the calculations required to be made
hereunder. The Accounting Firm shall determine the amount of the Underpayment
that has occurred and any such Underpayment shall be promptly paid by the
Company to or for the benefit of Executive together with interest at the
applicable Federal rate provided for in Section 7872(f)(2) of the Code.
10. Costs of Enforcement. Each party to the Agreement shall pay
its own costs and expenses in any contest of the validity or enforceability of,
or liability under, any provision of this Agreement (including as a result of
any contest by the Executive about the amount of any payment pursuant to this
Agreement).
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11. Representations and Warranties. Executive hereby represents and
warrants to the Company that Executive is not a party to, or otherwise subject
to, any covenant not to compete (other than as contained herein) with any person
or entity, and Executive's execution of this Agreement and performance of his
obligations hereunder will not violate the terms or conditions of any contract
or obligation, written or oral, between Executive and any other person or
entity.
12. Restrictions on Conduct of Executive.
(a) General. Executive and the Company understand and agree that
the purpose of the provisions of this Section 12 is to protect legitimate
business interests of the Company, as more fully described below, and is not
intended to eliminate Executive's post-employment competition with the Company
per se, nor is it intended to impair or infringe upon Executive's right to work,
earn a living, or acquire and possess property from the fruits of his labor.
Executive hereby acknowledges that the post-employment restrictions set forth in
this Section 12 are reasonable and that they do not, and will not, unduly impair
his ability to earn a living after the termination of this Agreement. Therefore,
subject to the limitations of reasonableness imposed by law upon the
restrictions set forth herein by the time and geographical area described below,
Executive shall be subject to the restrictions set forth in this Section 12.
(b) Definitions. The following capitalized terms used in this
Section 12 shall have the meanings assigned to them below, which definitions
shall apply to both the singular and the plural forms of such terms:
"Competitive Position" means any employment with a Competitor in
which Executive will use or is likely to use any Confidential Information or
Trade Secrets, or in which Executive has duties for such Competitor that relate
to Competitive Services and that are the same or similar to those services
actually performed by Executive for the Company;
"Competitive Services" means the merchandising, manufacturing,
distribution, selling or marketing of men's, women's, boys' or girls' sportswear
(tops and bottoms), each of which activities is engaged in by the Company and
its subsidiaries on the date of this Agreement.
"Competitor" means any Person engaged, wholly or in part, in
Competitive Services.
"Confidential Information" means all information regarding the
Company, its activities, business or clients that is the subject of reasonable
efforts by the Company to maintain its confidentiality and that is not generally
disclosed by practice or authority to persons not employed by the Company, but
that does not rise to the level of a Trade Secret. "Confidential Information"
shall include, but is not limited to, sales and
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marketing techniques and plans, lists of contact data, technical data relating
to the Company's products or production techniques, purchase and supply
information, details of client or consultant contracts, current and anticipated
customer requirements, pricing policies, client billing information, price
lists, market studies, business plans, operational methods, marketing plans or
strategies, product development techniques or plans, financial plans and data
concerning the Company, and management planning information). "Confidential
Information" shall not include information that has become generally available
to the public by the act of one who has the right to disclose such information
without violating any right or privilege of the Company. This definition shall
not limit any definition of "confidential information" or any equivalent term
under state or federal law.
"Determination Date" means the date of termination of
Executive's employment with the Company for any reason whatsoever or any earlier
date (during the Employment Period) of an alleged breach of the Restrictive
Covenants by Executive.
"Person" means any individual or any corporation, partnership,
joint venture, limited liability company, association or other entity or
enterprise.
"Principal or Representative" means a principal, owner, partner,
shareholder, joint venturer, investor, member, trustee, director, officer,
manager, employee, agent, representative or consultant.
"Protected Customers" means any Person to whom the Company has
sold its products or services or solicited to sell its products or services
during the twelve (12) months prior to the Determination Date.
"Protected Employees" means employees of the Company who were
employed by the Company at any time within six (6) months prior to the
Determination Date.
"Protected Suppliers" means any person from whom the Company has
purchased products or services or solicited to purchase products or services
during the twelve (12) months prior to the Determination Date.
"Restricted Period" means the Period of Employment and a period
extending two (2) years from the termination of Executive's employment with the
Company for any reason whatsoever.
"Restricted Territory" means the United States and North,
Central and South America, the United Kingdom, Western Europe, Australia, New
Zealand, and Fiji. The Company and Executive acknowledge and agree that the
Company and its subsidiaries do business and sell men's, women's, boys' and
girls' sportswear (tops and bottoms) in all 50 states of the United States and
in each other country in the Restricted Territory.
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"Restrictive Covenants" means the restrictive covenants
contained in Section 12(c) hereof.
"Trade Secret" means all information regarding the
Company, without regard to form, including, but not limited to, technical or
nontechnical data, a formula, a pattern, a compilation, a program, a device, a
method, a technique, a drawing, a process, financial data, financial plans,
product plans, distribution lists or a list of actual or potential customers,
advertisers or suppliers which is not commonly known by or available to the
public and which information: (A) derives economic value, actual or potential,
from not being generally known to, and not being readily ascertainable by proper
means by, other persons who can obtain economic value from its disclosure or
use; and (B) is the subject of efforts that are reasonable under the
circumstances to maintain its secrecy. Without limiting the foregoing, Trade
Secret means any item of Confidential Information that constitutes a "trade
secret(s)" under the common law or statutory law of the State of Texas.
(c) Restrictive Covenants.
(i) Restriction on Disclosure and Use of Confidential
Information and Trade Secrets. Executive understands and agrees that the
Confidential Information and Trade Secrets constitute valuable assets of the
Company and its affiliated entities, and may not be converted to Executive's own
use. Accordingly, Executive hereby agrees that Executive shall not, directly or
indirectly, at any time during the Restricted Period reveal, divulge, or
disclose to any Person not expressly authorized by the Company any Confidential
Information, and Executive shall not, directly or indirectly, at any time during
the Restricted Period use or make use of any Confidential Information in
connection with any business activity other than that of the Company. Throughout
the term of this Agreement and at all times after the date that this Agreement
terminates for any reason, Executive shall not directly or indirectly transmit
or disclose any Trade Secret of the Company to any Person, and shall not make
use of any such Trade Secret, directly or indirectly, for himself or for others,
without the prior written consent of the Company. The parties acknowledge and
agree that this Agreement is not intended to, and does not, alter either the
Company's rights or Executive's obligations under any state or federal statutory
or common law regarding trade secrets and unfair trade practices.
Anything herein to the contrary notwithstanding, Executive shall not be
restricted from disclosing or using Confidential Information that is required to
be disclosed by law, court order or other legal process; provided, however, that
in the event disclosure is required by law, Executive shall provide the Company
with prompt notice of such requirement so that the Company may seek an
appropriate protective order prior to any such required disclosure by Executive.
(ii) Nonsolicitation of Protected Employees. Executive
understands and agrees that the relationship between the Company and each of its
Protected Employees constitutes a valuable asset of the Company and may not be
converted to
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Executive's own use. Accordingly, Executive hereby agrees that during the
Restricted Period Executive shall not directly or indirectly on Executive's own
behalf or as a Principal or Representative of any Person or otherwise solicit or
induce any Protected Employee to terminate his or her employment relationship
with the Company or to enter into employment with any other Person.
(iii) Restriction on Relationships with Protected
Customers and Protected Suppliers. Executive understands and agrees that the
relationships between the Company and each of its Protected Customers and
between the Company and each of its Protected Suppliers constitutes valuable
assets of the Company and may not be converted to Executive's own use.
Accordingly, Executive hereby agrees that, during (i) the period of time that
Executive receives compensation from the Company in the event Executive's
employment is terminated by the Company other than for Cause, death or
Disability or by Executive for Good Reason or (ii) a period of eight (8) weeks
in the event that Executive's employment is terminated by the Company for Cause
or by Executive without Good Reason, Executive shall not, without the prior
written consent of the Company, directly or indirectly, on Executive's own
behalf or as a Principal or Representative of any Person, solicit, divert, take
away or attempt to solicit, divert or take away (i) a Protected Customer for the
purpose of providing or selling Competitive Services or (ii) a Protected
Supplier for the purpose of acquiring or purchasing goods or services in
connection with providing or selling Competitive Services; provided, however,
that the prohibition of this covenant shall apply only to Protected Customers
and Protected Suppliers with whom Executive had Material Contact on the
Company's behalf during the twelve (12) months immediately preceding the
termination of his employment hereunder. For purposes of this Agreement,
Executive had "Material Contact" with a Protected Customer or a Protected
Customer if (a) he had business dealings with the Protected Customer or
Protected Customer, as the case may be, on the Company's behalf; (b) he was
responsible for supervising or coordinating the dealings between the Company and
the Protected Customer or Protected Customer, as the case may be; or (c) he
obtained Trade Secrets or Confidential Information about the Protected Customer,
as the case may be, as a result of his association with the Company.
(iv) Noncompetition with the Company. The parties
acknowledge: (A) that Executive's services under this Agreement require special
expertise and talent in the provision of Competitive Services and that Executive
will have substantial contacts with customers, suppliers, advertisers and
vendors of the Company; (B) that pursuant to this Agreement, Executive will be
placed in a position of trust and responsibility and he will have access to a
substantial amount of Confidential Information and Trade Secrets and that the
Company is placing him in such position and giving him access to such
information in reliance upon his agreement not to compete with the Company
during (i) the period of time that Executive receives compensation from the
Company in the event Executive's employment is terminated by the Company other
than for Cause, death or Disability or by Executive for Good Reason or (ii) a
period of eight (8) weeks in the event that Executive's employment is terminated
by the Company for Cause or by Executive without Good Reason; (C) that due to
his management duties, Executive will be the
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repository of a substantial portion of the goodwill of the Company and would
have an unfair advantage in competing with the Company; (D) that due to
Executive's special experience and talent, the loss of Executive's services to
the Company under this Agreement cannot reasonably or adequately be compensated
solely by damages in an action at law; (E) that Executive is capable of
competing with the Company; and (F) that Executive is capable of obtaining
gainful, lucrative and desirable employment that does not violate the
restrictions contained in this Agreement. In consideration of the compensation
and benefits being paid and to be paid by the Company to Executive hereunder,
Executive hereby agrees that, during (i) the period of time that Executive
receives compensation from the Company in the event Executive's employment is
terminated by the Company other than for Cause, death or Disability or by
Executive for Good Reason or (ii) a period of eight (8) weeks in the event that
Executive's employment is terminated by the Company for Cause or by Executive
without Good Reason, Executive will not, without prior written consent of the
Company, directly or indirectly seek or obtain a Competitive Position in the
Restricted Territory with a Competitor; provided, however, that the provisions
of this Agreement shall not be deemed to prohibit the ownership by Executive of
any securities of the Company or its affiliated entities or not more than five
percent (5%) of any class of securities of any corporation having a class of
securities registered pursuant to the Securities Exchange Act of 1934, as
amended.
(d) Enforcement of Restrictive Covenants.
(i) Rights and Remedies Upon Breach. In the event
Executive breaches, or threatens to commit a breach of, any of the provisions of
the Restrictive Covenants, the Company shall have the following rights and
remedies, which shall be independent of any others and severally enforceable,
and shall be in addition to, and not in lieu of, any other rights and remedies
available to the Company at law or in equity:
(A) the right and remedy to enjoin, preliminarily
and permanently, Executive from violating or threatening to violate the
Restrictive Covenants and to have the Restrictive Covenants specifically
enforced by any court of competent jurisdiction, it being agreed that any breach
or threatened breach of the Restrictive Covenants would cause irreparable injury
to the Company and that money damages would not provide an adequate remedy to
the Company; and
(B) the right and remedy to require Executive to
account for and pay over to the Company all compensation, profits, monies,
accruals, increments or other benefits derived or received by Executive as the
result of any transactions constituting a breach of the Restrictive Covenants.
(ii) Severability of Covenants. Executive acknowledges
and agrees that the Restrictive Covenants are reasonable and valid in time and
scope and in all other respects. The covenants set forth in this Agreement shall
be considered and construed as separate and independent covenants. Should any
part or provision of any covenant be held invalid, void or unenforceable in any
court of competent jurisdiction, such invalidity,
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voidness or unenforceability shall not render invalid, void or unenforceable any
other part or provision of this Agreement. If any portion of the foregoing
provisions is found to be invalid or unenforceable by a court of competent
jurisdiction because its duration, the territory, the definition of activities
or the definition of information covered is considered to be invalid or
unreasonable in scope, the invalid or unreasonable term shall be redefined, or a
new enforceable term provided, such that the intent of the Company and Executive
in agreeing to the provisions of this Agreement will not be impaired and the
provision in question shall be enforceable to the fullest extent of the
applicable laws.
13. Assignment and Successors.
(a) Executive. This Agreement is personal to Executive and
without the prior written consent of the Company shall not be assignable by
Executive otherwise than by will or the laws of descent and distribution. This
Agreement shall inure to the benefit of and be enforceable by Executive's legal
representatives.
(b) The Company. This Agreement shall inure to the benefit of
and be binding upon the Company and its successors and assigns. The Company will
require any successor to all or substantially all of the business and/or assets
of the Company (whether direct or indirect, by purchase, merger, consolidation
or otherwise) to assume expressly and agree to perform this Agreement in the
same manner and to the same extent that the Company would be required to perform
it if no such succession had taken place. As used in this Agreement, "the
Company" shall mean the Company as hereinbefore defined and any successor to its
business and/or assets as aforesaid which assumes and agrees to perform this
Agreement by operation of law or otherwise.
14. Miscellaneous.
(a) Waiver. Failure of either party to insist, in one or more
instances, on performance by the other in strict accordance with the terms and
conditions of this Agreement shall not be deemed a waiver or relinquishment of
any right granted in this Agreement or of the future performance of any such
term or condition or of any other term or condition of this Agreement, unless
such waiver is contained in a writing signed by the party making the waiver.
(b) Severability. If any provision or covenant, or any part
thereof, of this Agreement should be held by any court to be invalid, illegal or
unenforceable, either in whole or in part, such invalidity, illegality or
unenforceability shall not affect the validity, legality or enforceability of
the remaining provisions or covenants, or any part thereof, of this Agreement,
all of which shall remain in full force and effect.
(c) Other Agents. Nothing in this Agreement is to be
interpreted as limiting the Company from employing other personnel on such terms
and conditions as may be satisfactory to it.
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(d) Entire Agreement. Except as provided herein, this
Agreement contains the entire agreement between the Company and Executive with
respect to the subject matter hereof, and it supersedes and invalidates any
previous agreements or contracts between them which relate to the subject matter
hereof, including without limitation the Prior Employment Agreement. No
representations, inducements, promises or agreements, oral or otherwise, which
are not embodied herein shall be of any force or effect.
(e) Governing Law. Except to the extent preempted by federal
law, and without regard to conflict of laws principles, the laws of the State of
Texas shall govern this Agreement in all respects, whether as to its validity,
construction, capacity, performance or otherwise.
(f) Notices. All notices, requests, demands and other
communications required or permitted hereunder shall be in writing and shall be
deemed to have been duly given if delivered or three days after mailing if
mailed, first class, certified mail, postage prepaid:
To Company: Farah Incorporated
Attention: William W. Compton
Tropical Sportswear Int'l Corporation
4902 West Waters Avenue
Tampa, Florida 33634-1302
Facsimile No. (813) 249-4904
To Executive: Michael R. Mitchell
738 Willow Glen Drive
El Paso, Texas 79922
Any party may change the address to which notices, requests, demands and other
communications shall be delivered or mailed by giving notice thereof to the
other party in the same manner provided herein.
(g) Amendments and Modifications. This Agreement may be
amended or modified only by a writing signed by both parties hereto, which makes
specific reference to this Agreement.
[Remainder of Page Intentionally Left Blank]
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IN WITNESS WHEREOF, the parties hereto have duly executed and delivered
this Employment Agreement as of the date first above written.
FARAH INCORPORATED
By: /s/ Michael Kagan
------------------------------------------
Michael Kagan
Chief Financial Officer
EXECUTIVE:
/s/ Michael R. Mitchell
---------------------------------------------
Michael R. Mitchell
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EXHIBIT 10.15
EMPLOYMENT AGREEMENT
THIS EMPLOYMENT AGREEMENT (this "Agreement") is made and entered into
this 9 day of July, 1998 by and between Farah Incorporated, a Texas corporation
(hereinafter, the "Company" which term shall include the Company's other
subsidiaries, affiliates and successors), and Gilbert A. Martinez (hereinafter,
"Executive"), to be effective as of the Effective Date, as defined in Section 1.
BACKGROUND
Executive is the Senior Vice President, IT, of Farah U.S.A., Inc., an
affiliate of the Company. Pursuant to an Agreement and Plan of Merger, dated as
of May 1, 1998 (the "Merger Agreement"), the Company will be acquired by
Tropical Sportswear Int'l Corporation (the "Merger").
The Company desires to retain Executive from and after the Merger as an
executive of the Company, and Executive is willing to serve as such, all in
accordance with the terms and conditions of this Agreement.
NOW THEREFORE, in consideration of the foregoing and of the mutual
covenants and agreements set forth herein, and other good and valuable
consideration, the receipt and sufficiency of which are hereby acknowledged, the
parties hereto agree as follows:
1. Effective Date. The effective date of this Agreement (the "Effective
Date") will be the date on which the effective time of the Merger occurs.
2. Employment. As of the Effective Date, Executive will be employed in
the capacity of Senior Vice President, IT, of the Company. Executive's
responsibilities under this Agreement shall be in accordance with the policies
and objectives established by the Company.
3. Employment Period. Unless earlier terminated herein in accordance
with Section 7 hereof, Executive's employment shall be for a two-year term (the
"Employment Period"), beginning on the Effective Date. Unless earlier
terminated, the Employment Period shall, without further action by Executive or
the Company, be extended by an additional day every day from and after the first
anniversary of the Effective Date, such that there shall at all times be one
year remaining in the Employment Period after the first year of the Employment
Period.
4. Extent of Service. During the Employment Period, and excluding any
periods of vacation and sick leave to which Executive is entitled, Executive
agrees to devote his business time, attention, skill and efforts exclusively to
the faithful performance of his duties hereunder; provided, however, that it
shall not be a violation of this Agreement for Executive to (i) devote
reasonable periods of time to charitable and community activities
<PAGE> 2
and, with the approval of the Company, industry or professional activities,
and/or (ii) manage personal business interests and investments, so long as such
activities do not materially interfere with the performance of Executive's
responsibilities under this Agreement.
5. Compensation and Benefits.
(a) Signing Bonus. On the Effective Date, the Company will pay to
Employee a signing bonus in the amount of $25,000.
(b) Base Salary. During the first year of the Employment Period,
the Company will pay to Executive a base salary in the amount of $150,000 per
year, and during the second year of the Employment Period, the Company will pay
to Executive a base salary in the amount of $175,000 per year ("Base Salary"),
less normal withholdings, payable in equal monthly or more frequent installments
as are customary under the Company's payroll practices from time to time.
(c) Incentive, Savings and Retirement Plans. During the
Employment Period, Executive shall be entitled to participate in all incentive,
savings and retirement plans (including without limitation, the Company's 401(k)
plan), practices, policies and programs applicable generally to peer executives
of the Company and its affiliated companies ("Peer Executives"), and on the same
basis as such Peer Executives. Without limiting the foregoing, Executive's
annual bonus for each of the two years in the Employment Period shall not be
less than $50,000.
(d) Stock Options. On the Effective Date, Executive shall be
granted under the Company's Employee Stock Option Plan options to acquire 6,000
shares of the Company's common stock (the "Options"), which Options will have a
per-share exercise price equal to the fair market value of Company common stock
on the date of grant and terms and conditions that are no less favorable than
those applicable to grants made to Peer Executives.
(e) Welfare Benefit Plans. During the Employment Period,
Executive and Executive's family shall be eligible for participation in and
shall receive all benefits under welfare benefit plans, practices, policies and
programs provided by the Company and its affiliated companies (including,
without limitation, medical, disability, employee life, group life, and
accidental death insurance plans and programs) to the extent applicable
generally to Peer Executives.
(f) Expenses. During the Employment Period, Executive shall be
entitled to receive prompt reimbursement for all reasonable expenses incurred by
Executive in accordance with the policies, practices and procedures of the
Company and its affiliated companies to the extent applicable generally to Peer
Executives.
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(g) Fringe Benefits. During the Employment Period, Executive
shall be entitled to fringe benefits in accordance with the plans, practices,
programs and policies of the Company and its affiliated companies in effect for
Peer Executives. Without limiting the foregoing, during the Employment Period,
the Company shall pay up to $175 per month for membership dues at a country club
of Executive's choosing.
6. Termination of Employment.
(a) Death, Retirement or Disability. Executive's employment
shall terminate automatically upon Executive's death or Retirement during the
Employment Period. For purposes of this Agreement, "Retirement" shall mean
normal retirement as defined in the Company's then-current retirement plan, or
there is no such retirement plan, "Retirement" shall mean voluntary termination
after age 65 with at least ten years of service. If the Company determines in
good faith that the Disability of Executive has occurred during the Employment
Period (pursuant to the definition of Disability set forth below), it may give
to Executive written notice in accordance with Section 14(f) of this Agreement
of its intention to terminate Executive's employment. In such event, Executive's
employment with the Company shall terminate effective on the 30th day after
receipt of such written notice by Executive (the "Disability Effective Date"),
provided that, within the 30 days after such receipt, Executive shall not have
returned to full-time performance of Executive's duties. For purposes of this
Agreement, "Disability" shall mean a mental or physical disability as determined
by the Board of Directors of the Company in accordance with standards and
procedures similar to those under the Company's employee long-term disability
plan, if any. At any time that the Company does not maintain such a long-term
disability plan, Disability shall mean the inability of Executive, as determined
by the Board, to substantially perform the essential functions of his regular
duties and responsibilities due to a medically determinable physical or mental
illness which has lasted (or can reasonably be expected to last) for a period of
six consecutive months.
(b) Termination by the Company. The Company may terminate
Executive's employment during the Employment Period with or without Cause. For
purposes of this Agreement, "Cause" shall mean:
(i) the willful and continued failure of Executive to
perform substantially Executive's duties with the Company (other than any such
failure resulting from incapacity due to physical or mental illness, and
specifically excluding any failure by Executive, after reasonable efforts, to
meet performance expectations), for more than thirty (30) days after a written
demand for substantial performance is delivered to Executive that specifically
identifies the manner in which Executive has not substantially performed
Executive's duties, or
(ii) the willful engaging by Executive in illegal conduct
or gross misconduct which is materially and demonstrably injurious to the
Company, or
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(iii) Executive engages in any misconduct involving moral
turpitude whether occurring in
the performance of his duties or otherwise.
(c) Termination by Executive. Executive's employment may be
terminated by Executive for Good Reason or no reason. For purposes of this
Agreement, "Good Reason" shall mean a material breach of this Agreement by
Company.
(d) Notice of Termination. Any termination by the Company for
Cause, or by Executive for Good Reason, shall be communicated by Notice of
Termination to the other party hereto given in accordance with Section 14(f) of
this Agreement. For purposes of this Agreement, a "Notice of Termination" means
a written notice which (i) indicates the specific termination provision in this
Agreement relied upon, (ii) to the extent applicable, sets forth in reasonable
detail the facts and circumstances claimed to provide a basis for termination of
Executive's employment under the provision so indicated and (iii) if the Date of
Termination (as defined below) is other than the date of receipt of such notice,
specifies the termination date (which date shall be not more than 30 days after
the giving of such notice). The failure by Executive or the Company to set forth
in the Notice of Termination any fact or circumstance which contributes to a
showing of Good Reason or Cause shall not waive any right of Executive or the
Company, respectively, hereunder or preclude Executive or the Company,
respectively, from asserting such fact or circumstance in enforcing Executive's
or the Company's rights hereunder.
(e) Date of Termination. "Date of Termination" has the following
meaning: (i) if Executive's employment is terminated by the Company or by
Executive other than by reason of death, Retirement or Disability, the Date of
Termination will be the date specified in the Notice of termination, and (ii) if
Executive's employment is terminated by reason of death, Retirement or
Disability, the Date of Termination will be the date of death or Retirement of
Executive or the Disability Effective Date, as the case may be.
7. Obligations of the Company upon Termination.
(a) Termination by Executive for Good Reason; Termination by
the Company Other Than for Cause, Death or Disability. If, during the Employment
Period, the Company shall terminate Executive's employment other than for Cause,
death or Disability, or Executive shall terminate employment for Good Reason,
then in consideration of Executive's services rendered prior to such termination
and as reasonable compensation for his compliance with the Restrictive Covenants
in Section 12 hereof:
(i) the Company shall pay to Executive the aggregate of
the following amounts:
A. the sum of (1) Executive's Base Salary through the Date of
Termination to the extent not theretofore paid, (2) the product of
(x) Executive's target annual bonus that would have been payable
with respect to the fiscal year in which the Date of Termination
occurs, and (y) a fraction, the numerator of which
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is the number of days in the current fiscal year through the Date of
Termination (or in the case of 1998, the number of days between the
Effective Date and the Date of Termination), and the denominator of
which is 365, (3) any compensation previously deferred by Executive
(together with any accrued interest or earnings thereon) and any
accrued vacation pay, in each case to the extent not theretofore
paid, and (4) any other payment or obligation due from the Company
to Executive and not yet paid (the sum of the amounts described in
clauses (1), (2) (3) and (4) shall be hereinafter referred to as the
"Accrued Obligations"); and
(ii) The Company shall continue to pay to Executive his Base
Salary (subject to withholding of all applicable taxes) for the remainder of the
Employment Period then in effect (without regard to the termination of the
Employment Period pursuant to Section 6) in the same manner as the same was
being paid as of the Date of Termination; and
(iii) for the remainder of the Employment Period then in
effect (without regard to the termination of the Employment Period pursuant to
Section 6), or such longer period as may be provided by the terms of the
appropriate plan, program, practice or policy, the Company shall continue
benefits to Executive and/or Executive's family in accordance with the plans,
programs, practices and policies described in Section 5(e) of this Agreement
(including the Split-Dollar Insurance Premium Commitment) if Executive's
employment had not been terminated; and
(iv) to the extent not theretofore paid or provided, the
Company shall timely pay or provide to Executive any other amounts or benefits
required to be paid or provided or which Executive is eligible to receive under
any plan, program, policy or practice or contract or agreement of the Company
and its affiliated companies (such other amounts and benefits shall be
hereinafter referred to as the "Other Benefits").
(b) Death. If Executive's employment is terminated by reason of
Executive's death during the Employment Period, this Agreement shall terminate
without further obligations to Executive's legal representatives under this
Agreement, other than for payment of Accrued Obligations, and the timely payment
or provision of Other Benefits. The term Other Benefits as utilized in this
Section 7(b) shall include, without limitation, and Executive's estate and/or
beneficiaries shall be entitled to receive, any death benefits applicable to
Executive at the date of his death, regardless of when payable.
(c) Disability. If Executive's employment is terminated by reason
of Executive's Disability during the Employment Period, this Agreement shall
terminate without further obligations to Executive, other than for payment of
Accrued Obligations, and the timely payment or provision of Other Benefits. The
term Other Benefits as utilized in this Section 7(c) shall include, without
limitation, and Executive's estate and/or beneficiaries shall be entitled to
receive, any disability benefits applicable to Executive at the Date of
Termination, regardless of when payable.
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(d) Retirement. If Executive's employment is terminated by reason
of Executive's Retirement during the Employment Period, this Agreement shall
terminate without further obligations to Executive, other than for payment of
Accrued Obligations, and the timely payment or provision of Other Benefits. The
term Other Benefits as utilized in this Section 7(d) shall include, without
limitation, and Executive's estate and/or beneficiaries shall be entitled to
receive, any retirement benefits applicable to Executive at the Date of
Termination, regardless of when payable.
(e) Cause or Voluntary Termination without Good Reason. If
Executive's employment shall be terminated for Cause during the Employment
Period, or if Executive voluntarily terminates employment during the Employment
Period without Good Reason, this Agreement shall terminate without further
obligations to Executive, other than for payment of Accrued Obligations (other
than the prorata bonus described in Section 7(a)(i)(A)(2)) and the timely
payment or provision of Other Benefits.
(f) Termination for Good Reason. If Executive's employment shall be
terminated for Good Reason during the Employment Period, then not withstanding
any other payments which Executive may be entitled to receive hereunder, Company
shall nonetheless remain liable to Executive for any damages suffered by
Executive as a result of the Company's by breach of this Agreement.
8. Non-exclusivity of Rights. Nothing in this Agreement shall prevent
or limit Executive's continuing or future participation in any plan, program,
policy or practice provided by the Company or any of its affiliated companies
and for which Executive may qualify, nor, subject to Section 14(d), shall
anything herein limit or otherwise affect such rights as Executive may have
under any contract or agreement with the Company or any of its affiliated
companies. Amounts which are vested benefits or which Executive is otherwise
entitled to receive under any plan, policy, practice or program of or any
contract or agreement with the Company or any of its affiliated companies at or
subsequent to the Date of Termination shall be payable in accordance with such
plan, policy, practice or program or contract or agreement except as explicitly
modified by this Agreement.
9. Limitation of Benefits.
(a) Notwithstanding anything in this Agreement to the contrary, in
the event it shall be determined that any benefit, payment or distribution by
the Company to or for the benefit of Executive (whether payable or distributable
pursuant to the terms of this Agreement or otherwise) (such benefits, payments
or distributions are hereinafter referred to as "Payments") would, if paid, be
subject to the excise tax (the "Excise Tax") imposed by Section 4999 of the
Internal Revenue Code of 1986, as amended (the "Code"), then the aggregate
present value of the Payments shall be reduced (but not below zero) to an amount
expressed in present value that maximizes the aggregate present value of the
Payments without causing the Payments or any part thereof to be subject to the
Excise Tax and therefore nondeductible by the Company because of Section 280G of
the Code
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(the "Reduced Amount"). For purposes of this Section 9, present value shall be
determined in accordance with Section 280G(d)(4) of the Code. In the event,
after the exhaustion of all remedies, it is necessary to reduce the Payments,
the difference between the Payments and the Reduced Amount shall be treated for
all purposes as a loan to Executive, which Executive shall repay to the Company
together with interest at the applicable Federal rate provided for in Section
7872(f)(2) of the Code.
(b) All determinations required to be made under this Section 9,
including whether an Excise Tax would otherwise be imposed, whether the Payments
shall be reduced, the amount of the Reduced Amount, and the assumptions to be
utilized in arriving at such determinations, shall be made by the Company's
regular independent accounting firm at the expense of the Company or, at the
election and expense of Executive, another nationally recognized independent
accounting firm (the "Accounting Firm") which shall provide detailed supporting
calculations both to the Company and Executive within 15 business days of the
receipt of notice from Executive that a Payment is due to be made, or such
earlier time as is requested by the Company. Any determination by the Accounting
Firm shall be binding upon the Company and Executive. As a result of the
uncertainty in the application of Section 4999 of the Code at the time of the
initial determination by the Accounting Firm hereunder, it is possible that
Payments hereunder will have been unnecessarily limited by this Section 9
("Underpayment"), consistent with the calculations required to be made
hereunder. The Accounting Firm shall determine the amount of the Underpayment
that has occurred and any such Underpayment shall be promptly paid by the
Company to or for the benefit of Executive together with interest at the
applicable Federal rate provided for in Section 7872(f)(2) of the Code.
10. Costs of Enforcement. Each party to the Agreement shall pay its own
costs and expenses in any contest of the validity or enforceability of, or
liability under, any provision of this Agreement (including as a result of any
contest by the Executive about the amount of any payment pursuant to this
Agreement).
11. Representations and Warranties. Executive hereby represents and
warrants to the Company that Executive is not a party to, or otherwise subject
to, any covenant not to compete (other than as contained herein) with any person
or entity, and Executive's execution of this Agreement and performance of his
obligations hereunder will not violate the terms or conditions of any contract
or obligation, written or oral, between Executive and any other person or
entity.
12. Restrictions on Conduct of Executive.
(a) General. Executive and the Company understand and agree that
the purpose of the provisions of this Section 12 is to protect legitimate
business interests of the Company, as more fully described below, and is not
intended to eliminate Executive's post-employment competition with the Company
per se, nor is it intended to impair or infringe upon Executive's right to work,
earn a living, or acquire and possess property
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from the fruits of his labor. Executive hereby acknowledges that the
post-employment restrictions set forth in this Section 12 are reasonable and
that they do not, and will not, unduly impair his ability to earn a living after
the termination of this Agreement. Therefore, subject to the limitations of
reasonableness imposed by law upon the restrictions set forth herein by the time
and geographical area described below, Executive shall be subject to the
restrictions set forth in this Section 12.
(b) Definitions. The following capitalized terms used in this
Section 12 shall have the meanings assigned to them below, which definitions
shall apply to both the singular and the plural forms of such terms:
"Competitive Position" means any employment with a Competitor
in which Executive will use or is likely to use any Confidential Information or
Trade Secrets, or in which Executive has duties for such Competitor that relate
to Competitive Services and that are the same or similar to those services
actually performed by Executive for the Company;
"Competitive Services" means the merchandising,
manufacturing, distribution, selling or marketing of men's, women's, boys' or
girls' sportswear (tops and bottoms), each of which activities is engaged in by
the Company and its subsidiaries on the date of this Agreement.
"Competitor" means any Person engaged, wholly or in part, in
Competitive Services.
"Confidential Information" means all information regarding
the Company, its activities, business or clients that is the subject of
reasonable efforts by the Company to maintain its confidentiality and that is
not generally disclosed by practice or authority to persons not employed by the
Company, but that does not rise to the level of a Trade Secret. "Confidential
Information" shall include, but is not limited to, sales and marketing
techniques and plans, lists of contact data, technical data relating to the
Company's products or production techniques, purchase and supply information,
details of client or consultant contracts, current and anticipated customer
requirements, pricing policies, client billing information, price lists, market
studies, business plans, operational methods, marketing plans or strategies,
product development techniques or plans, financial plans and data concerning the
Company, and management planning information). "Confidential Information" shall
not include information that has become generally available to the public by the
act of one who has the right to disclose such information without violating any
right or privilege of the Company. This definition shall not limit any
definition of "confidential information" or any equivalent term under state or
federal law.
"Determination Date" means the date of termination of
Executive's employment with the Company for any reason whatsoever or any earlier
date (during the Employment Period) of an alleged breach of the Restrictive
Covenants by Executive.
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"Person" means any individual or any corporation,
partnership, joint venture, limited liability company, association or other
entity or enterprise.
"Principal or Representative" means a principal, owner,
partner, shareholder, joint venturer, investor, member, trustee, director,
officer, manager, employee, agent, representative or consultant.
"Protected Employees" means employees of the Company who were
employed by the Company at any time within six (6) months prior to the
Determination Date.
"Restricted Period" means the Period of Employment and a
period extending two (2) years from the termination of Executive's employment
with the Company for any reason whatsoever.
"Restricted Territory" means the United States and North,
Central and South America, the United Kingdom, Western Europe, Australia, New
Zealand, and Fiji. The Company and Executive acknowledge and agree that the
Company and its subsidiaries do business and sell men's, women's, boys' and
girls' sportswear (tops and bottoms) in all 50 states of the United States and
in each other country in the Restricted Territory.
"Restrictive Covenants" means the restrictive covenants
contained in Section 12(c) hereof.
"Trade Secret" means all information regarding the Company,
without regard to form, including, but not limited to, technical or nontechnical
data, a formula, a pattern, a compilation, a program, a device, a method, a
technique, a drawing, a process, financial data, financial plans, product plans,
distribution lists or a list of actual or potential customers, advertisers or
suppliers which is not commonly known by or available to the public and which
information: (A) derives economic value, actual or potential, from not being
generally known to, and not being readily ascertainable by proper means by,
other persons who can obtain economic value from its disclosure or use; and (B)
is the subject of efforts that are reasonable under the circumstances to
maintain its secrecy. Without limiting the foregoing, Trade Secret means any
item of Confidential Information that constitutes a "trade secret(s)" under the
common law or statutory law of the State of Texas.
(c) Restrictive Covenants.
(i) Restriction on Disclosure and Use of Confidential
Information and Trade Secrets. Executive understands and agrees that the
Confidential Information and Trade Secrets constitute valuable assets of the
Company and its affiliated entities, and may not be converted to Executive's own
use. Accordingly, Executive hereby agrees that Executive shall not, directly or
indirectly, at any time during the Restricted Period reveal,
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divulge, or disclose to any Person not expressly authorized by the Company any
Confidential Information, and Executive shall not, directly or indirectly, at
any time during the Restricted Period use or make use of any Confidential
Information in connection with any business activity other than that of the
Company. Throughout the term of this Agreement and at all times after the date
that this Agreement terminates for any reason, Executive shall not directly or
indirectly transmit or disclose any Trade Secret of the Company to any Person,
and shall not make use of any such Trade Secret, directly or indirectly, for
himself or for others, without the prior written consent of the Company. The
parties acknowledge and agree that this Agreement is not intended to, and does
not, alter either the Company's rights or Executive's obligations under any
state or federal statutory or common law regarding trade secrets and unfair
trade practices.
Anything herein to the contrary notwithstanding, Executive shall not be
restricted from disclosing or using Confidential Information that is required to
be disclosed by law, court order or other legal process; provided, however, that
in the event disclosure is required by law, Executive shall provide the Company
with prompt notice of such requirement so that the Company may seek an
appropriate protective order prior to any such required disclosure by Executive.
(ii) Nonsolicitation of Protected Employees. Executive
understands and agrees that the relationship between the Company and each of its
Protected Employees constitutes a valuable asset of the Company and may not be
converted to Executive's own use. Accordingly, Executive hereby agrees that
during the Restricted Period Executive shall not directly or indirectly on
Executive's own behalf or as a Principal or Representative of any Person or
otherwise solicit or induce any Protected Employee to terminate his or her
employment relationship with the Company or to enter into employment with any
other Person.
(iii) Noncompetition with the Company. The parties
acknowledge: (A) that Executive's
services under this Agreement require special expertise and talent in the
provision of Competitive Services and that Executive will have substantial
contacts with customers, suppliers, advertisers and vendors of the Company; (B)
that pursuant to this Agreement, Executive will be placed in a position of trust
and responsibility and he will have access to a substantial amount of
Confidential Information and Trade Secrets and that the Company is placing him
in such position and giving him access to such information in reliance upon his
agreement not to compete with the Company during (i) the period of time that
Executive receives compensation from the Company in the event Executive's
employment is terminated by the Company other than for Cause, or Disability or
by Executive for Good Reason; (C) that due to his management duties, Executive
will be the repository of a substantial portion of the goodwill of the Company
and would have an unfair advantage in competing with the Company; (D) that due
to Executive's special experience and talent, the loss of Executive's services
to the Company under this Agreement cannot reasonably or adequately be
compensated solely by damages in an action at law; (E) that Executive is capable
of competing with the Company; and (F) that Executive is capable of obtaining
gainful, lucrative and desirable employment that does not
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violate the restrictions contained in this Agreement. In consideration of the
compensation and benefits being paid and to be paid by the Company to Executive
hereunder, Executive hereby agrees that, during (i) the period of time that
Executive receives compensation from the Company in the event Executive's
employment is terminated by the Company other than for Cause, death or
Disability or by Executive for Good Reason, Executive will not, without prior
written consent of the Company, directly or indirectly seek or obtain a
Competitive Position in the Restricted Territory with a Competitor; provided,
however, that the provisions of this Agreement shall not be deemed to prohibit
the ownership by Executive of any securities of the Company or its affiliated
entities or not more than five percent (5%) of any class of securities of any
corporation having a class of securities registered pursuant to the Securities
Exchange Act of 1934, as amended.
(d) Enforcement of Restrictive Covenants.
(i) Rights and Remedies Upon Breach. In the event
Executive breaches, or threatens to commit a breach of, any of the provisions of
the Restrictive Covenants, the Company shall have the following rights and
remedies, which shall be independent of any others and severally enforceable,
and shall be in addition to, and not in lieu of, any other rights and remedies
available to the Company at law or in equity:
(A) the right and remedy to enjoin, preliminarily
and permanently, Executive from violating or threatening to violate the
Restrictive Covenants and to have the Restrictive Covenants specifically
enforced by any court of competent jurisdiction, it being agreed that any breach
or threatened breach of the Restrictive Covenants would cause irreparable injury
to the Company and that money damages would not provide an adequate remedy to
the Company; and
(B) the right and remedy to require Executive to
account for and pay over to the Company all compensation, profits, monies,
accruals, increments or other benefits derived or received by Executive as the
result of any transactions constituting a breach of the Restrictive Covenants.
(ii) Severability of Covenants. Executive acknowledges
and agrees that the Restrictive Covenants are reasonable and valid in time and
scope and in all other respects. The covenants set forth in this Agreement shall
be considered and construed as separate and independent covenants. Should any
part or provision of any covenant be held invalid, void or unenforceable in any
court of competent jurisdiction, such invalidity, voidness or unenforceability
shall not render invalid, void or unenforceable any other part or provision of
this Agreement. If any portion of the foregoing provisions is found to be
invalid or unenforceable by a court of competent jurisdiction because its
duration, the territory, the definition of activities or the definition of
information covered is considered to be invalid or unreasonable in scope, the
invalid or unreasonable term shall be redefined, or a new enforceable term
provided, such that the intent of the Company and Executive in agreeing to the
provisions of this Agreement will not be impaired and the provision in question
shall be enforceable to the fullest extent of the applicable laws.
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13. Assignment and Successors.
(a) Executive. This Agreement is personal to Executive and
without the prior written consent of the Company shall not be assignable by
Executive otherwise than by will or the laws of descent and distribution. This
Agreement shall inure to the benefit of and be enforceable by Executive's legal
representatives.
