SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-K
|X| Annual Report Pursuant to Section 13 or 15(d) of the Securities Exchange
Act of 1934
or
|_| Transition Report Pursuant to Section 13 or 15(d) of the Securities
Exchange Act of 1934
---------------------------
FOR THE FISCAL YEAR ENDED JANUARY 4, 1997 COMMISSION FILE NUMBER 1-63
PREMIUMWEAR, INC.
(FORMERLY KNOWN AS MUNSINGWEAR, INC.)
(Exact Name of Registrant as Specified in its Charter)
DELAWARE 41-0429620
(State of Incorporation) (I.R.S. Employer Identification No.)
8000 W. 78TH STREET, SUITE 400, MINNEAPOLIS, MINNESOTA 55439
(ADDRESS OF PRINCIPAL EXECUTIVE OFFICE) (ZIP CODE)
REGISTRANT'S TELEPHONE NUMBER: (612) 943-5000
SECURITIES REGISTERED PURSUANT TO SECTION 12(b) OF THE ACT:
Name of each exchange
Title of each class on which registered
- ------------------------------- ------------------------
Common Stock, $.01 par value New York Stock Exchange
Preferred share purchase rights New York Stock Exchange
SECURITIES REGISTERED PURSUANT TO SECTION 12(g) OF THE ACT: NONE
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of Securities Exchange Act of 1934
during the preceding 12 months, and (2) has been subject to such filing
requirements for the past 90 days. YES __X__ NO ____
Indicate by check mark whether the registrant has filed all documents and
reports required to be filed by Sections 12, 13 or 15(d) of the Securities
Exchange Act of 1934 subsequent to the distribution of securities under a plan
confirmed by a court. YES __X__ NO ____
The aggregate market value of the voting stock held by nonaffiliates of the
Registrant at March 19, 1997 was $5,737,000, based upon the closing price of
$3.25 per share on that date.
The number of shares of common stock outstanding at
March 19, 1997 was 2,319,030.
Indicate by check mark if disclosure of delinquent filers pursuant to Item
405 of Regulation S-K is not contained herein, and will not be contained, to the
best of registrant's knowledge, in definitive proxy or information statements
incorporated by reference in Part III of this Form 10-K or any amendment to this
Form 10-K. ___
--------------------------
DOCUMENTS INCORPORATED BY REFERENCE:
Documents incorporated in part by reference in Parts I and II of this
report: Portions of PremiumWear, Inc. 1996 Annual Report to Shareholders for the
fiscal year ended January 4, 1997.
Documents incorporated in part by reference in Part III of this report:
Portions of definitive proxy statement for the 1997 Annual Meeting of
Shareholders.
This Form 10-K consists of 117 total pages: The exhibit index is on page
18.
PART I
Item 1. Business
A. GENERAL DEVELOPMENT OF BUSINESS
The Company (formerly known as Munsingwear, Inc.) was incorporated under
the laws of Delaware in 1923 as the successor to a business founded in
1886. On July 3, 1991, the Company filed a voluntary petition for
bankruptcy under Chapter 11 of the United States Bankruptcy Code, together
with a proposed Plan of Reorganization. The Company emerged from bankruptcy
on October 29, 1991.
In late 1995 the Company retained the services of an investment banking
firm to explore a range of opportunities to maximize shareholder value.
This process culminated with the sale of trade names and trademarks and
exit from the retail and professional golf businesses. On June 28, 1996,
the Company sold its trademarks and pending trademark applications for
certain Far Eastern countries to ITOCHU Corporation, Toyobo Co., Ltd., and
Descente, Ltd. for $5,000,000 cash. On September 6, 1996, the Company sold
all of its rights to its remaining trademarks and certain associated assets
relating to the retail and professional golf businesses to Supreme
International Corporation for $18,000,000 in cash.
On September 6, 1996 the Company changed its name to PremiumWear, Inc. and
now sells Munsingwear(R) brand knit shirts, woven shirts and pants and
shorts under license from Supreme International Corporation. Sales are to
the special markets channel of distribution which includes advertising
specialty incentive customers, specialty distributors and uniform market
customers.
The Company's principal executive offices are located at 8000 West 78th
Street, Suite 400, Minneapolis, Minnesota 55439, and its telephone number
is (612) 943-5000. As used in this document, the term "Company" refers to
PremiumWear, Inc. and its subsidiaries unless otherwise noted or indicated
by the context. At January 4, 1997, the Company had two idle foreign
subsidiaries.
B. FINANCIAL INFORMATION ABOUT INDUSTRY SEGMENTS
The Company operates in one industry segment, apparel manufacturing. As of
January 4, 1997, the Company's foreign operations were not material.
C. NARRATIVE DESCRIPTION OF BUSINESS
Principal Products:
The Company sells primarily men's knit sport shirts under the
Munsingwear(R) label. All sales are to special markets customers and are
under a license from Supreme International Corporation.
Sources and Availability of Raw Materials and Products:
Approximately 75% of the Company's products are manufactured domestically.
The other 25% is sourced primarily from manufacturers in the Far East and
through the 807 program in the Caribbean Basin. The principal raw materials
used in the domestic production process are cotton, synthetic and
cotton/synthetic blended goods obtained principally from United States
sources. The Company purchases most of its piece goods from approximately
ten sources. There are currently no major problems in availability of raw
materials and alternative sources are available. The Company's Fairmont, NC
manufacturing facility includes a raw material warehouse, cutting, sewing
and embroidery operations, and a finished goods distribution center. The
Company also utilizes contract sewing manufacturers in close proximity to
its North Carolina facility and all products, both domestically and
offshore produced, are distributed to customers from the North Carolina
facility.
Trademarks and Trade Names:
The Company is a licensee of the Munsingwear(R) name under a license
granted from Supreme International Corporation in a transaction related to
the September 1996 sale of trademarks. The license includes knit shirts for
an initial term of 20 years and woven shirts, pants and shorts for an
initial term of 5 years. For the first 5 years, knit shirt sales are
subject to payment of royalties when annual sales reach a certain aggregate
total, at which time license fees are due on all such sales. After 2001 all
knit shirt sales are subject to license fees. Management expects to reach
the annual sales threshold at which royalties are due in 1998. All sales of
woven shirts, pants and shorts are subject to license fees, including
certain minimum annual amounts.
Seasonal Aspects of the Business:
Since the Company has been operating in the special markets channel of
distribution for only a short time, specific seasonal trends have not yet
been determined. However, management expects peak shipments to occur in the
second and third quarters of the fiscal year.
Working Capital Practices:
The Company maintains a secured bank line of credit to meet its working
capital needs. Peak borrowings under this agreement normally will occur in
the months of April through September, the heaviest shipping period of the
year. The bank line of credit is also used for letters of credit that are
required for generally all purchases from Far East sources. The Company
allows returns of merchandise as a result of shipping errors, damaged
merchandise and for other reasons. Returns in the special markets business
have been less than 2% of sales in each of the past two years.
Customers:
The Company sells to approximately 2,100 customers. Sales to San Mar
Corporation were 12% of 1996 net sales. In 1995 no single customer
represented more than 10% of total Company sales. Sales to Sam's Club (a
division of Wal-Mart Stores, Inc., no longer a customer) in 1994 were 16%
of net sales.
Backlog of Orders:
The Company's backlog of unfilled orders at January 4, 1997 was
approximately $3,800,000 as compared to $1,900,000 a year ago. The unfilled
order backlog consists of orders received for subsequent delivery. However,
since it includes orders subject to change for color, size, stock
adjustments, extension of delivery dates and cancellation, the unfilled
order backlog does not necessarily relate directly to future sales.
Competition:
The special markets apparel industry in the United States is becoming
increasingly competitive and is characterized by a number of broad-line
companies. The principal methods of competition are pricing, styling,
quality (both in material and production), inventory replenishment programs
and customer service. The Company seeks to maintain its competitive
position through the use of all these methods.
Research and Development:
The Company is involved in limited experimental research activities related
to the development of new fabrics and production methods. Research and
development expenses, other than for product design, are not significant.
Environmental Considerations:
The Company's manufacturing operations are subject to various federal,
state and local laws restricting the discharge of materials into the
environment. The Company is not involved in any pending or threatened
proceedings which would require curtailment of its operations because of
such regulations. In 1996, the Company's capital expenditures for
environmental control facilities were not significant, and no significant
capital expenditures related to environmental issues are projected in 1997.
Employees:
As of January 4, 1997, there were 312 employees, none of whom were
represented by a union.
Special Cash Distribution to Shareholders:
On January 27, 1997, the board of directors declared a special cash
distribution of $5.39 per share, or approximately $12,500,000, to
shareholders of record on February 19, 1997 which was paid on March 5,
1997. The funds utilized were proceeds from the 1996 sales of trademarks
and collection of accounts receivable and liquidation of inventories
related to the former retail and golf businesses.
D. FINANCIAL INFORMATION ABOUT FOREIGN AND DOMESTIC OPERATIONS AND EXPORT
SALES
Sales to unaffiliated foreign customers located outside the United States
and its territories for the past three years were not significant.
Item 2. Properties
At January 4, 1997, the Company occupied the following properties:
Approximate
Square Percentage Lease
Property Footage Utilized Expires
-------- ------- -------- -------
Minneapolis, MN - Headquarters 16,000 50 1997
Fairmont, NC - Cutting and
sewing plant, warehouse and
distribution center 139,100 100 Owned
New York, NY - Idle sales 1,000 0 1997
office/showroom
Management expects to utilize domestic contractors, 807 contractors and
inventory purchases from the Far East to meet the increased production
requirements as a result of increased customer demand. At January 4, 1997,
no facilities were occupied under capitalized leases.
Item 3. Legal Proceedings
None of a significant nature.
Item 4. Submission of Matters to a Vote of Security Holders
None.
Executive Officers of the Registrant
The following information is furnished with respect to the Company's executive
officers as of the date hereof, pursuant to Item 401(b) of Regulation S-K. Each
of the officers has been appointed to serve in his respective office until his
successor has been elected.
<TABLE>
<CAPTION>
Executive
Officer
Name and Age Position Since
- ------------ -------- ---------
<S> <C> <C>
Thomas D. Gleason (61) Chief Executive Officer September 1996 to 1996
present; Chairman and director of the Company
1995 to present; Vice Chairman of Wolverine
World Wide, Inc. (footwear manufacturing and
marketing), 1993 through April 17, 1996; Chief
Executive Officer of Wolverine World Wide, Inc.
from 1972 to 1993.
David E. Berg (40) Chief Operating Officer, December 1996 to 1995
present; Executive Vice President, Sales &
Marketing May 1995 to present; Vice President,
General Manager, Special Markets, October 1993
to May 1995; Vice President, National Sales
Manager, Retail Division, January 1990 to
October 1993; Vice President, General Manager,
Furnishings Division, February 1989 to January
1990.
James S. Bury (53) Vice President of Finance, December 1996 to 1990
present; Vice President of the Company, 1990 to
1997; Corporate Controller, August 1989 to May
1990; Vice President Finance, Men's Apparel
Division, February 1988 to August 1989.
Cynthia L. Boeddeker (39) Vice President and General Merchandise Manager, 1996
December 1996 to present; Director of Sourcing
and Inventory Management, February 1994 to
December 1996; Import Manager, March 1992 to
February 1994; Sourcing Administrator, July
1991 to March 1992.
Billy E. Smith (46) Vice President of Manufacturing March 1997 to 1997
present; has performed the duties of Vice
President of Manufacturing since March 1996
without designation as an executive officer
until March 1997; Distribution and Planning
Manager, Director of Industrial Engineering,
MRP Manager of Kayser-Roth Corporation, 1990
to 1996.
</TABLE>
PART II
Item 5. Market for the Registrant's Common Equity and Related
Stockholder Matters
The information required under this caption is incorporated herein by
reference to pages 18 and 26 of the 1996 Annual Report to Shareholders. As
of February 19, 1997, the Registrant had 837 shareholders of record
(excluding beneficial owners of shares held in nominees' accounts).
Item 6. Selected Financial Data
The information required under this caption is incorporated herein by
reference to page 26 of the 1996 Annual Report to Shareholders.
Item 7. Management's Discussion and Analysis of Financial Condition
and Results of Operations
The information required under this caption is incorporated herein by
reference to pages 16 through 18 of the 1996 Annual Report to Shareholders.
Item 8. Financial Statements and Supplementary Data
The information required under this caption is incorporated herein by
reference to pages 19 through 26 of the 1996 Annual Report to Shareholders.
Item 9. Changes In and Disagreements With Accountants on Accounting
and Financial Disclosure
None.
PART III
Item 10. Directors and Executive Officers of the Registrant
A. Identification of Directors. The information required under this
caption is incorporated by reference to the information set forth
under the caption "Election of Directors" of the definitive proxy
statement to be filed with the Securities and Exchange Commission
within 120 days of Registrant's fiscal year ended January 4, 1997.
B. Executive Officers is included in Part I of this Report.
Item 11. Executive Compensation
The information required under this caption is incorporated by reference to
the information set forth under the caption "Executive Compensation and
Other Information" of the definitive proxy statement to be filed with the
Securities and Exchange Commission within 120 days of the Registrant's
fiscal year ended January 4, 1997.
Item 12. Security Ownership of Certain Beneficial Owners and Management
The information required under this caption is incorporated by reference to
the information set forth under the caption "Security Ownership of Certain
Beneficial Owners, Directors and Executive Officers" of the definitive
proxy statement to be filed with the Securities and Exchange Commission
within 120 days of the Registrant's fiscal year ended January 4, 1997.
Item 13. Certain Relationships and Related Transactions
The information required under this caption is incorporated by reference to
the information set forth under the caption "Executive Compensation and
Other Information" of the definitive proxy statement to be filed within 120
days of the Registrant's fiscal year ended January 4, 1997.
PART IV
Item 14. Exhibits, Financial Statement Schedules, and Reports on
Form 8-K
(a) DOCUMENTS FILED AS PART OF THIS REPORT:
1. Financial statements, included in cited pages of the 1996 Annual
Report to Shareholders, are incorporated by reference in Item 8:
- Consolidated Statements of Operations for the three years ended
January 4, 1997, January 6, 1996 and January 7, 1995 (page 19).
- Consolidated Balance Sheets as of January 4, 1997 and January 6,
1996 (page 20).
- Consolidated Statements of Cash Flows for the three years ended
January 4, 1997, January 6, 1996 and January 7, 1995 (page 21).
- Consolidated Statements of Changes in Shareholders' Equity for
the three years ended January 4, 1997, January 6, 1996 and
January 7, 1995 (page 22).
- Notes to Consolidated Financial Statements (pages 23 through 26).
- Report of Independent Public Accountants (page 26).
2. Financial Statement Schedules for the three years ended January 4,
1997, January 6, 1996 and January 7, 1995.
- Schedule II - Valuation and Qualifying Accounts, pages 13-15 of
this report.
- Report of Independent Public Accountants on Schedules, page 16 of
this report.
- All other schedules for which provision is made in the applicable
accounting regulation of the Securities and Exchange Commission
are not required under the related instructions or are not
applicable and, therefore, have been omitted.
3. Exhibits:
- Exhibit 2 - Plan of Reorganization, as confirmed October 1, 1991
by the United States Bankruptcy Court.(2)
- Exhibit 3 - Restated Certificate of Incorporation and By- Laws,
as amended.(2) (3)
- Exhibit 4 - Instruments Defining the Rights of Security Holders -
Form of Rights Agreement, incorporated by reference to
Registration Statements on Form 8-A, as amended, dated November
6, 1987, File No. 1-63.
- Exhibit 10 - Material Contracts (Management Contracts or
Compensatory Plans or Agreements):
(A) Employment Agreement with James S. Bury dated April 24,
1990.(1)
(B) The Registrant's 1991 Stock Plan, as amended.(6)
(C) Director Stock Option Agreement with Thomas D. Gleason dated
September 22, 1995.(4)
(D) Director Stock Option Agreement with Thomas D. Gleason dated
January 30, 1996.(4)
- Exhibit 10 - Material Contracts (Other):
(E) Purchase and Sale Agreement, dated May 22, 1996, between the
Registrant and Supreme International Corporation, as
amended.(5)
(F) License Agreement, dated September 6, 1996, between the
Registrant and Supreme International Corporation.(5)
(G) Credit and Security Agreement, dated February 4, 1997,
between the Registrant and FBS Business Finance
Corporation.(6)
(H) Severance Agreement, dated September 6, 1996, between the
Registrant and Lowell M. Fisher.(6)
- Exhibit 11 - Computation of Per Share Earnings.(6)
- Exhibit 13 - PremiumWear, Inc. 1996 Annual Report to Shareholders
- Such report, except for those portions thereof which are
expressly incorporated by reference in this report, is furnished
for the information of the Securities and Exchange Commission and
is not to be deemed "filed" as part of this filing.(6)
- Exhibit 21 - Subsidiaries of the Registrant.(6)
- Exhibit 23 - Consent of Independent Public Accountants.(6)
- Exhibit 27 - Financial Data Schedule.(6)
----------------------
(1) Incorporated herein by reference to Exhibit 10(N) of the
Registrant's Annual Report on Form 10-K for the year ended
January 5, 1991 (File No. 1-63).
(2) Incorporated herein by reference to Exhibits 2 and 3,
respectively, of the Registrant's Annual Report on Form 10-K
for the year ended January 4, 1992 (File No. 1-63).
(3) Incorporated herein by reference to Form 8-K, dated August
1, 1995 (File No. 1-63).
(4) Incorporated herein by reference to Exhibits 10(E) and (F)
respectively of the Registrant's Annual Report on Form 10K
for the year ended January 6, 1996 (File No. 1-63).
(5) Incorporated herein by reference to Exhibits 2.1 and 2.2
respectively of the Registrant's Form 8-K, dated September
12, 1996 (File No. 1-63).
(6) Filed herewith.
(b) REPORTS ON FORM 8-K: Form 8-K, filed September 12, 1996, reported the
Registrant's sale of assets to Supreme International Corporation; the
entering into a license agreement by the Registrant and Supreme
International Corporation; and the resignation of Lowell M. Fisher as
President and Chief Executive officer and a member of the Board of
Directors of the Company.
(c) EXHIBITS: Reference is made to Item 14(a)(3).
(d) SCHEDULES: Reference is made to Item 14(a)(2).
SCHEDULE II
PREMIUMWEAR, INC.
VALUATION AND QUALIFYING ACCOUNTS
YEAR ENDED JANUARY 4, 1997
<TABLE>
<CAPTION>
Column A Column B Column C Column D Column E
- -------- -------- -------- -------- --------
Additions
-----------------------------
Balance Charged to
Beginning Costs and Charged to Balance at
Description of Year Expenses Net Sales Deductions End of Year
- ----------- --------- ----------- ----------- ---------- -----------
<S> <C> <C> <C> <C> <C>
Allowances deducted
from trade receivables
Allowance for cash
discounts and other
customer credits $ 219,000 $ 648,000(d) $ 516,000 $ 674,000(a) $ 709,000
Allowance for
doubtful accounts 242,000 (12,000) 0 80,000(b) 150,000
Allowance for
returns 50,000 0 1,933,000 1,933,000(c) 50,000
----------- ----------- ----------- ----------- -----------
$ 511,000 $ 636,000 $ 2,449,000 $ 2,687,000 $ 909,000
=========== =========== =========== =========== ===========
Reserve for
restructuring $ 193,000 $ 0 $ 0 $ 193,000 $ 0
=========== =========== =========== =========== ===========
Reserve for liabilities
related to sold assets $ 0 $ 4,437,000(d) $ 0 $ 2,907,000 $ 1,530,000
=========== =========== =========== =========== ===========
</TABLE>
Notes:
(a) Discounts allowed and other credits to customers' accounts receivable.
(b) Uncollectible accounts written off, net of recoveries.
(c) Returns applied to customers' accounts receivable.
(d) Charged against gain on sale of trademarks.
SCHEDULE II
<TABLE>
<CAPTION>
PREMIUMWEAR, INC.
VALUATION AND QUALIFYING ACCOUNTS
YEAR ENDED JANUARY 6, 1996
Column A Column B Column C Column D Column E
- -------- -------- -------- -------- --------
Additions
--------------------------------
Balance Charged to
Beginning Costs and Charged to Balance at
Description of Year Expenses Net Sales Deductions End of Year
- ----------- --------- ---------- ---------- ---------- -----------
<S> <C> <C> <C> <C> <C>
Allowances deducted
from trade
receivables
Allowance for cash
discounts and
other customer
credits $ 192,000 $ (8,000) $ 250,000 $ 215,000(a) $ 219,000
Allowance for
doubtful accounts 200,000 162,000 0 120,000(b) 242,000
Allowance for
returns 50,000 0 1,972,000 1,972,000(c) 50,000
----------- ----------- ----------- ---------- -----------
$ 442,000 $ 154,000 $ 2,222,000 $2,307,000 $ 511,000
=========== =========== =========== ========== ===========
Reserve for
Facility Closing $ 37,000 $ (23,000) $ 0 $ 14,000 $ 0
=========== =========== =========== ========== ===========
Reserve for
Restructuring $ 0 $ 519,000 $ 0 $ 326,000 $ 193,000
=========== =========== =========== ========== ===========
</TABLE>
Notes:
(a) Discounts allowed and other credits to customers' accounts receivable.
(b) Uncollectible accounts written off, net of recoveries.
(c) Returns applied to customers' accounts receivable.
SCHEDULE II
PREMIUMWEAR, INC.
VALUATION AND QUALIFYING ACCOUNTS
YEAR ENDED JANUARY 7, 1995
<TABLE>
<CAPTION>
Column A Column B Column C Column D Column E
- -------- -------- -------- -------- --------
Additions
-----------------------------
Balance Charged to
Beginning Costs and Charged to Balance at
Description of Year Expenses Net Sales Deductions End of Year
- ----------- ------- -------- --------- ---------- -----------
<S> <C> <C> <C> <C> <C>
Allowances deducted
from trade receivables
Allowance for cash
discounts and other
customer credits $ 272,000 $ 5,000 $ 461,000 $ 546,000(a) $ 192,000
Allowance for
doubtful accounts 262,000 142,000 0 204,000(b) 200,000
Allowance for
returns 50,000 0 1,113,000 1,113,000(c) 50,000
----------- ----------- ----------- ----------- -----------
$ 584,000 $ 147,000 $ 1,574,000 $ 1,863,000 $ 442,000
=========== =========== =========== =========== ===========
Reserve for
facility closings $ 450,000 $ (100,000) $ 0 $ 313,000 $ 37,000
=========== =========== =========== =========== ===========
</TABLE>
Notes:
(a) Discounts allowed and other credits to customers' accounts receivable.
(b) Uncollectible accounts written off, net of recoveries.
(c) Returns applied to customers' accounts receivable.
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
ON SCHEDULES
We have audited in accordance with generally accepted auditing standards, the
consolidated financial statements of PremiumWear, Inc. included in the Company's
annual report to stockholders included in this Form 10-K and have issued our
report thereon dated February 19, 1997. Our audit was made for the purpose of
forming an opinion on those statements taken as a whole. The schedule listed in
Item 14 of this Form 10-K is the responsibility of the Company's management and
is presented for purposes of complying with the Securities and Exchange
Commission's rules and is not part of the basic financial statements. This
schedule has been subjected to the auditing procedures applied in our audits of
the basic financial statements and, in our opinion, fairly states in all
material respects the financial data required to be set forth therein in
relation to the basic financial statements taken as a whole.
ARTHUR ANDERSEN LLP
Minneapolis, Minnesota
February 19, 1997
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange
act of 1934, the Registrant has duly caused this report to be signed on behalf
of the undersigned, thereunto duly authorized.
PREMIUMWEAR, INC.
Date: APRIL 3, 1997 By: /S/THOMAS D. GLEASON
------------------------------
Thomas D. Gleason,
Chairman and
Chief Executive Officer
Pursuant to the requirements of the Securities Exchange Act of 1934, this report
has been signed below by the following persons on behalf of the Registrant and
in the capacities and on the date indicated.
<TABLE>
<CAPTION>
NAME TITLE
- ---- -----
<S> <C> <C>
/S/THOMAS D. GLEASON Chairman and Chief Executive Officer April 3, 1997
- --------------------- (principal executive officer) and
Thomas D. Gleason Director
/S/JAMES S. BURY Vice President of Finance April 3, 1997
- ---------------------------------
/S/C. D. ANDERSON Director April 3, 1997
- ---------------------------------
C. D. Anderson
/S/KEITH A. BENSON Director April 3, 1997
- ---------------------------------
Keith A. Benson
/S/GERALD E. MAGNUSON Director April 3, 1997
- ---------------------------------
Gerald E. Magnuson
/S/KEVIN S. MOORE Director April 3, 1997
- ---------------------------------
Kevin S. Moore
/S/WILLIAM J. MORGAN Director April 3, 1997
- ---------------------------------
William J. Morgan
/S/MICHAEL A. RASKIN Director April 3, 1997
- ---------------------------------
Michael A. Raskin
/S/MARK B. VITTERT Director April 3, 1997
- ---------------------------------
Mark Vittert
</TABLE>
EXHIBIT INDEX
Exhibit No. Exhibit Page No.
- ----------- ------- --------
10 (B) 1991 Stock Plan, as amended. 19-32
10 (G) Credit and Security Agreement with FBS Business Finance 33-81
Corporation.
10 (H) Severance Agreement with Lowell M. Fisher. 82-85
11 Computation of Per Share Earnings. 86
13 PremiumWear, Inc. 1996 Annual Report to Shareholders. 87-114
21 Subsidiaries of the Registrant. 115
23 Consent of Independent Public Accountants. 116
27 Financial Data Schedule 117
PREMIUMWEAR, INC.
1991 STOCK PLAN
SECTION CONTENTS PAGE
1. General Purpose of Plan; Definitions 1
2. Administration 3
3. Stock Subject to Plan 4
4. Eligibility 4
5. Stock Options 4
6. Restricted Stock 8
7. Transfer, Leave of Absence, etc. 10
8. Amendments and Termination 10
9. Unfunded Status of Plan 10
10. General Provisions 11
11. Effective Date of Plan 12
PREMIUMWEAR, INC.
1991 STOCK PLAN
SECTION 1. General Purpose of Plan; Definitions.
The name of this plan is the PremiumWear, Inc. 1991 Stock Plan (the
"Plan"). The purpose of the Plan is to enable PremiumWear, Inc. (the "Company")
and its Subsidiaries to retain and attract executives, other key employees,
consultants and directors who contribute to the Company's success by their
ability, ingenuity and industry, and to enable such individuals to participate
in the long-term success and growth of the Company by giving them a proprietary
interest in the Company.
For purposes of the Plan, the following terms shall be defined as set
forth below:
a. "Board" means the Board of Directors of the Company.
b. "Cause" means a felony conviction of a participant or the
failure of a participant to contest prosecution for a felony,
or a participant's willful misconduct or dishonesty, any of
which is directly and materially harmful to the business or
reputation of the Company.
c. "Code" means the Internal Revenue Code of 1986, as amended.
d. "Committee" means the Committee referred to in Section 2 of
the Plan. If at any time no Committee shall be in office, then
the functions of the Committee specified in the Plan shall be
exercised by the Board.
e. "Company" means PremiumWear, Inc., a corporation organized
under the laws of the State of Delaware (or any successor
corporation).
f. "Disability" means permanent and total disability as
determined by the Committee.
g. "Early Retirement" means retirement, with consent of the
Committee at the time of retirement, from active employment
with the Company and any Subsidiary or Parent Corporation of
the Company.
h. "Fair Market Value" means the value of the Stock on a given
date as determined by the Committee in accordance with Section
422 of the Code and any applicable Treasury Department
regulations with respect to "incentive stock options."
i. "Incentive Stock Option" means any Stock Option intended to be
and designated as an "Incentive Stock Option" within the
meaning of Section 422 of the Code.
j. "Non-Employee Director" means a "Non-Employee Director" within
the meaning of Rule 16b-3(b)(3) under the Securities Exchange
Act of 1934, as amended, or any successor rule.
k. "Non-Qualified Stock Option" means any Stock Option that is
not an Incentive Stock Option, and is intended to be and is
designated as a "Non-Qualified Stock Option."
l. "Normal Retirement" means retirement from active employment
with the Company and any Subsidiary or Parent Corporation of
the Company on or after age 65.
m. "Outside Director" means a director who (a) is not a current
employee of the Company or any member of an affiliated group
which includes the Company; (b) is not a former employee of
the Company who receives compensation for prior services
(other than benefits under a tax-qualified retirement plan)
during the taxable year; (c) has not been an officer of the
Company; (d) does not receive remuneration from the Company,
either directly or indirectly, in any capacity other than as a
director, except as otherwise permitted under Code Section
162(m) and regulations thereunder. For this purpose,
remuneration includes any payment in exchange for goods or
services. This definition shall be further governed by the
provisions of Code Section 162(m) and regulations promulgated
thereunder.
n. "Parent Corporation" means any corporation (other than the
Company) in an unbroken chain of corporations ending with the
Company if each of the corporations (other than the Company)
owns stock possessing 50% or more of the total combined voting
power of all classes of stock in one of the other corporations
in the chain.
o. "Restricted Stock" means an award of shares of Stock that are
subject to restrictions under Section 6 below.
p. "Retirement" means Normal Retirement or Early Retirement.
q. "Stock" means the Common Stock, $.01 par value per share, of
the Company.
r. "Stock Option" means any option to purchase shares of Stock
granted pursuant to Section 5 below.
s. "Subsidiary" means any corporation (other than the Company) in
an unbroken chain of corporations beginning with the Company
if each of the corporations (other than the last corporation
in the unbroken chain) owns stock possessing 50% or more of
the total combined voting power of all classes of stock in one
of the other corporations in the chain.
SECTION 2. Administration.
The Plan shall be administered by the Board or by a Committee appointed
by the Board consisting of at least two directors, all of whom shall be Outside
Directors and Non-Employee Directors, and who shall serve at the pleasure of the
Board. The Committee may be a subcommittee of the Compensation Committee of the
Board
The Committee shall have the power and authority to grant to eligible
employees, consultants and directors pursuant to the terms of the Plan: (i)
Stock Options and (ii) Restricted Stock.
In particular, the Committee shall have the authority:
(i) to select the officers, other key employees, directors and
consultants of the Company and its Subsidiaries to whom Stock
Options and/or Restricted Stock awards may from time to time
be granted hereunder;
(ii) to determine whether and to what extent Incentive Stock
Options, Non-Qualified Stock Options, or Restricted Stock
awards, or a combination of the foregoing, are to be granted
hereunder;
(iii) to determine the number of shares to be covered by each such
award granted hereunder;
(iv) to determine the terms and conditions, not inconsistent with
the terms of the Plan, of any award granted hereunder
(including, but not limited to, any restriction on any Stock
Option or other award and/or the shares of Stock relating
thereto); and
(v) to determine whether, to what extent and under what
circumstances Stock and other amounts payable with respect to
an award under this Plan shall be deferred either
automatically or at the election of the participant.
The Committee shall have the authority to adopt, alter and repeal such
administrative rules, guidelines and practices governing the Plan as it shall,
from time to time, deem advisable; to interpret the terms and provisions of the
Plan and any award issued under the Plan (and any agreements relating thereto);
and to otherwise supervise the administration of the Plan. The Committee may
delegate its authority to officers of the Company for the purpose of selecting
employees who are not officers of the Company for purposes of (i) above.
All decisions made by the Committee pursuant to the provisions of the
Plan shall be final and binding on all persons, including the Company and Plan
participants.
SECTION 3. Stock Subject to Plan.
The total number of shares of Stock reserved and available for
distribution under the Plan shall be 873,500. Such shares may consist, in whole
or in part, of authorized and unissued shares.
If any shares that have been optioned cease to be subject to Stock
Options, or if any shares subject to any Restricted Stock award granted
hereunder are forfeited or such award otherwise terminates without a payment
being made to the participant, such shares shall again be available for
distribution in connection with future awards under the Plan.