(b) The Company. This Agreement shall inure to the benefit of
and be binding upon the Company and its successors and assigns. The Company will
require any successor to all or substantially all of the business and/or assets
of the Company (whether direct or indirect, by purchase, merger, consolidation
or otherwise) to assume expressly and agree to perform this Agreement in the
same manner and to the same extent that the Company would be required to perform
it if no such succession had taken place. As used in this Agreement, "the
Company" shall mean the Company as hereinbefore defined and any successor to its
business and/or assets as aforesaid which assumes and agrees to perform this
Agreement by operation of law or otherwise.
14. Miscellaneous.
(a) Waiver. Failure of either party to insist, in one or more
instances, on performance by the other in strict accordance with the terms and
conditions of this Agreement shall not be deemed a waiver or relinquishment of
any right granted in this Agreement or of the future performance of any such
term or condition or of any other term or condition of this Agreement, unless
such waiver is contained in a writing signed by the party making the waiver.
(b) Severability. If any provision or covenant, or any part
thereof, of this Agreement should be held by any court to be invalid, illegal or
unenforceable, either in whole or in part, such invalidity, illegality or
unenforceability shall not affect the validity, legality or enforceability of
the remaining provisions or covenants, or any part thereof, of this Agreement,
all of which shall remain in full force and effect.
(c) Other Agents. Nothing in this Agreement is to be
interpreted as limiting the Company from employing other personnel on such terms
and conditions as may be satisfactory to it.
(d) Entire Agreement. Except as provided herein, this
Agreement contains the entire agreement between the Company and Executive with
respect to the subject matter hereof, and it supersedes and invalidates any
previous agreements or contracts between them which relate to the subject matter
hereof. No representations, inducements, promises or agreements, oral or
otherwise, which are not embodied herein shall be of any force or effect.
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(e) Governing Law. Except to the extent preempted by federal
law, and without regard to conflict of laws principles, the laws of the State of
Texas shall govern this Agreement in all respects, whether as to its validity,
construction, capacity, performance or otherwise.
(f) Notices. All notices, requests, demands and other
communications required or permitted hereunder shall be in writing and shall be
deemed to have been duly given if delivered or three days after mailing if
mailed, first class, certified mail, postage prepaid:
To Company: Farah Incorporated
Attention: William W. Compton
Tropical Sportswear Int'l Corporation
4902 West Waters Avenue
Tampa, Florida 33634-1302
Facsimile No. (813) 249-4904
To Executive: Gilbert A. Martinez
2308 Seaside
El Paso, TX 79936
Any party may change the address to which notices, requests, demands and other
communications shall be delivered or mailed by giving notice thereof to the
other party in the same manner provided herein.
(g) Amendments and Modifications. This Agreement may be
amended or modified only by a writing signed by both parties hereto, which makes
specific reference to this Agreement.
[Remainder of Page Intentionally Left Blank]
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IN WITNESS WHEREOF, the parties hereto have duly executed and delivered
this Employment Agreement as of the date first above written.
FARAH INCORPORATED
By: /s/ Michael Kagan
------------------------------------------
Michael Kagan
Executive Vice President, CFO
EXECUTIVE:
/s/ Gilbert A. Martinez
---------------------------------------------
Gilbert A. Martinez
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<PAGE> 1
EXHIBIT 10.16
EMPLOYMENT AGREEMENT
THIS EMPLOYMENT AGREEMENT (this "Agreement") is made and entered into
this 9th day of June, 1998 by and between Farah Incorporated, a Texas
corporation (hereinafter, the "Company" which term shall include the Company's
other subsidiaries, affiliates and successors), and Jackie L. Boatman
(hereinafter, "Executive"), to be effective as of the Effective Date, as defined
in Section 1.
BACKGROUND
Executive is the Executive Vice President of Farah U.S.A., Inc., an
affiliate of the Company. Pursuant to an Agreement and Plan of Merger, dated as
of May 1, 1998 (the "Merger Agreement"), the Company will be acquired by
Tropical Sportswear Int'l Corporation (the "Merger").
The Company desires to retain Executive from and after the Merger as an
executive of the Company, and Executive is willing to serve as such, all in
accordance with the terms and conditions of this Agreement.
Executive and the Company are parties to that certain Amended and
Restated Employment Agreement, dated as of August 25, 1994, as amended, which
provides certain benefits to Executive in the event of his termination of
employment following a change of control of the Company (the "Prior Employment
Agreement"). The Prior Employment Agreement will be superseded in its entirety
by this Agreement.
NOW THEREFORE, in consideration of the foregoing and of the mutual
covenants and agreements set forth herein, and other good and valuable
consideration, the receipt and sufficiency of which are hereby acknowledged, the
parties hereto agree as follows:
1. Effective Date. The effective date of this Agreement (the "Effective
Date") will be the date on which the effective time of the Merger occurs.
2. Employment. As of the Effective Date, Executive will be employed in
the capacity of Senior Vice President, Branded Operations, of the Company.
Executive's responsibilities under this Agreement shall be in accordance with
the policies and objectives established by the Company.
3. Employment Period. Unless earlier terminated herein in accordance
with Section 6 hereof, Executive's employment shall be for an initial two-year
term (the "Employment Period"), beginning on the Effective Date. Unless earlier
terminated, the Employment Period shall, without further action by Executive or
the Company, be extended by an additional day every day from and after the first
anniversary of the Effective Date, such that there shall at all times be one
year remaining in the Employment Period after the first year of the Employment
Period.
<PAGE> 2
4. Extent of Service. During the Employment Period, and excluding any
periods of vacation and sick leave to which Executive is entitled, Executive
agrees to devote his business time, attention, skill and efforts exclusively to
the faithful performance of his duties hereunder; provided, however, that it
shall not be a violation of this Agreement for Executive to (i) devote
reasonable periods of time to charitable and community activities and, with the
approval of the Company, industry or professional activities, and/or (ii) manage
personal business interests and investments, so long as such activities do not
materially interfere with the performance of Executive's responsibilities under
this Agreement.
5. Compensation and Benefits.
(a) Signing Bonus. On the Effective Date, the Company will pay to
Employee a signing bonus in the amount of $50,000.
(b) Retention Bonus. In addition to the Signing Bonus and any
annual bonus payable under subsection (d) below, the Company shall pay to
Executive on the second anniversary of the Effective Date, unless prior to such
date the Company has terminated Executive's employment for Cause (as hereinafter
defined) or Executive has resigned without Good Reason (as hereinafter defined),
a retention bonus in the amount of $50,000 (the "Retention Bonus");
(c) Base Salary. During the Employment Period, the Company will
pay to Executive a base salary in the amount of $250,000 per year ("Base
Salary"), less normal withholdings, payable in equal monthly or more frequent
installments as are customary under the Company's payroll practices from time to
time. The Compensation Committee of the Board of Directors of the Company shall
review Executive's Base Salary annually and in its sole discretion, subject to
approval of the Board of Directors of the Company, may increase Executive's Base
Salary from year to year. The annual review of Executive's salary by the Board
will consider, among other things, Executive's own performance and the Company's
performance.
(d) Incentive, Savings and Retirement Plans. During the
Employment Period, Executive shall be entitled to participate in all incentive,
savings and retirement plans (including without limitation, the Company's 401(k)
plan), practices, policies and programs applicable generally to peer executives
of the Company and its affiliated companies ("Peer Executives"), and on the same
basis as such Peer Executives.
(e) Stock Options. On the Effective Date, Executive shall be
granted under the Company's Employee Stock Option Plan options to acquire 10,000
shares of the Company's common stock (the "Options"), which Options will have a
per-share exercise price equal to the fair market value of Company common stock
on the date of grant and terms and conditions that are no less favorable than
those applicable to grants made to Peer Executives.
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<PAGE> 3
(f) Welfare Benefit Plans. During the Employment Period,
Executive and Executive's family shall be eligible for participation in and
shall receive all benefits under welfare benefit plans, practices, policies and
programs provided by the Company and its affiliated companies (including,
without limitation, medical, disability, employee life, group life, and
accidental death insurance plans and programs) to the extent applicable
generally to Peer Executives. Without limiting the foregoing, during each of the
first two years of the Employment Period, the Company shall pay up to $20,000
per year of the cost of premiums for that certain split-dollar life insurance
policy referred to in Section 2(d) of the Prior Employment Agreement (the
"Split-Dollar Insurance Premium Commitment").
(g) Expenses. During the Employment Period, Executive shall be
entitled to receive prompt reimbursement for all reasonable expenses incurred by
Executive in accordance with the policies, practices and procedures of the
Company and its affiliated companies to the extent applicable generally to Peer
Executives.
(h) Fringe Benefits. During the Employment Period, Executive
shall be entitled to fringe benefits in accordance with the plans, practices,
programs and policies of the Company and its affiliated companies in effect for
Peer Executives. Without limiting the foregoing, during the Employment Period,
the Company shall pay Executive's monthly membership dues at El Paso Country
Club in El Paso, Texas. Such dues are currently approximately $350 per month.
6. Termination of Employment.
(a) Death, Retirement or Disability. Executive's employment
shall terminate automatically upon Executive's death or Retirement during the
Employment Period. For purposes of this Agreement, "Retirement" shall mean
normal retirement as defined in the Company's then-current retirement plan, or
there is no such retirement plan, "Retirement" shall mean voluntary termination
after age 65 with at least ten years of service. If the Company determines in
good faith that the Disability of Executive has occurred during the Employment
Period (pursuant to the definition of Disability set forth below), it may give
to Executive written notice in accordance with Section 14(f) of this Agreement
of its intention to terminate Executive's employment. In such event, Executive's
employment with the Company shall terminate effective on the 30th day after
receipt of such written notice by Executive (the "Disability Effective Date"),
provided that, within the 30 days after such receipt, Executive shall not have
returned to full-time performance of Executive's duties. For purposes of this
Agreement, "Disability" shall mean a mental or physical disability as determined
by the Board of Directors of the Company in accordance with standards and
procedures similar to those under the Company's employee long-term disability
plan, if any. At any time that the Company does not maintain such a long-term
disability plan, Disability shall mean the inability of Executive, as determined
by the Board, to substantially perform the essential functions of his regular
duties and responsibilities due to a medically determinable physical or mental
illness which has lasted (or can reasonably be expected to last) for a period of
six consecutive months.
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<PAGE> 4
(b) Termination by the Company. The Company may terminate
Executive's employment during the Employment Period with or without Cause. For
purposes of this Agreement, "Cause" shall mean:
(i) the willful and continued failure of Executive to
perform substantially Executive's duties with the Company (other than any such
failure resulting from incapacity due to physical or mental illness, and
specifically excluding any failure by Executive, after reasonable efforts, to
meet performance expectations), for more than thirty (30) days after a written
demand for substantial performance is delivered to Executive that specifically
identifies the manner in which the Executive has not substantially performed
Executive's duties, or
(ii) the willful engaging by Executive in illegal conduct
or gross misconduct which is
materially and demonstrably injurious to the Company, or
(iii) Executive engages in any misconduct involving moral
turpitude whether occurring in the performance of his duties or otherwise.
(c) Termination by Executive. Executive's employment may be
terminated by Executive for Good Reason or no reason. For purposes of this
Agreement, "Good Reason" shall mean a material reduction by the Company in
Executive's Base Salary and benefits as in effect on the Effective Date or as
the same may be increased from time to time.
(d) Notice of Termination. Any termination by the Company for
Cause, or by Executive for Good Reason, shall be communicated by Notice of
Termination to the other party hereto given in accordance with Section 14(f) of
this Agreement. For purposes of this Agreement, a "Notice of Termination" means
a written notice which (i) indicates the specific termination provision in this
Agreement relied upon, (ii) to the extent applicable, sets forth in reasonable
detail the facts and circumstances claimed to provide a basis for termination of
Executive's employment under the provision so indicated and (iii) if the Date of
Termination (as defined below) is other than the date of receipt of such notice,
specifies the termination date (which date shall be not more than 30 days after
the giving of such notice). The failure by Executive or the Company to set forth
in the Notice of Termination any fact or circumstance which contributes to a
showing of Good Reason or Cause shall not waive any right of Executive or the
Company, respectively, hereunder or preclude Executive or the Company,
respectively, from asserting such fact or circumstance in enforcing Executive's
or the Company's rights hereunder.
(e) Date of Termination. "Date of Termination" has the
following meaning: (i) if Executive's employment is terminated by the Company or
by Executive other than by reason of death, Retirement or Disability, the Date
of Termination will be the date specified in the Notice of termination, and (ii)
if Executive's employment is terminated by
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<PAGE> 5
reason of death, Retirement or Disability, the Date of Termination will be the
date of death or Retirement of Executive or the Disability Effective Date, as
the case may be.
7. Obligations of the Company upon Termination.
(a) Termination by Executive for Good Reason; Termination by
the Company Other Than for Cause, Death or Disability. If, during the Employment
Period, the Company shall terminate Executive's employment other than for Cause,
death or Disability, or Executive shall terminate employment for Good Reason,
then in consideration of Executive's services rendered prior to such termination
and as reasonable compensation for his compliance with the Restrictive Covenants
in Section 12 hereof:
(i) the Company shall pay to Executive the aggregate of
the following amounts:
A. the sum of (1) Executive's Base Salary through
the Date of Termination to the extent not theretofore paid, (2) the
product of (x) Executive's target annual bonus that would have been
payable with respect to the fiscal year in which the Date of
Termination occurs, and (y) a fraction, the numerator of which is the
number of days in the current fiscal year through the Date of
Termination (or in the case of 1998, the number of days between the
Effective Date and the Date of Termination), and the denominator of
which is 365, (3) any compensation previously deferred by Executive
(together with any accrued interest or earnings thereon) and any
accrued vacation pay, in each case to the extent not theretofore paid,
and (4) any other payment or obligation due from the Company to
Executive and not yet paid (the sum of the amounts described in clauses
(1), (2), (3) and (4) shall be hereinafter referred to as the "Accrued
Obligations"); and
B. the Retention Bonus, to the extent not
theretofore paid; and
(ii) The Company shall continue to pay to Executive his
Base Salary (subject to withholding of all applicable taxes) for the remainder
of the Employment Period then in effect (without regard to the termination of
the Employment Period pursuant to Section 6) in the same manner as the same was
being paid as of the Date of Termination; and
(iii) for the remainder of the Employment Period then in
effect (without regard to the termination of the Employment Period pursuant to
Section 6), or such longer period as may be provided by the terms of the
appropriate plan, program, practice or policy, the Company shall continue
benefits to Executive and/or Executive's family in accordance with the plans,
programs, practices and policies described in Section 5(f) of this Agreement
(including the Split-Dollar Insurance Premium Commitment) if Executive's
employment had not been terminated; and
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<PAGE> 6
(iv) to the extent not theretofore paid or provided, the
Company shall timely pay or provide to Executive any other amounts or benefits
required to be paid or provided or which Executive is eligible to receive under
any plan, program, policy or practice or contract or agreement of the Company
and its affiliated companies (such other amounts and benefits shall be
hereinafter referred to as the "Other Benefits").
(b) Death. If Executive's employment is terminated by reason
of Executive's death during the Employment Period, this Agreement shall
terminate without further obligations to Executive's legal representatives under
this Agreement, other than for payment of Accrued Obligations, the Retention
Bonus (to the extent not theretofore paid), and the timely payment or provision
of Other Benefits. The term Other Benefits as utilized in this Section 7(b)
shall include, without limitation, and Executive's estate and/or beneficiaries
shall be entitled to receive, any death benefits applicable to Executive at the
date of his death, regardless of when payable.
(c) Disability. If Executive's employment is terminated by
reason of Executive's Disability during the Employment Period, this Agreement
shall terminate without further obligations to Executive, other than for payment
of Accrued Obligations, the Retention Bonus (to the extent not theretofore
paid), and the timely payment or provision of Other Benefits. The term Other
Benefits as utilized in this Section 7(c) shall include, without limitation, and
Executive's estate and/or beneficiaries shall be entitled to receive, any
disability benefits applicable to Executive at the Date of Termination,
regardless of when payable.
(d) Retirement. If Executive's employment is terminated by
reason of Executive's Retirement during the Employment Period, this Agreement
shall terminate without further obligations to Executive, other than for payment
of Accrued Obligations, the Retention Bonus (to the extent not theretofore
paid), and the timely payment or provision of Other Benefits. The term Other
Benefits as utilized in this Section 7(d) shall include, without limitation, and
Executive's estate and/or beneficiaries shall be entitled to receive, any
retirement benefits applicable to Executive at the Date of Termination,
regardless of when payable.
(e) Cause or Voluntary Termination without Good Reason. If
Executive's employment shall be terminated for Cause during the Employment
Period, or if Executive voluntarily terminates employment during the Employment
Period without Good Reason, this Agreement shall terminate without further
obligations to Executive, other than for payment of Accrued Obligations (other
than the prorata bonus described in Section 7(a)(i)(A)(2)) and the timely
payment or provision of Other Benefits.
8. Non-exclusivity of Rights. Nothing in this Agreement shall
prevent or limit Executive's continuing or future participation in any plan,
program, policy or practice provided by the Company or any of its affiliated
companies and for which Executive may qualify, nor, subject to Section 14(d),
shall anything herein limit or otherwise affect such rights as Executive may
have under any contract or agreement with the Company or any of its affiliated
companies. Amounts which are vested benefits or which Executive is otherwise
entitled to receive under any plan, policy, practice or program of or any
contract or agreement with the Company or any of its affiliated companies at or
subsequent to the Date of Termination shall be payable in accordance with such
plan, policy, practice or program or contract or agreement except as explicitly
modified by this Agreement.
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9. Limitation of Benefits.
(a) Notwithstanding anything in this Agreement to the contrary,
in the event it shall be determined that any benefit, payment or distribution by
the Company to or for the benefit of Executive (whether payable or distributable
pursuant to the terms of this Agreement or otherwise) (such benefits, payments
or distributions are hereinafter referred to as "Payments") would, if paid, be
subject to the excise tax (the "Excise Tax") imposed by Section 4999 of the
Internal Revenue Code of 1986, as amended (the "Code"), then the aggregate
present value of the Payments shall be reduced (but not below zero) to an amount
expressed in present value that maximizes the aggregate present value of the
Payments without causing the Payments or any part thereof to be subject to the
Excise Tax and therefore nondeductible by the Company because of Section 280G of
the Code (the "Reduced Amount"). For purposes of this Section 9, present value
shall be determined in accordance with Section 280G(d)(4) of the Code. In the
event, after the exhaustion of all remedies, it is necessary to reduce the
Payments, the difference between the Payments and the Reduced Amount shall be
treated for all purposes as a loan to Executive, which Executive shall repay to
the Company together with interest at the applicable Federal rate provided for
in Section 7872(f)(2) of the Code.
(b) All determinations required to be made under this Section 9,
including whether an Excise Tax would otherwise be imposed, whether the Payments
shall be reduced, the amount of the Reduced Amount, and the assumptions to be
utilized in arriving at such determinations, shall be made by the Company's
regular independent accounting firm at the expense of the Company or, at the
election and expense of Executive, another nationally recognized independent
accounting firm (the "Accounting Firm") which shall provide detailed supporting
calculations both to the Company and Executive within 15 business days of the
receipt of notice from Executive that a Payment is due to be made, or such
earlier time as is requested by the Company. Any determination by the Accounting
Firm shall be binding upon the Company and Executive. As a result of the
uncertainty in the application of Section 4999 of the Code at the time of the
initial determination by the Accounting Firm hereunder, it is possible that
Payments hereunder will have been unnecessarily limited by this Section 9
("Underpayment"), consistent with the calculations required to be made
hereunder. The Accounting Firm shall determine the amount of the Underpayment
that has occurred and any such Underpayment shall be promptly paid by the
Company to or for the benefit of Executive together with interest at the
applicable Federal rate provided for in Section 7872(f)(2) of the Code.
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10. Costs of Enforcement. Each party to the Agreement shall pay its own
costs and expenses in any contest of the validity or enforceability of, or
liability under, any provision of this Agreement (including as a result of any
contest by the Executive about the amount of any payment pursuant to this
Agreement).
11. Representations and Warranties. Executive hereby represents and
warrants to the Company that Executive is not a party to, or otherwise subject
to, any covenant not to compete (other than as contained herein) with any person
or entity, and Executive's execution of this Agreement and performance of his
obligations hereunder will not violate the terms or conditions of any contract
or obligation, written or oral, between Executive and any other person or
entity.
12. Restrictions on Conduct of Executive.
(a) General. Executive and the Company understand and agree that
the purpose of the provisions of this Section 12 is to protect legitimate
business interests of the Company, as more fully described below, and is not
intended to eliminate Executive's post-employment competition with the Company
per se, nor is it intended to impair or infringe upon Executive's right to work,
earn a living, or acquire and possess property from the fruits of his labor.
Executive hereby acknowledges that the post-employment restrictions set forth in
this Section 12 are reasonable and that they do not, and will not, unduly impair
his ability to earn a living after the termination of this Agreement. Therefore,
subject to the limitations of reasonableness imposed by law upon the
restrictions set forth herein by the time and geographical area described below,
Executive shall be subject to the restrictions set forth in this Section 12.
(b) Definitions. The following capitalized terms used in this
Section 12 shall have the meanings assigned to them below, which definitions
shall apply to both the singular and the plural forms of such terms:
"Competitive Position" means any employment with a Competitor in
which Executive will use or is likely to use any Confidential Information or
Trade Secrets, or in which Executive has duties for such Competitor that relate
to Competitive Services and that are the same or similar to those services
actually performed by Executive for the Company;
"Competitive Services" means the merchandising, manufacturing,
distribution, selling or marketing of men's, women's, boys' or girls' sportswear
(tops and bottoms), each of which activities is engaged in by the Company and
its subsidiaries on the date of this Agreement.
"Competitor" means any Person engaged, wholly or in part, in
Competitive Services.
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"Confidential Information" means all information regarding the
Company, its activities, business or clients that is the subject of reasonable
efforts by the Company to maintain its confidentiality and that is not generally
disclosed by practice or authority to persons not employed by the Company, but
that does not rise to the level of a Trade Secret. "Confidential Information"
shall include, but is not limited to, sales and marketing techniques and plans,
lists of contact data, technical data relating to the Company's products or
production techniques, purchase and supply information, details of client or
consultant contracts, current and anticipated customer requirements, pricing
policies, client billing information, price lists, market studies, business
plans, operational methods, marketing plans or strategies, product development
techniques or plans, financial plans and data concerning the Company, and
management planning information). "Confidential Information" shall not include
information that has become generally available to the public by the act of one
who has the right to disclose such information without violating any right or
privilege of the Company. This definition shall not limit any definition of
"confidential information" or any equivalent term under state or federal law.
"Determination Date" means the date of termination of
Executive's employment with the Company for any reason whatsoever or any earlier
date (during the Employment Period) of an alleged breach of the Restrictive
Covenants by Executive.
"Person" means any individual or any corporation, partnership,
joint venture, limited liability company, association or other entity or
enterprise.
"Principal or Representative" means a principal, owner, partner,
shareholder, joint venturer, investor, member, trustee, director, officer,
manager, employee, agent, representative or consultant.
"Protected Employees" means employees of the Company who were
employed by the Company at any time within six (6) months prior to the
Determination Date.
"Protected Suppliers" means any Person from whom the Company has
purchased products or services or solicited to purchase products or services
during the twelve (12) months prior to the Determination Date.
"Restricted Period" means the Period of Employment and a period
extending two (2) years from the termination of Executive's employment with the
Company for any reason whatsoever.
"Restricted Territory" means the United States and North,
Central and South America, the United Kingdom, Western Europe, Australia, New
Zealand, and Fiji. The Company and Executive acknowledge and agree that the
Company and its subsidiaries do business and sell men's, women's, boys' and
girls' sportswear (tops and bottoms) in all 50 states of the United States and
in each other country in the Restricted Territory.
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"Restrictive Covenants" means the restrictive covenants
contained in Section 12(c) hereof.
"Trade Secret" means all information regarding the Company,
without regard to form, including, but not limited to, technical or nontechnical
data, a formula, a pattern, a compilation, a program, a device, a method, a
technique, a drawing, a process, financial data, financial plans, product plans,
distribution lists or a list of actual or potential customers, advertisers or
suppliers which is not commonly known by or available to the public and which
information: (A) derives economic value, actual or potential, from not being
generally known to, and not being readily ascertainable by proper means by,
other persons who can obtain economic value from its disclosure or use; and (B)
is the subject of efforts that are reasonable under the circumstances to
maintain its secrecy. Without limiting the foregoing, Trade Secret means any
item of Confidential Information that constitutes a "trade secret(s)" under the
common law or statutory law of the State of Texas.
(c) Restrictive Covenants.
(i) Restriction on Disclosure and Use of Confidential
Information and Trade Secrets. Executive understands and agrees that the
Confidential Information and Trade Secrets constitute valuable assets of the
Company and its affiliated entities, and may not be converted to Executive's own
use. Accordingly, Executive hereby agrees that Executive shall not, directly or
indirectly, at any time during the Restricted Period reveal, divulge, or
disclose to any Person not expressly authorized by the Company any Confidential
Information, and Executive shall not, directly or indirectly, at any time during
the Restricted Period use or make use of any Confidential Information in
connection with any business activity other than that of the Company. Throughout
the term of this Agreement and at all times after the date that this Agreement
terminates for any reason, Executive shall not directly or indirectly transmit
or disclose any Trade Secret of the Company to any Person, and shall not make
use of any such Trade Secret, directly or indirectly, for himself or for others,
without the prior written consent of the Company. The parties acknowledge and
agree that this Agreement is not intended to, and does not, alter either the
Company's rights or Executive's obligations under any state or federal statutory
or common law regarding trade secrets and unfair trade practices.
Anything herein to the contrary notwithstanding, Executive shall not be
restricted from disclosing or using Confidential Information that is required to
be disclosed by law, court order or other legal process; provided, however, that
in the event disclosure is required by law, Executive shall provide the Company
with prompt notice of such requirement so that the Company may seek an
appropriate protective order prior to any such required disclosure by Executive.
(ii) Nonsolicitation of Protected Employees. Executive
understands and agrees that the relationship between the Company and each of its
Protected
-10-
<PAGE> 11
Employees constitutes a valuable asset of the Company and may not be converted
to Executive's own use. Accordingly, Executive hereby agrees that during the
Restricted Period Executive shall not directly or indirectly on Executive's own
behalf or as a Principal or Representative of any Person or otherwise solicit or
induce any Protected Employee to terminate his or her employment relationship
with the Company or to enter into employment with any other Person.
(iii) Restriction on Relationships with Protected Ssuppliers.
Executive understands and agrees that the relationship between the Company and
each of its Protected Suppliers constitutes a valuable asset of the Company and
may not be converted to Executive's own use. Accordingly, Executive hereby
agrees that, during (i) the period of time that Executive receives compensation
from the Company in the event Executive's employment is terminated by the
Company other than for Cause, death or Disability or by Executive for Good
Reason or (ii) a period of ten (10) weeks in the event that Executive's
employment is terminated by the Company for Cause or by Executive without Good
Reason, Executive shall not, without the prior written consent of the Company,
directly or indirectly, on Executive's own behalf or as a Principal or
Representative of any Person, solicit, divert, take away or attempt to solicit,
divert or take away a Protected Supplier for the purpose of acquiring or
purchasing goods or services in connection with providing or selling Competitive
Services; provided, however, that the prohibition of this covenant shall apply
only to Protected Suppliers with whom Executive had Material Contact on the
Company's behalf during the twelve (12) months immediately preceding the
termination of his employment hereunder. For purposes of this Agreement,
Executive had "Material Contact" with a Protected Supplier if (a) he had
business dealings with the Protected Supplier on the Company's behalf; (b) he
was responsible for supervising or coordinating the dealings between the Company
and the Protected Supplier; or (c) he obtained Trade Secrets or Confidential
Information about the Protected Supplier as a result of his association with the
Company.
(iv) Noncompetition with the Company. The parties acknowledge:
(A) that Executive's services under this Agreement require special expertise and
talent in the provision of Competitive Services and that Executive will have
substantial contacts with customers, suppliers, advertisers and vendors of the
Company; (B) that pursuant to this Agreement, Executive will be placed in a
position of trust and responsibility and he will have access to a substantial
amount of Confidential Information and Trade Secrets and that the Company is
placing him in such position and giving him access to such information in
reliance upon his agreement not to compete with the Company during (i) the
period of time that Executive receives compensation from the Company in the
event Executive's employment is terminated by the Company other than for Cause,
death or Disability or by Executive for Good Reason or (ii) a period of ten (10)
weeks in the event that Executive's employment is terminated by the Company for
Cause or by Executive without Good Reason; (C) that due to his management
duties, Executive will be the repository of a substantial portion of the
goodwill of the Company and would have an unfair advantage in competing with the
Company; (D) that due to Executive's special experience and talent, the loss of
Executive's services to the Company under this
-11-
<PAGE> 12
Agreement cannot reasonably or adequately be compensated solely by damages in an
action at law; (E) that Executive is capable of competing with the Company; and
(F) that Executive is capable of obtaining gainful, lucrative and desirable
employment that does not violate the restrictions contained in this Agreement.
In consideration of the compensation and benefits being paid and to be paid by
the Company to Executive hereunder, Executive hereby agrees that, during (i) the
period of time that Executive receives compensation from the Company in the
event Executive's employment is terminated by the Company other than for Cause,
death or Disability or by Executive for Good Reason or (ii) a period of ten (10)
weeks in the event that Executive's employment is terminated by the Company for
Cause or by Executive without Good Reason, Executive will not, without prior
written consent of the Company, directly or indirectly seek or obtain a
Competitive Position in the Restricted Territory with a Competitor; provided,
however, that the provisions of this Agreement shall not be deemed to prohibit
the ownership by Executive of any securities of the Company or its affiliated
entities or not more than five percent (5%) of any class of securities of any
corporation having a class of securities registered pursuant to the Securities
Exchange Act of 1934, as amended.
(d) Enforcement of Restrictive Covenants.
(i) Rights and Remedies Upon Breach. In the event
Executive breaches, or threatens to commit a breach of, any of the provisions of
the Restrictive Covenants, the Company shall have the following rights and
remedies, which shall be independent of any others and severally enforceable,
and shall be in addition to, and not in lieu of, any other rights and remedies
available to the Company at law or in equity:
(A) the right and remedy to enjoin, preliminarily
and permanently, Executive from violating or threatening to violate the
Restrictive Covenants and to have the Restrictive Covenants specifically
enforced by any court of competent jurisdiction, it being agreed that any breach
or threatened breach of the Restrictive Covenants would cause irreparable injury
to the Company and that money damages would not provide an adequate remedy to
the Company; and
(B) the right and remedy to require Executive to
account for and pay over to the Company all compensation, profits, monies,
accruals, increments or other benefits derived or received by Executive as the
result of any transactions constituting a breach of the Restrictive Covenants.
(ii) Severability of Covenants. Executive acknowledges
and agrees that the Restrictive Covenants are reasonable and valid in time and
scope and in all other respects. The covenants set forth in this Agreement shall
be considered and construed as separate and independent covenants. Should any
part or provision of any covenant be held invalid, void or unenforceable in any
court of competent jurisdiction, such invalidity, voidness or unenforceability
shall not render invalid, void or unenforceable any other part or provision of
this Agreement. If any portion of the foregoing provisions is found to be
invalid or unenforceable by a court of competent jurisdiction because its
duration, the
12-
<PAGE> 13
territory, the definition of activities or the definition of information covered
is considered to be invalid or unreasonable in scope, the invalid or
unreasonable term shall be redefined, or a new enforceable term provided, such
that the intent of the Company and Executive in agreeing to the provisions of
this Agreement will not be impaired and the provision in question shall be
enforceable to the fullest extent of the applicable laws.
13. Assignment and Successors.
(a) Executive. This Agreement is personal to Executive and
without the prior written consent of the Company shall not be assignable by
Executive otherwise than by will or the laws of descent and distribution. This
Agreement shall inure to the benefit of and be enforceable by Executive's legal
representatives.
(b) The Company. This Agreement shall inure to the benefit of
and be binding upon the Company and its successors and assigns. The Company will
require any successor to all or substantially all of the business and/or assets
of the Company (whether direct or indirect, by purchase, merger, consolidation
or otherwise) to assume expressly and agree to perform this Agreement in the
same manner and to the same extent that the Company would be required to perform
it if no such succession had taken place. As used in this Agreement, "the
Company" shall mean the Company as hereinbefore defined and any successor to its
business and/or assets as aforesaid which assumes and agrees to perform this
Agreement by operation of law or otherwise.
14. Miscellaneous.
(a) Waiver. Failure of either party to insist, in one or more
instances, on performance by the other in strict accordance with the terms and
conditions of this Agreement shall not be deemed a waiver or relinquishment of
any right granted in this Agreement or of the future performance of any such
term or condition or of any other term or condition of this Agreement, unless
such waiver is contained in a writing signed by the party making the waiver.
(b) Severability. If any provision or covenant, or any part
thereof, of this Agreement should be held by any court to be invalid, illegal or
unenforceable, either in whole or in part, such invalidity, illegality or
unenforceability shall not affect the validity, legality or enforceability of
the remaining provisions or covenants, or any part thereof, of this Agreement,
all of which shall remain in full force and effect.
(c) Other Agents. Nothing in this Agreement is to be
interpreted as limiting the Company from employing other personnel on such terms
and conditions as may be satisfactory to it.
(d) Entire Agreement. Except as provided herein, this
Agreement contains the entire agreement between the Company and Executive with
respect to the subject matter hereof, and it supersedes and invalidates any
previous agreements or contracts
-13-
<PAGE> 14
between them which relate to the subject matter hereof, including without
limitation the Prior Employment Agreement. No representations, inducements,
promises or agreements, oral or otherwise, which are not embodied herein shall
be of any force or effect.
(e) Governing Law. Except to the extent preempted by federal
law, and without regard to conflict of laws principles, the laws of the State of
Texas shall govern this Agreement in all respects, whether as to its validity,
construction, capacity, performance or otherwise.
(f) Notices. All notices, requests, demands and other
communications required or permitted hereunder shall be in writing and shall be
deemed to have been duly given if delivered or three days after mailing if
mailed, first class, certified mail, postage prepaid:
To Company: Farah Incorporated
Attention: William W. Compton
Tropical Sportswear Int'l Corporation
4902 West Waters Avenue
Tampa, Florida 33634-1302
Facsimile No. (813) 249-4904
To Executive: Jackie L. Boatman
725 Cresta Alta
El Paso, Texas 79912
Any party may change the address to which notices, requests, demands and other
communications shall be delivered or mailed by giving notice thereof to the
other party in the same manner provided herein.
(g) Amendments and Modifications. This Agreement may be
amended or modified only by a writing signed by both parties hereto, which makes
specific reference to this Agreement.
[Remainder of Page Intentionally Left Blank]
-14-
<PAGE> 15
IN WITNESS WHEREOF, the parties hereto have duly executed and delivered
this Employment Agreement as of the date first above written.
FARAH INCORPORATED
By: /s/ Michael Kagan
-----------------------------------
Michael Kagan
Chief Financial Officer
EXECUTIVE:
/s/ Jackie L. Boatman
--------------------------------------
Jackie L. Boatman
-15-
<PAGE> 1
EXHIBIT 10.20
Addendum To Section 1.14(b) of the
Fidelity CORPORATEplan for Retirement(SM)
Adoption Agreement - Plan Investment Options
Employer: Farah, Inc.
Plan Name: Farah Savings and Retirement Plan
Plan Number: 40835
The Employer has currently elected that Participant Accounts under the Plan
would be invested among the Fidelity Funds listed below pursuant to Participant
direction:
<TABLE>
<CAPTION>
Fund Name Fund Number
--------- -----------
<S> <C>
Fidelity Retirement Money Market 0630
Fidelity Gov't Securities Fund 0054
Fidelity Asset Manager-Income 0328
Fidelity Asset Manager 0314
Fidelity Equitable Income Fund 0023
Fidelity Blue Chip Growth Fund 0312
Fidelity Contrafund 0022
</TABLE>
The Employer amends the Plan to add the following Fund(s) effective October 1,
1997:
<TABLE>
<CAPTION>
Fund Name Fund Number
--------- -----------
<S> <C>
Spartan U.S. Equity Index Portfolio 0650
Fidelity Retirement Growth (Freedom) Fund 0073
Fidelity Diversified International Fund 0325
</TABLE>
The Employer amends the Plan to delete the following Fund effective October 1,
1997.
<TABLE>
<CAPTION>
Fund Name Fund Number
--------- -----------
<S> <C>
Fidelity Asset Manager-Income 0328
</TABLE>
Note: The Employer may elect up to twenty Funds. An additional annual
recordkeeping fee will be charged for each Fund in excess of ten.
/s/ Russell M. Gibson
-----------------------------------
Authorized Signature
August 22, 1997
-----------------------------------
Date Signed
<PAGE> 1
EXHIBIT 10.21
FARAH U.S.A., INC. BARGAINING UNIT PENSION PLAN
As Amended and Restated Effective
January 1, 1990
(Except to the Extent Otherwise Indicated)
FARAH INCORPORATED
EL PASO, TEXAS
<PAGE> 2
TABLE OF CONTENTS
<TABLE>
<CAPTION>
SECTION PAGE
- ------- ----
DEFINITIONS: PARTICIPATION
---------------------------
<S> <C> <C>
1.1 - DEFINITIONS........................................................ 3
1.2 - PARTICIPATION..................................................... 10
1.3 - LEAVE OF ABSENCE AND TERMINATION OF SERVICE........................ 12
1.4 - REEMPLOYMENT....................................................... 13
1.5 - TRANSFER TO OR FROM STATUS AS AN EMPLOYEE.......................... 18
1.6 - ELECTION NOT TO PARTICIPATE IN PLAN................................ 21
1.7 - RIGHTS OF OTHER EMPLOYERS TO PARTICIPATE........................... 22
NORMAL AMOUNT AND PAYMENT OF RETIREMENT INCOME
----------------------------------------------
2.1 - NORMAL RETIREMENT AND RETIREMENT INCOME............................ 24
2.2 - EARLY RETIREMENT AND RETIREMENT INCOME............................. 25
2.3 - DISABILITY RETIREMENT AND RETIREMENT INCOME........................ 27
2.4 - BENEFITS OTHER THAN ON RETIREMENT.................................. 30
2.5 - MINIMUM ACCRUED MONTHLY INCOME..................................... 36
2.6 - NO DUPLICATION OF BENEFITS......................................... 36
SPECIAL PROVISIONS REGARDING PAYMENT OF BENEFITS
------------------------------------------------
3.1 - OPTIONAL FORMS OF RETIREMENT INCOME................................ 37
3.2 - LUMP-SUM PAYMENT OF SMALL RETIREMENT INCOME........................ 40
3.3 - BENEFITS APPLICABLE TO PARTICIPANT WHO HAS
BEEN OR IS EMPLOYED BY TWO OR MORE EMPLOYERS....................... 42
3.4 - FUNDING OF BENEFITS THROUGH PURCHASE OF LIFE
INSURANCE CONTRACT OR CONTRACTS.................................... 42
3.5 - DIRECT ROLLOVERS................................................... 43
GOVERNMENTAL REQUIREMENTS AFFECTING BENEFITS
---------------------------------------------
4.1 - SPECIAL PROVISIONS REGARDING AMOUNT AND PAYMENT
OF RETIREMENT INCOME............................................... 46
4.2 - TEMPORARY LIMITATIONS ON BENEFITS REQUIRED BY THE
INTERNAL REVENUE SERVICE........................................... 68
4.3 - BENEFITS NONFORFEITABLE IF PLAN IS TERMINATED...................... 74
4.4 - MERGER OF PLAN..................................................... 74
4.5 - TERMINATION OF PLAN AND DISTRIBUTION OF TRUST FUND................. 75
</TABLE>
- i -
<PAGE> 3
<TABLE>
<CAPTION>
PAGE
----
<S> <C> <C>
4.6 - SPECIAL PROVISIONS THAT APPLY IF PLAN IS TOP-HEAVY................. 80
4.7 - PARTICIPATION AND BENEFITS FOR LEASED EMPLOYEES.................... 89
MISCELLANEOUS PROVISIONS REGARDING PARTICIPANTS
-----------------------------------------------
5.1 - PARTICIPANTS TO FURNISH REQUIRED INFORMATION....................... 91
5.2 - BENEFICIARIES...................................................... 92
5.3 - CONTINGENT BENEFICIARIES........................................... 94
5.4 - PARTICIPANTS' RIGHTS IN TRUST FUND................................. 95
5.5 - BENEFITS NOT ASSIGNABLE............................................ 95
5.6 - BENEFITS PAYABLE TO MINORS AND INCOMPETENTS........................ 96
5.7 - CONDITIONS OF EMPLOYMENT NOT AFFECTED BY PLAN...................... 97
5.8 - NOTIFICATION OF MAILING ADDRESS.................................... 97
5.9 - WRITTEN COMMUNICATIONS REQUIRED.................................... 98
5.10 - BENEFITS PAYABLE AT OFFICE OF TRUSTEE.............................. 98
5.11 - APPEAL TO COMMITTEE................................................ 98
MISCELLANEOUS PROVISIONS REGARDING THE EMPLOYER
-----------------------------------------------
6.1 - CONTRIBUTIONS..................................................... 101
6.2 - EMPLOYER'S CONTRIBUTIONS IRREVOCABLE.............................. 101
6.3 - FORFEITURES....................................................... 102
6.4 - AMENDMENT OF PLAN................................................. 102
6.5 - TERMINATION OF PLAN............................................... 104
6.6 - EXPENSES OF ADMINISTRATION........................................ 105
6.7 - FORMAL ACTION BY EMPLOYER......................................... 105
ADMINISTRATION
--------------
7.1 - ADMINISTRATION BY COMMITTEE....................................... 106
7.2 - OFFICERS AND EMPLOYEES OF COMMITTEE............................... 106
7.3 - ACTION BY COMMITTEE............................................... 107
7.4 - RULES AND REGULATIONS OF COMMITTEE................................ 108
7.5 - POWERS OF COMMITTEE............................................... 108
7.6 - DUTIES OF COMMITTEE............................................... 108
7.7 - INDEMNIFICATION OF MEMBERS OF COMMITTEE........................... 109
7.8 - ACTUARY........................................................... 110
7.9 - FIDUCIARIES....................................................... 111
7.10 - APPLICABLE LAW.................................................... 112
</TABLE>
- ii -
<PAGE> 4
<TABLE>
<CAPTION>
PAGE
----
TRUST FUND
----------
<S> <C> <C>
8.1 - PURPOSE OF TRUST FUND............................................. 113
8.2 - BENEFITS SUPPORTED ONLY BY TRUST FUND............................. 113
8.3 - TRUST FUND APPLICABLE ONLY TO PAYMENT OF BENEFITS................. 113
</TABLE>
- iii -
<PAGE> 5
INDEX OF DEFINED TERMS
<TABLE>
<CAPTION>
DEFINED TERM PAGE
- ------------ ----
<S> <C>
Actuarially equivalent...........................................................8
Beneficiary......................................................................8
Break in Service.................................................................9
Committee........................................................................4
Company..........................................................................3
Credited Service.................................................................6
Deferred Monthly Retirement Income Commencing at
Normal Retirement Date..................................................7
Designated nonparticipating employer.............................................4
Disability retirement...........................................................27
Early retirement................................................................25
Early retirement date...........................................................26
Effective date of the plan.......................................................4
Employee.........................................................................4
Employer.........................................................................3
Hour of Service..................................................................5
Initial Vesting Date.............................................................7
Last date of commencement of employment..........................................5
Leave of absence................................................................12
Normal retirement...............................................................24
Normal retirement date..........................................................24
Participant......................................................................5
Plan.............................................................................3
Plan year........................................................................8
Required Beginning Date..........................................................9
Single-sum value.................................................................7
Superseded plan..................................................................3
Supplement.......................................................................3
Termination of service..........................................................12
Trust............................................................................8
Trust agreement..................................................................3
Trust fund.......................................................................8
Trustee..........................................................................4
Vesting Service..................................................................6
</TABLE>
- iv -
<PAGE> 6
FARAH U.S.A., INC. BARGAINING UNIT PENSION PLAN
As Amended and Restated Effective January 1, 1990
(Except to the Extent Otherwise Indicated)
INTRODUCTION
The Farah Manufacturing Company, Inc. Pension Plan and the Farah
Manufacturing Company, Inc. Pension Trust were adopted by Farah Manufacturing
Company, Inc. effective as of August 1, 1976 as an amendment and complete
restatement of the pension plan originally adopted by said employer effective as
of July 27, 1970.
Effective as of February 17, 1977, the Farah Manufacturing Company,
Inc. Bargaining Unit Pension Plan and the Farah Manufacturing Company, Inc.
Bargaining Unit Pension Trust were adopted by Farah Manufacturing Company, Inc.
as a spin off from the aforementioned Farah Manufacturing Company, Inc. Pension
Plan and the Farah Manufacturing Company, Inc. Pension Trust in order to
establish a new and separate pension plan and trust for its eligible bargaining
unit employees. Said pension plan and trust for the Company's bargaining unit
employees were set forth in an agreement titled Farah Manufacturing Company,
Inc. Bargaining Unit Pension Plan and Trust Agreement.
Effective as of September 4, 1979, that portion of the aforementioned
Farah Manufacturing Company, Inc. Bargaining Unit Pension Plan and Trust
Agreement setting forth the provisions of the Farah Manufacturing Company, Inc.
Bargaining Unit Pension Plan was amended and restated in its entirety.
<PAGE> 7
- 2 -
Effective as of March 31, 1987, Farah Manufacturing Company, Inc. was
re-named Farah Incorporated.
Effective as of December 31, 1990, the Farah Retiree Plan was merged
into the Farah Manufacturing Company, Inc. Bargaining Unit Pension Plan.
Effective as of January 1, 1990, except to the extent otherwise
indicated, the Farah Manufacturing Company, Inc. Bargaining Unit Pension Plan is
being amended and restated in its entirety and, effective as of January 1, 1995,
the name of the Farah Manufacturing Company, Inc. Bargaining Unit Pension Plan
is being changed to the Farah U.S.A., Inc. Bargaining Unit Pension Plan.
Subject to receipt by Farah Incorporated of favorable rulings that the
qualified status of the Farah U.S.A., Inc. Bargaining Unit Pension Plan and the
related trust under Sections 401(a) and 501(a) of the Internal Revenue Code of
1986 is not adversely affected by such amendment and restatement, each person
who becomes a participant hereunder shall be entitled upon his retirement or
termination of service to such benefits as are specified in the provisions which
follow.
<PAGE> 8
- 3 -
SECTION 1
DEFINITIONS: PARTICIPATION
1.1 - DEFINITIONS
(A) The following words and phrases shall have the meanings stated
below unless a different meaning is plainly required by the context:
(1) The term "Company" as used herein means Farah
Incorporated, a corporation, and its successor or
successors.
(2) The term "Employer" as used herein means,
collectively or distributively as the context may
indicate, the Company and any other corporations,
associations, joint ventures, proprietorships or
partnerships which have adopted and are participating
in the plan in accordance with the provisions of
Section 1.7 hereof.
(3) The term "plan" as used herein means the Farah
U.S.A., Inc. Bargaining Unit Pension Plan (prior to
January 1, 1995, the plan was known as the Farah
Manufacturing Company, Inc. Bargaining Unit Pension
Plan) as amended and restated effective as of January
1, 1990, except to the extent otherwise indicated, as
set forth in this document and as it may hereafter be
amended from time to time.
(4) The term "trust agreement" as used herein means the
Farah Manufacturing Company, Inc. Bargaining Unit
Pension Trust as amended and restated effective as of
September 4, 1979 as set forth in the trust agreement
of that title, which is attached to this plan, as
such trust agreement may thereafter be amended from
time to time.
(5) The term "superseded plan" as used herein means,
collectively or distributively, as the context may
indicate, the qualified retirement plan, if any,
which was maintained by an Employer for its eligible
employees prior to the effective date of the plan and
which the plan and trust agreement represent an
amendment and restatement thereof. References to the
superseded plan as of any given date shall refer to
the provisions as set forth under the terms of the
applicable document describing such qualified
retirement plan as amended and in effect on such
given date prior to the effective date of the plan.
(6) The term "supplement" as used herein means any
supplement which is attached to and made a part of
the plan and which describes provisions of the
<PAGE> 9
- 4 -
plan which apply only to employees of an Employer or
Employers specified in such supplement.
(7) The term "designated nonparticipating employer" as
used herein means:
(a) any corporation or association which is not
an Employer as defined herein and which is a
member of a controlled group of corporations
(within the meaning of Section 1563(a) of
the Internal Revenue Code of 1986, as
amended) with respect to which the Employer
is a member or is the common parent
corporation;
(b) any trade or business (whether or not
incorporated) which is not an Employer as
defined herein and which is under common
control with the Employer as determined in
accordance with Section 414(c) of the
Internal Revenue Code of 1986, as amended,
and regulations issued thereunder;
(c) any service organization which is not an
Employer as defined herein and which is a
member of an affiliated service group
(within the meaning of Section 414(m) of the
Internal Revenue Code of 1986, as amended)
with respect to which the Employer is a
member; and
(d) any other corporation, association,
proprietorship, partnership, or other
business organization which (i) is not an
Employer as defined herein and (ii) the
board of directors of the Company designates
on the basis of a uniform policy applied
without discrimination as a "designated
nonparticipating employer" for the purposes
of this plan.
(8) The term "trustee" as used herein means the corporate
trustee or the individual trustees, as the case may
be, appointed from time to time pursuant to the
provisions of the trust agreement to administer the
trust fund maintained for the purposes of the plan.
(9) The term "effective date of the plan" as used herein
means January 1, 1990, except to the extent otherwise
indicated, or such later date as of which the plan
first became effective with respect to the particular
Employer concerned.
(10) The term "Committee" as used herein means the
Retirement Committee appointed from time to time to
administer the plan pursuant to the provisions of
Section 7.1 hereof.
(11) The term "Employee" as used herein means any person
employed by the Employer whose working conditions are
determined under a collective
<PAGE> 10
- 5 -
bargaining agreement between the Employer and the
Amalgamated Clothing and Textile Workers Union.
(12) The term "participant" as used herein means (a) any
active Employee who has satisfied the requirements of
Section 1.2 hereof, (b) any former Employee who has
satisfied the requirements of Section 1.2 hereof,
whose service has not been terminated but who has
subsequently been transferred from his status as an
Employee as defined herein and (c) any retired or
terminated Employee who has vested rights to benefits
under the provisions of the plan.
(13) The term "last date of commencement of employment"
means:
(a) if the employee's service has not been
previously terminated in accordance with the
provisions hereof, the date on which he
first performs an Hour of Service for an
Employer or for any predecessor business of
an Employer conducted as a corporation,
partnership or proprietorship; or
(b) if the employee's service has been
previously terminated in accordance with the
provisions hereof, the first day following
his last termination of service on which he
performs an Hour of Service for an Employer
or for any predecessor business of an
Employer conducted as a corporation,
partnership or proprietorship;
provided, however, that the last date of commencement
of employment of an employee, who immediately before
his current employment was employed by a predecessor
or acquired business up to the date of its merger
with or acquisition by the Employer, shall not be
earlier than the date fixed for this purpose by the
Employer and provided that the same date is uniformly
fixed for this purpose as to all of the employees of
a given predecessor or acquired business.
(14) The term "Hour of Service" as used herein means each
hour during an applicable computation period for
which an employee is directly or indirectly paid, or
is entitled to payment, by the Employer for (a) the
performance of duties for the Employer or (b) reasons
other than the performance of duties for the
Employer, including but not limited to vacation,
holidays, sickness, disability, paid layoff and
similar paid periods of nonworking time. Such Hours
of Service shall be credited to the employee for the
computation period in which such duties were
performed or in which occurred the period during
which no duties were performed. An Hour of Service
also includes each hour, not credited above, for
which backpay, irrespective of mitigation of damages,
has been either awarded or agreed to by the Employer.
These Hours of Service shall be credited to the
<PAGE> 11
- 6 -
employee for the computation period to which the
award or agreement pertains. The number of Hours of
Service to be credited to an employee for any
computation period shall be governed by Sections
2530.200b-2(b) and 2530.200b-2(c) of Part 2530 of
Subchapter C of Chapter XXV of Title 29 of the Code
of Federal Regulations (Department of Labor
regulations relating to minimum standards for
employee pension benefit plans).
(15) The term "Credited Service" as used herein means the
total period of an employee's service with the
Employer, computed in completed months, during the
period beginning on his last date of commencement of
employment and ending on his date of actual
retirement or termination of employment or, where
applicable, ending on such other date as is specified
hereunder; provided, however, that:
(a) with respect to any period of such an
employee's service which would be included
in his Credited Service in accordance with
the provisions above, any complete calendar
month that the employee is absent from the
service of the Employer will be excluded
from his Credited Service unless he receives
regular compensation from the Employer for
all or any portion of such calendar month
and except as otherwise provided below;
(b) any absence due to the employee's engagement
in military service will be included in his
Credited Service if such absence is covered
by a leave of absence granted by the
Employer or is by reason of compulsory
military service;
(c) any period of service while the employee was
a partner or proprietor of an Employer or of
a predecessor business of an Employer shall
be excluded from his Credited Service; and
(d) the provisions of Sections 1.4 and 1.5
hereof shall apply in the case of an
employee who is reemployed with a
reinstatement of Credited Service accrued
prior to his last date of commencement of
employment or is transferred to or from his
status as an Employee as defined herein.
(16) The term "Vesting Service" as used herein means the
total period of elapsed time, computed in years and
days, during the period beginning on the employee's
last date of commencement of employment and ending on
his date of retirement or termination of service or,
where applicable, ending on such other date as is
specified hereunder; provided, however, that:
(a) with respect to any absence during such
period which is of a duration of longer than
12 consecutive months, and which does not
constitute
<PAGE> 12
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a termination of service, the first 12
months of such absence will be included in
the participant's Vesting Service but that
portion of such absence which (i) is in
excess of 12 months and (ii) is excluded
from his Credited Service will be excluded
from his Vesting Service;
and
(b) the provisions of Sections 1.4 and 1.5
hereof shall apply in the case of an
employee who is reemployed with a
reinstatement of Vesting Service accrued
prior to his last date of commencement of
employment or is transferred to or from his
status as an Employee as defined herein.
(17) The term "Initial Vesting Date" as used herein means
the earlier to occur of the following dates:
(a) the date on which the participant has
completed 5 years of Vesting Service; or
(b) the date on which the participant attains
the normal retirement age of 65 years;
provided, however, that the Initial Vesting Date of a
participant shall not be earlier than the effective
date of the plan.
(18) The term "Deferred Monthly Retirement Income
Commencing at Normal Retirement Date" as used herein
shall mean the monthly retirement income, payable in
the manner described in Section 2.1(C) hereof
commencing at the participant's normal retirement
date, which he has accrued as of a given date and
shall be equal to $4.50 multiplied by his number of
years of Credited Service at such given date;
provided, however, that the Deferred Monthly
Retirement Income Commencing at Normal Retirement
Date which a participant has accrued as of a given
date shall not exceed an amount which is actuarially
equivalent as of such given date to that amount which
would cause the monthly retirement income payable to
or on behalf of the participant under the plan to be
in excess of the maximum amount of retirement income
specified in Section 4.1(A) hereof; and provided
further, however, that the provisions of Section 4.6
hereof shall apply in determining the Deferred
Monthly Retirement Income Commencing at Normal
Retirement Date of a participant who has accrued
Vesting Service during any plan year that the plan is
top-heavy.
(19) The term "single-sum value" as used herein means the
actuarially computed present value, as of a given
date, of the retirement income payments for which it
is determined based upon the interest and mortality
assumptions
<PAGE> 13
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specified in the provisions of the plan. The
single-sum value as of a given date of a
participant's accrued Deferred Monthly Retirement
Income Commencing at Normal Retirement Date shall in
all cases hereunder be discounted for interest and
mortality from the participant's normal retirement
date to such given date.
(20) The terms "trust" and "trust fund" as used herein
mean the trust fund established pursuant to the terms
of the trust agreement.
(21) The term "beneficiary" as used herein means the
person or persons on whose behalf benefits may be
payable under the plan after a participant's death in
accordance with the provisions hereof.
(22) The term "plan year" as used herein means the
calendar, policy or fiscal year on which the records
of the plan are kept as reported from time to time by
the plan administrator to the Internal Revenue
Service. The plan year, unless subsequently changed
in accordance with rules or regulations issued by the
Internal Revenue Service or Department of Labor,
shall be the 12-month period beginning January 1st of
each calendar year.
(23) The term "Break in Service" as used herein shall mean
a period of 12 consecutive months or longer that
immediately follows an employee's date of termination
of service and immediately precedes the date, if any,
on which he next performs an Hour of Service.
(24) The term "Required Beginning Date" as used herein
means the first day of April of the calendar year
following the calendar year in which the participant
attains age 70-1/2. Notwithstanding the foregoing,
the Required Beginning Date of a participant who
attains age 70-1/2 before January 1, 1988, shall be
determined in accordance with (a) or (b) below:
(a) the Required Beginning Date of a participant
who is not a "5- percent owner" (as defined
in below) is the first day of April of the
calendar year following the calendar year in
which the later of retirement or attainment
of age 70-1/2 occurs; or
(b) the Required Beginning Date of a participant
who is a 5-percent owner during any year
beginning after December 31, 1979, is the
first day of April following the later of:
(i) the calendar year in which the
participant attains age 70-1/2,
or
<PAGE> 14
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(ii) the earlier of the calendar year
with or within which ends the plan
year in which the participant
becomes a 5-percent owner, or the
calendar year in which the
participant retires.
Also notwithstanding the foregoing, the Required
Beginning Date of a participant who is not a 5-percent
owner who attains age 70-1/2 during 1988 and who has
not retired as of January 1, 1989, is April 1, 1990. A
participant is treated as a 5-percent owner if such
participant is a 5-percent owner as defined in Section
416(i) of the Internal Revenue Code (determined in
accordance with section 416 but without regard to
whether the plan is top-heavy) at any time during the
plan year ending with or within the calendar year in
which such owner attains age 66-1/2 or any subsequent
plan year. Once distributions have begun to a
5-percent owner they must continue to be distributed,
even if the participant ceases to be a 5-percent owner
in a subsequent year. Notwithstanding any other
provision of the plan to the contrary, all
distributions required under the plan shall be
determined and made in accordance with Section
401(a)(9) of the Internal Revenue Code and the
Proposed Income Tax Regulations under Section
401(a)(9) of the Internal Revenue Code or any
successor regulations, including the minimum
distribution incidental death requirement of Section
1.401(a)(9)-2 of the Proposed Income Tax Regulations
or any successor regulations.
(B) The terms "herein", "hereunder" and similar terms refer to
this document, including the trust agreement which is a part of this document,
unless otherwise qualified by the context.
(C) The pronouns "he", "him" and "his" used in the plan shall also
refer to similar pronouns of the feminine gender unless otherwise qualified by
the context.
(D) The following terms and expressions as used herein shall have
the meanings specified in the sections of the Internal Revenue Code of 1986, as
amended, respectively indicated:
(1) "Defined Benefit Plan" -- Section 415(k)
(2) "Defined Contribution Plan" -- Section 415(k)
(3) "Defined Benefit Plan Fraction" -- Section 415(e)(2)
(4) "Defined Contribution Plan Fraction" -- Section
415(e)(3)
<PAGE> 15
- 10 -
1.2 - PARTICIPATION
Each person who was a participant in the superseded plan, if any, of the
Employer as of the day immediately preceding the effective date of the plan will
become a participant in the plan on the effective date of the plan; provided,
however, that any such participant who had retired or whose service had been
terminated prior to the effective date of the plan and who is not an active
employee of an Employer or designated nonparticipating employer or on an
approved leave of absence granted by an Employer or designated nonparticipating
employer as of the effective date of the plan shall be entitled on and after the
effective date of the plan to only those benefits, if any, to which he is
entitled on and after the effective date of the plan under the provisions of the
superseded plan (except that Section 1.2 of the superseded plan shall be deemed
to be amended effective as of January 1, 1988 to be identical to Section 1.2 of
the plan and Sections 1.1(A)(15), 1.4(C) and 2.1(B)(2) of the superseded plan
shall be deemed to be amended effective as of January 1, 1989 to include
post-normal retirement date service as described herein in such Sections), and
he and his beneficiaries shall not be entitled to any additional benefits under
the plan as set forth herein unless he reenters the service of an Employer after
the effective date of the plan or unless the plan is amended on or after the
effective date of the plan specifically to provide otherwise.
Each other Employee in the service of the Employer on or after January
1, 1988 will become a participant in the plan on the latest to occur of the
following dates:
(A) the date on which he attains the age of 21 years; or
(B) the first anniversary of his last day of commencement of
employment; provided, however, that any Employee who had attained the age of 60
years prior to his commencement of employment and who has not performed an Hour
of Service after December 31, 1987, shall not be eligible to become a
participant in the plan; provided further, however, that
<PAGE> 16
- 11 -
any such other Employee whose service has not been terminated but who is
absent from the active service of the Employer on such date that he is first
eligible to become a participant in the plan as described above will become a
participant hereunder as of the date of his return to active service with the
Employer.
The above provisions describe the date on which an eligible Employee
will initially become a participant in the plan. In the event that a
participant's service is terminated and he is subsequently reemployed, the date
on or after the date of his reemployment as of which he will become a
participant in the plan is described in Section 1.4 hereof.
1.3 - LEAVE OF ABSENCE AND TERMINATION OF SERVICE
Any absence from the active employment of the Employer by reason of an
approved absence granted by the Employer because of illness or military service,
or for any other reason on the basis of a uniform policy applied by the Employer
without discrimination, will be considered a leave of absence for the purposes
of the plan and will not terminate an employee's service provided he returns to
the active employment of the Employer at or prior to the expiration of his leave
or, if not specified therein, within the period of time which accords with the
Employer's policy with respect to permitted absences. If the employee does not
return to the active employment of the Employer at or prior to the expiration of
his leave of absence as above defined, his service will be considered terminated
as of the earliest to occur of (i) the date on which his leave of absence
expired, (ii) the first anniversary of the date on which his leave of absence
began or (iii) the date of his resignation, quit or discharge; provided,
however, that, except for absence because of military service, if any such
employee, who was a participant in the plan on the date on which his leave
began, is prevented from his timely return to the active employment of the
Employer because
<PAGE> 17
- 12 -
of his total and permanent disability or his death, he shall, nevertheless, be
entitled, if he meets the requirements necessary to qualify therefor, to any
disability benefit as provided in Section 2.3 hereof or to any death benefit as
provided in Section 2.4 hereof, whichever is applicable, as though he returned
to active employment immediately preceding the date of his total and permanent
disability or his death.
Absence from the active service of the Employer because of compulsory
engagement in military service will be considered a leave of absence granted by
the Employer and will not terminate the service of an employee if he returns to
the active employment of the Employer within the period of time during which he
has reemployment rights under any applicable Federal law or within 60 days from
and after discharge or separation from such compulsory engagement if no Federal
law is applicable. No provision of this section or in this plan shall require
reemployment of any employee whose active service with the Employer was
terminated by reason of military service.
In the event that an employee's service with the Employer is interrupted
because of any absence from the active service of the Employer, including, but
not limited to, absence by reason of discharge or resignation, which is not
deemed a leave of absence as defined above, his service will be considered
terminated as of the date of such interruption; provided, however, that any
period of service as a partner or as a proprietor of any predecessor business
shall not constitute an interruption of an employee's employment and transfers
of employment among the Employers and designated nonparticipating employers
shall not be deemed interruptions of employment and shall not constitute a
termination of service for the purposes of the plan.
Notwithstanding any provision in the Plan to the contrary, any period of
leave pursuant to the Family and Medical Leave Act of 1993, as amended, will be
treated as continued service for
<PAGE> 18
- 13 -
for purposes of vesting and eligibility to participate to the extent required by
such law and the regulations thereunder.
1.4 - REEMPLOYMENT
(A) Reemployment Within One Year After
Termination of Service:
If any employee reenters the service of the Employer within the 12-month
period immediately following the date of his quit, resignation or discharge or
within the 12-month period immediately following the first anniversary of the
date that his absence began for any other reason, his service shall not be
considered to have been terminated for the purposes of the plan and he shall,
subject to the following provisions of this Section 1.4, be treated under the
plan upon such reentry as though he had been on a leave of absence during the
period between the dates of such interruption and such reentry.
(B) Reemployment of Vested Terminated Participant
Prior to Commencement of Payments:
If a participant's service is terminated on or after his Initial Vesting
Date for a reason other than his normal retirement, early retirement or
disability retirement as described in Sections 2.1, 2.2 and 2.3 hereof,
respectively, and he subsequently reenters the active service of the Employer
prior to the date as of which his retirement income payments are to commence in
accordance with the provisions of Section 2.4(A) hereof, and such participant
has not received, in accordance with Section 3.1 or 3.2 hereof, the value of his
benefit provided under Section 2.4(A)(l), he will become a participant upon the
date of such reentry and will be entitled to the Credited Service and Vesting
Service he had on the date of termination of his service in lieu of the benefits
to which he was entitled on such date under Section 2.4(A)(l); provided,
however, that the benefit payable to
<PAGE> 19
- 14 -
such participant commencing at normal retirement date shall not be less than the
amount to which he was entitled under Section 2.4(A)(l) hereof prior to his
reentry into the service of the Employer.
(C) Reemployment of Retired or Vested Terminated Participant
After Commencement of Payments:
If a participant who is receiving a retirement income under the
provisions of Section 2.4(A)(1) or who has retired and is receiving a retirement
income under the provisions of Section 2.1 or 2.2 hereof subsequently reenters
the active service of the Employer, he shall become a participant upon the date
of such reentry and no retirement income payments shall be made during the
period of such reemployment. Such participant shall be treated in the same
manner as a vested terminated participant whose retirement income payments have
not commenced and who subsequently reenters the service of the Employer as
described in Section 1.4(B) above, except that the benefit payable under the
plan to or on behalf of such participant upon his subsequent retirement or
termination of service shall be reduced on an actuarially equivalent basis by an
amount equal to the sum of the retirement income payments which he received
under the provisions of Section 2.2, 2.4(A) or 3.1 hereof, whichever is
applicable, prior to such reentry into the service of the Employer.
Notwithstanding the above provisions of this Section 1.4(C), in lieu of having
his retirement income payments discontinued and his benefit payable upon his
subsequent retirement or termination determined in accordance with the above
provisions of this Section 1.4(C), any such participant who is receiving
retirement income payments under the plan and who reenters the active service of
the Employer may, upon such reentry, elect in writing filed with the Committee
to continue to receive his retirement income payments after his reemployment in
the same manner
<PAGE> 20
- 15 -
as though he had not reentered the service of the Employer; and in such event he
shall be treated as if he then first entered the service of the Employer except
that, (i) he shall become a participant in the plan on the date of such reentry,
(ii) his Vesting Service shall include the Vesting Service which he had accrued
prior to such reemployment, (iii) he shall not accrue any Credited Service or
Vesting Service during any calendar year that he is credited with less than
1,000 Hours of Service, and (iv) the benefit which he accrues after the date of
his reemployment which is payable to such participant or his beneficiary upon
his subsequent retirement or termination of service (even if his subsequent
retirement or termination of service is due to his total and permanent
disability or death) shall be limited to the amount which can be provided on an
actuarially equivalent basis by the monthly retirement income, if any, which he
accrues subsequent to such reemployment based upon his Credited Service
determined in the same manner as though he then first entered the service of the
Employer; provided further, however, that such income which such a participant
accrues subsequent to his reemployment shall not cause the actuarial equivalent
of the total income payable to the participant or his beneficiary under the plan
to exceed the amount which would have been payable if he had not elected to
continue to receive his retirement income after his reemployment.
(D) Reemployment After Disability Retirement:
If a participant who has retired under the provisions of Section 2.3
recovers from disability and reenters the active service of the Employer within
one year after the date of his recovery from disability by accepting
reemployment offered by the Employer within 30 days after such offer, his
service will be deemed to have been continuous and he will receive Credited
Service and Vesting Service under the plan for that period during which he was
considered totally and permanently disabled as provided herein.
<PAGE> 21
- 16 -
(E) Reemployment After Full Settlement:
If a participant's service has been terminated on or after January 1,
1985 for any reason and he was entitled, upon such termination, to a monthly
retirement income under the provisions of Section 2.1, 2.2, 2.3 or 2.4(A)(l)
hereof and the full actuarial equivalent value of such retirement income has
been paid on behalf of such participant under the provisions of Section 3.1 or
3.2 hereof, and such participant reenters the active service of the Employer, he
shall become a participant on the date of his reentry and shall be entitled to a
reinstatement of the Credited Service and Vesting Service which he had accrued
as of such previous date of termination, but the benefit payable under the plan
to or on behalf of such participant upon his subsequent retirement or
termination of service shall be reduced by the actuarially equivalent value of
such retirement income which has been paid on his behalf under Section 3.1 or
3.2 hereof.
(F) Reemployment of Other Employees:
(1) Any employee, whose service is terminated, who is not
included under the provisions of Section 1.4(A), 1.4(B), 1.4(C), 1.4(D) or
1.4(E) above (and who incurs a Break in Service if the date of termination of
his service is on or after the effective date of the plan) and who reenters the
service of the Employer, will be treated as though he then first entered the
service of the Employer; provided, however, that:
(a) if his Break in Service is for a period of
less than five years or if the number of years
and days included in his Break in Service is
less than the number of years and days of
Vesting Service which he had accrued as of the
date of termination of his service, such
employee shall be entitled to a reinstatement
of the Credited Service and Vesting Service
which he had accrued as of such previous date
of termination of service; and
(b) if, as of the date of termination of his
service, such employee was a participant in
the plan or if he had previously satisfied the
service requirement for eligibility to
participate in the plan prior to the date
<PAGE> 22
- 17 -
of his termination of service, he shall be
deemed to have satisfied the service
requirement for eligibility to participate
in the plan under Section 1.2 hereof as of
the date of his reentry.
(2) If an employee to whom the provisions of Section 1.4(F)(1)
above apply has an absence from the service of the Employer which begins on or
after January 1, 1985 and is due to the pregnancy of the employee, the birth of
a child of the employee or the placement of a child with the employee in
connection with the adoption of such child by such employee or is for the
purpose of caring for such child for a period beginning immediately following
such birth or placement and if the service of such employee is terminated during
such absence, the rights of such employee under Section 1.4(F)(1) above to
resume participation in the plan and to a reinstatement of his previous Credited
Service and Vesting Service upon his reemployment shall not be less favorable to
the employee than those corresponding rights that he would have under such
section if the date of termination of his service had been the second
anniversary of the date on which his absence began and if the length of such
employee's Break in Service were based on the termination date; provided,
however, no employee shall accrue any additional Credited Service or Vesting
Service between the date of termination of his service and the second
anniversary of the date on which his absence began as a result of the provisions
of this Section 1.4(F)(2).
1.5 - TRANSFER TO OR FROM STATUS AS AN EMPLOYEE
An employee will be deemed to be transferred from his status as an
Employee as defined herein in the event that he remains in the service of the
Employers but has a change in his employment status so that he no longer
qualifies as an Employee as defined herein or in the event that he is
transferred to a designated nonparticipating employer. Conversely, a person who
is not an Employee as defined herein will be deemed to be transferred to the
status of an Employee as defined herein in the event that he remains in the
service of the Employers but has a change in his
<PAGE> 23
- 18 -
employment status so that he becomes an Employee as defined herein or in the
event that he is transferred to an Employer from a designated nonparticipating
employer and becomes an Employee as defined herein. The service of such a person
described above shall not be considered to be interrupted by reason of any such
transfer, and service with the designated nonparticipating employer shall be
terminated in the same manner as service with the Employer is terminated; and
the rights of such a person upon his reemployment by a designated
nonparticipating employer shall be determined in the same manner as though he
had been reemployed by the Employer and immediately thereafter had been
transferred to such designated nonparticipating employer. Any provisions of
Section 2.l, 2.2, 2.3 or 2.4 hereof to the contrary notwithstanding, the
benefits of any such employee who has been transferred to or from the status as
an Employee as defined herein on or after both February 17, 1977 and the date
that he became a participant in the plan or superseded plan shall be determined
in accordance with the following provisions of this Section 1.5.
(A) Eligibility for Benefits: In determining the eligibility of
such an employee to whom the provisions of this Section 1.5
are applicable for participation in the plan and in
determining his eligibility for the benefits provided under
the plan, his Credited Service, Hours of Service and Vesting
Service shall include all service, which otherwise would be
included as Credited Service, Hours of Service and Vesting
Service in accordance with the provisions hereof, which he
accrued with the designated nonparticipating employers and
with the Employers while not qualified as an Employee as
defined herein as well as all Credited Service, Hours of
Service and Vesting Service which he accrued with the
Employers while qualified as an Employee as defined herein.
Any such employee who is transferred to the status of an
Employee as defined herein shall become a participant in the
plan on the date that he becomes an Employee as defined herein
if he has otherwise satisfied the requirements to become a
participant in the plan as described in Section 1.2 hereof
prior to such date that he becomes an Employee as defined
herein.
(B) Computation of Benefits: A participant to whom the provisions
of this Section 1.5 are applicable shall be entitled upon his
retirement or termination of service (or his beneficiary, or
beneficiaries, shall be entitled in the event his service is
terminated by reason of his death), if he meets all
requirements necessary to qualify for a benefit
<PAGE> 24
- 19 -
under the provisions of Section 2.1, 2.2, 2.3 or 2.4 hereof or
under the provisions of any supplement hereto, as the case may
be, to a benefit payable in accordance with the provisions of
Section 2.1, 2.2, 2.3 or 2.4 hereof or in accordance with the
provisions of any supplement hereto, whichever is applicable,
but the amount of the monthly retirement income which is
payable on his behalf under the plan shall be equal to the
product of:
(1) the monthly retirement income which would have been
payable on behalf of such participant under the
provisions of Section 2.1, 2.2, 2.3 or 2.4 hereof or
under the provisions of any supplement hereto,
whichever is applicable, if all of his service had
been accrued with the Employers hereunder while
qualified as an Employee as defined herein;
multiplied by
(2) the fraction in which the numerator is the
participant's number of years of Credited Service
which he accrued while in the service of the
Employers hereunder while qualified as an Employee as
defined herein and the denominator is the total
number of years of Credited Service which he would
have accrued if all of his service had been accrued
with the Employers hereunder while qualified as an
Employee as defined herein;
provided, however, that there shall be no duplication of
service in computing benefits under this plan and under any
other qualified pension or annuity plan maintained by any
Employer or designated nonparticipating employer, and, if
credit for service accrued while qualified as an Employee as
defined herein is granted under any such other qualified
pension or annuity plan, then the portion of the benefit
payable under the plan based on such duplicated service shall
be reduced (but not so as to produce a negative amount) by the
actuarially equivalent amount of the benefit payable under
such other qualified pension or annuity plan based on such
duplicated service; provided further, however, that the
Deferred Monthly Retirement Income Commencing at Normal
Retirement Date of a participant who has been transferred from
his status as an Employee as defined herein shall not be less
than the Deferred Monthly Retirement Income Commencing at
Normal Retirement Date which the participant had accrued under
the provisions of the plan to the date of his transfer from
his status as an Employee as defined herein. It is
specifically provided that the benefit specified under Section
2.4(B)(l)(a)(ii) hereof shall apply only if the participant is
an Employee as defined herein on the date of his death and, in
such event, the benefit determined under Section
2.4(B)(l)(a)(ii) shall not be reduced by the application of
the fraction specified in (2) above but such benefit
determined under such section which is payable on behalf of
such a participant shall be reduced by the actuarial
equivalent of any benefit payable on behalf of such
participant under any other qualified pension or annuity plan
maintained by any Employer or designated nonparticipating
employer, and the limitation equal to 100 times the
anticipated monthly retirement income to which the participant
would be entitled at
<PAGE> 25
- 20 -
his normal retirement date, described in Section
2.4(B)(1)(a)(ii)(2), shall include the anticipated monthly
retirement income based on his service accrued prior to his
death to which such participant would be entitled at his
normal retirement date under any other qualified pension or
annuity plan maintained by any Employer or designated
nonparticipating employer.
(C) Payments From One Trust Fund: In lieu of the payment of
retirement income or other benefits to such a participant from
the trust fund of more than one qualified pension plan of the
designated nonparticipating employers and the Employers, the
administrators of the pension plans may, by mutual agreement,
provide for payment of the entire monthly income or other
benefit from one trust fund with appropriate reimbursement to
the trustee of the trust fund from which the benefits are to
be paid by transfer of funds equal to the single-sum value of
the benefits payable under the other plan (or plans) to the
trust fund from which benefits actually will be paid.
1.6 - ELECTION NOT TO PARTICIPATE IN PLAN
Any provisions of any other section of the plan to the contrary
notwithstanding, any Employee may voluntarily elect in writing filed with the
Committee not to become a participant in the plan or to discontinue his
participation in the plan and in such event his rights under the plan shall be
determined as follows.
Any such participant who elects not to participate in the plan or to
discontinue his participation in the plan may subsequently become a participant
in the plan as of any subsequent January 1st that is at least two years after
the date that he would have become a participant in the plan or the date that he
discontinued his participation in the plan, whichever is applicable; provided,
however, that any such Employee who has either elected not to participate in the
plan or to discontinue his participation in the plan and who subsequently
becomes a participant in the plan shall not be eligible to become a participant
in the plan at a later date if he subsequently elects to discontinue his
participation in the plan. Any such election not to participate in the plan, to
<PAGE> 26
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discontinue participation in the plan or to resume participation in the plan
shall be made on forms furnished by the Committee for this purpose and must be
filed with the Committee prior to the date that such election becomes effective.
In the event that the service of any such Employee who elects to
discontinue his participation is terminated for any reason prior to his
subsequently becoming a participant in the plan, the benefit, if any, which is
payable to such participant or his beneficiary (even if his termination of
service is due to his total and permanent disability or death) shall be equal to
the amount which can be provided on an actuarially equivalent basis by the
single-sum value of the Deferred Monthly Retirement Income Commencing at Normal
Retirement Date, if any, which he had accrued as of the date as of which he
discontinued his participation accumulated with interest from such date to the
date of termination of his service.
In the event that any such participant, who elects not to participate in
the plan or who elects to discontinue his participation, subsequently becomes a
participant in accordance with the provisions hereof, the monthly retirement
income determined on his behalf under Section 2.1(B) hereof if he retires or his
service is terminated on or after his normal retirement date or the Deferred
Monthly Retirement Income Commencing at Normal Retirement Date determined on his
behalf under Section l.l(A)(18) hereof if he retires or his service is
terminated prior to his normal retirement date, whichever is applicable, shall
be reduced by multiplying the amount of income determined under such applicable
section by the fraction in which the denominator is the number of years and
months, computed in completed months, between his last date of commencement of
employment and his normal retirement date and the numerator is the excess of the
number of years and months in the denominator over the number of years and
months, computed in completed months, that he did not participate in the plan
while eligible to do so.
<PAGE> 27
- 22 -
1.7 - RIGHTS OF OTHER EMPLOYERS TO PARTICIPATE
Any other corporation, association, joint venture, proprietorship, or
partnership may, in the future, adopt this plan by formal action on its part in
the manner described in Section 6.7 hereof provided that the board of directors
of the Company and the Committee both approve such participation.
The administrative powers and control of the board of directors of the
Company, as provided in the plan, shall not be deemed diminished under the plan
by reason of the participation of any other Employers in the plan, and such
administrative powers and control specifically granted herein to the board of
directors of the Company with respect to the appointment of the Committee,
amendment of the plan and other matters shall apply only with respect to the
board of directors of the Company.
Each Employer shall have the obligation to pay the contributions for its
own employees and no other Employer shall have such obligation. Any failure by
any Employer to live up to its obligation under the plan shall have no effect on
any other Employer.
Any Employer may withdraw at any time without affecting the others in
the plan by formal action on its part, in the manner described in Section 6.7
hereof, specifying its determination to withdraw. The board of directors of the
Company may in its absolute discretion terminate any Employer's participation at
any time.
<PAGE> 28
- 23 -
SECTION 2
NORMAL AMOUNT AND PAYMENT OF RETIREMENT INCOME
2.1 - NORMAL RETIREMENT AND RETIREMENT INCOME
Normal retirement under the plan is retirement from the service of the
Employer on or after the date that the participant attains the normal retirement
age of 65 years. No provision of this section or this plan shall require the
retirement of a participant upon his attainment of the normal retirement age,
but actual retirement shall be governed by the policy of the Employer. In the
event of normal retirement, payment of retirement income will be governed,
subject to the provisions of Section 4 hereof, by the following provisions of
this Section 2.1.
(A) Normal Retirement Date: The normal retirement date of each
participant will be the first day of the month coincident with or next following
the date on which he attains the age of 65 years. Any participant who retires
after attaining the age of 65 years but prior to his normal retirement date
shall be considered for the purposes of the plan to have retired on his normal
retirement date.
(B) Amount of Retirement Income:
(1) To Participant Who Retires on Normal Retirement Date: The
monthly retirement income payable in the manner described in Section 2.1(C)
hereof to a participant who retires on his normal retirement date shall be an
amount equal to $4.50 multiplied by his number of years of Credited Service.
(2) To Participant Who Retires After Normal Retirement Date: The
monthly amount of retirement income payable to a participant who retires after
his normal retirement date shall be equal to the amount payable under Section
2.1(B)(1) hereof, determined as of the date the
<PAGE> 29
- 24 -
participant actually retires; provided, however, that any participant who, as of
December 31, 1994, would have been entitled to a larger monthly amount of
retirement income under Section 2.1(B)(2) of the plan as then constituted, shall
receive such amount. As of December 31, 1994, Section 2.1(B)(2) of the plan
provided that the monthly amount of retirement income payable to a participant
who retires after his normal retirement date shall be equal to that amount which
can be provided on an actuarially equivalent basis by the sum of:
(a) the single-sum value as of his normal retirement date of the
normal monthly retirement income which would have been payable
to the participant in accordance with the provisions of
Section 2.1(B)(1) above if he had retired on his normal
retirement date;
and
(b) the amount of interest on such single-sum value in (a) above,
where the interest shall be compounded annually from the
participant's normal retirement date to his actual retirement
date,
where all computations (including any computations applicable under Section 3.1
hereof) shall be on the basis of the interest and mortality assumptions which
were being used as of the participant's normal retirement date to determine
actuarially equivalent values.
(C) Payment of Retirement Income: The monthly retirement income
payable in the event of normal retirement will be payable on the first day of
each month. The first payment will be made on the participant's normal
retirement date, or, if the participant retires after his normal retirement
date, the first payment will be made on the first day of the month coincident
with or next following the date of his actual retirement. The last payment will
be the payment due next preceding the retired participant's death.
<PAGE> 30
- 25 -
2.2 - EARLY RETIREMENT AND RETIREMENT INCOME
Early retirement under the plan is retirement from the service of the
Employer prior to the participant's normal retirement date and on or after the
date as of which he has both attained the age of 55 years and completed 10 years
of Vesting Service. In the event of early retirement, payment of retirement
income will be governed, subject to the provisions of Section 4 hereof, by the
following provisions of this Section 2.2.
(A) Early Retirement Date: The early retirement date will be the
first day of the month coincident with or next following the date a participant
retires from the service of the Employer under the provisions of this Section
2.2 prior to his normal retirement date.