In the event of any merger, reorganization, consolidation,
recapitalization, stock dividend, other change in corporate structure affecting
the Stock, or spin-off or other distribution of assets to shareholders, such
substitution or adjustment shall be made in the aggregate number of shares
reserved for issuance under the Plan, in the number and option price of shares
subject to outstanding Stock Options granted under the Plan, and in the number
of shares subject to Restricted Stock awards granted under the Plan as may be
determined to be appropriate by the Committee, in its sole discretion, provided
that the number of shares subject to any award shall always be a whole number.
SECTION 4. Eligibility.
Officers, other key employees, consultants and members of the Board of
the Company and Subsidiaries who are responsible for or contribute to the
management, growth and/or profitability of the business of the Company and its
Subsidiaries are eligible to be granted Stock Options or Restricted Stock awards
under the Plan. The optionees and participants under the Plan shall be selected
from time to time by the Committee, in its sole discretion, from among those
eligible, and the Committee shall determine, in its sole discretion, the number
of shares covered by each award.
Notwithstanding the foregoing, no person shall receive grants of Stock
Options and Restricted Stock awards under this Plan which exceed 150,000 shares
during any fiscal year of the Company.
SECTION 5. Stock Options.
Any Stock Option granted under the Plan shall be in such form as the
Committee may from time to time approve.
The Stock Options granted under the Plan may be of two types: (i)
Incentive Stock Options and (ii) Non-Qualified Stock Options. No Incentive Stock
Options shall be granted under the Plan after October 21, 2001.
The Committee shall have the authority to grant any optionee Incentive
Stock Options, Non- Qualified Stock Options, or both types of options. To the
extent that any option does not qualify as an Incentive Stock Option, it shall
constitute a separate Non-Qualified Stock Option.
Anything in the Plan to the contrary notwithstanding, no term of this
Plan relating to Incentive Stock Options shall be interpreted, amended or
altered, nor shall any discretion or authority granted under the Plan be so
exercised, so as to disqualify either the Plan or any Incentive Stock Option
under Section 422 of the Code. The preceding sentence shall not preclude any
modification or amendment to an outstanding Incentive Stock Option, whether or
not such modification or amendment results in disqualification of such Stock
Option as an Incentive Stock Option, provided the optionee consents in writing
to the modification or amendment.
Options granted under the Plan shall be subject to the following terms
and conditions and shall contain such additional terms and conditions, not
inconsistent with the terms of the Plan, as the Committee shall deem desirable.
(a) Option Price. The option price per share of Stock purchasable under
a Stock Option shall be determined by the Committee at the time of grant. In no
event shall the option price per share of Stock purchasable under an Incentive
Stock Option be less than 100% of the Fair Market Value of the Stock on the date
of the grant of the Stock Option. If an employee owns or is deemed to own (by
reason of the attribution rules applicable under Section 424(d) of the Code)
more than 10% of the combined voting power of all classes of stock of the
Company or any Parent Corporation or Subsidiary and an Incentive Stock Option is
granted to such employee, the option price shall be no less than 110% of the
Fair Market Value of the Stock on the date the option is granted.
(b) Option Term. The term of each Stock Option shall be fixed by the
Committee, but no Incentive Stock Option shall be exercisable more than ten
years after the date the option is granted. If an employee owns or is deemed to
own (by reason of the attribution rules of Section 424(d) of the Code) more than
10% of the combined voting power of all classes of stock of the Company or any
Parent Corporation or Subsidiary and an Incentive Stock Option is granted to
such employee, the term of such option shall be no more than five years from the
date of grant.
(c) Exercisability. Stock Options shall be exercisable at such time or
times as determined by the Committee at or after grant. If the Committee
provides, in its discretion, that any option is exercisable only in
installments, the Committee may waive such installment exercise provisions at
any time, provided, however, that unless the Stock Option has been approved by
the Board, the Committee or the stockholders of the Company, a Stock Option
granted to an officer, director or 10% stockholder of the Company shall not be
exercisable for a period of six (6) months after the date of grant.
Notwithstanding the foregoing, unless the Stock Option Agreement provides
otherwise, any Stock Option granted under this Plan shall be exercisable in
full, without regard to any installment exercise or vesting provisions, for a
period specified by the Committee, but not to exceed sixty (60) days nor be less
than seven (7) days, prior to the occurrence of any of the following events: (i)
dissolution or liquidation of the Company other than in conjunction with a
bankruptcy of the Company or any similar occurrence, (ii) any merger,
consolidation, acquisition, separation, reorganization, or similar occurrence,
where the Company will not be the surviving entity or (iii) the transfer of
substantially all of the assets of the Company or 75% or more of the outstanding
Stock of the Company.
(d) Method of Exercise. Stock Options may be exercised in whole or in
part at any time during the option period by giving written notice of exercise
to the Company specifying the number of shares to be purchased. Such notice
shall be accompanied by payment in full of the purchase price, either by
certified or bank check, or by any other form of legal consideration deemed
sufficient by the Committee and consistent with the Plan's purpose and
applicable law, including promissory notes or a properly executed exercise
notice together with irrevocable instructions to a broker acceptable to the
Company to promptly deliver to the Company the amount of sale or loan proceeds
to pay the exercise price. As determined by the Committee, in its sole
discretion, payment in full or in part may also be made in the form of
unrestricted Stock already owned by the optionee or Restricted Stock subject to
an award hereunder (based on the Fair Market Value of the Stock on the date the
option is exercised, as determined by the Committee); provided, however, that in
the event payment is made in the form of shares of Restricted Stock, the
optionee will receive a portion of the option shares in the form of, and in an
amount equal to, the Restricted Stock award tendered as payment by the optionee.
If the terms of an option so permit, an optionee may elect to pay all or part of
the option exercise price by having the Company withhold from the shares of
Stock that would otherwise be issued upon exercise that number of shares of
Stock having a Fair Market Value equal to the aggregate option exercise price
for the shares with respect to which such election is made. No shares of Stock
shall be issued until full payment therefor has been made. An optionee generally
shall have the rights to dividends and other rights of a shareholder with
respect to shares subject to the option when the optionee has given written
notice of exercise, has paid in full for such shares, and, if requested, has
given the representation described in paragraph (a) of Section 10.
(e) Non-transferability of Options. No Stock Option shall be
transferable by the optionee otherwise than by will or by the laws of descent
and distribution or pursuant to a qualified domestic relations order as defined
in the Code or Title I of the Employee Retirement Income Security Act, or the
rules thereunder, and all Stock Options shall be exercisable, during the
optionee's lifetime, only by the optionee.
(f) Termination by Death. If an optionee's employment by the Company
and any Subsidiary or Parent Corporation terminates by reason of death, the
Stock Option may thereafter be immediately exercised, to the extent then
exercisable (or on such accelerated basis as the Committee shall determine at or
after grant), by the legal representative of the estate or by the legatee of the
optionee under the will of the optionee, for a period of three months (or such
shorter period as the Committee shall specify at grant) from the date of such
death or until the expiration of the stated term of the option, whichever period
is shorter.
(g) Termination by Reason of Disability. If an optionee's employment by
the Company and any Subsidiary or Parent Corporation terminates by reason of
Disability, any Stock Option held by such optionee may thereafter be exercised,
to the extent it was exercisable at the time of termination due to Disability
(or on such accelerated basis as the Committee shall determine at or after
grant), but may not be exercised after three months (or such shorter period as
the Committee shall specify at grant) from the date of such termination of
employment or the expiration of the stated term of the option, whichever period
is shorter. In the event of termination of employment by reason of Disability,
if an Incentive Stock Option is exercised after the expiration of the exercise
periods that apply for purposes of Section 422 of the Code, the option will
thereafter be treated as a Non- Qualified Stock Option.
(h) Termination by Reason of Retirement. If an optionee's employment by
the Company and any Subsidiary or Parent Corporation terminates by reason of
Retirement, any Stock Option held by such optionee may thereafter be exercised
to the extent it was exercisable at the time of such Retirement, but may not be
exercised after three months (or such shorter period as Committee shall specify
at grant) from the date of such termination of employment or the expiration of
the stated term of the option, whichever period is shorter. In the event of
termination of employment by reason of Retirement, if an Incentive Stock Option
is exercised after the expiration of the exercise periods that apply for
purposes of Section 422 of the Code, the option will thereafter be treated as a
Non- Qualified Stock Option.
(i) Other Termination. Unless otherwise determined by the Committee, if
an optionee's employment by the Company and any Subsidiary or Parent Corporation
terminates for any reason other than death, Disability or Retirement, the Stock
Option shall thereupon terminate.
(j) Annual Limit on Incentive Stock Options. The aggregate Fair Market
Value (determined as of the time the Option is granted) of the Common Stock with
respect to which an Incentive Stock Option under this Plan or any other plan of
the Company and any Subsidiary or Parent Corporation is exercisable for the
first time by an optionee during any calendar year shall not exceed $100,000.
(k) Directors Who Are Not Employees. Each person who (i) is not an
employee of the Company or its Subsidiaries, and (ii) is elected or reelected to
the Board at any annual or special meeting of the shareholders of the Company,
or (iii) is serving an unexpired term as Director on the date of an annual
meeting at which any other director is elected, shall as of the date of such
meeting automatically be granted a Stock Option to purchase 1,000 shares of the
Company's Stock at an exercise price per share equal to 100% of the Fair Market
Value of a share of the Company's Stock on the date of the grant of the Stock
Option. In the case of an annual or special meeting, the action of the
shareholders in electing or reelecting a director who is not an employee shall
constitute the granting of Stock Options to all such directors who are not
employees, and the date when the shareholders shall take such action shall be
the date of grant of the Stock Options. All such options shall be designated as
Non-Qualified Stock Options and shall be subject to the same terms and
provisions as are then in effect with respect to the grant of Non-Qualified
Stock Options to officers and key employees of the Company, except that the term
of each such Stock Option shall be equal to five years. In the event
discretionary Stock Options are granted to members of the Committee, such Stock
Options shall be granted by the Board.
SECTION 6. Restricted Stock.
(a) Administration. Shares of Restricted Stock may be issued either
alone or in addition to other awards granted under the Plan. The Committee shall
determine the officers and key employees of the Company and Subsidiaries to
whom, and the time or times at which, grants of Restricted Stock will be made,
the number of shares to be awarded, the time or times within which such awards
may be subject to forfeiture, and all other conditions of the awards. The
Committee may also condition the grant of Restricted Stock upon the attainment
of specified performance goals. The provisions of Restricted Stock awards need
not be the same with respect to each recipient.
In the event that Restricted Stock awards are granted to members of the
Committee, such awards shall be granted by the Board.
(b) Awards and Certificates. The prospective recipient of an award of
shares of Restricted Stock shall not have any rights with respect to such award,
unless and until such recipient has executed an agreement evidencing the award
and has delivered a fully executed copy thereof to the Company, and has
otherwise complied with the then applicable terms and conditions.
(i) Each participant shall be issued a stock certificate in
respect of shares of Restricted Stock awarded under the Plan. Such
certificate shall be registered in the name of the participant, and
shall bear an appropriate legend referring to the terms, conditions,
and restrictions applicable to such award, substantially in the
following form:
"The transferability of this certificate and the shares of
stock represented hereby are subject to the terms and
conditions (including forfeiture) of the PremiumWear, Inc.
1991 Stock Plan and an Agreement entered into between the
registered owner and PremiumWear, Inc. Copies of such Plan
and Agreement are on file in the executive offices of
PremiumWear, Inc.
(ii) The Committee shall require that the stock certificates
evidencing such shares be held in custody by the Company until the
restrictions thereon shall have lapsed, and that, as a condition of any
Restricted Stock award, the participant shall have delivered a stock
power, endorsed in blank, relating to the Stock covered by such award.
(c) Restrictions and Conditions. The shares of Restricted Stock awarded
pursuant to the Plan shall be subject to the following restrictions and
conditions:
(i) Subject to the provisions of this Plan and the award
agreement, during a period set by the Committee commencing with the
date of such award (the "Restriction Period"), the participant shall
not be permitted to sell, transfer, pledge or assign shares of
Restricted Stock awarded under the Plan. Within these limits, the
Committee may provide for the lapse of such restrictions in
installments where deemed appropriate.
(ii) Except as provided in paragraph (c)(i) of this Section 6,
the participant shall have, with respect to the shares of Restricted
Stock, all of the rights of a shareholder of the Company, including the
right to vote the shares and the right to receive any cash dividends.
The Committee, in its sole discretion, may permit or require the
payment of cash dividends to be deferred and, if the Committee so
determines, reinvested in additional shares of Restricted Stock (to the
extent shares are available under Section 3 and subject to paragraph
(f) of Section 10). Certificates for shares of Unrestricted Stock shall
be delivered to the grantee promptly after, and only after, the period
of forfeiture shall have expired without forfeiture in respect of such
shares of Restricted Stock.
(iii) Subject to the provisions of the award agreement and
paragraph (c)(iv) of this Section 6, upon termination of employment for
any reason during the Restriction Period, all shares still subject to
restriction shall be forfeited by the participant.
(iv) In the event of special hardship circumstances of a
participant whose employment is terminated (other than for Cause),
including death, Disability or Retirement, or in the event of an
unforeseeable emergency of a participant still in service, the
Committee may, in its sole discretion, when it finds that a waiver
would be in the best interest of the Company, waive in whole or in part
any or all remaining restrictions with respect to such participant's
shares of Restricted Stock.
(v) All restrictions with respect to any participant's shares
of Restricted Stock shall lapse or be deemed to have lapsed or been
terminated on the tenth (10th) business day prior to the occurrence of
any of the following events: (i) dissolution or liquidation of the
Company, other than in conjunction with a bankruptcy of the Company or
any similar occurrence, (ii) any merger, consolidation, acquisition,
separation, reorganization or similar occurrence, where the Company
will not be the surviving entity or (iii) the transfer of substantially
all of the assets of the Company or 75% or more of the outstanding
Stock of the Company.
SECTION 7. Transfer, Leave of Absence, etc.
For purposes of the Plan, the following events shall not be deemed a
termination of employment:
(a) a transfer of an employee from the Company to a Parent Corporation
or Subsidiary, or from a Parent Corporation or Subsidiary to the Company, or
from one Subsidiary to another;
(b) a leave of absence, approved in writing by the Committee, for
military service or sickness, or for any other purpose approved by the Company
if the period of such leave does not exceed ninety (90) days (or such longer
period as the Committee may approve, in its sole discretion); and
(c) a leave of absence in excess of ninety (90) days, approved in
writing by the Committee, but only if the employee's right to reemployment is
guaranteed either by a statute or by contract, and provided that, in the case of
any leave of absence, the employee returns to work within 30 days after the end
of such leave.
SECTION 8. Amendments and Termination.
The Board may amend, alter, or discontinue the Plan, but no amendment,
alteration, or discontinuation shall be made (i) which would impair the rights
of an optionee or participant under a Stock Option or Restricted Stock award
theretofore granted, without the optionee's or participant's consent, or (ii)
which without the approval of the stockholders of the Company would cause the
Plan to no longer comply with Rule 16b-3 under the Securities Exchange Act of
1934, Section 422 of the Code or any other regulatory requirements.
The Committee may amend the terms of any award or option theretofore
granted, prospectively or retroactively, but, subject to Section 3 above, no
such amendment shall impair the rights of any holder without his consent. The
Committee may also substitute new Stock Options for previously granted options,
including previously granted options having higher option prices.
SECTION 9. Unfunded Status of Plan.
The Plan is intended to constitute an "unfunded" plan for incentive and
deferred compensation. With respect to any payments not yet made to a
participant or optionee by the Company, nothing contained herein shall give any
such participant or optionee any rights that are greater than those of a general
creditor of the Company. In its sole discretion, the Committee may authorize the
creation of trusts or other arrangements to meet the obligations created under
the Plan to deliver Stock or payments in lieu of or with respect to awards
hereunder, provided, however, that the existence of such trusts or other
arrangements is consistent with the unfunded status of the Plan.
SECTION 10. General Provisions.
(a) The Committee may require each person purchasing shares pursuant to
a Stock Option under the Plan to represent to and agree with the Company in
writing that the optionee is acquiring the shares without a view to distribution
thereof. The certificates for such shares may include any legend which the
Committee deems appropriate to reflect any restrictions on transfer.
All certificates for shares of Stock delivered under the Plan pursuant
to any Restricted Stock awards shall be subject to such stock-transfer orders
and other restrictions as the Committee may deem advisable under the rules,
regulations, and other requirements of the Securities and Exchange Commission,
any stock exchange upon which the Stock is then listed, and any applicable
Federal or state securities laws, and the Committee may cause a legend or
legends to be put on any such certificates to make appropriate reference to such
restrictions.
(b) Subject to paragraph (d) below, recipients of Restricted Stock
awards under the Plan (not including Stock Options) are not required to make any
payment or provide consideration other than the rendering of services.
(c) Nothing contained in this Plan shall prevent the Board of Directors
from adopting other or additional compensation arrangements, subject to
stockholder approval if such approval is required; and such arrangements may be
either generally applicable or applicable only in specific cases. The adoption
of the Plan shall not confer upon any employee of the Company or any subsidiary
any right to continued employment with the Company or a Subsidiary, as the case
may be, nor shall it interfere in any way with the right of the Company or a
Subsidiary to terminate the employment of any of its employees at any time.
(d) Each participant shall, no later than the date as of which any part
of the value of an award first becomes includible as compensation in the gross
income of the participant for Federal income tax purposes, pay to the Company,
or make arrangements satisfactory to the Committee regarding payment of, any
Federal, state, or local taxes of any kind required by law to be withheld with
respect to the award. The obligations of the Company under the Plan shall be
conditional on such payment or arrangements and the Company and Subsidiaries
shall, to the extent permitted by law, have the right to deduct any such taxes
from any payment of any kind otherwise due to the participant. With respect to
any award under the Plan, if the terms of such award so permit, a participant
may elect by written notice to the Company to satisfy part or all of the
withholding tax requirements associated with the award by (i) authorizing the
Company to retain from the number of shares of Stock that would otherwise be
deliverable to the participant, or (ii) delivering to the Company from shares of
Stock already owned by the participant, that number of shares having an
aggregate Fair Market Value equal to part or all of the tax payable by the
participant under this Section 10(d). Any such election shall be in accordance
with, and subject to, applicable tax and securities laws, regulations and
rulings.
(e) At the time of grant, the Committee may provide in connection with
any grant or award made under this Plan that the shares of Stock received as a
result of such grant shall be subject to a repurchase right in favor of the
Company, pursuant to which the participant shall be required to offer to the
Company upon termination of employment for any reason any shares that the
participant acquired under the Plan, with the price being the then Fair Market
Value of the Stock or, in the case of a termination for Cause, an amount equal
to the cash consideration paid for the Stock, subject to such other terms and
conditions as the Committee may specify at the time of grant. The Committee may,
at the time of the grant of an award under the Plan, provide the Company with
the right to repurchase, or require the forfeiture of, shares of Stock acquired
pursuant to the Plan by any participant who, at any time within two years after
termination of employment with the Company, directly or indirectly competes
with, or is employed by a competitor of, the Company.
(f) The reinvestment of dividends in additional Restricted Stock at the
time of any dividend payment shall only be permissible if the Committee (or the
Company's chief executive or chief financial officer) certifies in writing that
under Section 3 sufficient shares are available for such reinvestment (taking
into account then outstanding Stock Options and other Plan awards).
SECTION 11. Effective Date of Plan.
The Plan became effective on October 21, 1991, and was amended by the
shareholders on May 19, 1994. The Board further amended the Plan on September 6,
1996 and February 19, 1997 to comply with new Rule 16b-3 promulgated under the
Securities Exchange Act of 1934 and with Section 162(m) of the Code.
CREDIT AND SECURITY AGREEMENT
THIS AGREEMENT is made as of February 4, 1997, by and between FBS
BUSINESS FINANCE CORPORATION, a Delaware corporation (the "Lender"), and
PREMIUMWEAR, INC., a Delaware corporation (the "Borrower").
In consideration of the mutual agreements herein contained, the parties
hereto agree as follows:
ARTICLE I DEFINITIONS AND ACCOUNTING TERMS
1.1 DEFINITIONS. In addition to terms defined elsewhere in this
Agreement or any Supplement, Exhibit or Schedule hereto, the following terms
shall have the following respective meanings (and such meanings shall be equally
applicable to both the singular and plural forms of the terms defined, as the
context may require):
"Account Debtor": Any Person who is or who may become obligated to the
Borrower under, with respect to, or on account of an Account Receivable, General
Intangible or other Collateral.
"Account Receivable": Any account of the Borrower and any other right
of the Borrower to payment for goods sold or leased or for services rendered,
whether or not evidenced by an instrument or chattel paper and whether or not
yet earned by performance.
"Accounts Receivable Availability": The term "Accounts Receivable
Availability" shall have the meaning given such term in Supplement A.
"Adverse Event": The occurrence of any event that could have a material
adverse effect on the business, operations, property, assets or condition
(financial or otherwise) of the Borrower and the Subsidiaries as a consolidated
enterprise] or on the ability of the Borrower or any other Obligor to perform
its obligations under the Loan Documents.
"Affiliate" Any Person which directly or indirectly through one or more
intermediaries controls, or is controlled by, or is under common control with,
the Lender, including, without limitation, FBNA. The term "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 ownership
of stock, by contract or otherwise.
"Agreement": This Credit and Security Agreement, as it may be amended,
modified, supplemented, restated or replaced from time to time.
"Application": An application by the Borrower, in a form and containing
terms and provisions acceptable to the Lender, for the issuance by the Lender,
or any Affiliate, of a Letter of Credit.
"Attorneys' Fees": The value of the services (and costs, charges and
expenses related thereto) of the attorneys employed by the Lender (including,
without limitation, attorneys and paralegals who are employees of the Lender or
any Affiliate) from time to time (a) in connection with the negotiation,
preparation, execution delivery, administration and enforcement of the Loan
Documents, (b) to prepare documentation related to the Loans and other
Obligations, (c) to represent the Lender in any litigation, contest, dispute,
suit or proceeding or to commence, defend or intervene in any litigation
contest, dispute, suit or proceeding or to file a petition, complaint, answer,
motion or other pleading, or to take any other action in or with respect to, any
litigation, contest, dispute, suit or proceeding (whether instituted by the
Lender, the Borrower or any other Person and whether in bankruptcy or otherwise)
in any way or respect relating to the Collateral, any Third Party Collateral,
the Loan Documents, or the Borrower's or any other Obligor's or any Subsidiary's
affairs, (d) to protect, collect, lease, sell, take possession of, or liquidate
any of the Collateral or any Third Party Collateral, (e) to attempt to enforce
any security interest in any of the Collateral or any Third Party Collateral or
to give any advice with respect to such enforcement, and (f) to enforce any of
the Lender's rights to collect any of the Obligations.
"Borrowing Base": The term "Borrowing Base" shall have the meaning
given such term in Supplement A.
"Borrowing Base Certificate": The term "Borrowing Base Certificate"
shall have the meaning given such term in Section 2.5(c).
"Business Day": Any day (other than a Saturday, Sunday or legal holiday
in the State of Minnesota) on which national banks are permitted to be open in
Minneapolis, Minnesota.
"Capital Expenditure": Any amount debited to the fixed asset account on
the consolidated balance sheet of the Borrower in respect of (a) the acquisition
(including, without limitation, acquisition by entry into a Capitalized Lease),
construction, improvement, replacement or betterment of land, buildings,
machinery, equipment or of any other fixed assets or leaseholds, and (b) to the
extent related to and not included in clause (a), materials, contract labor and
direct labor (excluding expenditures properly chargeable to repairs or
maintenance in accordance with GAAP).
"Capitalized Lease": Any lease which is or should be capitalized on the
books of the lessee in accordance with GAAP.
"Code": The Internal Revenue Code of 1986, as amended, or any successor
statute, together with the regulations thereunder.
"Collateral": The term "Collateral" shall have the meaning given such
term in Section 3.1.
"Collateral Account": The term "Collateral Account" shall have the
meaning given such term in Section 3.2(b).
"Controlled Disbursement Account": The term "Controlled Disbursement
Account" shall have the meaning given such term in Section 2.3(c).
"Credit": The facility established under this Agreement pursuant to
which the Lender will make Loans to the Borrower or issue, or cause any
Affiliate to issue, Letters of Credit for the account of the Borrower.
"Credit Amount": The term "Credit Amount" shall have the meaning given
such term in Supplement A.
"Default Rate": The term "Default Rate" shall have the meaning given
such term in Supplement A.
"Disbursement Account": The term "Disbursement Account" shall have the
meaning given such term in Section 2.3(b).
"EBITDA": For any period, the consolidated net income of the Borrower
and the Subsidiaries before provision for income taxes, interest expense
(including, without limitation, implicit interest expense on Capitalized
Leases), depreciation, amortization and other non-cash expenses or charges, all
as determined in accordance with GAAP, excluding therefrom (to the extent
included): (a) non-operating gains (including, without limitation, extraordinary
or nonrecurring gains, gains from discontinuance of operations and gains arising
from the sale of assets other than Inventory) during the applicable period; and
(b) similar non-operating losses during such period.
"Eligible Account Receivable": An Account Receivable owing to the
Borrower which meets the following requirements:
(a) it is genuine and in all respects what it purports to be;
(b) it arises from either (i) the performance of services by
the Borrower, which services have been fully performed and, if
applicable, acknowledged and/or accepted by the Account Debtor with
respect thereto; or (ii) the sale or lease of goods by the Borrower and
(A) such goods comply with such Account Debtor's specifications (if
any) and have been shipped to, or delivered to and accepted by, such
Account Debtor, (B) the Borrower has possession of, or has delivered to
the Lender, at the Lender's request, shipping and delivery receipts
evidencing such shipment, delivery and acceptance, and (C) such goods
have not been returned to the Borrower;
(c) it (i) is evidenced by an invoice rendered to the Account
Debtor with respect thereto which (A) is dated not earlier than the
date of shipment or performance and (B) has payment terms not
unacceptable to the Lender; and (ii) meets the Eligible Account
Receivable requirements set forth in Supplement A;
(d) it is not subject to any assignment, claim or Lien other
than (i) a Lien in favor of the Lender and (ii) Liens consented to by
the Lender in writing;
(e) it is a valid, legally enforceable and unconditional
obligation of the Account Debtor with respect thereto and is not
subject to setoff, counterclaim, credit or allowance (except any credit
or allowance which has been deducted in computing the net amount of the
applicable invoice as shown in the original schedule or Borrowing Base
Certificate furnished to the Lender identifying or including such
Account Receivable) or adjustment by the Account Debtor with respect
thereto, or to any claim by such Account Debtor denying liability
thereunder in whole or in part, and such Account Debtor has not refused
to accept any of the goods or services which are the subject of such
Account Receivable or offered or attempted to return any of such goods;
(f) there are no proceedings or actions which are then
threatened or pending against the Account Debtor with respect thereto
or to which such Account Debtor is a party which might result in any
material adverse change in such Account Debtor's financial condition or
in its ability to pay any Account Receivable in full when due;
(g) it does not arise out of a contract or order which, by its
terms, forbids, restricts or makes void or unenforceable the assignment
by the Borrower to the Lender of such Account Receivable;
(h) the Account Debtor with respect thereto is not a
Subsidiary, Related Party or Obligor, or a director, officer, employee
or agent of the Borrower, a Subsidiary, Related Party or Obligor;
(i) the Account Debtor with respect thereto is a resident or
citizen of and is located within the United States of America or Canada
unless the sale of goods giving rise to such Account Receivable is on
letter of credit, banker's acceptance or other credit support terms
satisfactory to the Lender;
(j) it does not arise from a "sale on approval," "sale or
return" or "consignment," nor is it subject to any other repurchase or
return agreement;
(k) it is not an Account Receivable with respect to which
possession and/or control of the goods sold giving rise thereto is
held, maintained or retained by the Borrower, any Subsidiary, Related
Party or Obligor (or by any agent or custodian of the Borrower, any
Subsidiary, Related Party or Obligor) for the account of or subject to
further and/or future direction from the Account Debtor with respect
thereto;
(l) it does not, in any way, fail to meet or violate any
warranty, representation or covenant contained in the Loan Documents
relating directly or indirectly to the Borrower's Accounts Receivable;
(m) the Account Debtor with respect thereto is not located in
the States of Indiana, New Jersey or Minnesota, provided, however, that
such restriction shall not apply if (i) the Borrower has filed and has
effective a Notice of Business Activities Report with the appropriate
office or agency of the States of Indiana, New Jersey or Minnesota, as
applicable, for the then current year or (ii) the Borrower is exempt
from the filing of such report;
(n) it arises in the ordinary course of the Borrower's
business;
(o) if the Account Debtor with respect thereto is the United
States of America or any department, agency or instrumentality thereof,
the Borrower has assigned its right to payment of such Account
Receivable to the Lender pursuant to the Assignment of Claims Act of
1940 as amended;
(p) if the Lender, in its sole and absolute discretion, has
established a credit limit for the Account Debtor with respect thereto,
the aggregate dollar amount of Accounts Receivable due from such
Account Debtor, including such Account Receivable, does not exceed such
credit limit; and
(q) if it is evidenced by chattel paper or instruments, (i)
the Lender shall have specifically agreed to include such Account
Receivable as an Eligible Account Receivable, (ii) only payments then
due and payable under such chattel paper or instrument shall be
included as an Eligible Account Receivable and (iii) the originals of
such chattel paper or instruments have been assigned and delivered to
the Lender in a manner satisfactory to the Lender.
An Account Receivable which is at any time an Eligible Account Receivable but
which subsequently fails to meet any of the foregoing requirements shall
forthwith cease to be an Eligible Account Receivable. Further, with respect to
any Account Receivable, if the Lender at any time or times hereafter determines,
in its sole and absolute discretion, that the prospect of payment or performance
by the Account Debtor with respect thereto is or will be impaired for any reason
whatsoever, notwithstanding anything to the contrary contained above, such
Account Receivable shall forthwith cease to be an Eligible Account Receivable.
"Eligible Inventory": Inventory of the Borrower which meets the
following requirements:
(a) it is owned by the Borrower and is not subject to any
prior assignment, claim or Lien other than (i) a Lien in favor of the
Lender and (ii) Liens consented to by the Lender in writing;
(b) if held for sale or lease or furnishing under contracts of
service, it is (except as the Lender may otherwise consent in writing)
new and unused;
(c) except as the Lender may otherwise consent, it is not
stored with a bailee, warehouseman or similar party; if so stored with
the Lender's consent, such bailee, warehouseman or similar party has
issued and delivered to the Lender, in form and substance acceptable to
the Lender, such documents and agreements as the Lender may require,
including, without limitation, warehouse receipts therefor in the
Lender's name;
(d) the Lender has determined, in its sole and absolute
discretion, that it is not unacceptable due to age, type, category,
quality and/or quantity;
(e) it is not held by the Borrower on "consignment" and is not
subject to any other repurchase or return agreement;
(f) it complies with all standards imposed by any governmental
agency having regulatory authority over such goods and/or their use,
manufacture or sale;
(g) it does not, in any way, fail to meet or violate any
warranty, representation or covenant contained in the Loan Documents
relating directly or indirectly to the Borrower's Inventory; and
(h) it satisfies the Eligible Inventory requirements, if any,
set forth in Supplement A.
Inventory of the Borrower which is at any time Eligible Inventory but which
subsequently fails to meet any of the foregoing requirements shall forthwith
cease to be Eligible Inventory.
"Environmental Laws": The Resource Conservation and Recovery Act of
1987, the Comprehensive Environmental Response, Compensation and Liability Act,
any so-called "Superfund" or "Superlien" law, the Toxic Substances Control Act,
and any other federal, state or local statue, law, ordinance, code, rule,
regulation, order or decree regulating, relating to, or imposing liability or
standards of conduct concerning any Hazardous Materials or other hazardous,
toxic or dangerous waste, substance or constituent, or other substance, whether
solid, liquid or gas, as now or at any time hereafter in effect.