(B) Amount of Retirement Income: The monthly amount of retirement
income payable in the manner described in Section 2.2(C) hereof to a participant
who retires prior to his normal retirement date under the provisions of this
Section 2.2 shall be equal to the product of:
(1) the Deferred Monthly Retirement Income Commencing at
Normal Retirement Date which the participant has
accrued as of his early retirement date;
multiplied by
<PAGE> 31
- 26 -
(2) a factor, specified in the schedule below, based upon
the number of years and full months by which the
participant's early retirement date precedes his
normal retirement date:
Actuarial Reduction Factors By Years and Months by Which
Early Retirement Date Precedes Normal Retirement Date
Months
<TABLE>
<CAPTION>
- -----------------------------------------------------------------------------------------------------------
Years 0 1 2 3 4 5 6 7 8 9 10 11
- -----
- -----------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
0 1.000 .994 .989 .983 .978 .972 .967 .961 .956 .950 .944 .939
1 .933 .928 .922 .917 .911 .906 .900 .894 .889 .883 .878 .872
2 .867 .861 .856 .850 .844 .839 .833 .828 .822 .817 .811 .806
3 .800 .794 .789 .783 .778 .772 .767 .761 .756 .750 .744 .739
4 .733 .728 .722 .717 .711 .706 .700 .694 .689 .683 .678 .672
5 .667 .664 .661 .658 .656 .653 .650 .647 .644 .642 .639 .636
6 .633 .631 .628 .625 .622 .619 .617 .614 .611 .608 .606 .603
7 .600 .597 .594 .592 .589 .586 .583 .581 .578 .575 .572 .569
8 .567 .564 .561 .558 .556 .553 .550 .547 .544 .542 .539 .536
9 .533 .531 .528 .525 .522 .519 .517 .514 .511 .508 .506 .503
10 .500
</TABLE>
(C) Payment of Retirement Income: The retirement income payable in
the event of early retirement will be payable on the first day of the month. The
first payment will be made on the participant's early retirement date and the
last payment will be the payment due next preceding the retired participant's
death.
2.3 - DISABILITY RETIREMENT AND RETIREMENT INCOME
(A) Definition: A participant may retire from the service of the
Employer under the plan if his service is terminated prior to his normal
retirement date and on or after the effective date of the plan by reason of his
becoming totally and permanently disabled as defined in Section 2.3(B) below.
Such retirement from the service of the Employer shall herein be referred to as
disability retirement. In the event of disability retirement, uniformly and
consistently applied rules shall be used with respect to all participants in
similar circumstances and payment of retirement income will be governed, subject
to the provisions of Section 4 hereof, by the following provisions of this
Section 2.3.
<PAGE> 32
- 27 -
(B) Total and Permanent Disability: A participant shall be
considered totally and permanently disabled for the purposes of the plan if, in
the opinion of the Committee, he is disabled, due to sickness or injury, from a
cause other than specified in Section 2.3(C) hereof, and, as a result of such
disability, is completely unable to perform any and every duty pertaining to his
occupation and is eligible for and receives disability benefits under the Social
Security Act.
(C) Nonadmissible Causes of Disability: A participant will not be
entitled to receive any disability retirement income if, in the opinion of the
Committee, the disability is a result of:
(1) excessive and habitual use by the participant of
drugs, intoxicants or narcotics;
(2) injury or disease sustained by the participant while
willfully and illegally participating in fights,
riots, civil insurrections or while committing a
felony;
(3) injury or disease sustained by the participant while
serving in any armed forces;
(4) injury or disease sustained by the participant which
was diagnosed or discovered subsequent to the date
his employment was terminated;
(5) injury or disease sustained by the participant while
working for anyone other than the Employer and
arising out of such employment; or
(6) injury or disease sustained by the participant as a
result of an act of war, whether or not such act
arises from a formally declared state of war.
(D) Proof of Disability: The Committee before approving the
payment of any disability retirement income shall require satisfactory proof,
which may be in the form of evidence satisfactory to the Committee that the
participant is then entitled to disability benefits under the Social Security
Act, that the participant has become disabled as provided herein. Every six
months after commencement of disability retirement income, or more frequently,
the Committee may similarly require proof of the continued disability of the
participant.
<PAGE> 33
- 28 -
(E) Disability Retirement Income: The benefit payable to a
participant who retires from the service of the Employer under the provisions of
this Section 2.3 due to his total and permanent disability is the monthly amount
of retirement income which can be provided on an actuarially equivalent basis by
the single-sum value, determined as of the date as of which his disability
retirement income payments are to commence in accordance with the provisions of
Section 2.3(F) hereof, of the Deferred Monthly Retirement Income Commencing at
Normal Retirement Date which the participant has accrued as of the date of
termination of his service due to disability.
(F) Payment of Disability Retirement Income: The monthly
retirement income to which a participant is entitled in the event of his
disability retirement will be payable on the first day of each month. The first
payment will be made on the first day of the month coincident with or next
following the later to occur of (a) the date as of which his disability has
existed for six months and (b) the date as of which application is made in
writing by the participant or his authorized representative for the payment of
such retirement income. The last payment will be as follows:
(1) if the participant recovers from the disability prior
to his normal retirement date, the last payment will
be the payment due next preceding the date of such
recovery; or
(2) if the participant dies prior to his normal
retirement date without recovering from his
disability or attains his normal retirement date
while still disabled, the last payment will be the
120th payment or the payment due next preceding the
date of his death, whichever is later.
Any monthly retirement income payments due after the death of a disabled
participant shall be paid to the participant's designated beneficiary (or
beneficiaries) as provided in Sections 5.2 and 5.3 hereof.
<PAGE> 34
- 29 -
(G) Benefit Payable in the Event of Death of Disabled
Participant Prior to Commencement of Payments
In the event that the death of a disabled participant occurs after he
has been determined to be disabled by the Committee but prior to both the date
as of which his disability has existed for six months and the date as of which
his disability retirement income payments are to commence as specified in
Section 2.3(F) above, his beneficiary (or beneficiaries) will receive, in lieu
of all other benefits payable on behalf of the participant under the plan, a
death benefit, payable in the manner described in Section 2.4(B) hereof,
commencing on the first day of the month coincident with or next following the
date of the disabled participant's death, which can be provided on an
actuarially equivalent basis by an amount equal to the single-sum value of the
death benefit which would have been payable on behalf of the participant under
the provisions of such Section 2.4(B) if his service had been terminated by
reason of his death on his last day of active employment with the Employer.
(H) Recovery from Disability: If the Committee finds that the
participant who is receiving disability retirement income is, at any time prior
to his normal retirement date, no longer disabled, as provided herein, the
Committee shall direct that the retirement income be discontinued. However, any
such participant who recovers from disability, and whose retirement income is
discontinued by the Committee and whose date of termination of service due to
disability was on or after his Initial Vesting Date, shall, if he does not
reenter the service of the Employer, be entitled to the vested deferred
retirement income as provided in and subject to the provisions of Section 2.4(A)
hereof, based upon the Deferred Monthly Retirement Income Commencing at Normal
Retirement Date which he had accrued as of the date of termination of his
service due to disability and upon his attained age determined as of the date of
his recovery from disability.
<PAGE> 35
- 30 -
2.4 - BENEFITS OTHER THAN ON RETIREMENT
(A) Benefit on Termination of Service and on
Death After Termination of Service:
(1) In the event that a participant's service is
terminated prior to his normal retirement date and on or after the date on which
he completed 5 years of Vesting Service for any reason other than his death,
early retirement as described in Section 2.2 hereof or disability retirement as
described in Section 2.3 hereof, he will be entitled to a monthly retirement
income to commence on his normal retirement date or, if the participant so
requests in writing filed with the Committee at least 30 days prior to the
effective date thereof, to commence on the first day of any month which is prior
to his normal retirement date and on or after the date on which he attained the
age of 55 years. Such monthly amount of retirement income payable to a
participant under the provisions of this Section 2.4(A)(1) ln the manner
described in Section 2.4(A)(2) below shall be equal to the product of:
(a) the Deferred Monthly Retirement Income
Commencing at Normal Retirement Date which
the participant has accrued to the date of
termination of his service;
multiplied by
(b) a factor, specified in the schedule below,
based upon the number of years and full
months by which the date of commencement of
the participant's retirement income payments
under this Section 2.4(A)(l) precedes his
normal retirement date:
<PAGE> 36
- 31 -
Actuarial Reduction Factors By Years and Months By Which
Date of Commencement of Payments Precedes Normal Retirement Date
Months
<TABLE>
<CAPTION>
- -------------------------------------------------------------------------------------------------------------
Years 0 1 2 3 4 5 6 7 8 9 10 11
-----
- -------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
0 1.000 .994 .989 .983 .978 .972 .967 .961 .956 .950 .944 .939
1 .933 .928 .922 .917 .911 .906 .900 .894 .889 .883 .878 .872
2 .867 .861 .856 .850 .844 .839 .833 .828 .822 .817 .811 .806
3 .800 .794 .789 .783 .778 .772 .767 .761 .756 .750 .744 .739
4 .733 .728 .722 .717 .711 .706 .700 .694 .689 .683 .678 .672
5 .667 .664 .661 .658 .656 .653 .650 .647 .644 .642 .639 .636
6 .633 .631 .628 .625 .622 .619 .617 .614 .611 .608 .606 .603
7 .600 .597 .594 .592 .589 .586 .583 .581 .578 .575 .572 .569
8 .567 .564 .561 .558 .556 .553 .550 .547 .544 .542 .539 .536
9 .533 .531 .528 .525 .522 .519 .517 .514 .511 .508 .506 .503
10 .500
</TABLE>
Any computations applicable under Section 2.4(A)(3) or 3.1 hereof on behalf of
such a terminated participant, shall be on the basis of the interest and
mortality assumptions which are being used as of the date of termination of the
participant's service to determine actuarially equivalent values.
(2) The retirement income payable under Section 2.4(A)(1) above
will be payable on the first day of each month. The first payment will be made,
if the participant shall then be living, on the date as of which the
participant's retirement income payments are to commence as described in Section
2.4(A)(1) above, and the last payment will be the payment due next preceding
such participant's death.
(3) In the event that the terminated participant dies prior to the
date as of which his retirement income payments are to commence as described
above (without having received, in accordance with Section 3.2, the value of the
benefit in Section 2.4(A)(1) above), his beneficiary (or beneficiaries) will
receive the monthly retirement income, payable for 10 years certain and life
thereafter and beginning on the first date of the month coincident with or next
following the date of the terminated participant's death, which can be provided
on an actuarially equivalent basis by the single-sum value as of the
participant's date of death of the Deferred
<PAGE> 37
- 32 -
Monthly Retirement Income Commencing at Normal Retirement Date which the
participant had accrued to the date of termination of his service; provided,
however, in lieu of payment of such benefit in the form of monthly income
described above, the single-sum value of such benefit may be paid on an
actuarially equivalent basis to the participant's designated beneficiary (or
beneficiaries) for the life of the designated beneficiary (or beneficiaries), if
the participant so elects or, in the event no election is made by the
participant prior to his death, if the beneficiary (or beneficiaries) so elects.
(4) The provisions of Sections 3.1 and 4 hereof are
applicable to the benefits provided under this Section 2.5(A).
(5) Except as specifically provided otherwise in any
supplement hereto and except as provided in Section 2.3 with respect to
disability retirement and Section 2.4(B) below with respect to death, and unless
specifically provided otherwise in the plan, the participant whose service is
terminated prior to his Initial Vesting Date shall not be entitled to any
benefit under the plan whatever.
(B) Benefit Payable in Event of Death While in Service:
(1) If the service of a participant is terminated by
reason of his death, there shall be payable to the participant's designated
beneficiary (or beneficiaries) the monthly retirement income, beginning on the
first day of the month coincident with or next following the date of his death,
which can be provided on an actuarially equivalent basis by:
(a) if the participant's service is terminated
by reason of his death on or prior to his
normal retirement date, the greater of:
(i) an amount equal to the single-sum
value of the Deferred Monthly
Retirement Income Commencing at
Normal Retirement Date which the
participant has accrued to the date
of his death; or
<PAGE> 38
- 33 -
(ii) an amount equal to the smaller of:
(1) $3,000; or
(2) 100 times the monthly
retirement income to which
the participant would have
been entitled on his normal
retirement date in accordance
with the provisions of
Section 2.1(B) hereof if his
employment had not been
terminated but had continued
uninterrupted from the date
of his death to his normal
retirement date;
or
(b) if the participant's service is terminated
by reason of his death after his normal
retirement date, the single-sum value of the
monthly retirement income which the
participant would have been entitled to
receive under the provisions of Section
2.1(B) hereof if he had retired from the
service of the Employer on the date of
termination of his service immediately
preceding his death, where all computations
under this Section 2.4(B)(1)(b) shall be on
the basis of the interest and mortality
assumptions which were being used as of his
normal retirement date to determine
actuarially equivalent values.
(2) Except as provided in Section 2.4(B)(3) below, the
monthly retirement income payments under this Section 2.4(B) shall be payable
for the life of the beneficiary (or beneficiaries) designated or selected under
Section 5.2 to receive such benefit, and, in the event of such beneficiary's
death within a period of 10 years after the participant's death, the same
monthly amount shall be payable for the remainder of such 10-year period in the
manner and subject to the provisions of Section 5.3.
(3) In lieu of the benefits payable in Section 2.4(B)(2)
above, the single-sum value of such benefits may be paid on an actuarially
equivalent basis to the participant's designated beneficiary (or beneficiaries)
for the life of the designated beneficiary (or beneficiaries), if the
participant so elects or, in the event no election is made by the participant
prior to his death, if the beneficiary (or beneficiaries) so elects.
<PAGE> 39
- 34 -
(C) Special Provisions Applicable to Payment of Death Benefits:
Any form of payment applicable to the death benefit provided under Section
2.3(G), 2.4(A)(3) or 2.4(B) hereof, which has been designated by a participant
prior to January 1, 1984 and which satisfies the transitional rule in Section
242(b)(2) of the Tax Equity and Fiscal Responsibility Act of 1982 (P.L. 97-248),
will continue in effect on and after January 1, 1984 with respect to the death
benefits provided under Section 2.3(G), 2.4(A)(3) or 2.4(B) hereof unless such
designated form of payment is subsequently revoked or changed (a change of
beneficiaries under the designation will not be considered to be a revocation or
change of such form of payment so long as the change in beneficiaries does not
alter, directly or indirectly, the period over which distributions are to be
made under such form of payment); provided, however, if a participant, whose
death occurs on or after his Initial Vesting Date, had been married to his
spouse throughout the one-year period immediately preceding his death and he had
designated a person other than his spouse as his beneficiary and such spouse has
not consented to such other person being designated, the provisions of Section
4.1(D) hereof shall apply with respect to payments due his surviving spouse, if
any. Subject to the preceding sentence and except to the extent otherwise
permissible under Section 401(a)(9) of the Internal Revenue Code of 1986, as
amended, and regulations issued pursuant thereto, the benefit payable under
Section 2.3(G), 2.4(A)(3) or 2.4(B) hereof on behalf of any participant whose
death occurs on or after January 1, 1989 must be payable in a manner that
satisfies the restrictions of Section 401(a)(9) of the Internal Revenue Code of
1986, as amended, and, any provisions of such sections to the contrary
notwithstanding, must:
(a) commence not later than April 1st of the calendar year
immediately following the calendar year in which the
participant would attain the age 70-1/2 years; provided,
however, if the beneficiary is not the participant's
<PAGE> 40
- 35 -
spouse, distribution must commence not later than one year
after the date of the participant's death or, if the
participant's surviving spouse was his beneficiary and such
surviving spouse dies prior to the commencement of benefit
payments, distribution must commence not later than one year
after the date of such surviving spouse's death;
(b) be distributed to the participant's beneficiary over one or a
combination of the following periods:
(i) the life of his beneficiary; or
(ii) a period certain not extending beyond the life
expectancy of the beneficiary;
provided, however, if the participant has no designated beneficiary or if the
designated beneficiary is not a living person, such benefit must be distributed
in its entirety to the beneficiary not later than the fifth anniversary of the
date of (i) the participant's death or (ii) the death of the participant's
spouse, whichever death is the later to occur; and provided further, however,
any amount payable to a child of the participant shall be treated for the
purposes of this Section 2.4(C) as if it had been payable to the surviving
spouse of the participant if such amount that is payable to the child will
become payable to such surviving spouse upon such child's reaching majority (or
upon the occurrence of such other designated event permitted under regulations
issued with respect to Section 401(a)(9) of the Internal Revenue Code of 1986,
as amended).
2.5 - MINIMUM ACCRUED MONTHLY INCOME
In the case of a participant whose Credited Service includes service
which was accrued prior to February 17, 1977 and who was a participant in the
Farah Manufacturing Company, Inc. Pension Plan as of February 16, 1977, the
amount of his monthly normal retirement income,
<PAGE> 41
- 36 -
determined under Section 2.1(B) hereof and as applied on his behalf throughout
the plan, and the amount of his Deferred Monthly Retirement Income Commencing at
Normal Retirement Date, determined under Section 1.1(A)(18) hereof and as
applied on his behalf throughout the plan, shall not be less than the amount of
the monthly benefit which he had accrued as of February 16, 1977 under the
provisions of the said Farah Manufacturing Company, Inc. Pension Plan as in
effect on that date.
2.6 - NO DUPLICATION OF BENEFITS
Unless the context clearly provides otherwise, there shall be no
duplication of benefits under the plan or under any supplement hereto, and the
benefits payable under the preceding sections of the plan to or on behalf of a
participant shall be inclusive of the benefits, if any, concurrently payable to
or on behalf of the same participant under all other sections of the plan and
under any supplements hereto.
<PAGE> 42
- 37 -
SECTION 3
SPECIAL PROVISIONS REGARDING PAYMENT OF BENEFITS
3.1 - OPTIONAL FORMS OF RETIREMENT INCOME
In lieu of the amount and form of retirement income payable in the
event of normal retirement, early retirement, disability retirement or
termination of service, as specified in Sections 2.1, 2.2, 2.3 and 2.4(A) hereof
and as subjected to the provisions of Section 4.1 hereof, a participant, upon
written request to the Committee, may elect to receive a retirement income or
benefit of equivalent actuarial value payable in accordance with one of the
options described below commencing on the date as of which such retirement
income is due under the provisions of Section 2.1, 2.2, 2.3 or 2.4(A) hereof,
whichever is applicable, or commencing on such later date -- which shall not be
later than his Required Beginning Date -- as the participant may specify in his
written request.
Option 1: A retirement income of smaller monthly amount,
payable to the participant for his lifetime, and in
the event of his death within a period of 10 years
after the date as of which his retirement income
payments first commenced, the same monthly amount
that was payable to the participant will be payable
for the remainder of such 10-year period to a
beneficiary designated by him.
Option 2: A retirement income of modified monthly amount,
payable to the participant during his lifetime, and in
the event that the participant predeceases his spouse,
50% of such modified monthly amount will be payable
after the death of the participant to such spouse for
the lifetime of the spouse. This option is also
referred to herein as the Qualified Joint and 50%
Survivor Annuity Option.
Any optional form of payment designated by a participant prior to
January 1, 1984, which satisfies the transitional rule in Section 242(b)(2) of
the Tax Equity and Fiscal Responsibility Act of 1982 (P.L. 97-248), will
continue in effect on and after January 1, 1984 unless such optional form of
payment is subsequently revoked or changed (a change of beneficiaries under the
<PAGE> 43
- 38 -
designation will not be considered to be a revocation or change of such optional
form of payment so long as the change in beneficiaries does not alter, directly
or indirectly, the period over which distributions are to be made under such
form of payment); provided, however, that the provisions of Section 4.1(C)
hereof shall apply if the participant has a spouse at the date on which his
initial payment under such optional form is due and his spouse does not consent
to such optional form of payment. Subject to the preceding sentence but
notwithstanding any other provision of this Section 3.1 to the contrary, any
option elected under this Section 3.1 that applies to a benefit commencing on or
after January 1, 1985 must provide that the entire interest of the participant
will be expected to be distributed to the participant and his beneficiaries and
joint pensioners, in a manner that satisfies the restrictions of Section
401(a)(9) of the Internal Revenue Code, over one or a combination of the
following periods:
(a) the life of the participant;
(b) the lives of the participant and his designated
beneficiary or joint pensioner;
(c) a period certain not extending beyond the life
expectancy of the participant; or
(d) a period certain not extending beyond the joint life
and last survivor expectancy of the participant and
his designated beneficiary or joint pensioner.
The amount to be distributed each year under the optional form of payment must
be equal to or greater than the lesser of (i) the single-sum value of the
benefit payable on behalf of the participant or (ii) an amount equal to the
quotient obtained by dividing the single-sum value, determined as of the
beginning of such year or, if later, as of the date of initial distribution of
such benefit to the participant, of the benefit payable on behalf of the
participant by the life expectancy of the participant or by the joint life and
last survivor expectancy of the participant and his designated
<PAGE> 44
- 39 -
beneficiary or joint pensioner, as the case may be; provided, however, no
distribution shall be required or a lesser amount may be distributed if,
beginning with the calendar year during which the participant's Required
Beginning Date occurs and each calendar year thereafter, the aggregate of the
amounts distributed by the end of the applicable calendar year is at least equal
to the aggregate of the minimum amounts which would be required by the above
provisions to have been distributed by the end of such calendar year if payments
had commenced on his Required Beginning Date; and provided further, however,
that an annuity or endowment contract issued by an insurance company which
provides for non-increasing payments over one or a combination of the periods
described in (a), (b), (c) and (d) above beginning not later than the Required
Beginning Date shall satisfy the provisions of this sentence. At the election of
the participant (or, if the participant is deceased, his spouse), the life
expectancy of the participant or the joint life and last survivor expectancy of
the participant and his designated beneficiary or joint pensioner used for the
purposes of this paragraph may be redetermined after the Required Beginning
Date, but not more frequently than annually, only if the participant's
designated beneficiary or joint pensioner is his spouse. Such life expectancy
shall not exceed the period computed by use of the expected return multiples in
Tables V and VI of Section 1.72-9 of the Income Tax Regulations. Any amount that
is payable to the child of a participant under an optional form of payment
hereunder shall be treated for the purposes of satisfying the requirements of
this paragraph as if it had been payable to the surviving spouse of the
participant if such amount that is payable to the child will become payable to
such surviving spouse upon such child's reaching majority (or upon the
occurrence of such other designated event permitted under regulations issued
with respect to Section 401(a)(9) of the Internal Revenue Code).
<PAGE> 45
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Retirement income payments will be made under the option elected in
accordance with the provisions of this section and will be subject to the
following limitations:
(A) If a participant's service is terminated by reason of his
death prior to the date that his retirement income commences
under the plan, no benefit will be payable under the option to
any person.
(B) If a retired or terminated participant dies after the date of
his retirement or termination of service and prior to the date
that his retirement income commences under the plan, no
benefit will be payable under the option to any person unless
such option specifically provides for the payment of a benefit
in such event and the death benefit, if applicable, provided
under Section 2.4(A)(3) hereof has been waived.
(C) If the designated beneficiary or joint pensioner dies before
the date that the participant's retirement income commences
under the plan, the option elected will be cancelled
automatically and a retirement income of the form and amount
otherwise payable in accordance with the provisions of Section
2 hereof will be payable to the participant as if the election
had not been made unless a new election is made in accordance
with the provisions of this section or unless a new
beneficiary or joint pensioner is designated by the
participant prior to the date that his retirement income
commences under the plan and within 90 days after the death of
the prior beneficiary or joint pensioner.
(D) If both the participant and the beneficiary designated by him
die after the date that the participant's retirement income
commences under the plan but before the full payment has been
effected under any option providing for payments for a period
certain, made pursuant to the provisions of this Section 3.1,
the contingent beneficiary pursuant to Section 5.3, in his
discretion, may elect that the remaining payments be made, or
that the commuted value of the remaining payments be paid in a
lump sum, in either case in accordance with Section 5.3
hereof.
(E) If a participant dies after his payments have commenced,
payment of his remaining interest, if any, shall be
distributed, to the extent required by Section 401(a)(9) of
the Internal Revenue Code and regulations issued with respect
thereto, at least as rapidly as provided under the method of
payment in effect prior to his death.
3.2 - LUMP-SUM PAYMENT OF SMALL RETIREMENT INCOME
Notwithstanding any provision of the plan to the contrary, if the
monthly income payable to any person entitled to any benefit hereunder is less
than $50 or if the single-sum value of the retirement income or other benefit
payable to any person entitled to any benefit hereunder is less
<PAGE> 46
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than $5,000, or if such monthly income or single-sum value is less than such
alternate amount that the Committee may from time to time prescribe for
application under this section in lieu of $50 and $5,000, respectively, the
actuarial equivalent of such retirement income or other benefit shall be paid in
a lump sum, subject to the provisions below. Such actuarial equivalent shall be
based upon the mortality and interest assumptions which are being used as of the
date of the participant's retirement or termination of service to determine
actuarially equivalent values; provided, however, that the interest assumption
used to compute the amount of any such lump-sum payment may not be greater than
the interest rate which would be used by the Pension Benefit Guaranty
Corporation for purposes of determining the present value of a lump-sum
distribution on plan termination (as determined under Sections 411(a)(11) and
417 of the Internal Revenue Code and regulations issued pursuant thereto) as of
the first day of the plan year during which the distribution is made. Any
benefit payable under this Section 3.2 shall require the consent of the
recipient and of the participant's spouse, if living, if either (i) the amount
of such lump-sum payment exceeds $3,500 (or such higher amount as may be
permitted from time to time under Sections 411(a)(11) and 417 of the Internal
Revenue Code and the regulations issued pursuant thereto), whether such lump-sum
payment is to be made before or after the participant attains (or would have
attained) age 65, (ii) such lump-sum payment is to be made after the annuity
starting date of the applicable retirement income or other benefit, or (iii) the
date of payment of such lump-sum payment is later than the close of the second
plan year following the plan year in which the date of the participant's
retirement or termination of service occurs, and payment must be made within 90
days after such consent is received by the Committee. Any spousal consent
required under this Section 3.2 must satisfy the requirements of Section 4.1(G)
and Section 417(b)(2) of the Internal Revenue Code. For purposes of this
Section, if the single-sum value of the retirement income or other benefit
<PAGE> 47
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payable pursuant to this Section is zero, the person entitled to such benefit
shall be deemed to have received a distribution of such retirement income or
other benefit.
3.3 - BENEFITS APPLICABLE TO PARTICIPANT WHO HAS
BEEN OR IS EMPLOYED BY TWO OR MORE EMPLOYERS
In the event that a participant's service is terminated for any reason
and such participant has been or is employed by any two or more Employers, his
retirement or termination benefit, if any, shall be computed by applying the
benefit formulas as if all the Employers were a single Employer, provided there
is a proper allocation (taking into account the Credited Service applicable to
each Employer) of the costs of the resulting benefits among the Employers by
which such participant has been or is employed.
3.4 - FUNDING OF BENEFITS THROUGH PURCHASE OF
LIFE INSURANCE CONTRACT OR CONTRACTS
In lieu of paying benefits from the trust fund to a participant or his
beneficiary, upon direction of the Committee with specific prior authorization
in writing from the Employer, the trustee shall enter into a contract or
contracts, or an agreement or agreements, with one or more legal reserve life
insurance companies for the purchase, with funds in the trust, of a retirement
annuity or other form of life insurance contract which, as far as possible,
provides benefits equal to (or actuarially equivalent to) those provided in the
plan for such participant or beneficiary, but provides no optional form of
retirement income or benefit which would not be permitted under Section 3.1
hereof, whereupon such contract shall thereafter govern the payment of the
amount of benefit, if any, represented by such contract, which is payable under
the plan upon the participant's retirement or termination of service, and the
liability of the trust fund and of the plan will cease and terminate with
respect to such benefits that are purchased and for which the premiums are duly
paid.
<PAGE> 48
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Any policy or contract issued under this section shall be subject to the
provisions of Section 4.1 hereof pertaining to the Qualified Joint and 50%
Survivor Annuity Option and to the qualified preretirement survivor annuity.
Any policy or contract issued under this Section 3.4 prior to the
termination of the plan shall provide that the trustee shall retain all rights
of ownership at all times except the right, unless such policy or contract
provides otherwise, to designate the beneficiary or beneficiaries to receive any
benefits payable upon the death of the participant and shall further provide
that all dividends or experience rating credits shall be paid to the trustee and
applied to reduce future Employer contributions to the plan.
Any annuity contract distributed by the trustee to a participant or
beneficiary hereunder shall contain a provision to the effect that the contract
may not be sold, assigned, discounted or pledged as collateral for a loan or as
security for the performance of an obligation or for any other purpose, to any
person other than the issuer thereof.
3.5 - DIRECT ROLLOVERS
This Section 3.5 applies to distributions made on or after January 1,
1993. Notwithstanding any provision of the Plan to the contrary that would
otherwise limit a Distributee's election under this Section 3.5, a Distributee
may elect, at the time and in the manner prescribed by the Committee, to have
any portion of an Eligible Rollover Distribution paid directly to an Eligible
Retirement Plan specified by the Distributee in a Direct Rollover.
(A) Waiver of Notice: If a distribution is one to which Sections
401(a)(11) and 417 of the Internal Revenue Code do not apply, such distribution
may commence less than 30 days after the
<PAGE> 49
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notice required under Section 1.411(a)-11(c) of the Income Tax Regulations is
given, provided that:
(1) the Committee clearly informs the participant that the
participant has a right to a period of at least 30
days after receiving the notice to consider the
decision of whether or not to elect a distribution
(and, if applicable, a particular distribution
option), and
(2) the participant, after receiving the notice,
affirmatively elects a distribution.
(B) Definitions: For purposes of this Section 3.5, the terms described
below shall have the following meanings:
(1) "Eligible Rollover Distribution" means any
distribution of all or any portion of the balance to
the credit of the Distributee, except that an
Eligible Rollover Distribution does not include (a)
any distribution that is one of a series of
substantially equal periodic payments (not less
frequently than annually) made for the life (or life
expectancy) of the Distributee or the joint lives (or
joint life expectancies) of the Distributee and the
Distributee's designated beneficiary, or for a
specified period of ten years or more; (b) any
distribution to the extent such distribution is
required under Section 401(a)(9) of the Internal
Revenue Code; and (c) the portion of any distribution
that is not includible in gross income (determined
without regard to the exclusion for net unrealized
appreciation with respect to employer securities).
(2) "Eligible Retirement Plan" means an individual
retirement account described in Section 408(a) of the
Internal Revenue Code, an individual retirement
annuity described in Section 408(b) of the Internal
Revenue Code, an annuity plan described in Section
403(a) of the Internal Revenue Code, or a qualified
trust described in Section 401(a) of the Internal
Revenue Code, that accepts the Distributee's Eligible
Rollover Distribution; however, in the case of an
Eligible Rollover Distribution to the surviving
spouse, an Eligible Retirement Plan is an individual
retirement account or individual retirement annuity.
(3) "Distributee" includes an Employee or former
Employee. In addition, the Employee's or former
Employee's surviving spouse and the Employee's or
former Employee's spouse or former spouse who is the
alternate payee under a qualified domestic relations
order, as defined in Section 414(p) of the Internal
Revenue Code, are Distributees with regard to the
interest of the spouse or former spouse.
(4) "Direct Rollover" means a payment by the Plan to the
Eligible Retirement Plan specified by the
Distributee.
<PAGE> 50
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SECTION 4
GOVERNMENTAL REQUIREMENTS AFFECTING BENEFITS
4.1 - SPECIAL PROVISIONS REGARDING AMOUNT AND PAYMENT OF
RETIREMENT INCOME
The amount and payment of retirement income determined under Sections
2.1, 2.2, 2.3 and 2.4 hereof shall be subjected to the following provisions of
this Section 4.1.
(A) Maximum Amount of Retirement Income: Any provisions herein to the
contrary notwithstanding, in no event shall the monthly retirement income,
determined under Section 2.1, 2.2, 2.3, or 2.4 hereof, which is payable to a
participant hereunder exceed (1) the maximum amount of retirement income for
Defined Benefit Plans as specified in Section 415(b) of the Internal Revenue
Code or (2) if the participant is a participant in both a Defined Benefit Plan
and a Defined Contribution Plan maintained by the Employer, the maximum amount
of retirement income due to the limitation in the case of a Defined Benefit Plan
and a Defined Contribution Plan for the same employee as specified in Section
415(e) of the Internal Revenue Code. The maximum amounts of retirement income
specified in Sections 4.1(A)(l), 4.1(A)(2) and 4.1(A)(3) below apply to the
amount of retirement income, exclusive of any portion thereof attributable to
the participant's own contributions, if any, which is payable under the plan to
the participant in the form of a straight life annuity (with no ancillary
benefits), where any ancillary benefit which is not directly related to
retirement income payments shall not be taken into account and where that
portion of any joint and survivor annuity which constitutes a qualified joint
and survivor annuity (as defined in Section 417 of the Internal Revenue Code)
shall not be taken into account. In determining the maximum monthly retirement
income payable on behalf of any participant, all Defined Benefit Plans (whether
or not terminated) of (i) all corporations and associations which
<PAGE> 51
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are members of a controlled group of corporations within the meaning of Section
1563(a) of the Internal Revenue Code, determined without regard to Section
1563(a)(4) and Section 1563(e)(3)(C) and substituting "more than 50%" for the
phrase "at least 80%" each place that it appears in Section 1563(a)(1), with
respect to which the Employer is such a member, (ii) all trades or businesses
(whether or not incorporated) which are under common control with the Employer,
as determined under Section 414(c) of the Internal Revenue Code and regulations
issued thereunder, and (iii) all service organizations which are members of an
affiliated service group with respect to which the Employer is such a member, as
determined under Section 414(m) of the Internal Revenue Code and regulations
issued thereunder, are to be treated as one Defined Benefit Plan; and all
Defined Contribution Plans (whether or not terminated) of such corporations,
associations, trades or businesses and service organizations are to be treated
as one Defined Contribution Plan. The proportion of the maximum monthly
retirement income applicable to all such Defined Benefit Plans of such
corporations, associations, trades or businesses and service organizations shall
be determined on a pro rata basis depending upon the actuarially equivalent
amount of retirement income otherwise accrued under each such Defined Benefit
Plan. In the case of an individual who was a participant in one or more Defined
Benefit Plans of the employer as of the first day of the first limitation year
beginning after December 31, 1991, the application of the limitations of this
Section 4.1(A) shall not cause the maximum permissible amount for such
individual under all Defined Benefit Plans to be less than the individual's
current accrued benefit. The preceding sentence applies only if such Defined
Benefit Plan met the requirements of Section 415 of the Internal Revenue Code
for all limitation years beginning before January 1, 1992. An individual's
current accrued benefit is the individual's accrued benefit under the plan
determined as if the participant had separated from service as of the close of
the last limitation year beginning before
<PAGE> 52
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January 1, 1992 when expressed as an annual benefit within the meaning of
Section 415(b)(2) of the Internal Revenue Code disregarding any change in the
terms and conditions of the plan after May 5, 1986 and any cost-of-living
adjustments occurring after May 5, 1986.
(1) Maximum Amount of Retirement Income Due to Restrictions of
Section 415(b) of the Internal Revenue Code: Subject to the provisions of
Section 4.1(A)(3) below, the monthly retirement income (the total applicable to
all such Defined Benefit Plans) payable in the manner described above in this
Section 4.1(A) shall not exceed an amount which is actuarially equivalent to
1/12 of the smaller of:
(a) an amount equal to the sum of $90,000 and the
accumulated increments, if any, which have been added
to such figure on or after January 1, 1988 for
increases in cost-of-living pursuant to the
provisions of Section 415(d) of the Internal Revenue
Code of 1986, as amended; provided, however that:
(i) effective as of January 1, 1992, if the date
of commencement of the participant's
retirement income is after the participant's
Social Security Retirement Age, the $90,000
limitation shall be increased to the
actuarial equivalent (determined in
accordance with Section 415(b)(2)(E) of the
Internal Revenue Code of 1986, as amended)
of a $90,000 annual benefit beginning at the
Social Security Retirement Age
(notwithstanding the foregoing to the
contrary, effective on or after January 1,
1990, but prior to January 1, 1992, the
following shall apply instead of the
foregoing: if the date of commencement of
the participant's retirement income is after
the date on which he attained the age of 65
years, the maximum amount of retirement
income applicable to him under this Section
4.1(A)(1)(a) shall be increased in
accordance with the provisions of Section
415(b)(2)(D) of the Internal Revenue Code
and regulations issued pursuant thereto, so
that such maximum amount applicable to him
is actuarially equivalent to the amount of
retirement income that is applicable under
this Section 4.1(A)(1)(a) to a participant
who is age 65 years); or
(ii) effective as of January 1, 1992, if the date
of commencement of the participant's
retirement income is prior to the
<PAGE> 53
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participant's Social Security Retirement
Age, the $90,000 limitation shall be reduced
to the actuarial equivalent (determined in
accordance with Section 415(b)(2)(E) of the
Internal Revenue Code of 1986, as amended)
of a $90,000 annual benefit beginning at the
Social Security Retirement Age. Such
reduction shall be made in such manner as
shall be prescribed by the Secretary of the
Treasury which is consistent with the
reduction for old-age insurance benefits
under the Social Security Act commencing
before the Social Security Retirement Age
(notwithstanding the foregoing to the
contrary, effective on or after January 1,
1990, but prior to January 1, 1992, the
following shall apply instead of the
foregoing: if the date of commencement of
the participant's retirement income is prior
to the date on which he will attain the age
of 62 years, the maximum amount of
retirement income applicable to him under
this Section 4.1(A)(1)(a) shall be reduced
in accordance with the provisions of Section
415(b)(2)(C) of the Internal Revenue Code
and regulations issued pursuant thereto, so
that such maximum amount applicable to him
is equal to the greater of: (aa) an amount
that is actuarially equivalent to the amount
of retirement income that is applicable
under this Section 4.1(A)(1)(a) to a
participant who is age 62 years; or (bb) an
amount equal to: (1) if the participant has
attained the age of 55 or more years as of
the date of commencement of his retirement
income, $75,000; or (2) if the participant
has not attained the age of 55 years as of
the date of commencement of his retirement
income, an amount that is actuarially
equivalent to the amount of retirement
income that is applicable under (1)
immediately above to a participant who is
age 55 years); or
(iii) if the participant was a participant in the
plan before the limitation year beginning in
1983 and his Credited Service includes
service which was accrued prior to such
limitation year, any provisions of (i) or
(ii) above to the contrary notwithstanding,
the maximum amount of retirement income
applicable to him under the provisions of
this Section 4.1(A)(1)(a) shall not be less
than his current accrued benefit (within the
meaning of Section 235(g)(4) of the Tax
Equity and Fiscal Responsibility Act of
1982) which he would have been entitled to
receive under the provisions of the plan as
in effect on July 1, 1982 if his service had
been terminated on the last day of the
limitation year which immediately precedes
the limitation year beginning in 1983, if
the terms and conditions of the plan as in
effect on July 1, 1982 had
<PAGE> 54
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continued without change and if there were
no cost-of-living adjustments pursuant to
the provisions of Section 415(d) of the
Internal Revenue Code, as amended, occurring
after July 1, 1982; or
(b) an amount equal to the larger of:
(i) the sum of (1) 100% of the
participant's average annual IRC
415 Compensation during the three
consecutive years during which he
received the greatest aggregate IRC
415 Compensation and (2) the
accumulated increments, if any,
which have been added to such
figure on and after January 1, 1988
and after the date of the
participant's retirement or
termination of service for
increases in cost-of-living
pursuant to the provisions of
Section 415(d) of the Internal
Revenue Code; or
(ii) $10,000 but such amount shall apply
only if the Employer has not at any
time maintained a Defined
Contribution Plan in which the
participant participated, and such
amount shall not require any
adjustment to the value of any
retirement benefit payable under
the plan which is not in the form
of a straight life annuity (whether
or not directly related to
retirement benefits);
provided that if the participant has less than 10 years of participation with
the Employer, the limitation described in (a) above is reduced by one-tenth for
each year of participation (or part thereof) less than ten and if the
participant has less than ten years of service with the employer the limitation
described in (b) above is reduced by one-tenth for each year of service (or part
thereof) less than ten. The increments, if any, which are added to the figures
described above for increases in cost-of-living pursuant to the provisions of
Section 415(d) of the Internal Revenue Code shall become effective as of January
1st of each applicable calendar year or, if applicable, as of such other date as
the Secretary of the Treasury or his delegate may prescribe as the date on which
any such increase shall become effective. The mortality and interest assumptions
that are used in computing actuarially equivalent amounts under the above
provisions of this section shall be the
<PAGE> 55
- 50 -
same as those that are used in computing actuarially equivalent benefits payable
on behalf of a participant upon his retirement or termination of service and
upon the exercise of optional forms of retirement income under the plan except
that (a) the interest rate assumption shall not be less than 5% for the purposes
of converting the retirement income to a form other than a straight life annuity
(with no ancillary benefits) and for the purposes of adjusting the maximum
retirement income payable to a participant who is less than age 62 years so that
it is actuarially equivalent to such a retirement income commencing at age 62
years or at age 55 years, whichever is applicable, and (b) the interest rate
assumption shall not be greater than 5% for the purposes of adjusting the
maximum retirement income payable to a participant who is over age 65 years so
that it is actuarially equivalent to such a retirement income commencing at age
65 years.
(2) Maximum Amount of Retirement Income Due to Restrictions of
Section 415(e) of the Internal Revenue Code: Subject to the provisions of
Section 4.1(A)(3) below, the monthly retirement income payable in the form and
manner described above in this Section 4.1(A) to a participant hereunder who is
a participant in both a Defined Contribution Plan and a Defined Benefit Plan to
which the provisions of this Section 4.1(A) apply shall not exceed an amount
equal to:
(a) the smaller of:
(i) the maximum amount of monthly retirement
income determined under Section 4.1(A)(1)(a)
above multiplied by 1.25; or
(ii) the maximum amount of monthly retirement
income determined under Section 4.1(A)(1)(b)
above multiplied by 1.4;
multiplied by
<PAGE> 56
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(b) the excess of (i) 1.0, over (ii) his Defined
Contribution Plan Fraction.
(3) Post-Retirement Cost-of-Living Increases: In the
event that the maximum amount of retirement income specified in Section
4.1(A)(1) of the plan is increased after the date of commencement of a
participant's retirement income due to any cost-of-living adjustment announced
by the Internal Revenue Service pursuant to the provisions of Section 415(d) of
the Internal Revenue Code, the amount of monthly retirement income payable under
the plan to a participant whose retirement income is restricted due to the
provisions of such section of the plan shall be increased, effective as of
January 1st of the calendar year for which such increase becomes effective or,
if applicable, as of such other date as the Secretary of the Treasury or his
delegate may prescribe as the date on which such increase shall become
effective, to reflect the increase in the amount of retirement income that may
be payable under the plan as a result of such cost-of-living adjustment.
(4) IRC Section 415 Definitions: Following are certain
terms which are used herein for the purposes of the limitations under Section
415 of the Internal Revenue Code and which shall have the meanings assigned to
them in Section 415 of said Code and regulations and rulings issued with respect
thereto:
(a) "Defined Benefit Plan" shall have the
meaning assigned in Section 414(j) of the
Internal Revenue Code.
(b) "Defined Benefit Plan Fraction" is the
fraction in which the numerator is the
participant's projected annual benefit
(determined as of the end of the limitation
year) under all Defined Benefit Plans to
which the provisions of this Section 4.1(A)
apply and the
<PAGE> 57
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denominator is the lesser of (i) 1.25
multiplied by the amount determined on
behalf of the participant under Section
4.1(A)(1)(a) above or (ii) 1.4 multiplied by
the amount determined on behalf of the
participant under Section 4.1(A)(1)(b)
above.
(c) "Defined Contribution Plan" shall have the
meaning assigned in Section 414(i) of the
Internal Revenue Code.
(d) "Defined Contribution Plan Fraction" is the
fraction in which the numerator is the sum
of the actual annual additions to the
participant's accounts in such limitation
year and for all prior limitation years
under all Defined Contribution Plans to
which the provisions of this Section 4.1(A)
apply and the denominator is the sum of the
lesser of (i) 1.25 multiplied by the dollar
limitation in effect under Section 415(c) of
the Internal Revenue Code (as modified by
the provisions of Section 415(d) of said
Code) for such limitation year and for all
prior limitation years of such participant's
employment (assuming for this purpose that
said Sections 415(c) and 415(d) had been in
effect during such prior years) and (ii) 1.4
multiplied by 25% of the participant's IRC
415 Compensation for such limitation year
and for all prior limitation years of such
participant's employment.
(e) "IRC 415 Compensation" shall include (i)
wages, salaries, fees for professional
services, and other amounts received
(without regard to whether or not an amount
is paid in cash) for personal services
<PAGE> 58
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actually rendered in the course of
employment with the Employer
to the extent that the amounts are
includible in gross income (including, but
not limited to, commissions paid salesmen,
compensation for services on the basis of a
percentage of profits, commissions on
insurance premiums, tips, bonuses, fringe
benefits, and reimbursements of other
expense allowances under a nonaccountable
plan (as described in Income Tax Regulations
Section 1.62-2(c)), (ii) in the case of a
participant who is an employee within the
meaning of Section 401(c)(1) of the Internal
Revenue Code and the regulations thereunder,
the employee's earned income (as described
in Section 401(c)(2) and the regulations
thereunder), (iii) amounts described in
Sections 104(a)(3), 105(a) and 105(h) of the
Internal Revenue Code, but only to the
extent that these amounts are includible in
the gross income of the participant, (iv)
amounts paid or reimbursed by the Employer
for moving expenses incurred by the
participant, but only to the extent that at
the time of the payment it is reasonable to
believe that these amounts are not
deductible by the participant under Section
217 of the Internal Revenue Code, (v) the
value of a non-qualified stock option
granted to the participant by the Employer,
but only to the extent that the value of the
stock option is includible in the gross
income of the participant for the taxable
year in which granted, (vi) the amount
includible in the gross income of the
participant
<PAGE> 59
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upon making the election described in
Section 83(b) of the Internal Revenue Code
and (vii) any amounts received by the
participant pursuant to an unfunded
non-qualified plan in the year such amounts
are includible in the gross income of the
participant. Paragraphs (i) and (ii) above
include foreign earned income (as defined in
Section 911(b) of the Internal Revenue
Code), whether or not excludable from gross
income under Section 911 of the Internal
Revenue Code, compensation described in
paragraph (i) above shall be determined
without regard to the exclusions from gross
income in Sections 931 and 933 of the
Internal Revenue Code and similar principles
are applied with respect to income subject
to Sections 931 and 933 in determining
compensation in paragraph (ii) above.
Compensation as defined above shall exclude
(i) contributions by the Employer to a plan
of deferred compensation which are not
included in the participant's gross income
for the taxable year in which contributed,
(ii) contributions by the Employer under a
simplified employee pension plan for the
taxable year in which contributed, (iii) any
distribution from a plan of deferred
compensation, (iv) amounts realized from the
exercise of a non-qualified stock option,
(v) amounts realized when restricted stock
(or property) held by the participant either
becomes freely transferable or is no longer
subject to a substantial risk of forfeiture,
(vi) amounts realized from the sale,
exchange or other disposition of stock
acquired under a
<PAGE> 60
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qualified stock option, (vii) other amounts
which received special tax benefits and
(viii) contributions made by the Employer
(whether or not under a salary reduction
agreement) towards the purchase of an
annuity described in Section 403(b) of the
Internal Revenue Code (whether or not the
amounts are actually excludable from the
gross income of the participant). For
limitation years beginning after December
31, 1991, IRC 415 Compensation for a
limitation year is the IRC 415 Compensation
actually paid or made available during such
limitation year.
(f) "limitation year" is the 12-month period
which is used for application of the
limitations under Section 415 of the
Internal Revenue Code and, unless a
different 12-month period has been elected
by the Employer in accordance with rules or
regulations issued by the Internal Revenue
Service or the Department of Labor, shall be
the calendar year.
(g) effective as of January 1, 1992, "Social
Security Retirement Age" is the age used as
the retirement age for the participant under
Section 216(l) of the Social Security Act,
except that such Section shall be applied
(i) without regard to the age increase
factor, and (ii) as if the early retirement
age under Section 216(l)(2) thereof was age
62.
(h) effective as of January 1, 1992, "annual
addition" is employer contributions,
forfeitures, employee contributions, amounts
<PAGE> 61
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allocated after March 31, 1984 to an
individual medical account that is part of a
pension or annuity plan maintained by the
Employer, amounts derived from contributions
paid or accrued after December 31, 1985, in
taxable years ending after such date, that
are attributable to post-retirement medical
benefits allocated to the separate account
of a key employee (as defined in Section
419A(d)(3) of the Internal Revenue Code)
under a welfare benefit fund and allocations
under a simplified employee pension, but
effective from January 1, 1990 to prior to
January 1, 1992, instead of all employee
contributions counting as "annual
additions", only employee contributions
exceeding 6% of the employee's IRC 415
Compensation for the limitation year or, if
less, one-half of such employee
contributions shall count as annual
additions.
(B) Minimum Benefits on Normal or Early Retirement: Any provisions
of Section 2.1 or 2.2 hereof to the contrary notwithstanding, in the event of
the normal retirement or early retirement of a participant in accordance with
the provisions of Section 2.1 or 2.2 hereof, his monthly retirement income
determined in accordance with the provisions of Section 2.1(B) or 2.2(B) hereof,
whichever is applicable, shall not be less than the monthly retirement income,
if any, determined in accordance with the provisions of Section 2.1(B) or
Section 2.2(B) hereof that such participant would have received as of any
earlier date of retirement if he had retired under the provisions of Section 2.1
or 2.2 at any time prior to his actual date of retirement.
(C) Requirement With Respect to Form of Payment: The Committee
shall provide each participant no less than 30 days and no more than 90 days
before the date as of which his
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retirement income payments are scheduled to commence under the provisions of
Sections 2.1(C), 2.2(C), 2.3(F) and 2.4(A)(2) written notification of:
(1) the terms and conditions of payment under Sections
2.1(C), 2.2(C), 2.3(F) and 2.4(A)(2) hereof;
(2) the terms and conditions of payment under the
Qualified Joint and 50% Survivor Annuity Option
described in Section 3.1 hereof;
(3) the participant's right to make and the effect of an
election to waive the Qualified Joint and 50%
Survivor Annuity Option;
(4) the rights of the participant's spouse;
(5) the right to make, and the effect of, a revocation of
a previous election to waive the Qualified Joint and
50% Survivor Annuity Option; and
(6) the relative values of the various optional forms of
benefit under the plan.
Any provisions of Section 2.1(C), 2.2(C), 2.3 (F), 2.4(A)(2) or 3.1 hereof to
the contrary notwithstanding, if a participant, who has a spouse at the date on
which his retirement income payments are scheduled to commence as specified
under the provisions of said sections, does not elect, in writing filed with the
Committee (and with the consent of his spouse if the date of such commencement
of payments is on or after January 1, 1985) during the election period described
below, to receive the retirement income payable on his behalf either (i) under
the form of payment specified in Section 2.1(C), 2.2(C), 2.3(F) or 2.4(A)(2),
whichever is applicable, or (ii) under an optional form of payment described in
and subject to the provisions of Section 3.1 hereof, such participant shall be
deemed to have elected (and his retirement income shall be payable on an
actuarially equivalent basis in accordance with the provisions of) the Qualified
Joint and 50% Survivor Annuity Option. Any such married participant may make an
election under this section
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at any time during the period beginning on the date which is 90 days prior to
the date as of which his retirement income payments are to commence under
Section 2.1(C), 2.2(C), 2.3(F) or 2.4(A)(2), whichever is applicable, and ending
on the latest to occur of (i) such applicable date, (ii) the date which is 90
days after the date on which he was provided with the general written
explanation described above or (iii) the date which is 90 days after the date on
which he was provided with any specific detailed information concerning the
payment of his retirement income that is required to be furnished due to the
request of the participant. If any such participant does not file his election
with the Committee prior to the expiration of the election period described
above, the commencement of his retirement income may be delayed until the end of
such election period, but he will be entitled to a retroactive payment with
respect to those retirement income payments which were delayed. If any
participant has elected a form of payment other than that provided under the
Qualified Joint and 50% Survivor Annuity Option, he may subsequently revoke such
election, in writing filed with the Committee within the election period
described above, in order to receive his retirement income payable in accordance
with this Section 4.1(C). The consent of the participant's spouse during such
election period shall be required in order for a participant, whose retirement
income payments initially commence on or after January 1, 1985, to receive his
retirement income in a form other than that provided under the Qualified Joint
and 50% Survivor Annuity Option.
(D) Qualified Preretirement Survivor Annuity: If a deceased
participant, whose death occurs on or after his Initial Vesting Date and on or
after January 1, 1985 and on whose behalf a death benefit is payable under
Section 2.3(G), 2.4(A)(3) or 2.4(B) hereof, had been married to his spouse
throughout the one-year period immediately preceding his death and he had
designated a person other than his spouse as his beneficiary at a time other
than during the election period
<PAGE> 64
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described below or such spouse has not consented to such other person being
designated as the beneficiary, the participant shall be deemed to have:
(1) revoked his prior designation of beneficiary;
(2) designated such spouse as his beneficiary to receive a
portion of the death benefit payable on his behalf
under Section 2.3(G), 2.4(A)(3) or 2.4(B), whichever
is applicable;
(3) specified that the portion of the benefit provided
under Section 2.3(G), 2.4(A)(3) or 2.4(B) that is
payable to his surviving spouse will be payable as an
actuarially equivalent monthly income payable on the
first day of each month with the first payment being
due (only if said spouse is then living) on the
earliest date as of which payments to the participant
could have commenced under Section 2.1, 2.2 or 2.4(A)
hereof, as the case would be, if the participant had
survived until such date (such date is hereinafter
referred to in this Section 4.1(D) as the "Earliest
Annuity Commencement Date"), and with the last payment
being the payment due next preceding such spouse's
death;
(4) specified that the portion of the benefit provided
under Section 2.3(G), 2.4(A)(3) or 2.4(B) that is
payable to the surviving spouse shall have an
actuarially equivalent single-sum value, determined as
of the date of his death, of the monthly retirement
income that would be payable to his surviving spouse,
commencing on the Earliest Annuity Commencement Date,
under the Qualified Joint and 50% Survivor Annuity
Option if:
<PAGE> 65
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(a) the participant terminated on the date of
his death for a reason other than disability
retirement or death (or, if the participant
is a vested terminated participant entitled
to a benefit under Section 2.4(A) hereof, he
had survived to the Earliest Annuity
Commencement Date);
(b) the participant had (for the purposes of
determining the amount of such monthly
retirement income commencing at the Earliest
Annuity Commencement Date) waived the death
benefit coverage under Section 2.4(A)(3)
hereof, if applicable, during the period
beginning on the date of his death and
ending on the Earliest Annuity Commencement
Date; and
(c) the participant had died immediately after
such commencement of payments (one-half of
the initial payment which would have been
due the participant on such Earliest Annuity
Commencement Date shall be included in the
determination of such single-sum value); and
(5) designated such other person (or persons) that was
named as his beneficiary under such revoked
designation as the beneficiary to receive the
remaining portion of such benefit payable on his
behalf under and in accordance with the provisions of
Section 2.3(G), 2.4(A)(3) or 2.4(B) hereof.
The election period during which a participant may designate a person other than
his spouse as his beneficiary such that the benefit described above ("qualified
preretirement survivor annuity") will not be paid to his spouse is the period
which begins on the first day of the plan year in which the
<PAGE> 66
- 61 -
participant attains age 35 and ends on the date of the participant's death. If a
participant separates from service prior to the first day of the plan year in
which age 35 is attained, with respect to benefits accrued prior to separation,
the election period shall begin on the date of separation. A participant who
will not yet attain age 35 as of the end of any current plan year may make a
special qualified election to waive the qualified preretirement survivor annuity
for the period beginning on the date of such election and ending on the first
day of the plan year in which the participant will attain age 35. Such election
will not be valid unless the participant receives a written explanation of the
qualified preretirement survivor annuity in such terms as are comparable to the
explanation required under Section 4.1(C). Qualified preretirement survivor
annuity coverage will be automatically reinstated as of the first day of the
plan year in which the participant attains age 35. Any new waiver on or after
such date shall be subject to the full requirements of this Section 4.1.
The Committee shall provide each participant within the applicable
period for such participant, a written explanation of the qualified
preretirement survivor annuity in such terms and in such a manner as would be
comparable to the explanation provided for meeting the requirements of Section
4.1(C) applicable to a Qualified Joint and 50% Survivor Annuity Option. The
applicable period for a participant is whichever of the following periods ends
last: (i) the period beginning with the first day of the plan year in which the
participant attains age 32 and ending with the close of the plan year preceding
the plan year in which the participant attains age 35; (ii) a reasonable period
ending after the individual becomes a participant, (iii) a reasonable period
ending after the "subsidization rule" described below ceases to apply to the
participant; (iv) a reasonable period ending after this Section 4.1(D) first
applies to the participant. Notwithstanding the foregoing, notice must be
provided within a reasonable period ending after
<PAGE> 67
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separation of service in case of a participant who separates from service before
attaining age 35. For purposes of the preceding paragraph, a reasonable period
ending after the enumerated events described in (ii), (iii) and (iv) is the end
of the two year period beginning one year prior to the date the applicable event
occurs and ending one year after that date. In the case of a participant who
separates from service before the plan year in which age 35 is attained, notice
shall be provided within the two year period beginning one year prior to
separation and ending one year after separation. If such a participant
thereafter returns to employment with the Employer, the applicable period for
such participant shall be redetermined. Notwithstanding the other requirements
of this Section 4.1(D), the respective notices prescribed by this section need
not be given to a participant if the plan "fully subsidizes" the costs of a
qualified preretirement survivor annuity, and the plan does not allow the
participant to waive the qualified preretirement survivor annuity and does not
allow a married participant to designate a nonspouse beneficiary. For these
purposes, a plan fully subsidizes the costs of a benefit if under the plan no
increase in cost or decrease in benefits to the participant may result from the
participant's failure to elect another benefit. Prior to the time the plan
allows the participant to waive the qualified preretirement survivor annuity,
the plan may not charge the participant for the cost of such benefit by reducing
the participant's benefits under the plan or by any other method. In lieu of the
payment of such benefit to the surviving spouse of a participant in the form of
monthly income described in Section 4.1(D)(3) above commencing at the Earliest
Annuity Commencement Date, such benefit may be paid on an actuarially equivalent
basis to the participant's spouse, subject to the provisions of Section 2.4(C)
hereof, in an optional form available under Section 3.1 and commencing on such
other date as the surviving spouse may elect. For the purposes of Sections
4.1(D)(3) and 4.1(D)(4) above, the Earliest Annuity Commencement Date of a
deceased disabled participant on
<PAGE> 68
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whose behalf a death benefit is payable under Section 2.3(G) hereof and the
monthly retirement income that would be payable to his surviving spouse,
commencing on the Earliest Annuity Commencement Date, under the Qualified Joint
and 50% Survivor Annuity Option, shall be determined as though such participant
had recovered from his total and permanent disability and had reentered the
service of the Employer immediately prior to his death.
If the beneficiary of a participant is his spouse but the participant
elects, pursuant to the provisions of Section 2.4(A)(3) or 2.4(B) hereof,
whichever is applicable, an actuarially equivalent form of payment of the
benefit provided under such applicable section that does not provide for monthly
payments during the lifetime of his spouse in an amount at least as great as the
actuarially equivalent income, if any, which would have been payable to such
spouse under the provisions of the Qualified Joint and 50% Survivor Annuity
Option if the participant had retired under the provisions of Section 2.1 or 2.2
hereof or his retirement income payments due under Section 2.4(A) hereof had
commenced, whichever is applicable, on the day before his death while said
option was in effect and he had died immediately thereafter, the Committee shall
inform such participant that such election will constitute an election not to
receive a benefit which has the effect of a qualified preretirement survivor
annuity provided under a qualified joint and survivor annuity as described in
Section 417 of the Internal Revenue Code of 1986, as amended, and shall require
the consent of the participant's spouse.
There shall be no duplication between the benefits provided under
Sections 2.3(G), 2.4(A)(3) and 2.4(B) and under the qualified preretirement
survivor annuity described in this Section 4.1(D), but the benefits under each
shall be inclusive of the benefits under the other.
(E) Latest Date of Commencement of Benefits to 5-Percent Owner: Any
provisions of Section 2.1 or 3.1 hereof to the contrary notwithstanding,
distribution on or after January 1, 1985
<PAGE> 69
- 64 -
of the accrued benefit to which a participant, who is a 5-percent owner (within
the meaning of Section 416(i) of the Internal Revenue Code), has a
nonforfeitable interest must commence, regardless of whether or not his service
has been terminated, on a date not later than his Required Beginning Date;
provided, however, if an election of a form of payment has been made by a
participant prior to January 1, 1984 and such election provides for the
commencement of the participant's benefit at a date later than the dates
specified in (a), (b) and (c) above, distribution of the participant's accrued
benefit shall commence and be payable in accordance with such election provided
that such election both (1) satisfies the transitional rule in Section 242(b)(2)
of the Tax Equity and Fiscal Responsibility Act of 1982 (P.L. 97-248) and (2)
has not been subsequently revoked or changed (a change of beneficiaries under
the designation will not be considered to be a revocation or change of such form
of payment so long as the change in beneficiaries does not alter, directly or
indirectly, the period over which distributions are to be made under such form
of payment); and provided further, however, that the provisions of Section
4.1(C) hereof shall apply if the participant has a spouse at the date on which
his initial payment under such optional form of payment is due and his spouse
does not consent to such optional form of payment. Any such participant, whose
retirement income payments are required under the provisions of this Section
4.1(E) to commence prior to the date that his service is terminated, shall be
treated in all respects under the plan on and after the date of commencement of
his retirement income payments in the same manner as though he had actually
retired on such date of commencement of payments.
(F) Consent Required for Commencement of Retirement Income Prior to
Normal Retirement Date: Any provisions of Section 2.2 or 2.4(A) hereof to the
contrary notwithstanding, in order to receive retirement income payments under
either of such sections that commence prior
<PAGE> 70
- 65 -
to the date on which the participant will attain the age of 65 years, the
written consent of the participant must be filed with the Committee within 90
days of the date as of which his retirement income payments are to commence. In
the event that such consent is not filed within such period, the commencement of
retirement income payments to the participant shall be deferred until the first
day of the month coincident with or next following the date on which he will
attain the age of 65 years, and the benefit payable to such participant (or to
his beneficiary in the event of his death prior to such deferred commencement
date) shall be determined in the manner described in Section 2.4(A) hereof.
(G) Spousal Consent Requirement and Waiver: Any provisions herein to
the contrary notwithstanding, if the consent of the spouse of the participant is
required under the provisions hereof for any specified action that is required
hereunder, such consent (i) must be in writing, (ii) the related election must
designate a specific alternate beneficiary, including any class of beneficiaries
or any contingent beneficiaries, which may not be changed without spousal
consent (or the spouse expressly permits designations by the participant without
any further spousal consent) and, with respect to a waiver of the Qualified
Joint and 50% Survivor Annuity Option only, the related election must designate
a form of benefit payment which may not be changed without spousal consent (or
the spouse expressly permits designations by the participant without any further
spousal consent), (iii) the consent must acknowledge the effect of the election,
and (iv) the consent must be witnessed by a plan representative or a notary
public; provided, however, that such spousal consent for any such specified
action that is required hereunder shall, unless otherwise required by the
Committee or by applicable law, be waived for the purposes of the plan if:
<PAGE> 71
- 66 -
(1) the spouse has previously consented to such
designation in accordance with the provisions above
and such previous consent (a) permits changes with
respect to such designation without any requirement of
further consent by such spouse and (b) acknowledges
the effect of such consent by the spouse; or
(2) it is established to the satisfaction of the Committee
that such consent may not be obtained because there is
no spouse, because the spouse cannot be located or
because of such other circumstances as the Secretary
of the Treasury or his delegate may prescribe by
regulations as reasons for waiving the spousal consent
requirement.
Any consent by a spouse obtained under this provision (or establishment that the
consent of a spouse may not be obtained) shall be effective only with respect to
such spouse. A consent that permits designations by the participant without any
requirement of further consent by such spouse must acknowledge that the spouse
has the right to limit consent to a specific beneficiary, and a specific form of
benefit where applicable, and that the spouse voluntarily elects to relinquish
either or both of such rights. A revocation of a prior waiver pursuant to a
spouse's consent may be made by a participant without the consent of the spouse
at any time prior to the commencement of benefits. The number of revocations
shall not be limited. No consent obtained under this provision shall be valid
unless the participant has received notice as provided in Section 4.1(C) or
4.1(D), as is applicable.
(H) Minimum Preserved Benefit Due to Change in Actuarial Assumption: In
the event that the plan is or has been amended after January 1, 1982 to change
the actuarial assumptions used to determine actuarially equivalent benefits
payable under the plan, the monthly retirement
<PAGE> 72
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income or other benefit, if any, payable under the provisions of Section 2.1,
2.2, 2.3 or 2.4 (and Section 3.1 if an optional form of payment is applicable)
on behalf of a participant, who was a participant in the plan as of the day
immediately preceding the date that the change in assumptions becomes effective
(herein referred to as the "Preservation Date") and who retires or whose service
is terminated after the Preservation Date, shall be at least equal to the
corresponding amount of the monthly retirement income or other benefit, if any,
payable on his behalf under the provisions of Section 2.1, 2.2, 2.3 or 2.4 (and
Section 3.1 if an optional form of payment is applicable), as the case may be,
of the plan as in effect on the Preservation Date computed using the Deferred
Monthly Retirement Income Commencing at Normal Retirement Date which he had
accrued as of the Preservation Date under the provisions of the plan as in
effect on the Preservation Date and using the mortality table and interest rate
assumptions that applied under the provisions of the plan as in effect on the
Preservation Date to compute actuarially equivalent benefits payable on behalf
of participants who retired or whose service was terminated on the Preservation
Date.
4.2 - TEMPORARY LIMITATIONS ON BENEFITS
REQUIRED BY THE INTERNAL REVENUE SERVICE
This Section 4.2 is applicable only to those of the 25 highest-paid
employees of each Employer, determined as of the applicable dates specified
below, whose monthly retirement income upon normal retirement would exceed $125.
The term "employee" as used in this Section 4.2 shall include all such employees
in the employment of the Employer who are participants in the plan on such
applicable dates and all other persons in the employment of such Employer on
such dates who may later become participants in the plan.
Notwithstanding any provision of any other section of the plan to the
contrary, the amount of Employer contributions (or funds attributable thereto)
which may be used to provide the benefits
<PAGE> 73
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for any participant to whom this Section 4.2 is applicable, who is within the
applicable group of the 25 highest-paid employees as hereinafter described,
shall not exceed an amount which is equal in value to (or which is actuarially
equivalent to) the amount specified below with respect to the period for which
the limitations described herein shall be applicable.
(A) This Subsection 4.2(A) is applicable to any employee who is in
the group of the 25 highest-paid employees of an Employer,
determined as of the effective date of the plan applicable to
such Employer, except that the provisions of Subsection 4.2(B)
below shall apply to any such employee of any such Employer
who is also in the group of the 25 highest-paid employees
determined as of any date that the provisions of Subsection
4.2(B) are applicable. The amount of Employer contributions
(or funds attributable thereto) which may be used to provide
benefits for any such participant to whom this Subsection
4.2(A) is applicable, which may be received prior to the end
of the 10-year period that next follows the effective date of
the plan applicable to the Employer concerned, shall not
exceed an amount which is equal in value to (or which is
actuarially equivalent to) the largest of the following
amounts:
(1) the amount, if any, of Employer contributions (or
funds attributable thereto) which would have been
applied to provide the benefits for such participant
if the superseded plan as in effect on the day
immediately preceding the effective date of the plan
had been continued without change;
(2) $20,000; or
(3) the sum of:
(a) the amount, if any, of Employer
contributions (or funds attributable
thereto) which would have been applied to
provide the benefits accrued to the
participant on the day immediately preceding
the effective date of the plan under the
provisions of the superseded plan as in
effect on such day; and
(b) an amount computed by multiplying the number
of years elapsed since the effective date of
the plan, for which the full current costs
of the plan have been met, by the smaller of
the following amounts:
(i) $10,000; or
(ii) an amount equal to 20% of the
participant's average regular
annual compensation received from
the Employer for the five years
immediately preceding the date of
such determination or, if earlier,
the date of termination of service
of a
<PAGE> 74
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terminated participant, the date of
retirement of a participant who has
retired prior to his normal
retirement date or the normal
retirement date of a participant
who has attained his normal
retirement age whether or not he
has retired under the plan;
provided, however, if the full current costs of the plan have
not been met at the end of the 10-year period that next
follows the effective date of the plan applicable to the
Employer concerned, the above limitations will continue to
apply until the full current costs have been funded for the
first time.
(B) This Subsection 4.2(B) is applicable to any employee who is in
the group of the 25 highest-paid employees of an Employer
determined as of the date after the effective date of the plan
that the plan is amended so as to produce an increase in
benefits actually payable. The amount of Employer
contributions (or funds attributable thereto) which may be
used to provide the benefits for any such participant to whom
this Subsection 4.2(B) is applicable, which may be received
prior to the end of the 10-year period that next follows the
effective date of such amendment, shall not exceed an amount
which is equal in value to (or which is actuarially equivalent
to) the largest of the following amounts:
(1) the amount, if any, of Employer contributions (or
funds attributable thereto) which would have been
applied to provide the benefits for such participant
if the plan as in effect immediately prior to such
amendment had been continued without change;
(2) $20,000; or
(3) the sum of:
(a) the amount, if any, of Employer
contributions (or funds attributable
thereto) which would have been applied to
provide the benefits accrued to the
participant on the day immediately preceding
the effective date of such amendment under
the provisions of the plan as in effect
immediately prior to such amendment; and
(b) an amount computed by multiplying the number
of years elapsed since the effective date of
such amendment, for which the full current
costs of the plan have been met, by the
smaller of the following amounts:
(i) $10,000; or
(ii) an amount equal to 20% of the
participant's average regular
annual compensation received from
the Employer for the five
<PAGE> 75
- 70 -
years immediately preceding the
date of such determination or, if
earlier, the date of termination of
service of a terminated
participant, the date of retirement
of a participant who has retired
prior to his normal retirement date
or the normal retirement date of a
participant who has attained his
normal retirement age whether or
not he has retired under the plan;
provided, however, if the full current costs of the plan have
not been met at the end of the 10-year period that next
follows the effective date of such amendment to the plan, the
above limitations will continue to apply until the full
current costs have been funded for the first time.
(C) Notwithstanding the provisions of Subsections 4.2(A) and
4.2(B) above, the amount specified in such subsections shall
not be less than either:
(1) if the participant is a substantial owner within the
meaning of Section 4022(b)(5) of the Employee
Retirement Income Security Act of 1974 ("ERISA"), the
present value of the benefit guaranteed on his behalf
under Section 4022 of ERISA or, if the plan has not
been terminated, the present value of the benefit
that would be guaranteed on his behalf under such
section if the plan were terminated on the date his
benefit commences, determined in accordance with
regulations of the Pension Benefit Guaranty
Corporation; or
(2) if the participant is not a substantial owner within
the meaning of Section 4022(b)(5) of ERISA, the
present value of the maximum benefit described in
Section 4022(b)(3) of ERISA (determined on the date
the plan terminates or on the date his benefits
commence, whichever is earlier) without regard to any
other limitations in Section 4022 of ERISA.
The foregoing conditions will not restrict the payment of the full
benefits to a beneficiary after the death of a participant whose benefits are
subject to the provisions of this Section 4.2, if, at the time of such death,
the plan is in full effect and the full current costs thereof have been met.
The provisions of this Section 4.2 will not apply to the retirement
income payable in a form which does not provide a larger monthly income than a
straight life income to any participant retiring or receiving benefits during
any period in which the plan is in full effect and the full current costs
thereof have been met.
<PAGE> 76
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The limitations will not apply to the payment of any survivorship
income with respect to any deceased participant or retired participant who dies
prior to the termination of the plan and while the full current costs thereof
have been met.
The provisions of this Section 4.2 will not prevent the payment of a
benefit larger than a monthly straight life income to a participant whose
benefits are restricted under this Section 4.2 if the participant enters into an
agreement with the trustee, adequately secured, in conformity with the
requirements of the Internal Revenue Service, that should the plan terminate or
should the full current costs of the plan not be met at any time prior to the
end of the 10-year period that next follows the effective date of the plan or
any amendment thereto applicable to the Employer, the participant will repay any
part of the distribution which is restricted under this Section 4.2.
In the event of the termination of the plan while the limitations of
this Section 4.2 are in effect, the portion of the assets of the trust fund
arising from contributions made by the Employer concerned with respect to those
of its participants to whom the provisions of this Section 4.2 are applicable
which is in excess of the foregoing limitations will be allocated to its other
participants, including its retired participants, in accordance with the
provisions contained in Section 4.5 hereof; provided, however, subject to the
provisions of Section 4.5(E) hereof pertaining to the approval of the method of
distribution, if there be any asset value remaining after the full allocations
to the participants and their beneficiaries as Section 4.5(C) hereof but prior
to the distribution of any residual assets to the Employer as specified in said
Section 4.5(C), allocation shall be made in a nondiscriminatory manner with
respect to each participant to whom the provisions of this Section 4.2 are
applicable in the amount required to provide that portion of the allocation
provided on his behalf under Section 4.5(C) to which he is not entitled by
reason of the foregoing limitations of this Section 4.2; and provided further
that, if such remaining asset value
<PAGE> 77
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be less than the aggregate of such amounts, such amounts shall be reduced pro
rata among such individuals so that the aggregate of such reduced amounts will
be equal to such remaining asset value.
Notwithstanding the foregoing to the contrary, effective as of January
1, 1994, the following shall apply instead of the foregoing. In the event of
plan termination, the benefit of any highly compensated active or former
employee is limited to a benefit that is nondiscriminatory under Section
401(a)(4) of the Internal Revenue Code.
Benefits distributed to any of the 25 most highly compensated active and
highly compensated former employees with the greatest compensation in the
current or any prior year are restricted such that the annual payments are no
greater than an amount equal to the payment that would be made on behalf of the
employee under a straight life annuity that is the actuarial equivalent of the
sum of the employee's accrued benefit, the employee's other benefits under the
plan (other than a social security supplement, within the meaning of Section
1.411(a)-7(c)(4)(ii) of the Income Tax Regulations), and the amount the employee
is entitled to receive under a social security supplement.
The preceding paragraph shall not apply if: (1) after payment of the
benefit to an employee described in the preceding paragraph, the value of plan
assets equal or exceeds 110% of the value of current liabilities, as defined in
Section 412(1)(7) of the Internal Revenue Code, (2) the value of the benefits
for an employee described above is less than 1% of the value of current
liabilities before distribution, or (3) the value of the benefits payable under
the plan to an employee described above does not exceed $3,500.
For purposes of this section, benefit includes loans in excess of the
amount set forth in Section 72(p)(2)(A) of the Internal Revenue Code, any
periodic income, any withdrawal values
<PAGE> 78
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payable to a living employee, and any death benefits not provided for by
insurance on the employee's life.
4.3 - BENEFITS NONFORFEITABLE IF PLAN IS TERMINATED
In the event of the termination or partial termination of the plan, the
rights of each affected participant in the plan to benefits accrued to such date
of termination, to the extent then funded, shall be nonforfeitable, where such
benefits shall be determined and distributed as provided in Section 4.5 hereof.
4.4 - MERGER OF PLAN
In the case of the merger or consolidation of the plan with, or the
transfer of assets or liabilities to, another qualified retirement plan, each
participant must be entitled to receive a benefit, upon termination of such
other retirement plan after such merger, consolidation or transfer, which is at
least equal to the benefit which he would have been entitled to receive
immediately before the merger, consolidation or transfer if the plan hat been
terminated at that time.
4.5 - TERMINATION OF PLAN AND DISTRIBUTION OF TRUST FUND
Upon termination of the plan in accordance with the provisions hereof,
the trust fund shall be allocated and distributed in accordance with the
following procedure:
(A) The Committee shall determine the date of distribution and the asset
value to be distributed, after taking into account the expenses of such
distribution.
(B) The Committee shall determine the method of distribution of the
asset value -- that is, whether distribution shall be by payment in cash, by
transfer to individual retirement accounts established under Section 408 of the
Internal Revenue Code of 1986, as amended, by the
<PAGE> 79
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maintenance of another or substituted trust fund, by the purchase of insured
annuities, or in kind based on the then market value -- for each class of
participants and other persons entitled to benefits under the plan, as specified
in (C) below.
(C) The Committee shall determine the share of the asset value available
for distribution on behalf of each Employer or group of Employers with respect
to which the plan represents a single plan after taking into account the
expenses of such distribution. After having determined such asset value
available for distribution to each such Employer or group of Employers, as the
case may be, and subject to the applicable provisions of any supplement hereto
pertaining to the distribution of assets upon the termination of the plan, the
Committee shall allocate such asset value (allocated to the particular Employer
or group of Employers) as of the date of termination of the plan in the manner
set forth below to determine the amount, if any, to which each affected
participant or beneficiary is entitled. Such allocation shall be made using the
methods and actuarial assumptions that are being used as of the date of
termination of the plan by the Pension Benefit Guaranty Corporation in
determining the value of plan benefits under terminating non-multiemployer
pension plans covered by Title IV of the Employee Retirement Income Security
Act of 1974, as amended, or, at the option of the Committee, using such other
methods and actuarial assumptions that are mutually acceptable to the Committee,
the Pension Benefit Guaranty Corporation and the Internal Revenue Service.
(1) Allocation shall first be made with respect to each
active, retired or terminated participant and to each
beneficiary of a deceased participant in an amount
equal to (a) the amount, if any, credited to his
account under the plan on the date of termination of
the plan that is attributable to his voluntary
employee contributions or (b) if the funds
attributable to his voluntary employee contributions
are being used to provide an actuarially equivalent
benefit, the amount required to provide (after the
date of termination of the plan) that portion of his
benefit which is attributable to his voluntary
employee contributions; provided, however, that if the
asset value
<PAGE> 80
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be less than the aggregate of such amounts, such
amounts shall be reduced pro rata among such
individuals so that the aggregate of such reduced
amounts will be equal to the asset value; and
provided further, however, that the benefits on which
the allocations specified below are based shall
exclude any portion thereof attributable to the
participant's voluntary employee contributions.
(2) If there be any asset value remaining after the
allocation under (1) above, allocation shall next be
made with respect to each active, retired or
terminated participant and to each beneficiary of a
deceased participant in an amount equal to the
excess, if any, of (a) the participant's mandatory
employee contributions, if any, together with
interest credited thereto over (b) the aggregate of
payments, if any, exclusive of payments attributable
to the participant's voluntary employee
contributions, if any, which have previously been
made on behalf of the participant; provided, however,
that if such remaining asset value be less than the
aggregate of the amounts thus allocated hereunder,
such latter amounts shall be reduced pro rata among
such individuals so that the aggregate of such
reduced amounts will be equal to the remaining asset
value.
(3) If there be any asset value remaining after the
allocations under (1) and (2) above, allocation shall
next be made with respect to:
(a) each retired or terminated participant whose
retirement income payments commenced at
least three years prior to the date of
termination of the plan in an amount equal
to (i) the excess, if any, of the amount
required to provide (after the date of
termination of the plan) the smallest amount
of income payable to such participant during
such three-year period immediately preceding
the date of termination of the plan, based
upon the provisions of the plan as in effect
during the five-year period immediately
preceding the date of termination of the
plan which would result in the least amount
of income being payable to such participant
over (ii) the amount of his allocation, if
any, under (2) above;
(b) each person receiving a retirement income on
such date of termination on account of a
deceased participant or retired or
terminated (but since deceased) participant
whose retirement income payments commenced,
either to such person or to such retired or
terminated (but since deceased) participant,
at least three years prior to the date of
termination of the plan in an amount equal
to (i) the excess, if any, of the amount
required to provide (after the date of
termination of the plan) the smallest amount
of income payable to such person during such
three-year period immediately preceding the
date of termination of the plan, based upon
the provisions of the
<PAGE> 81
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plan as in effect during the five-year
period immediately preceding the date of
termination of the plan which would result
in the least amount of income being payable
to such person over (ii) the amount of his
allocation, if any, under (2) above; and
(c) each other active, retired, or terminated
participant who, at least three years prior
to the date of termination of the plan,
either had become eligible for normal
retirement but had not yet retired or had
satisfied the applicable age and service
requirements to be eligible for an early
retirement benefit, or the beneficiary of
any such eligible participant whose service
was terminated by reason of his death during
such three-year period, in an amount equal
to (i) the excess, if any, of the amount
required to provide (after the date of
termination of the plan) the monthly
retirement income which would have been
payable on behalf of such participant if he
had retired three years prior to the date of
termination of the plan, based upon the
provisions of the plan as in effect during
the five-year period immediately preceding
the date of termination of the plan which
would result in the least amount of income
being payable to such participant or
beneficiary over (ii) the amount of his
allocation, if any, under (2) above;
provided, however, that if such remaining asset value
be less than the aggregate of the amounts thus
allocated hereunder, such latter amounts shall be
reduced pro rata among such individuals so that the
aggregate of such reduced amounts will be equal to
the remaining asset value.
(4) If there be any asset value remaining after the
allocations under (1), (2) and (3) above, allocation
shall next be made with respect to each active,
retired or terminated participant and to each
beneficiary under the plan in an amount equal to the
excess, if any, of (a) the amount required to provide
that portion of the single-sum value of the Deferred
Monthly Retirement Income Commencing at Normal
Retirement Date which he had accrued as of the date
of termination of the plan or, if applicable, which
he was receiving as of the date of termination of the
plan, which is not in excess of the actuarially
equivalent single-sum value of the benefit guaranteed
on his behalf under the termination insurance
provisions of the Employee Retirement Income Security
Act of 1974 determined without regard to Sections
4022(b)(5) and 4022(b)(6) of said Act, over (b) the
aggregate of the allocations, if any, made on his
behalf under (2) and (3) above; provided, however,
that if such remaining asset value be less than the
aggregate of the amounts thus allocated hereunder,
such latter amounts shall be reduced pro rata among
such individuals so that the aggregate of such
reduced amounts will be equal to the remaining asset
value.
<PAGE> 82
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(5) If there be asset value remaining after the
allocations under (1), (2), (3) and (4) above,
allocation shall next be made with respect to each
retired or terminated participant receiving a
retirement income hereunder on such date, each person
receiving a retirement income on such date on account
of a deceased participant or a retired or terminated
(but since deceased) participant and each participant
who has, by such date, become eligible for normal
retirement but has not yet retired, in an amount
equal to the excess, if any, of (a) the amount
required to provide the retirement income which such
participant or other person is receiving or is
entitled to receive under the plan over (b) the
aggregate of the allocations made on behalf of such
participant or other person under (2), (3) and (4)
above; provided, however, that if such remaining
asset value be less than the aggregate of the amounts
thus allocated hereunder, such latter amounts shall
be reduced pro rata among such individuals so that
the aggregate of such reduced amounts will be equal
to the remaining asset value.
(6) If there be any asset value remaining after the
allocations under (1), (2), (3), (4) and (5) above,
allocation shall next be made with respect to:
(a) each participant in the service of the
Employer on the date of termination of the
plan whose Initial Vesting Date is on or
prior to such date and who is not entitled
to an allocation under (5) above, in an
amount equal to the excess, if any, of (i)
the amount required to provide the
actuarially equivalent single-sum value of
the vested retirement income which he would
have been entitled to receive under the
provisions of Section 2.4(A)(l) hereof if
his service had been terminated on the date
of termination of the plan over (ii) the
aggregate of the allocations made on behalf
of such participant under (2), (3) and (4)
above; and
(b) each terminated participant then entitled to
a benefit under the provisions of Section
2.4(A)(l) hereof, whose monthly income
payments have not commenced by such date, in
an amount equal to the excess, if any, of
(i) the amount required to provide the
actuarially equivalent single-sum value of
the vested deferred retirement income to
which he is entitled under Section 2.4(A)(l)
hereof over (ii) the aggregate of the
allocations made on behalf of such
participant under (2), (3) and (4) above;
provided, however, that if such remaining asset value
be less than the aggregate of the amounts thus
allocated hereunder, such latter amounts shall be
reduced pro rata among such individuals so that the
aggregate of such reduced amounts will be equal to
the remaining asset value.