"Environmental Lien": A Lien in favor of any governmental entity for
(a) any liability under any Environmental Law, or (b) damages arising from or
costs incurred by such governmental entity in response to a spillage, disposal,
or release into the environment of any Hazardous Material or other hazardous,
toxic or dangerous waste, substance or constituent, or other substance.
"Equipment": All equipment of the Borrower of every description,
including, without limitation, fixtures, furniture, vehicles and trade fixtures,
together with any and all accessions, parts and equipment attached thereto or
used in connection therewith, and any substitutions therefor and replacements
thereof.
"ERISA": The Employee Retirement Income Security Act of 1974, as
amended, or any successor statute, together with the regulations thereunder.
"ERISA Affiliate": Any trade or business (whether or not incorporated)
that is a member of a group of which the Borrower is a member and which is
treated as a single employer under Section 414 of the Code.
"Event of Default": The term "Event of Default" shall have the meaning
given such term in Section 7.1.
"FBNA": First Bank National Association, a national banking association
having its offices at First Bank Place, 601 Second Avenue South, Minneapolis,
Minnesota 55402-4302.
"Federal Reserve Board": The Board of Governors of the Federal Reserve
System or any successor thereto.
"GAAP": Generally accepted accounting principles promulgated by the
Financial Accounting Standards Board, as applied in the preparation of the
audited financial statement of the Borrower referred to in Section 4.6.
"General Intangibles": All of the Borrower's intangible personal
property including things in action, causes of action and all other personal
property of the Borrower of every kind and nature (other than goods, accounts,
chattel paper, documents, instruments and money) including, without limitation,
corporate or other business records, inventions, designs, patents, patent
applications, trademarks, trademark applications, trade names, trade secrets,
goodwill, copyrights, registrations, licenses, franchises, customer lists, tax
refund claims, claims against carriers and shippers, guarantee claims, security
interests, security deposits or other security held by or granted to the
Borrower to secure payment by an Account Debtor of any of the Accounts
Receivable, any other rights to payment, including, without limitation, rights
to reimbursement or indemnification, and any other rights of whatsoever nature.
"Hazardous Materials": Any hazardous substance or pollutant or
contaminant defined as such in (or for the purposes of) any Environmental Law
including, without limitation, petroleum, including crude oil or any fraction
thereof which is liquid at standard conditions of temperature or pressure (60
degrees fahrenheit and 14.7 pounds per square inch absolute), any radioactive
material, including any source, special nuclear or by-product material as
defined at 42 U.S.C. section 2011 et. seq., as amended or hereafter amended, and
asbestos in any form or condition.
"Indebtedness": Without duplication, all obligations, contingent or
otherwise, which in accordance with GAAP should be classified upon the obligor's
balance sheet as liabilities, but in any event including the following (whether
or not they should be classified as liabilities upon such balance sheet): (a)
any obligation secured by any mortgage, pledge, security interest, lien, charge
or other encumbrance existing on property owned or acquired subject thereto,
whether or not such obligation shall have been assumed and whether or not such
obligation is the obligation of the owner or another party; (b) any obligation
on account of deposits or advances; (c) any obligation for the deferred purchase
price of any property or services, except accounts payable arising in the
ordinary course of business; (d) any obligation as lessee under any Capitalized
Lease; (e) any guaranty, endorsement or other contingent obligation in respect
to Indebtedness of others; and (f) any undertaking or agreement to reimburse or
indemnify issuers of letters of credit. For all purposes of this Agreement, the
Indebtedness of any Person shall include the Indebtedness of any partnership or
joint venture in which such Person is a general partner or a joint venturer.
"Indemnified Liabilities": The term "Indemnified Liabilities" shall
have the meaning given such term in Section 10.2.
"Indemnitees": The term "Indemnitees" shall have the meaning given such
term in Section 10.2.
"Inventory": Any and all of the Borrower's goods, including, without
limitation, goods in transit, wheresoever located which are or may at any time
be leased by the Borrower to a lessee, held for sale or lease, furnished under
any contract of service or held as raw materials, work in process, or supplies
or materials used or consumed in the Borrower's business, or which are held for
use in connection with the manufacture, packing, shipping, advertising, selling
or finishing of such goods, and all goods, the sale or other disposition of
which has given rise to an Account Receivable, which are returned to and/or
repossessed and/or stopped in transit by the Borrower or the Lender, or at any
time hereafter in the possession or under the control of the Borrower or the
Lender, or any agent or bailee of either thereof, and all documents of title or
other documents representing the same.
"Inventory Availability": The term "Inventory Availability" shall have
the meaning given such term in Supplement A.
"Investment": The acquisition, purchase, making or holding of any stock
or other security, any loan, advance, contribution to capital, extension of
credit (except for trade and customer accounts receivable for inventory sold or
services rendered in the ordinary course of business and payable in accordance
with customary trade terms), any acquisitions of real and personal property
(other than real and personal property acquired in the ordinary course of
business) and any purchase or commitment or option to purchase stock or other
debt or equity securities of, or any interest in, another Person or any integral
part of any business or the assets comprising such business or part thereof.
"L/C Draft": A draft drawn on the Lender, or any Affiliate, pursuant to
a Letter of Credit.
"Letter of Credit": A letter of credit issued by the Lender, or any
Affiliate, on the Application of the Borrower.
"Letter of Credit Obligations": An amount equal to the aggregate of the
original face amounts of all Letters of Credit minus the sum of (a) the amount
of any reduction(s) in the original face amount of any Letter of Credit which
did not result from a draw made under such Letter of Credit, (b) the amount of
any payments made by the Lender, or any Affiliate, with respect to a Letter of
Credit or L/C Draft for which the Borrower has reimbursed the Lender, or such
Affiliate, and (c) the undrawn portion of any issued, but expired, Letter of
Credit plus the amount of any increase(s) in the original face amount of any
Letter of Credit. For purposes of determining the outstanding Letter of Credit
Obligations at any time, the Lender's, or any Affiliate's, acceptance of an L/C
Draft shall constitute a draw on the applicable Letter of Credit at the time of
such acceptance.
"Letter of Credit Sublimit": The term "Letter of Credit Sublimit" shall
have the meaning given such term in Supplement A.
"Lien": Any security interest, mortgage, pledge, lien, hypothecation,
judgment lien or similar legal process, charge, encumbrance, title retention
agreement or analogous instrument or device (including, without limitation, the
interest of lessors under Capitalized Leases and the interest of a vendor under
any conditional sale or other title retention agreement).
"Loan": A Loan referred to in Section 2.1 and any other loans or
advances made to the Borrower by the Lender under or pursuant to this Agreement.
"Loan Account": The term "Loan Account" shall have the meaning given
such term in Section 2.3(a).
"Loan Availability": The lesser of (a) the Credit Amount minus the
Letter of Credit Obligations and (b) the Borrowing Base minus the Letter of
Credit Obligations.
"Loan Documents": This Agreement, any Note, [other documents] and each
other instrument, document, guaranty, mortgage, deed of trust, chattel mortgage,
pledge, power of attorney, consent, assignment, contract, notice, security
agreement, lease, financing statement, subordination agreement, trust account
agreement, or other agreement executed and delivered by the Borrower or any
guarantor or party granting security interests in connection with this
Agreement, the Loans or the Collateral.
"Net Worth": At any determination date, the total of all assets
appearing on a consolidated balance sheet of the Borrower at such date, prepared
in accordance with GAAP, after deducting all proper reserves (including reserves
for depreciation, obsolescence and amortization) minus all liabilities which in
accordance with GAAP would be included on the liability side of a consolidated
balance sheet.
"Note": Any promissory note of the Borrower evidencing any loan or
advance (including but not limited to the Loans) made by the Lender to the
Borrower pursuant to this Agreement.
"Obligations": All of the liabilities, obligations and indebtedness of
the Borrower to the Lender, or any Affiliate, of any kind or nature, however
created, arising or evidenced, whether direct or indirect, absolute or
contingent, now or hereafter existing or due or to become due, and including,
without limitation, (a) the Borrower's obligations under the Loan Documents,
including obligations of performance, (b) the Borrower's obligations with
respect to any Letter of Credit or any Application, and (c) interest, charges,
expenses, Attorneys' Fees and other sums chargeable to the Borrower by the
Lender under the Loan Documents. "Obligations" shall also include any and all
amendments, extensions, renewals, refundings or refinancings of any of the
foregoing.
"Obligor": The Borrower and each other Person who is or shall become
primarily or secondarily liable on any Obligations or who grants to the Lender a
Lien on any property of such Person as security for any Obligations.
"Occupational Safety and Health Law": The Occupational Safety and
Health Act of 1970 and any other federal, state or local statute, law,
ordinance, code, rule, regulation, order or decree regulating, relating to or
imposing liability or standards of conduct concerning employee health and/or
safety.
"Over Advance": The term "Over Advance" shall have the meaning given
such term in Section 2.8.
"Overdraft Loan": The term "Overdraft Loan" shall have the meaning
given such term in Section 2.7.
"Participant": Any Person, now or at any time or times hereafter,
participating with the Lender in the Loans made to the Borrower hereunder.
"PBGC": The Pension Benefit Guaranty Corporation, established pursuant
to Subtitle A of Title IV of ERISA, or any successor thereto or to the functions
thereof.
"Person": Any natural person, corporation, partnership, joint venture,
firm, association, trust, unincorporated organization, government or
governmental agency or political subdivision thereof, or any other entity,
whether acting in an individual, fiduciary or other capacity.
"Plan": An employee benefit plan or other plan, maintained for
employees of the Borrower or of any ERISA Affiliate, and subject to Title IV of
ERISA or Section 412 of the Code.
"Reference Rate": The rate of interest from time to time publicly
announced by FBNA as its "reference rate." The Lender may lend to its customers
at rates that are at, above or below the Reference Rate. For purposes of
determining any interest rate which is based on the Reference Rate, such
interest rate shall change on the effective date of any change in the Reference
Rate.
"Related Party": Any Person (other than a Subsidiary): (a) which
directly or indirectly, through one of more intermediaries, controls, is
controlled by or is under common control with, the Borrower, (b) which
beneficially owns or holds 5% or more of the equity interest of the Borrower, or
(c) 5% or more of the equity interest of which is beneficially owned or held by
the Borrower or a Subsidiary. The term "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 voting securities, by
contract or otherwise.
"Reportable Event": A reportable event, as defined in Section 4043 of
ERISA and the regulations issued under such section, with respect to a Plan,
excluding, however, such events as to which the PBGC, by regulation, has waived
the requirement of Section 4043(a) of ERISA that it be notified within 30 days
of the occurrence of such event; provided, however, that a failure to meet the
minimum funding standard of Section 412 of the Code and Section 302 of ERISA
shall be a reportable event regardless of the issuance of any such waivers in
accordance with Section 412(d) of the Code.
"Subordinated Debt": That portion of any liabilities, obligations or
Indebtedness of the Borrower which contains terms satisfactory to the Lender and
is subordinated, in a manner satisfactory to the Lender, as to right and time of
payment of principal and interest thereon, to any and all Obligations.
"Subsidiary": Any Person of which or in which the Borrower and its
other Subsidiaries own directly or indirectly 50% or more of: (a) the combined
voting power of all classes of stock having general voting power under ordinary
circumstances to elect a majority of the board of directors of such Person, if
it is a corporation, (b) the capital interest or profits interest of such
Person, if it is a partnership, joint venture or similar entity, or (c) the
beneficial interest of such Person, if it is a trust, association or other
unincorporated organization.
"Supplemental Documentation": The term "Supplemental Documentation"
shall have the meaning given such term in Section 3.5.
"Taxes": With respect to any Person means taxes, assessments or other
governmental charges or levies imposed upon such Person, its income or any of
its properties, franchises or assets.
"Termination Date": The term "Termination Date" shall have the meaning
given such term in Supplement A.
"Third Party Collateral": Any property of any Person other than the
Borrower which secures payment or performance of any Obligations.
"UCC": The Uniform Commercial Code as in effect in the State of
Minnesota and any successor statute, together with any regulations thereunder,
in each case as in effect from time to time. References to sections of the UCC
shall be construed to also refer to any successor sections.
"Unmatured Event of Default": Any event which, with the giving of
notice to the Borrower or lapse of time, or both, would constitute an Event of
Default.
"Unused Credit Amount": The Credit Amount (as determined as of the last
day of each month for the month ending on such date) minus the sum of (a) the
outstanding principal balance of the Loans plus (b) the Letter of Credit
Obligations.
1.2 ACCOUNTING TERMS AND CALCULATIONS. Except as may be expressly
provided to the contrary herein, all accounting terms used herein or in any
certificate or other document made or delivered pursuant hereto shall be
interpreted and all accounting determinations hereunder (including, without
limitation, determination of compliance with financial ratios and restrictions
in Articles V and VI) shall be made in accordance with GAAP consistently
applied, using a first in first out method of Inventory valuation. Any reference
to "consolidated" financial terms shall be deemed to refer to those financial
terms as applied to the Borrower and the Subsidiaries in accordance with GAAP.
1.3 OTHER DEFINITIONAL PROVISIONS. Unless otherwise defined herein, all
terms defined in this Agreement shall have such defined meanings when used in
any other Loan Document. Terms used in this Agreement which are defined in any
Supplement, Exhibit or Schedule hereto shall, unless the context otherwise
indicates, have the meanings given them in such Supplement, Exhibit or Schedule.
Other terms used in this Agreement shall, unless the context otherwise
indicates, have the meanings given such terms in the Minnesota Uniform
Commercial Code to the extent the same are used or defined therein. The words
"hereof," "herein," and "hereunder" and words of similar import when used in
this Agreement shall refer to this Agreement as a whole and not to any
particular provision of this Agreement. Reference to "this Agreement" shall
include the provisions of Supplement A. References to Sections, Exhibits,
Schedules and like references are to this Agreement unless otherwise expressly
provided. Section captions used in this Agreement are for convenience only, and
shall not affect the construction of this Agreement.
ARTICLE II CREDIT; LETTERS OF CREDIT; OTHER MATTERS
2.1 LOANS.
(a) Subject to the terms and conditions of the Loan Documents,
and in reliance upon the warranties of the Borrower set forth herein
and in the other Loan Documents, the Lender agrees to make such loans
or advances (individually, a "Loan" and collectively, the "Loans") to
the Borrower as the Borrower may from time to time request, up to but
not in excess of the Loan Availability. Loans made by the Lender may be
repaid and, subject to the terms and conditions hereof, reborrowed to
the Termination Date unless the Credit extended under this Agreement is
otherwise terminated as provided in this Agreement.
(b) In the event the aggregate outstanding principal balance
of the Loans exceeds the Loan Availability, the Borrower shall, unless
the Lender shall otherwise consent, immediately and without notice of
any kind, make such payments or take such other action as shall be
necessary to eliminate such excess.
(c) All Loans and other Obligations hereunder shall be paid by
the Borrower on the Termination Date, unless payable sooner pursuant to
the provisions of this Agreement, but may, at the Borrower's election
and subject to the provisions of Supplement A, be repaid in whole or in
part at any time prior to such date without premium or penalty.
Recourse to Collateral, Third Party Collateral or other security is not
required at any time.
2.2 LETTERS OF CREDIT.
(a) In addition to Loans made pursuant to Section 2.1, the
Lender, or any Affiliate, may, upon receipt of duly executed
Applications and such other documents, instruments and/or agreements as
the Lender, or such Affiliate, may require, issue Letters of Credit on
such terms as are satisfactory to the Lender; provided, however, that
no Letter of Credit will be issued if, before or after taking such
Letter of Credit into account, the Letter of Credit Obligations exceeds
the least of (i) the Letter of Credit Sublimit, (ii) the Credit Amount
minus the outstanding principal balance of the Loans and (iii) the
Borrowing Base minus the outstanding principal balance of the Loans.
(b) The Borrower agrees to pay the Lender, or any Affiliate,
on demand, the Lender's, or such Affiliate's, standard administrative
operating fees and charges in effect from time to time for issuing and
administering any Letters of Credit. The Borrower further agrees to pay
the Lender, or any Affiliate, a commission on the undrawn amount of
each Letter of Credit and on each L/C Draft accepted by the Lender, or
such Affiliate, in the amount indicated in Supplement A. Such
commissions shall be paid at such frequency as the Lender, or such
Affiliate, shall determine.
(c) The Borrower agrees to reimburse the Lender, or any
Affiliate, on demand for each payment made by the Lender, or such
Affiliate, under or pursuant to any Letter of Credit or L/C Draft. The
Borrower further agrees to pay to the Lender, or any Affiliate, on
demand, interest at the Default Rate, on any amount paid by the Lender,
or such Affiliate, under or pursuant to any Letter of Credit or L/C
Draft from the date of payment until the date of reimbursement to the
Lender, or such Affiliate.
(d) Notwithstanding anything to the contrary herein or in any
Application of the Borrower, upon the occurrence of an Event of
Default, or on the Termination Date, an amount equal to the aggregate
amount of the outstanding Letter of Credit Obligations shall, at the
Lender's option and without further notice to the Borrower, be deemed
(as between the Lender and the Borrower) to have been paid or disbursed
by the Lender under the Letters of Credit and L/C Drafts accepted by
the Lender, or any Affiliate, notwithstanding that such amounts may not
in fact have been so paid or disbursed, and a Loan to the Borrower, in
the amount of such Letter of Credit Obligations, to have been made and
accepted, which Loan shall be immediately due and payable. In lieu of
the foregoing, at the election of the Lender, the Borrower shall, upon
the Lender's demand, deliver to the Lender, or any Affiliate, cash or
other Collateral of a type satisfactory to the Lender, or such
Affiliate, having a value, as determined by the Lender, or such
Affiliate, equal to the aggregate Letter of Credit Obligations. Any
such Collateral and/or any amounts received by the Lender, or any
Affiliate, in payment of the Loan made pursuant to this paragraph (d)
shall be held by the Lender, or such Affiliate, in the Collateral
Account or a separate account appropriately designated as a cash
collateral account in relation to this Agreement and the Letters of
Credit and retained by the Lender, or such Affiliate, as collateral
security for the Obligations and each of the Letters of Credit and L/C
Drafts. Such amounts shall not be used by the Lender, or any Affiliate,
to pay any amounts drawn or paid under or pursuant to any Letter of
Credit or L/C Draft but may be applied to reimburse the Lender, or any
Affiliate, for drawings or payments under or pursuant to Letters of
Credit or L/C Drafts which the Lender, or such Affiliate, has paid or,
if no such reimbursement is required, to payment of such other
Obligations as the Lender shall determine. Following payment in full of
all Obligations, any amounts remaining in any cash collateral account
established pursuant to this paragraph (d) which are not (as determined
by the Lender) to be applied to reimburse the Lender, or any Affiliate,
for amounts actually paid by the Lender, or such Affiliate, in respect
of a Letter of Credit or L/C Draft shall be returned to the Borrower
(after deduction of the Lender's, or such Affiliate's expenses).
2.3 LOAN ACCOUNT; DISBURSEMENT ACCOUNT; CONTROLLED DISBURSEMENT
ACCOUNT.
(a) LOAN ACCOUNT. The Lender shall establish or cause to be
established on its books in the Borrower's name one or more accounts
(each, a "Loan Account") to evidence Loans made to the Borrower. Any
amounts advanced as Loans which are credited to the Disbursement
Account, together with any other amounts advanced to the Borrower as a
Loan pursuant to this Agreement, will be debited to the applicable Loan
Account and result in an increase in the principal balance outstanding
in such Loan Account in the amount thereof.
(b) DISBURSEMENT ACCOUNT. Unless otherwise provided in this
Agreement, the Lender will credit or cause to be credited to a
commercial account (the "Disbursement Account") maintained by the
Borrower at FBNA's First Bank Place, 601 Second Avenue South,
Minneapolis, Minnesota 55402-4302 office the amount of any sums
advanced as Loans.
(c) CONTROLLED DISBURSEMENT ACCOUNT. The Borrower shall
maintain a commercial account (the "Controlled Disbursement Account")
with First Bank, East Grand Forks, Minnesota into which deposits from
the Disbursement Account may be authorized by the Borrower and/or the
Lender and from which the Borrower may draw checks for corporate
purposes.
2.4 INTEREST; FEES.
(a) INTEREST. The outstanding principal balance of each Loan
to the Borrower hereunder shall bear interest at the rate(s) applicable
to such Loan indicated in Supplement A; provided, however, that no
provision of this Agreement or any Note shall require the payment or
permit the collection of interest in excess of the rate permitted by
applicable law. Interest as aforesaid shall be charged for the actual
number of days elapsed over a year consisting of 360 days on the actual
daily balance of such Loan. Interest on the unpaid principal of any
Loan shall accrue from the date such Loan is made to the date such Loan
is paid. Interest shall be paid by the Borrower on the last day of each
month, commencing on the first such day to occur after the date hereof,
and on maturity. After maturity of any Loan, whether by acceleration or
otherwise, interest shall be payable on demand.
(b) INTEREST AFTER DEFAULT. At any time that an Event of
Default has occurred and is continuing, the outstanding principal
amount of all Loans, all past due fees and other sums payable to the
Lender or any Affiliate hereunder or under any other Loan Document
shall bear interest at the Default Rate.
(c) COMMITMENT FEE. The Borrower shall pay to the Lender a
commitment fee for the period from the date hereof to the date the
Credit terminates in the amount indicated in Supplement A. The
commitment fee shall be charged for the actual number of days elapsed
over a year consisting of 360 days on the actual daily balance of the
Loans. The commitment fee shall be paid by the Borrower on the last day
of each March, June, September and December, commencing on the first
such day to occur after the date hereof, and on the date the Credit
terminates for the period then ended.
(d) CREDIT TERMINATION FEE. . Upon termination or cancellation
of the Credit by the Borrower, the Borrower shall pay to the Lender a
termination fee in the amount indicated in Supplement A.
2.5 REQUESTS FOR LOANS; BORROWING BASE CERTIFICATES; OTHER INFORMATION.
(a) Loans shall be requested by telephone, except for
Overdraft Loans. Any such telephonic notice shall be promptly confirmed
by the Borrower in writing. The Borrower's failure to confirm any such
telephonic notice or otherwise comply with the provisions of this
Section 2.5(a) shall not in any manner affect the obligation of the
Borrower to repay such Loan in accordance with the terms of this
Agreement.
(b) In the event that the Borrower shall at any time, or from
time to time, (i) make a request for a Loan, or (ii) be deemed to have
requested an Overdraft Loan, the Borrower agrees to forthwith provide
the Lender with such information, at such frequency and in such format,
as is required by the Lender, such information to be current as of the
time of such request.
(c) The Borrower further agrees to provide to the Lender a
current borrowing base certificate ("Borrowing Base Certificate") at
the end of (i) each week when either (A) the Loan Availability is less
than $1,000,000, or (B) the outstanding balance of the Loans plus all
Letter of Credit Obligations exceeds $3,000,000, in each case
accompanied by an aging of Accounts Receivable, (ii) each month when
the provisions of clause (i) do not apply, and (iii) at such other
times as the Lender may request. Such Borrowing Base Certificate shall
be in substantially the form of Exhibit A, executed and certified as
accurate by such person or persons as the Borrower designates in
writing to the Lender pursuant to duly adopted resolutions of the
Borrower's Board of Directors authorizing such action.
(d) The Borrower shall provide the Lender with documentation
satisfactory to the Lender indicating the names of those employees of
the Borrower authorized by the Borrower to sign Borrowing Base
Certificates, among other things, and/or to make a telephone request
for a Loan, and/or to authorize disbursement of the proceeds of a Loan
by wire transfer or otherwise, and the Lender shall be entitled to rely
upon such documentation until notified in writing by the Borrower of
any change(s) in the names of persons so authorized. The Lender shall
be entitled to act on the instructions of anyone identifying himself as
one of the persons authorized to request Loans or disbursements of Loan
proceeds by telephone and the Borrower shall be bound thereby in the
same manner as if the person were actually so authorized. The Borrower
agrees to indemnify and hold the Lender harmless from any and all
claims, damages, liabilities, losses, costs and expenses (including
Attorneys' Fees) which may arise or be created by the acceptance of
instructions for making or paying Loans or wire transfers by telephone.
2.6 NOTES. Except to the extent a Loan may, in the Lender's sole and
absolute discretion, be evidenced by a Note, all Loans and payments hereunder
shall be recorded on the Lender's books, which shall be rebuttable presumptive
evidence of the amount of such Loans outstanding at any time hereunder. The
Lender will account monthly as to all Loans and payments hereunder and each
monthly accounting will be fully binding on the Borrower unless, within 15 days
following the Borrower's receipt thereof, the Borrower shall provide the Lender
with a specific listing of exceptions. Notwithstanding any term or condition of
this Agreement to the contrary, the failure of the Lender to record the date and
amount of any Loan shall not limit or otherwise affect the obligation of the
Borrower to repay any such Loan.
2.7 OVERDRAFT LOANS. The Lender, in its sole and absolute discretion
and subject to the terms hereof, may make a Loan to the Borrower in an amount
equal to the amount of any overdraft which may from time to time exist with
respect to the Disbursement Account or any other bank account which the Borrower
may now or hereafter have with FBNA or any other Affiliate. The existence of
such overdraft shall be deemed to be a request by the Borrower for such Loan.
The Borrower acknowledges that the Lender is under no duty or obligation to make
any Loan to the Borrower to cover any overdraft. The Borrower further agrees
that an overdraft shall constitute a separate Loan under this Agreement (an
"Overdraft Loan"), which shall bear, from the date on which the overdraft
occurred until paid, interest in an amount equal to the greater of 130% of the
highest rate of interest then charged for Loans (other than Overdraft Loans)
made hereunder, or $50.00 per day. If the Lender, in its sole and absolute
discretion, decides not to make a Loan to cover part or all of any overdraft,
the Lender may return any check(s) which created such overdraft.
2.8 OVER ADVANCES. The Lender, in its sole and absolute discretion, may
make Loans to the Borrower, either at the Borrower's request or to pay amounts
due to the Lender under this Agreement or any other Loan Document, in excess of
the Loan Availability or permit the total Loans to at any time exceed the Loan
Availability (such excess Obligations are hereinafter referred to as "Over
Advances") and no such event or occurrence shall cause or constitute a waiver by
the Lender of its right to refuse to make any further Loan or issue, or cause to
be issued, any Letters of Credit at any time that an Over Advance exists or
would result therefrom. During any period in which an Over Advance exists, the
amount of the Over Advances shall bear interest at a rate equal to 130% of the
highest rate of interest then charged for Loans (other than Overdraft Loans)
made hereunder.
2.9 ALL LOANS ONE OBLIGATION. All Loans under this Agreement shall
constitute one Loan, and all Indebtedness and other Obligations shall constitute
one general obligation secured by the Lien granted by the Borrower hereunder on
all of the Collateral and by all other Liens heretofore, now or at any time or
times hereafter granted by the Borrower or any other Obligor to secure the
Obligations. The Borrower agrees that all of the rights of the Lender set forth
in the Loan Documents shall, unless otherwise agreed to in writing, apply to any
modification of or supplement to the Loan Documents.
2.10 MAKING OF PAYMENTS; APPLICATION OF COLLECTIONS; CHARGING OF
ACCOUNTS.
(a) All payments hereunder (including payments with respect to
any Notes) shall be made without set-off or counterclaim and shall be
made to the Lender in immediately available funds (or as the Lender may
otherwise consent) prior to 12:30 p.m., Minneapolis time, on the date
due at its office at First Bank Place, 601 Second Avenue South,
Minneapolis, Minnesota 55402-4302, or at such other place as may be
designated by the Lender to the Borrower in writing. Any payments
received after such time shall be deemed received on the next Business
Day. Whenever any payment to be made hereunder or under any Note shall
be stated to be due on a date other than a Business Day such payment
may be made on the next succeeding Business Day and such extension of
time shall be included in the computation of payment of interest or any
fees.
(b) The Borrower authorizes the Lender to, and the Lender
will, subject to the provisions of this Section 2.10(b), apply the
whole or any part of any amounts received by the Lender, or any
Affiliate (whether deposited in the Collateral Account or otherwise
received by the Lender, or any Affiliate) from the collection of items
of payment and proceeds of any Collateral or Third Party Collateral
against the principal and/or interest of any Loans made hereunder
and/or any other Obligations, whether or not then due, in such order of
application as the Lender may determine, unless such payments or
proceeds are, in the Lender's sole and absolute discretion, released to
the Borrower; provided, however, that no checks, drafts or other
instruments received by the Lender, or any Affiliate, shall constitute
final payment to the Lender unless and until such item of payment has
actually been collected. All items or amounts which are delivered to
the Lender by or on behalf of the Borrower or any Obligor or any
Account Debtor on account of partial or full payment or otherwise as
proceeds of any of the Collateral or Third Party Collateral (including
any items or amounts which may have been deposited to the Collateral
Account) may from time to time, in the Lender's sole and absolute
discretion, be released to the Borrower or may be applied by the Lender
towards such of the Obligations, whether or not then due, in such order
of application as the Lender may determine. Notwithstanding anything to
the contrary herein, (i) all cash, checks, instruments and other items
of payment, solely for purposes of determining the occurrence of an
Event of Default hereunder, shall be deemed received upon actual
receipt by the Lender unless the same is subsequently dishonored for
any reason whatsoever, (ii) for purposes of determining whether, under
Sections 2.1 and 2.2, there is availability for Loans or Letters of
Credit, all cash, checks, instruments and other items of payment shall
be applied against the Obligations on the first Business Day following
receipt thereof by the Lender in Minneapolis, Minnesota or the second
Business Day following the initiation by the Lender of an ACH
transaction from a Collateral Account, and (iii) solely for purposes of
interest calculation hereunder, all cash, checks, instruments and other
items of payment shall be deemed to have been applied against the
Obligations no later than the second Business Day following receipt
thereof by the Lender in Minneapolis, Minnesota or the second Business
Day following the initiation by the Lender of an ACH transaction from a
Collateral Account.
(c) The Borrower hereby authorizes the Lender and the Lender
may, in its sole and absolute discretion, charge to the Borrower, at
any time, all or any portion of any Obligations (and interest, if any,
thereon) including, without limitation, any Attorneys' Fees and other
costs and expenses of the Lender for which the Borrower is liable
pursuant to the terms of the Loan Documents, by charging the
Disbursement Account or any other bank account of the Borrower with
FBNA or by advancing the amount thereof to the Borrower as a Loan;
provided, however, that the provisions of this Section 2.10(c) shall
not affect the Borrower's obligation to pay when due all amounts
payable by the Borrower under any of the Loan Documents whether or not
there are sufficient funds therefor in the Disbursement Account or any
such other bank account of the Borrower with FBNA, or sufficient Loan
Availability.
2.11 LENDER'S ELECTION NOT TO ENFORCE. Notwithstanding any term or
condition of this Agreement to the contrary, the Lender, in its sole and
absolute discretion, at any time and from time to time may suspend or refrain
from enforcing any or all of the restrictions imposed in this Section 2 but no
such suspension or failure to enforce shall impair the Lender's right and power
under this Agreement to refrain from making a Loan or issuing, or causing to be
issued, a Letter of Credit requested by the Borrower if all conditions precedent
to the Lender's obligation to make such Loan or issue, or cause to be issued,
such Letter of Credit have not been satisfied.