<PAGE> 83
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(7) If there be any asset value remaining after the
allocations under (1), (2), (3), (4), (5) and (6)
above, allocation shall lastly be made with respect
to each participant in the service of the Employer on
the date of termination of the plan who is not
entitled to an allocation under (5) above, in an
amount equal to the excess, if any, of (a) the amount
required to provide the actuarially equivalent
single-sum value of the Deferred Monthly Retirement
Income Commencing at Normal Retirement Date which he
had accrued as of the date of termination of the plan
(assuming his vested percentage is 100%) over (b) the
aggregate of the allocations made on behalf of such
participant under (2), (3), (4) and (6) above;
provided, however, that if such remaining asset value
be less than the aggregate of the amounts thus
allocated hereunder, such latter amounts shall be
reduced pro rata among such individuals so that the
aggregate of such reduced amounts will be equal to
such remaining asset value.
(8) In the event that there be asset value remaining
after the full allocations specified in (1), (2),
(3), (4), (5), (6) and (7) above, such residual
assets shall be distributed to the Employer.
(D) The order of priorities for, and the amounts of, the
distributions set forth in (C) above and the rights of participants and
beneficiaries to benefits under the plan shall be subject (i) to the limitations
provided by Section 4.2 of the plan, (ii) to any changes, including the
recapture of any prior distributions to participants, as may be ordered by the
Pension Benefit Guaranty Corporation, and (iii) to any changes required by the
Internal Revenue Service as a condition for issuing a favorable determination
letter stating that the distribution of assets will not adversely affect the
continued qualified status of the plan under Section 401(a) of the Internal
Revenue Code of 1986, as amended.
(E) As soon as practicable after receipt by the Employer of (a)
notification from the Pension Benefit Guaranty Corporation evidencing its
approval of a proposed method of distribution of assets and (b) a favorable
determination letter from the Internal Revenue Service stating that in its
opinion such method will not adversely affect the continued qualified status of
<PAGE> 84
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the plan under Section 401(a) of the Internal Revenue Code of 1986, as amended,
the Committee shall direct the trustee to distribute the assets in accordance
with such method.
4.6 - SPECIAL PROVISIONS THAT APPLY IF PLAN IS TOP-HEAVY
The provisions of this Section 4.6 shall apply if the plan becomes a
"top-heavy plan" within the meaning of Section 416(g) of the Internal Revenue
Code with respect to any plan year that begins after December 31, 1983 and that
ends after the effective date of the plan, except to the extent otherwise
indicated. The provisions of this Section 4.6 shall not apply (and the plan
shall not be top-heavy) with respect to any plan year that begins prior to
January 1, 1984.
(A) Determination of Plan Years in Which Plan is Top-Heavy: The
plan shall be "top-heavy" with respect to an applicable plan year if:
(1) either (a) any participant, former participant or
beneficiary in the plan is a "key employee" within
the meanings of Sections 416(i)(1) and 416(i)(5) of
the Internal Revenue Code (such participants, former
participants and beneficiaries are hereinafter
referred to in this Section 4.6 as "Key Employees")
or (b) the plan enables any other plan, which is
included in the Aggregation Group (as defined below)
and which has a participant who is a Key Employee, to
meet the requirements of Section 401(a)(4) or Section
410 of the Internal Revenue Code; and
(2) the ratio (determined in accordance with Section 416
of the Internal Revenue Code) as of the last day of
the preceding plan year or, in the case of the first
plan year, the last day of such first plan year (such
day, whether applicable to the first plan year or to
subsequent plan years, is hereinafter referred to in
this Section 4.6 as the "Determination Date") of:
<PAGE> 85
- 80 -
(a) the sum of (i) the present value of the
cumulative accrued benefits for all Key
Employees under all defined benefit plans
included in the Aggregation Group plus (ii)
the aggregate of the individual accounts of
all Key Employees under all defined
contribution plans included in such
Aggregation Group;
to
(b) a similar sum determined for all
participants, former participants and
beneficiaries, excluding any participants
and former participants (or their
beneficiaries) who have not at any time
during the five-year period ending on the
Determination Date performed any service for
any employer maintaining a plan included in
the Aggregation Group, under all defined
benefit plans and defined contribution plans
included in such Aggregation Group;
is greater than 60%. The individual amount balances
and accrued benefits of a participant who is not a
Key Employee, but who was a Key Employee in a prior
year, or who has not been credited with at least one
Hour of Service with any Employer maintaining the
Plan at any time during the 5-year period ending on
the Determination Date will be disregarded.
For the purposes of this Section 4.6, the Aggregation Group shall mean
the plan plus all other defined benefit plans and defined contribution plans, if
any, maintained by (i) the Employer, (ii) any other corporation which is a
member of a controlled group of corporations, within the meaning of Section
1563(a) of the Internal Revenue Code, with respect to which the Employer is such
a member, (iii) any trade or business (whether or not incorporated) which is
under common
<PAGE> 86
- 81 -
control with the Employer, as determined under Section 414(c) of the Internal
Revenue Code and regulations issued thereunder, or (iv) any service organization
which is a member of an affiliated service group with respect to which the
Employer is such a member, as determined under Section 414(m) of the Internal
Revenue Code and regulations issued thereunder; provided, however, that any such
defined benefit plan or defined contribution plan that (a) does not have any
participant who is a Key Employee and (b) is not required to be combined with
any other plan, which is included in the Aggregation Group and which has a
participant who is a Key Employee, in order to enable such other plan to meet
the requirements of Section 401(a)(4) or Section 410 of the Internal Revenue
Code, shall be included in the Aggregation Group only if such defined benefit
plan or defined contribution plan, together with the other plans that are
included in the Aggregation Group, as a combined group satisfy the requirements
of Sections 401(a)(4) and 410 of the Internal Revenue Code.
The present value of an accrued benefit under the plan shall, for the
purposes of this Section 4.6, be determined as of the most recent valuation date
that (i) is used for the plan year for computing plan costs for minimum funding
purposes (regardless of whether a valuation is actually performed for that year)
and (ii) is within the 12-month period ending on the applicable Determination
Date (such valuation date is herein referred to in this Section 4.6 as the
"Valuation Date"). Effective as of January 1, 1987, the accrued benefit of a
participant other than a Key Employee shall be determined under (a) the method,
if any, that uniformly applies for accrual purposes under all defined benefit
plans maintained by the Employer, or (b) if there is no such method, as if such
benefit accrued not more rapidly than the slowest accrual rate permitted under
the fractional rule of Section 411(b)(1)(C) of the Internal Revenue Code.
<PAGE> 87
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The present value of the cumulative accrued benefits under the other
defined benefit plans included in the Aggregation Group and the aggregate of the
individual accounts under the defined contribution plans included in such
Aggregation Group shall be determined separately for each such plan in
accordance with Section 416 of the Internal Revenue Code and regulations issued
with respect thereto as of the "determination date" that is applicable to each
such separate plan and that falls within the same calendar year that the
Determination Date applicable to the plan falls.
Unless required otherwise under Section 416 of the Internal Revenue Code
and regulations issued thereunder, a participant's (or beneficiary's) accrued
benefit under the plan shall be equal to the sum of:
(a) an amount equal to either:
(i) if his service has not been terminated and he has not
reached his normal retirement date as of the Valuation
Date, the Deferred Monthly Retirement Income
Commencing at Normal Retirement Date which he has
accrued as of the Valuation Date;
(ii) if his service has not been terminated and he has
reached his normal retirement date as of the Valuation
Date, the monthly retirement income to which he would
have been entitled under the normal retirement
provisions of the plan if he had retired on the
Valuation Date; or
(iii) if his service has been terminated as of the Valuation
Date, the amount of retirement income or other benefit
which is payable on his behalf under the plan on and
after the Valuation Date;
plus
<PAGE> 88
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(b) the aggregate distributions made on his behalf during the
five-year period ending on the Determination Date.
provided, however, that his estimated accrued benefit between the Valuation Date
and Determination Date applicable to the first plan year shall be included as
part of his accrued benefit with respect to the first plan year only.
(B) Minimum Vesting Provisions if Plan Becomes Top-Heavy. Any provisions
of Section 1.1(A)(17) hereof to the contrary notwithstanding, the Initial
Vesting Date of an Employee, who is a participant in the plan and has accrued an
Hour of Service during any plan year that is subsequent to the last plan year
that the plan was not top-heavy, for the purpose of determining his eligibility
for the benefit provided under Section 2.4(A) hereof during any plan year that
is subsequent to the last plan year that the plan was not top-heavy, shall not
be later than (i) the date as of which he completes two years of Vesting Service
or (ii) the first day of the plan year immediately following the last plan year
that the plan was not top-heavy, whichever is later, but the benefit otherwise
determined under Section 2.4(A) hereof shall be multiplied by the applicable
vested percentage specified in the schedule below, based upon the participant's
number of years of Vesting Service as of the date of termination of his service:
<TABLE>
<CAPTION>
Vested
Years of Vesting Service Percentage
------------------------ ----------
<S> <C>
Less than 2 0%
2 20%
3 40%
4 60%
5 80%
6 or More 100%
</TABLE>
<PAGE> 89
-84-
provided, however, the vested percentage shall be 100% if the participant has
attained the age of 65 years as of his date of termination of service. If the
vesting schedule under the plan shifts in and out of the above schedule for any
plan year because of the plan's top-heavy status, such shift is an amendment of
the vesting schedule and the election in Section 6.4 applies.
In the event that the plan ceases to be top-heavy with respect to any subsequent
plan year, the following provisions will apply with respect to the minimum
benefits to which such a participant is entitled under Section 2.4(A) hereof
during such subsequent plan years that the plan is not top-heavy:
(1) if the participant had not completed at least two years of
Vesting Service as of the last day of the last plan year
during which the plan was top-heavy, the benefits to which he
is entitled under Section 2.4(A) hereof shall be determined as
though the plan had never been top-heavy;
(2) if the participant had completed at least two but had not
completed at least five years of Vesting Service as of the
last day of the last plan year during which the plan was
top-heavy, he shall be eligible for a minimum benefit payable
under Section 2.4(A) hereof, based upon the product of (a) the
amount of the Deferred Monthly Retirement Income Commencing at
Normal Retirement Date which he had accrued as of the last day
of the last plan year during which the plan was top-heavy
multiplied by (b) his vested percentage specified in the
schedule above but determined as of the last day of the last
plan year during which the plan was top-heavy based upon his
years of Vesting Service as of such date; and
<PAGE> 90
- 85 -
(3) if the participant had completed at least five years of
Vesting Service as of the last day of the last plan year
during which the plan was top-heavy, he shall be eligible for
the benefit provided under Section 2.4(A) hereof, but such
benefit otherwise determined under Section 2.4(A) hereof shall
be multiplied by the participant's vested percentage specified
in the above schedule, based upon his number of years of
Vesting Service as of the date of termination of his service.
(C) Minimum Benefit If Plan Becomes Top-Heavy: In the event that
the service of a participant, who is not a Key Employee, is terminated on or
after his Initial Vesting Date (as defined in Section 1.1(A)(17) hereof and as
modified by the provisions of Section 4.6(B) above) for any reason, the benefit
payable to or on behalf of the participant under the provisions of Section 2.1,
2.2, 2.3, 2.4(A) or 2.4(B) hereof, whichever is applicable, shall not be less
than that amount which is actuarially equivalent (based upon the interest and
mortality assumptions which are being used under the plan as of the date of his
retirement or termination of service to determine actuarially equivalent values)
to an amount equal to the excess, if any, of:
(1) a monthly retirement income payable to the participant for
life commencing at his normal retirement date in an amount
equal to (a) 2% of his "IRC 416 Final Average Monthly
Compensation" multiplied by (b) his number of years of Vesting
Service, not in excess of 10 years, which were accrued during
those plan years in which the plan was top-heavy, with the
resulting product multiplied by (c) his vested percentage as
of his date of termination of service; over
(2) the monthly retirement income payable to the participant for
life commencing at his normal retirement date in an amount
equal to the sum of:
<PAGE> 91
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(a) such amount of income, if any, which he has a
nonforfeitable right to receive and which is payable
to the participant under the other defined benefit
plans, if any, which are included in the Aggregation
Group;
plus
(b) such amount of income which can be provided on an
actuarially equivalent basis (based upon the interest
and mortality assumptions which are being used under
the plan as of the date of his retirement or
termination of service to determine actuarially
equivalent values) by the amounts, if any, which he
has a nonforfeitable right to receive and which are
attributable to employer contributions and
forfeitures that are credited to his account under
the defined contribution plans, if any, included in
the Aggregation Group;
provided, however, if the Aggregation Group includes one or more defined
contribution plans, and if, with respect to each plan year that the plan is
top-heavy, the participant has received an allocation of employer contributions
and forfeitures to his account under such defined contribution plan or plans
which is equal to or greater than 5% of his "compensation" (within the meaning
of Section 415 of the Internal Revenue Code and as defined in Section 4.1(A)
hereof, as limited by Section 401(a)(17) of the Internal Revenue Code) which he
received during such plan year from the employers maintaining plans included in
the Aggregation Group, the minimum benefit described above in this Section
4.6(D) shall not apply to such participant.
For the purposes of Section 4.6(C)(1) above, a participant's "IRC 416
Final Average Monthly Compensation" shall be equal to his average monthly rate
of "compensation" (within the meaning of Section 415 of the Internal Revenue
Code and as defined in Section 4.1(A) hereof, as
<PAGE> 92
- 87 -
limited by Section 401(a)(17) of the Internal Revenue Code) for the five
consecutive calendar years, which are prior to the January 1st immediately
following (i) the date of the participant's retirement or termination of service
or (ii) the close of the last plan year in which the plan is top-heavy,
whichever is earlier, during which he received the highest aggregate
compensation. Such average monthly rate of compensation will be determined by
dividing the total of such compensation that he received during such
five-consecutive-calendar year period from the employers maintaining plans
included in the Aggregation Group by the product equal to 12 times the number of
years of Vesting Service which he accrued during such
five-consecutive-calendar-year. In the event that the participant does not
receive both compensation and Vesting Service during a calendar year or calendar
years, such calendar year or calendar years during which he did not receive both
compensation and Vesting Service shall be ignored and excluded in determining
the five consecutive calendar years during which he received the highest
aggregate compensation.
(D) Maximum Amount of Retirement Income Due to Restrictions of
Section 416(h) of the Code if Plan is Top-Heavy: Any provision of Section 4.1(A)
hereof to the contrary notwithstanding, the monthly retirement income payable in
the form and manner described in Section 4.1(A) hereof during any plan year that
the plan is top-heavy to a participant hereunder who has Credited Service under
the plan which was accrued while he was a participant in both a defined
contribution plan and a defined benefit plan, which are either maintained by the
Employer or included in the Aggregation Group, shall not exceed an amount equal
to:
(1) the smaller of:
(a) the maximum amount of monthly retirement
income determined under Section 4.1(A)(1)(a)
hereof; or
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(b) the maximum amount of monthly retirement
income determined under Section 4.1(A)(1)(b)
hereof multiplied by 1.4;
multiplied by
(2) the excess of (a) 1.0 over (b) his "IRC 416 Adjusted
Defined Contribution Plan Fraction" (where such
fraction shall be determined in the manner described
in Section 415(e) of the Internal Revenue Code but
substituting "1.0" for "1.25" in paragraph (3)(B) of
said Section 415(e) as prescribed in Section 416(h)
of said Code).
4.7 - PARTICIPATION AND BENEFITS FOR LEASED EMPLOYEES
Unless the plan is otherwise excluded by applicable regulations from
the requirements of Section 414(n) of the Internal Revenue Code, in the event
that, on or after January 1, 1984, the Employer or a designated nonparticipating
employer receives services from a "leased employee" (within the meaning of
Section 414(n) of the Internal Revenue Code), such leased employee shall not
qualify as an Employee as defined herein. In the event that any such former
leased employee subsequently becomes an Employee as defined herein, the total
period on or after January 1, 1984 that he provided services to the Employer or
designated nonparticipating employer as a leased employee shall be treated under
the plan in determining his nonforfeitable right to his accrued benefits and his
eligibility to become a participant in the plan in the manner described in
Section 1.5(A) hereof as though he had been an employee of a designated
non-participating employer during such period of service (but such service shall
not be included in the service that is used to calculate any benefits which he
accrues under the plan).
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SECTION 5
MISCELLANEOUS PROVISIONS REGARDING PARTICIPANTS
5.1 - PARTICIPANTS TO FURNISH REQUIRED INFORMATION
Each participant and his beneficiaries and joint pensioners will
furnish to the Committee such information as the Committee considers necessary
or desirable for purposes of administering the plan, and the provisions of the
plan respecting any payments thereunder are conditional upon the participant's,
beneficiary's or joint pensioner's furnishing promptly such true, full and
complete information as the Committee may request.
Each participant will submit proof of his age and marital status and
proof of the age of each beneficiary and joint pensioner designated or selected
by him to the Committee at such time as required by the Committee. The Committee
will, if such proof of age and marital status is not submitted as required, use
as conclusive evidence thereof, such information as is deemed by it to be
reliable, regardless of the source of such information. Any adjustment required
by reason of lack of proof or the misstatement of the age of persons entitled to
benefits hereunder, by the participant or otherwise, will be in such manner as
the Committee deems equitable.
Any notice or information which, according to the terms of the plan or
the rules of the Committee, must be filed with the Committee, shall be deemed so
filed at the time that it is actually received by the Committee.
The Employer, the Committee, and any person or persons involved in the
administration of the plan shall be entitled to rely upon any certification,
statement, or representation made or evidence furnished by an employee,
participant, beneficiary or joint pensioner with respect to his age or other
facts required to be determined under any of the provisions of the plan, and
shall not be liable on account of the payment of any monies or the doing of any
act or failure to act in
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reliance thereon. Any such certification, statement, representation, or
evidence, upon being duly made or furnished, shall be conclusively binding upon
the person furnishing same; but it shall not be binding upon the Employer, the
Committee, or any other person or persons involved in the administration of the
plan, and nothing herein contained shall be construed to prevent any of such
parties from contesting any such certification, statement, representation, or
evidence or to relieve the employee, participant, beneficiary or joint pensioner
from the duty of submitting satisfactory proof of any such fact.
5.2 - BENEFICIARIES
Subject to the provisions of the following paragraphs of this section,
each participant may, on a form provided for that purpose, signed and filed with
the Committee, designate a beneficiary to receive the benefit, if any, which may
be payable under the plan in the event of his death, and each designation may be
revoked by such participant by signing and filing with the Committee a new
designation of beneficiary form.
If a deceased participant, who has been married to his spouse
throughout the one-year period immediately preceding his death, has designated a
person other than his spouse as his beneficiary and such spouse has not
consented, on or after the first day of the plan year in which the participant
attained the age of 35 years (or such other election period described in Section
4.1(D)) and in accordance with the provisions of Section 4.1(G) hereof, to such
other person being designated as the beneficiary, the provisions of Section
4.1(D) hereof, relating to the qualified preretirement survivor annuity payable
to his surviving spouse, will apply in the event of his death on or after his
Initial Vesting Date, and the participant will automatically be deemed to have
changed his designation of beneficiary to the extent necessary to comply with
the provisions of Section 4.1(D).
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If a deceased participant who had a spouse at the date of his death
failed to designate a beneficiary in accordance with the provisions of this
section, he shall be deemed to have designated his spouse as his beneficiary. If
a deceased participant who had no spouse at the date of his death failed to
designate a beneficiary in accordance with the provisions of this section or if
a deceased participant (whether or not he has a surviving spouse at the date of
his death) had previously designated a beneficiary but no designated beneficiary
is surviving at the date of his death, the death benefit, if any, which may be
payable under the plan with respect to such decreased participant may be paid,
in the discretion of the Committee but subject to the provisions of Sections
4.1(D) and 4.1(G) hereof if the spouse of such deceased participant is
surviving, either to:
(a) any one or more of the persons comprising the group consisting
of the participant's spouse, the participant's descendants,
the participant's parents or the participant's heirs-at-law,
and the Committee may direct the payment of the entire benefit
to any member of such group or the apportionment of such
benefit among any two or more of them in such shares as the
Committee, in its sole discretion, shall determine; or
(b) the estate of such deceased participant;
or in the event the Committee does not so direct any of such payments, the
Committee may elect to have a court of applicable jurisdiction determine to whom
a payment or payments shall be paid. In any of such cases the person to whom a
payment is to be paid may elect that the commuted value of the remaining monthly
income payments be paid in a lump sum; provided, however, if the recipient is
the participant's spouse, the written consent of such spouse shall be required.
Any payment made to any person pursuant to the power and discretion conferred
upon the Committee by the provisions of this Section 5.2 shall operate as a
complete discharge of all obligations under
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the plan with respect to such deceased participant and shall not be subject to
review by anyone but shall be final, binding and conclusive on all persons ever
interested hereunder.
5.3 - CONTINGENT BENEFICIARIES
In the event of the death of a beneficiary who survives the participant
and who, at the beneficiary's death, is receiving benefits pursuant to the
provisions of the plan within any certain period specified under the plan with
respect to which death benefits are payable under the plan after the
participant's death, the same amount of monthly retirement income which the
beneficiary was receiving shall be payable for the remainder of such specified
certain period to a person designated by the participant (in the manner provided
in Section 5.2) to receive the remaining death benefits, if any, payable in the
event of such contingency or, if no person was so named, then to a person
designated by the beneficiary (in the manner provided in Section 5.2) of the
deceased participant to receive the remaining death benefits, if any, payable in
the event of such contingency; provided, however, that if no person so
designated be living upon the occurrence of such contingency, then the remaining
death benefits, if any, shall be payable for the remainder of such specified
certain period, in the discretion of the Committee, either to (a) all or any one
or more of the persons comprising the group consisting of the participant's
spouse, the beneficiary's spouse, the participant's descendants, the
beneficiary's descendants, the participant's parents, the beneficiary's parents,
the participant's heirs-at-law, or the beneficiary's heirs-at-law or (b) the
estate of such deceased beneficiary; or in the event the Committee does not so
direct any of such payments, the Committee may elect to have a court of
applicable jurisdiction determine to whom a payment or payments shall be paid;
provided, further, that in any of such cases the person to whom a payment is to
be paid may elect that the commuted value of the monthly retirement income
payments due for the remainder of the specified certain period be paid in a lump
sum, but,
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if the recipient is the participant's spouse, the written consent of
such spouse shall be required. Any payments made to any person pursuant to the
power and discretion conferred upon the Committee by the provisions of this
Section 5.3 shall operate as a complete discharge of all obligations under the
plan with respect to such deceased beneficiary and shall not be subject to
review by anyone but shall be final, binding and conclusive on all persons ever
interested hereunder.
5.4 - PARTICIPANTS' RIGHTS IN TRUST FUND
No participant or other person shall have any interest in or any right
in, to or under the trust fund, or any part of the assets thereof, except as to
the extent expressly provided in the plan.
5.5 - BENEFITS NOT ASSIGNABLE
Except to the extent required to comply with a qualified domestic
relations order as described in Sections 401(a)(13) and 414(p) of the Internal
Revenue Code, no benefits, rights or accounts shall exist under the plan which
are subject in any manner to voluntary or involuntary anticipation, alienation,
sale, transfer, assignment, pledge, encumbrance or charge, and any attempt so to
anticipate, alienate, transfer, assign, pledge, encumber or charge the same
shall be null and void; nor shall any such benefit, right or account under the
plan be in any manner liable for or subject to the debts, contracts,
liabilities, engagements, torts or other obligations of the person entitled to
such benefit, right or account; nor shall any benefit, right or account under
the plan constitute an asset in case of the bankruptcy, receivership or divorce
of any person entitled under the plan; and any such benefit, right or account
under the plan shall be payable only directly to the participant or beneficiary,
as the case may be. Where a qualified domestic relations order has been received
by the Committee, the terms and benefits of the plan will be considered to have
<PAGE> 99
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been modified with respect to the participant affected to the extent that such
order requires benefits to be paid to specified individuals other than the
participant.
5.6 - BENEFITS PAYABLE TO MINORS AND INCOMPETENTS
Whenever any person entitled to payments under this plan shall be a
minor or under other legal disability or in the sole judgment of the Committee
shall otherwise be unable to apply such payments to his own best interest and
advantage (as in the case of illness, whether mental or physical, or where the
person not under legal disability is unable to preserve his estate for his own
best interest), the Committee may in the exercise of its discretion direct all
or any portion of such payments to be made in any one or more of the following
ways unless claim shall have been made therefor by an existing and duly
appointed guardian, tutor, conservator, committee or other duly appointed legal
representative, in which event payment shall be made to such representative:
(A) Directly to such person unless such person shall be an infant or
shall have been legally adjudicated incompetent at the time of
the payment;
(B) To the spouse, child, parent or other blood relative to be
expended on behalf of the person entitled or on behalf of those
dependents as to whom the person entitled has the duty of
support; or
(C) To a recognized charity or governmental institution to be
expended for the benefit of the person entitled or for the
benefit of those dependents as to whom the person entitled has
the duty of support.
The decision of the Committee will, in each case, be final and binding
upon all persons, and the Committee shall not be obliged to see to the proper
application or expenditure of any payments so made. Any payment made pursuant to
the power herein conferred upon the Committee shall operate as a complete
discharge of the obligations of the trustee and of the Committee.
5.7 - CONDITIONS OF EMPLOYMENT NOT AFFECTED BY PLAN
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The establishment and maintenance of the plan will not be construed as
conferring any legal rights upon any participant to the continuation of his
employment with the Employer, nor will the plan interfere with the right of the
Employer to discipline, lay off or discharge any participant. The adoption and
maintenance of the plan shall not be deemed to constitute a contract between the
Employer and any employee or to be a consideration for, inducement to, or
condition of employment of any person.
5.8 - NOTIFICATION OF MAILING ADDRESS
Each participant and other person entitled to benefits hereunder shall
file with the Committee from time to time, in writing, his post office address
and each change of post office address, and any check representing payment
hereunder and any communication addressed to a participant, a former
participant, a beneficiary or a pensioner hereunder at his last address filed
with the Committee (or, if no such address has been filed, then at his last
address as indicated on the records of the Employer) shall be binding on such
person for all purposes of the plan, and neither the Committee nor the trustee
shall be obliged to search for or ascertain the location of any such person.
If the Committee, for any reason, is in doubt as to whether retirement
income payments are being received by the person entitled thereto, it may, by
registered mail addressed to such person and to such person's designated
beneficiary (or beneficiaries) if any, at their address last known to the
Committee, notify such person and his beneficiary (or beneficiaries) that all
unmailed and future retirement income payments shall be henceforth withheld
until the Committee is provided with evidence of such person's continued life
and his proper mailing address or with evidence of such person's death. In the
event that (i) such notification is mailed to such person and his designated
beneficiary (or beneficiaries), (ii) the Committee is not furnished with
evidence of such
<PAGE> 101
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person's continued life and proper mailing address or with evidence of his death
and (iii) the Committee is unable to find any person to whom payment is due
under the provisions of the plan, all retirement income and other benefit
payments due shall be forfeited; provided, however, if claim for any forfeited
benefit is subsequently made by any such person to whom payment is due under the
plan, such forfeited benefits due such person shall be reinstated.
5.9 - WRITTEN COMMUNICATIONS REQUIRED
Any notice, request, instruction, or other communication to be given or
made hereunder shall be in writing and either personally delivered to the
addressee or deposited in the United States mail fully postpaid and properly
addressed to such addressee at the last address for notice shown on the
Committee's records.
5.10 - BENEFITS PAYABLE AT OFFICE OF TRUSTEE
All benefits hereunder, and installments thereof, shall be payable at
the office of the trustee.
5.11 - APPEAL TO COMMITTEE
A participant or beneficiary who feels he is being denied any benefit
or right provided under the plan shall have the right to file a written claim
with the Committee. All such claims shall be submitted on a form provided by the
Committee which shall be signed by the claimant and shall be considered filed on
the date the claim is received by the Committee.
Upon the receipt of such a claim and in the event the claim is denied,
the Committee shall, within 90 days after its receipt of such claim, provide
such claimant a written statement which shall be delivered or mailed to the
claimant by certified or registered mail to his last known address, which
statement shall contain the following:
(A) the specific reason or reasons for the denial of benefits;
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(B) a specific reference to the pertinent provisions of the plan
upon which the denial is based;
(C) a description of any additional material or information which
is necessary; and
(D) an explanation of the review procedure provided below;
provided, however, in the event that special circumstances require an extension
of time for processing the claim, the period during which the Committee shall
provide such claimant with such written statement described above shall be not
later than 180 days after receipt of the claimant's claim, but, in such event,
the Committee shall furnish the claimant, within 90 days after its receipt of
such claim, written notification of the extension explaining the circumstances
requiring such extension and the date that it is anticipated that such written
statement will be furnished.
Within 60 days after receipt of a notice of a denial of benefits as
provided above, the claimant or his authorized representative may request, in
writing, to appear before the Committee for a review of his claim. In conducting
its review, the Committee shall consider any written statement or other evidence
presented by the claimant or his authorized representative in support of his
claim. The Committee shall give the claimant and his authorized representative
reasonable access to all pertinent documents necessary for the preparation of
his claim.
Within 60 days after receipt by the Committee of a written application
for review of his claim, the Committee shall notify the claimant of its decision
by delivery or by certified or registered mail to his last known address;
provided, however, in the event that special circumstances require an extension
of time for processing such application, the Committee shall so notify the
claimant of its decision not later than 120 days after receipt of such
application, but, in such event, the Committee shall furnish the claimant,
within 60 days after its receipt of such
<PAGE> 103
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application, written notification of the extension explaining the circumstances
requiring such extension and the date that it is anticipated that its decision
will be furnished. The decision of the Committee shall be in writing and shall
include the specific reasons for the decision presented in a manner calculated
to be understood by the claimant and shall contain references to all relevant
plan provisions on which the decision was based. The decision of the Committee
shall be final and conclusive.
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SECTION 6
MISCELLANEOUS PROVISIONS REGARDING THE EMPLOYER
6.1 - CONTRIBUTIONS
No contributions shall be required of any participant. The Employer
intends, but does not guarantee, to make annual contributions in amounts at
least equal to the amounts, if any, required to meet the minimum funding
requirements of Section 412 of the Internal Revenue Code of 1986, as now or
hereafter amended, as specified in the actuary's valuation reports for the
applicable periods of time. Subject to applicable provisions of law, neither the
Employer nor any of its officers, agents nor any member of its board of
directors, nor any partner or sole proprietor, guarantees, in any manner, the
payment of benefits under the plan.
6.2 - EMPLOYER'S CONTRIBUTIONS IRREVOCABLE
The Employer shall have no right, title or interest in the trust fund
or in any part thereof, and no contributions made thereto shall revert to the
Employer except such part of the trust fund, if any, which remains therein after
the satisfaction of all liabilities to persons entitled to benefits under the
plan and except as provided in the following paragraph.
All contributions to the plan are made subject to the qualification of
the plan under Section 401 of the Internal Revenue Code of 1986, as now or
hereafter amended, and to their deductibility under Section 404 of said Code. In
the event that the plan represents a newly established retirement plan (and not
an amendment of an existing retirement plan) with respect to an Employer and
such qualification of the plan is denied, the total contributions of the
Employer, adjusted for any earnings or losses of the trust fund attributable
thereto, shall be returned to the Employer within one year of the date of denial
of qualification. In the event that a contribution either is made by a good
faith mistake of fact or is the result of a good faith mistake in determining
the
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deductibility of such contribution, the excess of the amount contributed over
the amount that would have been contributed if there had not been such a
mistake, with such excess, reduced by the net losses, if any, of the trust fund
attributable thereto (but without any increase due to the net earnings, if any,
of the trust fund attributable thereto), shall be returned to the Employer
within one year of the date of the mistaken payment or the disallowance of the
deduction, as the case may be.
6.3 - FORFEITURES
Forfeitures shall not be used to increase the benefits that any
employee would otherwise receive under the plan at any time prior to the
termination of the plan but shall be anticipated in determining the costs under
the plan.
6.4 - AMENDMENT OF PLAN
The plan may be amended from time to time in any respect whatever by
resolution of the board of directors of the Company specifying such amendment,
subject only to the following limitations:
(A) Under no condition shall such amendment result in or permit
the return or repayment to any Employer of any property held
or acquired by the trustee hereunder or the proceeds thereof
or result in or permit the distribution of any such property
for the benefit of anyone other than the participants and
their beneficiaries or joint pensioners, except to the extent
provided by Section 6.6 and Section 4.5 hereof with respect to
expenses of administration and termination of the plan,
respectively.
(B) Under no condition shall such amendment change the duties or
responsibilities of the trustee hereunder without its written
consent.
With respect to participants who have at least one Hour of Service in
any plan year beginning after January 1, 1990, if the plan's vesting schedule is
amended or the plan is amended in any way that directly or indirectly affects
the computation of a participant's vested interest, each participant with at
least three years of Vesting Service may elect within a reasonable period of
time
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after the adoption of the amendment or change, to have his vested interest
computed under the plan without regard to such amendment or change. The period
during which the election may be made shall commence with the date the amendment
is adopted or deemed to be made and shall end on the later of 60 days after the
amendment is adopted or deemed to be made, 60 days after the amendment becomes
effective, or 60 days after the participant is issued written notice of the
amendment by the Employer or Committee.
Subject to the foregoing limitations, any amendment may be made
retroactively which, in the judgment of the Committee, is necessary or advisable
provided that such retroactive amendment does not deprive a participant, without
his consent, of a right to receive benefits hereunder which have already vested
and matured in such participant, except such notification or amendment as shall
be necessary to comply with any laws or regulations of the United States or of
any state to qualify this as a tax-exempt plan and trust.
The participation in the plan of Employers other than the Company shall
not limit the power of the Company under the foregoing provisions; provided,
however, that the Company shall deliver a copy of each amendment to the plan to
each other Employer within 90 days of such amendment. Amendments by the Company
shall be binding upon all other Employers to the extent accepted by such other
Employers. Acceptance by each such other Employer shall be presumed. Each
Employer may modify the provisions of the plan as it pertains only to its own
employees by the adoption, by formal action on its part in the manner described
in Section 6.7 hereof, of a supplement to the plan specifying such modifications
which shall pertain only to its employees; and each Employer shall have the
right to withdraw from the plan by formal action on its part, in the manner
described in Section 6.7 hereof, specifying its determination to
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withdraw. Any such withdrawing Employer shall furnish the Committee and the
trustee with evidence of the formal action of its determination to withdraw.
Any such withdrawal may be accompanied by such modifications to the plan
as such Employer shall deem proper to continue a retirement plan for its
employees separate and distinct from the retirement plan herein set forth. A
withdrawal by any Employer without any provision for the continuation of a plan
for its employees shall constitute a termination of the plan with respect to
that Employer. Withdrawal from the plan by any Employer shall not affect the
continued operation of the plan with respect to the other Employers.
6.5 - TERMINATION OF PLAN
The plan may be terminated by the Employers at any time by (1) formal
action, in the manner described in Section 6.7 hereof, on the part of each
Employer then a party to the plan specifying (a) that the plan is being
terminated and (b) the date as of which the termination is to be effective and
(2) notifying the Pension Benefit Guaranty Corporation, the Committee and the
trustee of such termination at least 10 days before the date of the proposed
termination. Any successor business to an Employer may provide for continuation
of the plan by formal action on its part in the manner described in Section 6.7
hereof. The plan may be terminated in the manner described above with respect to
one, but less than all, of the Employers theretofore parties hereto and the plan
continued for the remaining Employer or Employers. The plan shall automatically
terminate as to a particular Employer only upon adjudication by a court of
competent jurisdiction that such Employer is bankrupt or insolvent (whether such
proceedings be voluntary or involuntary), upon dissolution of such Employer or
upon its liquidation, merger or consolidation without provisions being made by
its successor, if any, for the continuation of the plan.
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6.6 - EXPENSES OF ADMINISTRATION
The Employer may pay all expenses incurred in the establishment and
administration of the plan, including expenses and fees of the trustee, but it
shall not be obligated to do so, and any such expenses not so paid by the
Employer shall be paid from the trust fund.
6.7 - FORMAL ACTION BY EMPLOYER
Any formal action herein permitted or required to be taken by an
Employer shall be:
(a) if and when a partnership, by written instrument executed by
one or more of its general partners or by written instrument
executed by a person or group of persons who has been
authorized by written instrument executed by one or more
general partners as having authority to take such action;
(b) if and when a proprietorship, by written instrument executed
by the proprietor or by written instrument executed by a
person or group of persons who has been authorized by written
instrument executed by the proprietor as having authority to
take such action;
(c) if and when a corporation, by resolution of its board of
directors or other governing board, or by written instrument
executed by a person or group of persons who has been
authorized by resolution of its board of directors or other
governing board as having authority to take such action; or
(d) if and when a joint venture, by formal action on the part of
the joint venturers in the manner described above.
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SECTION 7
ADMINISTRATION
7.1 - ADMINISTRATION BY COMMITTEE
The plan will be administered by the Retirement Committee appointed by
the board of directors of the Company. Such Committee will consist of (a) a
chairman and at least two additional members or (b) a single individual. Each
member may, but need not, be a director, proprietor, partner, officer or
employee of any Employer, and each such member shall be appointed by the board
of directors of the Company to serve until his successor shall be appointed in
like manner. Any member of the Committee may resign by delivering.his written
resignation to the board of directors of the Company and to the other members,
if any, of the Committee. The board of directors of the Company may remove any
member of the Committee by so notifying the member and other Committee members,
if any, in writing. Vacancies on the Committee shall be filed by action of the
board of directors of the Company. The Committee shall be the administrator of
the plan.
7.2 - OFFICERS AND EMPLOYEES OF COMMITTEE
The Committee may appoint a secretary who may, but need not, be a
member of the Committee and may employ such agents, clerical and other services,
legal counsel, accountants and actuaries as may be required for the purpose of
administering the plan. Any person or firm so employed may be a person or firm
then, theretofore or thereafter serving the Employer in any capacity. The
Committee and any individual member of the Committee and any agent thereof shall
be fully protected when acting in a prudent manner and relying in good faith
upon the advice of the following professional consultants or advisors employed
by the Employer or the Committee: any attorney insofar as legal matters are
concerned, any certified public accountant insofar as
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accounting matters are concerned, and any enrolled actuary insofar as actuarial
matters are concerned.
7.3 - ACTION BY COMMITTEE
A majority of the members of the Committee shall constitute a quorum for
the transaction of business and shall have full power to act hereunder. The
Committee may act either at a meeting at which a quorum is present or by a
writing subscribed by at least a majority of the members of the Committee then
serving. Any written memorandum signed by the secretary or any member of the
Committee who has been authorized to act on behalf of the Committee shall have
the same force and effect as a formal resolution adopted in open meeting.
Minutes of all meetings of the Committee and a record of any action taken by the
Committee shall be kept in written form by the secretary appointed by the
Committee or, if no secretary has been appointed by the Committee, by an
individual member of the Committee. The Committee shall give to the trustee any
order, direction, consent or advice required under the terms of the trust
agreement, and the trustee shall be entitled to rely on any instrument delivered
to it and signed by the secretary or any authorized member of the Committee as
evidencing the action of the Committee.
A member of the Committee may not vote or decide upon any matter
relating solely to himself or vote in any case in which his individual right or
claim to any benefit under the plan is particularly involved. If, in any case in
which any Committee member is so disqualified to act, the remaining members
cannot agree or if there is only one individual member of the Committee, the
board of directors of the Company will appoint a temporary substitute member to
exercise all of the powers of a qualified member concerning the matter in which
the disqualified member is not qualified to act.
7.4 - RULES AND REGULATIONS OF COMMITTEE
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The Committee shall have the authority to make such rules and
regulations and to take such action as may be necessary to carry out the
provisions of the plan and will, in its sole discretion, decide any questions
arising in the administration, interpretation and application of the plan,
including but not limited to determining eligibility for benefits, the amount,
manner and time of payment of any benefits under the plan, and the status and
rights of participants and other persons under the plan, which decisions shall
be conclusive and binding on all parties. The Committee may allocate or delegate
any part of its authority and duties as it deems expedient.
7.5 - POWERS OF COMMITTEE
In order to effectuate the purposes of the plan, the Committee shall
have the power, in its sole discretion, to construe the plan and to make
equitable adjustments for any mistakes or errors made in the administration of
the plan, and all such actions or determinations made by the Committee in good
faith shall not be subject to review by anyone. The Committee is given the power
to appoint, in its sole discretion, in accordance with the provisions of the
trust agreement, one or more Investment Managers to manage, including the power
to acquire or dispose of, all or any portion of the assets of the plan and trust
fund.
7.6 - DUTIES OF COMMITTEE
The Committee shall, as a part of its general duty to supervise and
administer the plan:
(A) determine all facts and maintain records with respect to any
employee's age, length of service, Vesting Service, Credited
Service and date of initial coverage under the plan, and by
application of the facts so determined and any other facts
deemed material, determine the amount, if any, of benefit
payable under the plan on behalf of a participant;
(B) establish, carry out and periodically review a funding policy
and method consistent with the objectives of the plan and the
applicable lawful requirements of Title I of the Employee
Retirement Income Security Act of 1974, as amended; provided,
however, that any decisions pertaining to the amount and
timing of contributions by the Employer to the trust fund are
delegated to the Employer;
<PAGE> 112
- 107 -
(C) give the trustee specific directions in writing with respect
to:
(1) the making of distribution payments, giving the names
of the payees, the amounts to be paid and the time or
times when payments shall be made; and
(2) the making of any other payments which the trustee is
not by the terms of the trust agreement authorized to
make without a direction in writing of the Committee;
(D) furnish the trustee with such information (including
information relative to the liquidity needs of the plan) as is
deemed necessary for the trustee to carry out the purposes of
the trust agreement;
(E) comply with all applicable lawful reporting and disclosure
requirements of the Employee Retirement Income Security Act of
1974, as amended;
(F) engage on behalf of all plan participants an independent
qualified public accountant to examine the financial
statements and other records of the plan for the purposes of
an annual audit and opinion as to whether the financial
statements and schedules in the annual report of the plan are
presented fairly in conformity with generally accepted
accounting principles, unless such audit is waived by the
Secretary of Labor or his delegate or unless such is otherwise
not required; and
(G) engage on behalf of all plan participants an enrolled actuary
to prepare required actuarial statements, unless this
requirement is waived by the Secretary of Labor or his
delegate or unless such actuarial statements are otherwise not
required.
The foregoing list of express duties is not intended to be either
complete or conclusive, and the Committee shall, in addition, exercise such
other powers and perform such other duties as it may deem necessary, desirable,
advisable or proper for the supervision and administration of the plan.
7.7 - INDEMNIFICATION OF MEMBERS OF COMMITTEE
To the extent not covered by insurance or if there is a failure to
provide full insurance coverage for any reason and to the extent permissible
under corporate by-laws and other applicable laws and regulations, the Company
agrees to hold harmless and indemnify the members of the Committee against any
and all claims and causes of action by or on behalf of any and all parties
<PAGE> 113
- 108 -
whomsoever, and all losses therefrom, including without limitation costs of
defense and attorneys' fees, based upon or arising out of any act or omission
relating to or in connection with the plan and trust agreement other than losses
resulting from any such person's fraud or willful misconduct.
7.8 - ACTUARY
The actuary will do such technical and advisory work as the Committee
or the Employer may request, including analysis of the experience of the plan
from time to time, the preparation of actuarial tables for the making of
computations thereunder, and the submission of an actuarial report each year to
the Company and the Committee, which report shall contain an actuarial valuation
showing the financial condition of the plan, a statement of the contributions to
be made by the Employers for the ensuing year, and such other information as may
be required by the Committee.
The actuary shall be appointed by the Committee with the approval of
the Company to serve as long as it is agreeable to the Committee, the Company
and the actuary. In computing benefits to which a participant may be entitled
upon his retirement or termination, such assumptions of mortality and interest
rates as are specified in the plan shall be used. The actuarial assumptions
specified in the plan and the computations based thereon shall be conclusive and
binding on all persons whomsoever. Neither the Committee nor the Employer shall
be liable for any mistakes or errors in any computations made in good faith, and
the trustee shall not be liable for any such mistakes or errors in any event.
7.9 - FIDUCIARIES
The trustee is the fiduciary hereunder with respect to the powers,
duties and responsibilities of investment of the trust fund, and the Committee
is the named fiduciary hereunder and is the fiduciary hereunder with respect to
the other powers, duties and responsibilities of the
<PAGE> 114
-109-
administration of the plan; provided, however, that certain powers, duties and
responsibilities of each of said fiduciaries are specifically delegated to
others under the provisions of the plan and trust agreement, and other powers,
duties and responsibilities of any fiduciaries may be delegated by written
agreement to others to the extent permitted under the provisions of the plan and
trust agreement.
The powers and duties of each fiduciary hereunder, whether or not a
named fiduciary, shall be limited to those specifically delegated to each of
them under the terms of the plan and trust agreement. It is intended that the
provisions of the plan and trust agreement allocate to each fiduciary the
individual responsibilities for the prudent execution of the functions assigned
to each fiduciary. None of the allocated responsibilities or any other
responsibilities shall be shared by two or more fiduciaries unless such sharing
shall be provided by a specific provision in the plan or the trust agreement. If
any of the enumerated responsibilities of a fiduciary are specifically waived by
the Secretary of Labor, then such enumerated responsibilities shall also be
deemed to be waived for the purposes of the plan and trust agreement. Whenever
one fiduciary is required by the plan or the trust agreement to follow the
directions of another fiduciary, the two fiduciaries shall not be deemed to have
been assigned a share of any responsibility, but the responsibility of the
fiduciary giving the directions shall be deemed to be his sole responsibility
and the responsibility of the fiduciary receiving those directions shall be to
follow same insofar as such instructions on their face are proper under
applicable law. Any fiduciary may employ one or more persons to render advice
with respect to any responsibility such fiduciary has under the plan or trust
agreement.
Each fiduciary may, but need not, be a director, proprietor, partner,
officer or employee of the Employer. Nothing in the plan shall be construed to
prohibit any fiduciary from:
<PAGE> 115
- 110 -
(a) serving in more than one fiduciary capacity with respect to
the plan and trust agreement;
(b) receiving any benefit to which he may be entitled as a
participant or beneficiary in the plan, so long as the benefit
is computed and paid on a basis which is consistent with the
terms of the plan as applied to all other participants and
beneficiaries; or
(c) receiving any reasonable compensation for services rendered,
or for the reimbursement of expenses properly and actually
incurred in the performance of his duties with respect to the
plan, except that no person so serving who already receives
full-time pay from an Employer shall receive compensation from
such plan, except for reimbursement of expenses properly and
actually incurred.
Each fiduciary shall be bonded as required by applicable law or statute
of the United States, or of any state having appropriate jurisdiction, unless
such bond may under such law or statute be waived by the parties to the trust
agreement. The Employer shall pay the cost of bonding any fiduciary who is an
employee of the Employer.
7.10 - APPLICABLE LAW
The plan will, unless superseded by federal law, be construed and
enforced according to the laws of the state comprising the situs of the Company
and all provisions of the plan will, unless superseded by federal law, be
administered according to the laws of the said state.
SECTION 8
TRUST FUND
8.1 - PURPOSE OF TRUST FUND
A trust fund has been created and will be maintained for the purposes
of the plan, and the moneys thereof will be invested in accordance with the
terms of the agreement and declaration of trust which forms a part of the plan.
All contributions will be paid into the trust fund, and all benefits under the
plan will be paid from the trust fund, except to the extent provided by Section
3.4 hereof.
<PAGE> 116
- 111 -
8.2 - BENEFITS SUPPORTED ONLY BY TRUST FUND
Subject to applicable provisions of law, any person having any claim
under the plan will look solely to the assets of the trust fund for
satisfaction.
8.3 - TRUST FUND APPLICABLE ONLY TO PAYMENT OF BENEFITS
The trust fund will be used and applied only in accordance with the
provisions of the plan, to provide the benefits thereof, and no part of the
corpus or income of the trust fund will be used for, or diverted to, purposes
other than for the exclusive benefit of participants and other persons
thereunder entitled to benefits, except to the extent provided in Section 6.6
and Section 4.5 hereof with respect to expenses of administration and
termination of the plan, respectively.
IN WITNESS WHEREOF, FARAH INCORPORATED has caused this instrument to be
executed by its duly authorized officer on this 31 day of December, 1994,
effective as of January 1, 1990, except to the extent otherwise indicated.
FARAH INCORPORATED
By /s/ James C. Swaim
--------------------------------
James C. Swaim
Executive Vice President
<PAGE> 117
SUPPLEMENT A
TO THE
FARAH U.S.A., INC. BARGAINING UNIT PENSION PLAN
MERGER OF PLAN EFFECTIVE DECEMBER 31, 1990
A-1 In General. Notwithstanding any other provisions of the plan,
effective as of 9:00 a.m. on December 31, 1990 (the 'merger date'), the Farah
Retiree Plan (the 'Retiree Plan') shall be merged with and into the plan and the
following provisions shall apply:
(a) Assets and liabilities of the Retiree Plan shall be transferred in
cash or in kind to the plan on the merger date or as soon as practicable
thereafter.
(b) Notwithstanding Section 1.7, Value Slacks, Inc. shall be considered
an Employer (as defined in Section 1.1(A)(2) of the plan) as of the merger date,
but only to the extent necessary for participants in the Retiree Plan to receive
benefits under the plan. No employees or former employees of Value Slacks, Inc.
shall become participants in the plan because of Value Slacks, Inc. becoming an
Employer under the plan for the purpose described in the preceding sentence,
except participants in the Retiree Plan as of the merger date.
(c) Participants in the Retiree Plan shall both become participants in
the plan and be credited for purposes of the plan with their Compensation,
Credited Service, Vesting Service and benefits under the Retiree Plan as of the
merger date. Participants' accrued benefits under the Retiree Plan which are
transferred to this plan shall become accrued benefits under this plan. A
Participant in the Retiree Plan who becomes a participant in the plan on the
merger date shall not accrue any additional benefits from and after the merger
date under this plan and shall be entitled to receive a benefit on and after the
merger date under this plan not less than the benefit that he would have been
entitled to receive under the Retiree Plan immediately before the merger date if
the Retiree Plan had terminated at that time.
(d) All elections, waivers, consents, designations, directions,
qualified domestic relations orders and other exercises of rights and privileges
under the Retiree Plan shall be deemed effective and applicable with respect to
the plan as of the merger date.
(e) The officers of the Company may adopt such further amendments to the
plan, including amendments to the plan on or after the merger date, as may be
necessary to comply with applicable Internal Revenue Service requirements and
any modifications that the officers of the Company deem necessary or desirable.
A-2 Distributions. To the extent that the Retiree Plan provided
additional distribution options than those provided under the plan that must be
preserved pursuant to Section 411(d)(6) of the Internal Revenue Code, such
distribution options are preserved with respect to the participants covered by
this Supplement A entitled to those distribution options. Subject to the
forgoing, the following additional distribution options from Sections 1.4(E),
3.5 and the First Supplement to the Retiree Plan are preserved with respect to
such participants:
<PAGE> 118
- 2 -
(a) Notwithstanding any provision of the plan to the contrary, in lieu
of the amount and form of retirement income payable in the event of normal
retirement as specified in Section 2.1 hereof and as subjected to the provisions
of Section 4.1 hereof, a participant who retires on or after his normal
retirement date may elect to receive the actuarial equivalent of such retirement
income in a lump sum payment as of the date the first payment of retirement
income would otherwise have been made to him under the provisions of Section 2.1
hereof by making written application for the same to the Committee and obtaining
a written spousal consent, witnessed by a plan representative or a notary
public; provided, however, that no spousal consent has to be obtained if the
participant's lump sum payment will not exceed $3,500 or if it is established to
the satisfaction of the Committee that such consent may not be obtained because
there is no spouse, the spouse cannot be located or because of such other
circumstances as the Secretary of the Treasury or his delegate may prescribe.
The actuarial equivalent of the retirement income otherwise payable to the
participant described above shall be based upon the mortality and interest
assumptions which are being used as of the date of the participant's retirement
to determine actuarially equivalent values; provided, however, that the interest
assumption used to compute the amount of any such lump sum payment may not be
greater than the interest rate which would be used by the Pension Benefit
Guaranty Corporation for purposes of determining the present value of a lump sum
distribution on plan termination (as determined under Sections 401(a)(11) and
417 of the Internal Revenue Code of 1986, as amended, and regulations issued
pursuant thereto) as of the first day of the plan year during which the
distribution is made ("PBGC Rate"). A participant who is reemployed by the
Employer after receiving a lump sum payment pursuant to this Section A-2(a)
shall not be eligible to elect to receive a second lump sum payment upon his
retiring after being re-employed, regardless of whether the participant repays
the lump sum to the plan with interest thereon at the rate of 120 percent of the
federal mid-term rate (as in effect under Section 1274 of the Internal Revenue
Code of 1986, as amended, for the first month of a plan year), compounded
annually, for the period beginning on the date such lump sum was paid to the
participant and ending on the date the participant makes his repayment to the
trust fund. Such repayment may only be made before the earlier of: (1) 5 years
from the date on which the participant reenters the active service of the
Employer, or (2) the close of the first period of 5 consecutive one year Breaks
in Service commencing after the date on which the lump sum was paid to the
participant because of his prior retirement.
(b) With respect to participants whose Credited Service includes
service which was accrued with the Company prior to January 1, 1978 and who were
participants in the Farah Manufacturing Company, Inc. Pension Plan as of
December 31, 1977 (such retirement plan as in effect prior to January 1, 1978 is
herein referred to as the "Superseded Plan"), if a participant has elected an
optional form of payment prior to January 1, 1978 and such election is in force
on December 31, 1977 under the terms of the Superseded Plan, such election shall
continue in effect with respect to benefits payable under the plan until a new
election of an optional form is made in accordance with Section 3.1 of the plan.
A-3 Limitation Rules. The revisions to Section 4.1(A) of the plan which
are effective as of January 1, 1992 shall be effective as of the merger date to
the participants covered by this Supplement A.
<PAGE> 1
EXHIBIT 10.22
FIRST AMENDMENT
OF
FARAH U.S.A., INC.
BARGAINING UNIT PENSION PLAN
WHEREAS, Farah Incorporated (the "company") maintains the Farah
U.S.A., Inc. Bargaining Unit Pension Plan (the "plan"); and
WHEREAS, the plan was last amended and restated on December 31,
1994, effective generally on January 1, 1990, and further amendment of the plan
now is considered desirable to bring the plan into compliance with section
767(a) of the Uruguay Round Agreements Act (P.L. 103-465), effective with
respect to distributions payable on or after January 1, 1996.
NOW, THEREFORE, by virtue and in exercise of the power reserved
to the company by Section 6.4 of the plan and delegated to the undersigned
officer by resolution of its Board of Directors adopted at the March 13-15,
1995 meeting of the Board of Directors, the plan be and it hereby is amended
effective January 1, 1996, as follows:
1. Section 1.1(A)(23) of the plan shall be deleted in its
entirety and the following section inserted in lieu thereof:
"(23) The term "actuarially equivalent" as used herein
means equality in value of the aggregate amounts
expected to be received under different forms of
payment based upon the same mortality and interest
rate assumptions. Unless specifically
<PAGE> 2
provided otherwise under the provisions hereof, the
mortality and interest rate assumptions used in
computing benefits payable on behalf of a
participant upon his retirement or termination of
service and upon the exercise of optional forms of
retirement income under the plan shall be the Unisex
Pension Mortality Table Projected to 1984 (UP-1984
Table) and an 8% interest rate.
Any provisions above to the contrary
notwithstanding, if the applicable mortality table
described in Section 417(e)(3)(A)(ii)(I) of the
Internal Revenue Code of 1986, as amended, and
regulations issued pursuant thereto (which shall be
based on the prevailing commissioners' standard
table described in Section 807(d)(5)(A) of the
Internal Revenue Code of 1986, as amended, used to
determine reserves for group annuity contracts
issued on the date as of which present value is
being determined without regard to any other
subparagraph of Section 807(d)(5)) (the "Applicable
Mortality Table"), and the applicable interest rate
described in Section 417(e)(3)(A)(ii)(II) of the
Internal Revenue Code of 1986, as amended, and
regulations issued pursuant thereto (the annual rate
of interest on 30-year Treasury securities) as of
the first day of November immediately preceding the
plan year during which the distribution is made or
commences (the "Applicable Interest Rate"), will
result in a larger distribution being payable to the
participant or his beneficiary, as the case may be,
the interest rate and mortality assumptions used to
compute the amount of any actuarially equivalent
lump-sum distribution that is payable on
- 2 -
<PAGE> 3
or after January 1, 1996 or any other actuarially
equivalent form of distribution that initially
commences on or after January 1, 1996 and that
provides payments in the form of a decreasing
annuity or that provides payments for a period less
than the life of the participant (or, in the case of
a death benefit payable to his beneficiary under the
provisions of Section 2.3(G), 2.4(A)(3) or 2.4(B)
hereof, for a period less than the life of his
beneficiary) shall be equal to the Applicable
Mortality Table and Applicable Interest Rate. For
the above purposes, a joint and survivor annuity
form of payment which may decrease upon the death of
the participant or his joint pensioner shall be
deemed to be a non-decreasing annuity."
2. Section 3.2 of the plan shall be deleted in its entirety and
the following section inserted in lieu thereof:
"3.2 LUMP-SUM PAYMENT OF SMALL RETIREMENT INCOME
Notwithstanding any provision of the plan to the
contrary, if the monthly income payable to any person
entitled to any benefit hereunder is less than $50 or if the
single-sum value of the retirement income or other benefit
payable to any person entitled to any benefit hereunder is
less than $5,000, or if such monthly income or single-sum
value is less than such alternate amount that the Committee
may from time to time prescribe for application under this
section in lieu of $50 and $5,000, respectively, the
actuarial equivalent of such retirement income or other
benefit shall be paid in a lump sum, subject to the provision
below. Such actuarial equivalent shall be based upon the
mortality and interest assumptions which are being used as of
the date of the participant's retirement
- 3 -
<PAGE> 4
or termination of service to determine actuarially equivalent
values; provided, however, with respect to lump sums paid on
and after January 1, 1996, if the Applicable Mortality Table
and Applicable Interest Rate (as defined in Section
1.1(A)(23) hereof) in effect on the date the lump sum is
distributed will result in a larger lump sum being payable,
then the Applicable Mortality Table and Applicable Interest
Rate (as defined in Section 1.1(A)(23) hereof) in effect on
the date the lump sum is distributed will be used to
determine the actuarial equivalent. Any benefit payable under
this Section 3.2 shall require the consent of the recipient
and of the participant's spouse, if living, if either (i) the
amount of such lump-sum payment exceeds $3,500 (or such
higher amount as may be permitted from time to time under
Sections 411(a)(11) and 417 of the Internal Revenue Code and
the regulations issued pursuant thereto), whether such
lump-sum payment is to be made before or after the
participant attains (or would have attained) age 65, (ii)
such lump-sum payment is to be made after the annuity
starting date of the applicable retirement income or other
benefit, or (iii) the date of payment of such lump-sum
payment is later than the close of the second plan year
following the plan year in which the date of the
participant's retirement or termination of service occurs,
and payment must be made within 90 days after such consent is
received by the Committee. Any spousal consent required under
this Section 3.2 must satisfy the requirements of Section
4.1(G) and Section 417(b)(2) of the Internal Revenue Code.
For purposes of this Section, if the single-sum value of the
retirement income or other benefit payable pursuant to this
Section is zero, the person entitled to such benefit shall be
deemed to have received a distribution of such retirement
income or other benefit."
- 4 -
<PAGE> 5
3. Section 4.1(H) of the plan shall be deleted in its entirety
and the following section inserted in lieu thereof:
"(H) Minimum Preserved Benefit Due to Change in Actuarial
Assumption: In the event that the plan is or has been amended
after January 1, 1982 to change the actuarial assumptions
used to determine actuarially equivalent benefits payable
under the plan, the monthly retirement income or other
benefit, if any, payable under the provisions of Section 2.1,
2.2, 2.3 or 2.4 (and Section 3.1 if an optional form of
payment is applicable) on behalf of a participant, who was a
participant in the plan as of the day immediately preceding
the date that the change in assumptions becomes effective
(herein referred to as the "Preservation Date") and who
retires or whose service is terminated after the Preservation
Date, shall be at least equal to the corresponding amount of
the monthly retirement income or other benefit, if any,
payable on his behalf under the provisions of Section 2.1,
2.2, 2.3 or 2.4 (and Section 3.1 if an optional form of
payment is applicable), as the case may be, of the plan as in
effect on the Preservation Date computed using the Deferred
Monthly Retirement Income Commencing at Normal Retirement
Date which he had accrued as of the Preservation Date under
the provisions of the plan as in effect on the Preservation
Date and using the mortality table and interest rate
assumptions that applied under the provisions of the plan as
in effect on the Preservation Date to compute actuarially
equivalent benefits payable on behalf of participants who
retired or whose service was terminated on the Preservation
Date. Notwithstanding any of the foregoing to the contrary,
this Section 4.1(H) shall not apply to the change of
actuarial assumptions effective as of January 1, 1996 made to
Sections 1.1(A)(23), 3.2 and Supplement A hereof in order to
bring the plan into compliance with section 767(a) of the
Uruguay Round Agreements Act (P.L. 103-465)."
- 5 -
<PAGE> 6
4. Section A-2(a) of Supplement A of the plan shall be deleted
in its entirety and the following section inserted in lieu thereof:
"(a) Notwithstanding any provision of the plan to the
contrary, in lieu of the amount and form of retirement income
payable in the event of normal retirement as specified in
Section 2.1 hereof and as subjected to the provisions of
Section 4.1 hereof, a participant who retires on or after his
normal retirement date may elect to receive the actuarial
equivalent of such retirement income in a lump sum payment as
of the date the first payment of retirement income would
otherwise have been made to him under the provisions of
Section 2.1 hereof by making written application for the same
to the Committee and obtaining a written spousal consent,
witnessed by a plan representative or a notary public;
provided, however, that no spousal consent has to be obtained
if the participant's lump sum payment will not exceed $3,500
or if it is established to the satisfaction of the Committee
that such consent may not be obtained because there is no
spouse, the spouse cannot be located or because of such other
circumstances as the Secretary of the Treasury or his
delegate may prescribe. The actuarial equivalent of the
retirement income otherwise payable to the participant
described above shall be based upon the mortality and
interest assumptions which are being used as of the date of
the participant's retirement to determined actuarially
equivalent values; provided, however, that with respect to
lump sums paid on and after January 1, 1996, if the
Applicable Mortality Table and Applicable Interest Rate (as
defined in Section 1.1(A)(23) of the plan) in effect on the
date the lump sum is distributed will result in a larger lump
sum being payable, then the Applicable Mortality Table and
Applicable Interest Rate (as defined in Section 1.1(A)(23)
hereof) in effect on the date the lump sum is
- 6 -
<PAGE> 7
distributed will be used to determine the actuarial
equivalent. A participant who is reemployed by the Employer
after receiving a lump sum payment pursuant to this Section
A-2(a) shall not be eligible to elect to receive a second
lump sum payment upon his retiring after being re-employed,
regardless of whether the participant repays the lump sum to
the plan with interest thereon at the rate of 120 percent of
the federal mid-term rate (as in effect under Section 1274 of
the Internal Revenue Code of 1986, as amended, for the first
month of a plan year), compounded annually, for the period
beginning on the date such lump sum was paid to the
participant and ending on the date the participant makes his
repayment to the trust fund. Such repayment may only be made
before the earlier of: (1) 5 years from the date on which the
participant reenters the active service of the Employer, or
(2) the close of the first period of 5 consecutive one year
Breaks in Service commencing after the date on which the lump
sum was paid to the participant because of his prior
retirement."
- 7 -
<PAGE> 8
IN WITNESS WHEREOF, Farah Incorporated has caused this amendment
to be executed on its behalf by its duly authorized officer as of this 13th day
of December, 1995.
FARAH INCORPORATED
By: /s/ James C. Swain
------------------------
Executive Vice President
of Farah Incorporated
(CORPORATE SEAL)
- 8 -
<PAGE> 1
EXHIBIT 12.1
RATIO OF EARNINGS TO FIXED CHARGES
Tropical Sportswear Int'l Corporation
<TABLE>
<CAPTION>
Fiscal Year
------------------------------------------------------------------
1993 1994 1995 1996 1997
------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Fixed charges:
Interest expensed 1,644 2,115 3,160 2,498 2,899
Capitalized interest 71 72
Portion of rent expense
representative of interest 242 373 327 286 155
-----------------------------------------------------------------
Total fixed charges 1,886 2,488 3,487 2,855 3,126
=================================================================
Earnings:
Income before income taxes 2,314 8,591 2,985 7,916 13,176
Fixed charges excluding
capitalized interest 1,886 2,488 3,487 2,784 3,054
-----------------------------------------------------------------
Total earnings 4,200 11,079 6,472 10,700 16,230
=================================================================
Ratio of earnings to
fixed charges 2.2x 4.5x 1.9x 3.7x 5.2x
=================================================================
Insufficiency of earnings
to cover fixed charges - - - - -
=================================================================
</TABLE>
<TABLE>
<CAPTION>
Pro forma
Pro forma Thirty-nine Forty forty
Year Ended weeks ended weeks ended weeks ended
September 27, June 28, July 4, July 4,
1997 1997 1998 1998
----------------------------------------------------------------------
<S> <C> <C> <C> <C>
Fixed charges:
Interest expensed 19,502 2,233 2,674 14,511
Capitalized interest 72 72 41 41
Portion of rent expense
representative of interest 2,955 91 108 2,507
------- ------- ------- -------
Total fixed charges 22,529 2,396 2,823 17,059
======= ======= ======= =======
Earnings:
Income before income taxes (4,347) 9,685 12,179 (6,318)
Fixed charges excluding
capitalized interest 22,457 2,324 2,782 17,018
------- ------- ------- -------
Total earnings 18,110 12,009 14,961 10,700
======= ======= ======= =======
Ratio of earnings to
fixed charges - 5.0x 5.3x -
======= ======= ======= =======
Insufficiency of earnings
to cover fixed charges 4,419 - - 6,359
======= ======= ======= =======
</TABLE>
<PAGE> 2
RATIO OF EARNINGS TO FIXED CHARGES
Farah Incorporated
<TABLE>
<CAPTION>
Twenty-six Twenty-six
Fiscal Year weeks ended weeks ended
------------------------------------------------------- May 4, May 3,
1993 1994 1995 1996 1997 1997 1998
-----------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C>
Fixed charges:
Interest expensed 2,175 2,479 4,627 4,065 4,108 1,232 2,451
Capitalized interest -- -- -- -- -- -- --
Portion of rent expense
representative of interest 2,287 2,541 2,886 2,733 2,800 1,392 1,569
----- ------ ------- ------ ------ ------ ------
Total fixed charges 4,462 5,020 7,513 6,798 6,908 2,624 4,020
===== ====== ====== ====== ====== ====== ======
Earnings:
Income before income taxes 436 11,105 (15,276) 9,737 (3,628) (1,256) (4,405)
Fixed charges excluding
capitalized interest 4,462 5,020 7,513 6,798 6,908 2,624 4,020
----- ------ ------ ------ ------ ------ ------
Total earnings 4,898 16,125 (7,763) 16,535 3,280 1,368 (385)
===== ====== ====== ====== ====== ====== ======
Ratio of earnings to
fixed charges 1.1x 3.2x -- 2.4x -- -- --
===== ====== ====== ====== ====== ====== ======
Insufficiency of earnings
to cover fixed charges -- -- 15,276 -- 3,628 1,256 4,405
===== ====== ====== ====== ====== ====== ======
</TABLE>
<PAGE> 1
EXHIBIT 21.1
SUBSIDIARIES OF TROPICAL SPORTSWEAR INT'L CORPORATION
<TABLE>
<CAPTION>
SUBSIDIARY PLACE OF INCORPORATION
---------- ----------------------
<S> <C>
APPAREL NETWORK CORPORATION DELAWARE
TROPICAL SPORTSWEAR COMPANY, INC. FLORIDA
SAVANE INTERNATIONAL CORP. TEXAS
EMPRESAS SAVANE, S.A. DE C.V. MEXICO
SERVICIOS MAGNIFICOS, S.A. DE C.V. MEXICO
TOUCHE INDUSTRIAL, S.A. DE C.V. MEXICO
FARAH MANUFACTURING (U.K.) LIMITED ENGLAND
FARAH (AUSTRALIA) PTY. LTD. AUSTRALIA
FARAH (NEW ZEALAND) LIMITED NEW ZEALAND
FARAH (FAR EAST) LIMITED HONG KONG
CORPORACION FARAH-COSTA RICA, S.A. COSTA RICA
FARAH (FIJI) LIMITED** FIJI
SOUTH PACIFIC INVESTMENTS LIMITED** FIJI
FARAH MARKETING IRELAND LIMITED** IRELAND
</TABLE>
** Not a wholly-owned subsidiary of Tropical Sportswear Int'l Corporation
<PAGE> 1
EXHIBIT 23.4
CONSENT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS
We consent to the reference to our firm under the caption "Experts" and to
the use of our report dated November 5, 1997, except for Note 15, as to which
the date is May 1, 1998, in the Registration Statement (Form S-4) and related
Prospectus of Tropical Sportswear Int'l Corporation for the registration of
$100,000,000, 11% Senior Subordinated Notes due 2008.
We also consent to the incorporation by reference therein of our report
dated November 5, 1997, except for Note 15, as to which the date is May 1, 1998
with respect to the financial statement schedule of Tropical Sportswear Int'l
Corporation for the years ended September 27, 1997, September 28, 1996 and
September 30, 1995 included in the Annual Report (Form 10-K) for 1997 filed with
the Securities and Exchange Commission.
/s/ Ernst & Young LLP
Tampa, Florida
August 17, 1998
<PAGE> 1
EXHIBIT 23.5
CONSENT OF INDEPENDENT ACCOUNTANTS
We hereby consent to the use in the Prospectus constituting part of this
Registration Statement on Form S-4 of Tropical Sportswear Int'l Corporation of
our report dated December 17, 1997, except for the information in Note 13 for
which the date is May 1, 1998, relating to the financial statements of the
acquired company, which appear in such prospectus. We also consent to the
references to us under the headings "Selected Historical Financial Information
of Farah" and "Experts" in such Prospectus.
We also consent to the incorporation by reference therein of our report
dated December 17, 1997, except for the information in Note 13 for which the
date is May 1, 1998, with respect to the financial statement schedule of Farah
Incorporated for the years ended November 2, 1997 and November 3, 1996 included
in the Annual Report (Form 10-K) for 1997 filed January 28, 1998.
PricewaterhouseCoopers LLP
Austin, Texas
August 20, 1998
<PAGE> 1
Exhibit 23.6
CONSENT OF INDEPENDENT PUBLIC ACCOUNTANTS
As independent public accountants, we hereby consent to the use of our
report included in the registration statement on Form S-4 of Tropical
Sportswear Int'l Corporation (and to all references to our firm included in or
made part of this registration statement).
ARTHUR ANDERSEN LLP
Dallas, Texas
August 20, 1998
<PAGE> 1
EXHIBIT 25.1
===============================================================================
SECURITIES AND EXCHANGE COMMISSION
Washington, D. C. 20549
-------------------
FORM T-1
-------------------
STATEMENT OF ELIGIBILITY UNDER THE
TRUST INDENTURE ACT OF 1939 OF A CORPORATION
DESIGNATED TO ACT AS TRUSTEE
---------------------
CHECK IF AN APPLICATION TO DETERMINE ELIGIBILITY OF A TRUSTEE
PURSUANT TO SECTION 305(b)(2)
-------------------
SUNTRUST BANK, ATLANTA
(Exact name of trustee as specified in its charter)
<TABLE>
<CAPTION>
<S> <C> <C>
[STREET
SUITE
Atlanta, Georgia 30303 58-0466330]
(Address of principal executive offices) (Zip Code) (I.R.S. employer identification no.)
</TABLE>
-------------------
DAVID M. KAYE
Suntrust Bank, Atlanta
3495 Piedmont Road
Building 10, Suite 810
Atlanta, Georgia 30305
(404) 240-1930
(Name, address and telephone number of agent for service)
-------------------
TROPICAL SPORTSWEAR INT'L CORPORATION
APPAREL NETWORK CORPORATION
TROPICAL SPORTSWEAR COMPANY, INC.
SAVANE INTERNATIONAL CORPORATION
Florida 59-3424305
Florida 59-3331447
Delaware 52-2062097
Texas 74-1061146
(State or other (IRS employer
jurisdiction of incorporation identification no.)
or organization)
4902 West Waters Avenue
Tampa, Florida 33634-1302
(Address of principal executive offices) (Zip Code)
<PAGE> 2
-------------------
11% Senior Subordinated Notes due 2008 to be Registered
(Title of the indenture securities)
(1) The following subsidiaries of Registrant: Apparel Network Corporation,
Tropical Sportswear Company, Inc., and Savane International Corporation, have
each guaranteed the Notes being registered pursuant hereto on an unsecured
senior subordinated basis.
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
::ODMA\PCDOCS\ATL\232047\1 Registration No.
<PAGE> 3
1. General information.
Furnish the following information as to the trustee--
Name and address of each examining or supervising authority to
which it is subject.
Department of Banking and Finance,
State of Georgia
Atlanta, Georgia
Federal Reserve Bank of Atlanta
104 Marietta Street, N.W.
Atlanta, Georgia
Federal Deposit Insurance Corporation
Washington, D.C.
Whether it is authorized to exercise corporate trust powers.
Yes.
2. Affiliations with obligor.
If the obligor is an affiliate of the trustee, describe each such
affiliation.
None.
16. List of Exhibits.
List below all exhibits filed as a part of this statement of
eligibility; exhibits identified in parentheses are filed with the
Commission and are incorporated herein by reference as exhibits hereto
pursuant to Rule 7a-29 under the Trust Indenture Act of 1939, as
amended, and Rule 24 of the Commission's Rules of Practice.
(1) A copy of the Articles of Amendment and Restated Articles of
Association of the trustee as now in effect. (Exhibit 1 to
Form T-1, Registration No. 333-25463.)
(2) A copy of the certificate of authority of the trustee to
commence business. (included in Exhibit 1.)
(3) A copy of the authorization of the trustee to exercise
corporate trust powers. (included in Exhibit 1.)
<PAGE> 4
(4) A copy of the existing by-laws of the trustee. (included in
Exhibit 4 to Form T-1, Registration No. 333-25463.)
(6) The consent of the trustee required by Section 321(b) of the
Trust Indenture Act of 1939.
(7) A copy of the latest report of condition of the trustee
published pursuant to law or the requirements of its
supervising or examining authority as of the close of business
on March 31, 1999.
<PAGE> 5
SIGNATURE
Pursuant to the requirements of the Trust Indenture Act of 1939 the
trustee, Suntrust Bank, Atlanta, a banking corporation organized and existing
under the laws of the State of Georgia, has duly caused this statement of
eligibility and qualification to be signed on its behalf by the undersigned,
thereunto duly authorized, all in the City of Atlanta and the State of Georgia,
on the 17th day of August, 1998.
SUNTRUST BANK, ATLANTA
By: /s/ David M. Kaye
--------------------
David M. Kaye
Group Vice President
<PAGE> 6
EXHIBIT 1 TO FORM T-1
ARTICLES OF ASSOCIATION
OF
SUNTRUST BANK, ATLANTA
<PAGE> 7
EXHIBIT 2 TO FORM T-1
CERTIFICATE OF AUTHORITY
OF
SUNTRUST BANK, ATLANTA
TO COMMENCE BUSINESS
<PAGE> 8
EXHIBIT 3 TO FORM T-1
AUTHORIZATION
OF
SUNTRUST BANK, ATLANTA
TO EXERCISE CORPORATE TRUST POWERS
<PAGE> 9
EXHIBIT 4 TO FORM T-1
BY-LAWS
OF
SUNTRUST BANK, ATLANTA
<PAGE> 10
EXHIBIT 6 TO FORM T-1
CONSENT OF TRUSTEE
Pursuant to the requirements of Section 321(b) of the Trust Indenture
Act of 1939 in connection with the proposed issuance of 11% Senior Subordinated
Notes due 2008 of Tropical Sportswear Int'l Corporation, SunTrust Bank, Atlanta
hereby consents that reports of examinations by Federal, State, Territorial or
District Authorities may be furnished by such authorities to the Securities and
Exchange Commission upon request therefor.
SUNTRUST BANK, ATLANTA
By: /s/ David M. Kaye
-------------------
David M. Kaye
Group Vice President
<PAGE> 11
EXHIBIT 7 TO FORM T-1
REPORT OF CONDITION
<PAGE> 12
<TABLE>
<CAPTION>
SUNTRUST BANK ATLANTA Call Date: 03131/98 State #: 130330 FFIEC 031
P.O. BOX 4418 CENTER 632 Vendor ID: D Cert #: 00867 RC-1
ATLANTA, GA 30302 Transit #: 61000104
CONSOLIDATED REPORT OF CONDITION FOR INSURED COMMERCIAL
AND STATE-CHARTERED SAVINGS BANKS FOR MARCH 31, 1998
All schedules are to be reported in thousands of dollars. Unless otherwise
indicated, report the amount outstanding as of the last business day of the
quarter.
C400
SCHEDULE RC - BALANCE SHEET
Dollar Amounts in Thousands
- ----------------------------------------------------------------------------------------------------------------
ASSETS
<S> <C> <C> <C> <C>
1. Cash and balances due from depository institutions (from Schedule RC-A): RCFD
a. Noninterest-bearing balances and currency and coin (1)_________________________ 0081 1,251,852 1.a
b. Interest-bearing balances (2)__________________________________________________ 0071 5,142 1.b
2. Securities:
a. Held-to-maturity securities (from Schedule RC-B, column A)_____________________ 1754 0 2.a
b. Available-for-sale securities (from Schedule RC-B, column D)___________________ 1773 3,585,729 2.b
3. Federal funds sold and securities purchased under agreements to resell_________________ 1350 1,277,270 3.
4. Loans and lease financing receivables: RCFD
a. Loans and leases, net of unearned income (from Schedule RC-C)_____ 2122 11,169,988 4.a
b. LESS: Allowance for loan and lease losses_________________________ 3123 135,758 4.b
c. LESS: Allocated transfer risk reserve ____________________________ 3128 0 4.c
d. Loans and leases, net of unearned income, RCFD
allowance, and reserve (item 4.a minus 4.b and 4.c)____________________________ 2125 11,034,230 4.d
5. Trading assets (from Schedule RC-D)____________________________________________________ 3545 22,211 5.
6. Premises and fixed assets (including capitalized leases)_______________________________ 2145 100,156 6.
7. Other real estate owned (from Schedule RC-M)___________________________________________ 2150 1,919 7.
8. Investments in unconsolidated subsidiaries and associated companies (from Schedule RC-M) 2130 12,664 8.
9. Customers' liability to this bank on acceptances outstanding___________________________ 2155 373,600 9.
10. Intangible assets (from Schedule RC-M)_________________________________________________ 2143 15,777 10.
11. Other assets (from Schedule RC-F)______________________________________________________ 2160 166,401 11.
12. Total assets (sum of items 1 through 11)_______________________________________________ 2170 17,846,951 12.
</TABLE>
- -------
(1) Includes cash items in process of collection and unposted debits.
(2) Includes time certificates of deposit not held for trading.
<PAGE> 13
<TABLE>
<CAPTION>
SUNTRUST BANK ATLANTA Call Date: 03/31/98 State #: 130330 FFIEC 031
P.O. BOX 4418 CENTER 632 Vendor ID: D Cert #: 00867 RC-2
ATLANTA, GA 30302 Transit #: 61000104
SCHEDULE RC - CONTINUED
Dollar Amounts in Thousands
- -----------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
LIABILITIES
13. Deposits:
a. In domestic offices (sum of totals of columns A and C from Schedule RC-E, RCON
part I)_____________________________________________________________________ RCON 2200 7,037,048 13.a
(1) Noninterest-bearing (1)_________________________________________________ 6631 3,029,162 13.a.
(2) Interest-bearing _______________________________________________________ 6636 4,007,886 13.a.
b. In foreign offices, Edge and Agreement subsidiaries, and IBFs (from Schedule RCFN
RC-E, part II)______________________________________________________________ RCFN 2200 1,518,531 13.b
(1) Noninterest-bearing ____________________________________________________ 6631 0 13.b.
(2) Interest-bearing _______________________________________________________ 6636 1,518,531 RCFD 13.b.
14. Federal funds purchased and securities sold under agreements to repurchase _________________________ 2800 3,688,681 14
RCON
15. a. Demand notes issued to the U.S. Treasury ___________________________________________________ 2840 0 15.a
RCFD
b. Trading liabilities (from Schedule RC-D) ___________________________________________________ 3548 0 15.b
16. Other borrowed money (includes mortgage indebtedness and
obligations under capitalized leases):
a. With a remaining maturity of one year or less ______________________________________________ 2332 967,040 16.a
b. With a remaining maturity of more than one year through three years ________________________ A547 2,540 16.b
c. With a remaining maturity of more than three years _________________________________________ A548 0 16.c
17. Not applicable
18. Bank's liability on acceptances executed and outstanding ___________________________________________ 2920 373,600 18
19. Subordinated notes and debentures(2) _______________________________________________________________ 3200 250,000 19
20. Other liabilities (from Schedule RC-G) _____________________________________________________________ 2930 1,305,100 20
21. Total liabilities (sum of items 13 through 20) _____________________________________________________ 2948 15,142,540 21
22. Not applicable
EQUITY CAPITAL
23. Perpetual preferred stock and related surplus ______________________________________________________ 3838 0 23
24. Common stock _______________________________________________________________________________________ 3230 21,601 24
25. Surplus (exclude all surplus related to preferred stock) ___________________________________________ 3839 703,406 25
26. a. Undivided profits and capital reserves _____________________________________________________ 3632 648,298 26.a
b. Net unrealized holding gains (losses) on available-for-sale securities_ _____________________ 8434 1,331,106 26.b
27. Cumulative foreign currency translation adjustments ________________________________________________ 3284 0 27
28. Total equity capital (sum of items 23 through 27) __________________________________________________ 3210 2,704,411 28
29. Total liabilities and equity capital (sum of items 21 and 28) ______________________________________ 3300 17,846,951 29
MEMORANDUM
TO BE REPORTED ONLY WITH THE MARCH REPORT OF CONDITION.
1. Indicate in the box at the right the number of the statement below that best describes the
most comprehensive level of auditing work performed for the bank by independent external RCFD Number
auditors as of any date during 1997 ________________________________________________________________ 6724 N/A M.1
1 = Independent audit of the bank conducted in accordance 4 = Directors' examination of the bank performed by other
with generally accepted auditing standards by a certified external auditors (may be required by state chartering
public accounting firm which submits a report on the bank authority)
2 = Independent audit of the bank's parent holding company 5 = Review of the bank's financial statements by external
conducted in accordance with generally accepted auditing auditors
standards by a certified public accounting firm which 6 = Compilation of the bank's financial statements by
submits a report on the consolidated holding company (but external auditors
not on the bank separately)
7 = Other audit procedures (excluding tax preparation work)
3 = Directors' examination of the bank conducted in accordance
with generally accepted auditing standards by a certified public 8 = No external audit work
accounting firm (may be required by state chartering authority)
</TABLE>
- --------
(1) Includes total demand deposits and noninterest-bearing time and savings
deposits.