ARTICLE III COLLATERAL
3.1 GRANT OF SECURITY INTEREST. As security for the payment of all
Loans now or hereafter made by the Lender to the Borrower hereunder or under any
Note, and as security for the payment or other satisfaction of all other
Obligations, the Borrower hereby grants to the Lender, and its Affiliates, a
security interest in and to the following property of the Borrower, whether now
owned or existing, or hereafter acquired or coming into existence, wherever now
or hereafter located (all such property is hereinafter referred to collectively
as the "Collateral"):
(a) Accounts Receivable (whether or not Eligible Accounts
Receivable), including all other rights and interests (including all
liens and security interests) that the Borrower may at any time have by
law or agreement against any Account Debtor or other obligor obligated
to make any such payment or against any of the property of such Account
Debtor or other obligor;
(b) Inventory (whether or not Eligible Inventory);
(c) General Intangibles;
(d) documents;
(e) all chattel paper and instruments evidencing, arising out
of or relating to any obligation to the Borrower for goods sold or
leased or services rendered or otherwise arising out of or relating to
any property described in clauses (a) through (d) above;
(f) goods, instruments, documents or chattel paper that are in
the possession or control of, or in transit to, the Lender or any
Affiliate or any agent or bailee for the Lender or any Affiliate for
any reason and all interest on, dividends and distributions and other
rights in connection with such property, and any and all balances,
credits, deposits (general or special, time or demand, provisional or
final), accounts or monies of or in the name of the Borrower now or
hereafter with the Lender, or any Affiliate, and any and all property
of every kind or description of or in the name of the Borrower now or
hereafter, for any reason or purpose whatsoever, in the possession or
control of, in transit to or standing to the Borrower's credit on the
books of, the Lender, any Affiliate, or any agent or bailee for the
Lender, or any Affiliate, or any Participant;
(g) all interest of the Borrower in any goods the sale or
lease of which shall have given or shall give rise to, and in all
guaranties and other property securing the payment of or performance
under, any Accounts Receivable, General Intangibles or any chattel
paper or instruments referred to in clause (e) above;
(h) any and all other property of the Borrower of any kind or
description, including, without limitation, real estate of the
Borrower, subject to a separate mortgage, pledge or security interest
in favor of the Lender or in which the Lender now or hereafter has or
acquires a security interest securing any Obligations, pursuant to any
written agreement or instrument other than this Agreement;
(i) all replacements, substitutions, additions or accessions
to or for any of the foregoing;
(j) to the extent related to the property described in clauses
(a) through (i) above, all books, correspondence, credit files,
records, invoices and other papers and documents, including, without
limitation, to the extent so related, all tapes, cards, computer runs,
computer programs and other papers and documents in the possession or
control of the Borrower or any computer bureau from time to time acting
for the Borrower, and, to the extent so related, all rights in, to and
under all policies of insurance, including claims of rights to payments
thereunder and proceeds therefrom, including any credit insurance; and
(k) all proceeds (including, without limitation, any Accounts
Receivable or other proceeds arising from the sale or other disposition
of any Collateral, any returns of any Inventory sold by the Borrower
and the proceeds of any insurance covering any of the Collateral) of
any of the foregoing.
3.2 ACCOUNTS RECEIVABLE.
(a) The Borrower shall notify the Lender immediately of all
disputes and claims by any Account Debtor in an amount exceeding
$25,000 and settle or adjust them at no expense to the Lender. If the
Lender directs, no discount or credit allowance shall be granted
thereafter by the Borrower to any Account Debtor. All Account Debtor
payments and all net amounts received by the Lender in settlement,
adjustment or liquidation of any Account Receivable may be applied by
the Lender to the Obligations or credited to the Disbursement Account
(subject to collection), as the Lender may deem appropriate, as more
fully described in Section 2.10. If requested by the Lender, the
Borrower will make proper entries in its books, disclosing the
assignment of Accounts Receivable to the Lender.
(b) Unless otherwise consented to by the Lender, the Borrower
will, forthwith upon receipt by the Borrower of all checks, drafts,
cash and other remittances in payment or as proceeds of, or on account
of, any of the Accounts Receivable or other Collateral, deposit the
same in a special bank account (the "Collateral Account") with FBNA or
such other bank or financial institution as the Lender shall consent,
over which the Lender alone has power of withdrawal, and will designate
with each such deposit the particular Accounts Receivable or other item
of Collateral upon which the remittance was made. The Borrower
acknowledges that the maintenance of the Collateral Account is solely
for the convenience of the Lender in facilitating its own operations
and the Borrower does not and shall not have any right, title or
interest in the Collateral Account or in the amounts at any time
appearing to the credit thereof. Said proceeds shall be deposited in
precisely the form received except for the Borrower's endorsement where
necessary to permit collection of items, which endorsement the Borrower
agrees to make. Pending such deposit, the Borrower agrees not to
commingle any such checks, drafts, cash and other remittances with any
of its funds or property, but will hold them separate and apart
therefrom and upon an express trust for the Lender until deposit
thereof if made in the Collateral Account. Upon the full and final
liquidation of all Obligations, the Lender will pay over to the
Borrower any excess amounts received by the Lender as payment or
proceeds of Collateral, whether received by the Lender as a deposit in
the Collateral Account or received by the Lender as a direct payment on
any of the sums due hereunder.
(c) If any Accounts Receivable, chattel paper or General
Intangible arises out of contracts with the United States or any
department, agency, or instrumentality thereof, the Borrower will,
unless the Lender shall otherwise agree, immediately notify the Lender
in writing and execute any instruments and take any steps required by
the Lender in order that all monies due and to become due under such
contracts shall be assigned to the Lender and notice thereof given to
the government under the Federal Assignment of Claims Act of 1940, as
amended.
(d) If any Accounts Receivable is evidenced by chattel paper
or instruments, the Borrower will, unless the Lender shall otherwise
agree, deliver the originals of same to the Lender, appropriately
endorsed to the Lender's order and, regardless of the form of such
endorsement, the Borrower hereby expressly waives presentment, demand,
notice of dishonor, protest and notice of protest and all other notices
with respect thereto.
3.3 INVENTORY.
(a) Unless the Lender shall otherwise agree, if the Borrower
sells Inventory for cash, all full and partial payments therefor shall
immediately be delivered by the Borrower to the Lender in their
original form for deposit in the Collateral Account or other
application to reduction of the Obligations. All such cash shall be
held by the Borrower in trust for the Lender and shall be remitted to
the Lender at the end of the day received or at such other time as the
Lender may designate.
(b) The Lender shall not be liable or responsible in any way
for the safekeeping of any Inventory delivered to it, to any bailee
appointed by or for it, to any warehouseman, or under any other
circumstances. The Lender shall not be responsible for collection of
any proceeds or for losses in collected proceeds held by the Borrower
in trust for the Lender. Any and all risk of loss for any or all of the
foregoing shall be upon the Borrower except for such loss as shall
result from the Lender's gross negligence or willful misconduct.
(c) The Borrower shall, upon acquiring an interest in any
Inventory, deliver to the Lender schedules of such Inventory, together
with supplier's invoices, warranties, production, cost and other
records as the Lender may request. If requested by the Lender, the
Borrower shall deliver to the Lender schedules of the sale of any
Inventory immediately upon its sale. Any material change in the value
or condition of any Inventory and any errors discovered in schedules
delivered to the Lender shall be reported to the Lender immediately.
(d) The Borrower shall (i) notify the Lender immediately if
the Borrower obtains possession (by return, repossession or otherwise)
of any Inventory which has been sold and shall inform the Lender of the
identity of the returned or repossessed Inventory, the applicable
Account Debtor and the amount of the applicable Account Receivable;
(ii) receive such Inventory in trust; and (iii) resell such Inventory
for the Lender unless instructed to deliver it to the Lender.
3.4 EQUIPMENT. The Borrower will, upon request of the Lender, submit to
the Lender a current listing of all of the Borrower's Equipment which listing
shall indicate the type, model, serial number and location of such Equipment.
3.5 SUPPLEMENTAL DOCUMENTATION. At the Lender's request, the Borrower
shall execute and/or deliver to the Lender, at any time or times hereafter, such
agreements, documents, financing statements, warehouse receipts, bills of
lading, notices of assignment of Accounts Receivable, schedules of Accounts
Receivable assigned, and other written matter necessary or requested by the
Lender to perfect and maintain perfected the security interest in the Collateral
granted hereunder (all the above hereinafter referred to as "Supplemental
Documentation"), in form and substance acceptable to the Lender, and pay all
taxes, fees and other costs and expenses associated with any recording or filing
of the same. The Borrower hereby irrevocably makes, constitutes and appoints the
Lender (and all Persons designated by the Lender for that purpose) as the
Borrower's true and lawful attorney (and agent-in-fact) to sign the name of the
Borrower on any of the Supplemental Documentation and to deliver any of the
Supplemental Documentation to such Persons as the Lender in its sole and
absolute discretion, may elect. The Borrower agrees that a carbon, photographic,
photostatic, and other reproduction of this Agreement or of a financing
statement is sufficient as a financing statement.
3.6 POWER OF ATTORNEY. The Borrower irrevocably designates, makes,
constitutes, and appoints the Lender (and all Persons designated by the Lender)
as the Borrower's true and lawful attorney (and agent-in-fact) and the Lender,
or the Lender's agent, may, without notice to the Borrower:
(a) at such time or times hereafter as the Lender or said
agent, in its sole and absolute discretion, may determine, in the
Borrower's or the Lender's name, (i) receive, open and dispose of all
mail received at the lockbox address of the Borrower; (ii) notify
and/or require the Borrower to notify, any Account Debtor or other
Person obligated under or in respect of any Collateral, of the fact of
the Lender's Lien thereon and of the collateral assignment thereof to
the Lender; (iii) direct and/or require the Borrower to direct, any
Account Debtor or other Person obligated under or in respect of any
Collateral, to make payment directly to the Lender of any amounts due
or to become due thereunder or with respect thereto; (iv) endorse the
Borrower's name on any checks, notes, drafts or any other items of
payment relating to and/or proceeds of the Collateral which come into
the possession of the Lender or under the Lender's control and apply
such payment or proceeds to the Obligations; and (v) endorse the
Borrower's name on any chattel paper, document, instrument, invoice,
freight bill, bill of lading or similar document or agreement in the
Lender's possession relating to Accounts Receivable, Inventory or any
other Collateral; and
(b) at such time or times after the occurrence of an Event of
Default, as the Lender or said agent, in its sole and absolute
discretion, may determine, in the Borrower's or the Lender's name: (i)
receive, open and dispose of all mail received at the street address or
any post office box address of the Borrower; (ii) demand, collect,
surrender, release or exchange all or any part of any Collateral or any
amounts due thereunder or with respect thereto; (iii) settle, adjust,
compromise, extend or renew for any period (whether or not longer than
the initial period) any and all sums which are now or may hereafter
become due or owing upon or with respect to any of the Collateral; (iv)
enforce, by suit or otherwise, payment or performance of any of the
Collateral; (v) settle, adjust or compromise any legal proceedings
brought to collect any sums due or owing upon or with respect to any of
the Collateral; (vi) exercise all of the Borrower's rights and remedies
with respect to the collection of any amounts due upon or with respect
to any of the Collateral; (vii) if permitted by applicable law, sell or
assign the Collateral upon such terms, for such amounts and at such
time or times as the Lender may deem advisable; (viii) discharge and
release the Collateral; (ix) prepare, file and sign the Borrower's name
on any proof of claim in bankruptcy or similar document against any
Account Debtor; (x) prepare, file and sign the Borrower's name on any
notice of lien, assignment or satisfaction of lien or similar document
in connection with the Accounts Receivable and/or other Collateral; and
(xi) do all acts and things necessary, in the Lender's sole and
absolute discretion, to obtain repayment of the Obligations and to
fulfill the Borrower's other obligations under this Agreement.
(c) at such time or times after the assertion by the Lender
that an Event of Default has occurred and is continuing (whether or not
an Event of Default has in fact occurred), as the Lender or said agent,
in its reasonable discretion, may determine, in the Borrower's or the
Lender's name, notify the post office authorities to change the address
for delivery of the Borrower's mail to an address designated by the
Lender.
Under no circumstances shall the Lender be under any duty to act in regard to
any of the foregoing matters. The costs relating to any of the foregoing
matters, including Attorneys' Fees and out-of-pocket expenses shall be borne
solely by the Borrower whether the same are incurred by the Lender or the
Borrower.
Neither the Lender nor any of its directors, officers, employees or agents will
be liable for any acts of commission or omission nor for any error in judgment
or mistake of fact or law, unless the same shall have resulted from gross
negligence or willful misconduct. This power, being coupled with an interest, is
irrevocable until either (i) all Obligations are paid in full, or (ii) this
Agreement is terminated, whichever shall last occur.
ARTICLE IV REPRESENTATIONS AND WARRANTIES
To induce the Lender to enter into this Agreement and to make Loans to
the Borrower hereunder, the Borrower makes the following representations and
warranties, all of which shall be true and correct as of the date the initial
Loan is made and survive the execution of this Agreement and the making of the
initial Loan:
4.1 ORGANIZATION. The Borrower and each of its corporate Subsidiaries
are corporations duly incorporated, validly existing and in good standing under
the laws of the jurisdiction of their respective incorporation. All of the
Borrower's other Subsidiaries, if any, are entities duly organized, validly
existing and in good standing under the laws of the jurisdictions of their
respective organization. The Borrower and all of the Subsidiaries are in good
standing and are duly qualified to do business in each state where, because of
the nature of their respective activities or properties, such qualification is
required. On the date hereof, the Borrower and each Subsidiary conducts business
in its own name exclusively and has no trade names, styles or doing business
forms except as disclosed on Schedule 4.1. The Borrower's taxpayer
identification number is I.D. No. 41-0429620.
4.2 AUTHORIZATION. The Borrower is duly authorized to execute and
deliver the Loan Documents and any Supplemental Documentation contemplated by
this Agreement, and is and will continue to be duly authorized to borrow monies
hereunder and to perform its obligations under the Loan Documents and any
Supplemental Documentation contemplated by this Agreement and the borrowings
hereunder do not and will not require any consent or approval of any
governmental agency or authority.
4.3 NO CONFLICTS. The execution, delivery and performance by the
Borrower of the Loan Documents and any Supplemental Documentation contemplated
by this Agreement, do not and will not conflict with (a) any provision of law,
(b) the charter or by-laws of the Borrower, (c) any agreement binding upon the
Borrower, or (d) any court or administrative order or decree applicable to the
Borrower, and do not and will not require, or result in, the creation or
imposition of any Lien on any asset of the Borrower or any of the Subsidiaries
except as provided herein.
4.4 VALIDITY AND BINDING EFFECT. The Loan Documents and any
Supplemental Documentation contemplated by this Agreement, when duly executed
and delivered will be, legal, valid and binding obligations of the Borrower,
enforceable against the Borrower in accordance with their respective terms,
except as enforceability may be limited by bankruptcy, insolvency or other
similar laws of general application affecting the enforcement of creditors'
rights or by general principles of equity limiting the availability of equitable
remedies.
4.5 NO DEFAULT. Neither the Borrower nor any of the Subsidiaries is in
default under any agreement or instrument to which the Borrower or any
Subsidiary is a party or by which any of their respective properties or assets
is bound or affected, which default (a) might materially and adversely affect
the Lender's Lien on or rights with respect to any Collateral or Third Party
Collateral or (b) constitutes an Adverse Event. No Event of Default or Unmatured
Event of Default has occurred and is continuing.
4.6 FINANCIAL STATEMENTS. The Borrower's audited consolidated and
consolidating financial statement as at January 6, 1996 and the Borrower's
unaudited consolidated and consolidating financial statement as at November 30,
1996, copies of which have been furnished to the Lender, have been prepared in
conformity with generally accepted accounting principles promulgated by the
Financial Accounting Standards Board and applied on a basis consistent with that
of the preceding fiscal year and period and present fairly the financial
condition of the Borrower and the Subsidiaries as at such dates and the results
of their operations for the periods then ended, subject (in the case of the
interim financial statement) to year-end audit adjustments. Since November 30,
1996, no Adverse Event has occurred.
4.7 INSURANCE. Schedule 4.7 sets forth a summary of the property and
casualty insurance program carried by the Borrower and the Subsidiaries on the
date hereof, including the insurer's(s') name(s), policy number(s), expiration
date(s), amount(s) of coverage, type(s) of coverage, the annual premium(s),
Best's policyholder's and financial size ratings of the insurers, exclusions,
deductibles and self-insured retention, and describes in detail any
retrospective rating plan, fronting arrangement or any other self-insurance or
risk assumption agreed to by the Borrower or any Subsidiary or imposed upon the
Borrower or any Subsidiary by any such insurer. This summary also includes any
self-insurance program that is in effect.
4.8 LITIGATION; CONTINGENT LIABILITIES.
(a) Except for those referred to in Schedule 4.8, no claims
litigation, arbitration proceedings or governmental proceedings are
pending or threatened against or are affecting the Borrower or any
Subsidiary.
(b) Other than any liability incident to the claims,
litigation or proceedings disclosed in Schedule 4.8, neither the
Borrower nor any the Subsidiary has any contingent liabilities which
are material to the Borrower or any Subsidiary.
4.9 LIENS. None of the Collateral or other property or assets of the
Borrower or any Subsidiary is subject to any Lien (including, without
limitation, Liens pursuant to Capitalized Leases under which the Borrower or any
Subsidiary is a lessee) except: (a) Liens in favor of the Lender; (b) Liens for
current Taxes not delinquent or Taxes being contested in good faith and by
appropriate proceedings and as to which such reserves or other appropriate
provisions as may be required by GAAP are being maintained; (c) carriers',
warehousemen's, mechanics', materialmen's and other like statutory Liens arising
in the ordinary course of business securing obligations which are not overdue or
which are being contested in good faith and by appropriate proceedings and as to
which such reserves or other appropriate provisions as may be required by GAAP
are being maintained; and (d) Liens listed on Schedule 4.9.
4.10 SUBSIDIARIES. The Borrower has no Subsidiaries except as listed on
Schedule 4.10. The Borrower and the Subsidiaries own the percentage of the
Subsidiaries as set forth on Schedule 4.10.
4.11 PARTNERSHIPS. Neither the Borrower nor any of the Subsidiaries is
a partner or joint venturer in any partnership or joint venture other than the
partnerships and joint ventures listed on Schedule 4.11.
4.12 BUSINESS LOCATIONS. On the date hereof the office where the
Borrower keeps the Borrower's books and records concerning the Borrower's
Accounts Receivable and other Collateral, and the Borrower's chief place of
business and chief executive office, is located at the address of the Borrower
set forth on the signature pages of this Agreement, and all of the Borrower's
other places of business and all locations and places of business of each
Subsidiary are listed on Schedule 4.12. On the date hereof, the names of any
landlords and/or mortgagees of any of such locations are identified in Schedule
4.12.
4.13 COLLATERAL LOCATIONS. On the date hereof the Borrower's Inventory,
Equipment and, if applicable, fixtures (except any part thereof which prior to
the execution of this Agreement the Borrower shall have advised the Lender in
writing consists of Collateral normally used in more than one state) is located
at the addresses set forth in Schedule 4.13. The legal descriptions of any real
property on which any fixtures are located and the name(s) of the record owner
of such real property is set forth in Schedule 4.13.
4.14 ELIGIBILITY OF COLLATERAL. (a) All of the Accounts Receivable are
and will continue to be bona fide existing obligations created by the sale of
goods, the rendering of services, or the furnishing of other good and sufficient
consideration to Accounts Debtors in the regular course of business and all
shipping or delivery receipts and other documents furnished or to be furnished
to the Lender in connection therewith are and will be genuine; (b) Each Account
Receivable or item of Inventory which the Borrower shall, expressly or by
implication, request the Lender to classify as an Eligible Account Receivable or
as Eligible Inventory, respectively, will, as of the time when such request is
made, conform in all respects to the requirements of such classification set
forth in the respective definitions of "Eligible Account Receivable" and
"Eligible Inventory" set forth herein; (c) with respect to each schedule of
Inventory delivered to the Lender pursuant to Section 3.3: (i) the descriptions,
origins, size, qualities, quantities, weights, and markings of all goods stated
thereon, or on any attachment thereto, are true and correct in all material
respects; (ii) all goods stated thereon have been produced by the Borrower in
compliance with all requirements of the Fair Labor Standards Act; and (iii) none
of the goods stated thereon are defective, of second quality, used, or goods
returned after shipment, except where described as such; and (iv) all Inventory
not included on such schedule has been previously scheduled.
4.15 CONTROL OF COLLATERAL; LEASE OF PROPERTY. The Borrower is not now
conducting, or permitting or suffering to be conducted, any activities pursuant
to or in conjunction with which any of the Collateral is now, or will be (while
any Obligations exist or this Agreement is in effect), in the possession or
control of, any Subsidiary, Obligor (other than the Borrower) or Related Party.
Except as listed on Schedule 4.15, none of the machinery, equipment or real
property used by the Borrower or any Subsidiary is subject to a lease (excluding
only Capitalized Leases included on Schedule 6.11) under which the Borrower or
such Subsidiary is the lessee.
4.16 PATENTS, TRADEMARKS, ETC. The Borrower and each of the
Subsidiaries possesses or has the right to use all of the patents, trademarks,
trade names, service marks and copyrights, and applications therefor, and all
technology, know-how, processes, methods and designs used in or necessary for
the conduct of its business, without known conflict with the rights of others.
All such licenses, patents, trademarks, trade names, service marks and
copyrights, and applications therefor existing on the date hereof are listed on
Schedule 4.16.
4.17 SOLVENCY. The Borrower and each of the Subsidiaries now has
capital sufficient to carry on its respective business and transactions and all
business and transactions in which it is about to engage and is now solvent and
able to pay its respective debts as they mature, and the Borrower and each of
the Subsidiaries now owns property having a value, greater than the amount
required to pay the Borrower's or such Subsidiary's debts.
4.18 CONTRACTS; LABOR MATTERS. Except as disclosed on Schedule 4.18:
(a) neither the Borrower nor any Subsidiary is a party to any contract or
agreement, or subject to any charge, corporate restriction, judgment, decree or
order, the performance of which constitutes an Adverse Event; (b) no labor
contract to which the Borrower or any Subsidiary is subject is scheduled to
expire during the original term of this Agreement; and (c) on the date of this
Agreement (i) neither the Borrower nor any Subsidiary is a party to any labor
dispute and (ii) there are no strikes or walkouts relating to any labor
contracts to which the Borrower or any Subsidiary is subject.
4.19 ERISA. Each Plan complies with all material applicable
requirements of ERISA and the Code and with all material applicable rulings and
regulations issued under the provisions of ERISA and the Code setting forth
those requirements. No Reportable Event, other than a Reportable Event for which
the reporting requirements have been waived by regulations of the PBGC, has
occurred and is continuing with respect to any Plan. All of the minimum funding
standards applicable to such Plans have been satisfied and there exists no event
or condition which would permit the institution of proceedings to terminate any
Plan under Section 4042 of ERISA. The Current value of the Plans' benefits
guaranteed under Title IV of ERISA does not exceed the current value of the
Plans' assets allocable to such benefits. Except as listed on Schedule 4.8,
neither the Borrower nor any Subsidiary has any contingent liability with
respect to any "employee welfare benefit plans," as such term is defined in
Section 3(1) of ERISA, which covers retired or terminated employees and their
beneficiaries.
4.20 REGULATION U. The Borrower is not engaged in the business of
extending credit for the purpose of purchasing or carrying margin stock (as
defined in Regulation U of the Federal Reserve Board), and no part of the
proceeds of any Loan will be used to purchase or carry margin stock or for any
other purpose which would violate any of the margin requirements of the Federal
Reserve Board.
4.21 COMPLIANCE. The Borrower and each of the Subsidiaries are in
material compliance with all statutes and governmental rules and regulations
applicable to them. All Inventory of the Borrower has been produced in
compliance with all requirements of the Fair Labor Standards Act.
4.22 TAXES. The Borrower and each Subsidiary has filed all federal,
state and local tax returns required to be filed and has paid, or made adequate
provisions for the payment of, all Taxes due and payable pursuant to such
returns and pursuant to any assessments made against it or any of its property
(other than Taxes the amount or validity of which is currently being contested
in good faith by appropriate proceedings and with respect to which reserves in
accordance with GAAP have been provided on the books of the Borrower). No tax
Liens have been filed and no material claims are being asserted with respect to
any such Taxes. The charges, accruals and reserves on the books of the Borrower
in respect of Taxes are adequate. The Borrower is not aware of any proposed
assessment against the Borrower or any Subsidiary for additional Taxes (or any
basis for any such assessment) which might be material to the Borrower and the
Subsidiaries taken as a whole.
4.23 INVESTMENT COMPANY ACT. Neither the Borrower nor any Subsidiary is
an "investment company" or a company "controlled" by an "investment company"
within the meaning of the Investment Company Act of 1940, as amended.
4.24 PUBLIC UTILITY HOLDING COMPANY ACT. Neither the Borrower nor any
Subsidiary is a "holding company" or a "subsidiary company" of a "holding
company" or an "affiliate" of a "holding company" within the meaning of the
Public Utility Holding Company Act of 1935, as amended.
4.25 ENVIRONMENTAL AND SAFETY AND HEALTH MATTERS. Except as disclosed
on Schedule 4.25: (a) the operations of the Borrower and each of the
Subsidiaries complies in all respects with (i) all applicable Environmental
Laws, and (ii) all applicable Occupational Safety and Health Laws; (b) none of
the operations of the Borrower or any Subsidiary are subject to any judicial or
administrative proceeding alleging the violation of any Environmental Law or
Occupational Safety and Health Law; (c) none of the operations of the Borrower
or any Subsidiary is the subject of federal or state investigation evaluating
whether any remedial action is needed to respond to (i) a spillage, disposal or
release into the environment of any Hazardous Material or other hazardous, toxic
or dangerous waste, substance or constituent, or other substance, or (ii) any
unsafe or unhealthful condition at any premises of the Borrower or any
Subsidiary; (d) neither the Borrower nor any Subsidiary has filed any notice
under any Environmental Law or Occupation Safety and Health Law indicating or
reporting (i) any past or present spillage, disposal or release into the
environment of, or treatment, storage or disposal of, any Hazardous Material or
other hazardous, toxic or dangerous waste, substance or constituent, or other
substance or (ii) any unsafe or unhealthful condition at any premises of the
Borrower or any Subsidiary; and (e) neither the Borrower nor any Subsidiary has
any known contingent liability in connection with (i) any spillage, disposal or
release into the environment of, or otherwise with respect to, any Hazardous
Material or other hazardous, toxic or dangerous waste, substance or constituent,
or other substance, or (ii) any unsafe or unhealthful condition at any premises
of the Borrower or any Subsidiary.
ARTICLE V AFFIRMATIVE COVENANTS
From the date of this Agreement and thereafter until all Obligations are paid in
full, the Borrower agrees that unless the Lender shall otherwise consent in
writing, it will:
5.1 FINANCIAL STATEMENTS AND OTHER REPORTS.
5.1.1 FINANCIAL REPORTS. Furnish to the Lender in form
satisfactory to the Lender:
(a) ANNUAL AUDIT REPORT. As soon as available and in
any event within 120 days after the end of each fiscal year of
the Borrower, the annual audit report of the Borrower and the
Subsidiaries prepared on a consolidating and consolidated
basis in conformity with GAAP, consisting of at least
statements of income, cash flow and stockholders' equity, and
a consolidated and consolidating balance sheet as at the end
of such year, setting forth in each case in comparative form
corresponding figures from the previous annual audit,
certified, without qualification, by independent certified
public accountants of recognized standing selected by the
Borrower and acceptable to the Lender, together with any
management letters, management reports or other supplementary
comments or reports to the Borrower or its board of directors
furnished by such accountants.
(b) ACCOUNTANT'S CERTIFICATE. Together with the
audited financial statements required under Section 5.1.1(a),
a certificate from the accounting firm performing such audit
stating that it has reviewed this Agreement and that in
performing its examination, nothing came to its attention that
caused it to believe that any Event of Default or Unmatured
Event of Default exists, or, if such Unmatured Event of
Default or Event of Default exists, describing its nature.
(c) MONTHLY FINANCIAL STATEMENT. As soon as available
and in any event within 20 days after the end of each month of
each fiscal year of the Borrower, a copy of the unaudited
financial statement of the Borrower and the Subsidiaries
prepared in the same manner as the audit report referred to in
Section 5.1.1(a), signed by the Borrower's chief financial
officer and consisting of at least consolidated statements of
income, cash flow and stockholders' equity for the Borrower
and the Subsidiaries for such month and for the period from
the beginning of such fiscal year to the end of such month,
and a consolidated and consolidating balance sheet of the
Borrower as at the end of such month.
(d) PROJECTIONS. As soon as available and in any
event not later than 30 days following the last day of each
fiscal year of the Borrower, a projected financial statement
of the Borrower and the Subsidiaries prepared in the same
manner as the audit report referred to in Section 5.1.1(a),
signed by the Borrower's chief financial officer and
presenting fairly the Borrower's best good faith projections
of the financial position and results of operations of the
Borrower and the Subsidiaries for each month of the following
fiscal year.
(e) OFFICER'S CERTIFICATE. Together with the
financial statements furnished by the Borrower under Section
5.1.1(a), and (c), a certificate of the Borrower's chief
financial officer, dated the date of such annual audit report
or such monthly financial statement, as the case may be, to
the effect that no Event of Default or Unmatured Event of
Default has occurred and is continuing, or, if there is any
such event, describing it and the steps, if any, being taken
to cure it, and containing a computation of, and showing
compliance with, each of the financial ratios and restrictions
contained in Articles V and VI and Supplement A.
(f) GAAP CHANGES. In the event that a material change
occurs, in the Lender's judgment, in GAAP, either the Lender
and the Borrower shall amend, in writing, the covenants in
this Agreement, Supplement A, and the other Loan Documents
which are calculated on the basis of GAAP to reflect such
change, or, if the Lender and the Borrower fail to agree on
and enter into such an amendment, the Lender shall have the
right to deem such change in GAAP to be an Event of Default.
5.1.2 AGINGS; INELIGIBLE ACCOUNTS RECEIVABLE CERTIFICATION.
Within 15 days after the end of each month, (a) a detailed aging of all
Accounts Receivable by invoice, including, without limitation, a
reconciliation to the aging report delivered to the Lender for the
preceding month, (b) a certification of ineligible Accounts Receivable
and (c) an aging of all accounts payable as of the end of the preceding
month, each in form and content acceptable to the Lender.
5.1.3 INVENTORY CERTIFICATION. Within 15 days after the end of
each month, an Inventory certification report as of the end of the
preceding month for all Inventory locations, in form and content
acceptable to the Lender.
5.1.4 INTENTIONALLY OMITTED.
5.1.5 OTHER REPORTS.
(a) SEC AND OTHER REPORTS. Promptly upon the making
or filing thereof, copies of all financial statements, reports
and proxy statements mailed to the Borrower's shareholders,
and copies of all registration statements, periodic reports
and other documents filed with the Securities and Exchange
Commission (or any successor thereto) or any national
securities exchange.
(b) REPORT OF CHANGE IN SUBSIDIARIES OR PARTNERSHIPS.
Promptly from time to time, a written report of any change in
the list of the Borrower's Subsidiaries set forth on Schedule
4.10 or in the list of partnerships and joint ventures set
forth on Schedule 4.11.
(c) PATENTS, ETC. Promptly from time to time, a
written report of any change to the list of patents,
trademarks, copyrights and other information set forth in
Schedule 4.16.
(d) OTHER REPORTS. The information required to be
provided pursuant to other provisions of this Agreement, and
such other reports from time to time requested by the Lender.
5.2 NOTICES. Notify the Lender in writing of any of the following
immediately upon learning of the occurrence thereof, describing the same and, if
applicable, the steps being taken by the Person(s) affected with respect
thereto:
(a) DEFAULT. The occurrence of (i) any Event of Default or
Unmatured Event of Default, and (ii) to the extent not included in
clause (i) above, the default by the Borrower, any other Obligor or any
Subsidiary under any note, indenture, loan agreement, mortgage, lease,
deed or other material similar agreement to which the Borrower, any
other Obligor or any Subsidiary, as appropriate, is a party or by which
it is bound.
(b) LITIGATION. The institution of any litigation, arbitration
proceeding or governmental proceeding affecting the Borrower, any other
Obligor, any Subsidiary, any Collateral or any Third Party Collateral,
whether or not considered to be covered by insurance wherein the claim
involves $25,000 or more.
(c) JUDGMENT. The entry of any judgment or decree against the
Borrower, any other Obligor or any Subsidiary, if the amount of such
judgment exceeds $50,000.