(2) Includes limited-life preferred stock and related surplus,
<PAGE> 1
EXHIBIT 99.1
TROPICAL SPORTSWEAR INT'L CORPORATION
LETTER OF TRANSMITTAL
TO TENDER FOR EXCHANGE
11% SENIOR SUBORDINATED NOTES DUE 2008 FOR
A NEW SERIES OF 11% SENIOR SUBORDINATED NOTES DUE 2008
PURSUANT TO THE PROSPECTUS DATED _________, 1998
- --------------------------------------------------------------------------------
THE EXCHANGE OFFER WILL EXPIRE AT 5:00 P.M., NEW YORK CITY TIME, ON __________,
1998, UNLESS EXTENDED (THE "EXPIRATION DATE"). TENDERS MAY BE WITHDRAWN PRIOR TO
5:00 P.M., NEW YORK CITY TIME, ON THE EXPIRATION DATE.
- --------------------------------------------------------------------------------
PLEASE READ CAREFULLY THE ATTACHED INSTRUCTIONS
If you desire to accept the Exchange Offer, this Letter of Transmittal should be
completed, signed and submitted timely to SunTrust Bank, Atlanta (the
"Exchange Agent") as follows:
<TABLE>
<CAPTION>
BY HAND OR REGISTERED OR BY FACSIMILE: BY OVERNIGHT COURIER:
CERTIFIED MAIL:
<S> <C> <C>
SunTrust Bank, Atlanta SunTrust Bank, Atlanta SunTrust Bank, Atlanta
c/o First Chicago Trust Company (404) 240-2030 Corporate Trust Division
of New York Attention: Susan Knight 3495 Piedmont Road
Corporate Trust Building 10
8th Floor Confirm by Telephone: Suite 810
14 Wall Street (404) 240-1952 Atlanta, Georgia 30305
New York, NY 10005 Attention: Susan Knight Attention: Susan Knight
</TABLE>
FOR INFORMATION CALL:
SunTrust Bank, Atlanta
(404) 240-1952
Attention: Susan Knight
DELIVERY OF THIS LETTER OF TRANSMITTAL TO AN ADDRESS OTHER THAN AS SET
FORTH ABOVE WILL NOT CONSTITUTE A VALID DELIVERY.
FOR ANY QUESTIONS REGARDING THIS LETTER OF TRANSMITTAL OR FOR ANY
ADDITIONAL INFORMATION, YOU MAY CONTACT THE EXCHANGE AGENT BY TELEPHONE AT (404)
240-1952.
The Exchange Offer is not being mailed to, nor will tenders be accepted
from or on behalf of, holders of Old Notes in any jurisdiction in which the
making or acceptance of the Exchange Offer would not be in compliance with the
laws of such jurisdiction.
<PAGE> 2
PRELIMINARY INSTRUCTIONS
The undersigned hereby acknowledges receipt of the Prospectus dated
___________, 1998 (the "Prospectus") of Tropical Sportswear Int'l Corporation, a
Florida corporation (the "Company"), and this Letter of Transmittal (this
"Letter of Transmittal"), which together constitute the Company's offer to
exchange (the "Exchange Offer") a new series of its 11% Senior Subordinated
Notes due 2008 (the "Exchange Notes"), the issuance of which has been registered
under the Securities Act of 1933, as amended (the "Securities Act"), for any and
all of its outstanding 11% Senior Subordinated Notes due 2008 (the "Old Notes").
For each Old Note accepted for exchange, the holder of such Old Note will
receive an Exchange Note having a principal amount equal to that of the
surrendered Old Note. Capitalized terms used but not defined herein have the
meanings ascribed to them in the Prospectus.
The form and terms of the Exchange Notes will be identical in all
material respects to the form and terms of the Old Notes, except that (i) the
Exchange Notes will bear a different CUSIP Number from the Old Notes, (ii) the
issuance of the Exchange Notes has been registered under the Securities Act and,
therefore, the Exchange Notes will not bear legends restricting the transfer
thereof and (iii) holders of the Exchange Notes will not be entitled to certain
rights under the Exchange and Registration Rights Agreement dated as of June 24,
1998 (the "Registration Rights Agreement") between the Company and Prudential
Securities Incorporated, the initial purchaser of the Old Notes. Holders whose
Old Notes are accepted for exchange will be deemed to have waived the right to
receive any interest accrued on the Old Notes. See "Description of the Notes" in
the Prospectus.
The Company reserves the right, at any time and from time to time, to
extend the Exchange Offer, in which case the term "Expiration Date" means the
latest date and time to which the Exchange Offer is extended. In order to extend
the Exchange Offer, the Company will notify the Exchange Agent thereof by
written notice and will mail to the registered holders an announcement of such
extension, each prior to 9:00 a.m., New York City time, on the next business day
after the previously scheduled expiration date. The Exchange Offer is not
conditioned upon any minimum aggregate principal amount of Old Notes being
tendered or accepted for exchange. However, the Exchange Offer is subject to
certain conditions. See "The Exchange Offer -- Conditions" in the Prospectus.
This Letter of Transmittal is to be completed by a holder of Old Notes
if (i) certificates are to be forwarded herewith or (ii) a tender of
certificates for Old Notes is to be made by book-entry transfer to the account
maintained by the Exchange Agent at The Depository Trust Company ("DTC")
pursuant to the book-entry transfer procedures set forth under "The Exchange
Offer -- Procedures for Tendering Old Notes" in the Prospectus.
Holders who wish to tender their Old Notes but who cannot, prior to
5:00 p.m., New York City time, on the Expiration Date (a) deliver their Old
Notes, this Letter of Transmittal or any other required documents to the
Exchange Agent or (b) deliver a confirmation of the book-entry tender of their
Old Notes into the Exchange Agent's account at DTC (a "Book-Entry Confirmation")
and otherwise complete the procedures for book-entry transfer, may effect a
tender of Old Notes by complying with the guaranteed delivery procedures set
forth under "The Exchange Offer -- Guaranteed Delivery Procedures" in the
Prospectus. Delivery of documents to DTC does not constitute delivery to the
Exchange Agent. See Instruction 1.
HOLDERS OF OLD NOTES SHOULD COMPLETE THE APPROPRIATE BOXES BELOW AND
SIGN THIS LETTER OF TRANSMITTAL TO INDICATE THE ACTION THE HOLDERS ELECT TO TAKE
WITH RESPECT TO THE EXCHANGE OFFER.
-2-
<PAGE> 3
Ladies and Gentlemen:
Upon the terms and subject to the conditions of the Exchange Offer, the
undersigned hereby tenders to the Company the Old Notes described in Box I
(Description of Tendered Notes) (the "Tendered Notes"). The undersigned is the
registered owner of all the Tendered Notes, and the undersigned represents that
it has received from each beneficial owner of the Tendered Notes ( a "Beneficial
Owner") a duly completed and executed form of "Instructions to Registered Holder
and/or Book-Entry Transfer Facility Participant from Beneficial Owner"
accompanying this Letter of Transmittal, instructing the undersigned to take the
action described in this Letter of Transmittal. Subject to, and effective upon,
the acceptance for exchange of the Tendered Notes, the undersigned hereby sells,
assigns and transfers to, or upon the order of, the Company all right, title and
interest in and to the Tendered Notes.
The undersigned hereby irrevocably constitutes and appoints the
Exchange Agent its agent and attorney-in-fact (with full knowledge that the
Exchange Agent also acts as the agent of the Company) with respect to the
Tendered Notes with the full power of substitution to (i) deliver certificates
for the Tendered Notes to the Company and deliver all accompanying evidences of
transfer and authenticity to, or upon the order of, the Company, (ii) present
the Tendered Notes for transfer on the books of the Company and (iii) receive
for the account of the Company all benefits and otherwise exercise all rights of
beneficial ownership of the Tendered Notes, all in accordance with the terms of
the Exchange Offer. The power of attorney granted in this paragraph shall be an
irrevocable power coupled with an interest.
The undersigned hereby represents and warrants that the undersigned has
full power and authority to tender, sell, assign and transfer the Tendered Notes
and that the Company will acquire good and unencumbered title thereto, free and
clear of all liens, restrictions, charges and encumbrances and not subject to
any adverse claim when the same are accepted by the Company. The undersigned
further represents and warrants to the Company that (i) the information set
forth in Box II (Beneficial Owner(s)) is correct, (ii) any Exchange Notes to be
received by the undersigned and any Beneficial Owner in exchange for the
Tendered Notes will be acquired in the ordinary course of business of the
undersigned and such Beneficial Owner, (iii) neither the undersigned nor any
Beneficial Owner is an "affiliate" of the Company within the meaning of Rule 405
under the Securities Act and (iv) neither the undersigned nor any Beneficial
Owner has any arrangement with any person to participate in the distribution
(within the meaning of the Securities Act) of the Exchange Notes.
The undersigned agrees that acceptance of any Tendered Notes by the
Company and the issuance of Exchange Notes in exchange therefor will constitute
performance in full by the Company of its obligations under the Registration
Rights Agreement and that the Company will have no further obligations or
liabilities thereunder (except as expressly provided therein).
The undersigned and each Beneficial Owner also acknowledge as follows:
The Exchange Offer is being made in reliance on existing interpretations of the
Securities Act by the staff of the Securities and Exchange Commission (the
"Commission") set forth in several "no-action" letters to third parties and
unrelated to the Company and the Exchange Offer and, based on such
interpretations, the Company believes that the Exchange Notes issued pursuant to
the Exchange Offer in exchange for Old Notes may be offered for resale, resold
and otherwise transferred by the holders thereof (other than any such holder
which is an "affiliate" of the Company within the meaning of Rule 405 under the
Securities Act) without further compliance with the registration and prospectus
delivery provisions of the Securities Act, provided that such Exchange Notes are
acquired in the ordinary course of such holders' business and such holders have
no arrangement or understanding with any person to participate in the
distribution (within the meaning of the Securities Act) of such Exchange Notes.
Any holder which is an affiliate of the Company or which intends to participate
in the Exchange Offer for the purpose of distributing the Exchange Notes (i)
will not be able to rely on the interpretation by the staff of the Commission
set forth in the above-mentioned "no action" letters, (ii) will not be able to
tender its Old Notes in the Exchange Offer and (iii) must comply with the
registration and prospectus delivery requirements of the Securities Act in
connection with any sale or transfer transaction unless such sale or transfer is
made pursuant to an
-3-
<PAGE> 4
exemption from such requirements. Failure to comply with such requirements may
result in such holder incurring liability under the Securities Act for which the
holder is not indemnified by the Company. The undersigned and each Beneficial
Owner acknowledge that the Company has not sought or received its own "no
action" letter with respect to the Exchange Offer and the related transactions,
and that there can be no assurance that the staff of the Commission will make a
determination in the case of the Exchange Offer and such transactions that is
similar to its determinations in the above-mentioned "no action" letters.
If the undersigned or any Beneficial Owner is a broker-dealer that will
receive Exchange Notes for its own account in exchange for Old Notes that were
acquired as a result of market-making or other trading activities, the
undersigned acknowledges that it and each such Beneficial Owner will deliver a
prospectus meeting the requirements of the Securities Act in connection with any
resale of such Exchange Notes. However, by so acknowledging and so delivering a
prospectus, neither the undersigned nor any such Beneficial Owner will be deemed
to admit that it is an "underwriter" within the meaning of the Securities Act.
The above-referenced prospectus may be the Prospectus (as it may be amended or
supplemented from time to time) only if it contains a plan of distribution with
respect to such resale transactions (but need not name the undersigned or
disclose the amount of Exchange Notes held by the undersigned or any such
Beneficial Owner).
The undersigned and each Beneficial Owner will, upon request, execute
and deliver any additional documents deemed by the Company or the Exchange Agent
to be necessary or desirable to complete the sale, assignment and transfer of
the Tendered Notes. All authority conferred or agreed to be conferred in this
Letter of Transmittal and every obligation of the undersigned and each
Beneficial Owner hereunder shall be binding upon the successors, assigns, heirs,
executors, administrators, trustees in bankruptcy and legal representatives of
the undersigned and such Beneficial Owner, and shall not be affected by, and
shall survive the death or incapacity of, the undersigned and such Beneficial
Owner.
For purposes of the Exchange Offer, the Company shall be deemed to have
accepted validly tendered Tendered Notes when, as and if the Company has given
written notice thereof to the Exchange Agent.
The undersigned understands that tenders of the Tendered Notes pursuant
to the procedures described in the Prospectus under "The Exchange Offer --
Procedures for Tendering" and in the Instructions hereto will constitute a
binding agreement between the undersigned and the Company in accordance with the
terms and subject to the conditions set forth herein and in the Prospectus.
The undersigned recognizes that (i) under certain circumstances set
forth in the Prospectus under "The Exchange Offer -- Conditions," the Company
will not be required to accept the Tendered Notes for exchange and (ii) the
undersigned may withdraw its tender of Tendered Notes only as set forth in the
Prospectus under "The Exchange Offer -- Withdrawal of Tenders." Tendered Notes
not accepted for exchange or which have been withdrawn will be returned, without
expense, to the undersigned as promptly as practicable after the Expiration
Date, in the manner set forth in the next succeeding paragraph.
Unless otherwise indicated in Box V (Special Issuance Instructions),
please issue certificates for the Exchange Notes (and, if applicable, substitute
certificates representing any Old Notes not exchanged) in the name of the
undersigned. Similarly, unless otherwise indicated in Box VI (Special Delivery
Instructions), please (i) send certificates for the Exchange Notes (and, if
applicable, substitute certificates representing Old Notes not exchanged) to the
undersigned at the address indicated in Box I (Description of Tendered Notes) or
(ii) in the case of a book-entry tender of Old Notes, please credit the Exchange
Notes (and, if applicable, Old Notes not exchanged) to the account at DTC
indicated in Box III (Method of Delivery).
-4-
<PAGE> 5
PLEASE READ THIS ENTIRE LETTER OF TRANSMITTAL CAREFULLY BEFORE
COMPLETING ANY BOX BELOW.
<TABLE>
<CAPTION>
- -------------------------------------------------------------------------------------------------------------
BOX I
DESCRIPTION OF TENDERED NOTES*
- -------------------------------------------------------------------------------------------------------------
Aggregate
Principal Aggregate
Name(s) and Address(es) of Registered Note Holder(s), Certificate Amount Principal
exactly as name(s) appear(s) Number(s) Represented by Amount
on Old Note Certificate(s) of Old Notes** Certificate(s) Tendered***
<S> <C> <C> <C>
- -------------------------------------------------------------------------------------------------------------
- -------------------------------------------------------------------------------------------------------------
- -------------------------------------------------------------------------------------------------------------
- -------------------------------------------------------------------------------------------------------------
Total
- -------------------------------------------------------------------------------------------------------------
* List the Old Notes to which this Letter of Transmittal relates. If the
space provided is inadequate, the Certificate numbers and principal
amount of Old Notes should be listed on a separate signed schedule
attached hereto.
** Need not be completed by persons tendering by book-entry transfer.
*** Tenders of Old Notes must be in a minimum principal amount of $1,000 or
an integral multiple of $1,000 in excess thereof. Unless otherwise
indicated in this column, a holder will be deemed to have tendered ALL
of the Old Notes represented by the Certificate(s) set forth above. See
Instruction 2.
- -------------------------------------------------------------------------------------------------------------
</TABLE>
<TABLE>
<CAPTION>
- -------------------------------------------------------------------------------------------------------------
BOX II
BENEFICIAL OWNER(S)
- -------------------------------------------------------------------------------------------------------------
State of Principal Residence of Principal Amount of Tendered Notes Held
Each Beneficial Owner of Tendered Notes for Account of Beneficial Owner
<S> <C>
- -------------------------------------------------------------------------------------------------------------
- -------------------------------------------------------------------------------------------------------------
- -------------------------------------------------------------------------------------------------------------
- -------------------------------------------------------------------------------------------------------------
- -------------------------------------------------------------------------------------------------------------
- -------------------------------------------------------------------------------------------------------------
</TABLE>
-5-
<PAGE> 6
- -------------------------------------------------------------------------------
BOX III
METHOD OF DELIVERY
(SEE INSTRUCTION 1)
- -------------------------------------------------------------------------------
[ ] CHECK HERE IF TENDERED NOTES ARE BEING DELIVERED BY BOOK-ENTRY TRANSFER
MADE TO THE ACCOUNT MAINTAINED BY THE EXCHANGE AGENT AT DTC AND
COMPLETE THE FOLLOWING:
Name of Tendering Institution
-----------------------------------------
Account Number Transaction Code Number
------------------ -----------
[ ] CHECK HERE IF TENDERED NOTES ARE BEING DELIVERED HEREWITH.
[ ] CHECK HERE IF TENDERED NOTES ARE BEING DELIVERED PURSUANT TO A NOTICE
OF GUARANTEED DELIVERY PREVIOUSLY SENT TO THE EXCHANGE AGENT AND
COMPLETE THE FOLLOWING:
Name(s) of Registered Holder(s)
---------------------------------------
Window Ticket Number (if any)
-----------------------------------------
Date of Execution of Notice of Guaranteed Delivery
--------------------
Name of Institution which guaranteed delivery
-------------------------
If Delivered by Book-Entry Transfer, Complete the Following:
----------
Name of Tendering Institution
--------------------------------
Account Number and Transaction Code Number
-------------------
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
BOX IV
ATTENTION BROKER-DEALERS
- -------------------------------------------------------------------------------
| | CHECK HERE IF THE UNDERSIGNED OR ANY BENEFICIAL OWNER OF TENDERED NOTES
IS A BROKER-DEALER AND WISHES TO RECEIVE 10 ADDITIONAL COPIES OF THE
PROSPECTUS AND 10 COPIES OF ANY AMENDMENTS OR SUPPLEMENTS THERETO:
Name
------------------------------------------------------------------
Address
---------------------------------------------------------------
- -------------------------------------------------------------------------------
-6-
<PAGE> 7
- -------------------------------------------------------------------------------
BOX V
SPECIAL ISSUANCE INSTRUCTIONS
(SEE INSTRUCTIONS 3 AND 4)
- -------------------------------------------------------------------------------
To be completed ONLY if certificates for Exchange Notes and/or
certificates for Old Notes not exchanged are to be issued in the name of someone
other than the person(s) whose signature(s) appear(s) on this Letter of
Transmittal in Box VII (Signature).
Issue: Exchange Notes issued and/or Old Notes not exchanged to:
Name(s)
------------------------------------------------------------------------
(Please Type or Print)
------------------------------------------------------------------------
(Please Type or Print)
Address(es)
--------------------------------------------------------------------
(Zip Code)
Taxpayer Identification Number or Social Security Number
----------------------
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
BOX VI
SPECIAL DELIVERY INSTRUCTIONS
(SEE INSTRUCTIONS 3 AND 4)
- -------------------------------------------------------------------------------
To be completed ONLY if (1) certificates for Exchange Notes and/or
certificates for Old Notes not exchanged are to be sent to someone other than
the person(s) whose signature(s) appear(s) on this Letter of Transmittal in Box
VII (Signature) at the address(es) indicated in Box I (Description of Tendered
Notes) or (2) Exchange Notes and/or Old Notes not exchanged are to be issued or
returned, respectively, to an account maintained at DTC other than the account
indicated in Box III (Method of Delivery).
Send: Exchange Notes and/or Old Notes not exchanged to:
Name(s)
------------------------------------------------------------------------
(Please Type or Print)
------------------------------------------------------------------------
(Please Type or Print)
Address(es)
--------------------------------------------------------------------
--------------------------------------------------------------------
(Zip Code)
Credit: Exchange Notes and/or Old Notes not exchanged to DTC account as follows:
Name(s)
------------------------------------------------------------------------
(Please Type or Print)
------------------------------------------------------------------------
(Please Type or Print)
Crediting Instructions
---------------------------------------------------------
Account Number
-----------------------------------------------------------------
- -------------------------------------------------------------------------------
-7-
<PAGE> 8
- -------------------------------------------------------------------------------
BOX VII
SIGNATURE: TO BE COMPLETED BY ALL TENDERING HOLDERS
(SEE INSTRUCTIONS 1 AND 3)
IN ADDITION, SUBSTITUTE FORM W-9 ON THE FOLLOWING PAGE MUST BE
COMPLETED AND SIGNED.
- -------------------------------------------------------------------------------
, 1998
- ------------------------------------ -----------------------
, 1998
- ------------------------------------ -----------------------
, 1998
- ------------------------------------ -----------------------
Signature(s) by Tendering Holder(s) Date
Area Code and Telephone Number
-------------------------------------------------
For any Tendered Notes, this Letter of Transmittal must be signed by
the registered holder(s) as the name(s) appear(s) on the certificate(s) for the
Tendered Notes or by any person(s) authorized to become registered holder(s) by
endorsements and documents submitted herewith. If signature is by a trustee,
executor, administrator, guardian, attorney-in-fact, officer of a corporation or
other person acting in a fiduciary or representative capacity, please set forth
full title and the other information indicated below and, unless waived by the
Company, submit herewith evidence satisfactory to the Company of authority to so
act. See Instruction 3.
Name(s)
------------------------------------------------------------------------
------------------------------------------------------------------------
(Please Type or Print)
Capacity
-----------------------------------------------------------------------
Address(es)
--------------------------------------------------------------------
--------------------------------------------------------------------
(Including Zip Code)
Area Code and Telephone Number
-------------------------------------------------
Tax Identification Number or Social Security Number
----------------------------
SIGNATURE GUARANTEE
(IF REQUIRED BY INSTRUCTION 3)
Signature(s) Guaranteed by
an Eligible Institution
------------------------------------------
(Authorized Signature)
------------------------------------------
(Print Name)
------------------------------------------
(Title)
------------------------------------------
(Name of Firm -- Must be an
Eligible Institution as
defined in Instruction 3)
------------------------------------------
(Address)
------------------------------------------
(Area Code and Telephone Number)
- -------------------------------------------------------------------------------
-8-
<PAGE> 9
- -------------------------------------------------------------------------------
PAYOR'S NAME: TROPICAL SPORTSWEAR INT'L CORPORATION*
- -------------------------------------------------------------------------------
Name (if joint names, list first and circle the name
of the person or entity whose number you enter in
Part 1 below. See instructions if your name has
changed).
----------------------------------------------------------
Address
----------------------------------------------------------
SUBSTITUTE City, State and ZIP Code
----------------------------------------------------------
----------------------------------------------------------
FORM W-9 List account number(s) here (optional)
----------------------------------------------------------
Department of the PART 1--PLEASE PROVIDE YOUR TAXPAYER |Social Security
Treasury IDENTIFICATION NUMBER ("TIN") IN THE BOX | or TIN
Internal Revenue AT RIGHT AND CERTIFY BY SIGNING AND DATING|
Service BELOW. |
----------------------------------------------------------
PART 2--Check the box if you are NOT subject to
backup withholding under the provisions of section
3406(a)(I)(C) of the Internal Revenue Code because
(1) you have not been notified that you are subject
to backup withholding as a result of failure to
report all interest or dividends or (2) the Internal
Revenue Service has notified you that you are no
longer subject to backup withholding. [ ]
----------------------------------------------------------
PART 3--CERTIFICATION--UNDER THE PENALTIES OR
PERJURY, I CERTIFY THAT THE INFORMATION PROVIDED ON
THIS FORM IS TRUE, CORRECT AND COMPLETE. Awaiting TIN [ ]
SIGNATURE DATE
------------------------ -------------
- -------------------------------------------------------------------------------
*See Instruction 5.
- -------------------------------------------------------------------------------
Note: FAILURE TO COMPLETE AND RETURN THIS FORM MAY RESULT IN BACKUP
WITHHOLDING OF 31% OF ANY PAYMENTS MADE TO YOU PURSUANT TO THE EXCHANGE
OFFER. PLEASE REVIEW THE ENCLOSED GUIDELINES FOR CERTIFICATION OF
TAXPAYER IDENTIFICATION NUMBER ON SUBSTITUTE FORM W-9 FOR ADDITIONAL
DETAILS.
- -------------------------------------------------------------------------------
YOU MUST COMPLETE THE FOLLOWING CERTIFICATE IF YOU CHECKED THE BOX IN
PART 3 OF SUBSTITUTE FORM W-9 ABOVE.
- -------------------------------------------------------------------------------
CERTIFICATE OF AWAITING TAXPAYER IDENTIFICATION NUMBER
I certify under penalties of perjury that a taxpayer identification number has
not been issued to me, and either (i) I have mailed or delivered an application
to receive a taxpayer identification number to the appropriate Internal Revenue
Service Center or Social Security Administration office or (ii) I intend to mail
or deliver an application in the near future. I understand that if I do not
provide a taxpayer identification number to the payor, 31% of all payments made
to me pursuant to the Exchange Offer shall be retained until I provide a
taxpayer identification number to the payor and that, if I do not provide my
taxpayer identification number within sixty (60) days, such retained amounts
shall be remitted to the Internal Revenue Service as a backup withholding and
31% of all reportable payments made to me thereafter will be withheld and
remitted to the Internal Revenue Service until I provide a number.
SIGNATURE DATE
----------------------------------- ----------------------
-9-
<PAGE> 10
TROPICAL SPORTSWEAR INT'L CORPORATION
INSTRUCTIONS TO LETTER OF TRANSMITTAL
FORMING PART OF THE TERMS AND CONDITIONS
OF THE EXCHANGE OFFER
1. DELIVERY OF THIS LETTER OF TRANSMITTAL AND TENDERED NOTES;
GUARANTEED DELIVERY PROCEDURES. This Letter of Transmittal is to be completed by
holders of Old Notes if (i) certificates are to be forwarded herewith or (ii) a
tender of certificates for Old Notes is to be made by book-entry transfer to the
account maintained by the Exchange Agent at DTC pursuant to the book-entry
transfer procedures set forth under "The Exchange Offer -- Procedures for
Tendering Old Notes" in the Prospectus. Certificates for all physically tendered
Old Notes, or a Book-Entry Confirmation, as the case may be, as well as a
properly completed and duly executed Letter of Transmittal (or manually signed
facsimile hereof) and all other documents required by this Letter of
Transmittal, must be received by the Exchange Agent at the address set forth on
the front cover and back cover hereof prior to 5:00 p.m., New York City time, on
the Expiration Date, or the tendering holder must comply with the guaranteed
delivery procedures set forth below.
Holders who wish to tender their Old Notes but who cannot, prior to
5:00 p.m., New York City time, on the Expiration Date (i) deliver their Old
Notes, this Letter of Transmittal or any other documents required by this Letter
of Transmittal to the Exchange Agent or (ii) deliver a Book-Entry Confirmation
and otherwise complete the procedures for book-entry transfer, may effect a
tender of Old Notes by complying with the guaranteed delivery procedures set
forth under "The Exchange Offer -- Guaranteed Delivery Procedures" in the
Prospectus. Pursuant to such procedures, (a) the tender must be made through an
Eligible Institution (as defined in Instruction 3); (b) prior to 5:00 p.m., New
York City time, on the Expiration Date, the Exchange Agent must have received
from such Eligible Institution a properly completed and duly executed Notice of
Guaranteed Delivery (by facsimile transmission, registered or certified mail or
hand delivery) setting forth the name and address of the tendering holder, the
certificate number(s) of the Tendered Notes and the principal amount of the
Tendered Notes, stating that the tender is being made thereby and guaranteeing
that, within three New York Stock Exchange trading days after the Expiration
Date, this Letter of Transmittal (or facsimile thereof) together with the
certificates(s) representing the Tendered Notes (or a Book-Entry Confirmation)
and any other documents required by this Letter of Transmittal will be deposited
by the Eligible Institution with the Exchange Agent; and (c) this Letter of
Transmittal (or facsimile thereof), properly completed and duly executed, as
well as the certificates(s) representing the Tendered Notes in proper form for
transfer (or a Book-Entry Confirmation), and all other documents required by
this Letter of Transmittal are received by the Exchange Agent within three New
York Stock Exchange trading days after the Expiration Date.
The method of delivery of this Letter of Transmittal, the Tendered
Notes and all other required documents is at the election and risk of the
tendering holders. The delivery will be deemed made only when actually received
or confirmed by the Exchange Agent. As an alternative to delivery by mail,
holders may wish to consider overnight or hand delivery service. In all cases,
sufficient time should be allowed to assure delivery to the Exchange Agent prior
to 5:00 p.m., New York City time, on the Expiration Date.
See the discussion set forth under "The Exchange Offer" in the
Prospectus.
2. TENDER BY REGISTERED HOLDER; INSTRUCTIONS TO BENEFICIAL HOLDERS;
PARTIAL TENDERS. Only a holder in whose name Old Notes are registered may
execute and deliver this Letter of Transmittal and tender Old Notes in the
Exchange Offer. Any beneficial owner whose Old Notes are registered in the name
of a broker, dealer, commercial bank, trust, company or other nominee and who
wishes to tender such Old Notes should (i) contact such registered holder
promptly and instruct such registered holder to
-10-
<PAGE> 11
tender such Old Notes on such beneficial owner's behalf, (ii) properly complete
and duly execute the form of "Instructions to Registered Holder and/or
Book-Entry Transfer Facility Participant From Beneficial Owner" accompanying
this Letter of Transmittal and (iii) timely deliver such form to such registered
holder. The Company, the Exchange Agent and the transfer and registrar for the
Old Notes shall be entitled to rely upon all representations, warranties,
covenants and instructions given or made by such registered holder and/or such
beneficial owner. If such beneficial owner wishes to tender Old Notes on its own
behalf, such beneficial owner must, prior to completing and executing this
Letter of Transmittal and delivering its Old Notes, either make appropriate
arrangements to register ownership of the Old Notes in such beneficial owner's
name or obtain a properly completed bond power from the registered holder. Any
such transfer of registered ownership may take considerable time.
Tendered Notes must be in a minimum principal amount of $1,000 or an
integral multiple of $1,000 in excess thereof. If less than the entire principal
amount of the Old Notes evidenced by a submitted certificate are to be tendered,
the tendering holder(s) should indicate the aggregate principal amount of Old
Notes to be tendered in Box I (Description of Tendered Notes) under the caption
"Aggregate Principal Amount Tendered." The entire principal amount of Old Notes
delivered to the Exchange Agent will be deemed to have been tendered unless
otherwise indicated. If the entire principal amount of Old Notes held by the
tendering holder is not tendered for exchange, then (i) unless otherwise
indicated in Box V (Special Issuance Instructions), certificates evidencing
untendered Old Notes and Exchange Notes issued pursuant to the Exchange Offer
will be issued in the name of the person signing this Letter of Transmittal and
(ii) unless otherwise indicated in Box VI (Special Delivery Instructions), such
certificates will be sent to the person signing this Letter of Transmittal at
the address indicated in Box I (Description of Tendered Notes) (or, in the case
of a book-entry tender of Old Notes, credited to the account at DTC indicated in
Box III (Method of Delivery)).
3. SIGNATURES ON THIS LETTER OF TRANSMITTAL; BOND POWERS AND
ENDORSEMENTS; GUARANTEE OF SIGNATURES. If this Letter of Transmittal is signed
by the registered holder of the Tendered Notes, the signature must correspond
exactly with the name(s) as written on the face of the certificates for the
Tendered Notes without any change whatsoever. If any tendered Old Notes are
owned of record by two or more joint owners, all such owners must sign this
Letter of Transmittal. If any Tendered Notes are registered in different names
on several certificates, it will be necessary to complete, sign and submit as
many separate copies of this Letter of Transmittal as there are different
registrations of certificates.
When this Letter of Transmittal is signed by the registered holder(s)
of the Tendered Notes specified herein and tendered hereby, no endorsements of
certificates or separate bond powers are required. If, however, the Exchange
Notes are to be issued, or any untendered Old Notes are to be reissued, to a
person other than the registered holder, then endorsements of any certificates
transmitted hereby or separate bond powers are required. Signatures on such
certificate(s) must be guaranteed by an Eligible Institution.
If this Letter of Transmittal is signed by a person other than the
registered holder(s) of any certificate(s) specified herein, such certificate(s)
must be endorsed or accompanied by appropriate bond powers, in either case
signed exactly as the name(s) of the registered holder(s) appear(s) on the
certificate(s) and signatures on each such endorsement or bond power must be
guaranteed by an Eligible Institution.
If this Letter of Transmittal or any certificates or bond powers are
signed by trustees, executors, administrators, guardians, attorneys-in-fact,
officers of corporations or others acting in a fiduciary or representative
capacity, such persons should so indicate when signing, and, unless waived by
the Company, evidence satisfactory to the Company of their authority to so act
must be submitted with this Letter of Transmittal.
Endorsements on certificates for Tendered Notes or signatures on bond
powers required by this Instruction 3 must be guaranteed by a firm which is a
member of a registered national securities exchange
-11-
<PAGE> 12
or of the National Association of Securities Dealers, Inc., or is a savings
institution, commercial bank or trust company having an office or correspondent
in the United States, or is otherwise an "eligible guarantor institution" within
the meaning of Rule 17Ad-15 under the Securities Exchange Act of 1934, as
amended, and which is, in each case, a member of a recognized signature
guarantee program (i.e., Securities Transfer Agents Medallion Program, Stock
Exchange Medallion Program or New York Stock Exchange Medallion Signature
Program) (an "Eligible Institution").
Signatures on this Letter of Transmittal need not be guaranteed by an
Eligible Institution, provided the Tendered Notes are tendered by: (i) the
registered holder thereof (which term for purposes of the exchange offer
includes any participant of DTC whose name appears on a security position
listing as the holder of such Tendered Notes) who has not completed Box V
(Special Issuance Instructions) or Box VI (Special Delivery Instructions) on
this Letter of Transmittal or (ii) an Eligible Institution.
4. SPECIAL ISSUANCE AND DELIVERY INSTRUCTIONS. Tendering holders should
indicate in the applicable boxes the name and address to which Exchange Notes
issued pursuant to the Exchange Offer and/or substitute certificates evidencing
Old Notes not exchanged are to be issued or sent if different from the name or
address of the holder signing this Letter of Transmittal. In the case of
issuance in a different name, the taxpayer identification number or social
security number of the person named must also be indicated. Each holder
tendering by book-entry transfer may request that Old Notes not exchanged be
credited to the account maintained at DTC designated by such holder hereon. If
no such instructions are given, certificates evidencing such Old Notes not
exchanged and Exchange Notes issued pursuant to the Exchange Offer will be
returned to the person signing this Letter of Transmittal at the address
indicated in Box I (Description of Tendered Notes) (or, in the case of a
book-entry tender of Old Notes, credited to the account at DTC indicated in Box
III (Method of Delivery)).
5. TAX IDENTIFICATION NUMBER. Federal income tax law generally requires
that a tendering holder whose Tendered Notes are accepted for exchange must
provide the Company (as payor) with such holder's correct Taxpayer
Identification Number ("TIN") on Substitute Form W-9, which in the case of a
tendering holder who is an individual, is his or her social security number. If
the Company is not provided with the current TIN or an adequate basis for an
exemption, such tendering holder may be subject to a $50 penalty imposed by the
Internal Revenue Service. In addition, delivery to such tendering holder of
Exchange Notes may be subject to backup withholding in an amount equal to 31% of
all reportable payments made after the exchange. If withholding results in an
overpayment of taxes, a refund may be obtained.
Exempt holders of Old Notes (including, among others, all corporations
and certain foreign individuals) are not subject to these backup withholding and
reporting requirements. See the enclosed "Guidelines of Certification of
Taxpayer Identification Number on Substitute Form W-9" (the "W-9 Guidelines")
for additional instructions.
To prevent backup withholding, each holder of Tendered Notes must
provide its correct TIN by completing the Substitute Form W-9 set forth above,
certifying that the TIN provided is correct (or that such holder is awaiting a
TIN) and that (i) the holder is exempt from backup withholding, (ii) the holder
has not been notified by the Internal Revenue Service that such holder is
subject to backup withholding as a result of a failure to report all interest or
dividends or (iii) the Internal Revenue Service has notified the holder that
such holder is no longer subject to backup withholding. If the holder of
Tendered Notes is a nonresident alien or foreign entity not subject to backup
withholding, such holder must give the Company a completed Form W-8, Certificate
of Foreign Status. This form may be obtained from the Exchange Agent. If the
Tendered Notes are in more than one name or are not in the name of the
Beneficial Owner, the tendering holder should consult the W-9 Guidelines for
information on which TIN to report. If such holder does not have a TIN, such
holders should consult the W-9 Guidelines for instructions on applying for a
TIN, check the box in Part 3 of the Substitute Form W-9 and write "applied for"
in lieu of its TIN. Note: Checking this box and writing "applied for" on the
form means that such holder has already applied for a TIN or that such holder
intends to apply for one in the near future. If such holder does not
-12-
<PAGE> 13
provide its TIN to the Company within 60 days, backup withholding will begin and
continue until such holder furnishes its TIN to the Company.
6. TRANSFER TAXES. The Company will pay all transfer taxes, if any,
applicable to the transfer of Tendered Notes to it or its order pursuant to the
Exchange Offer. If, however, Exchange Notes and/or substitute Old Notes not
exchanged are to be delivered to, or are to be registered or issued in the name
of, any person other than the registered holder of the Tendered Notes, or if the
Tendered Notes are registered in the name of any person other than the person
signing this Letter of Transmittal, or if a transfer tax is imposed for any
reason other than the transfer of Tendered Notes to the Company or its order
pursuant to the Exchange Offer, the amount of any such transfer taxes (whether
imposed on the registered holder or any other persons) will be payable by the
tendering holder. If satisfactory evidence of payment of such taxes or exemption
therefrom is not submitted herewith, the amount of such transfer taxes will be
billed directly to such tendering holder.
EXCEPT AS PROVIDED IN THIS INSTRUCTION 6, IT WILL NOT BE NECESSARY FOR
TRANSFER TAX STAMPS TO BE AFFIXED TO THE TENDERED NOTES SPECIFIED IN THIS LETTER
OF TRANSMITTAL.
7. WAIVER OF CONDITIONS. The Company reserves the absolute right to
amend, waive or modify any or all conditions relating to the Exchange Offer set
forth in the Prospectus.
8. NO CONDITIONAL TENDERS. No alternative, conditional, irregular or
contingent tenders will be accepted. All holders of Tendered Notes, by execution
of this Letter of Transmittal, shall waive any right to receive notice of the
acceptance of their Tendered Notes for exchange.
9. MUTILATED, LOST, STOLEN OR DESTROYED OLD NOTES. Any holder whose Old
Notes have been mutilated, lost, stolen or destroyed should contact the Exchange
Agent at the address set forth on the front cover and back cover hereof for
further instructions.
10. VALIDITY OF TENDERS. All questions as to the validity, form,
eligibility (including time of receipt), acceptance and withdrawal of Tendered
Notes will be determined by the Company in its sole discretion, which
determination will be final and binding. The Company reserves the absolute right
to reject any and all Tendered Notes not properly tendered or any Tendered Notes
the Company's acceptance of which would, in the opinion of counsel for the
Company, be unlawful. The Company also reserves the right in its sole discretion
to waive any defects, irregularities or conditions of tender as to any Tendered
Notes. The Company's interpretation of the terms and conditions of the Exchange
Offer (including the Instructions in this Letter of Transmittal) will be final
and binding on all parties. Unless waived, any defects or irregularities in
connection with Tendered Notes must be cured within such time as the Company
shall determine. Although the Company intends to notify holders of defects or
irregularities with respect to tenders of Tendered Notes, neither the Company,
the Exchange Agent nor any other person shall incur any liability for failure to
give such notification. Tenders of Tendered Notes will not be deemed to have
been made until such defects or irregularities have been cured or waived. Any
Tendered Notes received by the Exchange Agent that are not properly tendered and
as to which the defects or irregularities have not been cured or waived will be
returned by the Exchange Agent to the tendering holders, unless otherwise
provided in this Letter of Transmittal, as promptly as practicable following the
Expiration Date.
11. ACCEPTANCE OF TENDERED NOTES AND ISSUANCE OF NOTES; RETURN OF
NOTES. Subject to the terms and conditions of the Exchange Offer, the Company
will accept for exchange all validly tendered Old Notes as promptly as
practicable after the Expiration Date and will issue Exchange Notes therefor as
promptly as practicable thereafter. For purposes of the Exchange Offer, the
Company shall be deemed to have accepted validly tendered Old Notes when, as and
if the Company has given written notice thereof to the Exchange Agent. If any
Tendered Notes are not exchanged pursuant to the Exchange Offer for any reason,
such unexchanged Tendered Notes will be returned, without expense, to the person
signing this Letter of Transmittal at the address indicated in Box I
(Description of Tendered Notes),
-13-
<PAGE> 14
except as may otherwise be specified in Box V (Special Issuance Instructions) or
Box VI (Special Delivery Instructions).
12. WITHDRAWAL. Tendered Notes may be withdrawn only pursuant to the
procedures set forth in the Prospectus under "The Exchange Offer -- Withdrawal
of Tenders."
13. REQUESTS FOR ASSISTANCE OR ADDITIONAL COPIES. Questions relating to
the procedures for tendering, as well as requests for additional copies of the
Prospectus, this Letter of Transmittal and the Notice of Guaranteed Delivery,
may be directed to the Exchange Agent at the address and telephone number set
forth on the front cover and back cover hereof.
-14-
<PAGE> 15
SUNTRUST BANK, ATLANTA, AS EXCHANGE AGENT
<TABLE>
<CAPTION>
BY HAND OR REGISTERED OR BY FACSIMILE: BY OVERNIGHT COURIER:
CERTIFIED MAIL:
<S> <C> <C>
SunTrust Bank, Atlanta SunTrust Bank, Atlanta SunTrust Bank, Atlanta
c/o First Chicago Trust Company (404) 240-2030 Corporate Trust Division
of New York Attention: Susan Knight 3495 Piedmont Road
Corporate Trust Building 10
8th Floor Confirm by Telephone: Suite 810
14 Wall Street (404) 240-1952 Atlanta, Georgia 30305
New York, NY 10005 Attention: Susan Knight Attention: Susan Knight
FOR INFORMATION CALL:
SunTrust Bank, Atlanta
(404) 240-1952
Attention: Susan Knight
</TABLE>