(d) ERISA. With respect to any Plan, the occurrence of a
Reportable Event (other than a Reportable Event for which the reporting
requirements have been waived by PBGC regulations) or any "prohibited
transaction" (as defined in Section 4975 of the Code), a notice
specifying the nature thereof and what action the Borrower proposes to
take with respect thereto, and, when received, copies of any notice
from PBGC of intention to terminate or have a trustee appointed for any
Plan; or the incurrence of any material increase in the contingent
liability of the Borrower, any other Obligor or any Subsidiary with
respect to any "employee welfare benefit plan" as defined in Section
3(1) of ERISA which covers retired employees and their beneficiaries.
(e) CHANGE IN COLLATERAL LOCATIONS. If any of the Borrower's
Inventory or Equipment is placed in locations other than those
identified in this Agreement or in Schedule 4.13.
(f) CHANGE IN PLACE(S) OF BUSINESS. Any proposed opening,
closing or other change in the list of offices and other places of
business of the Borrower and each Subsidiary set forth in Schedule
4.12, and any opening, closing or other change in the offices and other
places of business of each other Obligor.
(g) CHANGE OF NAME. Any change in the name of the Borrower,
any other Obligor or any Subsidiary, and any change in the list of
trade names and trade styles set forth in Schedule 4.1.
(h) ENVIRONMENTAL AND SAFETY AND HEALTH MATTERS. Receipt of
any notice that the operations of the Borrower, any other Obligor or
any Subsidiary are not in full compliance with requirements of any
applicable Environmental Law or any Occupational Safety and Health Law;
receipt of notice that the Borrower, any other Obligor or any
Subsidiary is subject to federal, state or local investigation
evaluating whether any remedial action is needed to respond to (i) any
spillage, disposal or release into the environment of any Hazardous
Material or other hazardous, toxic or dangerous waste, substance or
constituent, or other substance, or (ii) any unsafe or unhealthful
condition at any premises of the Borrower, any other Obligor or any
Subsidiary; or receipt of notice that any properties or assets of the
Borrower any other Obligor or any Subsidiary are subject to an
Environmental Lien.
(i) ADVERSE EVENT. The occurrence of an Adverse Event.
(j) DEFAULT BY OTHERS. Any material default by any Account
Debtor or other Person obligated to the Borrower, any other Obligor, or
any Subsidiary, under any contract, chattel paper, note or other
evidence of amounts payable or due or to become due to the Borrower,
such Obligor or Subsidiary if the amount payable under such contract,
chattel paper, note or other evidence of amounts payable or due or to
become due is material.
(k) MOVEABLE COLLATERAL. If any of the Collateral or Third
Party Collateral shall consist of goods of a type normally used in more
than one state, whether or not actually so used, any use of any such
goods in any state other than a state in which the Borrower shall have
previously advised the Lender such goods will be used. The Borrower
agrees that such goods will not, unless the Lender shall otherwise
consent in writing, be used outside the continental United States or in
Louisiana.
(l) CHANGE IN MANAGEMENT OR LINE(S) OF BUSINESS. Any
substantial change in the senior management of the Borrower or any
Subsidiary, or any change in the Borrower's or any Subsidiary's line(s)
of business.
(m) OTHER EVENTS. The occurrence of such other events as the
Lender may reasonably from time to time specify.
5.3 EXISTENCE. Maintain and preserve, and cause each Subsidiary to
maintain and preserve, its respective existence as a corporation or other form
of business organization, as the case may be, and all rights, privileges,
licenses, patents, patent rights, copyrights, trademarks, trade names,
franchises and other authority to the extent material and necessary for the
conduct of its respective business in the ordinary course as conducted from time
to time.
5.4 NATURE OF BUSINESS. Engage, and cause each Subsidiary to engage, in
substantially the same fields of business as it is engaged in on the date
hereof.
5.5 BOOKS, RECORDS AND ACCESS. Maintain, and cause each Subsidiary to
maintain, complete and accurate books and records (including, without
limitation, records relating to Accounts Receivable, Inventory, Equipment and
other Collateral), in which full and correct entries in conformity with GAAP
shall be made of all dealings and transactions in relation to its respective
business and activities. Cause its books and records as at the end of any
calendar month to be posted and closed not more than 15 days after the last
business day of such month. Permit, and cause each Subsidiary to permit, access
by the Lender and its agents or employees to the books and records of the
Borrower and such Subsidiary at the Borrower's or such Subsidiary's place or
places of business at intervals to be determined by the Lender and without
hindrance or delay, and permit, and cause each Subsidiary to permit, the Lender
or its agents and employees to inspect the Borrower's Inventory and Equipment
and such Subsidiary's inventory and equipment, and to inspect, audit, check and
make copies and/or extracts from the books, records, journals, orders, receipts,
correspondence and other data relating to Inventory, Accounts Receivable,
chattel paper, General Intangibles, Equipment and any other Collateral or Third
Party Collateral, or to any other transactions between the parties hereto. Any
and all such inspections and/or audits shall be at the Borrower's expense.
5.6 INSURANCE. Maintain, and cause each Subsidiary to maintain,
insurance to such extent and against such hazards and liabilities as is commonly
maintained by companies similarly situated or as the Lender may reasonably
request from time to time. Keep the Collateral properly housed and insured for
its full insurable value against loss or damage by fire, theft, explosion,
sprinklers, collision (in the case of motor vehicles) and such other risks as
are customarily insured against by persons engaged in business similar to that
of the Borrower, with such companies, in such amounts and under policies in such
form as shall be satisfactory to the Lender. Certificates of such policies of
insurance have been delivered to the Lender prior to the date hereof together
with evidence of payment of all premiums therefor. The Borrower hereby directs
all insurers under such policies of insurance to pay all proceeds payable
thereunder directly to the Lender. The Borrower irrevocably makes, constitutes
and appoints the Lender and any Person whom the Lender may from time to time
designate (and all officers, employees or agents designated by the Lender or
such Person) as the Borrower's true and lawful attorney (and agent-in-fact) for
the purpose of making, settling and adjusting claims under such policies of
insurance, endorsing the name of the Borrower on any check, draft, instrument or
other item of payment for the proceeds of such policies of insurance and for
making all determinations and decisions with respect to such policies of
insurance. In the event the Borrower at any time or times hereafter shall fail
to obtain or maintain any of the policies of insurance required herein or to pay
any premium in whole or in part relating thereto, the Lender, without waiving or
releasing any obligations or default by the Borrower hereunder, may at any time
or times thereafter (but shall be under no obligation to do so) obtain and
maintain such policies of insurance and pay such premiums and take any other
action with respect thereto which the Lender deems advisable. All sums so
disbursed by the Lender, including reasonable Attorneys' Fees, court costs,
expenses and other charges relating thereto, shall be payable on demand by the
Borrower to the Lender.
5.7 INSURANCE SURVEY. Provide to the Lender at least annually within 90
days of the end of the Borrower's fiscal year, a certificate signed by its chief
financial officer that attests to and summarizes the property and casualty
insurance program carried by the Borrower and the Subsidiaries. This summary
shall include the insurer's(s') name, policy number(s), expiration date(s),
amount(s) of coverage, type(s) of coverage, the annual premium(s), Best's
policyholder's and financial size ratings of the insurers, exclusions,
deductibles and self-insured retention and shall describe in detail any
retrospective rating plan, fronting arrangement or any other self-insurance or
risk assumption agreed to by the Borrower or any Subsidiary or imposed upon the
Borrower or any Subsidiary by any such insurer, as well as any self-insurance
program that is in effect. The Borrower shall (a) notify the Lender in writing
at least 30 days prior to any cancellation or material change of any such
insurance by the Borrower or any Subsidiary and (b) within five business days
after receipt of any notice (whether formal or informal) thereof, of any
cancellation or change in any of its insurance by any of its insurers or any
material change in the cost thereof or which reduces the policyholder's or
financial size ratings of the insurance carriers of the Borrower or any
Subsidiary, as established by Best's Insurance Reports. Annually, the Lender
shall have the right to request the Borrower to have a risk management survey
completed by a recognized independent risk management consultant acceptable to
it and the Lender which will identify, quantify and assess any catastrophic
uninsured, underinsured or self-insured exposures faced by the Borrower and the
Subsidiaries. The cost of such survey shall be borne solely by the Borrower. A
copy of the results of each such a survey shall be promptly delivered by the
Borrower to the Lender.
5.8 REPAIR. Maintain, preserve and keep, and cause each Subsidiary to
maintain, preserve and keep, its properties in good repair, working order and
condition, and from time to time make, and cause each Subsidiary to make, all
necessary and proper repairs, renewals, replacements, additions, betterments and
improvements thereto so that at all times the efficiency thereof shall be fully
preserved and maintained.
5.9 TAXES. Pay, and cause each Subsidiary to pay, when due, all of its
Taxes, unless and only to the extent that the Borrower or such Subsidiary, as
the case may be, is contesting such Taxes in good faith and by appropriate
proceedings and the Borrower or such Subsidiary has set aside on its books such
reserves or other appropriate provisions therefor as may be required by GAAP.
5.10 COMPLIANCE. Comply, and cause each Subsidiary to comply, with all
statutes and governmental rules and regulations applicable to it, including,
without limitation, the Fair Labor Standards Act.
5.11 COLLATERAL MONITORING. Permit the Lender to (a) use the Borrower's
stationery and sign the name of the Borrower to request verification of Accounts
Receivable or other Collateral from Account Debtors, and (b) use the information
recorded on or contained in any data processing equipment and computer hardware
and software to which the Borrower has access relating to Accounts Receivable,
Inventory, Equipment and/or other Collateral.
ARTICLE VI NEGATIVE COVENANTS
From the date of this Agreement and thereafter until all Obligations
are paid in full, the Borrower agrees that, unless the Lender shall otherwise
consent in writing, it will not, and will not permit any Subsidiary to, do any
of the following:
6.1 MERGER. Merge or consolidate or enter into any analogous
reorganization or transaction with any Person.
6.2 SALE OF ASSETS. Sell, transfer, convey, lease, assign or otherwise
dispose (with or without recourse) of any of its assets (including, without
limitation, any Accounts Receivable, instruments or chattel paper) except for
sales and leases of Inventory in the ordinary course of business.
6.3 PURCHASE OF ASSETS. Purchase or lease or otherwise acquire all or
substantially all the assets of any Person.
6.4 ERISA. Permit any condition to exist in connection with any Plan
which might constitute grounds for the PBGC to institute proceedings to have
such Plan terminated or a trustee appointed to administer such Plan; permit any
Plan to terminate under any circumstances which would cause the lien provided
for in Section 4068 of ERISA to attach to any property, revenue or asset of the
Borrower or any Subsidiary; or permit the underfunded amount of Plan benefits
guaranteed under Title IV of ERISA to exceed $25,000.
6.5 CHANGES IN COLLATERAL OR BUSINESS LOCATIONS. Change (a) the
location of its chief executive office or chief place of business; (b) its name;
or (c) the locations where it stores or maintains Inventory or Equipment
without, in each case, at least 30 days' prior written notice to the Lender.
6.6 SUBSIDIARIES, PARTNERSHIPS AND JOINT VENTURES. Either: (a) form or
acquire any corporation which would thereby become a Subsidiary; or (b) form or
enter into any partnership as a limited or general partner or into any joint
venture.
6.7 OTHER AGREEMENTS. Enter into any agreement, bond, note or other
instrument with or for the benefit of any Person other than the Lender which
would (a) prohibit the Borrower or such Subsidiary from granting, or otherwise
limit the ability of the Borrower or such Subsidiary to grant, to the Lender any
Lien on any assets or properties of the Borrower or such Subsidiary, or (b) be
violated or breached by the Borrower's performance of its obligations under the
Loan Documents.
6.8 RESTRICTED PAYMENTS. Purchase or redeem or otherwise acquire for
value any shares of the Borrower's or any Subsidiary's stock, declare or pay any
dividends thereon (other than stock dividends and dividends payable to the
Borrower), make any distribution to, or set aside any funds for distributions
to, stockholders as such (other than the Borrower), except for a distribution to
the Borrower's stockholders in the amount of up to $12,525,000 to be paid in the
first quarter of 1997; prepay, purchase or redeem any subordinated Indebtedness
of the Borrower or any Subsidiary; and not take any action which will result in
a decrease in the Borrower's or any Subsidiary's ownership interest in any
Subsidiary.
6.9 LEASES. Enter into or permit to exist any arrangements for the
leasing by the Borrower or any Subsidiary, as lessee, of any real or personal
property (or any interest therein) under leases (other than Capitalized Leases),
except as listed on Schedule 4.15, which require the payment by the Borrower and
the Subsidiaries on a consolidated basis of rental amounts in the aggregate in
excess of (a) $450,000 in any one fiscal year, or (b) $1,500,000 during the full
remaining terms of such leases.
6.10 INVESTMENTS. Acquire for value, make, have or hold any
Investments, except: (a) advances to employees of the Borrower or any Subsidiary
for travel or other ordinary business expenses, provided that the aggregate
amount outstanding at any one time shall not exceed $10,000 for any single
employee and $50,000 in the aggregate for all employees; (b) advances to
subcontractors and suppliers in maximum aggregate amounts reasonably acceptable
to the Lender; (c) extensions of credit in the nature of Accounts Receivable or
notes receivable arising from the sale of goods and services in the ordinary
course of business; (d) shares of stock, obligations or other securities
received in settlement of claims arising in the ordinary course of business; (e)
Investments (other than Investments in the nature of loans or advances)
outstanding on the date hereof in subsidiaries by the Borrower and other
Subsidiaries; (f) other Investments outstanding on the date hereof and listed on
Schedule 6.10; and (g) other Investments consented to by the Lender in writing.
6.11 INDEBTEDNESS. Incur, create, issue, assume or suffer to exist any
Indebtedness, including, without limitation, Indebtedness as lessee under any
Capitalized Lease, except: (a) Indebtedness under the terms of this Agreement;
(b) Subordinated Debt; (c) Indebtedness hereafter incurred in connection with
Liens permitted under Section 6.12(d); (d) other Indebtedness outstanding on the
date hereof and listed on Schedule 6.11; and (e) other Indebtedness approved in
writing by the Lender.
6.12 LIENS. Create, incur, assume or suffer to exist any Lien with
respect to any property, revenues or assets now owned or hereafter arising or
acquired, except: (a) Liens for current Taxes not delinquent or Taxes being
contested in good faith and by appropriate proceedings and as to which such
reserves or other appropriate provisions as may be required by GAAP are being
maintained; (b) carriers', warehousemen's, mechanics', materialmen's,
repairmen's, and other like statutory Liens arising in the ordinary course of
business securing obligations which are not overdue or which are being contested
in good faith and by appropriate proceedings and as to which such reserves or
other appropriate provisions as may be required by GAAP are being maintained;
(c) pledges or deposits in connection with workers' compensation, unemployment
insurance and other social security legislation; (d) Liens in connection with
Capital Expenditures attaching only to the property being acquired if the
Indebtedness secured thereby does not exceed 100% of the fair market value of
such property at the time of acquisition thereof; (e) Liens in favor of the
Lender; (f) Liens referred to in Section 4.9; and (g) Liens consented to by the
Lender in writing.
6.13 CONTINGENT LIABILITIES. Either: (a) endorse, guarantee,
contingently agree to purchase or to provide funds for the payment of, or
otherwise become contingently liable upon, any obligation of any other Person,
except by the endorsement of negotiable instruments for deposit or collection
(or similar transactions) in the ordinary course of business, or (b) agree to
maintain the net worth or working capital of, or provide funds to satisfy any
other financial test applicable to, any other Person.
6.14 CHANGE IN ACCOUNTS RECEIVABLE. After the occurrence of an Event of
Default or receipt of notice from the Lender that the Lender intends to commence
direct collection of Accounts Receivable, permit or agree to any extension,
compromise or settlement or make any change or modification of any kind or
nature with respect to any Account Receivable, including any of the terms
relating thereto.
6.15 UNCONDITIONAL PURCHASE OBLIGATIONS. Enter into or be a party to
any contract for the purchase of materials, supplies or other property or
services, if such contract requires that payment be made by it regardless of
whether or not delivery is ever made of such materials, supplies or other
property or services.
6.16 USE OF PROCEEDS. Use or permit any proceeds of the Loans to be
used, either directly or indirectly, for the purpose, whether immediate,
incidental or ultimate, of "purchasing or carrying any margin stock" within the
meaning of Regulation U of the Federal Reserve Board, as amended from time to
time, and furnish to the Lender upon request, a statement in conformity with the
requirements of Federal Reserve Form U-1 referred to in Regulation U of the
Federal Reserve Board.
6.17 TRANSACTIONS WITH RELATED PARTIES. Enter into or be a party to any
transaction or arrangement, including, without limitation, the purchase, sale,
lease or exchange of property or the rendering of any service, with any Related
Party, except in the ordinary course of and pursuant to the reasonable
requirements of the Borrower's or such Subsidiary's business and upon fair and
reasonable terms no less favorable to the Borrower or such Subsidiary than would
obtain in a comparable arm's-length transaction with a Person not a Related
Party.
ARTICLE VII EVENTS OF DEFAULT AND REMEDIES
7.1 EVENTS OF DEFAULT. The occurrence of any one or more of the
following events shall constitute an Event of Default:
(a) NON-PAYMENT. The Borrower shall fail to pay, when due or
declared due, any Obligations;
(b) NON-PAYMENT OF OTHER INDEBTEDNESS. The Borrower, any other
Obligor or any Subsidiary shall fail to pay, when due, whether by
acceleration or otherwise (subject to any applicable grace period), any
Indebtedness of, or guaranteed by, the Borrower, such other Obligor or
such Subsidiary;
(c) ACCELERATION OF OTHER INDEBTEDNESS. Any event or condition
shall occur which results in the acceleration of the maturity of any
Indebtedness of, or guaranteed by, the Borrower, any other Obligor or
any Subsidiary or enables the holder or holders of such other
Indebtedness or any trustee or agent for such holders (any required
notice of default having been given and any applicable grace period
having expired) to accelerate the maturity of such other Indebtedness;
(d) OTHER OBLIGATIONS. The Borrower, any other Obligor or any
Subsidiary shall fail to pay, when due, whether by acceleration or
otherwise, or perform or observe (subject to any applicable grace
period or waiver of such default) (i) any obligation or agreement of
the Borrower, such other Obligor or such Subsidiary to or with the
Lender (other than any obligation or agreement of the Borrower
hereunder and under any Notes) or (ii) any material obligation or
agreement of the Borrower, such other Obligor or such Subsidiary to or
with any other Person (other than (A) any such material obligation or
agreement constituting or related to Indebtedness, (B) accounts payable
arising in the ordinary course of business, and (C) any material
obligation or agreement of any Subsidiary to the Borrower or to any
other Subsidiary), except only to the extent that the occurrence of any
such failure is being contested by the Borrower, such other Obligor or
such Subsidiary, as the case may be, in good faith and by appropriate
proceedings and the Borrower, such other Obligor or such Subsidiary, as
applicable, shall have set aside on its books such reserves or other
appropriate provisions therefor as may be required by GAAP;
(e) INSOLVENCY. The Borrower, any other Obligor or any
Subsidiary becomes insolvent, or generally fails to pay, or admits in
writing its inability to pay, its debts as they mature, or applies for,
consents to, or acquiesces in, the appointment of a trustee, receiver
or other custodian for the Borrower, such other Obligor or such
Subsidiary, or for a substantial part of the property of the Borrower,
such other Obligor or such Subsidiary, or makes a general assignment
for the benefit of creditors; or, in the absence of such application,
consent or acquiescence, a trustee, receiver or other custodian is
appointed for the Borrower, any other Obligor or any Subsidiary or for
a substantial part of the property of the Borrower, any other Obligor
or any Subsidiary and is not discharged or dismissed within 30 days; or
any bankruptcy, reorganization, debt arrangement or other proceeding
under any bankruptcy or insolvency law, or any dissolution or
liquidation proceeding, is instituted by or against the Borrower, any
other Obligor or any Subsidiary; or any warrant of attachment or
similar legal process is issued against any substantial part of the
property of the Borrower, any other Obligor or any Subsidiary;
(f) ERISA. The institution by the Borrower or any ERISA
Affiliate of steps to terminate any Plan if, in order to effectuate
such termination, the Borrower or any ERISA Affiliate would be required
to make a contribution to such Plan or would incur a liability or
obligation to such Plan, in excess of $25,000; or the institution by
the PBGC of steps to terminate any Plan;
(g) NON-COMPLIANCE WITH THIS AGREEMENT.
(i) The Borrower shall fail to comply with any of the
Borrower's agreements set forth in Section 7 of Supplement A);
or
(ii) The Borrower shall fail to comply with any of
the Borrower's agreements set forth in this Agreement (and
not constituting an Event of Default under any of the other
subsections of this Section 7.1, including, without
limitation, Section 7.1(g)(i)), and such failure to comply
shall continue for ten days;
(h) NON-COMPLIANCE WITH LOAN DOCUMENTS. Failure by the
Borrower, any other Obligor or any Subsidiary to comply with any of its
respective agreements set forth in any Loan Documents other than this
Agreement (and not constituting an Event of Default under any of the
other subsections of this Section 7.1), and such failure to comply
shall continue after the grace period (if any) set forth therein;
(i) WARRANTY. Any warranty made by the Borrower or any other
Obligor in any of the Loan Documents is untrue or misleading in any
material respect when made or deemed made; or any schedule, statement,
report, notice, certificate or other writing furnished by the Borrower
or any other Obligor to the Lender is untrue or misleading in any
material respect on the date as of which the facts set forth therein
are stated or certified; or any certification made or deemed made by
the Borrower or any other Obligor to the Lender is untrue or misleading
in any material respect on or as of the date made or deemed made;
(j) LITIGATION. There shall be entered against any one of the
Borrower, any other Obligor or any Subsidiary one or more judgments or
decrees in excess of $100,000 in the aggregate at any one time
outstanding, excluding those judgments or decrees (i) that shall have
been outstanding less than 30 calendar days from the entry thereof,
(ii) for and to the extent which the Borrower, such Obligor or such
Subsidiary, as applicable, is insured and with respect to which the
insurer has assumed responsibility in writing or for and to the extent
which the Borrower, such Obligor or such Subsidiary, as applicable, is
otherwise indemnified if the terms of such indemnification are
satisfactory to the Lender or (iii) that are subject to a properly
perfected and timely appeal and execution under which have been stayed
by bond;
(k) DEATH OF OBLIGOR. If any natural person who is an Obligor,
partner in a partnership which is an Obligor, or owner of a material
interest in a corporate Obligor, shall die or be declared legally
incompetent;
(l) VALIDITY. If the validity or enforceability of any of the
Loan Documents shall be challenged by the Borrower, any other Obligor
or any other Person, or shall fail to remain in full force and effect;
(m) CONDUCT OF BUSINESS. If the Borrower, any other Obligor or
any Subsidiary is enjoined, restrained or in any way prevented by court
order, which has not been dissolved or stayed within five Business
Days, from conducting all or any material part of its business affairs;
[and]
(n) ADVERSE EVENT. The Lender shall have determined in good
faith (which determination shall be conclusive) that (i) an Adverse
Event has occurred or (ii) the Lender's interest in any material
Collateral or Third Party Collateral has been adversely affected or
impaired, or the value thereof to the Lender has been diminished to a
material extent, or (iii) the prospect of payment or performance of any
obligation or agreement of the Borrower or any other Obligor under any
of the Loan Documents is materially impaired, and the condition giving
rise to such determination does not constitute an Event of Default
under any of the other subsections of this Section 7.1; and
(o) CHANGE IN MANAGEMENT OR LINE(S) OF BUSINESS. Any
substantial change in the senior management of the Borrower or any
change in the Borrower's line(s) of business.
7.2 EFFECT OF EVENT OF DEFAULT; REMEDIES.
(a) In the event that one or more Events of Default described
in Section 7.1(e) shall occur, then the Credit extended under this
Agreement shall terminate and all Obligations hereunder and under any
Notes shall be immediately due and payable without demand, notice or
declaration of any kind whatsoever.
(b) In the event an Event of Default other than one described
in Section 7.1(e) shall occur, then the Lender may declare all
Obligations hereunder and under any Notes immediately due and payable
without demand or notice of any kind whatsoever, whereupon the Credit
extended under this Agreement shall terminate and all Obligations
hereunder and under any Notes shall be immediately due and payable. The
Lender shall promptly advise the Borrower of any such declaration, but
failure to do so shall not impair the effect of such declaration.
(c) In the event of the occurrence of any Event of Default the
Lender may exercise any one or more or all of the following remedies,
all of which are cumulative and non-exclusive:
(i) any remedy contained in the Loan Documents or any
Supplemental Documentation;
(ii) any rights and remedies available to the Lender
under the Uniform Commercial Code as enacted in Minnesota as
of the date of this Agreement, and any other applicable law;
(iii) without notice, demand or legal process of any
kind, the Lender may take possession of any or all of the
Collateral (in addition to Collateral which it might already
have in its possession), wherever it might be found, and for
that purpose may pursue the same wherever it may be found, and
may enter into any premises where any of the Collateral may be
or is supposed to be, and search for, take possession of,
remove, keep and store any of the Collateral until the same
shall be sold or otherwise disposed of, and the Lender shall
have the right to store the same in any of the Borrower's
premises without cost to the Lender;
(iv) at the Lender's request, the Borrower will, at
the Borrower's expense, assemble the Collateral and make it
available to the Lender at a place or places to be designated
by the Lender which is reasonably convenient to the Lender and
the Borrower; and
(v) the Lender at its option, and pursuant to
notification given to the Borrower as provided for below, may
sell any Collateral actually or constructively in its
possession at public or private sale and apply the proceeds
thereof as provided below.
7.3 SETOFF. In addition to and not in limitation of all rights of
offset that the Lender or any other holder of a Note may have under applicable
law, the Lender or such other holder of a Note shall, upon the occurrence of any
Event of Default, or any Unmatured Event of Default described in Section 7.1(e)
hereof, have the right to appropriate and apply to the payment of the
Obligations any and all balances, credits, deposits, accounts or moneys of the
Borrower then or thereafter with the Lender, or any Affiliate, or other holder.
ARTICLE VIII COLLATERAL AND THE LENDER'S RIGHTS
8.1 NOTICE OF DISPOSITION OF COLLATERAL. Any notification of intended
disposition of any of the Collateral required by law shall be deemed reasonably
and properly given if given at least ten calendar days before such disposition.
8.2 APPLICATION OF PROCEEDS OF COLLATERAL. Any proceeds of any
disposition by the Lender of any of the Collateral may be applied by the Lender
to the payment of expenses in connection with the taking possession of, storing,
preparing for sale, and disposition of Collateral, including Attorneys' Fees and
legal expenses, and any balance of such proceeds may be applied by the Lender
toward the payment of such of the Obligations, and in such order of application,
as the Lender may from time to time elect.
8.3 CARE OF COLLATERAL. The Lender shall be deemed to have exercised
reasonable care in the custody and preservation of any Collateral in its
possession if it takes such action for that purpose as the Borrower requests in
writing, but failure of the Lender to comply with such request shall not, of
itself, be deemed a failure to exercise reasonable care, and no failure of the
Lender to preserve or protect any rights with respect to such Collateral against
prior parties, or to do any act with respect to the preservation of such
Collateral not so requested by the Borrower, shall be deemed a failure to
exercise reasonable care in the custody or preservation of such Collateral.
8.4 PERFORMANCE OF BORROWER'S OBLIGATIONS. The Lender shall have the
right, but shall not be obligated, to discharge any claims against or Liens, and
any Taxes at any time levied or placed upon any or all Collateral including,
without limitation, those arising under statute or in favor of landlords, taxing
authorities, government, public and/or private warehousemen, common and/or
private carriers, processors, finishers, draymen, coopers, dryers, mechanics,
artisans, laborers, attorneys, courts, or others. The Lender may also pay for
maintenance and preservation of Collateral. The Lender may, but is not obligated
to, perform or fulfill any of the Borrower's responsibilities under this
Agreement which the Borrower has failed to perform or fulfill.
8.5 LENDER'S RIGHTS. None of the following shall affect the obligations
of the Borrower to the Lender under this Agreement or the Lender's rights with
respect to the remaining Collateral or any Third Party Collateral (any or all of
which actions may be taken by the Lender at any time, whether before or after an
Event of Default, at its sole and absolute discretion and without notice to the
Borrower):
(a) acceptance or retention by the Lender of other property or
interests in property as security for the Obligations, or acceptance or
retention of any obligor(s), in addition to the Borrower, with respect
to any Obligations;
(b) release of its security interest in, or surrender or
release of, or the substitution or exchange of or for, all or any part
of the Collateral or any Third Party Collateral or any other property
securing any Obligations (including, without limitation, any property
of any Obligor other than the Borrower), or any extension or renewal
for one or more periods (whether or not longer than the original
period) , or release, compromise, alteration or exchange, of any
obligations of any guarantor or other Obligor with respect to any
Collateral or any such property;
(c) extension or renewal for one or more periods (whether or
not longer than the original period), or release, compromise,
alteration or exchange of any Obligations, or release or compromise of
any obligation of any Obligor with respect to any Obligations; or
(d) failure by the Lender to resort to other security or
pursue any Person liable for any Obligations before resorting to the
Collateral.
ARTICLE IX CONDITIONS PRECEDENT
9.1 CONDITIONS PRECEDENT TO INITIAL LOAN. The obligation of the Lender
to make the initial Loan shall be subject to the satisfaction of the following
conditions precedent, in addition to the applicable conditions precedent set
forth in Section 9.2:
9.1.1 NO CHANGE IN CONDITION. No change in the condition or
operations, financial or otherwise, of the Borrower, any other Obligor
or any Subsidiary, shall have occurred which change, in the sole credit
judgment of the Lender, may constitute an Adverse Event or have a
material adverse effect on any Collateral or Third Party Collateral or
the Lender's interest therein.
9.1.2 ACCOUNTING METHODS. The Borrower shall not have made any
material, as determined by the Lender, change in its accounting methods
or principles.
9.1.3 SURVEY. The Lender shall have completed its updated
survey of the business, operations and assets of the Borrower, each
Subsidiary and each other Obligor, and such survey shall provide the
Lender with results and information which, in the Lender's
determination, are satisfactory to the Lender.
9.1.4 NO MATERIAL TRANSACTION. None of the Borrower, any other
Obligor or any Subsidiary shall have entered into any material, as
determined by the Lender, commitment or transaction, including, without
limitation, transactions for borrowings and capital expenditures, which
are not in the ordinary course of their respective businesses.
9.1.5 LITIGATION. No litigation shall be outstanding or have
been instituted or threatened which the Lender determines to be
material against the Borrower, any other Obligor or any Subsidiary.
9.1.6 FILING OF DOCUMENTS. All financing statements, mortgages
and other documents relating to the Collateral and Third Party
Collateral shall have been filed or recorded, as appropriate.
9.1.7 DELIVERY OF DOCUMENTS. The Borrower shall have delivered
to the Lender with each of the following, each duly executed and dated
the date of the initial Loan or such earlier date as shall be
acceptable to the Lender:
(a) RESOLUTIONS. A copy, duly certified by the
secretary or an assistant secretary of the Borrower, of (i)
the resolutions of the Board of Directors of the Borrower
authorizing (1) the borrowings by the Borrower hereunder, (2)
the execution, delivery and performance by the Borrower of the
Loan Documents to which the Borrower is a party or by which it
is bound and (3) certain officers or employees of the Borrower
to request borrowings by telephone and to execute Borrowing
Base Certificates; (ii) all documents evidencing other
necessary corporate action; and (iii) all approvals or
consents, if any, with respect to the Loan Documents;
(b) INCUMBENCY CERTIFICATE. A certificate of the
secretary or an assistant secretary of the Borrower,
certifying the names of the officers of the Borrower
authorized to sign the Loan Documents to which it is a party
and any Supplemental Documentation, together with the true
signatures of such officers;
(c) OTHER AGREEMENTS. Duly executed copies of each of
the Loan Documents not specifically identified herein which
the Lender determines to be necessary or desirable, each in
form and content satisfactory to the Lender;
(d) OPINION. A legal opinion of Lindquist & Vennum,
PLLP, counsel to the Borrower, substantially in the form set
forth as Exhibit C;
(e) BORROWER'S CERTIFICATE. The certificate of the
President of the Borrower certifying, to the best of his/her
knowledge after diligent inquiry, to the fulfillment of all
conditions precedent to closing and funding the secured
financing transaction contemplated by this Agreement and to
the truth and accuracy, as of such date, of the
representations and warranties of the Borrower contained in
the Loan Documents to which the Borrower is a party;
(f) INSURANCE. Evidence satisfactory to the Lender of
the existence of insurance on the Collateral and Third Party
Collateral in amounts and with insurers acceptable to the
Lender, together with evidence establishing that the Lender is
named as a loss payee and, if required by the Lender,
additional insured, on all related insurance policies and an
endorsement or an independent instrument from each issuer of
an insurance policy substantially in the form set forth as
Exhibit D;
(g) BYLAWS. A copy, duly certified by the secretary
or an assistant secretary of the Borrower, of the Borrower's
Bylaws;
(h) ARTICLES OF INCORPORATION. A copy, duly certified
by the secretary or an assistant secretary of the Borrower, of
the Borrower's Articles of Incorporation;
(i) GOOD STANDING CERTIFICATES. Certificates of good
standing as to the Borrower and each of other corporate or
partnership Obligor issued by the Secretary of State of the
state in which the Borrower or such other Obligor, as
applicable, is organized, and each other state in which the
failure of the Borrower or such other Obligor, as applicable,
to be in good standing would constitute an Adverse Event or
have a material adverse effect on the Lender's rights in any
Collateral or Third Party Collateral;
(j) DISBURSEMENT LETTER. Written authorization and
instructions from the Borrower, in form satisfactory to the
Lender, for disbursement of the proceeds of the initial Loan;
(l) LANDLORDS AND WAREHOUSEMEN WAIVERS. If required
by the Lender, (i) from each lessor or landlord identified on
Schedule 4.12 or Schedule 4.13, a landlord waiver and (ii)
from each operator of a public warehouse where Inventory is
stored, a letter from such operator, in each case in form
acceptable to the Lender; and
(m) OTHER. Such other documents, instruments or
agreements as the Lender shall determine to be necessary or
desirable.
9.1.8 SECURITY INTEREST. The Lien in the Collateral and Third
Party Collateral granted to the Lender to secure the Obligations shall
be senior, perfected Liens except as otherwise agreed by the Lender.
9.1.9 RESTRICTED ACCESS LOCKBOX; COLLATERAL ACCOUNT AND
DISBURSEMENT ACCOUNT AGREEMENTS. The Borrower shall have entered into
(a) a Restricted Access Lockbox; Collateral Account and Disbursement
Account Agreement, substantially in the form of Exhibit E, with the
Lender and FBNA, and (b) a Controlled Disbursement Account Agreement,
substantially in the form set forth as Exhibit F, with First Bank,
Havre, Montana and the Lender for, among other things, the collection
and remittance to the Lender of cash proceeds of the Collateral.
9.1.10 EFFECT OF LAW. No law or regulation affecting the
Lender's entering into the secured financing transaction contemplated
by this Agreement shall impose upon the Lender any material obligation,
fee, liability, loss, cost, expense or damage.
9.1.11 EXHIBITS; SCHEDULES. All Exhibits and Schedules to the
Loan Documents shall have been completed in form and substance
satisfactory to the Lender and shall contain no facts or information
which the Lender, in its sole judgment, determines to be unacceptable.
9.2 CONDITIONS PRECEDENT TO ALL LOANS. The obligation of the Lender to
make any Loan or to issue, or cause to be issued, any Letter of Credit
(including the initial Loan) shall be subject to the satisfaction of the
following conditions precedent:
(a) REPRESENTATIONS AND WARRANTIES. All of the representations
and warranties of the Borrower and each other Obligor set forth in the
Loan Documents to which the Borrower or such other Obligor, as
applicable, is a party shall be true and correct.
(b) EVENT OF DEFAULT. Immediately before and after making such
Loan or issuing, or causing to be issued such Letter of Credit, no
Event of Default or Unmatured Event of Default shall exist or be
continuing.
ARTICLE X INDEMNITY
10.1 ENVIRONMENTAL AND SAFETY AND HEALTH INDEMNITY. The Borrower hereby
indemnifies the Lender and agrees to hold the Lender harmless from and against
any and all losses, liabilities, damages, injuries, costs, expenses and claims
of any and every kind whatsoever (including, without limitation, court costs and
Attorneys' Fees) which at any time or from time to time may be paid, incurred or
suffered by, or asserted against, the Lender for, with respect to, or as a
direct or indirect result of the violation by the Borrower or any Subsidiary, of
any Environmental Law or Occupational Safety and Health Law; or with respect to,
or as a direct or indirect result of (a) the presence on or under, or the
escape, seepage, leakage, spillage, disposal, discharge, emission or release
from, properties utilized by the Borrower and/or any Subsidiary in the conduct
of its business into or upon any land, the atmosphere, or any watercourse, body
of water or wetland, of any Hazardous Material or other hazardous, toxic or
dangerous waste, substance or constituent, or other substance (including,
without limitation, any losses, liabilities, damages, injuries, costs, expenses
or claims asserted or arising under the Environmental Laws) or (b) the existence
of any unsafe or unhealthful condition on or at any premises utilized by the
Borrower and/or any Subsidiary in the conduct of its business. The provisions of
and undertakings and indemnification set out in this Section 10.1 shall survive
satisfaction and payment of the Obligations and termination of this Agreement.
10.2 GENERAL INDEMNITY. In addition to the payment of expenses pursuant
to Section 12.3, whether or not the transactions contemplated hereby shall be
consummated, the Borrower agrees to indemnify, pay and hold the Lender and any
holder of any Notes, and the officers, directors, employees, agents, and
affiliates of the Lender and such holders (collectively called the
"Indemnitees") harmless from and against, any and all other liabilities,
obligations, losses, damages, penalties, actions, judgments, suits, claims,
costs, expenses and disbursements of any kind or nature whatsoever (including,
without limitation, the reasonable fees and disbursements of counsel for any of
such Indemnitees in connection with any investigative, administrative or
judicial proceeding commenced or threatened, whether or not any of such
Indemnitees shall be designated a party thereto), that may be imposed on,
incurred by, or asserted against the Indemnitees, in any manner relating to or
arising out of the Loan Documents, the statements contained in any commitment
letters delivered by the Lender, the Lender's agreement to make the Loans or to
issue Letters of Credit hereunder, or the use or intended use of any Letters of
Credit, or the use or intended use of the proceeds of any of the Loans (the
"Indemnified Liabilities"); provided, however, that the Borrower shall have no
obligation to an Indemnitee hereunder with respect to indemnified liabilities
arising from the gross negligence or willful misconduct of an Indemnitee. To the
extent that the undertaking to indemnify, pay and hold harmless set forth in the
preceding sentence may be unenforceable because it is violative of any law or
public policy, the Borrower shall contribute the maximum portion that it is
permitted to pay and satisfy under applicable law, to the payment and
satisfaction of all indemnified liabilities incurred by the Indemnitees or any
of them. The provisions of the undertakings and indemnification set out in this
Section 10.2 shall survive satisfaction and payment of the Obligations and
termination of this Agreement.
10.3 CAPITAL ADEQUACY. If the Lender shall reasonably determine that
the application or adoption of any law, rule, regulation, directive,
interpretation, treaty or guideline regarding capital adequacy, or any change
therein or in the interpretation or administration thereof, whether or not
having the force or law (including, without limitation, application of changes
to Regulation H and Regulation Y of the Federal Reserve Board issued by the
Federal Reserve Board on January 19, 1989 and regulations of the Comptroller of
the Currency, Department of the Treasury, 12 CFR Part 3, Appendix A, issued by
the Comptroller of the Currency on January 27, 1989) increases the amount of
capital required or expected to be maintained by the Lender or any Person
controlling the Lender, and such increase is based upon the existence of the
Lender's obligations hereunder and other commitments of this type, then from
time to time, within 10 days after demand from the Lender, the Borrower shall
pay to the Lender such amount or amounts as will compensate the Lender or such
controlling Person, as the case may be, for such increased capital requirement.
The determination of any amount to be paid by the Borrower under this Section 10
shall take into consideration the policies of the Lender or any Person
controlling the Lender with respect to capital adequacy and shall be based upon
any reasonable averaging, attribution and allocation methods. A certificate of
the Lender setting forth the amount or amounts as shall be necessary to
compensate the Lender as specified in this Section 10.3 shall be delivered to
the Borrower and shall be conclusive in the absence of manifest error.
ARTICLE XI ADDITIONAL PROVISIONS
Additional provisions are set forth in Supplement A.
ARTICLE XII GENERAL
12.1 BORROWER'S WAIVER. Except as otherwise provided for in this
Agreement, the Borrower waives (a) presentment, demand and protest and notice of
presentment, protest, default, non-payment, maturity, release, compromise,
settlement, one or more extensions or renewals of any or all commercial paper,
accounts, documents, instruments, chattel paper and guaranties at any time held
by the Lender on which the Borrower may in any way be liable and hereby ratifies
and confirms whatever the Lender may do in this regard; (b) all rights to notice
and a hearing prior to the Lender's taking possession or control of, or the
Lender's relevy, attachment or levy on or of, the Collateral or any bond or
security which might be required by any court prior to allowing the Lender to
exercise any of the Lender's remedies; and (c) the benefit of all valuation,
appraisement and exemption laws. The Borrower acknowledges that it has been
advised by counsel of its choice with respect to this Agreement and the
transactions evidenced by this Agreement.
12.2 EXPENSES; ATTORNEY'S FEES. The Borrower agrees, whether or not any
Loan is made hereunder, to pay the Lender upon demand for all expenses and
Attorneys' Fees, including, without limitation, those incurred by the Lender in
connection with (a) the preparation, negotiation and execution of the Loan
Documents, (b) the preparation of any and all amendments to the Loan Documents
and all other instruments or documents provided for therein or delivered or to
be delivered thereunder or in connection therewith, (c) the collection or
enforcement of the Borrower's or any other Obligor's obligations under any of
the Loan Documents and (d) the collection or enforcement of any of the Lender's
rights in or to any Collateral or Third Party Collateral. The Borrower also
agrees (y) to indemnify and hold the Lender harmless from any loss or expense
which may arise or be created by the acceptance of telephonic or other
instructions for making Loans and (z) to pay, and save the Lender harmless from
all liability for, any stamp or other taxes which may be payable with respect to
the execution or delivery of this Agreement or the issuance of any Note or of
any other instruments or documents provided for herein or to be delivered
hereunder or in connection herewith. The Borrower's foregoing obligations shall
survive any termination of this Agreement.
12.3 LENDER FEES AND CHARGES. The Borrower agrees to pay the Lender, or
any Affiliate, on demand the customary fees and charges of the Lender, or such
Affiliate, for maintenance of accounts with the Lender, or such Affiliate, or
for providing other services to the Borrower. The Lender may, in its sole and
absolute discretion, provide for such payment by charging the Disbursment
Account or any other account of the Borrower with FBNA or any other Affiliate,
or advancing the amount thereof to the Borrower as a Loan.
12.4 NO WAIVER BY LENDER; AMENDMENTS. No failure or delay on the part
of the Lender in the exercise of any power or right, and no course of dealing
between the Borrower and the Lender shall operate as a waiver of such power or
right, nor shall any single or partial exercise of any power or right preclude
other or further exercise thereof or the exercise of any other power or right.
The remedies provided for herein are cumulative and not exclusive of any
remedies which may be available to the Lender at law or in equity. No notice to
or demand on the Borrower not required hereunder shall in any event entitle the
Borrower to any other or further notice or demand in similar or other
circumstances or constitute a waiver of the right of the Lender to any other or
further action in any circumstances without notice or demand. No amendment,
modification or waiver of, or consent with respect to, any provision of this
Agreement shall in any event be effective unless the same shall be in writing
and signed and delivered by the Lender. Any waiver of any provision of this
Agreement, and any consent to any departure by the Borrower from the terms of
any provision of this Agreement, shall be effective only in the specific
instance and for the specific purpose for which given.
12.5 NOTICE. Except as otherwise expressly provided herein, any notice
hereunder to the Borrower or the Lender shall be in writing (including
telegraphic, telex, or telecopy communication) and shall be given to the
Borrower or the Lender at its address, telex number or fax number set forth on
the signature pages hereof or at such other address, telex number or telecopier
number as the Borrower or the Lender may, by written notice, designate as its
address, telex number or fax number for purposes of notice hereunder. All such
notices shall be deemed to be given when transmitted by telex and the
appropriate answer back is received, transmitted by fax, delivered to the
telegraph office, delivered by courier, personally delivered or, in the case of
notice by mail, three days following deposit in the United States mails,
properly addressed as herein provided, with proper postage prepaid.
12.6 PARTICIPATIONS; INFORMATION. The Borrower hereby consents to the
Lender's grant of participations in or sale, assignment, transfer or other
disposition, at any time and from time to time hereafter, of the Loan Documents,
or of any portion of any thereof, including without limitation lender's rights,
titles, interests, remedies, powers and/or duties. The Lender may furnish any
information concerning the Borrower in the possession of the Lender from time to
time to assignees of the rights and/or obligations of the Lender hereunder and
to participants in any Loan (including prospective assignees and participants)
and may furnish information in response to credit inquiries consistent with
general banking practice.
12.7 SEVERABILITY. Any provision of this Agreement which is prohibited
or unenforceable in any jurisdiction shall, as to such jurisdiction, be
ineffective to the extent of such prohibition or unenforceability without
invalidating the remaining provisions hereof or affecting the validity or
enforceability of such provision in any other jurisdiction.
12.8 SUCCESSORS. This Agreement shall be binding upon the Borrower and
the Lender and their respective successors and assigns, and shall inure to the
benefit of the Borrower and the Lender and the successors and assigns of the
Lender. The Borrower shall not assign its rights or duties hereunder without the
consent of the Lender.
12.9 ENTIRE AGREEMENT. This Agreement and the other Loan Documents
embody the entire agreement and understanding between the Borrower and the
Lender with respect to the subject matter hereof and thereof. This Agreement
supersedes all prior agreements and understandings relating to the subject
matter hereof.
12.10 COUNTERPARTS. This Agreement may be executed in any number of
counterparts, all of which taken together shall constitute one and the same
instrument, and either of the parties hereto may execute this Agreement by
signing any such counterpart.
12.11 CONSTRUCTION. The Borrower acknowledges that this Agreement shall
not be binding upon the Lender or become effective until and unless accepted by
the Lender, in writing. If so accepted by the Lender, THE LOAN DOCUMENTS AND ANY
SUPPLEMENTAL DOCUMENTATION SHALL, UNLESS OTHERWISE EXPRESSLY PROVIDED THEREIN,
BE DEEMED TO HAVE BEEN NEGOTIATED AND ENTERED INTO IN, AND SHALL BE GOVERNED AND
CONTROLLED BY THE LAWS OF, THE STATE OF MINNESOTA AS TO INTERPRETATION,
ENFORCEMENT, VALIDITY, CONSTRUCTION, EFFECT, CHOICE OF LAW, AND IN ALL OTHER
RESPECTS, INCLUDING, BUT NOT LIMITED TO, THE LEGALITY OF THE INTEREST RATE AND
OTHER CHARGES, BUT EXCLUDING PERFECTION OF SECURITY INTERESTS AND LIENS WHICH
SHALL BE GOVERNED AND CONTROLLED BY THE LAWS OF THE RELEVANT JURISDICTION.
12.12 CONSENT TO JURISDICTION. To induce the Lender to accept this
Agreement, the Borrower, irrevocably, agrees that, subject to the Lender's sole
and absolute election, ALL ACTIONS OR PROCEEDINGS IN ANY WAY, MANNER OR RESPECT,
ARISING OUT OF OR FROM OR RELATED TO THE LOAN DOCUMENTS OR ANY SUPPLEMENTAL
DOCUMENTATION OR THE COLLATERAL SHALL BE LITIGATED IN COURTS HAVING SITUS WITHIN
THE CITY OF MINNEAPOLIS, STATE OF MINNESOTA. THE BORROWER HEREBY CONSENTS AND
SUBMITS TO THE JURISDICTION OF ANY LOCAL, STATE OR FEDERAL COURTS LOCATED WITHIN
SAID CITY AND STATE AND WAIVES PERSONAL SERVICE OF ANY AND ALL PROCESS UPON THE
BORROWER, AND CONSENTS THAT ALL SUCH SERVICE OF PROCESS BE MADE BY REGISTERED
MAIL DIRECTED TO THE BORROWER AT THE ADDRESS STATED ON THE SIGNATURE PAGE HEREOF
AND SERVICE SO MADE SHALL BE DEEMED TO BE COMPLETED UPON ACTUAL RECEIPT THEREOF.
12.13 SUBSIDIARY REFERENCE. Any reference herein to a Subsidiary or
Subsidiaries of the Borrower, and any financial definition, ratio, restriction
or other provision of this Agreement which is stated to be applicable to "the
Borrower" and the Subsidiaries or which is to be determined on a "consolidated"
or "consolidating" basis, shall apply only to the extent the Borrower has any
Subsidiaries and, where applicable, to the extent any such Subsidiaries are
consolidated with the Borrower for financial reporting purposes.
12.14 WAIVER OF JURY TRIAL. THE BORROWER AND THE LENDER EACH WAIVES ANY
RIGHT TO A TRIAL BY JURY IN ANY ACTION OR PROCEEDING TO ENFORCE OR DEFEND ANY
RIGHTS (a) UNDER THE LOAN DOCUMENTS OR UNDER ANY AMENDMENT, INSTRUMENT, DOCUMENT
OR AGREEMENT DELIVERED OR WHICH MAY IN THE FUTURE BE DELIVERED IN CONNECTION
THEREWITH OR (b) ARISING FROM ANY RELATIONSHIP EXISTING IN CONNECTION WITH THIS
AGREEMENT, AND AGREES THAT ANY SUCH ACTION OR PROCEEDING SHALL BE TRIED BEFORE A
COURT AND NOT BEFORE A JURY.
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 written above.
PREMIUMWEAR, INC.
By: (illegible
--------------------------------------
Title: VP Finance
-----------------------------------
Address:
8000 West 78th Street, Suite 400
Edina, MN 55439
Attention: James Bury
Telephone: (612) 943-5034
Fax No.: (612) 943-5052
FBS BUSINESS FINANCE CORPORATION
By: (illegible)
--------------------------------------
Title: vp
-----------------------------------
Address:
First Bank Place MPFP0804
601 Second Avenue South
Minneapolis, Minnesota 55402-4302
Attention: Business Credit Division
Telephone: (612) 973-3251
Fax No.: (612) 973-0829
MUNSINGWEAR, INC.
8000 West 78th Street
Suite 400
Minneapolis, Minnesota 55439
September 5, 1996
Mr. Lowell M. Fisher
1203 Devonshire Curve
Bloomington MN 55431
Re: Resignation and Severance Agreement
Dear Lowell:
This letter describes our agreement regarding your resignation as President and
Chief Executive Officer of Munsingwear, Inc. ("Munsingwear") effective as of the
first business day after the closing of the transaction between Munsingwear and
Supreme International Corporation, which is currently expected to occur on
September 6, 1996. You also agree to resign from Munsingwear's Board of
Directors as of the same date. If, after reading this letter, you feel there is
any discrepancy between our conversations and the content of this letter, please
contact me.
Munsingwear will provide you with the following benefits in connection with your
resignation:
1. We will pay you a regular monthly paycheck of $15,000, subject to
applicable withholding, for eighteen months, beginning with the first
day of the first month following expiration of the 15-day rescission
period described on page 3 of this agreement and our receipt of your
written certification, in a form identical to Exhibit 1 attached
hereto, that you have taken no steps to exercise your right of
rescission. Any unpaid amounts due to you under this paragraph shall
become immediately due and payable in a lump sum immediately following
any closing of the sale of Munsingwear's Premium business.
2. We will pay you $40,000, subject to applicable withholding, following
your signature on this agreement. You agree that you will immediately
repay this amount to Munsingwear if you exercise your right of
rescission.
3. We will pay the employer share of your currently provided group health
and life insurance premiums under Munsingwear's group health and life
plans through February 28, 1998 or until you are covered under other
group health and life plans, whichever occurs first, provided you make
the appropriate written COBRA and life insurance continuation elections
to continue your group coverages and provided the plans remain in
effect for Munsingwear's active employees. The premiums under said
plans shall be the same premiums payable with respect to active
Munsingwear employees and the coverages under said plans shall be the
same coverages which you were receiving prior to your resignation.
4. We are providing you with a letter of reference in connection with your
resignation. If any prospective employer of yours wishes to contact
Munsingwear for employment information, you agree to direct all such
prospective employers to make a written request only to me. I will
provide the prospective employer with your dates of employment, nature
of the positions you held with Munsingwear, and a letter of reference
to be agreed upon between you and me on behalf of Munsingwear.
5. The Board will take appropriate action to assure that all Stock Option
and Restricted Stock Agreements between you and Munsingwear shall be
immediately exercisable for the term currently provided.
6. You have the option within the next ten days to purchase the personal
computers owned or leased by Munsingwear and currently used by you in
your home for the price provided in paragraph 3 of Amendment No. 1 to
Employment Agreement (Exhibit 3), provided the leased computer may be
purchased at the cost Munsingwear is required to pay to buy out the
lease.
7. Munsingwear hereby releases you, your heirs, agents, attorneys and
successors from any and all claims and causes of action, known or
unknown, which Munsingwear may have against you and which have accrued
up to the execution of this agreement. Through this release,
Munsingwear extinguishes any contract, wage or benefit claims;
defamation or any other tort claims; and all claims arising from any
federal, state or municipal law or ordinance.
In consideration for the benefits outlined above, you agree to do the following
things:
1. You hereby covenant not to sue and unconditionally release and forever
discharge Munsingwear, Inc., its affiliates, subsidiaries and related
entities, predecessors, successors, owners, its and their officers,
directors, agents, shareholders, employees, attorneys, insurers and
indemnitors and any entity affiliated with any of the foregoing
(collectively, the "Releasees") from any and all past or present
claims, demands, obligations, actions, damages, expenses of any nature
and causes of action, known and unknown, which you may have against any
and all of them. Through this release, you extinguish all causes of
action against the Releasees occurring up to the date of this
agreement, including but not limited to any contract, compensation,
expense or benefit claims; intentional infliction of emotional
distress, defamation or any other tort claims; any and all claims
arising out of or relating to your ownership of Munsingwear stock;and
all claims arising from any federal, state or municipal law or
ordinance. This release extinguishes any potential claims of employment
discrimination arising from your employment with and resignation from
Munsingwear, including specifically any claims under the Minnesota
Human Rights Act, the Americans With Disabilities Act, Title VII of the
Civil Rights Act of 1964, the Age Discrimination in Employment Act and
the Older Workers Benefit Protection Act.
Under the Age Discrimination in Employment Act, you have 21 days to
review and consider this offer. If you sign this letter before 21 days
have elapsed from the date on which you first receive it (September 5,
1996), then you will be voluntarily waiving your right to the full
21-day review period. You understand that you are not releasing your
rights to any claims which arise after you sign this agreement and that
you are advised to review your rights and obligations under this
agreement with your own legal counsel. You have the right to rescind
this agreement within fifteen (15) calendar days of the date upon which
you sign it. You understand that if you desire to rescind this
agreement, you must put the rescission in writing and deliver it to Mr.
Thomas D. Gleason, Munsingwear, Inc., 8000 West 78th Street, Suite 400,
Minneapolis MN 55439, by hand or by mail. If your rescission is by
mail, it must be postmarked within 15 calendar days of the date on
which you sign this agreement and sent by certified mail, return
receipt requested. If you rescind this agreement, Munsingwear's
obligations to you will immediately cease, and Munsingwear will owe you
no amounts or benefits hereunder except as may be otherwise required
under the Employment Agreement attached as Exhibit 2 and Amendment No.
1 to Employment Agreement attached as Exhibit 3.
2. You agree not to (a) make, either directly or indirectly, any
derogatory or negative comments of any kind, either oral or written, to
any person or organization about Munsingwear or any officer, director,
shareholder, employee or any other person affiliated with Munsingwear;
or (b) in any way interfere with any of Munsingwear's business
relationships.
3. Until December 9, 1996, you agree to make yourself reasonably available
at mutually convenient times, as requested by Munsingwear, to provide
assistance and consulting services to Munsingwear in connection with
Munsingwear business matters, litigation or threatened litigation
involving Munsingwear. You also agree not to at any time in the future
directly or indirectly cooperate with any person or entity in any
threatened or actual litigation or claims against Munsingwear, except
as required by court order.
This agreement shall not in any way be construed as an admission of liability by
Munsingwear or as an admission that Munsingwear has acted wrongfully with
respect to you. Munsingwear specifically denies and disclaims any such liability
or wrongful acts.
This agreement sets forth our entire agreement and fully supersedes any prior
oral or written agreements or understandings between you and Munsingwear,
including the Employment Agreement attached as Exhibit 2 and the Amendment No. 1
to Employment Agreement attached as Exhibt 3, except for Sections IV(b) and
VII(a) of the Employment Agreement and paragraph 4 of Amendment No. 1 to
Employment Agreement, which shall remain fully enforceable in accordance with
their terms. Munsingwear asks that our records reflect that you conclude your
employment on terms you understand and accept and that you have entered into
this agreement voluntarily, without coercion or duress.
If this letter accurately reflects our understanding and agreement, please sign
the original and copy and return the original to me. The copy is for your file.
Sincerely,
MUNSINGWEAR, INC.
- ---------------------------------------
Thomas D. Gleason
Chairman, Board of Directors
Read and agreed to, with declarations
confirmed, this ___day of ______, 1996.
EXHIBIT 11
PREMIUMWEAR, INC. and SUBSIDIARIES
Computation of Per Share Earnings (Loss)
<TABLE>
<CAPTION>
Year ended
------------------------------
January 4, January 6,
1997 1996
---------- ----------
<S> <C> <C>
Primary Earnings (Loss) Per Share:
Weighted average number of common
shares outstanding ...................... 2,068,000 2,066,000
Common share equivalents from assumed
exercise of options ..................... 62,000 ---
----------- -----------
Total shares ......................... 2,130,000 2,066,000
Net income (loss) .................... $ 7,181,000 $(2,335,000)
Net income (loss) per common share and
common share equivalents .......... $ 3.37 $ (1.13)
----------- -----------
Fully Dilutive Earnings (Loss) Per Share:
Weighted average number of common
shares outstanding ...................... 2,068,000 2,066,000
Common share equivalents from assumed
exercise of options ..................... 76,000 ---
----------- -----------
Total shares ......................... 2,144,000 2,066,000
Net income (loss) .................... $ 7,181,000 $(2,335,000)
Net income (loss) per common share and
common share equivalents .......... $ 3.35 $ (1.13)
----------- -----------
</TABLE>
Net income (loss) per common share and common share equivalents is computed
using the weighted average number of shares and common share equivalents
outstanding during each period. Common share equivalents represent the dilutive
effects of outstanding stock options using the treasury stock method. The
calculation of primary earnings (loss) per share uses the average market price
for the period. The calculation of fully dilutive earnings (loss) per share uses
the higher of the ending market price for the period or the average market
price.
The impact of common share equivalents has been excluded from the computation of
the 1995 net loss per common share as such impact would be antidilutive.
PREMIUMWEAR, INC.
1996 ANNUAL REPORT
TABLE OF CONTENTS
Company Profile 3
Mission Statement 3
Letter to Shareholders 4
Our History 7
Our Customers 9
Our Product 11
Our People 12
Our Service 13
Our Shareholders 15
Management's Discussion and Analysis
of Financial Condition and Results
of Operations 16
Consolidated Statements of Operations 19
Consolidated Balance Sheets 20
Consolidated Statements of Cash Flows 21
Consolidated Statements
of Changes in Shareholders' Equity 22
Notes to Consolidated Financial Statements 23
Report of Independent Public Accountants 26
Five Year Financial Review 26
Directors and Officers 27
Corporation Information 27
COMPANY PROFILE
Our new company profile has defined our actions:
"We design, source and market knit and woven shirts and pants under the
"Munsingwear(R)" name to the Special Markets industry through distributors and
advertising specialty dealers."
MISSION STATEMENT
Our new corporate mission statement has guided our efforts: "To be a leading
provider of branded knit and woven shirts and pants to the Special Markets
industry through total commitment to quality in people, value in products and
excellence in service to our customers while delivering superior return to our
shareholders."
3
LETTER TO SHAREHOLDERS
DEAR FELLOW SHAREHOLDERS:
Your Company made monumental changes in 1996 that have resulted in increased
value to you as shareholders. Further, we believe these changes hold promise for
additional value in 1997 and beyond.
As reported earlier, we sold our trademarks for cash and exited the retail and
professional golf channels of distribution. We now concentrate solely on the
special markets channel of distribution. Our end customers are no longer
individual consumers, but are now companies and institutions who use our shirts,
pants and shorts for promotional and/or uniform purposes. While this shift
caused our overall sales to decline slightly, it also resulted in increased
gross margins, reduced expenses and extinguishment of our debt which had reached
extremely high levels in early 1996. Our business has become less complicated
and we are better prepared to face the future.
FINANCIAL RESULTS
Sales for fiscal 1996 were $49.9 million, down 3% from $51.5 million the
previous year. Net income, including gains from the sale of trademarks, was $7.2
million, or $3.37 per share, compared to a loss in the previous year of $2.3
million, or $1.13 per share.
We sold our trademarks in the United States and other countries for a combined
total of $23.0 million cash and picked up another $3.2 million from receivables
and inventories net of accounts payable and other liabilities primarily
associated with the retail and golf channels of distribution. These funds were
used to reduce our debt from $12.9 million at the end of the first quarter of
1996 to zero at the end of the year, and to set aside $12.5 million to pay a
special cash distribution of $5.39 per share to you, our shareholders, in March
of 1997.
Our gross margins increased to 19.1% in 1996 compared to 17.1% the previous year
and our selling, general and administrative expenses dropped to 21.6% of
revenues in 1996 versus 24.9% in 1995. We expect further improvements in both
margin and expenses in 1997.
TRADEMARK SALE
It was a very difficult decision to exit the retail and professional golf
channels, to sell the Munsingwear(R) and related trademarks and to change our
name to PremiumWear, Inc.. However, we believe these actions were in the best
interests of our shareholders as they improved our financial condition and
allowed us to concentrate on the special markets business. We did not have the
size or financial strength to market and promote the brand in the manner it
deserved in the consumer market. We have licensed back the Munsingwear(R) name
and Penguin(R) trademark for the special markets business and we believe Supreme
International Corporation, the buyer of the trademarks in the USA and most other
countries, will support the brand appropriately.
[PHOTO/CHART]
SPECIAL MARKETS SALES
SALES IN MILLIONS
4
WHERE WE ARE TODAY
PremiumWear markets knit and woven shirts, woven pants and shorts to
distributors and dealers who in turn sell our goods to companies and
institutions that use our apparel to promote their name or to provide their
employees with uniforms embroidered with their corporate or institutional logos.
We entered this channel of distribution in 1994 and have enjoyed significant
sales increases - 1996 sales were $27.0 million, up 75% from $15.4 million in
1995. We count among our customers some of the largest distributors and dealers
serving this market.
The special markets business requires that we provide quality products and
reliable service. To meet these demands, we have instituted improved quality
control measures and implemented quick response programs. These initiatives will
allow us to service our customers with better product and reduced order-to-ship
time. As a part of our efforts to provide reliable service we have increased
special markets unit inventory levels while at the same time reducing overall
inventory investment due to our exit from the retail and professional golf
businesses.
BOARD AND MANAGEMENT
In January of 1996 Kevin Moore and William Morgan joined the Board of Directors.
Following the September sale of trademarks, Lowell Fisher resigned from the
Board and as President and CEO. We thank Lowell for his role in the
restructuring of the Company during his tenure.
As a part of our overall cost reduction program the Board agreed to reduce their
compensation (see 1997 Proxy Statement for details). Further, to help reduce the
size of the Board and its related expenses and because they feel the new
direction of the Company has been successfully launched, Mr. Morgan and Michael
Raskin have volunteered to resign from the board at mid-year, and Mr. Moore has
elected not to stand for re-nomination. We very much appreciate their efforts
during this past year of significant change for the Company.
In December the Board elected David E. Berg as Chief Operating Officer of the
Company in addition to his responsibility as Executive Vice President. James S.
Bury was elected Vice President of Finance, and Cynthia L. Boeddeker was elected
Vice President and General Merchandise Manager.
OUTLOOK
We believe our focus on the special markets business is good news for our
customers and shareholders since we are now concentrating our efforts on a
growing market. We feel optimistic about 1997 and beyond, while at the same time
realizing that we cannot be complacent as our competition increases their
efforts.
In 1997 we look to increase our special markets sales at a rate of 20% or more
and to show a positive operating income. To achieve these results, we will
continue to provide our customers with high quality, fashion-right products and
seek to continue lowering expenses relative to sales.
In closing, I want to thank our customers and suppliers for their support as we
overcame our growing pains in 1996 and for the loyalty and dedication of our
employees and management. In addition, we appreciate the support from our
shareholders as we continue efforts to increase shareholder value.
Respectfully,
/s/ Thomas D. Gleason
Thomas D. Gleason, Chairman and CEO
[PHOTO]
5
[PHOTO]
This is the earliest known picture of Munsingwear(R) employees (taken in the
1890's): George Munsing is on the steps in the center, wearing a bowler hat
[PHOTO]
The yarn winding department in the main Munsingwear(R) plant on Lyndale and
Glenwood Avenues in Minneapolis
[PHOTO]
A men's Kitten Ball team, sponsored by Munsingwear(R)
[PHOTO]
Munsingwear(R) salesmen, a photo from the employee booklet; The Success of Well
Doing, published by Munsingwear(R) in 1921
6
OUR HISTORY
It all started with one man's desire to create a better fabric.
In the late 1800s George D. Munsing invented a new textile application which
plated silk over wool. This process, innovative because it solved a real
customer problem, took the "itch" out of wool resulting in softer, itchless
underwear.
So desirable was this new fabric, that it justified starting a new company. And
the rest, as they say, was history.
George D. Munsing, Frank H. Page, and Edward O. Tuttle founded the Northwestern
Knitting Company(R) in 1886. Later, in 1919, the company's name was changed to
The Munsingwear(R) Corporation.
Throughout history, the Munsingwear(R) name has stood for quality and
innovation. Whether it's been the creation of new fabric, the development of a
new manufacturing process or the introduction of a never-tried-before sales or
marketing technique, this company has and will continue to be successful based
on a tradition of satisfying customer needs and responding to market changes.
In the early years our company was primarily known for underwear. In 1912, for
instance, we acquired the Vassar Swiss Underwear Company, adding a high-priced
line of full-fashioned underwear to our collection. In 1923 we expanded the line
to include hosiery by purchasing Wayne Knitting Mills of Indiana. In 1932 we
introduced elastic fabric girdles to the market. And in 1957, we were the first
in the industry to offer a coordinated line of intimate apparel.
Perhaps one of our biggest underwear feats, however, was the famous one-piece
unionsuit. Also known as longjohns, our unionsuit became popular, during and
after World War I, when soldiers demanded comfort and warmth.
As you might guess, more than underwear has marked our success. In 1941 we
gained controlling interest in the David Clark Company. This company had
invented an antigravity suit for use by Navy and Air Force pilots.
Later, in 1962, using the combined expertise of David Clark and Munsingwear(R),
we collectively developed the Gemini Space Suit for NASA and, in 1968, we were
responsible for the Apollo Space Communications Headset.
Due to the introduction of newer and better fabrics and manufacturing processes,
we also expanded our apparel line during the 1960s to include swimwear and men's
and boys' products.
But it was earlier, in the 1950s, when our ever-popular golf shirt hit the
market. We had just patented the nylon reinforced neckband in T-shirts in 1950;
and five years later, in 1955, the new Grand Slam(R) knit golf shirt with the
Penguin(R) emblem took the apparel industry by storm. It soon became the world's
largest selling golf shirt.
Our reputation and the Munsingwear(R) brand name remain our competitive
advantage. As explained in the Letter t Shareholders, it was a difficult
decision to sell the Munsingwear(R) name and related trademarks and to exit th
retail and professional golf channels, but it was a necessary move for the
company. Today our business is less complicated and more focused. As part of the
sale, we did license back the Munsingwear(R) name and Penguin(R) logo or use on
our products. This has allowed us to continue to take full advantage of our rich
history and brand recognition, setting a strong foundation for our growth in the
special markets industry.
In 1996 we also changed our name to PremiumWear, Inc. This name is transitional.
Chosen by the Board of Directors, it reflects our change in the marketplace -
from a company which primarily markets to consumers through retail department
stores and national chains to one which markets to corporations and institutions
through distributors and advertising specialty dealers. Additional names are
under review now and, by mid 1997, a permanent name will be adopted. At that
time, an introduction will be made to our shareholders, employees, and
customers.
As with any company, our story continues to evolve. For PremiumWear, the next
chapter in our history will involve the special markets industry. As the
following pages will attest, our corporate mission has changed to reflect this
new endeavor.
We anticipate this newest change to be both exciting and profitable.
[PHOTO]
Wear Them..You will like Them
MUNSING UNION SUITS
7
[PHOTO]
8
OUR CUSTOMERS
No longer are we selling directly to retail customers.
We now market knit and woven shirts, pants and shorts to four channels of
distribution: Wholesale Apparel Distributors, Advertising Specialty Dealers,
Decorators (Screenprinters and Embroiderers) and Uniform Companies.
These channels, described below, then sell our goods to companies, schools,
churches or other organizations who use our apparel to promote their name. Our
product, for instance, after having a logo, name or design added to it, might
now be worn by church members at a fund-raiser, employees at a company picnic or
the entire staff of a large corporation such as a major airline, retail chain,
restaurant, or hospital.
Wholesale apparel distributors, one of our primary channels, purchase large
quantities of what is known as blank, or unembroidered, goods. Today these
distributors represent 60% of our sales volume. Through support of cooperative
advertising programs, inventory management programs and personalized customer
service, we are fully committed to the growth of these business partnerships.
We also see significant growth opportunities in our other three channels of
distribution. The Advertising Specialty Institute, for example, has over 15,500
member companies. The advertising specialty dealers market a variety of
promotional products, premiums, and incentives to corporations, schools, and
other organizations. Their custom logo'd products range from writing instruments
to awards, jewelry, electronics and apparel. Of all these product categories,
apparel has recently moved ahead to become the largest category and best
perceived value in the industry. Considering this industry has grown from $5.0
billion in 1990 to $8.0 billion in 1995, we see tremendous opportunity here.
The target market for our decorator channel of distribution is comprised of over
25,000 screenprinters and embroiderers. The name "decorator" describes their
function. These companies provide further decoration - an added value - to
products similar to that of the advertising specialty dealers.
Comprised of several hundred companies, our fourth channel, uniform companies,
sells uniforms to corporate and government customers. As uniform trends now
reflect a more relaxed, contemporary look, our product fits exceptionally well
in this market. This customer is also finding that sportswear is less expensive
and more convenient than tailored clothing.
Our customer is new but our reputation for quality has opened many doors. Next
year we anticipate sales to increase by a minimum of 20%.
[PHOTO]
[CHART]
CHANNELS OF DISTRIBUTION
Distributors *
Ad Specialty *
Uniform *
Decorator *
9
[PHOTOS]
10
OUR PRODUCT
Customers expect our garments to wear better, last longer and look great. In
short, they want value, quality and fashion, which we provide through our
innovative product design.
Our reputation for unique fabrics, color, construction, styling and detail has
helped us withstand and surpass the rigid performance standards demanded by the
special markets industry.
Fabric is the first consideration in our product design. For over one hundred
years, we have been a leader in introducing new fabrics to the market. Today we
offer a variety of high-quality, ringspun fabrications in knits and wovens;
including piques, interlocks, herringbone, jacquards, prints, and novelty woven
fabrics. Through our work with major textile mills around the world, we continue
to be first to the market introducing new patterns and textures. We have also
developed stringent testing procedures for these fabrics to ensure our garments
perform well. And to better interface with fabric suppliers, our design
department uses computer-aided design technology. This technology has allowed us
to reduce development and lead times by providing textile designs that fit
machine specifications.
Color is also a vital part of our product. We encourage our customers to mix and
match within the collection. We not only color-coordinate our pallete throughout
the collection, but we also make certain these colors are consistent from year
to year. To further fit the needs of our customers and to also give us inventory
longevity, we offer traditional, timeless color themes, such as hunter, burgundy
and navy, as well as neutrals, such as natural, khaki and black. In addition, a
new fashion color story is launched each year to further meet the needs of our
trend-driven customers.
In regards to styling and construction, we will not cut corners. Our garments
are fully constructed with an eye to detail. These details might include extra
buttons, top-stitching or a proportionally oversized pocket. Our cuts, for
example, are more generous, giving our customers a better fit and better ease of
movement. And, to infuse new fashion trends into our styling, we might add a
banded collar or a contrasting yoke. Every year we introduce new styles to keep
ahead of the demands of our customers.
In 1996 we continued to add value to our product by adopting a strategy of
customer individualism. Our new non-retail customers demand a product which fits
their individual needs. They might require an embroidered logo, a specific color
match or a styling modification in order to create a custom look for their
corporate or uniform needs.
To meet these individual needs and our on-going commitment to value, in 1996 we
made a significant investment in state-of-the-art embroidery and digitizing
technology and personnel. In addition we established custom guidelines for
fabric, color and lead times to meet customized orders.
True to our heritage our name continues to represent value, quality and fashion.
[PHOTO]
[PHOTO]
11
OUR PEOPLE
At PremiumWear we believe that the quality of our business is directly related
to the quality and experience of our people.
At a time when employees have been known to switch jobs every two to three
years, many of our people have been with the company for over ten years. These
combined years of expertise in the apparel industry set us far ahead of the
competition in our ability to deliver superior services.
Our effort, in regards to people, is to enhance the quality of the employees'
work environment. We believe the best way to boost employee performance is to
provide a place of work for people which allows them to be innovative. We are
working to develop a high-performance, customer-focused organization. Beginning
in 1997 a new performance management process will include measurement of success
factors such as Customer Service and Teamwork. In addition, our management
incentive program will tie financial rewards directly to the financial
performance of the company. Comprehensive training and support also arms our
employees with necessary product and industry knowledge, improving our
competitive strength in the marketplace.
Our goal is to create a structure which is more fluid and better poised to
respond to market changes. Our current operations allow for greater teamwork,
openness and candor.
Dedication to our people and the quality of their worklife is essential to our
success.
[PHOTO]
[PHOTO]
12
OUR SERVICE
A different market requires a different strategy.
Though excellent customer service has always been an integral part of our
operations, our non-retail customer has placed new challenges on how we do
business.
As explained earlier, our four channels of distribution now include wholesale
apparel distributors, advertising specialty dealers, decorators (embroiderers
and screenprinters) and uniform companies. These channels must answer to our
end-customer (corporations and other institutions) who have demands of their
own. In order to provide this end-customer with excellent service, the four
channels expect the best from us. They expect the merchandise to be easy to
order, to be available and to be delivered in a timely manner.
In 1996 we addressed these expectations by starting to develop and implement a
Quick Response Program. The objective of this program is to meet and exceed our
customers' requirements for getting our product into their hands quickly and
efficiently. This we'll do by improving our business processes. Specifically,
our entire operations, from manufacturing through fulfillment or delivery, have
been under review. To ensure timely sourcing and availability of fabric, we are
continuing to develop partnerships with our suppliers as part of this program.
To allow for quicker response to customer needs and added flexibility in product
customization, we now manufacture a majority of merchandise in our North
Carolina plant. In addition, we utilize worldwide resources to get the right
products at the right price. And to better anticipate future orders, we have
been developing a Vendor Managed Inventory (VMI) program. VMI allows us to
monitor a customer's inventory levels of our products so we, in turn, will be
better prepared to fill the order quickly and make appropriate recommendations
for additional orders.
We believe excellence in service is critical to our growth. Our customers expect
it from us; and we demand it from ourselves.
[PHOTO]
[PHOTO]
13
[PHOTO]
14
OUR SHAREHOLDERS
1996 marked a turning point in our company's history.
We left the retail market and entered, full force, into the special markets
industry with new channels of distribution and new customers. We sold our name
and trademarks then licensed back the Munsingwear(R) name and Penguin logo for
use on our products. We reduced our office space, cut staff, and focused our
design and marketing efforts by specializing primarily in shirts and pants.
In 1996 we also continued our successful partnership with a national sales
agency who, through their sales agents, service our customers. This helped, in
part, to reduce our selling, general and administrative expenses. We fully
intend to build this relationship, through cooperative efforts and support.
We took the necessary actions to maximize shareholder value.
As the following pages will show, the benefits of these actions are already
being demonstrated. One direct benefit, to you, was a special cash distribution
in March 1997. Other benefits include reduced expenses and extinguishment of
debt. And, perhaps most importantly, within the special markets channel of
distribution our sales have increased significantly.
It has been our plan and desire that these efforts will provide you with
superior return in the future.
We are confident about our long-term strategy for success. Our financial success
will be demonstrated through increased revenues, plus a more stable, stronger
gross margin, combined with continued cost control measures.
1996 may have come to a close, but a new company is just beginning.
[PHOTO]
[PHOTO]
15
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS
THE FOLLOWING DISCUSSION AND ANALYSIS SHOULD BE READ IN CONJUNCTION WITH THE
FINANCIAL STATEMENTS AND RELATED NOTES, WHICH PROVIDE ADDITIONAL INFORMATION
CONCERNING THE COMPANY'S FINANCIAL ACTIVITIES AND CONDITION.
CAPITAL RESOURCES AND LIQUIDITY
On June 28, 1996, the Company sold its trademarks and pending trademark
applications for certain Far Eastern countries to ITOCHU Corporation, Toyobo
Company Ltd., and Descente Ltd. for $5,000,000 cash. On September 6, 1996, the
Company sold to Supreme International Corporation all of its rights to its
trademarks and certain associated assets relating to the retail and professional
golf businesses for $18,000,000 cash. Proceeds from these trademark sales and
the liquidation of inventories and collection of accounts receivable related to
the retail and golf businesses were used to pay off the Company's asset-based
lender, pay transaction expenses and provide funds for operations and for a
$12,500,000 special distribution to shareholders in early 1997. In a related
transaction with Supreme International Corporation, the Company entered into a
license agreement for the use of the Munsingwear(R) name and Penguin(R)
trademark on knit shirts for twenty years and on woven shirts, pants and shorts
for five years. The license is for the special markets channel of distribution
which includes the advertising specialty incentive market, specialty
distributors and the uniform market.
At January 4, 1997, working capital totaled $21,266,000 compared to $3,926,000
the previous year and the current ratio was 3.9:1 compared to 1.2:1 in 1995.
During 1996 operating activities provided $2,195,000 of cash, the result of a
combined $6,692,000 reduction in receivables and inventories offset by a
$3,677,000 decrease in accounts payable and other liabilities, all of which
related primarily to the liquidation of inventories, collection of receivables
and payment of liabilities related to the retail and golf businesses. Capital
expenditures totaled $689,000, primarily for information systems improvements
and purchases of manufacturing equipment. Proceeds of $23,000,000 were received
in 1996 from the sale of trademarks and $819,000 was received from the exercise
of common stock options. At year end the Company had cash and cash equivalents
of $14,030,000, essentially all of which was invested in short-term government
securities and commercial paper. After giving effect, on a proforma basis, to
the $12,500,000 special cash distribution in early 1997, working capital at
January 4, 1997 would have totaled $8,766,000 and the current ratio would have
been 2.2:1.
At January 6, 1996, working capital totaled $3,926,000 compared to $6,847,000
the previous year and the current ratio was 1.2:1 compared to 1.5:1. During 1995
operating activities used $4,094,000 of cash, primarily the result of net losses
of $2,335,000 and an increase in receivables of $3,468,000 which was due to a
29% increase in fourth quarter revenues compared to the previous year. These
uses of cash were offset by a $1,248,000 increase in accounts payable and
$782,000 of depreciation and amortization. Capital expenditures totaled
$1,201,000, primarily for information systems improvements and purchases of
manufacturing equipment. The Company financed the net use of cash through a
$5,298,000 increase in its bank line of credit borrowings.
During 1994 operating activities used $3,127,000 of cash, primarily the result
of net losses of $573,000 and an increase in inventories of $5,986,000 which was
due to a planned increase in support of first quarter 1995 retail and golf sales
and shelf stock in support of the Company's entry into the special markets
channel of distribution. These uses of cash were offset by a $2,729,000 net
increase in royalty advances, primarily the result of a contract extension with
one of the Company's licensees, an increase in accounts payable of $944,000 and
$712,000 of depreciation and amortization. Capital expenditures totaled
$865,000, primarily for purchases of manufacturing equipment and information
systems improvements. Principal payments on long-term debt and capital lease
obligations totaled $270,000. The Company financed the net use of cash through a
$3,894,000 increase in its bank line of credit borrowings.
As a result of the 1996 sale of trademarks the Company's previous asset-based
credit arrangement was terminated and all funds due the lender were repaid. On
February 4, 1997, the Company entered into a new long-term bank line of credit
with a new lender which provides up to $6,000,000 of funds available based on
certain financial formulas.
Following the 1996 sale of trademarks the Company no longer receives royalty
income from license agreements, a major source of capital during the previous
five years. However, management believes that its focus on the special markets
business and exit from the retail and golf businesses will lead to profitable
sales growth, stable gross margins, and lower selling, general and
administrative expenses. Management will pay the $12,500,000 special
distribution out of cash and cash equivalents on hand at January 4, 1997 and
expects to be able to finance working capital needs and capital expenditures
through a combination of funds from operations, operating leases, and its new
bank line of credit.
RESULTS OF OPERATIONS
NET SALES for 1996 decreased 3% from the prior year. The reduction was due to
the September 1996 exit from the retail and golf businesses, which collectively
totaled sales of $23,000,000 in 1996 compared to $36,000,000 in 1995. Special
markets volume continued its strong growth, increasing 75% in 1996 to
$27,000,000 compared to $15,400,000 the previous year, partially offsetting the
decrease in retail and golf business sales. Sales growth was from added
customers and additional volume with existing customers and is due in part to
the Company's product offering which generally includes more fashion than many
of its competitors. Selling prices remained relatively constant from 1995 to
1996.
Net sales for 1995 increased 38% over 1994. Sales to special markets customers
increased seven-fold, from $2,000,000 in 1994 to $15,400,000. Business with golf
pro shops increased 52%
16
over the prior year. These increases offset lower sales
to department stores, chain stores and wholesale clubs, which decreased 4%
collectively.
Net sales for fiscal 1994, a 53-week period, were essentially flat with 1993
levels. 1994 represented the first full year of operations for the Company's
special markets business which totaled sales of $2,000,000. Sales increased 62%
in the golf pro shop channel of distribution while the Company's traditional
channels of distribution - department stores, chain stores, wholesale clubs, and
specialty stores - decreased 10% collectively.
The Company's backlog of unfilled orders for the special markets business at the
end of 1996 was approximately $3,800,000 as compared to $1,900,000 the previous
year. Orders for the special markets channels of distribution are not
necessarily indicative of future performance since this channel of distribution
is characterized by a large number of "at once" orders which are generally
received less than 30 days prior to requested delivery. The unfilled order
backlog consists of orders received for subsequent delivery and includes orders
subject to change for color, size, extension of delivery dates and cancellation.
As a result, the unfilled order backlog does not necessarily relate directly to
future sales.
Following the 1996 sale of trademarks, the Company no longer receives income
from ROYALTIES. As a result, this income dropped dramatically in 1996 compared
to the prior year. Royalties in 1995 were essentially flat with 1994 when they
were 25% above 1993 levels due to increased minimum guarantees on previous
years' agreements and additional income recognized in connection with a 1994
license agreement extension.
GROSS PROFIT in 1996 was 19% of net sales vs. 17% in 1995. The increase was
primarily due to the cessation of the retail business which in recent years
experienced fierce competition and price pressure in the marketplace,
significant markdowns, increased levels of unsold seasonal merchandise and
rising production costs. Gross profit for the special markets business was 23.6%
in 1996 compared to 24.4% in 1995. The reduction was a result of heavy sales to
specialty distributors, who receive volume discounts on large quantity
purchases. Gross profit dropped from 20% of net sales in 1994 to 17% in 1995 as
a result of losses related to a new product line and markdowns taken during the
last half of the year to move excess end-of-season merchandise in response to
the continued sluggish retail apparel marketplace. 1994 gross profit was 20% of
net sales vs. 24% in 1993. The decrease was primarily due to higher
manufacturing and material costs that were not able to be passed on through
higher selling prices and because of management's decision to add value to
products without increasing prices in order to achieve wider customer
acceptance.
SELLING, GENERAL AND ADMINISTRATIVE expenses were $2,543,000 lower in 1996 than
in 1995 and, as a percent of sales, decreased from 27% in 1995 to 23% in 1996.
This reduction was largely due to reductions in staff, design costs, advertising
programs and other expenses as a result of the cessation of the retail and golf
businesses. Design expenses decreased $767,000 due to exit from the retail and
golf businesses, which formerly required significantly more product offerings
due to multiple labels and merchandising seasons. Advertising expenses decreased
$772,000 as a result of lower spending on cooperative advertising programs,
point of sale materials and PGA Tour endorsements. Selling expenses decreased
$735,000 due to elimination of sales executive positions, closed sales offices
and reduced commissions. General and administrative expenses decreased $557,000
due to reduced recruiting expenses, lower staffing, reduced trademark defense
costs and lower office lease costs. Management information systems expense
increased $513,000 due to support of the Company's new computer systems
installed in late 1995.
Selling, general and administrative expenses were $1,827,000 higher in 1995 than
in 1994. However, as a percent of sales, these expenses dropped from 32% in 1994
to 27% in 1995. Commissions expense increased $1,161,000 and warehouse and
distribution costs increased $358,000, both due primarily to the 38% increase in
sales volume. Advertising costs increased $909,000 due to additional cooperative
advertising programs with retailers, media advertising during the second quarter
of 1995, additional expenses for catalogs and higher costs associated with the
Company's PGA Tour endorsement program. Administrative expenses were $248,000
lower due to reduced legal expenses related to patent and trademark matters. In
1994, selling, general and administrative expenses were $265,000 higher than in
1993. Merchandising and design expenses increased $251,000 due to the addition
of a senior merchandising executive and the full year effect of other additions
to design staff. Information systems expenses increased $231,000 due to lease
and other expenses associated with the Company's management information systems
improvement project, and selling expenses increased $256,000 due to increased
commissions expense. Advertising expenses decreased $423,000 as a result of
management's late 1993 reassessment of advertising activities.
In 1995, RESTRUCTURING COSTS of $520,000 related to staff reductions and future
lease payments on excess office space. In 1994, the Company completed the
closing of its Hong Kong sourcing office and United Kingdom sales office for
$100,000 less than the related RESERVE FOR CLOSING OF FACILITIES established in
1993.
As a result of increased gross margins and decreased selling, general and
administrative expenses due to the exit from the retail and golf businesses, the
Company reported Operating income of $1,097,000 in 1996, compared to operating
losses the prior two years.
1996 INTEREST EXPENSE was 33% below 1995's level due to payoff of the bank line
of credit by proceeds from the sale of trademarks and liquidation of inventories
and collection of receivables from the retail and golf businesses. Interest
expense in 1995 was $805,000 higher than in 1994 due to higher borrowings to
finance increased inventory levels required to meet rising demand in the
Company's special markets channel of distribution and higher levels of unsold
end-of-season merchandise related to the retail and golf businesses. Interest
expense in 1994 was $67,000 higher than in 1993 as a result of rising interest
rates and higher average daily borrowings. INTEREST INCOME on excess funds
totaled $247,000 in 1996.
GAIN ON SALE OF TRADEMARKS includes $4,383,000 realized on the June 1996 sale of
certain Far Eastern trademarks and $6,244,000 realized on the September 1996
sale of the Company's remaining trademarks and certain associated assets related
to the retail and professional golf businesses. The gains were comprised of
proceeds less transaction and disposition costs.
17
PROVISION FOR INCOME TAXES represents federal, state, local and foreign taxes.
1995 and 1994 provisions were attributable to state income, franchise and
foreign taxes, which are generally not dependent on pre-tax income. At January
4, 1997, the Company had net operating loss carryforwards of approximately
$20,000,000 for domestic federal income tax purposes.
LOOKING FORWARD
Management has completed a transition which generally began in 1994 with entry
into the special markets channel of distribution and which intensified in late
1995 when the Company retained an investment banker to explore a range of
opportunities to maximize shareholder value. These actions led directly to the
June 1996 and September 1996 sales of trademarks and other assets relating to
the retail and professional golf businesses. During this period, management
continued to increase its focus on and commitment to development of the special
markets channel of distribution. Following the sale of trademarks and other
assets related to the retail and golf businesses, the Company now operates
entirely in the special markets channel of distribution and no longer solicits
orders from department stores, chain stores, specialty retail shops, or golf pro
shops. Management believes this strategy will lead to continued sales growth,
stable gross margins, reduced selling, general and administrative expenses and
profitability. However, there can be no assurance that this strategy will be
successful. The Company currently pays no license fees on the majority of its
sales under the terms of its licensing agreement with Supreme International
Corporation and is not required to pay any such fees until aggregate sales
dollars reach a specific amount which will not likely occur until fiscal 1998.
At that time, license fees will represent an additional expense to the Company
which management hopes to recover through improved margins and reduced costs in
other areas.
CAUTIONARY STATEMENT
Statements included in this Management's Discussion and Analysis of Financial
Condition and Results of Operations, in the Letter to Shareholders, elsewhere in
the Annual Report, in the Company's Form 10-K and in future filings by the
Company with the Securities and Exchange Commission, in the Company's press
releases and in oral statements made with the approval of an authorized
executive officer which are not historical or current facts are "forward-looking
statements" made pursuant to the safe harbor provisions of the Private
Securities Litigation Reform Act of 1995 and are subject to certain risks and
uncertainties that could cause actual results to differ materially from
historical earnings and those presently anticipated or projected. The Company
wishes to caution readers not to place undue reliance on any such
forward-looking statements, which speak only as of the date made. The following
important factors, among others, in some cases have affected and in the future
could affect the Company's actual results and could cause the Company's actual
financial performance to differ materially from that expressed in any
forward-looking statement: (i) competitive conditions that currently exist,
including the entry into the market by a number of competitors with
significantly greater financial resources than the Company, are expected to
continue, placing pressure on pricing which could adversely impact sales and
gross margins; (ii) continued implementation of the North America Free Trade
Agreement (NAFTA) is expected to put competitive cost pressure on apparel
wholesalers with domestic production facilities such as the Company; (iii) the
inability to carry out marketing and sales plans would have a materially adverse
impact on the Company's projections; (iv) since the Company now is a licensee of
the Munsingwear(R) name maintaining a harmonious working relationship with the
licensor is extremely important for continued successful development of the
special markets business; (v) as a licensee, the Company is dependent on the
licensor to adequately promote the brand and defend it from trademark
infringement. The foregoing list should not be construed as exhaustive and the
Company disclaims any obligation subsequently to revise any forward-looking
statements to reflect events or circumstances after the date of such statements
or to reflect the occurrence of anticipated or unanticipated events.
IMPACT OF INFLATION
Inflation affects the Company's business principally in the form of cost
increases for materials and wages. The Company generally attempts to offset
these cost increases by a combination of merchandising and design techniques,
purchasing practices, labor savings and price increases.
MARKET STATISTICS
The Company's common stock is listed on the New York Stock Exchange under the
symbol PWA. The 1996 and 1995 market price high and low were as follows:
QUARTER
- --------------------------------------------------------------
1st 2nd 3rd 4th
- --------------------------------------------------------------
1996
- --------------------------------------------------------------
High 9 1/8 9 10 7/8 10 1/4
Low 6 7/8 6 5/8 8 7/8 8 3/8
1995
- --------------------------------------------------------------
High 8 3/4 8 5/8 9 5/8 8 7/8
Low 6 7/8 6 7/8 7 7/8 6 1/4
- --------------------------------------------------------------
On March 5, 1997, the Company paid a special cash distribution to shareholders
of $5.39 per share which caused a comparable reduction in the market price on
March 6, 1997.
As of February 19, 1997, the Company had 837 shareholders of record.
18
<TABLE>
<CAPTION>
CONSOLIDATED STATEMENTS OF OPERATIONS PremiumWear, Inc.
Year ended Year ended Year ended
January 4, January 6, January 7,
(AMOUNTS IN THOUSANDS, EXCEPT PER SHARE DATA) 1997 1996 1995
- -----------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
REVENUES:
Net sales $49,948 $51,512 $ 37,407
Royalties 2,969 4,609 4,528
- -----------------------------------------------------------------------------------------------------------------------------
52,917 56,121 41,935
- -----------------------------------------------------------------------------------------------------------------------------
EXPENSES:
Cost of goods sold 40,402 42,714 30,029
Selling, general and administrative 11,418 13,961 12,134
Restructuring costs (Note 9) - 520 -
Gain on closing of facilities (Note 9) - - (100)
- -----------------------------------------------------------------------------------------------------------------------------
51,820 57,195 42,063
- -----------------------------------------------------------------------------------------------------------------------------
OPERATING INCOME (LOSS) 1,097 (1,074) (128)
- -----------------------------------------------------------------------------------------------------------------------------
Interest expense (771) (1,158) (353)
Interest income 247 2 57
Gain on sale of trademarks (Note 2) 10,627 - -
Other 52 - 120
- -----------------------------------------------------------------------------------------------------------------------------
Income (loss) before income taxes and extraordinary item 11,252 (2,230) (304)
Provision for income taxes 4,071 105 108
- -----------------------------------------------------------------------------------------------------------------------------
Income (loss) before extraordinary item 7,181 (2,335) (412)
Extraordinary loss from early debt extinguishment (Note 3) - - 161
- -----------------------------------------------------------------------------------------------------------------------------
NET INCOME (LOSS) $ 7,181 $(2,335) $ (573)
=============================================================================================================================
Net income (loss) per common share:
Income (loss) before extraordinary item $ 3.37 $(1.13) $ (.20)
Extraordinary item - - (.08)
- ------------------------------------------------------------------------------------------------------------------------------
NET INCOME (LOSS) PER COMMON SHARE $ 3.37 $(1.13) $ (.28)
=============================================================================================================================
Weighted average shares of common stock and common stock equivalents outstanding 2,130 2,066 2,066
=============================================================================================================================
The accompanying notes are an integral part of these financial statements.
</TABLE>
19
<TABLE>
<CAPTION>
CONSOLIDATED BALANCE SHEETS Premiumwear, Inc.
January 4, January 6,
(AMOUNTS IN THOUSANDS, EXCEPT SHARE DATA) 1997 1996
- -----------------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
ASSETS
CURRENT ASSETS:
Cash and cash equivalents $14,030 $ 62
Restricted cash 447 -
Receivables:
Trade, net of allowances of $909 and $511 3,705 8,260
Other 525 277
- -----------------------------------------------------------------------------------------------------------------------------
4,230 8,537
Inventories 9,804 14,641
Prepaid expenses 128 1,004
- -----------------------------------------------------------------------------------------------------------------------------
TOTAL CURRENT ASSETS 28,639 24,244
- -----------------------------------------------------------------------------------------------------------------------------
PROPERTY, PLANT AND EQUIPMENT:
Land 15 15
Buildings and leasehold improvements 552 568
Machinery and equipment 4,137 3,928
- -----------------------------------------------------------------------------------------------------------------------------
4,704 4,511
Less accumulated depreciation and amortization 3,087 1,584
- -----------------------------------------------------------------------------------------------------------------------------
1,617 2,927
TRADEMARKS, net of accumulated amortization of $1,274 - 4,173
DEFERRED TAXES, net of valuation allowance of $10,950 and $11,796 - 2,309
- -----------------------------------------------------------------------------------------------------------------------------
$30,256 $33,653
=============================================================================================================================
LIABILITIES AND SHAREHOLDERS' EQUITY
CURRENT LIABILITIES:
Line of credit borrowings $ - $10,890
Current maturities of long-term debt 23 21
Accounts payable 4,009 5,008
Accrued payroll and employee benefits 1,050 1,009
Unearned royalty income - 2,993
Liabilities related to sold assets 1,530 -
Other accruals 761 397
- -----------------------------------------------------------------------------------------------------------------------------
TOTAL CURRENT LIABILITIES 7,373 20,318
- -----------------------------------------------------------------------------------------------------------------------------
LONG-TERM LIABILITIES:
Long-term debt, less current maturities - 22
Postretirement benefits 701 319
Unearned royalty income - 10
- -----------------------------------------------------------------------------------------------------------------------------
TOTAL LONG-TERM LIABILITIES 701 351
- -----------------------------------------------------------------------------------------------------------------------------
COMMITMENTS AND CONTINGENCIES (Notes 6-8, 10 and 11)
SHAREHOLDERS' EQUITY:
Series A preferred stock, $100 stated value; voting, cumulative and participating
(authorized 50,000 shares, none issued)
Preferred stock, no par value (authorized 950,000 shares, none issued)
Common stock, $.01 par value (authorized 20,000,000 shares, 2,163,153 and 2,026,768 shares issued) 22 21
Additional paid-in capital 17,128 15,112
Retained earnings (deficit) 5,032 (2,149)
- -----------------------------------------------------------------------------------------------------------------------------
TOTAL SHAREHOLDERS' EQUITY 22,182 12,984
- -----------------------------------------------------------------------------------------------------------------------------
$30,256 $33,653
=============================================================================================================================
The accompanying notes are an integral part of these financial statements.
</TABLE>
20
<TABLE>
<CAPTION>
CONSOLIDATED STATEMENTS OF CASH FLOWS PREMIUMWEAR, INC.
Year ended Year ended Year ended
January 4, January 6, January 7,
(AMOUNTS IN THOUSANDS) 1997 1996 1995
- ------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
OPERATING ACTIVITIES
Net income (loss) from operations $ 7,181 $(2,335) $ (573)
Reconciling items:
Depreciation and amortization 847 782 712
Deferred taxes 3,507 - ( 69)
Provision for losses on accounts receivable 75 69 142
Gain on sale of trademarks (10,627) - -
Loss on restructuring - 193 -
Gain on closing of facilities - - (100)
Change in unearned royalty income (1,988) (356) 2,729
Changes in operating assets and liabilities:
Receivables 3,456 (3,468) (380)
Inventories 3,236 (422) (5,986)
Prepaid expenses 185 282 (254)
Accounts payable (1,129) 1,248 944
Other accrued liabilities (2,548) (87) (292)
- ------------------------------------------------------------------------------------------------------------------------------
NET CASH PROVIDED BY (USED IN) OPERATING ACTIVITIES 2,195 (4,094) (3,127)
- ------------------------------------------------------------------------------------------------------------------------------
INVESTING ACTIVITIES
Purchases of property, plant and equipment (689) (1,201) (865)
Proceeds from sale of trademarks 23,000 - -
- ------------------------------------------------------------------------------------------------------------------------------
NET CASH PROVIDED BY (USED IN) INVESTING ACTIVITIES 22,311 (1,201) (865)
- ------------------------------------------------------------------------------------------------------------------------------
FINANCING ACTIVITIES
Net change in line of credit borrowings (10,890) 5,298 3,894
Net change in restricted cash (447) - -
Principal payments on long-term debt and capital lease obligations (20) ( 14) (270)
Proceeds from exercise of stock options 819 - -
- ------------------------------------------------------------------------------------------------------------------------------
NET CASH PROVIDED BY (USED IN) FINANCING ACTIVITIES (10,538) 5,284 3,624
- ------------------------------------------------------------------------------------------------------------------------------
INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS 13,968 ( 11) (368)
Cash and cash equivalents at beginning of period 62 73 441
- ------------------------------------------------------------------------------------------------------------------------------
CASH AND CASH EQUIVALENTS AT END OF PERIOD $14,030 $ 62 $ 73
==============================================================================================================================
Supplemental disclosures of cash flow information:
Cash paid for taxes $ 390 $ 178 $ 122
==============================================================================================================================
Cash paid for interest $ 728 $1,078 $ 370
==============================================================================================================================
The accompanying notes are an integral part of these financial statements.
</TABLE>
21
<TABLE>
<CAPTION>
CONSOLIDATED STATEMENTS OF CHANGES PREMIUMWEAR, INC.
IN SHAREHOLDERS' EQUITY
(AMOUNTS IN THOUSANDS, EXCEPT SHARE DATA)
- --------------------------------------------------------------------------------------------------------------
Common Stock Additional Retained
Issued Paid-in Earnings
Shares Amount Capital (Deficit)
- --------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Balance at January 1, 1994 2,026,768 $21 $15,112 $ 759
Net loss for year - - - (573)
- --------------------------------------------------------------------------------------------------------------
Balance at January 7, 1995 2,026,768 $21 $15,112 $ 186
Net loss for year - - - (2,335)
- --------------------------------------------------------------------------------------------------------------
Balance at January 6, 1996 2,026,768 $21 $15,112 $(2,149)
Stock grant 3,500 - - -
Exercise of stock options 132,885 1 818 -
Utilization of net operating loss carryforwards - - 1,198 -
Net income for year - - - 7,181
- --------------------------------------------------------------------------------------------------------------
Balance at January 4, 1997 2,163,153 $22 $17,128 $ 5,032
==============================================================================================================
The accompanying notes are an integral part of these financial statements.
</TABLE>
22
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
1. Summary of Significant Accounting Policies
NATURE OF OPERATIONS
PremiumWear, Inc. (formerly Munsingwear, Inc.) ("the Company") designs, sources
and markets knit and woven shirts and pants bearing the Munsingwear(R) label
under license from Supreme International Corporation (See Note 2). Sales are to
the special markets industry through specialty distributors, advertising
specialty incentive dealers and to the uniforms market. Substantially all sales
are in the United States. Approximately 75% of the Company's products are
manufactured in the United States in one Company-owned facility and at several
sewing subcontractors. The remaining products are assembled in the Caribbean and
Central America or are purchased in the Far East.
PRINCIPLES OF CONSOLIDATION
The financial statements include the accounts of PremiumWear, Inc. and two
inactive foreign subsidiaries. All significant intercompany accounts and
transactions have been eliminated in consolidation.
CASH AND CASH EQUIVALENTS
The Company considers all highly liquid investments with a maturity of three
months or less when purchased to be cash equivalents. The carrying value of cash
equivalents approximates fair value. Cash and cash equivalents at January 4,
1997 includes $12,500,000 which will be paid to shareholders in a special
distribution in the first quarter of fiscal 1997.
RESTRICTED CASH
At January 4, 1997, $447,000 of cash was pledged as collateral on outstanding
letters of credit related to inventory purchases and was classified as
restricted cash on the balance sheet.
INVENTORIES
Inventories are stated at the lower of cost (first-in, first-out) or market.
Inventoriable costs include raw materials, labor and related manufacturing
overhead expenses. Inventories consist of:
January 4, January 6,
(In thousands) 1997 1996
- --------------------------------------------------------------
Raw materials $1,906 $ 1,359
Work in process 1,265 ,639
Finished goods 6,633 12,643
- --------------------------------------------------------------
$9,804 $14,641
==============================================================
PROPERTY, PLANT AND EQUIPMENT
Property, plant and equipment is stated at cost. The Company provides for
depreciation using the straight line method for financial reporting purposes and
generally uses accelerated methods for income tax purposes. Estimated useful
lives used in computing depreciation and amortization for financial reporting
purposes range from five to forty years for buildings and leasehold improvements
and from two to ten years for machinery and equipment. Assets recorded under
capital leases are amortized over the lease term.
TRADEMARKS
In 1996 the Company sold all rights to its trademarks. Prior to the sale,
trademarks were recorded at the estimated fair value established in connection
with the Company's 1991 reorganization and were being amortized over 20 years.
INCOME TAXES
The Company accounts for income taxes under the liability method. The tax
benefit associated with utilization of the net operating loss carryforwards
which survived the reorganization has been recorded as a reduction to deferred
taxes and trademarks and as a credit to additional paid-in capital. Any future
utilization of these net operating loss carryforwards will be recorded as a
credit to additional paid-in capital.
REVENUES
Net sales are recognized at the time of shipment and reserves are established
for returns and allowances at that time. In 1996 sales to one customer totaled
12% of total Company net sales; no customer accounted for greater than 10% of
the Company's total net sales in 1995; and sales to one customer were 16% in
1994. Following the 1996 sale of its trademarks the Company no longer receives
royalties, which had been recorded as earned in accordance with specific terms
of each license agreement.
NET INCOME (LOSS) PER COMMON SHARE
Net income (loss) per common share is computed by dividing the net income (loss)
by the weighted average number of shares of common stock outstanding during the
year plus the weighted average number of common stock equivalents. Common stock
equivalents consist of shares subject to stock options and are determined using
the treasury stock method. The effect of options was anti-dilutive in 1995 and
1994 and was excluded from the number of shares used to compute net loss per
common share for those years.
FISCAL YEAR
The Company's fiscal year ends on the first Saturday following December 31. The
1996, 1995 and 1994 fiscal years ended January 4, 1997, January 6, 1996, and
January 7, 1995 respectively. Fiscal 1994 had 53 weeks.
NEW ACCOUNTING PRONOUNCEMENTS
In 1996 the Company adopted Statement of Financial Accounting Standards (SFAS)
No. 121, "Accounting for Impairment of Long-Lived Assets and for Long-Lived
Assets to Be Disposed Of". This establishes accounting standards for the
recognition and measurement of impairment of long-lived assets, certain
identifiable intangibles, and goodwill either to be held or disposed of. There
was no impact on the financial position or results of operations of the Company
as a result of the adoption.
Statement of Financial Accounting Standards No. 123 (SFAS No. 123), "Accounting
for Stock-Based Compensation", requires certain disclosure and recommends
accounting treatment for employee stock-based compensation plans. The Company
has set forth its accounting practice and related disclosures in Note 6.
USE OF ESTIMATES
The preparation of financial statements in conformity with generally accepted
accounting principles requires management to make estimates and assumptions that
affect the reported amounts of assets and liabilities at the date of the
financial statements and the reported amounts of revenues and expenses during
the reporting period. Ultimate results could differ from those estimates.
RECLASSIFICATIONS
Certain amounts in the 1995 and 1994 financial statements have been reclassified
to conform to the 1996 presentation. These reclassifications had no effect on
previously reported net loss or shareholders' equity.
2. SALE OF TRADEMARKS
On June 28, 1996, the Company sold its trademarks and pending trademark
applications for certain Far Eastern countries to ITOCHU Corporation, Toyobo
Co., Ltd., and Descente, Ltd. for $5,000,000 cash, resulting in a gain before
income taxes of $4,383,000. Proceeds were used to pay down line of credit
borrowings.
On September 6, 1996, the Company sold all of its rights to its remaining
trademarks and certain associated assets relating to the retail and professional
golf businesses to Supreme International Corporation for $18,000,000 in cash,
resulting in a gain before income taxes of $6,244,000. As part of the purchase
and sale agreement the Company was required to change its corporate name. At the
September 6, 1996 Annual Meeting of Shareholders, a name change from
Munsingwear, Inc. to PremiumWear, Inc. was approved by shareholders.
3. FINANCING ARRANGEMENTS, LONG-TERM DEBT AND EXTRAORDINARY LOSS FROM EARLY DEBT
EXTINGUISHMENT
Subsequent to January 4, 1997, the Company established a long-term bank line of
credit under which up to $6,000,000 is available for borrowings and letters of
credit through February 2000. Borrowings and letters of credit are limited to an
aggregate amount equaling approximately 80% of eligible receivables and 50% of
eligible finished goods inventories ($5,086,000 at January 4, 1997). Essentially
all the assets of the Company except property, plant and
23
equipment are pledged as collateral under the agreement. Borrowings under the
facility bear interest at the bank's base rate of interest (8.25% at January 4,
1997). The agreement contains a commitment fee of .5% per annum on the unused
line of credit and also contains cross default provisions to other agreements
and other covenants which, among other matters, require maintenance of certain
financial ratios, restrict the sale of assets, and restrict consolidation or
merger of the Company with another entity. Additionally, the Company is limited
in incurring additional indebtedness and liens on assets.
A previous bank line of credit, which was paid off at the time of the September
6, 1996 trademark sale, was entered into in late 1994 and resulted in an
extraordinary loss of $161,000 from early debt extinguishment. The loss was
comprised of unamortized debt issuance costs and prepayment fees related to
another bank line of credit.
4. INCOME TAXES
The income tax provision for 1996, 1995, and 1994 consists of current taxes
payable of $195,000, $105,000, and $108,000, respectively, and resulted from
federal alternative minimum, state income, franchise and foreign taxes payable.
As of January 4, 1997, the Company had net operating loss carryforwards for
regular federal income tax purposes of approximately $20,000,000, which will
begin to expire in 2002.
Temporary differences represent differences in the recognition of assets and
liabilities for tax and financial reporting purposes. Deductible temporary
differences are comprised of financial reserves not yet deductible and unearned
royalty income. Taxable temporary differences are recorded for trademarks, if
any, and excess depreciation. The components of the net deferred tax asset were
as follows:
January 4, January 6,
(In Thousands) 1997 1996
- --------------------------------------------------------------------------------
Federal net operating loss carryforwards $ 7,270 $12,930
Tax credit carryforwards 860 500
Deductible temporary differences 3,020 2,355
Taxable temporary differences (,200) (1,680)
- --------------------------------------------------------------------------------
10,950 14,105
Valuation allowance (10,950) (11,796)
- --------------------------------------------------------------------------------
$ - $ 2,309
================================================================================
As of January 4, 1997 and January 6, 1996, a valuation allowance has been
established to reduce the deferred tax asset to estimated realizable amounts.
5. SHAREHOLDERS' EQUITY
The Company's capital structure includes 20,000,000 shares authorized for all
classes of common stock and 1,000,000 shares authorized for all classes of
preferred stock. There are restrictions with respect to the trading of common
stock to or from Five Percent Holders, as defined in the Company's 1991 Plan of
Reorganization, through October 2001 as a means of preserving the benefits of
the net operating loss carryforwards following the Company's reorganization in
1991.
As of January 4, 1997, 2,163,153 shares of common stock had been issued.
Subsequently, an additional 155,877 shares of common stock were issued upon the
exercise of stock options.
On January 27, 1997 the Company's board of directors declared a special cash
distribution of $5.39 per share, or approximately $12,500,000, payable on March
5, 1997 to shareholders of record February 19, 1997, using proceeds from the
1996 sales of trademarks.
Preferred stock has been reserved for issuance under a 1987 shareholders' rights
plan. Upon the occurrence of certain events, the shareholders' rights plan
entitles the registered holder to purchase one two-hundredth of a share of
preferred stock at a stated price or to purchase either the Company's shares or
stock in an acquiring entity at half their market value. At January 4, 1997, no
preferred stock was outstanding.
6. STOCK OPTIONS AND RESTRICTED STOCK
The Company's 1991 Stock Plan includes a provision for the granting of stock
options, which are accounted for under APB Opinion No. 25, under which no
compensation cost has been recognized. Had compensation costs for these plans
been determined consistent with FASB Statement No. 123, the Company's net income
(loss) and earnings per share would have been reduced to the following pro forma
amounts:
(IN THOUSANDS, EXCEPT PER SHARE DATA) 1996 1995
- --------------------------------------------------------------------------------
Net income (loss): As Reported $ 7,181 $(2,335)
Pro Forma $ 7,036 $(2,699)
- --------------------------------------------------------------------------------
Net income (loss) per share: As Reported $ 3.37 $ (1.13)
Pro Forma $ 3.30 $ (1.29)
================================================================================
Because the Statement 123 method of accounting has not been applied to options
granted prior to January 1, 1995, the resulting pro forma compensation cost may
not be representative of that to be expected in future years.
The fair value of each option grant is estimated on the date of grant using the
Black-Scholes option pricing model with the following weighted average
assumptions used for grants in 1996 and 1995, respectively: risk-free interest
rates of 5.84%-7.55% and 5.29%-5.94%; expected dividends per share of $0-$5 and
$0; expected lives of 1-5 years and 5 years; and expected volatility of 40%-44%
and 39%-41%.
A total of 873,500 shares of common stock was reserved under the 1991 Stock Plan
for grants to employees in the form of restricted stock awards and incentive and
non-qualified stock options. In addition, the Plan annually grants to each
non-employee director an option to purchase 1,000 shares of common stock, which
was reduced in December 1996 from the previous 5,000 shares. At January 4, 1997
there were 367,504 shares available for future grants under this Plan.
Information with respect to the 1991 Stock Plan is as follows:
Options Option Price
Outstanding Range Per Share
- --------------------------------------------------------------------------------
Balance at January 1, 1994 201,803 $5.750 - 10.875
Granted 48,500 4.750 - 7.000
Canceled (18,208) 6.125 - 9.375
- --------------------------------------------------------------------------------
Balance at January 7, 1995 232,095 4.750 - 10.875
Granted 124,500 7.500 - 7.875
Canceled (38,110) 6.125 - 9.375
- --------------------------------------------------------------------------------
Balance at January 6, 1996 318,485 4.750 - 10.875
Granted 75,000 7.500 - 10.875
Exercised (132,885) 4.750 - 9.375
Canceled (4,800) 7.875 - 9.625
- --------------------------------------------------------------------------------
Balance at January 4, 1997 255,800 $5.625 - 10.875
================================================================================
The 1991 Stock Plan includes a provision allowing the acceleration of vesting of
options upon the occurrence of certain events. The September 6, 1996 sale of
trademarks was deemed by the Company's board of directors to be such an event
and all outstanding options as of that date became vested. At January 4, 1997,
all 255,800 outstanding options under the Plan were exercisable.
Subsequent to fiscal 1996 year end, 195,800 options at prices per share ranging
from $5.625 to $7.875 were exercised, of which 54,923 were surrendered in
cashless exercise transactions.
In 1996 and 1995, under another agreement, options to purchase 10,000 and 5,000
shares of common stock, respectively, at a price of $7.50 per share were granted
to a non-employee director. All 15,000 options were exercised subsequent to
fiscal 1996 year end.
7. RETIREMENT PLAN
The Company has a 401(k) profit sharing plan covering all employees. In July
1994 the Company amended the plan to match one-half of the employee's first five
percent contribution. Expense under this plan, including profit sharing and
Company match, totaled $216,000, $73,000 and $66,000 for 1996, 1995 and 1994,
respectively.
24
8. POSTRETIREMENT MEDICAL AND LIFE INSURANCE PLANS
The Company has unfunded plans providing certain medical and life insurance
benefits to specific retiree groups. Future retirees are not covered by these
plans. The Company accounts for these plans under the accrual method of
accounting. The net periodic benefit cost for the past three years included the
following components:
(IN THOUSANDS) 1996 1995 1994
- --------------------------------------------------------------------------------
Interest cost on accumulated
postretirement benefit obligation $59 $54 $64
Net amortization and deferral 38 23 33
- --------------------------------------------------------------------------------
$97 $77 $97
================================================================================
A 9% increase in the cost of covered medical benefits was assumed for 1996. This
rate is assumed to decrease incrementally to 5.5% after 8 years and remain at
that level thereafter. The discount rate used in determining the accumulated
benefit obligation was 7.5% for 1996 and 1995. The accrued postretirement
benefit obligation is summarized as follows:
January 4, January 6,
(IN THOUSANDS) 1997 1996
- --------------------------------------------------------------------------------
Accumulated postretirement benefit obligation $792 $730
Unrecognized actuarial loss (10) (327)
- --------------------------------------------------------------------------------
Accrued postretirement benefit obligation 782 403
Less current payable 81 84
- --------------------------------------------------------------------------------
$701 $319
================================================================================
9. RESTRUCTURING COSTS AND CLOSING OF FACILITIES
During 1995 the Company developed a restructuring plan which eliminated certain
functions to achieve cost efficiencies and provided $520,000 to cover severance
and other costs. As of January 4, 1997, all such costs had been paid.
In 1994 the Company completed the closing of its Hong Kong sourcing office and
its subsidiary operations in the United Kingdom at a cost of $350,000.
10. LEASES
The Company is party to certain operating lease agreements covering office space
and equipment through 1999. Minimum future obligations on operating leases in
effect that have initial or remaining noncancelable lease terms in excess of one
year as of January 4, 1997 are as follows:
(IN THOUSANDS)
- ----------------------------------------------------------------
1997 $233
1998 94
1999 10
- ----------------------------------------------------------------
$337
================================================================
Total rent expense under operating leases was $655,000, $821,000 and $722,000
for 1996, 1995 and 1994, respectively.
11. LICENSE AGREEMENT
The Company is obligated under a license agreement for certain products to make
future minimum payments as follows:
(IN THOUSANDS)
- ----------------------------------------------------------------
1997 $21
1998 58
1999 66
2000 76
2001 58
- ----------------------------------------------------------------
$279
================================================================
In addition to the above minimum obligation, the agreement includes an
obligation to pay license fees through 2001 on the sales of certain other
products when such sales reach specified annual amounts. After 2001, license
fees will be payable on all sales of such products. In 1996 sales did not reach
the specified annual amount and management estimates the annual threshold will
not be met until 1998 at which time license fees would become payable on all
sales.
12. UNAUDITED SELECTED PRO FORMA FINANCIAL DATA
The following table summarizes certain selected unaudited quarterly pro forma
financial data for PremiumWear, Inc. special markets business. The following pro
forma financial data is presented for informational purposes only and is not
necessarily indicative of the results of the future operations of the remaining
business or the actual results that would have been achieved had the sale of
trademarks and exit from the retail and professional golf businesses been
consummated prior to 1995.
(IN THOUSANDS, EXCEPT GROSS MARGIN %) Special Markets
- --------------------------------------------------------------------------------
Cost of Gross
Net sales goods sold margin %
- --------------------------------------------------------------------------------
1996: First $ 5,387 $ 4,120 23.5%
Second 6,898 5,205 24.5%
Third 7,718 5,951 22.9%
Fourth 6,973 5,337 23.5%
- --------------------------------------------------------------------------------
$26,976 $20,613 23.6%
================================================================================
1995: First $ 2,486 $1,960 21.2%
Second 4,295 3,223 25.0%
Third 4,935 3,702 25.0%
Fourth 3,645 2,725 25.2%
- --------------------------------------------------------------------------------
$15,361 $11,610 24.4%
================================================================================
The pro forma financial data excludes any allocation of selling, general and
administrative expenses since management believes that any allocation would be
entirely subjective in nature and not necessarily indicative of the performance
of the remaining business.
13. QUARTERLY FINANCIAL DATA (UNAUDITED)
The following is a condensed summary of actual quarterly results for 1996 and
1995.
(IN THOUSANDS, EXCEPT PER SHARE DATA)
- --------------------------------------------------------------------------------
Net Income
Operating Net (loss) per
income income common
Revenues (loss) (loss) share
- --------------------------------------------------------------------------------
1996: First $15,840 $ 386 $ 12 $ .01
Second 19,146 721 3,075 1.47
Third 10,886 (97) 4,025 1 .86
Fourth 7,045 87 69 .03
- --------------------------------------------------------------------------------
$52,917 $1,097 $ 7,181 $ 3.37
================================================================================
1995: First $15,923 $ 725 $ 288 $ .14
Second 16,269 766 268 .13
Third 11,042 (547) (568) (.27)
Fourth 12,887 (2,018) (2,323) (1.13)
- --------------------------------------------------------------------------------
$56,121 $(1,074) $(2,335) $(1.13)
================================================================================
25
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
To PremiumWear, Inc.:
We have audited the accompanying consolidated balance sheets of PremiumWear,
Inc. (a Delaware corporation and formerly Munsingwear, Inc.) and subsidiaries as
of January 4, 1997 and January 6, 1996, and the related consolidated statements
of operations, cash flows and changes in shareholders' equity for each of the
three fiscal years in the period ended January 4, 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 financial statements referred to above present fairly, in
all material respects, the financial position of PremiumWear, Inc. and
subsidiaries as of January 4, 1997 and January 6, 1996 and the results of their
operations and their cash flows for each of the three fiscal years in the period
ended January 4, 1997 in conformity with generally accepted accounting
principles.
ARTHUR ANDERSEN LLP
Minneapolis, Minnesota
February 19, 1997
FIVE YEAR FINANCIAL REVIEW
<TABLE>
<CAPTION>
(DOLLAR AMOUNTS IN THOUSANDS) 1996 1995 1994 1993 1992
- --------------------------------------------------------------------------------------------------------------------------------
FOR THE YEAR
- --------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Net sales $ 49,948 $ 51,512 $ 37,407 $ 37,635 $ 37,867
Royalty income 2,969 4,609 4,528 3,624 1,977
Cost of sales 40,402 42,714 30,029 28,783 26,832
Gross profit % 19.1 17.1 19.7 23.5 29.1
Interest expense 771 1,158 353 286 400
Income (loss) before income taxes and extraordinary item 11,252 (2,230) (304) (203) 2,091
Net income (loss) 7,181 (2,335) (573) (342) 1,241
Purchases of property, plant and equipment 689 1,201 865 490 449
Depreciation and amortization 847 782 712 873 729
AS OF THE END OF THE YEAR
- --------------------------------------------------------------------------------------------------------------------------------
Total assets $ 30,256 $ 33,653 $ 29,738 $ 23,406 $ 22,929
Current assets 28,639 24,244 20,716 14,606 13,646
Current liabilities 7,373 20,318 13,869 5,045 5,538
Working capital 21,266 3,926 6,847 9,561 8,108
Current ratio 3.9 1.2 1.5 2.9 2.5
Long-term debt - 22 38 57 331
Common shareholders' equity(1) 22,182 12,984 15,319 15,892 16,101
Number of employees 312 343 348 374 375
=================================================================================================================================
</TABLE>
(1)No dividends were declared or paid for the years listed.
26
BOARD OF DIRECTORS
C. D. Anderson(1)
GENERAL PARTNER
PLANTAGENET CAPITAL MANAGEMENT, INC., SAN FRANCISCO
Keith A. Benson(1),(2)
PRESIDENT, MALL STORES DIVISION
MUSICLAND STORES CORPORATION, MINNEAPOLIS
Thomas D. Gleason(3)
CHAIRMAN OF THE BOARD AND CHIEF EXECUTIVE OFFICER
Gerald E. Magnuson(1),(2)
OF COUNSEL TO LINDQUIST & VENNUM PLLP
MINNEAPOLIS
Kevin S. Moore(3)
SENIOR VICE PRESIDENT
THE CLARK ESTATES, INC., NEW YORK CITY
William J. Morgan(3)
PRESIDENT AND MANAGING DIRECTOR
PACHOLDER ASSOCIATES, INC., CINCINNATI
Michael A. Raskin(2)
PRIVATE BUSINESS ADVISOR
Mark B. Vittert(2)
PRIVATE INVESTOR
(1)Member of Audit Committee
(2)Member of Compensation Committee
(3)Member of Governance Committee
OFFICERS
Thomas D. Gleason
CHAIRMAN OF THE BOARD AND CHIEF EXECUTIVE OFFICER
David E. Berg
EXECUTIVE VICE PRESIDENT AND CHIEF OPERATING OFFICER
James S. Bury
VICE PRESIDENT OF FINANCE AND ASSISTANT SECRETARY
Cynthia L. Boeddeker
VICE PRESIDENT AND GENERAL MERCHANDISE MANAGER
Billy E. Smith
VICE PRESIDENT OF MANUFACTURING
John R. Houston
PARTNER IN THE LAW FIRM OF LINDQUIST & VENNUM PLLP
SECRETARY
CORPORATION INFORMATION
CORPORATION INFORMATION
ANNUAL MEETING
The Annual Meeting of Shareholders will be held Wednesday,
May 14, 1997, at 11:00 a.m. CDT at the Radisson Hotel South
7800 Normandale Boulevard
Bloomington, MN 55439-3145
FORM 10-K
Copies of Form 10-K annual report, filed with the Securities and Exchange
Commission, are available without charge upon written request to Shareholder
Relations, PremiumWear, Inc., 8000 West 78th Street, Suite 400, Minneapolis, MN
55439
TRANSFER AGENT AND REGISTRAR OF COMMON STOCK
Norwest Bank Minnesota, N.A.
Stock Transfer Department
P.O. Box 738
So. St. Paul, MN 55075-0738
(612) 450-4064 / (800) 468-9716
PremiumWear Stock
PremiumWear Stock is listed on the New York Stock Exchange. Symbol PWA
PREMIUMWEAR BY PHONE AND INTERNET
Company News On Call (through PR Newswire):
1-800-758-5804 (Code #589750)
Internet address: http://www.prnewswire.com
LEGAL COUNSEL
Lindquist & Vennum PLLP
Minneapolis, Minnesota
INDEPENDENT PUBLIC ACCOUNTANTS
Arthur Andersen LLP
Minneapolis, Minnesota
FACILITIES
CORPORATE HEADQUARTERS
8000 West 78th Street
Minneapolis, MN 55439
MANUFACTURING AND DISTRIBUTION
Fairmont, North Carolina
27
[PHOTO]
PREMIUMWEAR, INC.
Corporate Headquarters
8000 West 78th Street
Minneapolis, MN 55439
28
(C) 1997 PremiumWear, Inc.
EXHIBIT 21
PREMIUMWEAR, INC. and SUBSIDIARIES
Subsidiaries of the Registrant
State of Jurisdiction
of Incorporation
----------------------
Munsingwear UK Limited (inactive) United Kingdom
Munsingwear Canada Limited (inactive) Canada
EXHIBIT 23
CONSENT OF INDEPENDENT PUBLIC ACCOUNTANTS
As independent public accountants, we hereby consent to the incorporation of our
reports, included in this Form 10-K, into the Company's previously filed
Registration Statement File No. 33-83386.
ARTHUR ANDERSEN LLP
Minneapolis, Minnesota
April 3, 1997
<TABLE> <S> <C>
<ARTICLE> 5
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> JAN-04-1997
<PERIOD-END> JAN-04-1997
<CASH> 14,477
<SECURITIES> 0
<RECEIVABLES> 4,230
<ALLOWANCES> 909
<INVENTORY> 9,804
<CURRENT-ASSETS> 28,639
<PP&E> 4,704
<DEPRECIATION> 3,087
<TOTAL-ASSETS> 30,256
<CURRENT-LIABILITIES> 20,318
<BONDS> 0
0
0
<COMMON> 23
<OTHER-SE> 22,160
<TOTAL-LIABILITY-AND-EQUITY> 30,256
<SALES> 49,948
<TOTAL-REVENUES> 52,917
<CGS> 40,644
<TOTAL-COSTS> 40,402
<OTHER-EXPENSES> 11,418
<LOSS-PROVISION> 75
<INTEREST-EXPENSE> 771
<INCOME-PRETAX> 11,252
<INCOME-TAX> (4,071)
<INCOME-CONTINUING> 7,181
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 7,181
<EPS-PRIMARY> ($3.37)
<EPS-DILUTED> ($3.35)
</TABLE>
